Margareta Pagano: 'Miliband's focus is right, but his solution is economically illiterate'

Red Ed's grenade has done us a favour. If the coalition is smart it will run with his challenge

Ed Miliband's audacious wheeze to freeze energy prices is looking more brilliant by the day. With one big fat grenade, he has blind-sided the coalition into silence, sent the remaining Blairites into a hysterical tizzy and pitched his tent as the people's populist hero. How he must have loved the Poujadiste headlines.

On the doorstep come the next election, it will be Red Ed who pledges lower energy prices for those struggling to pay their bills against Blue Dave on the side of the nasty energy companies, which are now threatening shut-downs, lights-outs and higher prices.

Even the criticism that Labour is taking us back to the price controls of the 1970s is lost on the younger generation; they don't remember or care.

Yet while Miliband is right to put soaring energy prices at the top of the cost-of-living agenda, his solution is economically illiterate. He's also been intellectually dishonest about the problem, if not disingenuous, as one of the biggest reasons why energy costs have soared is the absurdly expensive carbon reduction programmes and subsidies to renewables that successive governments have imposed on the energy companies.

It's what Tony Lodge, energy expert at the Centre for Policy Studies, describes as a "skewed interventionist circus" of six energy companies locked in a "straitjacket" from which they can't break out without further government intervention. As Labour's Energy and Climate Change Secretary, Miliband was responsible for tightening that straitjacket when he pushed through a series of carbon taxes and subsidies. That was in response to Tony Blair's pledge that the UK would produce a third of its electricity from renewables by 2020.

Of course all that is conveniently forgotten. But it's easier to blame the Big Six energy giants than to admit that it was Labour's own policies – continued by this government – that lie behind the price hikes of the past few years. Indeed, working out the profit made by the energy giants is fiendishly tricky. Other than the cost of energy on the wholesale markets, the biggest chunk paid by them is in taxes, which add up to at least 20 per cent of their costs. And that percentage is set to get higher still.

Until April this year, the UK was part of the market-based EU Emissions Trading Scheme and had the same carbon prices as the rest of the EU. In April the Treasury decided that the price set by the EU's trading scheme was too low to encourage energy companies to invest in more low-carbon technology; but it also twigged that a rising UK carbon price floor would bring more revenue. Here's what happened: the Treasury pushed up the carbon price floor so that electricity generators now pay more than €18 (£15) for each tonne of carbon emitted – compared with just €4 on the Continent. It's going to get worse. Tony Lodge predicts that wholesale UK electricity prices could soon be almost triple those in Germany or Italy. Guess who gets the benefit? Why, the Treasury – by £740m this year and £1.4bn in the next, in tax revenue.

There is a plus side to Miliband's threat of a big freeze. Forced on to the back foot, energy companies may come out into the open to explain why their costs are so high, as Julian Knight argues on page 63; they may even break the cosy green consensus to take on government policy.

Alistair Phillips-Davies, SSE's chief executive, is the first to come out fighting, challenging Labour to drop stealth taxes on energy if it is serious about helping consumers. As he put it so pertinently: "The great unsaid in this debate is that we are all paying for successive governments' environmental and social policies through our bills."

Nor was Centrica's Sir Roger Carr crying wolf when he warned that a price freeze would force the Big Six to think twice about investing in innovation and the next generation of energy production to keep the lights on. Our precarious energy policy is not helped by the fact that most of the UK's energy companies, including E.ON, RWE, EDF and Scottish Power, are foreign-owned – and their pay-masters, from Madrid to Düsseldorf, might simply say they will not be investing in future power stations if Labour gets in to power.

Yet Red Ed's grenade has done us a favour. If the coalition is smart it will run with his challenge – explain why price controls never work, drop the carbon price floor and open up the energy market to more robust competition such as new sources of community energy. A recent by ResPublica claims that with the right policies put in place, local energy supplies could grow to 89 times their current size, enabling more localities to benefit from greater ownership stake and lower bills. But is it smart enough to break up vested interests ?

Tapping the up-start start-ups: who'll be the next Bill Gates?

The days of being a lonely Bill Gates-style entrepreneur working in your garage are so yesterday. Today's big businesses know that to survive, they must link with the up-start start-ups that will disrupt their industries. Leading the charge to link businesses with young entrepreneurs is the start-up queen, Julie Meyer. The boss of Ariadne Capital – an early investor in Skype and Monitise – is taking her Entrepreneur Country network global with a new push across Europe to South Africa.

It's no surprise they are queuing up for tomorrow's conference at the Royal Institution. Executives from Dell, Cisco and Santander will all be there to find the next Bill Gates. As they say, if you can't beat them, join them.

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