Liz Truss in the Telegraph Today sets out her plan for immediate action on energy bills on her first day in office followed by a ‘fiscal event’ by her chancellor shortly afterwards.
The Telegraph hints at what this might be:
While aides insisted that plans for reform were yet to be finalised, Ms Truss’s pledge to avoid relying on temporary solutions to the problem of soaring energy prices suggests that the Foreign Secretary is preparing for an overhaul of the market.
Gerard Lyons, an influential economist who advised Mr Johnson as mayor of London, is said to be in line for a role on [her panel of economic advisors].
In a separate article for The Telegraph, he backs the idea of a cap on the wholesale price of gas produced in the UK, as he said the new prime minister’s first task would be to “tackle energy prices head on”.
“The dislocation in energy prices is now such that it makes sense for the Government to step in and protect people and firms by fixing wholesale energy prices,” Mr Lyons writes. “This takes the pressure off.
“It will also allow the Government to focus on guaranteeing future supply. It is a simple measure and it can be executed in a way that keeps the cost to the Government down.
“Such a move would remove uncertainty and be positive for business and consumer confidence.”
Experts said that the move could require primary legislation to override existing contracts with electricity generators – and that action would need to be taken to disincentivise firms from simply exporting energy at existing prices rather than selling at lower rates to UK firms.
Well of course it was Gorden Brown who first suggesting capping consumer energy prices – the consequence being energy firms go bust and requiring nationalisation, as Macron has done with EDF costing 10 billion euros. So is this Gorden Brown Economics or Macron Economics?
Not quite Lyons has taken (without attribution) a plan from Scottish Power CEO Keith Anderson on behalf of the supply companies including input from Yarrow Gas. I learn from insiders this is a wholesale power cap.
The idea originally was – we pass legislation to cap the cost wholesalers sell to Putin – so he gets it right. Errr Putin has now stopped gas supplies to Europe entirely. So where are we getting gas from now?
Norway is typically the UK’s largest gas supplier. In 2021, the UK imported £14.5 billion of gas from Norway, which accounted for 77% of all gas imports. Other countries the UK imports gas from include Qatar, the United States and Russia.
So legislation to refix prices with wholesale gas suppliers (which would have to be retrospective) would lead to many 10 of billions of losses to those countries, some of which we have painfully negotiated liquid natural gas import contracts (Qatar and the USA) to avoid a winter fuel crisis. Qatar certainly wouldnt welcome our football team in November . So lets assume the reasonable measure of a wholesale cap exempting LNG who does it hit Norway (not an EU country of course) and the Netherlands. Don’t expect Norway letting us into the EFTA free trade zone quickly.
Diplomatically a deal will have to be done, as Norway could simply cut off supplies leading to massive rolling blackouts and a three day week: a smoothing of wholesale prices with Norway and the Netherlands with a cut in first two years and a steep rise thereafter to allow time to when the uk off gas (and build more solar and wind farms of course as that is only measure with such a short horizon as a fix) – and ensure UK can join EFTA at the same time – boosting GDP and ending the self imposed Brexit farragoes, killing two birds with one stone.