As we head at increasing speed for the policy train wreck of
the forthcoming Brexit negotiations, the British political class (and MPs by an
overwhelming majority) has chosen to divert our attention into one of the most
pointless general elections of all time. This will inter alia call a temporary halt
to the searching examination of false promises and expectations, and simple
untruths, that Hillary Benn’s House of
Commons Select Committee on Leaving the European Union has been conducting. Readers
not looking for the usual energy policy content of this blog may wish to read
no further and refer instead to the Committee’s
recent reports. These tend to be understated, but the material is there. In
due course we will no doubt learn more about the effectiveness of EU exit in
curbing immigration, boosts to our national income, the wonderful new trade
deals on offer from Donald Trump, and much, much more.
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| POLICY TRAIN WRECK |
However in the meantime the campaign will provide a useful
opportunity for our leaders to hide from reality. Nevertheless connoisseurs of duplicity,
smoke and mirrors, and hypocrisy, if not satiated by other aspects of the
Brexit debate, can still find some rich material in campaign discussions on the
subject of energy prices. The subject of energy price caps has come to the
fore, just as it did before the 2015 election, with Ed Miliband’s promotion of the idea.
2015. RED ED'S POLITICS OF THE BANANA
REPUBLIC. … like the pledge to cap energy prices, [these
policies] … merely serve to stoke up the
politics of division. [Daily Mail]. “And despite the criticism of many experts,
he remains committed to the principle of using State power to cap energy
prices, with bills frozen by law until 2017, which strikes me as economically
illiterate.” crowed another Mail columnist. BACK TO THE BAD OLD DAYS, the
Daily Mail front page had screamed earlier in September 2013 on the same price
cap issue. For the Spectator it had been MILIBAND'S LA-LA LURCH TO THE LEFT.
2017. But when the Mail reported earlier this
month on Tory plans to take action on bills in the face of the latest rise by
one of the big six energy companies, such statist intervention had become CRACKDOWN
ON ENERGY RIP-OFFS. The Telegraph said
prices would go up before Miliband’s freeze, while the Times and the Sun warned
the “lurch to the left” risked blackouts. The Times’s editorial described his
plan as “flawed in practically every detail”. [But] on Sunday, the Sunday Times
welcomed May’s price cap as an “attempt to capture the political centre
ground”. [Guardian]
The ironies in the
contradictory treatment of the same policy when promoted by different factions
are amusing. But actually there is a deeper significance to this volte face
from the party of market fundamentalists.
As it happens I regard the use of price caps as misguided
under most circumstances, now putting myself at odds with both Labour and
Conservative. Obvious reasons are the risk that interventions confined to price
will reduce supply and deter investment, and that it is better to address the disease
(market failure) rather than the symptom. Nor do I entirely buy the view that
the energy companies are making excess profits (see an earlier
posting). But the endorsement by the Conservative party[1]
of such a quintessentially statist, interventionist approach signals something
more than simple electoral opportunism. It arguably represents the end of the
road for the pretences of market liberalisation. This is certainly so in the UK,
arguably the pioneer of deregulatory principles and their application.
Network costs, which can account for a third or more of a
domestic consumer’s bill, have always been heavily regulated, even after
privatisation in 1990. Generation investment is now almost entirely dictated by
government, either directly through support for nuclear or renewables, or more
indirectly through centrally controlled capacity auctions. The remaining
element of the electricity supply chain, retail supply, has always been at best
pseudo competitive, but that too is now being taken under the umbrella of
government. What all this amounts to is the complete capitulation of the neo-liberal
approach, at least in the energy sector.
It is surely time to recognise that this is a sector beset
by market failure and that we need, not a series of ad hoc sticking plasters
but a complete re-think of how we want the sector to operate and how we can better
structure it to use the real dynamics that can come from competitive markets in
driving efficiency and innovation. There is no point in pretending that we are
still operating a laissez-faire competitive system, or that government can
remove itself from the multiple policy choices and commitments that the sector,
and particularly a low carbon power sector, will require.
There are further
ironies and further opportunities for amusing speculation. The UK is not
alone in wrestling with the paradoxes of the flawed neo-liberal paradigm. My
last posting discussed a significant issue arising in a German and EU
context. The EU followed the UK up the hill of unbundling and market solutions,
but at least 15-20 years behind. The dawning realisation in the UK of the need
to reverse direction and head downhill will shortly see it meeting an EU still
struggling towards the summit.
But will this be an element in Brexit or future trade
negotiations? And if we struggle to get back into the EU in (say) 2025 will be
obliged to make further reverse policy changes to meet the EU energy sector and
competition and state aid rules at that time. Or will the EU by then also have
learned something from our experience as well as their own?
[1] This
is after all the party of the ayatollahs of free market fundamentalism such as
Redwood, Lawson, Lilley et al.
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