After months of uncertainty, the government has finally acted on rising domestic energy prices, pledging £150bn over the next two years to partially freeze domestic energy prices. We should be clear this is a direct result of campaigns like Don’t Pay, which has nearly 200,000 pledges to refuse bill increases in October. After Liz Truss spent all summer saying next to nothing can be done, the nation’s #1 Thatcher stan has been forced to intervene. But we shouldn’t mistake this pledge for the final result – there’s still room to push her further.
The freeze does not go far enough. The typical household will still be facing a £600 increase in its domestic energy bills, bringing its bills close to double what they were this time last year. With food and fuel prices rising and wage rises failing to keep pace, many households will be severely squeezed over this winter. Extra support for small businesses will last only until six months, creating uncertainty for the many thousands of pubs, shops and other local firms facing bankruptcy.
Freezing the price will cost the government. Britain imports more gas than it produces, so for now we will still need to pay someone else for those imports. This is why a government subsidy is needed for now: to pay for the difference between a fixed domestic price, and what we have to pay on the global market to companies who dominate the market for oil and gas. ExxonMobil or Total can and will refuse to supply gas to us at lower than the international price.
The fairest thing to do to meet this cost is to tax UK energy production. The Treasury has estimated that UK gas and electricity producers will make £170bn in excess profits over the next two years. This is more than the cost of the price freeze. Every single penny of those profits will be taken from the pockets of households and businesses in the rest of the economy. It is completely fair to take them back.
But instead of taxing these excess profits, the government is looking to borrow to pay for the freeze. The government does have the ability to borrow large sums at short notice, as we saw during the first year of Covid-19. It is better that they borrow than allow prices to rise, or force households to take out loans to pay their bills – something the government originally suggested.
However, there are dangers with borrowing. Perhaps the most pressing is that those in the Tory party who want to slash spending further will use the size of the government debt as an excuse to demand spending cuts in the future, just as we saw with austerity. And with excess profits for UK energy companies so high, there is no excuse for the government not to take those profits and put them to better use. We must demand a windfall tax.
The question of who pays is the key one in a crisis like today. As the world becomes more unstable, crises will multiply. Either workers and the poorest across the globe will be made to pay for them, to protect profits, or those at the top will have to pay to protect workers. Labour’s windfall tax on energy companies gets this core question correct on this issue.
But a windfall tax is only a short-term solution. If crises are worsening, we need to build systems to deliver essentials like energy (and water and food) resiliently and equitably. Britain’s privatised energy systems are not up to the task. They should be brought into public ownership.
The government refuses to do this. Worse, it is actively searching for mechanisms to avoid nationalisation, among them a £40bn “liquidity guarantee” for energy suppliers, to keep them in business despite price fluctuations. These companies should never have been privatised in the first place; their difficulties in the last 12 months expose that.
The TUC has estimated the cost of nationalising energy retailers as £2.85bn. Bulb already has been. Instead of the cheap and obvious solution of nationalisation, the government has nudged the Bank of England into providing funding to try and keep the privatised system on the road through a cheap loans scheme.
Still, nationalisation alone won’t solve the crises. Publicly-owned energy companies need also to be given clear mandates for long-term investment in renewables. Fundamentally, we must kick our dependency on fossil fuels. That means improving energy efficiency and switching to renewables. Britain has old, poorly-insulated houses compared to the rest of Europe. A massive investment in home insulation would help cut home energy bills and create many tens of thousands of jobs. With wind power now the cheapest source of electricity on the planet, there is no excuse not to invest heavily in it and other renewables.
Truss is proposing the exact opposite of this – expanding oil and gas production from the North Sea and restarting fracking. Aside from the contribution more fossil fuel production will make to climate change, neither of these will make the slightest difference to the wholesale price of gas or oil. Companies producing in the North Sea or trying to frack gas in Lancashire sell what they pump on the international market, at the price that is set internationally, to whoever pays the international price. (The only way round this is to ban exports of UK oil and gas, but this Tory government does not seem prepared to do that.) It is a stupid move that benefits no one but the fossil fuel producers.
And we need urgent reform of the current system of charges for households and small businesses. The New Economics Foundation has proposed “free basic energy” for households, giving them enough for essentials but then charging for use on top of that. The movement against rip-off price rises could begin to formulate its demands for the longer term, looking at ideas like free basic energy for all.
The price freeze shows that this government can be pushed. They would not have acted if public anger was not only visible, but organised. But the freeze doesn’t go far enough: we need a windfall tax on energy company super-profits; a new, fairer system of energy tariffs; investment in energy efficiency and renewables; and to end energy profiteering through nationalisation. Today’s announcement is only the beginning.
James Meadway is an economist and Novara Media columnist.