Reviving price controls

Sept. 30, 2013
British leadership continues in the global race to self-destruct via energy fiat. The position seemed under threat when the government began discussing lower subsidies for renewable energy sources.

British leadership continues in the global race to self-destruct via energy fiat. The position seemed under threat when the government began discussing lower subsidies for renewable energy sources. But the leader of the UK Labor Party shows the resolve needed to keep his country out front.

Ed Miliband's call for price controls takes the UK energy program to its next logical level. In a Sept. 24 speech at a party conference in Brighton, Miliband said his first legislative act if Labor returns to power in 2015 would be to freeze electricity and natural gas bills for 20 months. Household energy bills have zoomed the past 5 years, he declared, because the market doesn't work.

"The system is broken, and we're going to fix it," he said. "They have been overcharging people for too long because of a market that doesn't work." Miliband, according to UK press reports, has boasted to supporters that he is "bringing back socialism." Before prices started rising, would he have said the market was working? Probably not. Socialists just don't think markets work.

Politically clever

Miliband's promise to freeze prices is politically clever, of course. Energy bills are rising faster than incomes, so voters feel the sting. British industries with heavy energy needs are becoming uncompetitive. Who knows how many British voters might opt for socialist salve?

The answer might depend on how many voters remember the last time the UK, along with much of the industrialized world, tried to control energy prices. That was during the 1970s. Results were disastrous. Prices held below economic levels by governments discouraged the development of supply and encouraged consumption. Efforts to fine-tune controls by assigning different prices to "old" and "new" supply bred confusion and fraud. Crooks got rich. Consumers grappled with state-sponsored shortage.

In the UK, the freezing of energy prices would be ruinous. Centrica Energy estimates the country needs companies to invest £110 billion over 10 years in power generation capacity and grid upgrades if it is to meet policy goals of the government. If investors think energy prices will be capped during that period, they'll seek opportunities elsewhere.

Miliband and his supporters will hear none of that, of course. After his speech he pressed his populist assault, saying, "I'm not going to tolerate the energy companies using the fact there's going to be a price freeze to collude in raising prices." The companies might usefully start rethinking those investments now. Whatever the probability, a government led by Miliband represents a risk of doing business in the UK that business planners shouldn't ignore.

Miliband makes one accurate observation. The UK energy market isn't working. At least it's not working well. Thanks in part to manipulations he oversaw while secretary of state for energy and climate change in 2008-10, the UK market is laden with subsidies and mandates, all imposed in service to the government's aggressive ambitions to "decarbonize" energy. It has a tax on energy use called the Climate Change Levy. It has a carbon price floor. It has feed-in tariffs for small producers of renewable energy. And it has a renewable-energy "obligation."

Other reasons exist for British energy prices to be increasing, including the rising price of natural gas, imports of which are growing. But all the taxes, subsidies, and mandates implemented in recent years represent costs. They also keep markets from working efficiently. That represents a cost, too. Atop this mess, Miliband would pile shortage. British consumers shouldn't welcome the prospect.

Cost of leadership

The UK is demonstrating to the world the cost of leadership in climate-change remediation. That cost would leap further if the government added price controls to its foundering attempt to reengineer energy use. People pay for folly such as this. And people vote.

The hope for Great Britain must be that enough British voters recognize what's happening to them and act accordingly at election time. Other countries, meanwhile, shouldn't follow this leader.