The Economist - USA (2022-01-15)

46 Britain TheEconomistJanuary15th 2022

will be unable toconjuretheeasyanswers

and ready fixes thatarehisstyle.

Before the parties,itwasinflationthat

was  keeping  Conservativempsawake at

night. Consumerpricesroseby5.1%inNo­

vember  comparedwitha yearearlier,the

biggest  annualincreasesinceSeptember

2011.  Over  the  nextfewmonths,increases
      should  beat  anythingseensincetheearly
      1990s. Pay is unlikelytokeeppacewiththe
      prices of cars, clothesandcigarettes.State
      pensioners, a bigchunkoftheTories’elec­
      toral  coalition,  andpeopleonstatebene­
      fits will be squeezedparticularlyhard.
      A large part oftheproblemiscausedby
      high  global  pricesforoilandgas,com­
      pounded by Britain’spoorlydesignedregu­
      latory framework(seenextstory).InApril
      the governmentwillraiseitscaponretail­
      energy prices. Theaveragehousehold’san­
      nual bill is expectedtoriseby50%.TheLa­
      bour Party is feastingonTorydiscomfort:it
      has proposed a temporarycuttovatondo­
      mestic energy bills.
      This is artfulpoliticking,designedtoir­
      ritate Tory backbenchers.Themeasurewas
      promised by MrJohnson’sBrexitcampaign
      as  a  potential  dividendfromleavingthe
      eu, though was notenacted.Butsuchisthe
      scale of the problem,notesRobertJoyceof
      the Institute forFiscalStudies,thatevenif
      it  were,  it  wouldoffsetlessthana fifthof
      the average increaseinenergybills.Allthis
      is reminiscent oftheearly2010s,whenEd
      Miliband  successfullyexploitedwhathe
      termed a “cost­of­livingcrisis”totorment
      David Cameron’sgovernment.
      Also cominginAprilisa riseof2.5per­
      centage  points in national insurance, a
      payroll tax, halfeachfromemployeesand
      employers. SeniorToriesareunhappy,in­
      cluding Jacob Rees­Mogg,theleaderofthe
      House  of  Commons.Theextramoneyis
      supposed  to  supporttheNationalHealth
      Service for threeyears,beforebeingdivert­
      ed to fund a newsocial­careregime.
      But the nhs isinthemidstofa waiting­
      times  crisis,  theresultofdoctorshalting
      routine  work  duringthepandemic. The
      national­insurancerisewillbarelymakea
      dent. Some 6m peoplearealreadywaiting
      for  a  procedure;by2024,whenthenext
      general electionisdue,thatcouldbe13m,
      or  one  Briton  infive.Everyonewillknow
      someone  on  a  waitinglist;Labourwillbe
      able  to  pick  and choosebetween heart­
      rending stories foritscampaignads.After
      his  apology  in the Commons, the first
      question  the  primeministerfacedcame
      from  James  Davies,a Tory,whoraisedhis
      constituent’s  eight­weekwaitata breast­
      screening clinic.
      It  is  not  in  Number10’sgarden,butin
      supermarkets,  petrolforecourtsanddoc­
      tors’ waiting­roomsthatMrJohnson’sfate
      will be decided. Thepastweekhasbeenthe
      most  miserableofhiscareer.Thecoming
      year will be worse.n

Energyandinflation

It’s notcheap

beinggreen

A

t noononJanuary7ththetwinnuc­

lear reactorsatHunterston bpower

station,ontheFirthofClydeonScotland’s

westcoast,wereshutdownforthefinal

time.Theplantwasoncethefuture.Partof

a fleet ofhigh­tech British reactors de­

signed—unsuccessfully—forexport,it was

connectedtothegridin1976,justafterthe

greatoil­priceshockof1973.

Itsclosureisanothersmalltightening

ofthescrewfora countryfacinga different

kindoffossil­fuelshock.Justbefore its

closureHunterstonbwassupplyinga stea­

dy1 gigawatt(gw) ofelectricitytothegrid,

about2%ofdemandona typicalwinter’s

day.Mostoftheslackwillbetakenupby

power stations burningnaturalgas, the

priceofwhichhasroughlytrebledoverthe

pastyear.Britainisunusuallyrelianton

gas,which—onaverage,overayear—ac­

countsforabout40%ofitselectricitygen­

eration,andheats85%ofits(mostlyold

andpoorlyinsulated)houses.

