Profits, green policies and the return of socialism: a roundup of reaction to Milibands energy price freeze
Ed Miliband’s proposal to set a temporary freeze on consumer energy bills and “fix” the energy market has certainly set the cat amongst pigeons, attracting a torrent of comment from across the political spectrum. Here’s our roundup of who’s saying what.
Miliband accompanied his conference speech with an open letter to energy companies – in which he promised to “reset the [energy] market” – replacing regulator Ofgem with a new stronger body (um, Ofgem 2?). More excitingly, if Labour gets into power, he plans to freeze energy prices for 20 months from 2015.
Miliband says he appreciates energy companies “will not welcome all aspects of this package”. That’s putting it mildly: British Gas’s owner Centrica responded by threatening to leave the country. Yesterday, shares in Centrica and energy company SSE lost more than £1billion in value as they absorbed the announcement.
It’s probably not surprising energy companies don’t approve – but there’s objection from elsewhere too.
1. Profits, investment and subsidies
Labour accuses energy companies of overcharging their customers. It calculates the big six made a total profit of £3.7 billion in 2012 – 73 per cent more than in 2009.
But Angela Knight, chief executive of the industry body EnergyUK, toured the TV studios yesterday arguing the big six invested £11 billion last year in the electricity grid and new power stations. She says once infrastructure investment is taken into account, energy companies aren’t making any more profit than supermarkets.
The energy industry says setting a price freeze will threaten the investment needed to revamp the UK’s energy system – increasing the risk of blackouts. In an editorial, the Daily Telegraph agrees:
“Nobody is going to invest in energy renewal – whether green, nuclear or old-fashioned hydrocarbon – as long as there is the threat of price controls.”
But environment editor at the Guardian, Damian Carrington, points out the price freeze won’t affect government subsidies for new generation. He says it’s a “myth” that Labour’s proposal would “obliterate the many billions of investment needed to rebuild the UK’s energy infrastructure”.
2. It’s green policies
Alistair Philips-Davies, chief executive of SSE says he’s got a solution for Miliband – remove “stealth taxes” from consumer energy bills. Energy companies blame subsidies for low carbon, social policies and energy efficiency schemes for the rise in consumer bills.
Philips-Davies argues they should be paid for by general taxation instead – which would also shift the burden of payment onto those that can afford it.
Four years ago, Ed Miliband gave a stark warning, points out the Financial Times – “There is no low cost energy future”. The likely rise in the price fossil fuels and the need to kickstart new green technologies means consumers and government are stuck with rising prices.
Even the Guardian – largely supportive of Miliband’s plans – wonders how Labour intends to pay for a low-carbon future. And the Daily Mail isn’t the only outlet to point out that Miliband got the subsidies going in the first place, when he was energy and climate change secretary in Brown’s government.
3. Fixing the market
But Labour’s plans aren’t a permanent measure – they’re presented as a temporary hold on prices, whilst the government gets on with the job of fixing the energy market.
Energy expert Chris Goodall, writing on his blog Carbon Commentary, agrees that energy markets have failed badly:
“Nobody, but nobody, defends what has gone on in the last decade or so. The oligopoly of the Big Six has become entrenched …The regulator Ofgem has worked hard but increasingly looks outgunned by the big companies.”
Goodall argues that the temporary fix could ultimately make the market work better. Dr. Jim Watson of the UK Energy Research centre agrees that reform of the market is the most important issue Labour needs to tackle.
But for some, Labour’s proposal is a step too far down the road of government intervention in the energy market. The former ahead CBI Lord Jones called it “ideological tribal socialism”.
Slightly more moderately, Guy Newey of centre-right thinktank Policy Exchange also disapproves. He says it is “a great tragedy that the coalition has failed to halt the interventionist momentum” – government can never know the right answer, leading to a situation “ripe for gaming”.
And perhaps more surprisingly, Labour grandee Peter Mandelson is on Newey’s side. He says the party should have moved on from the days of having to choose “between state control and laissez-faire” – and indicates he believes Miliband’s proposal is a mistake.
Enemies and friends
With friends like that, Miliband probably doesn’t need enemies – and he’s gained a few more of those this week. He’s also garnered a ton of media coverage and kick-started a debate within the energy world about how exactly the energy market is going to run over the next few years. Stand back everyone, this one’s going to run and run.