Is the Conservative Party running out of Energy?

Outputs from Spring Statement

In advance of the promised reveal of the government's energy plan this week, let's start with the positives from Rishi Sunak's Spring Statement.

5 whole years of VAT free purchases on solar panels, ground and air source heat pumps. Not in Northern Ireland of course but they seem to matter less than ever to the Conservative & Unionist Party.

It doesn't get any better than that.

The "low tax" Chancellor who will bring us year on year tax rises throughout this parliamentary term has convinced himself that with:

• Harmonisation of the thresholds for National Insurance and Income Tax;
• £150 reduction in Council Tax for bands A to D;
• £200 loan available from October and repayable over 4 years at £50 per year;

he has done enough to keep millions out of fuel poverty. Don't forget that 1p cut in income tax that will come at some stage before the next General Election.

So despite the potential to fulfil a key Brexit commitment and remove VAT on domestic fuel, it remains in place.

The renewables levy, a 25% surcharge on the electricity portion of domestic energy bills, generates £9Bn of state funding for the renewables sector and will continue to be harvested gratefully by businesses that should long since have been self sufficient.

Just a week on from the Prime Minister's conspicuously unsuccessful trip to the Arabian peninsula which coincided with:

• £400M payment to Iran to clear a 50 year old debt and yielded the release of 2 British Iranian citizens;
• On the same day as the Iran payment (the 2 countries are fighting a proxy war in Yemen) meeting with Mohammad bin Salman of Saudi Arabia who politely waited for Boris to arrive before beheading 4 more prisoners;
• Visit to the UAE, followed less than 24 hours by Dubai state owned DP World illegally dismissing 800 UK based employees at P&O;
• No additional oil output agreed; the Spring Statement was a further erosion in the government's popularity, on which so much of their "policies" are predicated.

The UK's lack of energy security due to almost 50% of raw materials being imported has been exposed for folly by the Russian invasion of Ukraine.

Inflation, rising interest rates and increased taxation are all resulting in higher costs of living, reducing net disposable income for discretionary spending, anaemic economic growth leading to stagflation and a spike in fuel poverty.

The latest economic data is "problematic":

• Soaring energy bills – 54% increase in the energy price cap (which is a socialist, anti competitive construct that has recreated a big 6 oligopoly);
• Further increase in the energy price cap inevitable in October with wholesale energy prices continuing to rise;
• Rising inflation – 6.2% Consumer Price Index, 8.2% Retail Price Index;
• The Office for Budget Responsibility ("OBR") anticipates inflation will peak at 8.7% in Q4 but it has a recent history of significant underestimation;
• Economic growth forecast cut to 3.8%;
• Real terms wage cuts (3.8% growth) despite record GDP growth in 2021, with living standards falling at their fastest rate since the 1950s;

The numbers around imports of raw fuel materials make grim reading:

• 4.5M tons of coal imported when a new mine in Cumbria is desired by the majority of the local population and would not only create employment for decades but also reduce production costs, eliminate cost of import and substantially decouple from wholesale market prices;
• 10% of UK electricity is imported from France, who have used it as political leverage in the row over fishing licences. This must end as soon as reasonably practicable;
• 11.7M metric tons of oil imported from Norway alone despite years of reserves in the North Sea;
• 1.4M metric tons of natural gas imported from Norway alone despite UK sitting on 100 years of reserves of natural gas in both the North Sea and through fracking (a large supply sitting below the surface in the Bowland basin, which over half the population support, given the £Bns of economic benefit and thousands of jobs it would create), which would substantially reduce energy costs.

The long-term erosion of both domestic energy production and strategic reserves of raw materials will not be solved overnight.

We can realistically expect energy bills to keep rising in years to come until wholesale energy prices (over which we have no control) stabilise, even assuming we pivot now to increasing domestic energy production.

Wind power is viewed as a key tenet of using clean, reliable, renewable energy ahead of fossil fuels. In 2021, wind had the capacity to provide up to 25% of the country's energy needs. One problem: the wind did not blow at even a quarter of capacity, generating just 6% of the UK's requirements with serious consequences.

Solar power is increasingly used on new developments but even with the removal of VAT on solar panels for the next 5 years, many households cannot afford to retrofit their existing properties or for those living in rented accommodation, landlords do not benefit from installing solar panels.

There are just 3 coal fired power stations still operational in the UK (more than the government would like), without which with the wind stubbornly refusing to blow, the lights would have gone out several times in recent months.

Boris Johnson's Net Zero addiction remains insatiable but if speculation is to be believed, he has finally had a road to Damascus on nuclear power.

I expect to see an announcement around fast tracking the development of coast based modular nuclear infrastructure, including planning reforms to overcome pesky Nimbyism.

Nuclear is a falling proportion of the UK's energy mix (around 17%) and the only new nuclear power station under construction would merely replace lost capacity through the early (unnecessary) decommissioning of existing plants.

I would welcome the government committing to commissioning modular nuclear infrastructure but with a cautionary proviso. It will take until 2035 for this technology to be settled and the infrastructure built to make a meaningful contribution to our energy requirements.

More of the same will only lead to energy prices escalating throughout the decade. It is time to be radical and put the needs of the citizens of the United Kingdom first.

The recent announcement of 6 new gas and oil licences in the North Sea is a small but potentially significant step forward. How much this is to do with a refined energy strategy and how much is sabre rattling between the neighbouring occupants of 10 and 11 Downing Street is open to interpretation.

Whilst I doubt Net Zero ideology will be ditched anytime soon, what should happen to improve UK energy security is:

• Pivot urgently towards self reliance for energy production;
• Pivot short and medium term energy policy towards retaining fossil fuels as an energy source at an appropriate level whilst the capacity for cleaner energy sources to replace them is created;
• End the decommissioning of existing, safe and productive nuclear power stations (in some cases 7 or more years early);
• Retain the 3 operational coal fired power stations to ensure contingent supply to "keep the lights on".
• Remove the moratorium on fracking to start deliver cheap shale gas, thousands of jobs and £Bns of GDP in the Blackpool area in short order;
• Grant further licences for oil and gas exploration in the North Sea to meet demand;
• Review the feasibility of opening new coal mines in Cumbria & South Wales;
• Commence feasibility study of utilising wave power as a reliable source of affordable green energy.

Whilst implementing these measures would not entirely mitigate energy price increases in the coming years, it would make a meaningful difference.

By 2040, it should be feasible to have a predominantly green energy mix of nuclear, solar, wind and wave power, augmented by contingent gas, oil and coal to cope with spikes in demand and peaks in population growth.

That of course does not solve the problem of the here and now. Unless the government is willing to embrace the worsening reality of the energy crisis, the local elections in May are likely to be the beginning of the haemorrhaging of support for the Conservative Party in the run up to the next General Election.