High Peak Liberal Democrats

Opinion labours energy freeze is terrible economics but excellent politics

Ed Miliband announced in his keynote speech to Labour Party conference that, if elected, he would force energy companies to freeze energy bills for 20 months.

Now obviously, from an economic liberal perspective, this makes no sense.

Freezing energy costs is precisely the wrong way to go about dealing with the cost of living problem in this country. By freezing income while costs rise in the global upturn & the population expands to require greater supply, Miliband is depriving the energy companies of the capital they need to invest in the expansion of the system.

This will inevitably drive the energy supply industry in the UK, in the shape of OFGEM, into pushing for higher subsidies to expand & maintain the energy supply. Those higher subsidies come, of course, from taxpayer money.

So Labour's plan will cost less on your bill, but more from the Exchequer, from your taxes. It's a classic statist solution which hides the real cost to people where they can't see it. It's bad and deeply illiberal, both personally & economically.

It also puts the energy industry back into a higher dependency upon the government. Ed Miliband clearly wasn't joking when he said he wanted to bring socialism back to the UK!

However, although these are both very desirable effects for Labour, this isn't the really cunning part.

In announcing this 18 months before the next general election, Labour aims to worry the energy companies into a pre-emptive price hike. If the energy suppliers see a price freeze coming, they will inevitably seek to mitigate the risk by raising prices ahead of time.

This then gives Labour the justification to exclaim, with horror, "Look at these price rises. That nasty coalition is doing terribly on the cost of living!"

Thus the entire exercise becomes a self-fulfilling prophecy.

So, their plan is awful economics but very good politics. It takes skill to come up with a plan which hurts the very people you claim to be helping, blame the other side and bring both customers and providers under closer state control. Some might call that cynical.

The Liberal way to deal with the cost of energy supplies is longer & more complex, but will work a lot better. It will actually bring down costs.

Firstly, it's to let prices go where they will. This sounds harsh, but is essential to the success if the second part.

The second part is to remove tax from all forms of energy saving home improvements, and offer the Landlords of rented accommodation tax incentives to install them.

There are also arguments to be made in favour of tying the repayments of such improvements into the house, rather than to the owner of the time, on a manner that has links to the inherent property value increase of a more energy efficient property.

That is a much more sustainable solution to the problem, not a quick fix for electoral gain

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