IEA Energy Analyst Andy Mayer commented on the publication of the Government's Energy Price Bill
Price controls and windfall taxes are both bad ideas. The Government cannot second-guess the correct price of energy, and investors will not respond warmly to an uncertain and punitive investment climate.
Each anti-market measure however has necessitated the next. The North Sea tax increase ignored gas-related windfalls for renewables. Price controls created unlimited unfunded spending commitments, causing market jitters, and an urgent need to find savings.
This repeats the ratchet intervention' pattern of UK energy policy for the last 20 years*. Bad policy requiring further bad policy to correct the consequences. It would have been better to deal with price rises through targeted welfare and general tax cuts.
The Government needs to get a grip and set a path back towards simpler liberalised energy markets, with carbon pricing and competition delivering an affordable secure path to decarbonisation.
In August, Andy predicted what was then Labour's energy price cap and North Sea windfall tax proposal would lead to a further measures on windfall gains to renewables.
It does nothing to address the windfall profits arising from Labour's old renewables policy, with most wind farms benefitting from high gas prices and a subsidy, at our expense.
It would appear both the Opposition and Government now agree. Labour has changed position and the Government have announced a Cost-Plus-Revenue Limit measure, and primary legislation, to override existing contracts.
Notes to editors:
Contact: firstname.lastname@example.org / 07763 365520
IEA spokespeople are available for interview and further comment.
Politicians fight a never-ending intervention race where the latest proposal is designed to correct the bad headlines attached to the last one, while creating new and unintended consequences, and repeat.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.