-
Britain’s disastrous energy crisis
-
The rising price of oil, gas and electricity has fuelled the cost-of-living crisis triggered by Russia’s invasion of Ukraine across Europe.
Britain’s economy is facing an unprecedented crisis in response to rising fuel costs. But Boris Johnson’s Conservative government has been criticised for its lack of support for households who cannot pay their energy bills. Nadhim Zawahi, the chancellor of the exchequer, suggested last Friday that Brits must reduce their consumption of energy. But he ignored the shocking warning that many poor, elderly or disabled people might die because they couldn’t afford to heat their homes.
The same day Zahawi made his recommendation, Ofgem, Britain’s energy industry regulator, confirmed an 80% rise in the consumer price cap, which is the maximum amount that suppliers can charge households per unit of energy, from October. That will take a typical household’s gas and electricity bill to £3,549 a year. And there were many stark warnings about its potentially devastating effects.
The rising price of oil, gas and electricity has fuelled the cost-of-living crisis triggered by Russia’s invasion of Ukraine across Europe. It is not market-driven. But the UK government has performed badly compared to other western and European governments. Energy-price inflation in Britain stands at 57% compared with 42% in the euro area, according to the OECD.
Spain, Italy, France and Germany have done far more than the UK. The Bank of England warned recently that overall inflation may reach 13% before the end of the year. It is also predicting that a recession is likely and households will suffer from their biggest drop in living standards for decades.
Yet there is another factor: Johnson was finally forced to resign in early July because of the Partygate scandals that blackened his already dubious reputation. Currently Boris is the “caretaker” prime minister, and Liz Truss, the foreign secretary, and Rishi Sunak, the former chancellor, are competing to replace him.
Both candidates have pledged more direct support for households struggling with surging gas and electricity bills. But neither have given much detail on what they plan to do ahead of a new party leader - and prime minister - being announced on 5 September.
Truss or Sunak will then move into 10 Downing Street. The energy problem is fuelling the overall cost-of-living crisis in Britain. Truss is the favourite to replace Boris, though Sunak has more economic credibility than his rival. The opposition Labour Party has accused Truss and Sunak of having "almost nothing to say" about the huge spike in energy cost.
Even the right-wing pro-Tory Spectator magazine criticised both candidates in last week’s editorial: “The leadership contest has been more of a holiday from reality than a preparation for office,” it wrote. “Perhaps both Truss and Sunak do have radical, credible and far-reaching ideas on how to rejuvenate Britain. If so, it is frustrating that they have not shared them during the long campaign.”
The UK must find an answer to soaring energy bills soon or risk a humanitarian crisis. But freezing gas and electricity prices over the next two winters could cost the government over £100 billion ($118 billion), more than it spent paying millions of people's salaries during the Covid pandemic.
Earlier this year, the government tried to protect households against 90% of the expected increases in energy bills through tax cuts, energy bill rebates and direct payments. But natural gas and power prices have shot up since then, as have forecasts of future increases.
Ofgem’s energy price cap is bad news. But some predictions have that number at £550 per month by next April - closer to the average cost of a mortgage - as wholesale gas prices have surged yet higher in recent days. For an average household on £31,000 income per year, energy costs are set to exceed income tax bills.
Or alternatively, the energy rise since last year is the equivalent of adding 15p to 20p to the basic rate of tax. It will drain the disposable income of several million households. And Zahawi caused shock and horror when over the weekend he predicted that people with an income of £45,000 would require government support.
Keir Starmer, the Labour party leader, has called for a windfall tax on energy companies, which have benefitted from enormous profits. Starmer has said families would "not pay a penny more" on their energy bills this winter under Labour's plans to tackle rising living costs. He claimed his proposals would save the average household £1,000.
The package would be paid for, in part, by a big increase in tax on oil and gas company profits. But opponents of a windfall tax argue that it would decrease investment in cleaner energy, which is vital to protect Britain and the world from global warming.
And both contenders to replace Johnson have indicated they are not keen on extending the windfall tax on oil and gas companies - or freezing the price cap - meaning its unlikely to happen unless they have a change of heart.
Whoever becomes prime minister will be faced with difficult and ominous decisions from day one in Downing Street. It seems certain that this summer of discontent is going to be followed by a more challenging autumn and winter.
BY: IAN BLACK
