I have posted this thread on Twitter this morning:
At long last Keir Starmer has said what he wants done about the cost of living crisis. He has demanded that household energy costs be capped at £1,971, as they are now and that planned increases to £4,200 be cancelled. But is this the right idea? A thread…..
Starmer's plan is simple. It leaves us where we are now. The cost of keeping energy bills where they are now would be £53 billion a year, in my estimation, assuming all households enjoyed the benefit.
However, the world is not simple, and there are serious consequences of trying to fix energy costs at current levels.
First, many households, most but not all of whom will already be on universal credit or a pension will be struggling with current energy prices. They are already in fuel poverty. Starmer's plan does not solve that issue.
Second, fixing the price at this level provides a massive subsidy to better off households. My calculations suggest more than 60% of UK households will need serious support with energy bills to prevent fuel poverty.
However, Starmer will subsidise the best off 20% of households by more than £10 billion when they will definitely not be in fuel poverty, even with the price rise. Is that really the best use of money?
Starmer's plan has a direct consequence. Every household energy supplier in the UK would go bust, overnight. Whilst oil and gas companies are massively boosting profits at present the domestic energy distribution companies we buy from aren't.
These companies buy energy in a wholesale market and if they are told to sell at a price well below that wholesale price then they will fail. Starmer faces two problems as a result.
First, he will need to work out whether it is legal to impose losses of this magnitude on companies. I suspect that at present it is not. Second, he will face massive claims for compensation from these companies that will enormously increase the costs of this scheme.
Then there is another problem. Starmer has only come up with a plan for households, and one that does not help those households most in need, so far. But there is also nothing to help public services and business in this package.
Schools, hospitals and care homes all face massive energy bill increases this winter, big enough to wipe out some services, and probably close most care homes. There is no point having a plan for homes if the economy collapses around them.
As for business, if their prices go up to compensate for falling household prices, that will just make the recession we are in so much worse. Joblessness is going to hit horrid levels and this cap does not solve that.
In summary, Starmer's plan may not be legal. The cost is high, and given that energy companies will likely demand compensation, currently uncosted. The plan appears untargeted: wealthy households gain and the poorest do not get the help they very badly need.
And the plan leaves energy supply in short term chaos whilst not addressing issues for public services and industry.
I welcome a plan. I am not at all sure this is the best available. I am working on my own plan right now and hope to publish very soon. It's more complex than this plan, but it needs to be. It is progressive, meaning it helps those in need most. It may well be cheaper.
And it helps business and the public sector. I will get it out as soon as possible, but we definitely need something better than this plan from Starmer. My hope is he has something better up his sleeve than this. But just in case, I will be at work today.
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As you have pointed out before, we need more than just the managerialism offered by Labour – we need some genuinely new ideas.
But first we need wide spread recognition that the current market and it promises about choice and pricing has actually failed.
There is nothing natural or reasonable about any of this.
“we need some genuinely new ideas”. Respectfully I disagree. We need people in positions of power to open their eyes.
“But first we need wide spread recognition that the current market and it promises about choice and pricing has actually failed”.
The retail market is not perfect but it is a price-taker from the wholesale market. What happens in the retail market is defined by the wholesale market. Thus if you want to change things – you fix the wholesale market – for the reasons that follow.
I & my business partner have been looking at the wholesale market (both in the Uk and other countries) since early 2020. By mid-2020 we knew it was inherently unstable (mostly due to renewables – at that point). By early 2021 we were talking to European energy regulators & our concerns were dismissed. By October the energy regulators were worried and produced (sticking plaster) solutions to symptoms. They continue to do so & Starmer’s proposals fall into that category – pathetic sticking plaster solutions. The electricity wholesale market is based on marginal pricing – which requires (note that word) price inputs (fuel) which is then turned into electricity (with a price related to the input price). Renewables do not/cannot have input prices – & thus they will in the fullness of time destroy the marginal market for electricity.
