Freeze energy bills or cap rises at 5%, say Ros Altmann and Frank Field

Baroness Altmann is a former Pensions Minister and Lord Field is a former MP and chairman of the Work and Pensions Committee.

They now both sit in the House of Lords, and as experienced policymakers want to deliver a message to the incoming Prime Minister on how to tackle the emergency of soaring energy bills.

Government action on the energy crisis must recognise this is a Dunkirk moment – patching up won’t do, radical action is vital.

Any new package must recognise two factors:

1. Direct action to reduce energy costs is superior to handouts as it also lowers CPI, RPI and wage inflation with wide economic benefits;

2. Privatisation has failed and radical reform of energy pricing throughout the economy is needed.

The new Prime Minister should focus help with energy costs on directly reducing inflation by controlling the price rises, rather than adding upward pressure with poorly-targeted taxpayer handouts.

The Government must recognise that privatisation has failed consumers who are being forced to pay well over the cost of production and also for collapsed energy suppliers through soaring costs and higher standing charges.

An urgent review and radical reform of pricing structures is called for immediately while temporarily halting the extraordinary, damaging price increases.

A temporary halt or reduction to price rises will directly reduce CPI and ease pressure on households and businesses, and prevent wage-price spirals spreading uncontrollably, while allowing time for market prices to subside, super-normal profits to be redistributed and better price mechanisms to be agreed.

We recommend action to reduce price rises directly. 

This could entail freezing costs this winter or capping the increase at 5 per cent, which means six to nine months of subsidies rather than billions of pounds in handouts to households.

It also means ensuring super-normal profits of non-gas energy suppliers can benefit consumers, not shareholders. This package will better target the much-needed support and allow time for a proper review.

We are concerned that indiscriminately doling out more taxpayer money will not help all those in need, especially people just above the means-test threshold, while boosting profit bonanzas for some energy firms and forcing small businesses into insolvency.

If energy price rises are frozen or capped, inflation will be lowered by several percentage points, which reduces other price rises and wage rises will also be lowered.

Given what’s been happening to energy prices it is quite clear that privatisation of supplies has failed. A major review on how best to own the community’s energy supplies should be set in hand by the new government.

But a review will take many months and there’s a need to help citizens and small businesses in the immediate future.

It should be recognised that huge amounts have already been spent on protecting the most vulnerable, which was important, but they did nothing to control the inflation spiral.

Measures are now also needed that are specifically aimed at reducing inflation.

We mustn’t make that mistake again. It is in everybody’s interest that justice over price increases is obtained in a way which benefits the whole community by lessening the rate of inflation.

The new Government’s package needs to reflect how serious fuel price increases are for our country.