Tony Lodge: Labour has a blackout over dark history of price controls

The Labour leader used to be Secretary of State for Energy and Climate Change. He held this post for two years until Labour lost the last election. In this period of office he reaffirmed and strengthened the UK’s commitment to impractical and expensive carbon reductions.

He further increased subsidies for weather-dependent renewables like wind and solar and allowed EU policies to go ahead, resulting in the closure of important and reliable coal and oil-fired power stations.

It is these policies which have done most in recent years to force bills higher. Blaming those companies which have had to squeeze into this policy straitjacket is both unfair and disingenuous. Miliband’s new rhetoric on energy partially depends on voters not knowing or caring to know about his or the Labour Party’s risible track record in this vital area.

It was Tony Blair who committed the UK to a target of a third of UK electricity being provided by renewables by 2020.

Irrespective of the vast sums being pumped into this sector, renewables still make up less than 10 per cent of UK electricity supply. Last year, the UK relied heavily on traditional fuels to keep the lights on and power industry, with coal shouldering 41 per cent of electricity generation and gas generating 21 per cent.

Price controls on key utilities such as energy are reckless and risk undermining the billions of pounds of new investment the Labour leader acknowledges is needed to replace ageing electricity generating capacity.

Some of the UK’s power plants are over 40 years old. They will need replacing in the next few years, but this will require significant market certainty from those companies who we are looking to commit the tens of billions of pounds it will cost 
to do so.

The majority of the “Big Six” energy companies have a strong UK presence but are answerable to a foreign board. This further exposes the fact that they will be deterred from investing in energy renewal as long as there is the threat of price controls.

These companies deserve a reasonable rate of return so that they can plan and map their investments – but the Miliband scheme does not even acknowledge that companies should be able to generate fair profits.

History has shown that such energy price controls have failed dismally when introduced by politicians.

Both the UK and the US intervened in this area in the 1970s, using wage and price controls to try and tackle the rising cost of living.

Some readers may recall Ted Heath’s doomed Prices Commission. In the US, price controls on petrol were initially welcomed in the 1970s – until motorists were forced to queue for hours as producers with little incentive to make more petrol cut back on supplies.

A disturbing parallel in terms of energy is provided by the state of California. In 2000, San Francisco suffered rolling blackouts as a result of the attempt by the state government to freeze the price of electricity. Consequently, energy suppliers were forced to the edge of bankruptcy as wholesale costs raced above the price they were able to charge.

Spain has similarly tried to limit energy bills. But the difference between the price paid by consumers and the costs faced by the generators today accounts for £20bn of the black hole in the country’s finances.

Price controls ultimately end up stifling both consumer choice and growth. Labour is reverting to type, but a type we have not seen since Margaret Thatcher exorcised such tried and failed policies in the 1980s.

Unbelievably, or perhaps not, the son of a renowned Marxist academic does not seem to realise, or thinks some of us won’t notice, that you cannot have rising pay and living standards without wealth creation and growth.

Ed Miliband should be focusing on opposing the many failings of the coalition’s energy policy and admit he got it wrong when he was in charge.

In the hope that most people don’t notice that much of the high cost of energy is down to the policies of the last Labour government, he has adopted a deeply flawed policy which he may have to drop before the next election.

It may initially play well on the doorstep, but it says more about the direction of the Labour Party that the concept of price controls is now back in favour.

The challenge now for David Cameron and the Tories is to both expose and exploit this regressive policy by explaining clearly why it won’t work and why it must be rejected.

*Tony Lodge is an energy expert and Research Fellow at the Centre for Policy Studies.