None of the above are “points of view” they are realities – backed up by many hundreds of megabyres of data. What is needed in the UK (and elsewhere) is reform of the whoelsale electricity market. This could be accomplished in Sept/Oct. The market would be split into fossil and … the rest which would include hydro, nukes and renewables. Second by second pricing would be defined by volumes from each market segment which would in the case of hydro, nukes & RES have fixed prices since the cost of electricity from all three is mostly defined by CAPEX/levelised cost. These are not “new ideas” – they are certainly not new to me or my compadres, but doubltess what passes for the UK’s political elite would find them both new & strange.
I will be speaking to the Bundestag in Sept on the subject.
Thanks, again
Jesus! Sorry I spoke!
There’s no doubting your interest and involvement in energy Mr Parr – your expertise also.
My post was aimed at Richard who says that he is writing something I imagine will be very useful (he has a history of critiquing things and coming up with new good ideas) and I was merely encouraging him. Why? Because I’ve gown to trust him.
I’m not going to argue with you about what was said but I will point out that what you suggest would be clearly innovative if it was ever taken up (which I hope it is).
9,200 words were written on Saturday and Sunday
Being edited now
Maybe out today
Could this explain the Tory antipathy to renewables, which challenge the vested interests of the fossil fuel sector?
I have completely lost patience with our this situation. Being, generally, reasonable people we have to think of reasonable solutions. My emotional side, however, has had enough, energy costs are really hurting now and there is definately no sign that the energy companies are being reasonable. Whilst accepting that there are circumstances to take into account it is also true that some entities are making obscene amounts of money and we are powerless to act. Here in Scotland wind power produces enough energy to power Scotland twice over. Admittedly set up costs are high but a unit of wind power electricy still costs about a 1/4 of the normal domestic tariff. The electricity I use at home comes from 100% wind generated sources. My emotional brain tells me that we are being ripped off, certainly in Scotland, and knowingly ripped off and this means that I am less bothered by the business sensibilities and would be happy to see energy production to come under the control of the state. My sensible head tells me that this would be fraught with pitfalls and challenges, by the time it is sorted cold fusion in your garden shed might be possible.
Additionally I don’t understand (literally) why the need for resellers/retailers other than to buffer energy companies against household debt.
Perhaps the action of asking should become the action of telling.
I have written 9,200 words on this over the weekend
They will be out very soon
I may be looking at this situation through the lens of my own personal bias but this announcement is something of an abrupt change in tone from Starmer and Labour’s shadow cabinet previous policy interjections on this matter. It reminds me somewhat of Starmer’s promise to resign as party leader during the Beergate issue if he was found guilty, secure in the knowledge that Durham Constabulary did not issue retrospective fines. There was no actual risk of him being prosecuted, and in this case, there is no actual risk of him (or of forcing the Tories) ever having to make good on this policy demand: its pure performance and simply constitutes his contribution to the spectacle.
Considering that both Starmer and the Labour Party are both now flagging in the polls against a pair of demonstrably incompetent charlatans vying for control of a thoroughly corrupt and degenerate Tory Party neither Starmer or the Labour Party PLP have anything to lose by throwing out any old gubbins to the public.
Looking forward to listeing to you and CF later today.
Labour is not flagging in the polls
I’ve been using the polling data summary on Wikipedia:
https://en.wikipedia.org/wiki/Opinion_polling_for_the_next_United_Kingdom_general_election
Support for the Labour Party seems to have peaked around the first week of July (the week Johnson anounced his resignation) and has since fallen every week to its current level with the Tories now only trailing by around 4%. Labour do still have a small lead but their support is (according to this data) flagging. Perhaps you have access to better data than I do.
As much as I detest Starmer and the current incarnation of the Labour Party, I want the Tories out of power even more. However, once the Tory leadership contest has run its course, I can’t see the Labour Party having an easier time of attracting support. I’d be happy to be proven wrong.
You are seeing different data from me then…..
Looks like “I’m not Corbyn” isn’t working any more for Starmer. As well as not being Corbyn, he sadly doesn’t appear to be anyone else either, leaving a vacuum as LOTO.
