29 November 2021

What’s really fuelling the energy crisis?

By

One thousand six hundred and ninety million pounds. That’s the amount the taxpayer is to stump up to avoid the immediate collapse of the UK’s seventh largest energy supplier, Bulb.

And it doesn’t stop there. Administrators estimate it will cost £2.1 billion in total in order to keep Bulb trading until the end of April, just five months from now.

How on earth have we ended up in this situation? Why are so many energy companies suddenly folding? And why on earth is the taxpayer once again stumping up for their costs?

Well in this situation, this sort of bailout is more justifiable than most.

Why? Because it was the government, not bad business practice, that plunged Bulb into financial difficulty in the first place. Government failure, not the free market.

Simply put, the energy price cap is stifling a functioning market economy in energy.

Once derided by the Conservatives as a component of Ed Miliband’s ‘Marxist universe’, the Tories then went ahead and implemented that very policy.

Forbidding energy companies raising prices beyond a government determined level. Preventing timely adjustments to changing market conditions. Quashing flexibility.

And what is the consequence of this supposedly benevolent regulation?

Twenty two, yes twenty two energy companies have folded in recent weeks. Companies that in normal market conditions would have been viable. Companies the government forced to provide energy at a price that was below the cost at which they bought it.

It’s easy to see how so many simply threw in the towel.

And that ends up costing consumers, taxpayers, and the economy. Nor does it succeed in its nominal purpose of protecting consumers from price rises – Ofgem recently hiked the cap by 12%, adding £139 to a typical family’s bill.

Yet the political pressure to revisit this counterproductive price cap is apparently non existent. This nominally Conservative government has been defending the policy to the hilt, no matter how many businesses it pushes over the brink.

When I asked the Prime Minister’s spokesman about the potential of ending the cap earlier this week, he told me that the PM was absolutely committed to it.

News that should sink the hearts of taxpayers for as long as it persists.

Perhaps this isn’t the worst thing in the world given how often this government U-turns, but less damage would be done were they to immediately acknowledge that at least letting companies pass on the price at which they buy their energy to their consumers might mean fewer going bust.

Ultimately the energy crisis is real. The lesson of this crisis must be to learn that fixing prices does not work. In reality that just depletes plurality and supply.

The answer to our energy crisis is to increase supply. And that means steaming ahead with new nuclear power, enabling time limited shale exploration, and easing regulations on energy innovation.

It means greater domestic production capacity, enabled by a freer market.

And it means ditching the counterproductive so called solutions that have driven us deeper into this hole to date.

The Tories were right when they derided this brain dead policy in the first half of the last decade. Now they must repent for having introduced it.

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Tom Harwood is Political Correspondent at GB News, where he presents The Briefing.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.