Red Ed and keeping the lights on

If Ed Miliband achieved anything this week, it's putting energy back on the political map.

His plan to freeze gas and electricity prices for 20 months has brought a storm of protest from the right wing press and the energy companies. This is what he actually said:

"If we win the election 2015 the next Labour government will freeze gas and electricity prices until the start of 2017. Your bills will not rise. It will benefit millions of families and millions of businesses. That’s what I mean by a government that fights for you. That’s what I mean when I say Britain can do better than this. Now the companies aren’t going to like this because it will cost them more but they have been overcharging people for too long because of a market that doesn’t work. It’s time to reset the market. So we will pass legislation in our first year in office to do that, and have a regulator that will genuinely be on the customers’ side but also enable the investment we need. That’s how Britain will do better than this."

We are told this is unaffordable, will halt investment and result in California type blackouts. Really? If so Scottish homes are in immediate danger of power cuts. ScottishPower is currently offering a deal that will fix your energy price until when? Yes, you guessed it 2017!

Even the Daily Telegraph has been promoting fixed energy deals to 2017 and beyond through its commercial partners. So energy price caps are a great idea until Ed Miliband proposes it, in which case it’s dangerous socialist nonsense! Just imagine the Torygraph's outrage if trade unions threatened blackouts because we disagreed with government policy. Now you mention it......

The emergency price freeze, the party claims, will save the average household £120 and businesses £1,800, and cost the big six energy companies £4.5 billion over the duration of the measure. This is legitimate payback for years of profiteering.

The price we are paying to heat our homes is increasingly unrelated to the cost of that energy on the wholesale markets. In 2009 wholesale energy prices fell by 46%, yet during the same period energy bills dropped by just 5%. Profits of the Big 6 energy companies have risen by 74% since 2009, while prices have risen by 13%. Consumer groups and the Commons select committee have all pointed to the lack of transparency in energy prices.

The one valid point SSE made in their reaction was, “The Labour Party should put policy costs into general taxation, taking them off energy bills. This would wipe £110 off the average person’s bill and shift the cost away from those who can’t afford to pay and on to those who can". 

Putting the cost of energy policy onto domestic bills is a regressive form of taxation.

The lights won't go off because the other big commitment in Ed's speech was a million green jobs created through the shift to a low carbon economy. As the TUC's Philip Pearson explains, the Energy Bill will be in force in 2015 and that sets out all the pre-conditions developers need to deliver the necessary generating capacity. Labour's planned Energy Security Board is also aimed at addressing this issue.

The power companies should be careful what they wish for. The public are much more red than Ed on this issue, with 69% supporting the renationalisation of the energy industry. That is a measure of just how far the companies have lost public trust. It will be interesting to see if, as Left Foot Forward put it, "David Cameron will really risk siding with rip off energy firms this winter?"

Of course the public are right, or indeed left, on this one. The weakness in Labour's plans are that they still rely on the 'kid on' energy market. You simply can't create a real market in this type of utility. You either bring it into public ownership or strictly regulate prices. My energy chapter in the 'Red Paper on Scotland 2014' explains how and why in more detail.

Ed's plan has to be seen as part of a wider strategy to focus on living standards in the run up to the election. A freeze on energy prices is actually a fairly modest step. If the energy companies don't like it - they can step aside and we can have a planned energy policy at a sensible price.