One of the most basic rules of economics is that the price of goods and services is driven by the balance between supply and demand. That doesn’t mean that changes in supply always result in the same outcome. There are some things which we don’t need to buy but might choose to when the price is right. It isn’t necessary to buy a new sofa or a ticket to a rock concert. If the price of things like that goes up we can respond by simply not buying what we can no longer afford.
Necessity, war, and inflation
That doesn’t apply to essentials. There are some things that we tend to carry on buying even when the price goes up. Like food and fuel. When those things start to be in shorter supply that tendency to carry on buying makes a hefty dent in our standard of living because the very fact we continue to buy them means that price rises are rapid and severe.
This is why the disruption to food and fuel supplies that resulted from the war in Ukraine had such a significant impact on inflation. It is also a reason why what is happening right now in the Middle East will also hit us hard in our pockets, unless we take sensible precautions instead of relying on risky military adventures which can’t work.
Much of the food and fuel that comes into Britain is transported through the Suez Canal and has to pass close to Yemen, Somalia, Djibouti, and Eritrea. With an ugly war raging in the Middle East and routine destruction of civilian targets in the Gaza Strip there are a lot of people in the region who are very angry indeed about what is happening and are determined to interrupt supplies of weapons, food, and fuel to Israel.
However many military resources Britain and the US deploy in the region in an attempt to secure passage for shipping, it is virtually impossible to make it safe to travel through the Gulf and up the canal. It is also virtually impossible for force of arms to result in a quick victory that enables reliable risk-free passage close to Yemen. That is certainly not what happened when Saudi Arabia tried to impose its will on the region from bases much closer to the action. Wars are always easier to start than to finish successfully.
More and more shipping companies are going to have to switch to longer and more expensive routes and insurance companies are going to put up their premiums. The supply of food and fuel is about to become more unreliable and more expensive – unless the government takes early action to try and help people to reduce demand and preserve supplies.
Potential measures to reduce demand
Despite the fact that we all need to eat and would like to heat our homes, there are some simple things that any government can do to try and prevent hardship caused by rising prices of essentials that are in short supply. Most of them take a little time to have an impact.
When it comes to energy, the quickest and most effective way to reduce consumption without hurting anyone is to increase the incentives to use power at off-peak times. Conversely, the cost when power stations are close to capacity, and burning gas instead of relying on cheaper alternatives like wind, can be increased.
When Putin’s invasion of the Ukraine exposed quite how dangerous it was for countries like Germany to depend on importing gas from his regime, serious efforts were made to take such measures. In the UK, however, the privatised British energy companies did precious little to change patterns of consumption because they had little incentive to reduce their sales and their income.
Much of Europe also speeded up efforts to insulate homes, reduce heating in public buildings, install solar panels and heat exchange units, and create new onshore wind farms. The impact of that reduced demand is one of the key reasons why fuel prices fell rapidly from their horrible peaks and were back to reasonable levels before the latest Israeli conflict.
UK government action favours energy companies over citizens
In Britain the government has been desperately slow to provide serious incentives for better insulation. It has also effectively banned onshore wind farms, and still allows brand new homes to be built without solar panels and heat exchange units, whilst providing precious little support for homes, schools, hospitals, and businesses to cut their energy bills.
Instead of spending available money on investment to cut consumption, our government chose to waste billions on subsidising consumption and effectively pumped billions of pounds of public money into the coffers of energy companies that were making record profits from hiking bills.
We can’t make ourselves more self-sufficient by drilling for new oil and gas supplies that will take years to come online and then be sold to the highest bidder, or by building more nuclear power stations that take decades to construct and produce incredibly expensive fuel. We have to help people cut the amount of fuel they need to consume.
Everyone who puts solar panels on their roof cuts their own bills, and by cutting overall demand they also help drive down prices for everyone else. Every individual who switches to an electric car and charges it at night takes a big slice from demand and cuts the cost of petrol.
Act now on food security
Our approach to food security must also change. Whenever there has been major international conflict Britain has struggled to feed itself and has learned the importance of ensuring that a high proportion of our food is produced in this country and our people adapt to eating less wastefully. Our government has been desperately slow to recognise that we are entering a period of increased conflict and more chaotic climate conditions and that it is important to learn that lesson of increased self-reliance.
It may sound a touch alarmist to start talking about digging for victory and adapting to a diet that is lower in meat and fish, but it takes time to change agricultural policy and consumption habits. Benjamin Netanyahu has told the world that he intends to carry on attacking the Gaza Strip for another whole year at least. In an unreliable world our government would be wise to place a lot more emphasis on our food security.
The first duty of a government is to ensure that its citizens can be fed and housed securely. Delay and dither on critically important actions is risky, dangerous, and expensive. Yet it appears to be central to the policy of this government.
