Traditionally, Oppositions are quite happy to keep policy vague. For one thing, it’s easier to throw rocks at the Government than to enter serious debate. For another, the more detail you put out there, the more you risk the other side stealing your clothes.
Even by those standards, though, Ed Miliband’s Labour Party is looking thin on the policy front. Maybe it’s due to a lack of imagination, or their internal strategic chaos, or both.
Whatever the cause, at this stage one might expect a would-be Government to be able to paint a fairly clear picture of what Britain would look like under their rule. But Miliband’s Britain remains vague in the extreme – which is why we are launching a weekly series, ‘Pinning Down Miliband’, to scrutinise Labour policy, topic by topic.
Every Thursday we’ll be exploring the inconsistencies – and the black holes – in Labour’s pitch to the people.
We don’t want to be too nasty (particularly given the brutality of Carla Miller’s excellent cartoon) so let’s start with energy and the environment. After all, Miliband was the cabinet minister in charge of both under the last government, and is widely thought to be winning the energy battle after his speech at Labour’s conference, so it should be strong territory for them, right?
Well, not exactly.
Labour’s energy and environment policy rests on two main pledges: the price freeze and the pledge to decarbonise the power sector by 2030.
The former has been hugely well-publicised, and gave Ed the opportunity to set the media agenda for the first time in his leadership, while the latter has proved to be a more niche topic. If you asked voters to name a Labour policy, I suspect the vast majority would name the freeze, while almost none would name the decarbonisation target.
But to listen to Miliband, the two are complementary. Government-controlled prices and a drastic shift to renewable energy generation are, in his view, both progressive goals.
The problem is that they are in direct conflict with one another. In effect, while the freeze proposes to control the price of a product, the decarbonisation target proposes to increase the cost of making it.
The price freeze has enough flaws on its own – for example, telling the market in advance that you plan to cap prices will tend to drive those prices up ahead of the start date. But combined with the rigorous requirements of Labour’s decarbonisation target, the plan becomes disastrous.
Forcing an industry to control prices inevitably has a damaging impact on investment. Analysts such as Peter Atherton at Liberum Capital predicted after Miliband’s speech that energy firms would find it tougher to secure cash or credit as a result – and so it has proved.
Paul Massara, Chief Executive of nPower, said yesterday that his firm is “seeing a dramatic cooling of investment into the UK because of political uncertainty”. It isn’t just his opinion – earlier this week we learned that Miliband’s speech has wiped £7 billion from the value of British energy firms.
Boohoo, you might say, poor energy giants. Bring out the tiny violin for the huge firms making vast profits. That understandable response is the reason the price freeze pledge was a short-term political success.
But here is where the decarbonisation target comes in. You might not care about the share prices or investment prospects of the big six energy companies being harmed by a price freeze, but it is those companies who will have to stump up the cash for the renewables which Miliband needs in order to decarbonise.
A vast amount of money would be required to change the way we generate power from relatively affordable means such as gas to expensive methods such as wind or solar. To do would require higher energy prices – something Ed Miliband openly acknowledged when he was Secretary of State.
It also requires profitable energy firms. Investors will put their money in if there’s a return, but if profits are eliminated by price fixing then they’ll take their cash elsewhere – and who can blame them?
Clearly, the two pillars of Labour’s energy policy are utterly at odds – demanding investment at the same time as forbidding the prices which make it possible to raise money.
It gets worse. Consider the other unintended consequences. We might not mind if the money wasn’t available to build more windmills, but investment is still needed to build conventional capacity. After decades of indecision, we need new nuclear and gas-fired plants in order to ensure a reliable energy supply: the price freeze would make those harder to fund, too.
Of course, none of this is to say that the energy market works fine at present. It clearly does not. One solution would be to increase competition – something, incidentally, which Miliband proposes in the banking sector.
However, while the Big Six energy firms might be able to survive the financial pain of Miliband’s planned market intervention, there’s a very real chance the smaller companies in the market might not. Like a lot of firms trying to compete against domineering giants, they tend to operate on small margins and are highly reliant on being able to raise capital – both of which would be wiped out by the combination of higher costs and price-fixing which Labour proposes.
Ironically, the ultimate outcome of Ed’s intervention would be to eliminate the competitors who really are the key to breaking the energy market open, handing it all to the Big Six.
There are other ways the market might be opened up, of course.
Another of the proposals in Labour’s Energy Green Paper was to enforce a ringfence between the energy generation and retail arms of companies who do both, and to force other retailers to buy their energy from one giant pool of all the power generated, rather than contracting to buy it directly from one set supplier.
It’s easy to see why firms might sell energy from their own plants, or contract to buy from a fixed supplier – doing so is a hedge against the volatile wholesale markets.
The Labour proposal to end these practices rests on their claim that they have been used to overcharge customers by £3.8 billion over the last three years. However, an independent energy consultancy – Cornwall Energy – has now dismissed the Labour figures as “overly simplistic and misleading”, claiming that the real market impact is actually a small benefit to consumers.
Or perhaps new energy sources, like shale gas, might change the game. Surely Labour, still lamenting the end of the coal mines, would be enthusiasts for a new extractive industry, potentially creating tens of thousands of new engineering jobs, many of them in the North of England?
Sadly not. Ed Miliband and his team still set on the fence when it comes to shale gas – even going so far this week as to criticise the Government for being too positive about the new industry.
All in all, it’s not a pretty picture. Under the hood of Miliband’s flagship policy lies a tangled mess of false assumptions and unintended consequences. If this is the state of the policy area which is meant to be his specialism, what does the rest of Labour’s policy offering look like? Find out next week.