As far as the economy goes, Sir Keir Starmer has enjoyed something of a golden honeymoon a small gain in the Consumer Prices Index (CPI) allowed the Bank of England to reduce interest rates earlier this month. Everything looked rosy, until early last week (W/C 19th August 2024).
Ofgem announced that the energy price cap will rise in October by 9%, adding an average of £149 to annual bills. While a rise was expected, this is a substantial rise at a time when inflation seemed to be back under control.
The 9% increase will not take energy bills to the dizzying heights of late 2022 and early 2023, but they do represent a big political issue for the government, following the removal of the winter fuel allowance, by Rachel Reeves, affecting all pensioners except those on pension credit. This follows a 15% pay rise to train drivers, a group who are already in the top 10 per cent of earners.
There’s a growing feeling that the Labour government is robbing pensioners to reward its union paymasters. Trade unions were indulged by Labour governments in the late 70s, since then memberships have declined, and there’s a risk that the majority of workers will again conclude that Starmer’s government is not on their side.
Banana skin.
The government’s biggest potential banana skin is its energy policy. Ed Miliband has promised to fully decarbonise the electricity grid by 2030. This target will cost billions in investment and which many in the industry believe cannot be achieved at any price.
It will require more wind turbines and solar panels and huge investment in energy storage. If government doesn’t invest in the energy storage, and there are no signs of that happening now, then consumers will face hard to swallow hike in pricing when wind and solar energy is sparse. It also means that the UK will become ever more dependent on electricity imported via subsea cables, from which we are currently drawing around a tenth of our power. That, too, will feed into spikes in electricity prices as we will need to import power at times when European countries are also low in renewable energy. If it’s not windy or sunny down south, that’s likely to affect northern Europe too.
Nuclear power and Carbon Capture Storage.
There is no chance of building extra nuclear power by 2030. In fact, we will lose nuclear from the grid as Hinckley C; when it eventually opens, will not compensate for the closure of other nuclear plants in coming years. The other option for decarbonising the grid, which Labour seemed to be leaning to in its manifesto, is to keep gas power stations but to equip them with carbon capture and storage (CCS). The cost BILLIONS! We don’t yet have a single large scale CCS plant in Britain, even a demonstration one. Let’s not forget that CCS leads to a substantial loss of efficiency, requiring more gas to output the same power.
A policy of continuing to rely on gas is at odds with Miliband’s explanation for Ofgem’s price cap rise. Bizarrely, this morning Miliband has blamed it on the Conservatives for making us dependent on ‘gas markets controlled by dictators’. Most of our imported gas currently comes from Norway, with the US and Denmark our next biggest suppliers. I await a forthcoming diplomatic incident.
Blaming the Tories for everything has been Labour’s default position since it took power seven weeks ago. That’s not likely to wash once the bills start to roll in for Miliband’s decarbonisation plans.
