July’s inflation figure of 3.8% is a sign that the Chancellor needs to take stronger action says Lib Dem Treasury Spokesperson Daisy Cooper. And she has an idea up her sleeve about how to do that:
Rising inflation is grim news for families, pensioners and businesses still struggling with the cost-of-living crisis.
After the Conservative Government oversaw the biggest fall in living standards on record, people desperately need things to change. But, so far, Labour has failed to offer a vision for the economy or a strategy to bring down the cost of living.
The Chancellor needs to take far bolder action, starting with the Liberal Democrat plan to halve energy bills by 2035.
Details of that plan to halve energy bills can be found here:
Families and pensioners are being clobbered with energy bills that are still more than £50 a month higher than they were five years ago. And businesses are suffering too.
Generating electricity from solar or wind is now much cheaper than gas. But people aren’t seeing the benefit of cheap renewable power, because electricity prices are still tied to the price of gas.
Years of terrible energy policies under the Conservatives pushed up everyone’s bills, and this Labour Government has failed to prioritise cutting them.
The Lib Dem plan would break the link between gas prices and energy costs, so people can enjoy the benefits of cheap, clean power. This would halve bills and save families £870 a year on average.
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15 Comments
“people aren’t seeing the benefit of cheap renewable power, because electricity prices are still tied to the price of gas.”
So – when there’s less renewable power than the demand ( which is most of the time) – what happens?
Hi Jenny,
As I understand it, when there is less renewable power than total demand, the price paid for the gas used is the market price, but the cost of the remainder stays at the lower renewable price, meaning that the overall price paid would be lower than with the current mechanism.
As renewables grow, gas will be used less. So gas power stations will be called upon to run more flexibly and less efficiently. So the price paid for the gas will have to rise to make gas generation economic.
Up to a point, that’s fair. But, as the gas stations will still be essential to keep the lights on 24/7, will they be able to start charging exorbitant prices?
If a reform of the electricity market is to be successful, it will be crucial to find a way to avoid that pitfall.
Are amateur politicians from an out-of-power party the best experts to get that right?
Inflation is a measure of the rate at which a currency is losing its value. It is characterised by general increases in prices as the fall in value of the currency is reflected across the economy. The government could easy reduce the headline inflation value at a stroke by cutting VAT, for example, which would give a one-off cut in inflation for a year until it was no longer included in the inflation measure. Similarly, making a one-off change to the energy market could reduce inflation for a year, but unless this measure is repeated the following year, inflation will continue as before. We need real inflation reducing measures rather than short-term headline grabbers.
Looking through the ONS CPI dataset, it is clear a review is necessary:
Given our commitment to climate change and Net Zero, should we be including airfares in the CPI calculation. Similarly in areas where there is state provision: education, (NHS) healthcare, should we be including private costs. Likewise other areas, such as tobacco products, where government policy is to marginalise their consumption, is there any real reason why these are included in the CPI.
We also need to get more savvy with the analysis, understanding what big events have happened to cause a significant change in the component figures, for example it would seem education inflation this past year has been 7.5%, but I can find no analysis as to what the causes might be, so have to assume it is mainly due to the VAT changes, which only impact private school fees.
The link to the details of the plan doesn’t get you to any details. You go to a petition page with the same wording as in the article.
Please can the author of this article provide a link to the information about this letter?
The ‘Lib Dem plan’ is not party policy and the MPs who came up with it didn’t even submit a motion on the topic for the Bournemouth Conference.
The wholesale price of electricity is tied to the price of gas. The government I believe guarantees the price of nuclear electricity, so the companies that provide us with electricity pay the nuclear generating companies at the wholesale price and the government pays the difference. According to the Renewable Energy Foundation (https://www.ref.org.uk/ref-blog/390-uk-renewable-electricity-subsidy-totals-2002-to-the-present-day ) there is an annual subsidy of £25.8 billion to renewable energy suppliers, which is about 40% of the total cost of energy in the UK. They state, ‘This contradicts government and industry claims that renewables are becoming cheaper’.
