Sir John Redwood is MP for Wokingham, and is a former Secretary of State for Wales.
Energy lies at the bottom of many of the Government’s tribulations. High prices have boosted the inflation that lax central banking started through creating excess money in 2021.
The inflation is in turn causing real income declines and forcing the Government into expensive energy subsidy and price control policies that make running the budgets more difficult, whilst the UK’s insistence on one of the highest carbon taxes in the world, allied to the high underlying energy prices, are squeezing many industries, from steel and ceramics to bricks, tiles, and cement, putting jobs and plants at risk.
Meanwhile, the engineered decline of investment in North Sea oil and gas removes some of our most productive investments, lowering the overall economy’s productivity performance.
We do not burn less oil and gas as a result. We import more, losing the tax revenues that would come from our own production and swelling the balance of payments deficit.
The Government has stumbled into large interventions in the economy. There are price controls on energy, regulatory clampdowns, extra taxes on landlords (affecting housing supply), windfall taxes on fossil fuel energy, and now on renewable energy too.
On top of those there are ever-stricter local and national rules on the use and non-use of cars, vans. and trucks, restricting business mobility. There is also a pressure from the Opposition, which is influencing the Government, for the UK to import everything that poses CO2 and other emissions difficulties, so it can say its own emissions are down.
Business is to pay more of the growing bills of intervention, not just through windfall taxes but through higher corporation taxes, making Britain less competitive and attractive as a place to invest. The decision to ban new petrol and diesel cars from 2030 puts off investment in car manufacture and speeds the closure of existing factories.
Meanwhile this country does not attract the investment in batteries and electric car assembly it needs to replace enough of the lost diesel and petrol car output – there could be a lively demand for imported nearly new diesel and petrol cars from 2030, benefiting mainly the many countries that will still be making them.
In recent days we have been told that people will be rewarded for using less electricity on cold, dark evenings. It is a good reminder that we are chronically short of reliable power; when the wind does not blow much, it may only produce around one to three per cent of our electricity needs.
Meanwhile the fossil fuel stations, due to be phased out, produce more than half. Nuclear makes a useful contribution, but mainly from stations nearing the end of their lives and scheduled to close before the end of this decade.
Ministers need to understand that to power an electrical revolution, we need much more generating capacity than we currently have left, as well as replacements for ageing nuclear stations. We need a much beefed up cable network to get the power to the homes and places of work that need it to charge cars and heat the properties.
(The Government is lucky that so far most consumers have been reluctant to adopt heat pumps and electric vehicles, meaning we have to date managed with our depleted power supply.)
Sometime decisions will need also to be made about whether hydrogen, or a big increase in battery capacity, or more pump storage, or all three are going to be the means to store renewable power when it is available and use it when needed.
Solar does not work on winter evenings or at night; wind does not work on still days. Consumers will want reassurance before they get their electric cars and heat pumps that plenty of power will be available nationally, and there will be the means to get it reliably to the home, the factory, or to wherever you are travelling.
In short, major investment in energy, preferably financed in the private sector, is needed now to boost growth and to provide for better answers in the years ahead.
All this needs the price mechanism to be allowed to work to allocate capital, and bring forward new supply where there are scarcities. The Government needs to wean us off price controls and industry off windfall taxes, in return for stronger competition to serve the customer and more private investment into the extra capacity we need.
Governments are often bad architects of new industrial structures. It did not take taxes, subsidies, bans, and other state interventions to get people to buy smartphones, laptops, and tablets, to download entertainment, or to collect data and talk to each other online. The services and products were popular with the buyers and the digital revolution spread like wildfire.
The green revolution needs its own popular breakthroughs, with well-designed products and services at affordable prices, which in turn requires our electricity-generating capacity and distribution network to be expanded sufficiently to make it possible.
Vladimir Putin’s invasion of Ukraine has forced the pace on replacing imported Russian gas and oil. It has led Germany and China to rely more on coal, and even seen the governing coalition in Berlin licence a new large coal mine (and demolish a village to make it possible), despite the presence of the Greens.
The UK can produce better answers than that, if only we rely more on investment in our own new nuclear, renewables, and oil and gas, and go at a pace the consumer can accept.
Diverse energy sources used to be much-prized, as it affords security against supply shocks. That remains the case today. We need to stress, alongside environmental objectives, the importance of supplying enough power, at affordable prices, for our industrial and consumer needs.
Sorting this out with more investment would give a boost to the economy and, in the longer term, do wonders for inflation too.