Boris Johnson’s pompous and intellectually dishonest farewell continued the lie that the war in Ukraine has caused the spike in energy prices. It hasn’t. It is an external shock, yes, but it’s wrong to lay the blame squarely at Vladimir Putin’s grotesque invasion. We knew the price of gas and electric would go up in January 2022, before the invasion happened. And it will get worse under Liz Truss’s plans. Weep for Britain – Truss’s prosed solutions to the cost-of-living crisis are a disaster.
Government plans to bail out the energy giants
In the days after voting ended in the Conservative leadership election, it was interesting to watch some Tory MPs who previously bemoaned the cost to the ‘taxpayer’ for furlough (one government source briefed The Times in May 2020, complaining that people were “addicted” to the scheme). Now, the new prime minister has announced a £130bn package of support for the energy companies, which has been described in the media as a price freeze.
That’s £60bn more than the entire furlough scheme. All of it. The whole ball of wax. Think of that. The energy bosses are going to jump off a cliff and the government is going to provide a big fluffy pillow of pound notes for them to land on.
What’s the big plan the government has in mind? Put simply, the Tories have gambled on a short-time growth spurt engendered by tax cuts, specifically a cut in VAT and scrapping green levies. However, there’s just one problem: it’s all magical thinking.
Cuts to VAT can, in the right circumstances, be an incentive to the private sector. Alistair Darling reduced VAT in November 2008 to tackle the impact of the 2008 banking crisis. But unlike then, the prosed new cut in VAT doesn’t follow ten years of rising living standards. The economy has flatlined due to the triple shocks of austerity, Brexit and Covid-19.
Failed economic plan has created entrenched inequality
The Conservative plan, now 12 years old, to engender a private sector bonanza by reducing public sector spending, tax and welfare, has been a dull, dismal failure. It’s left a nation poor, penniless and hopelessly vulnerable to external shocks to the economy.
The government is now gambling that a short-term bounce in the economy will be enough to carry people through the winter. But inflation is ripping through society, entrenching inequality in the system.
How are people going to start a new business if banks aren’t lending customers money? How are high street shops going to continue trading if people are syphoning off their money into savings accounts or into the pockets of energy firms, instead of spending their money in the shops? It’s a recipe for vape shops, charity shops and Poundland outlets popping up on every high street and town centre in the land, but not for growth.
Energy price freeze is a scam
Then there is the so-called energy price freeze. Except it’s not actually a price freeze. It’s a bailout. No, it’s worse than a bailout, it’s a scam. As Richard Murphy from East Anglia Bylines noted, if the government caps the price of energy at £2,000, the energy companies will have to pay the shortfall. That will require government support. The loan required to reimburse energy retailers (with interest) will fall on future customers. In other words, the public will endure a slight increase to energy bills for the next ten years to pay off this loan.
It’s hard to put into the words just how terrible this policy is. Not only is this bill eye-wateringly high, but it also asks future customers to pay for a crisis they didn’t cause. The worst aspect is that for millions of families and consumers, it won’t do much good either. A £2,000 energy bill a year still represents a significant increase on the average yearly energy bill for 2021, which was previously £1,339 per year. In other words, a scam.
Who are the winners from this plan?
These plans to meet the cost-of-living crisis are simply a disaster. Everyone loses. Customers lose, low-income families lose, middle-income families lose, pensioners lose, parents and carers with disabled children lose. Everyone loses. Well, not quite. There are two sets of winners: energy companies, who made record profits during the pandemic; and people who own houses with many bedrooms, which, it hasn’t gone unnoticed, includes a lot of Tory MPs.
Do you own a country estate with lots of bedrooms? Don’t worry you’ll be fine; the government will pay the energy companies to heat your house. Are you a single parent with a disabled child? Can’t afford to pay £2,000? Oh well, sad day for you.
There’s so much more to the cost-of-living scandal. Food prices, for example, have gone up 10% while everyone has been distracted by the big and scary energy prices rises. The government wants you to believe this is the result of international turbulence. Certainly Putin’s activities are a contributing factor. But the real villain is greed. This isn’t a cost-of-living crisis, we have a cost-of-greed scandal and any attempt to shift the burden towards working people should be vigorously resisted.