I had this email come through yesterday, seems a good idea;
https://weownit.org.uk/act-now/nationalise-bulb?fbclid=IwAR1usjxnVTUtCMR65SCAjifDJb8zpnhisBNoPUcPB99SyA4JV0rOJsthTmo
This linked article gives a bit more detail about the lack of public investment in green energy in the UK compared to our peers.
https://weownit.org.uk/blog/guess-which-top-10-green-energy-countries-doesnt-use-public-ownership
@Vince Richardson
Interesting point about nationalized energy suppliers, and broadly agree: but WeOwnIt’s approach is simplistic (at least i the advertisement). France’s EDF has been forced to hold down prioces by subsidizing private companies, and is losing money: the state takeover of the part they don’t already own (flogged off by an earlier right-wing gov) is to disguise the failure to have an energy and environment policy, and Micron has not htought through the implications.
Cannot speak for other countries as too ignorant.
Domestic energy is one thing, but at least there is some regulation of price increases.
The uncapped price increases for non-domestic fuel – not just industry and retail, and also non-profit services such as doctors, hospitals, schools, churches, community centres – is going to be crippling. We face the risk that all sorts of commercial ventures and social infrastructure might fail, because few can deal with prices suddenly increasing by a factor of 10 or more.
But it is not all bad – at least the energy companies are making giant windfall profits, which will no doubt be some comfort to the owners and managers when society collapses around them.
This is a firmer stance than Starmer has taken in the past, however, as you point out it does not help those on the lowest incomes which includes my household. The amount Octopus Energy is taking from us has almost doubled in the past couple of months. That is money we need for the essentials of life such as funding transport to our minimum wage jobs amongst other expenses.
We have a choice: suffer the stress of going into debt struggling to pay these extortionate bills or have the stress of joining the Don’t Pay campaign, cancelling our direct debit and going into arrears on our bills with the potential of forcing change. The latter option keeps money that we would never get back in our bank account and puts the impetus on the energy company to pursue us for payment which by being involved in a wider campaign we would not be facing alone.
It is stress either way but we are minded to go with the proactive collective option rather than the passive isolated one.
Please go down the Martin Lewis route first….and I am sorry you have to face this
I will keep offering better solutions
The MoneySavingExpert page is carrying the following message:
‘A viral post being shared on Facebook and Twitter alongside a photo of MoneySavingExpert.com (MSE)
founder Martin Lewis claims people can “fight extortionate price hikes” by submitting complaints and
subject access requests to their energy supplier. But this didn’t come from Martin or MSE and has
nothing to do with us.’
It’s better than simply not paying in either case: and they are trying to stop themselves being used, I suspect
I’m on Octopus, too, through Coop Energy. What I don’t understand is why a company like Octopus should have to use the same cap as other companies that do not provide renewable energy. It’s accepted that to produce renewable energy costs less than fossil fuel energy. I know what reasons the energy companies give, but if the government wants people to use renewable energy, there should be a difference. Then more people would apply to companies that produce renewables. Or is that too sensible?
The cost of my energy is the same as that of my son’s family of four, even though I use a lot less. That doesn’t make sense, either. All companies seem to be going up to the cap, whatever.
The truth is you have no idea if you get renewable electricity or not
You get what is in the wire and that could be anything
Renewable tariffs are a con
Thanks, Richard. I know I don’t get renewable energy into my house. I know I pay a company which says it pays for renewable energy from lots of renewable energy producers. I’ve done that for over 20 years, starting with Ecotricity. I know my energy is a mix, just like anyone else’s. I know it’s a con that way, and is a good reason for nationalising energy.
However, what I was trying to say, and obviously not getting across properly, was that people buying through renewable energy companies should pay less, in order to encourage others to abandon the big six fossil energy companies.
Fair point
I hope for more though
I hope to have a plan out very soon
Because of the way it is structured, the energy market in the UK is more fragile than it need be. It has been like this for years and it is surprising that no one in authority seems to have noticed let alone come up with a plan that could be instantly applied when things go wrong. What we have is no plan from the Tories and half baked plans from Brown and Starmer that seem to offer too little too late.
