The International Energy Agency has warned that the present energy crisis, severe as it is, could become the worst in history. Given that, the chancellor of the Exchequer is right to undertake contingency planning now.
Yet as things stand with the public finances, she will find it impossible to help everyone. At this point, Ms Reeves can do no more than set out some of the principles that are guiding policy, and some relatively minor initiatives. There are too many unknowns to start setting price caps or quantifying subsidies, even if some measures can be implemented immediately.
The pressure on oil companies and their retail partners to be more transparent and resist the temptation to indulge in “price gouging” at the pumps, for example, will help households and businesses to keep costs down, as will the inevitable postponement of the planned hike in fuel duty of 5p a litre. Yet many of the measures she explained to parliament were in fact old rope.
She claims, for instance, that 90 per cent of outlets are signed up to the Fuel Finder apps, which were in fact launched in her last Budget. In some respects, the chancellor took 15 minutes to announce nothing at all.
Also of immediate concern is the inflation in the cost of fuel oil and liquefied petroleum gas in rural areas, especially Northern Ireland. Ms Reeves reiterated the subsidies already announced to help the most vulnerable households there.
That strategy of targeting help to those most in need, rather than adopting blanket schemes to keep gas and electricity bills lower than they would otherwise be, is sensible. It has attracted widespread support. The Treasury has learnt from experience after the dramatic spike in gas prices caused by the full-scale Russian invasion of Ukraine in 2022. In terms of the international and domestic gas markets, that was an unprecedented event, and rippled through the entire economy, given that electricity charges are also linked to the price of gas.
There is another lesson to learn here. During the earlier part of the Ukraine shock, the Conservative ministers then in power, including Boris Johnson, Liz Truss and Rishi Sunak, had no practical alternative other than to offer universal support. This had the perverse effect of handing the largest subsidies to those in the larger houses with the biggest bills, which is to say mostly the better off. It was also extremely costly.
Ms Reeves gave no details about how any energy bill support schemes will work. Given how far away winter is and how uncertain the prospects are for peace in the Middle East, that is perhaps understandable.
Less understandably, however, she gave no indication whatsoever about the total scale of such support or the impact on the public finances, beyond offering her usual lines about her “iron-clad” fiscal rules (which have in fact proved to be fashioned from more pliable material).
She should have done so. The Office for Budget Responsibility put the total cost of energy support measures in 2022-23 at £51bn. Given that the chancellor has, at best, only some £24bn of “fiscal headroom” left, and the national debt is so high, not to mention increasingly expensive to service, it would have been better if she had been candid with the public.
What’s more, she should have plainly stated the truth: that she will not be able to do as much as her predecessors did, even – especially – if the war drags on and the energy crisis becomes more acute over the summer.
All of this brings into focus once again the other long-term strategic issues for public spending – long overdue investment in defence, and reform of welfare spending, driven by demographics. This may have to include the state retirement pension, the “triple lock”. Thus far, the government has failed to do much about these, so when a crisis such as this spike in fossil fuel costs comes along, there is that much less room for manoeuvre.
If Ms Reeves, as she hinted to the Commons, wants to ensure that her energy support schemes will be “fully funded”, unlike her predecessors’ attempts, then in due course she will have to present her case in exactly those terms – to detail how it will be paid for. Reform of the social security system is, in any case, even absent the present exigencies, essential if it is to continue to command necessary public support.
Somehow she and her senior colleagues are going to have to return to the issue this year and this time persuade her backbench colleagues to accept the need for change in order to save the welfare system, either from financial collapse or from the predations of a Reform UK administration, which will be less fastidious than the Starmer administration. The choices are stark, and made more acute by this crisis. Labour cannot avoid them for much longer.
