There is much speculation at the time that I write this blog about the events of the coming day as they relate to changes in the energy price cap, and the consequences that this will have.
It is thought likely that the energy regulator, Ofgem, will increase the energy price cap by about £650 per annum. The inevitable consequence is that millions of UK households will move into the energy poverty trap, where they are simply unable to afford the basics of living and their energy bills. Astonishingly, even our government is aware of that.
At the same time as this is happening it is likely that the Bank of England will double its base rate of interest to 0.5%, with an inevitable increase in cost for some of the households severely impacted by the increase in energy costs.
It is extraordinarily hard to imagine an economic policy that permits a cost increase to tackle the impact of other cost increases, but that is one of the things that we will see today. The failure of monetary policy to have any meaningful role inside economic management becomes more apparent by the day, but the Bank of England will be pursuing it anyway. What this says is that the time for Bank of England independence to be brought to an end is long overdue.
The more immediate crisis is, however, how to tackle the additional cost that so many families will face. By far the most effective, and obvious, answer to this is to increase the payment of universal credit and to extend the scope to include those additional families that will now be challenged by this increase. This is by far the most targeted intervention that the government can make, and for that reason it is the best.
Unfortunately, we also know that the government cut this benefit only a few months ago by £20 a week. The chance that they will now restore it is, therefore, low. As a consequence, the best course of action that it can take will, politically, be unavailable to them because they will be far too proud to admit their mistake.
As a result, we will get some form of hotch-potch of measures to address this crisis, all of which will be cumbersome to implement, none of which will be certain to reach their target, and many of which will be poorly targeted by providing benefit to those who do not need it. At a time when we need coherent thinking that is the last thing that we are likely to get. This shambolic government will continue to impose misery on many as a result.
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What did they expect after giving the British wealth creating manufacturing sector in Communist China?
CBI warning Britain ‘caught in a trap’ of high taxes and weak growth
https://www.telegraph.co.uk/business/2022/02/03/britain-caught-trap-high-taxes-weak-growth-warns-cbi/
VIDEO..Donald Trump: “I’ll take jobs back from China, Mexico”
https://www.youtube.com/watch?v=fpNmT5UwTME
The Bank of England is independent now?
Supposedly
I want to end the sham
Apologies if I sound like a broken record.
The problem with the UK (& in the EU) is that at least for electricity markets, the way prices are arrived at both for wholesale and by extension retail are all wrong. Marginal pricing, the system currently in use, guarantees that electricity is priced at its maximum. If it was priced using basket-pricing then wholesale would be less than half current values with a subsequent knock-on effect to retail. There is also a related issue of windfall profits which is covered in this article published in Euractiv yesterday. It would seem to have hit a raw nerve with respect to some EU institutions.
https://www.euractiv.com/section/electricity/opinion/high-electricity-prices-renewables-and-windfall-profits-all-paid-for-by-eu-citizens/
Putting this further into perspective, I have a project in the UK, where the blended price of electricity from local renewables will come out at around 8pence/kWh. Throw in a few odds and ends and we are confident of a sub-10pence price. Although such a project is difficult to implement in places such as London, B’ham etc, it is simple to achieve in many many locations that are rural or semi-rural/urban. Obviously such projects disintermediate large energy companies – which is why I sometimes feel a bit like Sisyphus – but we will get there in the end. In an island as rich in renewable resources as the UK, there is little reason that energy costs need be high. (& our project also makes gas – hydrogen – at a price close to the “normal” retail price of natural gas in circa end 2020). little to dislike, much to like.
I wish the world took notice of you Mike
Why don’t you write this for the Guardian?
Ok. Do you have contacts? I used to know the G’s journo’ in Bx but he has since departed. It would be easy for me to do an article focused on the UK, with prices and examples of how things would look under basket pricing.
In response to Pilgrim, Enron could be thought of as just taking advantage of the “marginal pricing model” – which has been around for a very long time. That said, back in the nationalised days, the price of elec was based on……….indeed, basket pricing. CEGB knew the cost inputs for each station and thus the cost output – merit order was based on the basket cost of a MWh. Easy & simple.
Mike
No, to be honest
Best to mail environment correspondents I suggest
Richard
I agree with Richard. Your perspective is too important to be lost. And, best of all, as I understand it, it is correct. What more could the G want?
When you say ‘marginal pricing’ it makes it sound as though dearly departed Enron set it up (that were not only supplying but trading supply as well) – unless we are just copying their model?
If that’s the case, that is outrageous. People need to know this (whether I’m right or wrong about the Enron question) and I’d have a crack at the Guardian too if I were you Mike. You need a bigger outlet for your keen observations – as Richard has acknowledged by going on Twitter.
‘Don’t be shy’ is all I can advise.
@Mike Parr
If you want to do a draft copy on ProgressivePulse whilst waiting for Guardian approval I’d certainly welcome it!
Rather than handout tax reliefs or income boosts to the feckless wastrels/unemployed/vulnerable/working poor I suggest additional funding for energy companies. Something GDP based, like defence spending, 5% would seem fair. I can’t see a reason why energy speculators shouldn’t be included either. The trickle down effect would be far more controlled and effective than simply handing out money to struggling families. What we wouldn’t want is increased investment in renewable energy sources and serious progress towards an energy self-sufficient Britain, the state bung would need to specifically prohibit its use for investment.
I may have got this arse about face of course………………….
I realised that half way through…..
On a practical level, only an electoral shock will produce policy change and I remain pessimistic that the May local elections will deliver that. Only widespread anger would make me wrong and an insipid Opposition simply means the anger level must be higher than logic dictates. Have we passed the threshold for mass abstentions to become a positive demand for change? Of course, I accept fundamental policy change can never occur under a Tory government, but some policy shifts to alleviate some suffering might be attainable. The suffering is already great and is due to be magnified many fold, so humanity dictates we must also clutch whatever straws are in the wind.