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Labour to vote for Osborne's welfare cap next week

Party's decision could lead to backbench rebellion.

George Osborne's new cap on total welfare spending, which a parliamentary vote will be held on next week, is his least disguised trap for Labour yet. But at his post-Budget briefing to the lobby, Ed Balls made it clear that he won't be falling into it.  He said:

We'll vote yes on the welfare cap next week...Ed Miliband called for a welfare cap last year, in his speech in June, and we have agreed with the way in which the government has structured the welfare cap, what's in and what's out in the next parliament [Osborne's cap excludes the state pension and cyclical unemployment benefits]. We obviously have different views about the way in which we think social security policy should develop, we would rather they did more to reduce the housing benefit bill through building more affordable homes, we think there would be a wider spin-off within the welfare cap from our jobs guarantees, and also we'll abolish the bedroom tax.

In response to Conservative claims that Labour's pledge to scrap the bedroom tax is unfunded, Balls emphasised that "we've said as a backstop how we'd pay for that" (see my blog from the time of Ed Miliband's announcement for details) but noted that many housing analysts predict the measure will cost more than it saves. He ended his answer by confirming "we'll support the welfare cap next week" (Osborne has set the limit at £119bn for 2015-16 and will increase it in line with inflation from then on).

Since, as Balls said, Labour has already pledged to cap "structural welfare spending", and to reduce the benefits bill by building more homes and reducing long-term unemployment, this is not as surprising as it might appear. But the decision will sit uneasily with those MPs opposed to the principle of capping welfare (for fear that weaker-than-expected growth will force cuts to benefits for the vulnerable) and those who simply dislike the act of walking through the yes lobby with Osborne and his Tory cohorts. I would not be surprised if Miliband faces a significant backbench rebellion next week.

P.S. Balls also used his briefing to tell an amusing story about Eric Pickles, who fell asleep during the Budget. Miliband and himself motioned to Vince Cable to wake him, lest Osborne announce major cuts to local government spending, but there wasnt "enough oomph" in the Business Secretary's nudge to do so. It was only when David Cameron intervened that Pickles was finally roused.

Balls said: "Eric Pickles fell asleep for a quite an extended period of time. And Ed and I were worried because, you know, you never know whether there might have been some big cut in local government spending coming which he didn’t know about and so we just politely suggested to Vince Cable that he should wake him up. And Vince elbowed and elbowed and it didn’t seem to make any difference. So Vince was actually knocking away...although at one point after a third nudge from Vince Cable, Eric started to nod knowingly at the contents of the speech while still, with his eyes closed...Then I think, eventually, David Cameron intervened."

George Eaton is political editor of the New Statesman.

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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.