John Redwood: We can’t afford to ignore rising energy prices

They rightly identified the fact that many people in our country found it difficult to pay the energy bills because they were already high. In recent years,those bills have gone up considerably further.

Although I will not go into the arguments about how we can measure rising temperatures and how much global warming we are actually experiencing, the cruel fact of life for people facing rising energy bills is that they need to use more energy because it is so cold and they need to keep warm.

We even had snow and frost in May this year in England, at the very time that energy prices were being put up, partly by market forces and partly by a deliberate act of policy by the Europeans to try to make energy dearer to put people off using it.

We need to take on board the fact that there is a serious problem of people affording the heating bills.

This is doubly damaging in an economy that is experiencing a fragile and modest recovery and needs a faster recovery.

Energy is taking too much of the family budget. However we also see that there is an additional problem: British business now faces considerably higher costs for the energy it needs to use than competitor businesses in America or throughout much of Asia.

It should be a grave worry to everyone who is concerned about jobs and about the creation of more industrial activity in Britain that we are deliberately creating very high priced energy in this country, which is a major impediment to industrial development.

The Government is well aware of the problem and has responded to lobbying by high energy-using industries, such as steel, glass and ceramics, where energy is a massive part of the total cost.

The Government is providing some kind of subsidy to those heavy energy users in a desperate attempt to prevent some of those factories and process plants closing, but even with the subsidy the production costs are much higher in Britain than in America, China or other parts of Asia, so we are still at risk of losing more of that business by closure, and we are certainly at risk of not attracting the new investment in those types of industry that we might like as part of our industrial strategy.

The Government also need to understand that it is not just transformational processes such as steel or glass production that have an energy cost problem; it is more or less any kind of industry with an automated plant.

If we wish to be competitive against countries in Asia which have relatively low labour costs, we need to automate. We need to have a very degree of machine power so that all the mundane jobs can be done by intelligent machinery to keep costs under control. But we lose the advantage of being able to automate and use high technology if the cost of the energy to drive the machinery is so uncompetitive. We will soon lose the advantage as well because a country such as China is industrialising not only very rapidly, but with the application of far more technology and labour-saving equipment going into its factories. So we have a double problem in that such countries are automating and they have much cheaper energy.

I urge the Government to take our problem of energy prices extremely seriously. American energy prices are typically a third lower than United Kingdom energy prices, so if energy is 10 or 20 per cent of the cost of the given industry, we can see immediately that there is a three or six per cent cost advantage just from the energy bill, which can be an important distinction.

When we look at the success that America is now having in building her recovery longer and faster than the European countries, it is clear that part of that success comes from the accent placed on cheap energy. America is also reaping the benefit of the shale revolution.

I hope that the words of the Prime Minister and the Energy Minister will result in action, because the United Kingdom has an opportunity with shale as well, but America not only has found the shale and is keen on the shale, but is now extracting such large quantities of shale gas that it has much, much cheaper gas prices than the United Kingdom, of benefit to consumers and to American industry.