A perfect storm is battering the UK’s energy sector. Due to a mix of high demand, maintenance issues at some gas sites, and lower solar and wind output, wholesale gas prices are up 250 per cent since January, and a handful of energy firms have folded. Some economists are suggesting the huge rise in gas prices could be an indicator of nascent inflation, and senior Tories have warned that a looming ‘cost of living crisis’ could erupt into the biggest political issue of the decade.
Ofgem has announced that it has appointed British Gas to take on 350,000 customers from People’s Energy, one of two smaller suppliers which collapsed last week. Bulb – energy provider to 1.7m customers in the UK – is pleading with the government for a cash injection. We are still a long way from summer 2018, when pubs couldn’t pull pints and World Cup barbecues were in peril, but the picture isn’t pretty.
Covid has conditioned us to believe that the solution to any crisis – real or perceived – must lie with the government. Hence the demands for a bailout of smaller, less efficient or unhedged firms unable to cope with surging prices. But there is no justification for expecting the taxpayer to write a blank cheque to unsound businesses. Instead, market forces should be allowed to work, and if relative prices change to balance supply and demand as a result, so be it. Refreshingly, this appears to be the view of our Business Secretary, who yesterday insisted a bailout wouldn’t be on the cards. ‘There will be no rewards for failure or mismanagement,’ he told the Commons.
There are also calls for nationalisation of the energy sector from the usual suspects who, regardless of the economic ailment, believe expanded state ownership is the cure.
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