The Guardian view on Keir Starmer’s bills freeze: smart politics needs smart economics | Editorial

In the eye of the cost of living storm, Sir Keir Starmer has correctly judged that Labor needs to be bold. His policy of freezing energy bills at their current levels until next spring reveals him to be a politician capable of seizing the agenda when the opportunity arises. The public has become unnerved by the prospect of household energy bills of £5,000 a year in April 2023, more than a fourfold increase in just 18 months. Such amounts are likely to cause an unacceptable rise in fuel poverty and hardship this winter. By calling for the suspension of price hikes, Sir Keir has done the right thing at the right time.

The Labor leader is telling the public that they ought not to be paying more than they do now for gas and electricity – and that the government will step in to pick up the rest of the tab if wholesale prices continue to rise. This is smart politics. It creates a sharp dividing line between the two major parties: both the Tory leadership contenders – Liz Truss and Rishi Sunak – have rejected freezing bills completely. It also puts Labor on the side of ordinary people while the prime ministerial candidates’ policies are either unimaginative or designed mostly to appeal only to a rich, elderly sliver of the electorate. Three in four Tory voters back Labour’s energy bills plan. Even energy companies have suggested a version of Labor’s offer, with the industry proposing to voluntarily pause customers’ bills for two years and spread the cost of the gas price crisis over a decade or more.

Sir Keir’s intervention is important because it recognizes the need to stabilize energy prices and reduce inflationary pressures through a price cap combined with investments to increase the resilience of the economy. His policy is not cheap, costing the state about £30bn. Gas prices, which are driving energy costs, are unlikely to drop significantly in the near future.

Extending a household energy bill freeze for a year, says industry expert Simon Evans, would cost a further £44bn. Even more alarming perhaps is that households have historically only accounted for about half of UK national spending on energy. To insulate everyone – schools, hospitals and industry – would require a Covid-style spending spree. It seems inconceivable to suggest such sums could be collected from households or businesses. Labor has already suggested a windfall tax on North Sea energy producers, which is the right thing to do. However, the big money is being made outside the reach of such a policy by entities such as Norway’s state-owned energy company.

The energy market is broken. Almost 30 UK energy suppliers have collapsed, affecting 4 million customers in the year up to May. Even before the present crisis started, the majority of energy suppliers in Britain were loss-making. It’s hard to see how a carbon-free energy grid is going to be built from such a system. Sir Keir is reluctant to be drawn on what Labor’s policy would be after six months. But ensuring national strategic goals are met will need a government to be able to direct investment.

Former Labor prime minister Gordon Brown understands this – arguing that firms might have to be operated from the public sector if they fail to enact state priorities. Many companies have a vested interest in prolonging the life of natural gas assets – because they own them. Gas is a critical transition fuel, meant to be phased out and replaced by greener supplies. But this will require the government to be in the driving seat. Fortuitously, a combination of austerity exhaustion, Covid and high inflation has created an appetite for state activism. Having grasped the scale of the crisis, Sir Keir now needs to seize the moment for the sake of the country.