Labour’s announcement today on offshore wind is a fascinating case study in how the party isn’t even pretending to care about prudent economics any more.
Last January, the Centre for Policy Studies totted up independent estimates of Labour’s renationalisation plans. Suffice to say they turned out to be expensive. Very expensive. We came up with a lowest-bound figure for the upfront borrowing cost of £176 billion.
Predictably, Shadow Chancellor John McDonnell disagreed, in his own inimitable way. He dismissed us as a bunch of Thatcherites, refusing to engage on any of the detail in the report (to this day, no one from Labour has challenged a single figure in the report – because they were all sourced from independent analysts).
Instead, he insisted that it would cost the taxpayer nothing, because ‘Parliament would set the price’ and you – the taxpayer – would have the assets. (Though as we pointed out, that line only works if you were using the assets to repay borrowing – rather than simultaneously promising to cut bills, invest hugely more, raise salaries, reward unions and so on…)
But one thing at least was clear: Labour regarded the idea of £176 billion in extra borrowing – the equivalent of 10% on the national debt, or £6,500 per household – as electorally toxic. They needed to push back as hard as they could.
Eighteen months on, we have the party today breezily promising to invest £83 billion in offshore wind power alone.
This, we are told, will come from a mix of public and private sources. But we are given no explanation of what that balance looks like. Or, indeed, of why private investors would be attracted to the brilliant opportunity to own 49% of a Corbyn-built, Corbyn-run wind farm.
The report tells us that 20% of the profits would go to coastal communities, and 80% to decarbonising the economy. But Labour do not give any estimate of how much those profits would be, after you take account of construction, borrowing and operating costs, and the slice of the income that would go to private investors.
Remember, the amounts we’re talking about here, just for this wind power plan, are very substantial indeed – using the same rule of thumb above, it’s roughly £3,000+ per household, or 5% on the national debt.
But perhaps the strangest thing about Corbyn’s latest wheeze is that offshore wind is absolutely the last sector where there is a case for massive government ownership.
Thanks to subsidies and incentives already in existence, offshore wind has surged within a decade from basically zero to 20% of UK generating capacity.
In the process, Britain has become the undisputed world leader in offshore wind production. We have a third of the global capacity – between us and Germany, it’s three fifths.
Corbyn says he wants to increase our offshore wind capacity ‘fivefold’. Assuming constant energy use, that’s literally all of it! Is the plan we just shut down all other power stations? If so, what about intermittent capacity to cover the gaps in wind power?
On top of all of this, there’s the fact that – thanks to those earlier incentives, and free-market innovation responding to this new market – offshore wind has reached the point where it doesn’t actually need any subsidy at all. In fact, the cost has fallen 30% in just two years.
At the most recent auction, the Government set aside £65m to encourage new offshore wind farms – only to find it didn’t need to spend the cash, because people were queuing up to build them anyway. The eventual bids from private enterprise were enough to cover 7 million more homes.
In other words, offshore wind is a brilliant example of how the free market, working in tandem with government incentives, really can help save the planet without destroying the economy.
Yes, electricity demand is set to rise as we move towards a zero-carbon world, not least due to the demands of transitioning from petrol and diesel vehicles to electric. So we will definitely need more generating capacity. But in terms of offshore wind, the existing auction system is doing a pretty good job of providing it. Some even talk of Britain becoming the Saudi Arabia of wind power, and selling this 21st-century form of North Sea energy back to the European grid (rather than importing it, as at present).
It’s also worth pointing out that for the same £83 billion, you could build another four Hinkley Points (on current prices), providing a zero-carbon base load for the grid to cover the periods when the wind isn’t blowing – safe in the knowledge that offshore wind would continue to fall in cost and rise in capacity without your lifting a finger.
Britain’s energy policy has, in recent decades, been a bit of a mess. But offshore wind is a big success story. It’s delivering ever more clean energy, at ever lower prices, for a fraction of the price of Labour’s plan. So why does Jeremy Corbyn want to spend vast sums of taxpayers’ money to fix – and of course own – something that emphatically isn’t broken?