High electricity prices to hurt growth
HERE is another reason why the recovery will be muted. Gas and electricity costs will rise substantially in the years ahead and are set to hammer not only consumers but also manufacturers, further eroding their competitiveness and that of Britain as a place to do business. It is not market forces that will push up the cost of energy, but government policies, especially environmental rules, as a report from the Civitas think-tank explains today.
Labour’s aim of reducing carbon emissions and increasing the proportion of energy generated from renewable sources – a policy shared wholeheartedly by the coalition government – significantly increased costs for energy consumers, with much more pain to come. The official figures confirm this – and because Britain is going further and faster than most other countries, this is putting its economy at a special disadvantage. What makes this even trickier is that electricity prices in the UK are already relatively high.
The Department of Business, Innovations and Skills estimated in 2008 that the “surcharge” on electricity prices attributable to climate-change policies amounted to an extra 14 per cent for domestic users and 21 per cent for business. It said these policies would add 18 per cent to domestic bills by 2020 and 55 per cent to business bills. The Department of Energy and Climate Change suggested in 2009 that these surcharges could be as high as 33 per cent and 70 per cent by 2020.
Higher energy prices always hit the poor hardest, as they spend a much greater proportion on heating and utilities than the better-off. And there is no doubt that steeper energy prices have already been a key factor behind many industrial factory closures. Anglesey Aluminium’s plant closed last year, following the ending of a deal to buy competitively priced electricity from the Wylfa nuclear power station, which had recently passed into state ownership. Under EU law the deal was deemed to be state aid and thus blocked. Services are also being hit: high electricity prices are a key reason why data centres are being located outside Britain.
There is widespread support for greener energy in Britain among politicians and the public. But advocates shouldn’t forget about the very real costs of their policies.
HELP the poor HELP THEMSELVES
City A.M. now has a favourite charity: Opportunity International, a pioneering microfinance operator which provides financial services such as credit, savings and insurance to poor Africans who lack access to mainstream banking. This helps them to develop small businesses, save their earnings, and guard against risks. This finance is not a handout but a real loan at a market rate of interest and a fixed term of repayment; Opportunity International talks of “a hand up, not a hand out” and of “giving the poor a working chance”. The idea is to allow capitalism to thrive in Africa by giving the world’s poorest a chance to better themselves sustainably while retaining their dignity, not to disburse aid, which is often ineffective. The charity operates a real, ultra-modern high-tech chain of bank branches, including mobile outlets, in Malawi.
Do read our feature on Opportunity International on page 23. It includes case studies of Africans who have benefited from its loans, built a business and repaid the money. It’s a marvellous, heart warming story – check out its website at www.opportunity.org.uk
allister.heath@cityam.com