The New Statesman’s rolling politics blog

RSS

Even Lynton Crosby must know the Tories are on the wrong side of the energy debate

By defending a broken energy market, the Conservatives have shown how out of touch they are with consumers.

David Cameron with shadow energy secretary Ed Davey at the Clean Energy Ministerial Conference on April 26, 2012 in London. Photograph: Getty Images.
There are only two explanations I can think of for the ill-judged and half-baked response of the Tories to the key announcements unveiled by Ed Miliband this week. The first is that Lynton Crosby has been on holiday. And the second is that they are even more out of touch than we imagined. I doubt, however, that David Cameron would give his pet lobbyist time off the week off before his party’s own conference. So, the latter must be true.
 
Yet even Lynton must have wondered at the hysterical response to Ed’s announcement that we would freeze gas and electricity bills in 2015, for 20 months, while we reset the market. Street lights would flicker and snuff out, companies would leave and investment in renewable energy would grind to a halt. The notion that the energy companies, which have increased average bills by £300 over the last three years, are at risk of going bust if Labour freezes bills for 20 months is frankly ridiculous. And the idea that they need to make excess profits at the expense of the consumer to invest, ignores the fact that profits have gone up over the last four years but investment in clean energy has slumped from £7.2bn in 2009 to £3bn in 2012.
 
Take Centrica, for example, the company that has been most vocal about our proposal. They claim that "if prices were to be controlled against a background of rising costs it would simply not be economically viable for Centrica, or indeed any other energy supplier, to continue to operate and far less to meet the sizeable investment challenge that the industry is facing". The reality is that over recent years, Centrica has made the biggest profits of any of the Big Six but has invested the least in new plants. Rather than delivering the investment everyone agrees we need, they have been paying 74% of their profits out as dividends. The truth is that some of these companies have seen profits from their sales to households rise by 30% in a year, irrespective whether the cost of wholesale generation and purchase has risen or fallen. In fact, the only thing that’s fallen as far as customers are concerned is trust in companies that appear to be operating in a market which for them is more comfortable than competitive. And all this at a time when working people are an average of almost £1,500 a year worse off under this government.
 
Labour’s proposal, advanced with such clarity in Ed Miliband’s inspiring speech at Brighton, is no more than a proportionate, just and necessary corrective to this situation. It will be an intervention on behalf of the people by a government fighting for the interest of the people. And the people should not be expected to stand by and be bullied, or held to ransom, by companies implausibly threatening job losses and capital flight.
 
We might recall the prophecies of doom which accompanied the creation of the minimum wage – a control on the price of labour itself, of course – and the reality that unemployment didn’t increase and businesses were able to compete through higher skills and greater investment instead. A race to the top, instead of a race to the bottom, if you like. So let’s get this policy in perspective and hear no more nonsense about Seventies-style socialism. What Ed has suggested is just the right thing to do by a Labour government that welcomes market mechanisms where they function well and in the interests of consumers, businesses and the society which they inhabit. This is about resetting a broken market and injecting the competition and transparency that we need to restore fairness and trust.
 
David Cameron and his grossly out-of- touch colleagues would do well to stop defending the profits of the energy companies and instead read David Sainsbury’s excellent new book Progressive Capitalism. There, the PM might learn from someone who was at the heart of the New Labour about the necessity of government intervening to set rules and create institutions that can manage markets in the interests of the people, not of the profiteers. And he might also decide the right thing to do is to pinch our proposal and freeze prices sooner than 2015. Consider it a freebie, Mr Cameron, a policy gift from Labour. Keep it; we’ve got plenty more to spare.