OPINION: Dramatic action needed on UK fuel security
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There are many estimates being thrown around concerning how much the average British household will be paying next year and beyond to keep domestic radiators pumping and the lights on.
No one really has a clue, which is a huge problem because uncertainty nurtures justifiable concerns and people are understandably worried. ‘Which forecasts are reasonably accurate?’ they ask. ‘Will there be any government relief to counter the impact of dramatically rising gas and electricity prices?’
As we don’t have anyone in charge of the government at the moment, that’s a bit difficult to say, but even if consumers are provided with some assistance, will such largesse be replicated in 2024 and 2025? It seems highly unlikely.
As I write, annual energy bills are capped at £1,971 (the new cap is announced today, August 26) but are widely expected to rise by around 80pc, which means we can expect annual bills to be capped at more than £3,500 by October. Following a further increase of approximately 20pc, this figure is anticipated to reach £4,300 by January, putting a dampener on New Year celebrations.
Regrettably, there’s little in the way of respite on the horizon. Futures markets in London and New York, which tend to get their predictions right more often than not, expect wholesale prices of gas and electricity to remain at lofty levels throughout next year and well into 2024. Russia’s invasion of Ukraine has exacerbated matters and nobody expects Putin to do the West any favours.
What is to be done then?
The folly of deliberately ignoring the nation’s fuel security has been exposed as one of the most ludicrous, almost criminal decisions taken by successive governments over the past quarter century. It is a decision which urgently needs to be reversed.
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There is surely merit in not having to rely on rogue states and their Machiavellian leaders. Instead, as we transition towards using greener sources of energy, we must tap into our own abundant fossil fuel resources over the next 20 years or so while we urgently construct a viable nuclear alternative to traditional fuel production. This, in turn, can be supplemented from green energy sources.
A transition is essential because we cannot produce anywhere near the nation’s daily requirements from green energy alone. As the transition takes effect, resolve is called for to prevent several foreign states from actively cultivating their malign influence and having us over a barrel.
If that’s a longer-term solution, one possible short-term option has been mooted by Scottish Power. This would entail domestic energy prices being frozen at £1,971 for two years. Suppliers would cover the difference between this and wholesale energy costs by drawing from a ‘deficit fund’, borrowings of between £ 50-£60 billion, effectively underwritten by the state and repaid by suppliers over 10-15 years, with consumers picking up a proportion of the tab.
Meanwhile, the Bank of England expects inflation will reach a peak of around 13pc by the end of this year and slowly revert back to a level somewhere between 3-4pc by the end of 2024.
It would appear that we have no choice but to endure a tough two-and-a-half years before retail price inflation returns close to the 2pc level with which we had grown accustomed. Interest rates will almost certainly rise to facilitate this fall. In the meantime, we can only pray that Russia’s war on Ukraine concludes sooner rather than later. Ending the conflict would boost global economic confidence, but most importantly it would put an end to unnecessary slaughter and bloodshed.
To prevent us from getting into similar, energy-related difficulties in future, the incoming prime minister should sanction the construction of nuclear reactors to ensure the UK becomes self-sufficient in energy production by 2035. He or she should also draft legislation to enable a short-term renaissance of the country’s fossil fuel sector.
Politicians often boast about how they harbour ‘big ideas’. There can be few bigger than making sure our often cold, wet, windswept island in the North Atlantic remains warm and well illuminated without its population having to take out a mortgage to pay the electricity bill.
For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.