The real world is about the energy crisis, galloping inflation and strikes

Welcome to the real world,  far away from Irish identity neuroses and the Tory leadership race. The world of spreading strikes, galloping inflation and  energy prices. The  situation is changing so fast even the tabloids haven’t caught up with it yet.  On the Today programme this morning covered by The Times, energy  industry bosses are calling for the endless political battle to close early and emergency action  to be taken  before the next energy price cap kicks  in –  on Friday.

The cap – really a general price level  first imposed twice yearly but now quarterly   – is spiralling ever faster, rising for the vast majority of Britain’s households from £1,971 today to about £3,600  announced on Friday to kick in at the beginning of October.  Analysts are forecasting a further rise in January to more than £4,200  then £5,816 in April, compared with the current level of £1,971 a year — shifts would lead to inflation “entering the stratosphere”… If accurate, changes, effective from October 1, could see a retiree reliant on the state pension of £185.15 a week forced to spend almost 40 per cent of their income on energy bills.

The FT  is reporting that UK inflation is on course to hit 18.6 per cent in January — the highest peak in almost half a century — due to soaring wholesale gas prices, according to a new forecast from Citi based on the latest market prices.

The Office of National Statistics said it stood at 10.1 per cent in July, the highest level in over 40 years and the highest rate among G7 countries.

From the Times:

Bosses from Octopus, Ecotricity and Utilita called on the government to freeze the limit now. “This cannot wait until the 5th or 6th of September [when a new prime minister will be announced]. Frankly, the Conservative Party needs to sort themselves out, decide who the leader is going to be this week, so the Ofgem announcement on the 26th doesn’t have to happen.

Kevin Hollinrake, the Conservative MP for Thirsk and Milton, said people would be “on the streets” without further help. Hollinrake, who is backing Rishi Sunak, said that under plans set out by Liz Truss the poorest households would see only an extra “pound a week”.

What is certain is that the first action of the new prime minster after 5 September will be far more extensive than what the contenders are saying now. To win the votes from party members they’re trying to strike a balance between a massive increase in public spending like that during the Covid crisis, and not adding massively to the debt burden causing spiralling inflation. They are  not succeeding.  General public confidence in both of them is lower than in Johnson who as a mere caretaker has been standing back from the crisis and going on two holidays. Behind the scenes, the machinery of government has been active, although actual decisions will have to wait for the new PM.

Truss’s plans for an emergency budget, pencilled in for September 21, hung by a thread as a result of decisions being taken by Boris Johnson and his chancellor, Nadhim Zahawi.

Truss has already had several conversations with Simon Case, the cabinet secretary, about how she would want the government to work and the priorities she would pursue.

Case has also met her rival, Rishi Sunak. “The irony is that we have a zombie government at the moment, but Simon Case is the hardest-working man in Britain,” said a Whitehall source. “He’s effectively running three governments.”

Amid concerns that it will be hard to make the sums add up, Whitehall officials who have been in contact with Team Truss say that she is not planning to ask the independent Office of Budget Responsibility (OBR) to do a formal forecast of the public finances, meaning there will be nothing to judge the government against. Alongside drawing up an emergency budget, Team Truss is also turning its focus on the regulators responsible for overseeing the water and energy monopolies.

The trailing Rishi Sunak is mounting ever bolder attacks of his almost out of sight rival Liz Truss. He’s asked her how she would simultaneously provide help to tackle the energy crisis while providing £50bn of unfunded tax cuts. “To do so would mean increasing borrowing to historic and dangerous levels, putting the public finances in serious jeopardy,”  

The Truss campaign has abandoned the former line of “ no handouts” under severe pressure from reality ,  now pledging   “assistance across the board” with specifying. Hitherto she  struck a boosterish note claiming that a recession is “not inevitable.”

But the industry bosses strike a very different tone. The  price cap  is a bit like a dam with huge  flood water  pressure  building up  behind it and then it bursts.

“The price cap doesn’t work for the consumer because it’s going up, it’s not working for the industry. And not for Ofgem who are seen to be increasing prices. It isn’t working for anyone really, so they’ve got to unravel it,” said Doug Stewart, founder of the small supplier Green Energy UK.

Fuel poverty campaigners and some companies, including ScottishPower, one of the Big Six energy suppliers in Britain, have called for the cap to be replaced with a “social tariff,” — similar to initiatives in the UK broadband market, which would sharply lower prices for vulnerable bill payers. This could be funded either by the state or by a levy on the bills of the other households.

Ecotricity boss Dale Vince said that if the cap remained, ministers should put pricing controls in place in other parts of the energy industry, in particular oil and gas producers which have been posting record, profits buoyed by the high commodity prices. “If we are going to have a price cap for [energy] retail we should have a price cap for wholesale, it can’t make sense not to control both,”

If we are going to have a price cap for [energy] retail we should have a price cap for wholesale, it can’t make sense not to control both,” said Vince. “We can control the price of the [UK] North Sea and half of our gas comes from there. We could take away half the problem of crazy bills.

The Tory leadership race should end this week so that the government can tackle soaring energy prices, suppliers have said. They warned that if the price of beer had risen by the same amount as gas, a pint would now cost more than £25. 

Northern Ireland has a different energy market from GB. It is a double bind – no fully functioning UK government or  Stormont Executive

Northern Ireland’s energy regulator has warned that households will face further gas prices rises in the coming weeks.

The region’s two suppliers, SSE and Firmus, last increased their prices at the start of July. There is no two twice yearly cap as in GB. Prices rise when they need to, .A Treasury spokesperson has said it is “absolutely committed” to bringing an equivalent to the £400 energy bills discount to Northern Ireland.

But no news that I can find about rising costs later in the year.

Later..

Without a cap the increase in Northern Ireland can creep up on you unawares at first, as the economist Richard Ramsey has tweeted

Noticed Electricitymonthly direct debit up by 57% today. OFGEM energy price cap doesn’t apply to N.Ireland which is regulated separately. Electricity & gas bills used to be a fraction of monthly rates bills. Not now. Gas bill has overtaken rates & electricity is nearly there.