Energy prices might be Boris Johnson’s biggest new year headache

Johnson can bang on about global energy markets causing problems all he likes, but voters are getting fed up of his refusal to take responsibility for anything, and the government’s inability to come up with a workable plan

James Moore
Thursday 06 January 2022 13:32
Comments
<p>It’s impossible for ministers – or their media allies – to gaslight this one out of existence because, unlike Brexit, it’s writ large on consumer’ bills</p>

It’s impossible for ministers – or their media allies – to gaslight this one out of existence because, unlike Brexit, it’s writ large on consumer’ bills

There’s nothing like a little schadenfreude to warm the cockles when the heating’s too expensive to put on, all the more so when the person on the wrong end of it richly deserves their comeuppance. Boris Johnson getting burned by exploding fuel bills offers a meter full of it.

Just one question: given the damage that man has done to this country, is feeling joyful about this even shameful? You’ll probably have read about the frantic meetings that have been taking place between ministers and the big energy suppliers, which are aimed at finding a solution to the surge in Ofgem’s price cap that’s coming. Bills could double. Even if they don’t do that, the average annual outlay is likely to hit two grand.

Labour’s been bashing away at this one and so it should. The problem ministers face is that there are no really good solutions to the problem. They’re in a nasty catch 22, one which even a government with a plan, with a team of bright and able ministers, and with a party more or less united behind them, would struggle with. Boris Johnson’s administration has none of those virtues.

So it has good reason to fear February, when Ofgem, the energy regulator, will revise its price cap, as it is required to do. And April, when the new cap will come into force. If it gets chilly, as it sometimes does in April, the bills will feel like an arctic wind blowing through people’s personal finances.

Option one for heading off a crisis hasn’t been much discussed. It is to lean heavily on Ofgem to make the cap less onerous. The trouble is, Ofgem is supposed to take account of the sky high wholesale price of energy which suppliers have to pay. The “temporary” spike in global gas prices that kicked this off is proving to be anything but.

The regulator is supposed to leave suppliers with some headroom so they can turn a profit and they’re not able to do that under the cap as it stands, which is why so many of them have gone pop. Set the cap too low and the remaining operators may be inclined to say “sod it, we’ve had enough of this, we’re out of here”. That could make ministers’ headaches even worse.

Option two is to “temporarily” remove the 5 per cent VAT rate charged on domestic bills. This one is popular with Tory MPs, who don’t like taxes. But it will only save consumers around £100. Their bills will still soar. And they’ll still be cross about that. So you don’t get a lot of bang.

This is very unpopular with the Treasury, which is worried about the bucks. It could lose a couple of billion quid on the deal at a time when it is trying to balance the national books. The Treasury also knows that temporary tax cuts, or freezes, have a nasty habit of becoming permanent, which is what happened with the “temporary” petrol duty freeze. It doesn’t want that.

Removing “policy costs” – levies – is problematic for similar reasons. That takes up to £200 off bills. But the revenues from green levies are badly needed to decarbonise the UK. Coming under the policy costs heading is also the funding for the warm homes discount.

This brings us to option three, which could involve offering more “targeted” help by, say, extending the discount, which is currently limited to people on certain types of benefit.

This is better for the Treasury. But it’s still (currently) only worth £140 when annual bills are set to potentially balloon by more than £700. Means tests are also complicated, difficult to administer, and invariably leave out people who aren’t very well off and tend to turn up in media case studies. People like, say, Sun readers in the red wall.

Option four is to give energy suppliers a big loan to reduce their bills so they can cut ours. They would pay back in the future when lower prices are lower (and pass on the costs to us). This has some support in the industry. But how do you make it work? It could also involve an awful lot of public money. So the Treasury’s view? Eek!

There are other bits and pieces that have been talked about, chewed over, kicked around, and they all come with the same problems: they’re expensive, they mightn’t help much, they’re probably not going to do enough to stop disadvantaged people facing an uncomfortable choice – heat or eat – and they’re probably not going to help with potential Tory voters angry about their energy bills.

And their food bills. And their other bills. Prices are going up across the board. Energy bills are in focus, and are causing the biggest problem because they’re going to shoot up overnight, largely due to the Tories’ botched privatisation of the sector, the way it was allowed to develop afterwards, the tinkering that’s been done since, and the way the cap works.

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Johnson can bang on about global energy markets causing problems all he likes at Prime Minister’s Questions, but voters are getting a mite fed up of his refusal to take responsibility for anything, and the government’s inability to come up with a workable plan (because it knows that there aren’t any really good options).

It’s also impossible for ministers – or their media allies – to gaslight this one out of existence because, unlike Brexit, it’s writ large on consumer’ bills. And didn’t Johnson promise that Brexit would lead to cheaper bills, anyway? This mainly gas-powered fire is going to seriously burn the government’s pants, and what’s left of its already tattered reputation.

No, it’s definitely not schadenfreude to look on at the government’s travails with amusement. It’s time there was a little more accountability in public life. If and when it happens, it will genuinely be something to feel good about. There’s no shame in it.

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