“IT has to be big, has to be bold and done across the UK very quickly,”, said the boss of ScottishPower, Keith Anderson, yesterday, calling for an energy price freeze. It's not often that the Scottish Government hosts summits where everyone agrees. Politicians, business, charities, consumer groups, power companies were unanimous yesterday in calling for energy bills to be capped before they double next month.
The gas price shock is a result of the war in Ukraine, and as in any war the state has to take charge of the cost on behalf of society as a whole. What is required, within weeks, is something similar to the furlough scheme during the pandemic – that met 80 per cent of the cost of lost wages. The Government has to underwrite a similar proportion of the extra cost of this winter's bills. This is exactly what Norway has done. Italy and France are following suit.
It is imperative that help is given across the earnings range, not just to those on benefits. The only way to halt the wave of strikes that threaten the wider economy this winter is to remove the threat of £5,000 or even £6,000 energy bills. If the price hikes go ahead, two-thirds of Scots will be plunged into in fuel poverty, including many on middle incomes.
If the UK Government does not act now, there will be mass non-payment campaigns, civil disobedience and potentially a general strike across the public sector. If these strikes cause wages to rise in pursuit of prices, inflation will be baked into the system and it could take interest rates of up to seven per cent to unbake it, according analysts at Citi. That could make millions of mortgages unaffordable.
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Living standards will anyway be hit by the biggest shock in nearly 50 years if inflation rises to 18% next year as some forecast. Millions who normally regard themselves as comfortably off will be plunged into penury – especially those, like pensioners, who rely on fixed incomes.
So there really is no doubt about what needs to be done. ScottishPower are hardly socialists but their solution of containing excess energy costs in a special fund, paid off over the next two decades, is in the right ball park. There is a precedent. The loss-making assets of the banks that went bust in the 2008 crash were quarantined in a special fund underwritten by the Bank of England. If delinquent banks can be bailed out, so can the people.
But what about the wealthy? Why pay their bills? UK CEOs, who have seen their average pay rise to £3.4 million recently, will of course have to contribute to the circa £40 billion cost of the energy price freeze through the taxation system.
First, there should be a surtax on high incomes, just as there was in the Second World War. Secondly, the energy extraction companies, BP, Shelland the like, should pay a higher proportion of their surplus profits in a windfall tax. BP is so cash-rich it is buying back its own shares.
Thirdly, the energy supply companies, who are effectively insolvent, will have to accept suppression of profits and remuneration for the duration of the fund, or face nationalisation. Finally, the Government could issue “green" bonds against future earnings from the renewable energy boom that is coming down the tracks.
Nicola Sturgeon has rightly said that managing the gas crisis now has to be done at UK level, however damaging that may be to her call for an independence referendum next year. I think we can assume that referendum will not now happen. The Scottish Government, however, is not entirely powerless. It could raise a surtax here in Scotland, it has the powers to do so. It can also issue green bonds. However, the onus must be on the UK to mobilise the scale of funding necessary to meet the cost of a price freeze.
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Liz Truss has been telling fairytales about solving the cost of living crisis with tax cuts. Sheer political necessity will force her to descend to the real world if only to save her skin at the next General Election. She says she believes in capitalism, so perhaps she should listen to private companies like ScottishPower.
There is 50GW of cheap, renewable energy available to the UK which, as Mr Anderson says, is the long-term solution to the gas crisis. Ms Truss will also have to inform diehard climate sceptics in her party that developing green energy is a national priority equal in strategic significance to defence. The transition from fossil fuels must be accelerated.
The good news is that the massive Seagreen wind farm off Angus, with its Eiffel Tower-sized wind turbines, has finally started producing energy. But it won't be contributing much till the end of next year, and even then its 1.1 GW is a drop in the bucket. The UK will need four Seagreens every year if it is to meet its 2030 target. It took 13 years to develop the first one.
Planning will have to be streamlined, especially for onshore wind. Energy behemoths like Total, which is behind Seagreen, need to be pushed harder to develop offshore wind and carbon capture. They may be too big to nationalise, but the Government is bigger still. It holds the future revenues of renewable energy in its hands, which gives ministers massive leverage.
The bad news is that we are still dependent for the next decade on oil and gas. Ms Sturgeon needs to hold another energy summit to mobilise our existing hydrocarbon resources in the North Sea. We cannot go on importing oil and gas from delinquent regimes in the Middle East and Russia at enormous cost to the environment, not to mention world peace.
Even ''sustainable” Norway is drilling for new oil and gas, and threatening to curb energy exports to ensure its own security of supply. Oil and gas is a strategic resource, as powerful as any super-weapon. Russia has demonstrated this by holding the EU to ransom. Norway understands this new reality; so should Scotland.
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