Forget tax, time to focus on energy

In a rare comment on domestic politics, Warren East, the outgoing boss of Rolls-Royce, has urged the two leadership rivals to focus on energy security rather than tax cuts as they fight their way to No 10.

East is right to call them out – more businesspeople should do so – and not only because Rolls-Royce is waiting for government support to build a fleet of small modular reactors across the country by the end of the decade. If Rolls is to deliver these SMRs, a key part of the current plan for nuclear power to provide a quarter of the UK’s electricity by 2050, it needs the green light by the end of the year.  

Finding new and reliable energy sources is the biggest challenge facing whoever makes it to Downing Street. Whether its Sunak or Truss, he or she should, as we have argued, appoint a minister solely responsible for energy, reporting regularly to Cabinet, and launch a national campaign for the public to start conserving energy. 

And I don’t mean exhorting us to eat more porridge or wear thicker jumpers, but proper advice like switching off lights and insulating draughts. As governments are doing across Europe, public buildings should also be switching off lighting and lowering temperatures. Saving energy wherever we can is vital.

Yet from the paucity of questions during the leadership debates from TV interviewers and the quality of answers given by the wannabe PMs, you wouldn’t know that keeping the lights and heating on this winter without riots on the streets is so crucial. All that Sunak or Truss have said is that new oil and gas licenses will be granted and that fracking – with local community permission – will be permitted and, of course, better home insulation.  

It’s too little, and too late to help with today’s cost-of-living crisis which will see the biggest squeeze in incomes on record. It’s too easy for Andrew Bailey, the Bank of England governor, to blame getting its inflation forecast so spectacularly wrong – rising from 4 per cent a year ago to a peak of 13.3 per cent this autumn – on Russia’s war in Ukraine and its impact on energy prices.  

While that’s true, it’s not a good enough reason to hide behind, and doesn’t explain either the Bank’s myopia on interest rates and stopping QE or the government’s decades-long failure to plan ahead for energy security despite endless warnings from experts.  

What the Ukrainian crisis shows is that the UK cannot be divorced from global markets. Even though we only import 4 per cent of our gas and coal from Russia – the rest comes from Norway, Qatar and the North Sea – we are still hit by global gas prices which have soared by a factor of seven since the start of the war.

Which is why building greater resilience into our energy network is so essential. And so is reforming – if not abolishing – Ofgem’s energy cap which is likely to jump to £3,359 in October, with another hike in January. 

Economist Simon French estimates that by next year if forecasts for energy, petrol and diesel prices stay at their current levels, more than 70 per cent of UK households will be spending more than 10 per cent of their income on energy compared to less than 6 per cent three years ago. That’s a whopping amount, putting three-quarters of all households in technical energy poverty. The Editorial Board writes that the country needs fresh thinking to fight its way out of the economic mess, in the Reaction leader, below.

Considering the ghastly predictions of 13 per cent inflation and a year-long recession, the UK’s equity markets held up surprisingly well today while the pound strengthened slightly against the dollar. With luck, that’s because they are looking on the bright side: at long last there are signs that input prices are falling with both the oil price and shipping freight rates coming down.