Liz Truss’s greatest fiscal sin was her Energy Price Guarantee. True, markets didn’t like her tax cuts unmatched by spending cuts, and a Budget which froze out the Office for Budget Responsibility. But they hated an open-ended commitment to subsidise energy prices, which the government estimated would cost £25 billion in the first six months alone.
The Labour party has become a misnomer. It is now firmly the benefits party
But trust Ed Miliband to come up with a scheme which is even worse. The Energy Security and Net Zero Secretary has rightly rejected a revival of the Energy Price Guarantee on the grounds of cost – and is looking instead to bail out poorer households by forgiving the debts they owe to energy companies. He is considering expanding a scheme which would write off the debts of 195,000 households built up in the 2022 energy crisis – the £500 million cost of which will be paid by energy customers who do pay their bills. In Miliband’s world debt forgiveness would become a semi-permanent part of the infrastructure of the energy market, revived whenever prices got a bit high.
It isn’t hard to see the consequences of this. Who would want to pay their bill knowing that if they wait they will likely have to pay nothing? Far better to spend what money you have on your Sky TV bill, knowing that even this government probably won’t pay that one for you.
The Labour party has become a misnomer. It is now firmly the benefits party. If you have a low enough income to qualify for one benefit, all kinds of perks will be presented to you on a plate, to the point at which perversely you become better off than had you not qualified for any benefits in the first place.
That this presents a slight problem with incentives is well known by the government. Keir Starmer, Rachel Reeves, West Streeting, Pat McFadden and others came into government making bold statements that a life of idleness would no longer be an option, but in the event they have been too feeble to counter the animal instincts of the party’s backbenchers, who refuse to tolerate any policy which they see as taking money away from the poor.
Miliband’s latest brainwave is a way of avoiding the obvious: that he needs to rethink net zero policies which are pushing up energy prices for everyone. He continues to parrot his belief that large investments in wind and solar are saving us money in spite of pretty clear evidence to the contrary.
In 2024, in the UK, where 35 percent of electricity is generated by renewables, customers paid an average of 30.45 pence per kilowatt-hour for their power, while in the US, where 17.2 per cent of electricity comes from renewables, customers paid the equivalent of 12.86 pence. There is a wider correlation between the proportion of renewables in an energy system and consumer prices, with low-renewables countries like Canada, South Korea and Japan all enjoying low prices and high renewables countries like Germany and Denmark paying the highest prices. Renewables might have a low marginal cost, but it is the system costs – backup and storage – which drive up prices.
If we could get energy prices anywhere close to US levels there would be no need for subsidies, debt forgiveness or any other help. We could simply have a market. But that is far too revolutionary a concept for this government.
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