With or without Ed Miliband’s energy price freeze, the lights could soon start going out

The recent summary of the United Nations report on climate change, published on 27 September, only re-emphasised the urgency of the world taking action on emissions.

Ed Miliband’s pledge to freeze gas and electricity prices was hailed by his supporters as a masterstroke that cuts to the heart of the most important issue in post-crisis Britain: stagnant household incomes in the face of rapidly rising prices. His opponents called it a lurch to the far left that revives a brand of economic interventionism not seen since the 1970s. With any luck, it will at least encourage politicians of all parties to take a closer look at Britain’s overall energy policy.
 
In the 1950s and 1960s, Britain was in the midst of a postwar economic boom. The economy grew at 3 per cent a year on average and electricity demand at more than double that rate. It was the heyday of technocratic planning and no serious person believed that such rapid growth in demand could possibly be met by the uncoordinated private sector. By the 1970s, therefore, the supply of energy in Britain was controlled directly by the state from top to bottom. The government planned investment, provided finance and set prices; its plan was implemented by state-owned monopoly utilities.
 
At the beginning of the 1980s, however, this conventional wisdom regarding the optimal way of organising the energy industry underwent a big change. The primary reason was the general shift in economic ideology. In 1978, one of the leading British proponents of Austrian economics, Stephen C Littlechild, published a pamphlet, The Fallacy of the Mixed Economy, which became the classic statement of the economic case for privatisation and market liberalisation.
 
A planned economy, Littlechild warned, assumes extraordinary powers on the part of the planners. For planning or the planned part of a mixed economy to be efficient, the planners would have to know what people want, what technologies are available to meet their demands and where the resources are to deploy them. In reality, it is difficult for planners to discover the second and third of these and logically impossible to know the first.
 
Fortunately, he explained, society has devised an ingenious solution to this canonical informational problem in the form of the market: a magic machine for discovering consumers’ demands and the most efficient way of meeting them, in which no individual needs to know much at all.
 
A market economy might be organisationally more messy – in other words, requiring many competing firms instead of just one – but in terms of its informational requirements, it would be infinitely simpler (and therefore more efficient) than the existing planned system.
 
There were changes afoot in the UK economy that made the energy sector especially fertile ground for this new philosophy. The golden age of growth was over and the economy was busily moving from one based on energy-intensive manufacturing to the dominance of the service sector we know today. As a result, rapid growth in demand was no longer the problem. In 1970, it was predicted that Britain would require 100GW of generating capacity in 1995. In the event, only a little over half of that was needed.
 
Instead, the main challenge was how to improve the efficiency of the existing system. So, in energy more than almost any other sector, the trade-off from moving to a market system seemed to promise extraordinary economic gains.
 
The increase in organisational complexity as the nationalised behemoths were dismantled into their constituent parts and new institutions were created to regulate and operate the new energy markets would offset the far greater efficiency of resourcing, operations and investment guided by the decentralised decisions of market participants. It all took a while, but in 1998 the last vestiges of the old monopoly utilities were abolished with the introduction of competition in the retail supply of electricity and gas.
 
However, because of global warming and the new requirements of the post-Kyoto world, mitigating carbon-dioxide emissions was fast becoming the dominant challenge. As the decline of the UK’s indigenous natural gas fields came into prospect, ensuring security of supply and managing the energy sector’s impact on the balance of payments also became important concerns.
 
There was no reason in theory why the liberalised market alone was going to achieve these objectives automatically – and no evidence in practice that it would. It seemed that planning by the state would be required after all.
 
Yet successive Labour governments and the current coalition opted instead for an incremental approach: a persistent accumulation of directives, rules and subsidy schemes intended to cure the liberalised markets’ intrinsic indifference to decarbonisation and security of supply, all programmed and overseen by a growing army of regulatory bodies, quangos and advisory institutions.
 
So we have ended up with the worst result from both worlds: a Byzantine industrial structure theoretically co-ordinated by the market mechanism, but one that nevertheless requires omniscient policymakers to mastermind everything it does.
 
This situation is not sustainable. With or without a price freeze, we face the distinct possibility of a capacity shortage – that’s “the lights going out” to you or me – by the middle of this decade; and the recent summary of the United Nations report on climate change, published on 27 September, only reemphasised the urgency of the world taking action on emissions.
 
Do our politicians still believe in the model of a liberalised energy sector? If they do, then policy and regulation need to be simplified drastically. If they do not, they might as well give up and return to old-school state direction. An energy policy marooned in noman’s- land is not an option.
 