Itssoaringpricehasthereforehelped

driveinflationabove5%,thehighestrate

ina decade.Thathasalreadypushedmore

than two dozenenergy companies into

bankruptcy,andpiledpainonbusinesses

suffering from covid­related lockdowns

andstaffabsences.InAprila government­

imposed caponthepricesuppliers can

chargehouseholdsisdueforrevision.En­

ergyuk, a tradebody,reckonspricescould

riseby50%ormore,takingtheaveragebill

toover£2,000($2,700)a year.

Worriedministersareponderingsever­

alideastotaketheedgeoffthepain.Oneis

toscrapvalue­addedtaxonenergybills,

thoughtherateisjust5%.Othersinclude

increasinghandoutsforpoorhouseholds,

loanstosurvivingsupplierstospreadthe

cost of absorbingcustomers ofdefunct

firms,andshiftingsubsidiesforrenewable

energyfrombillstogeneraltaxation.The

oppositionLabourpartywantsa windfall

taxonoil­and­gasproducersintheNorth

Sea,whichhaveseentheirfortunesrise

alongwithprices.

Allthose policiesinvolve unpleasant

trade­offs.Mostimplyhighertaxes,which

areunlikelytoprovemuchmorepopular

thanhigherbills.Inanycase,saysDieter

Helm,anenergyeconomistattheUniver­

sityofOxford,nonedoesmorethantinker

aroundtheedgesofanenergysystemthat

islikelytoremainheavilyreliantongas,

andtogetpricier,too.

The chiefreasonisthegovernment’s

drivetodecarboniseelectricitygeneration.

Theshareofwindandsolaronthegridhas

risensharplyoverthepastdecade,displac­

ingdirtycoal­firedgeneration(seechart).

Thegovernmentwantsthattocontinue:it

hopesfora 25%riseinoffshorewindpow­

erby2030.Butrenewableenergyisunreli­

able.Thepastfewmonthshavebeensome

ofthestillest for decades, reducingthe

amountof power generatedby Britain’s

windturbines.Themorerenewablesare

addedtothegrid,saysMrHelm,themore

backupmustbebuiltaswell,evenifmuch

ofitsitsidlemuchofthetime.Withcoal

toopolluting,andgrid­scalebatteriesstill

intheirinfancy,gas­firedelectricityisa

likelycandidate.

Atthesametimenuclearpower,which

isbothlow­carbonandreliable,andwhich

providedaround16%ofBritain’selectricity

lastyear,isshrinking,leavinganevenbig­

gergaptofill.ThreeofBritain’ssixremain­

ingstationsareduetocloseby2024;by

2028 justone willbeleft.Ministershad

beenkeenonbuildingmore,butsofaron­

lyone,inSomerset,isactuallyundercon­

struction.Itisduetobereadyby2026,but

isalreadylateandoverbudget.

Evenwhenglobalgaspricesfallback,

thegreentransitionwill bakeinhigher

costs.Themorerenewablesonthesystem,

the bigger—and more expensive—their

backuphastobe.(MrHelmthinksthat,

takingintermittencyinto account, wind

powermaybeevenpricierthanthenuclear

sort.)Thegovernmenthasseta strikingly

ambitioustargettodecarboniseelectricity

generation completely by 2035. That

meansgasplantswillhavetobefittedwith

carbon­capture technology, in which

emissionsareburiedunderground.That

hasnotbeendoneatscaleanywhereinthe

world.Butifministersareserious,itwill

pushpricesupevenfurther.

Onewayoranotherthepublicwillpay,

whetherthroughhigherbills,highertaxes

oracombinationofboth. Whateverthe

government does about the immediate

problem,argumentsaboutthecostofen­

ergywillcontinue.n

Rowsaboutthecostofenergyare

heretostay

Rocky ride

Britain, electricity generation by fuel type, TWh

Source: Department for Business,

Energy & Industrial Strategy *Wind and solar

100

80

60

40

20

0

21191715132011

Other

Renewables*

Nuclear

Coal

Gas