Robert Peston

Boris and Keir have the energy crisis all wrong

Boris and Keir have the energy crisis all wrong
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Because of soaring gas and oil prices, and the regulations that determine the energy price cap, it is almost inevitable most of us will face a rise in energy bills of between 40 per cent and 50 per cent from April.

For a typical household, that's an increase in bills of around £600 a year — which would be a painful increase in the cost of living even for those on median (middling) earnings.

It would leave the average household spending 6.5 per cent of all their disposable income, after tax and benefits, on heating and power — based on official Office for National Statistics figures. That's one in every £15 earned to keep warm and keep the lights on.

What's striking is that almost no initiative that the government implies it is considering — or that Labour wants — would loosen, by more than a notch, this agonising squeeze on living standards.

In fact, the main initiative to which the prime minister repeatedly refers — the Warm Homes Discount — is largely an industry managed scheme, that puts up the bills of most users to subsidise those of the poorest.

If it were either doubled in generosity, from circa £150 a year in discounts, for three million current low-income beneficiaries, or if eligibility were extended to another three million people, that would increase bills for everyone else, by around £12 a year.

Which may be an example of social justice.

But paradoxically it would have the effect of increasing the cost of living for millions of people who don't think of themselves as rich.

As for abolishing VAT on bills, that would simply cut the £600 a year increase in a typical bill to £500 — a drop in the ocean of pain. And it would also, as Johnson has pointed out, be a boon even to those who can afford the price rise.

In other words, conventional solutions to what is a seismic market event are not even really sticking plasters.

To put it another way, this looks like a proper crisis, except for the absence of action stations in government.

But there is one consequence of all this that may ultimately focus minds, in the Treasury and 10 Downing Street.

These energy rises, if unmitigated, would put rocket boosters under the already high inflation rate. Another one percentage point rise in inflation, which is not unrealistic, would lead to considerably more than £10 billion a year in additional government costs, from indexing debt, pension, salary and other payments.

It is not just our cost of living that's in the vice of soaring energy bills. The government's own spending power is being savagely compressed too.

Maybe, even in a time of Omicron chaos, that will get the attention of PM and chancellor.