John Humphrys asks: is Ed Miliband right to announce that a Labour government would freeze energy bills?
The Labour Party has long been under attack for what its critics call its policy vacuum. So at this week’s annual conference in Brighton it has tried to silence those critics by launching a range of specific policies - and the big one was announced by Ed Miliband. A Labour government would freeze energy bills for twenty months. He said it would benefit millions of families and millions of businesses. Is he right or would it instead threaten Britain’s energy security?
It’s not hard to see why Mr Miliband should have focussed on this issue in his big speech. With the economy beginning to pick up, Labour’s leaders have realised that there is less mileage for them in attacking the government for driving the economy into the sand. But what is striking about the nascent economic recovery is that it is not yet reflected in rising living standards for most people. Indeed living standards have been falling. As Mr Miliband pointed out, prices have risen faster than wages in 38 of the 39 months the coalition has been in power. What Labour describes as ‘the cost of living crisis’ is, the party believes, likely to be the dominant issue at the next election.
There is an obvious reason why wages have been barely rising (if at all) in recent years. The recession brought about by the financial crisis of 2008 has left far too many people worrying about the security of their jobs to risk pressing for higher wages. Britain may have avoided the huge increases in unemployment suffered by many other countries, notably elsewhere in Europe, but this is only because there has been such wage restraint.
Yet prices have consistently gone on rising and few items more sharply than our gas and electricity bills. Since 2007, electricity bills have risen by 20% in real terms and gas bills have gone up by 41%.
The energy companies have become Public Enemy Number One – not least because of the steady rise in the companies’ profits. The total net profits of the six main energy suppliers has risen steadily each year from £2.15bn in 2009 to £3.74bn last year.
Not that the companies can simply charge what they like. The energy market is controlled by a government-created regulator, Ofgem. But despite that, and despite the fact that he was the energy secretary responsible for the sector in Gordon Brown’s government, Mr Miliband claims that the companies have been “overcharging for years”. He argues that the “market isn’t working” and plans to disband Ofgem and replace it with a tougher regulator.
The headline announcement, though, is that a Labour government elected in spring 2015 would freeze energy bills until the beginning of 2017and that this would save average households £120 a year and businesses £1,800 a year.
The energy companies are predictably outraged. They claim it could cost them £4.5bn. They counter Labour’s attack by saying they’ve been forced to raise prices by environmental and social obligations placed on them by successive governments and by the rising price of gas in international wholesale markets. As for their profits, they point out that they are vital if the companies are to have the funds to invest in future sources of energy supply, notably long overdue new power stations, without which long-term energy supplies cannot be guaranteed.
What most alarms them about Labour’s proposals is the predicament they could find themselves in if the wholesale price they themselves have to pay for gas were to rocket during the period in which the price they could charge consumers was frozen. Sir Roger Carr, the chairman of Centrica, said that if prices were controlled while the companies’ costs were rising, then “it would simply not be economically viable for Centrica, or indeed any other energy supplier, to continue to operate”. He said the policy was “potentially a recipe for economic ruin”. Ian Peters, from British Gas, said the policy threatened “energy security in the UK”.
Mr Miliband’s political opponents have also been quick to attack the policy. Ed Davey, the Liberal Democrat energy secretary, said: “When they tried to fix prices in California it resulted in an electricity crisis and widespread blackouts.” Michael Fallon, the Tory energy minister, said: “It will freeze new investment and only increase the risk of the lights going out.”
Some commentators have expressed concern that even by floating the idea (never mind actually implementing it), Labour risks creating such uncertainty that the much-needed investment in new power stations will immediately be put on hold. The share price of several energy companies fell sharply the day after Mr Miliband’s speech. Other commentators have suggested that in anticipation of the price freeze in two years’ time, the companies will try and jack up their prices now, making the short-term situation much worse.
Labour will have none of these criticisms. Chuka Umunna, the shadow business secretary, said that it was “patently absurd” and “nonsense” to imagine that the policy could threaten blackouts and that there was no risk to the long-term security of Britain’s energy supplies. And Mr Miliband has retorted that a Labour government would take subsequent action against any company that tried to offset the freeze by raising prices before the election.
What’s clear is that this policy will be at the centre of political conflict over the coming months. Labour is clearly banking on the fact that it is likely to be popular with hard-pressed voters and will chime with widespread suspicion of big business. Their opponents will claim that the policy is a throwback to Old Labour, to the discredited price control policies of the 1970s and that Labour is irresponsibly playing politics with the country’s future energy supplies.
Who do you think is right?
