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Hard choices

by Martyn Eden

Economic recovery is all well and good but its effects have not yet reached most people's pockets and the energy price increases have not helped. 

A speech by Sir John Major, the former Conservative Prime Minister, who described these price increases as unacceptable, added spice to the debate by proposing a one-off tax on energy company profits. Ed Miliband, who had promised a 20 month freeze on energy prices if Labour is returned to office in 2015, seized on this in Prime Minister's Questions. His proposal had been dismissed as a Marxist solution, so was Sir John now a Marxist? If the price increases are unacceptable, what and when would the Government do something to ease the pressure on consumers? His aim is to label the Conservatives in the voters' eyes as being on the side of the energy companies, not ordinary people struggling to make ends meet. 

David Cameron's response was to spell out the four major factors determining energy prices. They are: global wholesale prices; the costs of transmission and the grid; energy company profits; and green energy policies. Wholesale prices are set internationally and beyond Government control, whilst transmission costs are mostly fixed, so any Government action has to focus on the other two factors. Cameron's solution is a classic capitalist alternative to Miliband's. When Labour came to office in 1997 there were 17 energy suppliers; when they left office in 2010 there were only six. He intends now to apply "a proper competition test to decide if the industry can be made more competitive" to bring prices down. The problem is that this is a long term strategy that would make no difference by 2015. 

It is true that measures to make energy production greener, in order to scale back global warming and its potential consequences, have added to energy costs. To roll back these measures for short term reasons could produce much bigger long term problems. Even in the short term the Liberal Democrats will oppose any reversal of green policies. Geoff Huhne and Ed Davie, the Energy Secretaries since 2010, are both Liberal Democrats and have continued the policies initiated by Ed Miliband when he held that post. 

Miliband's price freeze idea is almost certainly unworkable. The 'Big Six' would anticipate it with further price increases before the election and as soon as the freeze ends. A Labour Government would almost certainly renationalise the industry to prevent this. Sir John's windfall tax is a short term measure but would reduce the capacity of the energy producers to introduce carbon capture and other ways of making their production more environmentally responsible. Some hard choices have to be made between concern for the hard pressed in the short term and care for God's earth in the long term? What would you do?

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