Energy bills hike has already made Reeves’ cost of living package look meaningless
KWhen Rachel Reeves announced her living expenses announcements last week, there were some who called it a “mini-Budget,” which is a pretty big title.
Considering the last mini-budget presented by Liz Truss nearly bankrupted the country and the government collapsed within 49 days, she may not be entirely happy with it.
But in fact, criticism of their announcement appears to have been proven correct in just a week, with Ofgem announcing that the energy price cap will be allowed to rise by 13 per cent, more than four times the rate of inflation. This made his announcements seem pointless and the chancellor himself seem powerless.
What Ms Reeves announced last week was a series of truly mini measures: free bus travel for under-16s, VAT cuts on tickets for theme parks and attractions during the summer holidays. While useful for those preparing for a staycation or needing to keep their children entertained during the long summer months, it did little to tackle the real problems facing people’s lives.
One of the big measures taken was to finally increase the amount of kilometers people could travel on their taxes from 45p to 55p. The white truck driver or plumber as framed by the chancellor is supported.
But Ms. Reeves has avoided tackling the really big ticket items. He was rightly not dragged into imposing cost caps on supermarket supplies, but it was surprising that he did nothing to tackle energy bills.
The Chancellor noted a £150 reduction in bills in his Budget last December. But the problem now is that people won’t feel it when their bills rise by an average of £200 this autumn.
Of course, the real reason Ms. Reeves is refraining from doing anything goes back to her Truss mini-budget; It was the massive energy bailout that brought down the government and spooked the markets even more than the much smaller tax cut package.
The chancellor had little room for manoeuvre, either economically or politically. The Starmer government is teetering on the edge of a cliff, waiting for Andy Burnham to make his final move; As long as Makerfield wins the by-election.
This means that it is very difficult to make any changes politically. Civil servants in Whitehall will be waiting to see who will become prime minister and chancellor by the end of the year; They won’t be so worried about the demands of those currently in office.
Meanwhile, Trump’s Middle East war has simultaneously increased energy bills and tested the limits of Ms Reeves’s £20bn allocation for herself in the last budget.
Because of its reluctance to relax borrowing rules for fear of a bond market rally (yes, the Truss effect again), it didn’t have the money for a major intervention on energy bills.
But politically the disappointment is clear. When the new bills arrive on people’s doorsteps, the already hopelessly unpopular Labor government will attract even more voters’ ire.
In addition, we saw that in Tony Blair’s intervention the energy agenda and frustration with Labour’s lack of pursuit of cheap energy were high on the list of criticisms.
Ed Miliband’s Net Zero policies are clearly not working at a time when money and political capital are tight.
But whoever runs the Treasury by this winter will need to find a way to reduce energy bills without driving the country into bankruptcy.
