British politics has endured a tough and consequential few weeks, first with the beginning of the Truss premiership, and with the death of Her Majesty Queen Elizabeth II. The latter has inevitably diverted attention away from the ongoing global energy crisis, the wider ramifications of which have been hugely significant.
In just a short period of time, the UK has learned the hard way about its ‘energy trilemma’; lack of security over supply, affordability and de-carbonisation. Putin’s war on Ukraine has been the single biggest factor in the global rise of energy prices, with inflation in the UK set to hit unprecedented levels of 15 percent by the first quarter of 2023 without significant intervention. But there has been a wider recognition of national policy failures of the last two decades from politicians across the spectrum.
A growing complacency amongst successive governments has partially resulted in this deficit of energy supply we’re seeing today, including the absence of spare capacity. The drive to achieve net-zero, though entirely necessary, has arguably caused political figures to neglect preparations for an energy crisis of this immense scale.
Former Business Secretary Greg Clark declared in 2018 that the energy trilemma was ‘over’, with the steady rise in energy renewables and the replacement of fossil fuels with wind, solar and natural gas supplies. However, the lack of commitment from governments of both stripes to building nuclear power stations has exacerbated the domestic energy crisis perpetrated by the war on Ukraine. In 2006, Sir Tony Blair committed to a new generation of nuclear power. Successive governments that came in, however, failed to build on this commitment and increase the supply of energy.
In recent days Prime Minister Liz Truss has committed to what she brands a ‘pro-business, pro-growth’ strategy to mitigate the impacts on both families and businesses during the current cost of living crisis. Her £150 billion plan is to be funded solely by taxpayers and government borrowing and is set to be the biggest spending package of any UK government since the second world war.
The plan involves paying energy companies to freeze their prices from now until 2024, when energy prices are set to peak at a monumentally high rate. Excess profits these companies are set to make between now and then, however, set to reach a record £170 billion, will remain completely untaxed. Corporation tax rates, set to stay the same, will still apply to regular company profits. Government figures including the new Chancellor Kwasi Kwarteng have defended the plans, claiming that they would ‘reduce government spending on servicing debt’, reassuring markets that he would not let debt ‘spiral unsustainably’.
The plan is expected to knock five percentage points off the rate of inflation, leading to lower costs in the medium to long term. It does, however, rely on key investment in supply from the energy companies’ excess profits. Concerns have been rasied by Labour MPs such as Nadia Whittome that much of these profits will simply go to wealthy shareholders as opposed to expanding nuclear energy capacity.
The government has recently announced a full reversal of the shale gas fracking ban, prompting speculation that this is part of the solution to increase energy supply across the country and temporarily return to less environmentally friendly policy positions. Chris Cornelius, the founder of fracking firm Cuadrilla, however, has expressed doubts at the government’s plan. He said: “Fracking in the UK will be impossible at any meaningful scale and will not help with the energy price crisis.” The original ban was put in place due to a number of earth tremors reported, including in Blackpool at a magnitude of 1.5.
In response to various criticisms of the ban reversal, the Business Secretary Jacob Rees-Mogg has stated “some of the opposition to fracking has been funded by Putin” and that we must “tolerate earthquakes in the national interest”. The stance the government has taken is expected to cause discontent amongst opposition MPs and environmental lobby groups.
Across seas, Northern Ireland announced its own price cap on 21 September, roughly a month following on from the British government’s announcement. It will come into effect in November. Northern Ireland has a separate energy regulator and market to the rest of the UK, meaning it is not bound by British government legislation. The cap here is expected to save the average consumer £1000 a year on their energy bills.
It’s fair to say people in the UK are concerned that the lack of long-term policies to address the energy shortage has been detrimental to the position we’re in today. Even with the war in Ukraine, global energy prices have hiked because of low supply and little spare capacity.
Businesses as well as individual households are deeply concerned for their future finances, and it is unclear whether Liz Truss’ new plan to freeze energy prices will be enough to tackle the cost of living crisis. Or if it will only be a drop in the ocean of practical mechanisms of support needed for the population.
