In addition to the desperate emails I’m receiving from the retail and hospitality sectors about the hike in their business rates, I’m also receiving them from enterprises for whom the rising cost of electricity now poses an existential threat.
The Government promised to reduce our electricity bills, indeed it says it has already done so. I confess that I hadn’t noticed any reduction in my own bill.
I often wonder if one part of the department of Energy and Net Zero is unaware of what another part of it is up to, because even as ministers insist they are acting to cut bills, the department is acting to put them up.
Here is a case in point. Last week I chaired a legislative committee to amend the UK emissions trading scheme, This scheme was established in 2020 as part of our commitment under the Climate Change Act 2008, to reduce carbon emissions towards the net zero goal.
Under this scheme, enterprises buy allowances at regularly held auctions, to generate emissions and are required to monitor and report their greenhouse gas emissions. This system is, in effect, a carbon tax on producers, raising revenue for the Treasury.
Some producers, in sectors subject to fierce overseas competition, and consequently at risk of ‘carbon leakage’ , are given a number of allowances free of charge.
Carbon leakage is a euphemism for forcing the businesses to go bust or go overseas where energy prices are much lower. In which case, we would end up importing the products, so there won’t be fewer emissions being generated, they would just be generated elsewhere.
The principal industries who need these free allocations are the big energy consumers; manufacturers of chemicals, cement, steel, gas power stations, oil refineries, food manufacturers and similar operations.
The purpose of the legislative order that we were debating was to reduce the number of free carbon allowances available, the aim being to put pressure on industry to invest in new technology so they can make their products without generating so much carbon.
The legislation came with helpful explanatory notes including an impact assessment. These state that whilst the effect will be to put substantial extra direct costs on to business,
“our working assumption is that all costs are incurred to business, with no indirect impacts to households.”
But then in the very next paragraph it says the very opposite:
“we estimate that cost-pass through for most sectors could feasibly be at 80-90%”.
‘Cost pass-through’ in plain language means higher prices for consumers and higher electricity bills.
We all know which of these statements is the correct one. Clearly, squeezing producers with a higher carbon tax will prompt them to pass as much of it as they can on to the consumers, by charging higher prices.
About 12% of our electricity bills is accounted for by the carbon tax, that’s about £100 on a typical household bill. This measure is going to force it up, and consequently lots of other prices are going to go up with it.
The Prime Minister says he now wants to concentrate on the cost of living. He is going to have to concentrate a lot harder: he will need start by finding out what his government is actually doing, including in statutory orders like this one.