The UK is turning the energy crisis into a political mess
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As a result of Donald Trump’s ill-conceived war in Iran, there is less energy to go around than there was a month ago. I know that is, or at least should be, a statement of the obvious, but as I look around at various democracies across the world, it clearly bears repeating.
Iran’s blocking of the Strait of Hormuz means that less oil and liquefied natural gas is being transported — and therefore, surprise, surprise, there is more demand for what is being transported. We do not, despite what Sir Keir Starmer and Rachel Reeves claim, have a problem with “profiteering” driving up energy costs in the UK. We have a problem because around the world everyone is bidding more for curtailed amounts of energy.
To the extent that there is profiteering, it is profit-seeking that benefits countries like the UK, who are paying more to secure supplies that would, before the war, have gone to poorer countries. The energy companies “profiteer” to London’s benefit and Lahore’s cost.
In addition to the fact it is witless in policy terms to castigate companies in this way, Starmer and Reeves have been witless in political terms by offering opposition parties a free hit, enabling them to write even bigger blank cheques using the same rhetoric. The Greens have argued for a broad and indefinite subsidy to household energy bills, funded by, you guessed it, profiteering, while the Conservatives want businesses, particularly green ones, to take the hit.
But at least, thus far, the British government’s response is only to say stupid things about the crisis. Other governments, such as that of Anthony Albanese in Australia or Micheál Martin in Ireland, are actively cutting taxes on fuel.
Again, at the risk of being a stuck record: the problem is that as a result of the war, we have less energy — in addition to other vital commodities, like fertiliser and plastics — than we need for all the things we currently do with it. If governments are going to use their fiscal firepower to cushion their own citizens, any policy should have the limited aim of protecting life’s genuine necessities and building further resilience into the energy supply. It should stop the poor from going to the wall and encourage the rest of us to install heat pumps and solar panels. The last thing the state should be doing is spending money to make us think that nothing bad has happened and that the war in Iran has little effect on the rest of the world.
What’s going wrong? We should worry that so few politicians in the UK and other democracies are willing or able to articulate a defence of the best method yet devised for allocating scarce resources — free markets and consumer choices. Not to mention the best method yet devised for protecting the losers from that process — cash transfers to the poorest and most vulnerable. Instead they want to reach for approaches that already we know don’t work. Some mainstream politicians may be reluctant to argue for market mechanisms because they don’t believe in them. But the other reason, more insidious and more dangerous because it is more widespread, is that arguing for market mechanisms to respond to the energy crisis is harder if you don’t have the fiscal firepower, the political capital or both to compensate the most vulnerable losers.
When market mechanisms mean that I have to put on a jumper or change my leisure plans, that is one thing. When they mean someone else has to experience real hardship, that is much harder to defend. If you can compensate the hard hit through cash transfers, you are better placed to tell me to suck it up and buy a cardigan.
But rejecting market mechanisms makes it harder to afford cash transfers: the alternative, spending money to blunt the market mechanism through capping costs to consumers, results in less efficient and dynamic economies, means less tax revenue, which means less money for cash transfers, which makes it politically harder to argue for free markets. The result is a vicious cycle of bad economics meaning less generous social policies.
The mess so many politicians are making for themselves over the energy crisis echoes a broader one across a whole set of subjects: much of the Labour government’s malaise is a spiral of bad economics leading to bad social policies leading to worse economics. The inability to talk plainly and respond sensibly to the energy crisis is a big problem on its own terms. As a symptom of a crisis where our economies are not strong enough to afford to compensate the losers and as a result states are less and less able to let markets do their thing, it is even more alarming.
