Three Things the Tories Could Easily Do to Slash Living Costs

Cap gas prices. Raise wages. Invest in low-carbon energy.

by James Meadway

7 February 2022

Prime minister Boris Johnson visits Carland Cross Windfarm to see the construction of a new solar farm ahead of the G7 Summit in Cornwall
Simon Dawson / No 10 Downing Street

The cost of living crisis is about to get a lot worse. The government has announced it will be imposing a 54% increase in the price of gas on British households, adding almost £700 a year to the typical household energy bill. 

Chancellor Rishi Sunak claims that Ofgem, the government gas regulator that sets the price cap, has no choice but to hike bills as a result of the rise in the price of gas internationally. He has offered a derisory £200 compulsory loan to cover the cost, plus £150 to a few more households if they are in the right council tax band. 

Despite the Tories’ embarrassing response, governments can and are choosing to respond to the crisis in more effective ways. France has promised to keep rises to lower than 4% this year. Portugal has frozen energy prices. In Norway, the government will pay 80% of energy bills above a certain price. 

It is pathetic for this government to claim that it can do nothing meaningful about the rise in international gas prices for domestic customers. With that in mind, there are three crucial steps we should be demanding that the Tories take to address this mounting crisis. 

We need to cap gas prices. 

The first thing the government needs to do is ensure that the cap on household gas prices is not lifted, as is currently set to happen on 1 April. The effect of this, as intended, is to protect company profits and push the costs of the crisis onto households. Some of the producers of natural gas have made extraordinary profits in the last year. Shell and BP made almost £40bn on their global operations, with the chief executive of BP bragging the company was like a “cash machine”. Yet both BP and Shell have paid no tax on their North Sea operations for the last three years. There is no good reason not to apply a windfall tax. 

In Britain, bigger operators are responsible for producing gas, which is then sold on to companies that, in turn, sell it to households. Back in the early 2010s, David Cameron’s government made the foolish decision to make it easier for companies to sell gas to households, a move that resulted in many, smaller companies being set up to provide the service. Faced with a sudden rise in the wholesale price of gas, these companies are now finding themselves squeezed by the rising price they buy gas at and the lower price at which they have committed to sell it. 

As a result, these smaller operators are failing by the dozen, with 20 going under since September. One of them, Bulb Energy, was nationalised by the current Tory government late last year, using emergency legal powers. This is a model for other smaller gas suppliers that fail. Just as the train services that failed in privatisation were brought into public ownership under DfT OLR Holdings, failing smaller gas companies should be brought into a larger, publicly owned gas supply company.

There is an additional, silly argument being pedalled by the free-market right that if we squeeze big companies making super-profits like Shell or BP, British pensioners will lose out. It is claimed that, because pension funds in Britain invest in big, “blue chip” companies like BP, squeezing their profits means squeezing people’s pensions. 

Economist Adrienne Buller did away with this myth on Twitter, pointing out that while around 30 or 40 years ago pension funds were invested in BP or Shell, today, just 6% of UK pension funds by value are invested in any UK shares at all. British pension funds prefer to invest overseas and in government bonds.

By this logic, all pensioners in Britain will benefit far more from a cap on the price they pay for gas than they will from allowing big gas producers to continue making fat profits. The government should therefore respond by imposing a windfall tax on the superprofits, capping gas prices for domestic customers and nationalising failing producers. 

We need to raise wages – and fast. 

Secondly, wages are too low and should be raised across the board – but especially in the case of those who are paid the least. Andrew Bailey, the governor of the Bank of England, provoked anger and derision over the weekend when he called for workers to stop asking for pay rises, for fear that excessive pay demands could cause greater inflation. 

This is a risible position to take: inflation right now is not being driven by how much workers are being paid in Britain, but by huge, global factors that are primarily related to the coronavirus pandemic, as well as extreme weather, which is causing crop failures in places like Brazil and Canada. Paying a nurse in Cardiff or a bar worker in Manchester less will not result in the gas we buy from Qatar being any cheaper.

The same goes for interest rate rises. Making borrowing somewhat more expensive will not magically produce more coffee from Brazil or semiconductors from Taiwan. (Bailey, in a speech before Christmas, said as much himself.) All that pay restraint and interest rates do is make life even more miserable for people in Britain – whilst, incidentally, rewarding those who are raking in the profits.

Instead, we should be looking for ways to raise wages – and fast. The minimum wage should be increased immediately; unions have demanded £15 per hour. And with Boris Johnson himself having said that he wants a high-wage economy, every single trade union should be organising to put pressure on him make it a reality. 

We need to invest in low-carbon energy. 

Finally, while price caps and wage rises will protect people from rising costs of living today, it is vital that we take action to bring down costs in the future, too. 

As climate change begins to bite, we can expect more price shocks like the ones we’ve seen in the last year. Extreme weather events, like floods and droughts, are forecast to become more frequent. Desertification threatens crop production. The International Energy Authority, meanwhile, predicts a 40% rise in the price of natural gas by 2030, as existing supplies deplete.

Switching to renewable energy, insulating draughty British homes properly, and swapping gas-powered boilers for electric ones are all measures that would help in protecting people from future carbon-based energy price rises. However, making this happen would require considerable investment by the government.

Far from easing off on the transition to net zero (as some Tories have predictably argued), the cost of living crisis should be the spur to lean harder into it, accelerating the transition. Renewable energy is already saving British households money, with the cost of renewables falling over the last year

It’s time to apply some pressure. 

It is highly unlikely that the gas price hike will prove to be politically sustainable: there is a lot of road to cover between now and 1 April, and, short of an unexpected slump in the price of gas internationally, it has all the ingredients needed to create a serious political crisis for the government. If Johnson stays on as prime minister it is as likely as not that some additional measures will be introduced before then. The time to demand the gas price cap stays in place is now.

While Labour should be putting more pressure on the government over this, the party is currently falling short. Some good, populist attacks on Shell’s profits from shadow net zero secretary Ed Miliband would be welcome, as would supporting a windfall tax. However, by failing to oppose the gas cap rise, Labour is (at best) fighting the government with one hand tied behind its back.

With Labour failing to step up, it is instead falling to organisations and movements outside of parliament to raise these demands. Groups like DPAC, Unite and the People’s Assembly are united in calling for demonstrations to protest the government’s response to the crisis. The protests taking place across the country on 12 February are a crucial next step in fighting back. 

The cost of living squeeze may ease a little as we head into spring and summer. But with inflation in general here to stay, it’s essential to raise clear, consistent demands to protect the living standards of workers; cap gas prices, raise wages, invest in low-carbon energy. 

James Meadway is an economist.

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