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Volume 52 Number 8, April 16, 2022 ARCHIVE HOME JBCENTRE SUBSCRIBE

Energy Price Cap Hike

The Need is for Public Control over Energy Prices and for Modern Democratic Arrangements

Typical energy bills rose by an unprecedented 54% on April 1 as the new price caps set by regulator Ofgem came into effect, pushing millions into fuel poverty and what is being termed "fuel stress".

Ofgem had announced on February 3 that the caps - supposedly designed to stop suppliers excessively profiteering - were to increase, a rise that would affect an estimated 22 million people. The increases predate the war in Ukraine - as Ofgem said at the time, they were "driven by a record rise in global gas prices over the last six months".

Ofgem calculated that, on average, default tariffs paid by direct debit would increase by £693 to £1,971 per year for gas and electricity, adding nearly £60 per month to typical bills. Those on prepayment meters (4.5 million people, mostly made up by those on the lowest incomes and students) would see an even bigger increase of £708 to £2,017 a year. These rises came on top of increases last October that took the caps to their then highest levels ever (£1,277 for a standard tariff).

These price hikes are causing so-called "fuel stress", where people are forced to spend at least 10% of their budget after housing costs on energy bills. The Resolution Foundation estimates that the present price rise will double the number of households in this condition from 2.5 to some 5 million in England, and they project this will rise yet further to as many as 7.5 million after the price caps rise by another £500 on October 1. The consequences will be devastating.

While the government harps on about "levelling up", which one is led to believe means lifting people out of poverty and building a sustainable economy to serve the people of Britain, we see only more austerity and price rises that only favour the rich.

Pointing out that April 1 "was also the day that National Insurance charges went up and the day when water charges rose", economist Richard Murphy said, "Food prices are already increasing. On top of that, interest rates are going up so that some people with mortgages will see that cost increase as well. If that is not enough, general inflation has now reached around 8% per annum, with the chance that it might go even higher later this year because it is thought that household energy costs might rise by up to another £1,000 a year in October when the next price review takes place." [1]

British gas workers on strike in 2021

Pointing his finger at the government, he said, "On top of that, even when it knew that the current price increases were on the way it still planned the National Insurance increases and cut Universal Credit whilst encouraging the Bank of England to increase interest rates. It adopted all these measures because it claims that it is facing a debt crisis, with the national debt now needing to be repaid as a consequence of the costs of Covid."

Brexit, he said, "has made it harder for the UK to trade, as international statistics show, and that has a consequent cost which is reflected in UK inflation". The way Covid restrictions ended is another factor. Murphy argues: "The warning that reopening the economy would be harder than closing it was ignored and no apparent attempt to manage the problems that have arisen, especially as a result of shortages of gas supply, was made. It is those shortages due to the end of Covid restrictions that have given rise to the current price rise, which have nothing to do with war in Ukraine."

Regarding the war, he said, "The government's mismanagement of its relationships with Russia, which has been widely reported, did however mean that it failed to anticipate that crisis as well. It is shortages created by war that will give rise to the energy price increases in October."

"On top of that, even when it [the government] knew that the current price increases were on the way it still planned the National Insurance increases and cut Universal Credit whilst encouraging the Bank of England to increase interest rates. It adopted all these measures because it claims that it is facing a debt crisis, with the national debt now needing to be repaid as a consequence of the costs of Covid," he said.

A decent standard of living is a right that must be guaranteed by changing the direction of the economy so that it serves the needs of society. As the economy is currently organised and directed, prices are controlled by the global monopolies and oligopolies through "market forces", which amounts to cartel price fixing. The power to set prices must be taken out of the hands of these narrow but powerful private interests, and instead the people must be empowered to control prices of essential services, utilities and goods.

A key raw commodity determining energy and fuel prices is of course oil. A relatively small number of countries produce oil in large quantities. Huge multinational conglomerates (Shell, BP, Exxon and others) are among the biggest and most powerful companies that carry out the production and distribution of oil. It is extracted in countries such as the US (Texas); Saudi Arabia and the gulf states, Iran, Russia, Britain, Norway, Libya, Venezuela and Nigeria, and the oil monopolies and states control supply through cartels like OPEC (the Oil Producing and Exporting Countries). Gas production is similar. In Britain, oil is imported and is produced in the North Sea along with gas, where BP and Shell in particular operate. Refineries and fuel distribution networks in Scotland, England and Wales are again controlled by the same big businesses and private utility firms.

Internationally, controls over pipelines, trade embargoes, trade wars, and so-called free trade agreements all contribute to the problem, as does the present egging-on of war in Ukraine. Energy and trade corridors are dominated by big powers and multinational conglomerates, and have become weaponised to the point that now rationing energy consumption is being considered in Europe, particularly Germany. Tensions are rising and chaos is ensuing. The attempt by the US at establishing what it calls a rules-based international order to preserve its privileged status is faltering before it has even got off the ground. The existence of anti-war governments would stand as a block to these manoeuvres by big powers, power blocs and oligopolies.

Power generation and the grid is also controlled by oligopolies. The new nuclear plant being built at Hinkley was first to be built and operated by the French state-run EDF, before being switched to China. Contradictions mainly between the US and China have subsequently left the British ruling elite in a quandary. All decision-making is out of the hands of the public on such matters.

Many of the private sector companies set up to distribute energy have recently collapsed, leaving control in fewer hands. Instead of shareholders and owners of energy production and distribution taking a hit, the regulators have raised caps and altered the goalposts so that price hikes, previously prevented, now take place. It could be said that a cap that keeps being raised is no longer a cap. This crude form of price regulation has essentially been usurped on behalf of the interests of the rich.

Control of prices must switch from those that cause price increases to those these increases affect, which is the majority in society, via a new public authority. To ensure that this authority operates in a manner consistent with the conditions and does not get usurped by powerful private interests, that authority itself requires direction by a modern system of democratic arrangements that directly embody the popular will.

The nub of the problem is how the socialised economy operates and to what aims it is directed, and the neo-liberal market system that is holding it back. To change the direction of the economy, key aspects such as the distribution of goods, supply chains and the means of increasing supply of essential products need to be under public decision-making control, as are the quantity and quality of investment in social programmes and the manufacturing base. If more is put into the economy than is taken out by private interests, then supply meeting demand is made possible. Cheap energy is a necessity for many small businesses to survive and for domestic users to live. Prices should be taken out of any control by monopoly and oligopoly cartels.

A modern public authority would restrict the assumed rights of the monopolies to maximise profits through price manipulation and enforce a scientific price of production that allows a sustainable rate of return, diminishing as it should in proportion to advances in productivity. People must constitute themselves as the authority via new democratic mechanisms that enable them to effectively direct the economy, including incomes, social programmes and prices, so that solutions to the standard of living crisis can be found.

Whose economy? Our economy! Who decides? We decide!

1. Richard Murphy, "Cost of living crisis will bring hunger, cold, debt and the potential loss of homes to people in Sheffield", The Sheffield Star, April 1, 2022


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