The energy price cap hike is just the start of Labour’s problems

As far as the economy goes, Sir Keir Starmer has enjoyed something of a golden honeymoon. True, he has had riots to deal with, but economic growth has been stronger than many anticipated, while a small uptick in the Consumer Prices Index (CPI) allowed the Bank of England to reduce interest rates earlier this month. Everything appeared to be going in the right direction – until this morning, that is. Ofgem have announced that the energy price cap will rise in October by 9 per cent, adding an average of £149 to annual bills. While a rise was expected, this is a substantial rise at a time when inflation seemed to be back under control.

A 9 per cent jump will not take energy bills to anywhere like where they were in late 2022 and early 2023. But it still represents a very big political problem for the government, especially given Rachel Reeves’ decision to remove the winter fuel payment for all pensioners other than those on pension credit. That may have seemed a reasonable way to try to cut public spending – after all, there are some very wealthy pensioners around who hardly need the government’s help to keep their homes warm. Yet it grates when the government has just awarded a 15 per cent pay rise to train drivers, a group who are already in the top 10 per cent of earners. 

There is a growing narrative that the government is robbing pensioners to reward its union paymasters. Given the decline in trade union membership since a Labour government was last in the habit of indulging them back in the 1970s, there is a risk that a large majority of workers – let alone pensioners – will conclude that Starmer’s government is not on their side.

Yet in spite of October’s rise, it may well be that we will look back on the present time as an age of affordable energy. The government’s biggest potential banana skin is its energy policy, in particular Ed Miliband’s promise to fully decarbonise the electricity grid by 2030 – a target which will cost many billions in investment and which many in the industry believe cannot be achieved at any price.

It will not merely require more wind turbines and solar panels, but vast investment in energy storage. If the government doesn’t invest in the energy storage – and there is scant sign of that happening at the moment – then consumers will face eye-watering surge pricing when wind and solar energy is sparse. We will also become ever more dependent on electricity imported via subsea cables, from which we are currently drawing around a tenth of our power. That, too, will feed into spikes in electricity prices as we will inevitably be needing to import power at times when neighbouring countries are also low in renewable energy – if it is not windy in southern Britain it may well not be windy in northern France, Belgium or Holland either.     

Miliband has no chance of building extra nuclear power by 2030. In fact, he will lose nuclear from the grid as Hinckley C – when it eventually opens – will not compensate for the loss of nuclear plants due to close in coming years. The other option for decarbonising the grid – which Labour seemed to be warming to in its manifesto – is to keep gas power stations but to equip them with carbon capture and storage (CCS). But that, too, will cost billions. We don’t yet have a single large scale CCS plant in Britain, even a demonstration one. Moreover, CCS would lead to a substantial loss of efficiency, requiring more gas for the same power output.

Moreover, a policy of continuing to rely on gas rather grates with Miliband’s explanation for Ofgem’s price cap rise. Bizarrely, this morning Miliband has blamed it on the Conservatives for making us dependent on ‘gas markets controlled by dictators’. Actually, most of our imported gas currently comes from Norway, with the US and Denmark our next biggest suppliers. If Miliband is calling them dictatorships maybe David Lammy should have a word with him before he causes a diplomatic incident.

Blaming the Tories for everything has been Labour’s default position since it took power seven weeks ago. But it won’t wash once the bill starts rolling in for Miliband’s decarbonisation plans.