Tuesday, 24 September 2013

'Red Ed' or not, Miliband is playing shrewd politics

So far, so predictable; energy companies reacted with apocalyptic warnings of blackouts faced with Ed Miliband's plan to freeze energy bills for two years if a Labour government is elected in 2015.

First, Angela Knight, chief executive of Energy UK (and former Tory MP and head of the British Bankers’ Association) said:

‘Freezing the bill, may be superficially attractive, but it will also freeze the money to build and renew power stations, freeze the jobs and livelihoods of the 600,000 plus people dependent on the energy industry and make the prospect of energy shortages a reality, pushing up the prices for everyone.’

Liberal Democrat energy secretary Ed Davey was even more worried: ‘When they tried to fix prices in California it results in an electricity crisis and widespread blackouts. We can’t risk the lights going out here too.’

Yes, the Californian experience; suddenly, every critic became an expert in the 2000/2001 horror story when blackouts were widespread. Today’s conclusion was that price caps were to blame, though no one mentioned the failure to build any new power stations as the population increased by 13 per cent, or the extensive criminal actions of Enron, as possible mitigating circumstances.

Ed Miliband knows energy prices are a problem. So does David Cameron. Since 2007, the average prices of gas and electricity has increased by 41 per cent and 20 per cent in real terms respectively. An average annual bill is now over £1,400.

Coping with such bills is a problem affecting more and more people, especially as wages rises stubbornly stay behind inflation. The National Debtline received 15,592 calls between January and June this year from people struggling with their bills, an increase of 111 per cent in five years.

All the while, customers see energy companies' profits soar to record levels. According to figures assembled by Labour in August this year, the total profits of the big six - British Gas, Eon, nPower, SSE, Scottish Power and EDF, responsible for supplying 98 per cent of the country - was £3.74billion in 2012, up from £2.16bn in 2009. Energy company fears about the implications of such a measure may well be genuine, but they will fall on uncaring ears.

When David Cameron announced his plan to force energy companies to offer the lowest available tariff to customers, almost a year ago now, the prime minister’s official spokesman told reporters: ‘The point is, in practice this market is not operating for everyone.’ New laws were needed as energy companies had failed to reform and clean up their ‘bewildering array’ of tariffs as Cameron had asked. Cameron thus declared himself for the consumer and against the big six energy companies.

Politicians of both parties know that customers, whether rightly or wrongly, feel they are being fleeced by what is effectively a cartel. They both agree that ‘something must be done’.

Cameron is in a tricky position; coming out as a champion for the energy industry is not an option. No doubt, questions about the legality of Ed Miliband’s scheme will be raised, though the advice I've seen so far says that it is. And, of course, Tories will make great play on ’the return of Red Ed’.

Already, some hysterical commentators are fatuously heralding the return of ‘class war’, ‘the politics of envy’ and ‘divide and rule’. Yet – though there is a palpable shift to the left – Ed Miliband is gambling people won't mind a little bit of state interventionism if it means holding down bills.

It remains unclear how the plan will work. Miliband wants to ‘reset the market’, whatever that means, and to break up the big six, though quite how is a mystery. It almost sounds as though Labour is planning a form of temporary renationalisation of the sector before reprivatizing it in hopefully more competition-friendly bite size chunks. Is this vaguely realistic? I have my doubts.

But regardless of whether it happens or not, Miliband, in easily his most commanding, fluent, powerful speech as Labour leader, has come up with an idea which may well prove popular. And with a marginal general election two years away, politically that may be the most important thing.

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