Starmer bungled in failing to target his energy bill support Nils Pratley
There was an amusing interlude during BP’s announcement of bumper profits earlier this month when the chief executive, Bernard Looney, was asked what he planned to do with the £400 rebate on his energy bill that would arrive courtesy of the cost of living support package that Rishi Sunak, then chancellor, announced in May. Looney appeared unaware that he, like everybody else in the UK, would get the discount automatically from October. It was only later that BP offered the PR-friendly answer that its £4.4m-year boss would make a donation to charity.
Looney’s bafflement was understandable. High earners like him (and, indeed, high earners collecting considerably less) obviously don’t need assistance from the state in paying their energy bills this winter. There was no sound economic reason for Sunak to add a universally applied £400 element to a package that was otherwise rightly concentrated on vulnerable households, meaning those most affected by higher bills.
That point, bizarrely, seems to have been lost on Sir Keir Starmer. The Labor leader has opted to back the most untargeted form of support this winter – a plan to freeze the price of energy for all consumers, rich and poor alike, at its current level for six months.
The idea is popular, we’re told, because three out of four Tory voters support it. In that sense, it may represent smart politics; the next prime minister will be under pressure to adopt chunks of the proposal, including the increase in the windfall tax on North Sea oil and gas producers. But the economics of freezing energy prices for all households, as opposed to only those least able to afford higher prices, makes little sense.
Starmer’s scheme has the virtue of simplicity, it could be argued – and, yes, the plan is costed if one accepts the £7bn fiddle with the effect of temporarily reduced inflation-related payments on government debt. But a program that costs £30bn for six months becomes vastly expensive if it has to be repeated for as long as wholesale prices remain high – a timeframe that is currently unknowable. If the Looney household and others didn’t need Sunak’s £400 discount, they definitely don’t require the average £1,000 saving that Labour’s proposal would deliver.
More to the point, artificially holding down prices for everybody undermines the incentive on wealthier households to reduce their energy consumption, an imperative that ought to be front and center of any national plan to get through the emergency. Starmer is also talking the language of more insulation in homes, but artificially underpricing a scarce resource does nothing to encourage consumers to turn down their boiler settings in the short term, use their spin dryers less, and so on. “Suppressing the price signal is only going to increase the likelihood that we run out of energy this winter,” says one independent energy analyst, Peter Atherton. Exactly right.
One can argue all day about how to define a high-earning household that doesn’t need support from the public purse, but a means-tested approach of some form still seems the best way to proceed. It would be fairer, more financially sustainable in the long term and more likely to change behavior. Labour’s plan has got off on the wrong foot; support should be targeted.
Heathrow seems to have redefined success
The way the Heathrow chief executive, John Holland-Kaye, tells it, imposing a cap on the number of flights at the airport has been a complete triumph. Limiting the number of departing passengers to 100,000 a day since July has delivered fewer last-minute flight cancellations, better take-off punctuality and shorter waits for bags, the airport was boasting only last week.
So, having bought time to regroup and focus, is Heathrow now in a position to resume a normal schedule in time for the next surge in demand that will arrive with the October half-term holiday? Actually, no. The airport is extending the cap until 29 October for the same reason: that it needs to support “more reliable and resilient passenger journeys”.
An extension is probably sensible if Heathrow – or the ground-handling firms it usually blames during episodes of chaos – still haven’t got the necessary resources in place. But let’s not miss the wider picture. Being bounced into capping the number of passengers was a spectacular failure of management that flowed from the under-estimation of the speed of the recovery in demand. Taking even longer to fix the problem is not a success.