Banks, Balls and those cuts

When will bankers pick up the bill for the financial crisis and the recession that they caused?

Two headlines from the front page of the Guardian/Observer website over the weekend caught my eye:

Public sector cuts wipe £1bn off building firms' stock market value

and

City banks squirrel away £5bn to pay for staff bonuses

Notice any glaring contradictions there? And who says that public-sector cuts are all about "bloat" and "inefficiency" in the state sector, and have no impact on the private sector? Tell that to the folks on the board of Taylor Wimpey, which has lost 30 per cent of its value over the past two months.

It is outrageous -- OUTRAGEOUS! -- for RBS, Barclays et al to set aside roughly a third of their income for bankers' pay and bonuses. Whatever happened to us all being "in this together"? Labour leadership candidates are right to urge this coalition government to extend the bankers' bonus tax into the next financial year. It's just a shame that the last Labour chancellor -- Alistair Darling -- went out of his way to make it a "one-off".

The fact is that both the public sector and private-sector companies such as Taylor Wimpey are paying the price for the sins of a reckless, irresponsible and greedy financial sector.

By the way, on the subject of Labour leadership candidates, have you read Ed Balls's comment piece in today's Guardian? It is a passionate, informed and well-argued riposte to those on the right, and in the centre, who are rushing to cut the deficit without stopping to learn the lessons of history (and is entitled "Don't repeat the 30s folly").

My favourite bit?

Yet there are Labour voices who believe our credibility depends on hitching ourselves to the coalition's handcart. That is wrong. I believe this risks condemning Britain to a decade of deflation, unemployment and social division.

There is an alternative. Like Keynes and Lloyd George, it is Labour's responsibility to set it out. It must be a clear plan for growth, a more sensible timetable for deficit reduction, and a robust explanation of why that will better support our economy and public finances.

More of this, please.

In terms of attacking and opposing the coalition and setting out an alternative to Con-Dem cuts, I think even the Miliband brothers would agree that Balls has dominated the party's leadership election so far. Indeed, the shadow education secretary's campaign team will be delighted by this passing remark in Julian Glover's column in the same newspaper:

This battle is real. Ed Balls is doing well, ripping into Michael Gove and VAT. Conservative theories as to which Labour leader would cause them most trouble have been revised as a result.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.