Amid the myriad of small measures, nearly all the pieces in John Healey’s price range got here again to the price of vitality. The upper vitality costs which have resulted from the Iran conflict have pushed up inflation, are consuming into households’ incomes, are a drag on companies – and are the principle cause why the forecast for GDP progress subsequent yr was lower from 1.6% to only 1%.
And vitality was the main target of Healey’s sole shock in his consumer-facing insurance policies – the £100 cost to 20m households in A-D council tax bands to assist with gas payments this winter. It will likely be funded, in impact, by tapping the banks for a couple of quid for 15 months through the financial institution surcharge.
However the chancellor will know that £100 gained’t look beneficiant when the payments land. Fuel costs are nonetheless rising, and main provider EDF’s newest prediction is that the regulator’s value cap might be hiked by £466 in January, pushing the annual fee for a median family to £2,189. When Labour took workplace in July 2024, speaking naively about taking £300 off payments over the lifetime of the parliament, the cap was £1,568.
No shock, then, that the messaging on vitality is shifting. Right here is the passage in Healey’s speech that hinted at large adjustments forward: “At present I’m setting a brand new course on vitality: to get UK vitality prices down according to Europe. From this level, our Labour authorities’s precedence is at the beginning cheaper vitality, with clear energy key to reaching this.”
Thank goodness for the reset in the direction of affordability. It’s lengthy overdue. The most important obstacle to financial progress, together with the prime minister’s longed-for “reindustrialisation”, is the price of vitality within the UK. There may be little Healey can do about worldwide gasoline costs, however he can do “deep reform of our vitality system”, as he put it. So what’s the plan?
That, sadly, is the place the “new course” turned blurry. Take the promise to introduce “a brand new price management framework to drive down all points of vitality payments”. The ambition is laudable, as a result of vitality payments have develop into affected by levies and expenses – all the pieces from socialising unpaid shopper vitality debt to funding Sizewell C – that ought to extra naturally be funded from common taxation. It’s about time the Treasury took an curiosity in such hidden taxes.
However the prices don’t disappear simply because they’re positioned inside a brand new framework. The robust query is how a lot a chancellor is prepared to fund from Treasury coffers within the curiosity of decrease upfront payments for shoppers and enterprise. It’s not a small query, as a result of wide-ranging definitions of levies can produce figures as excessive as £15bn.
It’s good that Healey is demanding no new levies (until they create down payments), however that’s not the identical as hacking into the present thicket. Funding for inexperienced hydrogen initiatives is being taken on by the Treasury, which is a begin. However come again in subsequent yr’s spending overview, it appears, to find the scale of Healey’s scythe. Extra urgency is required.
There was a bit extra readability on the electrical energy technology aspect. “This authorities will solely purchase and construct new initiatives after they decrease payments and after they can hook up with the grid,” stated Healey. That reads as a robust trace that offshore wind commissions might be slowed till costs fall (which most likely requires a fall in borrowing prices for builders) and the improve of the grid is extra superior. Very wise: sequencing issues, because the alarming prices of “wasted wind” show usually.
However Healey’s ambition to “break the grip of worldwide gasoline costs” by switching older renewables initiatives on to decrease fixed-price contracts just isn’t new. Ed Miliband, when vitality secretary, stated the identical. The check is how laborious ministers are prepared to twist the arms of renewables homeowners, who’re very connected to preparations that give them jackpot revenues when gasoline costs are excessive. The fundamental rigidity stays: for shoppers to win, any individual must be paid lower than they have been anticipating.
So, sure, one can applaud the change of tone and path. A reset in vitality coverage to prioritise affordability was sure to reach ultimately. The drive to wash energy additionally needed to be a drive to low-cost energy. However one can not but say the brand new strategy is joined-up. Insurance policies to drive the electrification of houses and transport weren’t turbo-charged, which they must be to cut back long-term dependency on gasoline and oil. And “deep reforms” to the electrical energy market are, to place it gently, a piece in progress. Extra urgency wanted.