The policy debate around rising energy bills. Politicians from different parties have proposed freezing the Energy Price Cap at its current level as a way of easing the impact of rising energy bills, which the latest forecasts predict to reach £3,582 on average per year from October and £4,266 a year by January 2024. Labour outlined their £28.9bn plans to freeze the energy price cap for six months, amongst other measures. This followed similar calls from Liberal Democrat leader Ed Davey, the SNP’s Nicola Sturgeon and former Prime Minister Gordon Brown.
Reducing inflation with fiscal policy. The Bank of England estimates that half of the headline rate of inflation is due to rising energy and food prices. New analysis from IPPR calculates that freezing the Energy Price Cap at its current level could reduce the peak rate of inflation by 3.9% from 13% to 9.1% and save households £2,050 on average in energy bills over the next year, costing £45bn - less than Liz Truss’ £50bn plan for tax cuts and extra spending. If this was funded, at least partially through windfall and/or wealth taxes, inflation could be reduced by a further 0.7%. (IPPR also calculated that reducing the Energy Price Cap to its November 2021 level could reduce the peak rate of inflation by 5.6% from 13% to 7.4% and save households £2,744 on average, costing £60bn. If this was funded, at least partially through windfall and/or wealth taxes, inflation could be reduced by a further 0.9%.)
Funding the energy price cap freeze. Labour argues their £28.9bn proposal can be funded by backdating the windfall tax imposed in May to January and closing the investment loophole that grants oil and gas producers a tax break worth up to 91p in every £1, scrapping the £400 Energy Bill Rebate and by making £7bn in savings on debt interest payments by reducing inflation. The IFS’s Paul Johnson called this latter point as an ‘illusion’ because it wouldn’t bring inflation down permanently, however IPPR argues that it could have a significant effect by reanchoring expectations and reducing ‘second round effects’. (A YouGov poll for the Times found that 75% of Conservative voters support “fixing the cap on energy bills even if it means more government borrowing”.)
Criticism and counterarguments. The proposal has come under fire for a variety of reasons, detailed below. One free market counterargument was given by IEA fellow Julian Jessop, who argued that price caps distort price signals such as “increasing the incentives for producers to raise output and for consumers to economise”. IPPR provides a rebuttal to this, arguing that a 73% increase in energy prices since last year is enough of a strong incentive to transition to lower carbon homes, and freezing the energy price cap at its current level should always come in combination with another package of support to increase investment in clean energy and energy efficiency upgrades, such as Labour’s ‘energy efficiency revolution’.
Public ownership for bankrupted suppliers. So far, Ofgem’s logic in increasing the energy price cap has been to prevent energy suppliers making losses and eventually going bankrupt, which in turn would force consumers to absorb additional costs. (Martin Lewis has argued that “at every turn, in these desperate times where lives are at risk, [Ofgem] has ignored all asks for consumers and instead kowtowed to the industry”.) Bulb was bailed out by the taxpayer when it collapsed last winter, but campaigners such as We Own It want to see it nationalised on a more permanent basis.
Falling pay. Real wages are falling at the fastest rate on record according to new ONS data which found that regular pay, excluding bonuses, between April and June this year grew by 4.7% but, when accounting for inflation, actually fell by 3%. These figures represent the biggest pay squeeze since the Silver Jubilee in 1977 according to the Resolution Foundation.
Rich and poor work similar hours. The richest and poorest across work roughly the same hours, with the top 10% working one hour less on average than the bottom 10%, according to a study of 27 countries. In the UK, the very richest people work just 2.1 more hours per week than the very bottom. In South Korea, the very richest work 7.1 hours fewer than the very poorest.
Droughts. Experts have warned that forecast rain may cause floods and “offer little relief” after the driest spell in almost 50 years. Some predict that droughts could last into the new year. Meteorologist at the University of Reading, Dr Rob Thompson, shows the difference between how wet and dry grass absorb water and how grass after a drought may not be able to cope with sudden downpours.
Greening central bank collateral frameworks. A new paper by the International Network for Sustainable Financial Policy Insights Research and Exchange (INSPIRE) argues that “existing central bank collateral frameworks lack environmental considerations” and “create disproportionately better financing conditions for carbon-intensive activities”. The paper explores two ways in which environmental considerations could be better incorporated into collateral frameworks: the environmental risk exposure approach and the environmental footprint approach.
£40 billion giveaway to the wealthy. Business and wealthy individuals pocketed £40bn in tax cuts under outgoing Prime Minister Boris Johnson, according to new research by Tax Justice UK. In an analysis of every budget under Boris Johnson and Rishi Sunak, Tax Justice UK found that the government gave at least £35.8 billion in tax cuts to businesses and a further £2.2 billion to the wealthy.
Chilean constitutional convention. A group of leading economists has commended the Chilean Constitutional Convention as a “visionary document” that “sets a new global standard” in its approach to gender, public services, social security, tax, central banks and democracy. With 80% of the Chilean electorate voting to begin the constitutional update process in October 2020, voters will now be given a chance to decide on the new proposed constitution in September this year.
Green steel. Green steel sits “at the nexus” of the government goals of net-zero and levelling up and, with proper investment could “deliver highly skilled, high-wage jobs fit for the future, rapidly green a key industrial sector, steward industries and infrastructures of the future, scale exports at a time of trade uncertainty, and support levelling up by stimulating investment in industrial heartlands”, according to a group of organisations including Common Wealth, the TUC, IPPR North and the New Economics Foundation.
“Tory socialism”. Conservatives are missing a trick by not proposing a form of ‘Tory socialism’, argues Tim Stanley in the Spectator. As the Conservative leadership race becomes “a low-tax auction”, Stanley advocates an alternative type of Conservatism that is more interventionist and “situates the human being within a community that is shaped by tradition and custom”.
Livelihood security analysis. The North East of England and the West Midlands rank the lowest in the UK for “livelihood security” in a new study by the Institute for Global Prosperity (IGP). The research assesses nine English regions based on five criteria: public services and social infrastructure; food and energy security; secure income and good quality work; inclusion in social and economic life of a city and secure and genuinely affordable housing. Ranking the nine regions from best to worst, the IGP finds that the South East and South West of England score highest on this criteria while London ranks seventh (1 = best; 9 = worst).
Community wealth building in Lewes. The decarbonisation of council housing stock can help to build community wealth, according to a representative of Lewes District and Eastbourne Borough Councils who has been working to embed community wealth building principles into the councils’ strategy. Working with CLES since 2019, the council adopted community wealth building principles into its corporate plan in 2020 which centres a just transition to a green economy as a core principle.