Energy Prices
Debate between Chris Heaton-Harris and John Robertson(10 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text
Chris Heaton-Harris
Indeed, and across Europe those very same telecoms companies are now coming to Governments saying they are not investing as much as they used to, because they have not got as much money as they would have had otherwise.
A direct effect of price ceilings is a shortage of supply. In an unhampered market, especially in energy where supply and demand are balanced by the free-functioning price mechanism, if the Government were to impose a price ceiling below the market price, as is proposed, the quantity of energy supply would fall as it would make less financial sense for companies to produce, while demand for energy would increase as a result of the lower prices. The result would be a shortage of energy, with consumers unable to find satisfactory supply.
In addition to the direct negative effects of price control, a series of indirect effects would emerge from the Government manipulation of prices proposed by the Opposition. While price controls do legally change the price, they cannot overcome the fundamental economic issue of deciding how to allocate scarce resources among an array of feasible alternatives. In the absence of the ability to use prices to ration scarce goods, alternative mechanisms emerge. Shortages, for example, would lead to long queues, as happened in the United States in the past because of gas prices, and backlogs, which tend to lead to subsequent Government interventions such as rationing schemes.
Most people understand that the controlling of energy prices, which has been tried before in the UK and elsewhere, has conclusively failed. For proof, we can look west, to California’s experience with price controls on retail energy, which led to shortages manifested in rolling power cuts throughout the state.
Even more importantly, price controls would discourage energy companies from making new, long-term investments, which is precisely what is needed to increase the supply of energy and improve standards of living. What this means is that, at best, the Opposition’s strategy might provide short-term benefits in the form of lower energy bills for a few, but with the associated cost of some form of deterioration in quality and quantity of supply in the immediate future. In the long run, prices would have to go up because the universal improvement in supply would fall away completely. The Opposition policy would have the exact opposite effect on prices from what they intend.
All economic knowledge and sense dictate that the Opposition idea is wrong-headed and misguided. If their goal is to improve standards of living, policy must focus, as it currently does, on incentivising and improving the quality and quantity of supply. Price controls serve to achieve the exact opposite, lowering the standard of living of many while providing political gains for few. The proposal must be dismissed as an uninformed fallacy.
However, we should not be surprised that the Leader of the Opposition and his party are focusing on a price freeze and the cost of living. The right hon. Gentleman is essentially just watching his own back, for it was he, in his previous guise of Secretary of State for Energy and Climate Change, who drove through policies that he knew would drive up prices for consumers and drive people into fuel poverty. He was happy for that to happen—there was no concern at all about a cost of living crisis. Indeed, back when he was Energy Secretary, the Labour leader gave the LSE Ralph Miliband lecture. On 19 November 2009, he explicitly confirmed that his policies would see energy bills rise:
“It needs a willingness to take the argument to people about the tough choices involved in tackling climate change. This is the starting point: a willingness to engage with people on, for example, the fact that to deal with the problem of climate change, energy bills are likely to rise.”
In January 2010, the Labour leader was even more candid:
“Yes, there are upward pressures on energy bills, and that makes life difficult for people, including those in fuel poverty; but it is right that we go down the low-carbon energy route.”
Chris Heaton-Harris
There was no concern about a cost of living crisis then whatever: no concern for the poor—no concern for the people living in fuel poverty in Glasgow, I would suggest.
These policies are a fallacy; they are directly wrong. I hope the British people will be sensible and make sure that they are rejected fully at the next general election.