Are the lights going out all over Labour land?

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The Independent Online

Memories of the 1970s will be awakened if next week's industrial action by fire fighters goes ahead. But it is not only in the field of industrial relations that this Government needs to worry about reminders of the "winter of discontent". Quite apart from Green Goddesses, another cold blast from the decade that brought the three-day week could soon be coming your way.

Memories of the 1970s will be awakened if next week's industrial action by fire fighters goes ahead. But it is not only in the field of industrial relations that this Government needs to worry about reminders of the "winter of discontent". Quite apart from Green Goddesses, another cold blast from the decade that brought the three-day week could soon be coming your way.

Downing Street shows no signs of wanting to burn the midnight oil, over beer and sandwiches, to avert the fire fighters' dispute. But it is certainly lighting candles over at the Department of Trade and Industry, where a few minds are already contemplating the eerie prospect of the lights going out. So far, reports of a crisis in the electricity supply industry have been confined to the City pages, but if it is not gripped urgently, ministers will need to brush up their skills at teeth-cleaning in the dark.

The whoops of delight from Labour MPs when Flash Gordon performed his magic trick of conjuring £5bn a year from advanced corporation tax have turned sour now that the full horror of this measure can be seen in the pensions industry. Few believed, however, that there would be any adverse consequences from the other major decision in the same Budget: the implementation of the election manifesto commitment to levy a one-off windfall tax on the privatised utilities in order to fund the New Deal.

Five years ago it seemed impossible to imagine anything but a golden future for the energy sector. But consistent – or rather, inconsistent – meddling in the electricity and gas industries has brought power supply, distribution and generation to its knees, creating a crisis that has yet to be detected on the political radar.

Following the privatisation of the late 1980s, there was a clear market encouragement to reduce dependency on coal-fired generation power stations. But it was too much to hope that Labour would allow the new market to develop in an orderly manner. Almost the first act of Margaret Beckett, the new Secretary of State for Trade and Industry, was to inflict upon the industry damaging long-term contracts with mining companies in the futile hope of pleasing Labour MPs in coal constituencies. A moratorium was placed on further gas-fired power stations, subsequently relaxed by Peter Mandelson.

The interference also led to a so- called reform of electricity trading arrangements, known as Neta (new electricity trading arrangements), which was nothing more than a crude attempt to disadvantage non-coal power generation. These became operative from March 2001, leading to a collapse of wholesale prices by 20 per cent. As a consequence, there has been overcapacity amounting to about 30 per cent. But wholesale prices are now 40 per cent less than where prices stood in 1998, when the Government originally proposed the new trading arrangements. In other words, the Government tried – and failed – to rig the market for futile political purposes, with the result that the industry is now staring at the prospect of closure and bankruptcy.

Ten years ago, in my old constituency, two gas-fired power stations were opened by the newly-privatised Powergen and National Power companies. Both recently have been mothballed. In the meantime, the US energy giants that moved into the British market a decade ago, with enough problems of their own back home, have tired of their UK experience and beaten a retreat. Enron has gone bankrupt, and TXU, the struggling US power giant, this week finally offloaded its UK business to the German company Eon.

Meanwhile, British Energy, which produces nuclear power – about 25 per cent of total output – remains in limbo, existing on a monthly hand-to-mouth borrowing facility from the Government, with the prospect of bankruptcy or administration looming. Its problems are also a consequence of the Government's stupidity in making its electricity unsellable because its prices are too high for the market to bear as a result of being liable to the climate-change levy – even though it produces no greenhouse gas emissions.

In theory, if there is overcapacity, then there should be no problem if power stations are closed. In practice, however, the distribution system is already set to cause severe "pinch points" across different parts of the UK. The stage is set for a serious threat to the security of power supply, especially in the North-east (Sedgefield, the Prime Minister's constituency is particularly vulnerable).

It is ironic that, at the very moment the DTI is preparing its long-awaited energy white paper, giving a clue as to the possibilities for more nuclear capacity, it should also be bogged down in its own internal power struggle. Brian Wilson, the pro-nuclear energy minister, has effectively disowned government policy and can see how damaging Neta has become. His boss, Patricia Hewitt, is trapped in the headlights of the oncoming crisis and appears destined, like Estelle Morris, to lose her golden-girl status in the Cabinet.

Tony Blair needs to pray for a mild winter and, if told of possible power cuts as he steps off the plane from one of his inevitable foreign trips in December or January, to remember not to say: "Crisis, what crisis?" Meanwhile, I'm laying in stocks of candles.

mrbrown@pimlico.freeserve.co.uk

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