When I set out my prejudices about energy price in my blog on 11th August …There’s a war on (desmondswaynemp.com) , I made it clear that whilst Ukraine is in a lethal war with Russia, we are in an economic war. Whilst Ukraine must put up with death and destruction and economic hardship, we have only to put up with the economic hardship.
As energy prices rise exponentially, of course, the Government will have to come forward with more schemes to assist the most vulnerable. The war however, demands a sacrifice from us in terms of significantly reducing our energy consumption. It will be painful, but the notion that we can carry on consuming and expect the Government to borrow the money to pay our bills is the economics of the madhouse.
Recently constituents have emailed make their own suggestions to me. Here are three:
“The Government should ‘freeze’ energy prices”. This is a bit like King Canute trying to stop the tide coming in. If we froze prices consumers would be paying £30 billion in total for energy, but the energy suppliers would be buying it on international markets at twice that amount. They wouldn’t last very long. We’ve already had to pick up the bill for all those that went bust because they were paying more for it than the capped price consumers were paying last year.
Another suggestion is that we nationalise the supply companies. Nationalisation changes the ownership from shareholders to taxpayers. It does nothing to alter the price they will be charged for the energy and the price at which they sell it. The economics won’t have altered even if the ownership has. All we would have done is saddled ourselves with the cost of nationalisation and the ownership of the companies as they become bankrupt.
Whilst the costs of extracting oil and gas have risen with general inflationary pressures, the price at which they sell these commodities has risen very much faster. The suggestion is that it is only fair to have a windfall tax on their profits where they operate within our jurisdiction. I’ve already set out my objections to this policy in my blog of 24 March Windfall (desmondswaynemp.com) and 4 April Energy Bills (desmondswaynemp.com). It is a short-sighted policy that jeopardises vital investment in internationally competitive markets.
Third, The Government could reduce its own contributions to our energy bills – VAT and green levies. It could indeed, but this reduction in tax revenue will increase government borrowing, so we will only be deferring the bill at a time when out debt is already alarmingly high and interest rates are rising.
So, in the end it comes back to this: Hard times. Hard, because we chose to confront Putin’s aggression with economic warfare, but have we the true grit to see it through?