Felix Martin is the author of “Money: the Unauthorised Biography” (Bodley Head, £20). His column appears fortnightly
We are facing the distinct possibility of a capacity shortage, or "the lights going out". Image: Getty

Macroeconomist, bond trader and author of Money

This article first appeared in the 07 October 2013 issue of the New Statesman, The last days of Nelson Mandela

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Is defeat in Stoke the beginning of the end for Paul Nuttall?

The Ukip leader was his party's unity candidate. But after his defeat in Stoke, the old divisions are beginning to show again

In a speech to Ukip’s spring conference in Bolton on February 17, the party’s once and probably future leader Nigel Farage laid down the gauntlet for his successor, Paul Nuttall. Stoke’s by-election was “fundamental” to the future of the party – and Nuttall had to win.
 
One week on, Nuttall has failed that test miserably and thrown the fundamental questions hanging over Ukip’s future into harsh relief. 

For all his bullish talk of supplanting Labour in its industrial heartlands, the Ukip leader only managed to increase the party’s vote share by 2.2 percentage points on 2015. This paltry increase came despite Stoke’s 70 per cent Brexit majority, and a media narrative that was, until the revelations around Nuttall and Hillsborough, talking the party’s chances up.
 
So what now for Nuttall? There is, for the time being, little chance of him resigning – and, in truth, few inside Ukip expected him to win. Nuttall was relying on two well-rehearsed lines as get-out-of-jail free cards very early on in the campaign. 

The first was that the seat was a lowly 72 on Ukip’s target list. The second was that he had been leader of party whose image had been tarnished by infighting both figurative and literal for all of 12 weeks – the real work of his project had yet to begin. 

The chances of that project ever succeeding were modest at the very best. After yesterday’s defeat, it looks even more unlikely. Nuttall had originally stated his intention to run in the likely by-election in Leigh, Greater Manchester, when Andy Burnham wins the Greater Manchester metro mayoralty as is expected in May (Wigan, the borough of which Leigh is part, voted 64 per cent for Brexit).

If he goes ahead and stands – which he may well do – he will have to overturn a Labour majority of over 14,000. That, even before the unedifying row over the veracity of his Hillsborough recollections, was always going to be a big challenge. If he goes for it and loses, his leadership – predicated as it is on his supposed ability to win votes in the north - will be dead in the water. 

Nuttall is not entirely to blame, but he is a big part of Ukip’s problem. I visited Stoke the day before The Guardian published its initial report on Nuttall’s Hillsborough claims, and even then Nuttall’s campaign manager admitted that he was unlikely to convince the “hard core” of Conservative voters to back him. 

There are manifold reasons for this, but chief among them is that Nuttall, despite his newfound love of tweed, is no Nigel Farage. Not only does he lack his name recognition and box office appeal, but the sad truth is that the Tory voters Ukip need to attract are much less likely to vote for a party led by a Scouser whose platform consists of reassuring working-class voters their NHS and benefits are safe.
 
It is Farage and his allies – most notably the party’s main donor Arron Banks – who hold the most power over Nuttall’s future. Banks, who Nuttall publicly disowned as a non-member after he said he was “sick to death” of people “milking” the Hillsborough disaster, said on the eve of the Stoke poll that Ukip had to “remain radical” if it wanted to keep receiving his money. Farage himself has said the party’s campaign ought to have been “clearer” on immigration. 

Senior party figures are already briefing against Nuttall and his team in the Telegraph, whose proprietors are chummy with the beer-swilling Farage-Banks axis. They deride him for his efforts to turn Ukip into “NiceKip” or “Nukip” in order to appeal to more women voters, and for the heavy-handedness of his pitch to Labour voters (“There were times when I wondered whether I’ve got a purple rosette or a red one on”, one told the paper). 

It is Nuttall’s policy advisers - the anti-Farage awkward squad of Suzanne Evans, MEP Patrick O’Flynn (who famously branded Farage "snarling, thin-skinned and aggressive") and former leadership candidate Lisa Duffy – come in for the harshest criticism. Herein lies the leader's almost impossible task. Despite having pitched to members as a unity candidate, the two sides’ visions for Ukip are irreconcilable – one urges him to emulate Trump (who Nuttall says he would not have voted for), and the other urges a more moderate tack. 

Endorsing his leader on Question Time last night, Ukip’s sole MP Douglas Carswell blamed the legacy of the party’s Tea Party-inspired 2015 general election campaign, which saw Farage complain about foreigners with HIV using the NHS in ITV’s leaders debate, for the party’s poor performance in Stoke. Others, such as MEP Bill Etheridge, say precisely the opposite – that Nuttall must be more like Farage. 

Neither side has yet called for Nuttall’s head. He insists he is “not going anywhere”. With his febrile party no stranger to abortive coup and counter-coup, he is unlikely to be the one who has the final say.