If the retail suppliers of electricity could buy electricity at different prices from different suppliers I wonder what effect this would have on retail prices.
We should be calling for the government to subsidise the wholesale price of electricity and gas and ensure the supplying companies pass these price reductions to the their customers (both domestic and commercial). This could either stop the predicted energy price increases or if large enough actually reduce prices and so reduce inflation.
This morning 23/8 demand for electricity was 20 gW. Wind .7, solar 0. About 7 on the interconnectors including 4 from France 3 UK nuclear, 2 from burning wood at Drax, and the rest gas . Not much scope for cutting costs?
It seems that between 10.00 and 16.00 today renewables were providing the most electricity. https://grid.iamkate.com/ but this site doesn’t include energy usage from battery storage.
Under the present system, there’s always going to be a trade-off between levels of inflation and levels of unemployment and underemployment. The only way to reduce inflation is to apply either a fiscal or monetary squeeze, or both.
The terms to Google are Philips Curve and the NAIRU (Non Accelerating Inflation Rate of Unemployment).
The threat of unemployment, and the poverty that comes with it, therefore, acts as a disciplinary measure to suppress the wage aspirations of the working class.
We may not like it, but this is how the system works. If we want to change it we have to come up with a better alternative. Suggestions of a UBI and GBI merely short circuit the workings of a bad system rather than doing anything positive to change it. One, possible viable, suggestion is to replace a pool of unemployed by a pool of those on a Job Guarantee.
“One, possible viable, suggestion is to replace a pool of unemployed by a pool of those on a Job Guarantee”. If they have a job then they are no longer in a pool. To get them to take the risk of an unguaranteed job, employers will have to offer a much better deal. That would drive wage inflation.
@ Peter Davies,
It could have an effect on prices in the short term but in the longer term it would help stabilise them. The value of the pound would become tied to the price of labour in the UK as other workers negotiate rates based on the JG rate. +10%, +20% or whatever. Instead of a pool of unemployed which varies according to the state of the economy we’d have a pool of JG workers.
Education and training for JG workers could be a key part of the program and so help prevent the long term unemployed becoming long term unemployable.
The JG rate, though, would have to be fixed by Govt and there would be no collective bargaining allowed. Otherwise there would be inflation.
The idea makes perfect economic sense but it’s going to be politically difficult to implement. Both the left and right will have their own reservations and objections.
https://en.wikipedia.org/wiki/Job_guarantee
What happens to those on JG jobs who refuse to actually work?
@ Jenny,
“What happens to those on JG jobs who refuse to actually work?”
Good question.
My own preference would be for there still to be a social safety net. Others may, and probably would, disagree and take the view that anyone refusing to make a contribution to society shouldn’t expect anything in return.
Brenda is right to comment above that inflation is a measure of the rate at which a currency is losing its value. The entry of the Asian tiger economies (especially China)has allowed for the mass-production of manufactured goods at comparatively low costs and a period of consumer abundance since the 1980s. Similarly, the impact of information technology has significantly increased levels of productivity in many administrative service areas.
The problem for developed economies is the inability to be able to deal with deflation resulting from innovation i.e. the natural reduction is the price of goods of goods and services that these global and technological changes induce.
Western economies in particular are debt driven as can be seen by the explosion in house prices across much of the developed world. Land prices are not inflated by increased costs of production but as Brenda suggests by currency losing its value.
The productivity gains of the past 50 years have been largely captured by returns to capital as against widespread increases in standards of living, as is observed in rising income and wealth inequality.
If part of the problem is constantly having to increase mortgage and personal debt to offset the deflationary impact of increased productivity then perhaps we should be revisiting government policies with respect to the management of these processes Is deflation such a bad thing?
Labour is in a bind because of its commitment to growth. Lowering interest rates is one of the prime methods of promoting growth by incentivising investment. Inflation hits at the very core of our society, its effects having a social as well as economic dimension. The Liberal Democrats should make defeating inflation its core priority.