Stephen Richard / 18.03.2022

The Energy Rip-off

Here's what Rishi Sunak needs to do to stem the UK's spiralling energy costs

3 hrs ago

BY PROFESSOR RICHARD MURPHY

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Rishi Sunak needs to act now to prevent families choosing between heating and eating

I WROTE a Twitter thread last weekend that ended up being viewed by about 3 million people, with almost 300,000 actively engaging with it. It has to be said, that this is not normal for my tweets. But then, I was talking about something that is going to impact every household in Scotland, which is the increase in domestic energy costs over the coming year.

The average gas and electricity cost of UK households in 2021 was just under £1200 for the year. In April this year, as a direct consequence of additional costs arising because of the Covid lockdown restrictions ending and because of Brexit that price is expected to increase to around £1970 a year. Many experts are forecasting that because of the additional price increases now being created as a result of sanctions on Russia and the war in Ukraine, the average energy bill might increase to £3000 a year.

 

As a result of Westminster government action £200 of the April increase has been deferred through a bizarre loan scheme that everyone will be forced to partake in, whilst an additional £150 rebate is being provided through local taxation in Scotland, funded by Westminster. However, neither of these actions are stopping the actual cost of fuel rising, and nor will they have any impact at all on the further £1000 predicted price increase later this year. So, what is happening, and what needs to be done about it?

READ MORE: The National wants to hear from those struggling with the cost of living crisis

What is happening is simple to explain, which is what I did in my Twitter thread. As I noted there, despite the price increases it is a simple fact that most of the costs of producing energy have not changed much between 2021 and 2022. Getting oil and gas out of the ground is costing no more, and wind, solar, hydro and nuclear electricity all cost much the same this year as last. The costs of actually getting energy to us have also not changed much either, and VAT is at the same rate. That leaves just two things that could change that might impact energy prices.

The first of these is the daily standing charge we all have to pay. In this case the government is ripping us off by permitting an increase in the daily standing charge for energy supplies of about £70 a year, on average. These have been imposed on everyone irrespective of their income to cover the cost of the 28 energy companies that failed last autumn. That is grossly unfair, because the government was responsible for those failures. It failed to properly regulate the supposed energy market. The government has, in effect, imposed a poll tax of around £70 a year on everyone to recover the cost of their own mishandling of this issue.

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Gas and electricity bills are rising fast

However, much more important is the fact that, as my Twitter thread showed, almost all of the price increases that we are suffering are down to increases in oil and gas company profits as they hike up prices to exploit the shortages that Covid and now war have created. In 2021 I estimated that total energy producer profits in the price you paid for your household energy was around £40 a year. By the end of 2022 that figure may be running at about £1700 a year. In other words, oil companies will simply be ripping you off in the biggest act of mass exploitation of the population at large that we have seen for decades, if not centuries.

No wonder the boss of BP described the company as a "cash machine' in November 2021. The world has just got even better for him and his shareholders since then.

Next week, Rishi Sunak gives his spring statement to the Westminster House of Commons. Whilst some of this will not be directly relevant to Scotland, what he does on energy prices will have a direct impact. If he does almost nothing, which is what I fear, there will be a million or more households in Scotland who might be facing hardship on a scale not seen in my lifetime. Even feeble gestures by him will not prevent this. He has to take really radical action to address this issue.

What could he do? Some say he could start by restoring the £20 a week Universal Credit cut, but that does not help all those affected, so something better is needed.

I suggest starting by cutting the VAT on household energy. It has to go right now. That would save £100 from April onwards.

Then he should demand the daily charge be reduced. That would save £70.

READ MORE: What Scotland can do to avoid future rising energy, food and house prices

But that is not enough, especially when food and road fuel prices are also increasing. So he has to do something more significant. My suggestion is that we need subsidised household energy prices. He should cut the price of energy for an average house back to 2021 levels and subsidise that cut in costs. This figure should be varied regionally, of course. Then only larger houses should be required to pay more for whatever they consume above the average use, and then only on their excess usage, which would encourage energy-saving measures by them and suit the green agenda.

How to pay for this? That’s simple. This is a crisis as big as Covid, and without action people will die from cold and fuel poverty. So, like Covid, quantitative easing or government money creation should pay for this, but an extra tax on energy companies would clearly help too.

My fear is that nothing less than this will do, especially as there are other costs that are rising rapidly as well. The trouble is that we know Sunak bungled Covid, reacting too little and too late, and then incompetently, with a scheme riddled with fraud. If he does that in the face of this energy price crisis the capacity for real harm might be even bigger this time. Things are that serious.