Economic forecasting was created, J.K. Galbraith said, to make astrology look respectable. It is not difficult to imagine what the great Keynesian economist would have thought of Rachel Reeves’s Spring Statement this week. It was pure -crystal balls.
The statement was redundant on delivery – redundancy being one of the few areas of growth in our economy, as the bleak unemployment figures amply attest. The developing conflict in the Middle East, which has unleashed precipitous oil and gas price rises, has rendered the Chancellor’s promises of future growth more unlikely than ever.
She may not have been able to predict that Donald Trump would unleash Operation Epic Fury just days before her Commons appearance, but she could, at the very least, have tempered her political rhetoric on Tuesday with some economic prudence. Or used this moment to bring back sanity to something the government can control – its own energy policy.
UK gas prices have doubled since the US-Israeli operation in Iran. Fossil fuels remain the indispensable ingredient for growth, yet our government continues with its quasi-religious commitment to forgoing the energy riches under our feet and beneath our seas.
Ed Miliband, a long-term ally of Rachel Reeves, has banned all new oil and gas exploration in the North Sea. The Energy Secretary’s fatwa against fossil fuels owes more to fundamentalism than any rational assessment of our national interest. The name of his department puts ‘energy security’ ahead of ‘net zero’, yet in his pursuit of the latter he has sabotaged the former.
Last year, for the first time since the 1960s, not a single new exploratory oil or gas well was drilled in the British sector of the North Sea. Yet, across the maritime border, -Norway continues to exploit its resources to the full. Our Scandinavian neighbour extracted some £50 billion in oil and gas last year – enough to pay for the Royal Navy five times over.
Even Miliband accepts that oil and gas will be an important part of the UK energy mix for a long time to come. His wildly optimistic plan to decarbonise the National Grid by 2030 still relies, even in the most utopian scenario, on 5 per cent of power coming from gas. His hope that Britain can be liberated from reliance on fossil fuels by renewable energy depends nonetheless on a huge fossil fuel buffer.
The fatwa against fossil fuels owes more to fundamentalism than any assessment of our national interest
A fleet of new gas power stations will have to be on standby for when the wind doesn’t blow and the sun doesn’t shine. But, thanks to Miliband, it won’t be domestic production that meets this demand. The gas will come from Norway, the US (which has unapologetically exploited its shale gas reserves) and Qatar. In fact, the government’s figures project that North Sea fossil fuel use will more than halve over the next decade, while gas from Qatar will increase.
Qatar has ceased production of liquefied natural gas (LNG) after Iranian drone attacks on its facilities and the regime’s threats to fire on any ships transporting LNG via the Strait of Hormuz. Surely now is the time to reassess the government’s energy strategy?
It is the contention of Miliband and other devotees of rigid net zero targets that trying to achieve energy security by developing our own fossil fuel industry is futile. They argue that in a global marketplace, energy consumers will always have to pay the global price, irrespective of domestic production. It is true that crude oil prices are set globally, but the same is not true of gas. Gas is less easy to transport, so its price varies regionally.
The easy availability of shale gas in the US is the principal reason that Americans pay only a third as much for their energy as British consumers. The development of LNG has made it easier to transport gas around the world, but it still comes at a price, both financial and environmental; the energy needed for liquefaction and regasification consumes a tenth of the fuel itself.
Nor does Britain have much in the way of gas storage. Even with the reopened Rough facility beneath the North Sea, we only have capacity to store 20 days’ worth of gas, compared with over 100 days for France and Germany and almost 200 days for the Netherlands. We are uniquely exposed to disruptions in supply.
If Britain were really prioritising energy security, we would be drilling in the North Sea, pursuing fracking and keeping a strategic supply of coal for emergencies. The latter may be dirty, but it is the easiest fuel to store, as we found out 40 years ago when a strategic stockpile of coal kept the lights on through an 11-month miners’ strike. Just look at what energy-hungry China is doing. In 2024 it began construction on an estimated 95GW of new coal capacity – roughly nine times the average electricity consumption of all Britain’s households.
There is a limit to what the UK can achieve in the Middle East, not least given our shrunken military and diminished diplomatic leverage. The one thing the government can do is insulate our citizens and our economy from geopolitical uncertainty. But instead of putting Britain first, Miliband is elevating his outdated ideology above all our interests. Rather than decommissioning oil and gas production, the Prime Minister should decommission Ed Miliband.
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