Why is Britain so exposed to rising energy prices?

0:00Hello and welcome to Coffee Out shots. I'm James Hill and I'm joined state by Michael Simmons and Tim Shipman. Now, Michael, this morning, the IMF has said that the UK is particularly exposed to energy-price search as a result of the Iran War. Tell us more. Well, this is just another example of an international organisation stating the bleeding obvious and telling us what we already knew. Last week it was the Paris-based OECD and this week it's the Washington-based IMF and why have they said this? Well, they've said that this energy crisis is going to be as bad as 2022 when gas prices surge because of Russia's invasion of Ukraine and they singled out us and Italy as two places in Europe that are particularly affected by that. Why are we particularly affected by that? Well, because of the way our energy system works is because the gas price sets the kind of marginal cost of electricity generation and energy usage. So if gas prices do spike more and more as

1:04seems to be the expectation now, then we will be, you know, we will suffer particularly hard about this. The government seems to have, in a way, thrown in the towel slightly on this. And Starmer had this meeting yesterday with bosses from shipping firms, Reeves is calling around the leaders of supermarkets and from those inside the room, the message seems to be, look, the government can't solve this on their own, correct, they need businesses to help. I look clear of what the Chancellor and the Prime Minister expect businesses to do. I mean, I don't think they really believe this myth that there's all this price gouging and profiteering going on, but I think it's a bit of an alarming situation we've reached where the government's currently as businesses please help us. Yeah, and the IMF is warning that the global impact of this crisis is going to be highly uneven, so the UK is very exposed, but countries such as Spain and France with their nuclear and renewable sectors actually could be well-intested. I suppose to him, you know, that's going to obviously lead to the question which reform and the Conservatives pushing, which is about actually should we have North Sea drilling? Well, that's the obvious question to ask, and I think

2:08one of the lessons of politics is that you should watch what they do and not what they say. If you enter into a conversation with anyone who works with Ed Milaband or anyone around him, they will tell you that this is all deeply unfair, that he is going to drive down prices, that we will be insulated from this kind of shock by moving to renewables, and then you listen to international organisations and they tell you that's nonsense, and it's quite helpful to have these highly credible international groups coming out and confirming that the bleeding obvious is the bleeding obvious. We've got a load of oil and gas under the North Sea, the Norwegians are happily tapping into the same fields that we could be drilling, and we're not, and of course you move to renewables, that's great. There's just a single person who doesn't think we should have more renewables and crack on with it, but the problem is when the wind stops blowing, you need a backup. Now, if Britain had invested in a lot of nuclear technology over the last 30 years, you can imagine a scenario in which we wouldn't need that much oil and gas, but unfortunately that

3:08wasn't the case, the Lib Dems killed that off during the coalition. Ed Miliband has done a bit of that, but he's hardly enthusiastic about it. Much more ostensibly sort of central F countries than us like the French have been happily ramping up their nuclear tech, which is perfectly sustainable argument, is very green really compared with a lot of this other stuff, but it's just despised by the green in quotes community as a sort of inherently dangerous enterprise, and it's left us in a position where, you know, as we've heard this morning, we are peculiarly vulnerable to all this, and you know, put aside the other bleed in obvious thing, which is that if oil and gas is being sold at high prices, we also could be selling it at high prices, and that would be great for the balance of payments and give the government a rather more tax revenue than it's getting at the moment. So you can disappear down a rabbit hole in conversation with the Green Lobby, where they can prove almost anything with subsidies and statistics,

4:09but, you know, simple facts, simple facts. We've got this stuff, we're not using it, and as a result, we're buying other peoples. That ain't a great state of affairs. And you do wonder how the chancellor is keeping a straight face at the moment, because yesterday there was this Zoom call of G7 finance and energy ministers, whether discussing whether, you know, more strategic oil reserves should be released. And we're briefed beforehand that the chancellor was going to go in there and lobby other countries to follow the UK's lead on decarbonisation. Now, I don't personally know any of the finance or energy ministers of the six other G7 countries, but do you think any of them are looking at Britain and thinking, hmm, this is a great idea, we should follow the energy policy of this country. Any more than you think Rachel Reeves thinks we've got a good energy policy. I would say that in conversations with people at the Treasury, it takes about four seconds to elicit from them a grunt of disapproval about what Ed Miliband's doing. They won't sort of come out and say it, but you'll get a reply like, well, if you want to know what the chancellor

