The hot air being generated regarding energy policy could probably keep the lights on in Britain for years to come. Labour's response to above-inflation energy prices rises showed their blatant disregard for the free market and the private companies within it. Such a policy is hard to operate in a democratic system and flawed as national governments cannot control the global price of oil and gas. Admittedly, the government were slow on the uptake and are yet to offer a competent alternative. It has been widely reported that the government have plead with energy companies for a price freeze until 2015, although a Number 10 source has refuted this.
Osborne pledged to abolish some of the green taxes (which Miliband himself is responsible for as former Energy Secretary) in the Autumn Statement, reportedly saving consumers on average £50 annually. But for the hard-pressed public whose energy bills recently increased by over £100 on average, this will be little comfort. The Chancellor shouldn't expect congratulations for this; it seems like a hasty response from a man who is running scared of the opposition and the energy companies. However, Osborne has reason to worry. Labour's proposal of a price freeze, despite being economically incoherent, is popular with the public. A You Gov poll has shown support for a price freeze as being as high as 80%. Understandably too, as an electorate who are feeling their living standards squeezed by the day may feel inclined to vote for Miliband to quell the rise in energy prices. Miliband may not be right on energy policy, but the Leader of the Opposition is certainly right about the so-called 'cost of living crisis'.
There is an irony to Labour's promise: Miliband himself is responsible for the increase in green levies and his price freeze arguably caused the ferocity of recent price rises as companies attempt to retain profit in case Labour take office in 2015. Miliband's promise scared the energy market and the big six happily took the opportunity to increase prices, citing the burden of green levies. Issuing an edict will result in excruciating price rises before and after the price freeze. Miliband's price freeze is short-term populism about a long-term issue.
It would be a grave error for the Tories to disregard the price freeze merely as 1970s socialist clap-trap. They must act, and must act soon if they wish to contend for a Conservative-majority government in 2015. The rolling back of green taxes and legislating to ensure consumers are on the "lowest tariff" is a start, but reform of the energy market is still necessary. Fortunately for consumers, there is a consensus in Westminster circles that regressive green taxes should be scaled back and funded through general taxation. Whilst green levies currently account for a modest 9% of energy bills, this is estimated to rise to 41% by 2030.
Decarbonisation targets also need to be reviewed to ensure they do not hinder our economic progress. I am not advocating abandoning our environmental responsibilities, but we will not be able to fulfil these responsibilities as a low-carbon country in a weakened economic situation. Moreover, the Carbon Price Floor for the EU Emissions Trading System should be next on the green bonfire. It contributes very little to the government's aim of decarbonisation, whilst having a derogatory effect on the competitiveness of UK businesses. Research by Business Green shows that the Carbon Price Floor alone will increase electricity costs for medium-size businesses by up to 10% before 2015. Moreover, it puts UK businesses attempting to compete in the Eurozone at a particular disadvantage. Considering the current trajectory of the Carbon Price Floor, UK businesses will be paying 6 times more per tonne of CO2 compared to our European counterparts. With David Cameron's 'Global Race' in mind, UK businesses cannot afford such anti-competitive measures.
A windfall tax, as advocated by Sir John Major in October, is fundamentally flawed as the cost will be passed onto the consumers, therefore guaranteeing rising energy prices. Moreover, it will affect investment in a market which is desperately in need of it. The government estimated in 2010 that around £110 billion of investment into electricity generation is needed to fulfil environmental requirements and replace archaic infrastructure.
Competition, not price controls, will benefit consumers. Transparency, low barriers to entry and exit and a punitive regulator will ensure energy prices will not just stay constant- but even fall. A punitive regulator does not mean a larger regulator; regulatory complexities will incur a cost for consumers and increase barriers to entry, thus maintaining stubbornly high energy bills and stifling competition.
Ed Miliband is right, "Britain can do better than this". Britain can do better than political populism and price fixing which should have been left in the 1970s.