I fear Starmer will not have something better up his sleeve, and I am confident that any plan you come up with would be even better. The question is “Will anyone of note take any notice of it?”
They won’t
But journalists are calling
Does anyone know how long this crisis will last? Thought not. And with the apocalypse of climate change coming over the horizon any plan needs to include elements of the GND. Speed up moving away from fossil fuels. Resilience built in to the supply/storage, capacity increased, more onshore wind, insulate housing stock, free pv’s for domestic roofs. An emergency requires an emergency response.
Unfortunately we have fascists in charge, so nothing of substance will be done.
Politics has lead us to a place where our ability to plan and provide capacity for the for long-term have been corroded across so many sectors. That creates uncertainty for industry and consumers.
The root of our current energy problems looks threefold. 1. the lack of investment in energy efficiency 2. dependency on international markets and fossil fuels 3. the gap in income, particularly for vulnerable households. Some might add the enduring belief among some politician in the ‘magic bullet ‘ of nuclear energy.
One-off payments are a sticking plaster and cannot address any of these problems effectively.
Long-term protection suggest the immediate need for a rapid and radical path to energy efficiency, so we need to use less energy with the savings compounding into the future (New Green Deal….) and a social tariff targeting vulnerable households and activities/businesses.
I hope to publish a plan to address all these issues very soon
The technical problems of introducing a decent energy policy are daunting. Price controls for domestic supply are part of the solution but there must be a progressive tariff…. this is detail that can be fixed.
A similar approach to business might work, too…. and, for once, would favour small over large businesses.
The suppliers are not really suppliers, they are invoicers and would not be missed if nationalised like bulb.
The problem is enforcing a price cap further up the supply chain. Not easy… but essential.
I am working on a big piece on all this….
“Starmer’s plan has a direct consequence. Every household energy supplier in the UK would go bust, overnight. Whilst oil and gas companies are massively boosting profits at present the domestic energy distribution companies we buy from aren’t.”
“Writing in the Sunday Mirror, Sir Keir said: “We would end the injustice that sees people on prepayment meters paying over the odds for their energy. We would bring bills down, paid for by taxing oil and gas producers making huge profits.”
The cap is on how much we have to pay as individuals, not on how much the power companies get for their product and service, they will be topped up from Gov funding which would be funded by taxing the oil and gas companies.
That’s not what the Sunday Times source says ….
And this wholly misses the issue in the rest of the economy, which is worse if anything
Two step plan.
a) reform wholesale elec market such that generation costs are reflected by wholesale market prices. As already noted – this will require a maret split (already proposed by the Greeks – last year and supported by others – Uk could do the same). Rough calculations suggest that wholesale prices would fall below £100/MWh into the range £70 – £90/MWh. This should immediately feed through to retail prices & take much of the sting out of the current situation.
b) gas – split the market – into home sourced gas and that imported. Price the home sourced at £30/MWh (versus circa £150/MWh now). All the infra built to extract the gas was based on a wholesale price of circa £20/MWh. I’d hazard a guess that an “order in council” could do that (the same route was taken to abolish exchanged controls in – I think – 1980). The end resuolt would be a hybrid price much much lower than what is the case now. Companies would shriek – so what.
Thanks
This isn’t the only policy he will be announcing on Monday so to criticise in isolation before hearing the full package isn’t that helpful.
Just a couple of tasters
Labour’s Warm Homes Plan will insulate 19 million homes – and slash the average bill by £1,000.
Labour would end energy prepayment premiums, giving 4m households relief on bills and abolish it altogether when in Government
scrapping the Tories’ tax break for oil and gas producers, who are making record profits at bill-payers’ expense.
The removal of VAT on energy bills that it has already supported.
How do you know
And is all this in Rachel Reeve’s £28bn green budget?
What has fallen out then?
And why is he subsidising the wealthy unnecessarily and offering no support to schools, hospitals and other public services plus failing businesses
Please tell
https://www.theguardian.com/business/2022/aug/12/energy-bills-pub-closure-faulkland-inn-bath-costs
Will the plan deal with situations like this?
Yes