5:12thinks, she's got a lot, she said a lot on the record about this in the past, and you look at what she said on the record, which is that, you know, we need to be focusing on energy security and cheap supply rather than on trying to make ourselves the world leaders in bleeding heart liberalism. That's when Michael is more banished for the economy. It took us through what's been happening. We've had this news today, which I'm slightly skeptical of that potentially, the person who is price-gourging is the chancellor, and that's because various experts in different areas in, for instance, fuel, in food costs, etc, etc, have put all their sums together and come up with this figure that the treasury is getting this 20 million pound a day windfall in extra taxation. Now, we won't know if that's true or not for a few months until we get the public sector finance figures for this period. On the face of it, it seems logical. I mean, if you look at the VAT aspect of fuel, for example, obviously she'll be getting more in that because that's set at 20% and as the price of fuel goes up, you'll get more to the treasury, and that's why some of the

6:13opposition parties are saying use this money to cut fuel costs, cut fuel duty, cut whatever to bring down the cost of living. I'm kind of skeptical of all this though because what's happening, you know, on the other side of the scale, is those interest rates, the guilt yields are going up and up and up. And I think what you'll find is that the extra costs of borrowing and things like the debt interest on our guilt, which is obviously set by RPI inflation, which is obviously going to spike over the next few months, is going to more than eat up any tax bananzer from the treasury. So I think there's a story to be slightly skeptical of. This is a lot sticking your hand down the back of the sofa and delightedly pulling out a fiver, and then looking at your bank balance and realizing that your mortgage has gone by 500 quid a month. I mean, really, 20 million quid, I mean, that is not even a rounding error in the treasury. This is, you know, applaud the government spin doctors who are trying to make the most of this. But really, it's a, it's a an irrelevance, really, and the greatest scheme of things. Just as a final question, Tim, I mean,

7:16I've been struck over the last 24, 48, 7 showers or so reform and the Conservatives have both been saying what they be doing, they've been crisis, they've been talking about drilling, they've been talking about VAT or Fenergie bills. And it just strikes me that it seems that both the center right parties have written almost herding. You know, we talk about herding as a polling phenomena where polls are sort of clustered together. But it does seem that increasingly there is less of a policy difference than the once was between them. The FT have been running a series this week talking about different policies reform have dropped. And for a lot of work and phone calls went into that with things like oil, the water nationalisation has been dropped. Does it seem now that there isn't much equilibrium water between the two parties of the right? And actually, really, it's more about personality and questions of credibility. Yeah, I think that's right to a large degree. And I think the battle that's going on on the right to British politics is to decide which is the dominant party going into the general election and which party provides the potential prime minister. And right now, that's a battle being won by reform. It's one that the Tories are beginning to contest. But I think reform do not want to deal with the Conservative party. And, indeed, there are lots of people in there who would actively oppose that and have a visceral

8:17loathing of the Conservative party. But I think it's fair to say that as a result of reform trying to look like a more credible government in waiting, that has sanded off some of their rougher edges. And I think it would be both more understandable if Conservative voters voted reform tactically in order to get rid of Labour and a potential sort of left-wing coalition enterprise at the next election. And I think it would also be from a policy point of view, easier for those two teams to at least be seen to be fighting on the same side of the pitch, even if they're tactics. And the way they prefer to play is slightly different. And I think it's what they're saying, I think, going back to what I'm saying earlier, I think it passes the pub test. As I say, there are lots of people, university educated North Londoners and people in the university towns will be sitting around studying energy subsidies and saying, well, of course, this is all marvellous in the medium term. But anyone sort of casually observing the state of British energy security and the cost of fuel is going to think that getting every single,

9:22what Boris Johnson will call, Jotten Tittle of oil out of the ground under the North Sea, maximising the amount of nuclear we've got as a backup whilst also pushing forward with renewables. Inherently makes sense, gives us something that in future crises will give us a bit more insulation from these sort of veering world events. But we're not there yet and we won't get there any time soon. And it seems to me if your sort of pitch is going to be with a non-ideal logs, the practical common sense crew, as you say, they've grown closer together, but they're also offering something which is fairly readily understandable by the man on the cap and omnibus as they used to say. Thank you, Tim. Thank you, Michael. Thank you for listening to Coffee Our Shots.