Our two best know pensioner peers wrote in the Daily Mail on Friday that Government should act to tame fuel inflation and reform the ownership of energy supply and production.
I’m quoting wholesale from the article because it represents the first intervention in this debate from political economists whose focus is on our welfare system. What Field and Altmann saying represents a considered response from two people who command popular respect.
Here is the headline, as presented in “this is Money”.
‘This is a Dunkirk moment’: Freeze energy bills or cap rises at 5% this winter, BARONESS ALTMANN and LORD FIELD urge next Prime Minister
‘We are concerned that indiscriminately doling out more taxpayer money will not help all those in need,’
This is Ros Altmann and Frank Field’s message to the new Prime Minister
Government action on the energy crisis must recognise this is a Dunkirk moment – patching up won’t do, radical action is vital.
I spoke with Ros Altmann a few weeks ago, at the time she did not think the energy crisis was of great moment. She has changed her position and I am glad of it.
So what is her and Frank Field’s recommendation? They are clear
Any new package must recognise two factors:
1. Direct action to reduce energy costs is superior to handouts as it also lowers CPI, RPI and wage inflation with wide economic benefits;
2. Privatisation has failed and radical reform of energy pricing throughout the economy is needed.
The strain on Government finances from inflation is immense. Virtually every regular payment to pensioners and those on benefits is upgraded by one of the three inflation measures.
By putting money in our hands, Altmann and Field argue, they are promising increased benefits to a range of people who have no need of double digit percentage rises in their benefits in years to come.
Keeping a lid on inflation also reduces pressure on wage inflation. A third advantage, which Altmann and Field also mention, is that it reduces pressure on small businesses who have had no protection from recent price rises, nor have any current expectation of relief
This is sensible , I support it. More surprising is the view that had we kept energy production and supply in the public sector, we would have been better placed to deal with this crisis.
The Government must recognise that privatisation has failed consumers who are being forced to pay well over the cost of production and also for collapsed energy suppliers through soaring costs and higher standing charges.
It is odd to hear two peers with different political backgrounds arguing against privatisations which are getting on for forty years old. But a look at the share price of Centrica and others suggests that privisation is not only failing consumers, it is failing shareholders too.
Put together , what Altmann and Field are arguing for is
An urgent review and radical reform of pricing structures is called for immediately while temporarily halting the extraordinary, damaging price increases.
A temporary halt or reduction to price rises would directly reduce CPI and ease pressure on households and businesses, and prevent wage-price spirals spreading uncontrollably, while allowing time for market prices to subside, super-normal profits to be redistributed and better price mechanisms to be agreed.
So what does this amount to?
This could entail freezing costs this winter or capping the increase at 5 per cent, which means six to nine months of subsidies rather than billions of pounds in handouts to households.
It also means ensuring super-normal profits of non-gas energy suppliers can benefit consumers, not shareholders. This package will better target the much-needed support and allow time for a proper review.
A footnote from Simoney Kyriakou
Thanks to FT Advisor and Simoney for an excellent article , alerting me to the statement by Frank Field and Ros Altmann. She ends her piece with these two sobering paragraphs
Earlier this week, think tank the Resolution Foundation published a stark warning that real incomes for Britons are likely to fall by an average 10 per cent over the next two years, if the new Prime Minister takes no definitive action.
This is not only affecting households, but businesses and care homes – as reported by Sky News, one group of care homes providers said their bills have been quoted at over £1mn for the winter – a shocking rise on the usual £90,000 they pay.