Energy price crisis: Liz Truss and Rishi Sunak need to pause their campaigns and work together to prevent 2008-style catastrophe – John McLellan
With energy bills set to hit an average of £4400 a year in January, there isn’t any doubt that intervention of some sort is necessary. The question is what.
The combination of the post-Covid surge in demand for power and the war in Ukraine has produced what for millions of people is effectively a market failure, and when put in the context of average earnings and rents the scale of the crisis is staggering.
The average Edinburgh salary is around £32,000 and produces a take-home pay of approximately £25,500, with an average Edinburgh rent of £14,400 and band B Council Tax of £1,000, an average single resident could be looking at a disposable income of barely £100 a week for everything else.
Very few will not feel the impact of soaring energy bills, but fortunately plenty will be able to get by, so the UK Government’s priority should be to ensure meaningful relief gets to those who need it most urgently.
Across-the-board income tax and national insurance cuts might give people back a few pounds ─ and in Scotland many families with low disposable incomes pay far higher income tax than their English counterparts ─ but they will barely scratch the surface of what’s fast approaching and do nothing for pensioners and people on out-of-work benefits.
A combination of targeted tax cuts and direct support is the best approach but, like it or not, more government borrowing will probably be the only way to balance the books because public spending savings come with an initial cost and cannot be delivered in time.
As with the original Covid support packages, and despite evidence of widespread bounce-back loan fraud, help is needed quickly without tying up applicants, and civil servants, in tortuous application systems taking months to process.
With political agitators already whipping up a re-run of the anti-poll tax non-payment campaign, the prospect of civil unrest cannot be dismissed, and the dangers are vast for those tempted by the false prospect of a collapsed system not being able to recoup outstanding bills.
Apart from pre-payment meters or no power at all, the implications of mass credit blacklisting and the inability to maintain bank accounts in an increasingly cashless digital age don’t bear thinking about.
We are on the edge of another catastrophe like the banking crash and although the Treasury’s desire to get the economy back on an even keel after Covid is understandable, economically this feels as close to wartime as is possible without actually shooting.
At least the UK Government is convening an energy meeting today to see what action Ofgem and the energy companies can take but, however hysterical he sounds, money expert Martin Lewis is correct that the Conservative leadership contest cannot be an excuse for inaction.
The problem is that both Ms Truss and Mr Sunak are correct; high tax to fund handouts isn’t a way forward, more borrowing isn’t a long-term answer and risks fuelling inflation, and windfall taxes are damaging sticking-plaster solutions. The market is failing millions so it’s Ofgem’s job to intervene.
It might be difficult, but nothing would send a stronger signal to the electorate that the Conservative party knows what’s at stake than the two candidates taking time from their campaigns to put the national interest first and find common ground.