November 15, 2022 - 1:00pm

There is a spectre haunting the Chancellor’s Autumn Statement this Thursday: the spectre of a protracted energy crisis. Yet the unwelcome ghost is rarely discussed. Attention is firmly fixed on minutiae like marginally raising various rates of tax or shifting the tax brackets to make people pay a higher rate.

However, the numbers show clearly that taxation is not the issue when it comes to Britain’s budgetary crisis. Take fiscal year 2022-23 as an example. Kwasi Kwarteng’s failed tax cuts were set to cost around £5bn in this period. The government’s Energy Price Guarantee (EPG), on the other hand, is set to cost £60bn.

The same story can be told for 2023-24. Kwarteng’s tax cuts were expected to cost around £18bn over this period. If energy prices remain at their current level and the government continues to subsidise them, the cost will be around £122bn. When compared to the enormous costs of the current energy crisis, tax cuts and tax rises are meaningless.

In the run-up to the Autumn Statement, the Office of Budget Responsibility (OBR) put out its most pessimistic statement yet, estimating that government borrowing would rise to £100bn in 2026-27. But the OBR seems to be completely ignoring the possibility that the energy crisis will grind on. “Roughly half of the £70bn increase in borrowing is caused by higher anticipated costs of servicing government debt,” the Financial Times reports, “with the remainder coming from a weaker economic growth outlook hitting tax revenues, and inflation raising the expense of welfare benefits and state pensions.”

When energy prices are discussed, they are mentioned in a context which appears to assume that they will go back to normal. “The government at present caps electricity and gas bills for all households following a surge in wholesale energy prices,” the paper reports, “but is expected to focus future help on pensioners and the vulnerable.” This will not be possible if energy prices remain high, unless the government intends to allow households to sink into bankruptcy and businesses to go bust.

What is so odd about the budget is that it seems to fly in the face of all the expert statements on the energy crisis. In mid-September, for example, the Institute for Government issued a report that warned the energy crisis would get worse, not better, in 2023. Why is the new Prime Minister doing nothing to address it, then?

It is understandable that Jeremy Hunt does not want to discuss the potential cost of an ongoing energy crisis. Doing so would highlight problems that marginal increases in taxation rates will not solve. But it remains unclear why the media is going along with it. Why aren’t journalists asking the Chancellor about the forecasts for energy prices in 2023 and what they mean for the viability of his budget? It is difficult to say. But their failure to do so will simply mean that we kick the budgetary can down the road for a few months until the costs of the energy crisis become so obvious as to be overwhelming.

Britain is in a lot of trouble. With its overly financialised economy, it has proved particularly vulnerable to the energy crisis. Yet there seems to be nothing but short-term thinking in Whitehall. This is not doing the country any favours. The new government needs to grasp the nettle and take charge of the energy crisis.

Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics