In a recent article, Richard Murphy, political economist and professor of accounting practice at Sheffield University, reasoned that pretty much all of the increase is attributable to speculative advance purchasing by energy suppliers rather than to any actual shortage, or increase in the production price. This has the effect of vastly increasing supplier profits (and presumably shareholder dividends).
With UK electricity and gas production and distribution now being entirely outwith government control the only lever UK Government has over retail prices is the price cap calculated by Ofgem. The amount of the cap is linked to the wholesale prices of gas and electricity but, as Richard Murphy argues, the surge in wholesale prices is not because of any shortage but rather because of widescale advance purchasing increasing demand. Today, the cap has risen by 54%. In contrast, The French Government, which has an 85% stake in EDF, has limited the price increase to 4%.
Ofgem also sets grid connection charges – how much energy producers are charged to connect to the national grid. Interestingly, there are three connection rates in UK - £7.36/MWh in the north of Scotland, £4.70/MWh in the south of Scotland and £0.49/MWh in England. Odd, or perhaps just opportunistic for UK Government, when over 65% of North of Scotland renewables production is exported to England. (Business for Scotland Blog – March 2022)
Daily standing charges are also increasing. These, as you’ll be aware, cover the cost of providing meters and maintaining the distribution network. They also include costs associated with energy suppliers going out of business. Individual supply companies set their own standing charges up to a cap set by Ofgem. The reality is that nearly all have opted to charge at the capped rate. Regional variations in the cap however result in standing charges varying considerably across UK, from 31p in London to 49p in the south-west of England, just ahead of North of Scotland’s 48p. Ofgem attributes these differences to a reallocation of network costs which vary between distribution networks. (BBC News – March 2022).
I can’t see how people on tight budgets are going to cope with increases of this scale and the resulting pressures are bound to have an impact on UK politics. It's quite remarkable that we've ended up in a situation where the cost of drawing on some of the basic needs of life becomes untenable for many in a dynamic which directly benefits shareholders, and does so handsomely. This needs to be addressed.
UK Government is a money creator. It doesn't borrow, it prints money when needed.
The government can instruct the Bank of England to issue funds, and could use those funds to alleviate hardship. It did so to finance the Furlough Scheme and "eat out to help out". Now it It chooses not to - a politcal choice, and a recessionary one like that favoured by David Cameron and George Osborne. It needn't be this way.
Oh, by the way, while we've been proccupied with Covid and overseas matters, UK Government has just quietly done a deal to sell a major stake in the entire gas network, including that within Scotland, to an Australian mining company. Part of the trade deal so proudly proclaimed by Liz Truss no doubt, and the very antithesis of "taking back control." The prospect of Austrailian mining interests taking a benign and humanitarian approach to hard-pressed British consumers is one which, to me, defies logic.
