The spectre haunting the Autumn Statement
The Government is failing to address the extent of the energy crisis
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.
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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.
So the government commits to longer term thinking (Truss/Kwarteng) and gets slated. And now it’s getting slated for shorter term thinking.
Isn’t it about time our media realised they’re part of the problem, and every single day provides evidence that they encourage the very short-termism this article criticises?
It appears that the tail (media) is wagging the dog (everybody else). But isn’t it also true today that many, many more people constitute the media? Once upon a time the media meant just a few reporters running about trying to meet a deadline; today you start a blog and immediately become one of those reporters.
So, in this context it is not enough to report the obvious because everybody already knows the obvious.
Energy is indeed a massive priority but who can predict anything with authority? The world has had enough of experts (Covid) who really know nothing. If an energy expert came today and predicted something I think I would believe the exact opposite. Chaos is to be expected.
Go tell people on the left and the right that they are wrong.
We who are about to die salute you!
Great article, good on you Mr pilkington, I am really quite alarmed by the government/ press silence on this one too. We really have got some interesting times ahead.
This is the only politician in the press I have seen being honest about the situation: https://www.bloomberg.com/news/articles/2022-08-22/europe-faces-up-to-10-difficult-winters-belgian-premier-warns
I couldn’t agree more Miss Emery. However I look forward with bated breath to the arrival of the “ Beast from the East”.
It is just the catalyst we need to shake us out of our current torpor, and off course, there will still be plenty of foxes to chase.
Beast from the east probably would do it, have read uk should be OK until December then Europe will start to run its storage down, if it can’t refill fast enough they won’t be able to export us any power, and competition for gas will be intense, so if we are lucky we might make Christmas before any serious disruption hits. I’m lucky enough to rent a place on a farm, dig for victory, we put in a log burner, ready to try 1900s style living. Be a bit different won’t it? Pigeon pie anyone? 🙂
As that renowned former member of the SAS, one Sir Ranulph Twisleton-Wykeham-Fiennes, 3rd Baronet OBE (born 7 March 1944), put it so perfectly “if you are cold you are IMPROPERLY dressed”.
That man is a hero. Did you see the SAS thing the BBC have done? It’s actually brilliant, and all of it taken from the SAS archives, surprisingly good considering the BBC churned it out.
Sunak has announced that we’ll build 5 new warships. No word on upgrading or building new power plants. Got to love the priorities!
So there’s nothing but short-term thinking in Whitehall and we’re kicking the budgetary can down the road. And this is news?
That conclusion could have been written at any time since 2008.
I appreciate the issues pointed out in this article and, certainly, the tax cuts of Truss/Kwarteng were nowhere near as reckless as claimed. However, weren’t their energy support promises similarly generous?
In any case, it seems extraordinary that Sunak reversed their decision to allow fracking.
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