Friday, 27 September 2013

Power freeze and land grab promised by Labour leader

[This article appears in the September issue of sustainable building]
Ed Miliband, leader of the Labour Party, announced two controversial policies in his keynote address to his party’s Annual Conference in Brighton on 24 September, calling for power and gas price freeze for 20 months to December 2017 should Labour win the next election, and a threat to sequester land that property developers have land-banked to push up prices rather than build new houses.
Both policies came in for immediate sever attacks from the energy and construction sectors.

Labour shadow energy secretary, Caroline Flint, also announced that Labour would create a new Energy Security Board to get to grips with power pricing - repeated Labour’s decision to scrap Ofgem – and  attacked the failure of the Green Deal for only signing up 12 households so far since February on its £16 million budget. Shadow communities secretaries, Hilary Benn, also promised a Labour government would  help councils to build more affordable homes by reforming the Housing Revenue Account, and promised Labour would build more towns and Garden Cities
Miliband blamed the coalition government for what he judged to be its failure to reform the power price market. He said: “We need successful energy companies, in Britain. We need them to invest for the future. But you need to get a fair deal and frankly, there will never be public consent for that investment unless you do get a fair deal. And the system is broken and we are going to fix it. If we win the election 2015 the next Labour government will freeze gas and electricity prices until the start of 2017. Your bills will not rise. It will benefit millions of families and millions of businesses.”
He conceded it would not be popular with energy companies “because it will cost them more but they have been overcharging people for too long because of a market that doesn’t work.” He argued that “It’s time to reset the market. So we will pass legislation in our first year in office to do that, and have a regulator that will genuinely be on the customers’ side but also enable the investment we need.”
Mr Miliband subsequently wrote to the Big Six to explain his intention, and warning action would be taken against them if they declined to comply. It's time we fixed it and they can either choose to be part of the problem or part of the solution. I hope they choose to be part of the solution."

He also insisted that “to make Britain better we have got to win a race to the top, not a race to the bottom, and stressed “A race to the top which means that other countries will buy our goods the companies will come and invest here and that will create the wealth and jobs we need for the future but we are not going to be able to do it easily. It is going to be tough.”

From his promotional tour in China, Energy Secretary Ed Davey said: "Fixing prices in this way risks blackouts, jeopardises jobs and puts investment in clean, green technology in doubt; and energy minister Michael Fallon countered that what he characterised as the “ill-thought out and irresponsible” measures would make it harder to raise the £110bn of capital required in the next 10 years to modernise energy infrastructure.


Angela Knight, head of Energy UK, the industry lobby group. “We need an energy policy that can attract investors from around the world to build the new power stations we need, but if you can’t have certainty on your return, you’re going to think twice about investing.”

British Gas owner Centrica issued a strong statement: “If prices were to be controlled against a background of rising costs it would simply not be economically viable for Centrica, or indeed any other energy supplier, to continue to operate. But such scare tactics lack credibility, as Centica’s  only business  is energy.

Peter Atherton, a utilities analyst at Liberum Capital, and a strong critic of coalition strategy on energy investment, added “The last thing the industry needs is another round of huge institutional changes. The ink won’t be dry on the energy bill and they’ll be scrapping the market.”

“Capping their profits will make it harder for them to invest in nuclear and clean energy.That in turn will make it harder for Britain to meet its targets for reducing carbon emissions and sourcing more of its energy from renewables,” commented Craig Lowrey of energy consultancy The Utilities Exchange.

Some critics, such as energy Secretary Ed Davey in his statement, pointed to what happened in California 13 years ago, when the California Independent Systems Operator imposed a price cap on power utilities selling electricity to Californian customers. Power blackout resulted due to utilities exporting to neighbouring states where no price cap existed. Eventually, the Federal Energy Regulatory Commission stepped in and, over the objection of state officials, removed price caps altogether in California as a way to reestablish sales to Californians. The State also suffered a serious drought affecting the operation of some generating plants, so the California experience is significantly different to the UK.**

Other utility groups joined in the vociferous criticism, except EDF Energy, which operates under a regulated market in France, and is thus used to such price controls.

But the executive director of consumer watchdog Which?,  Richard Lloyd,  welcomed the plans, observing "Ed Miliband's promise to fix the broken energy market and freeze prices will give hope to the millions worrying about how they can afford to heat their homes. We now look forward to seeing the detail of how this will work."

Undaunted, Mr Miliband stressed that “The environment is a passion of mine”…. Adding “But it is not just about environmental care. It is also about the jobs we create in the future. You see some people say, including George Osborne, that we can’t afford to have environmental at a time like this. He is dead wrong. We can’t afford not to have an environmental commitment at a time like this. That is why Labour will have a world leading commitment in government to take all of the carbon out of our energy by 2030. A route map to one million new green jobs in our country.”

Earlier, shadow chancellor Ed Balls told the Conference “....we need a radical transformation in our economy… And the question is whether we will seize this opportunity or squander it?” He added “We will legislate for a decarbonisation target for 2030 and unlock billions of pounds in new investment in renewables, nuclear and clean gas and coal technology….And we will give the Green Investment Bank the borrowing powers it needs to do its job.”

One policy Mr Miliband announced that could assist SMEs involved in the green business sector was his proposal for a switch in tax breaks from large businesses to SMEs. He said “If Labour wins power in 2015 we will use the money that this government would use to cut taxes for 80,000 large businesses to cut business rates for 1.5 million businesses across our country” He added “cutting small business rates when we come to office in 2015 and freezing them the next year benefitting businesses by at least £450 a year.”
Mr Miliband also suggested Labour could create 100,000 new apprenticeship places, some of which would be in the sustainability sector in construction and green technology.

Energy saving
Caroline Flint asserted that “ultimately, our best protection against volatile world energy prices is to save the energy that escapes through our windows, walls and rooftops, as she promised that “with a Labour Government the most radical, comprehensive reforms since energy privatization” would be implemented. She stressed under Labour there would be “no more price setting in secret,” with the energy companies being “forced to open their books… and do all their electricity trading on the open market, in a pool.”

She also pledged Labour “will break up the Big Six [energy companies],” and the power stations will be separated from the companies that bill customers.

Paul Massara, chief executive of RWE Npower noted that "It's very easy for politicians to come up with simple-sounding solutions to difficult problems….adding that in reality included in the causes of high household energy bills is the failure to  fix inefficient housing stock.

House building shortage
On the housing shortage, Mr Miliband said “If we carry on as we are, by 2020 there will be two million too few homes in Britain. That is the equivalent of two cities the size of Birmingham. We have got to do something about it and the next Labour government will.”
He warned “we’ll say to private developers, you can’t just sit on land and refuse to build. We will give them a very clear message - either use the land or lose the land…we’ll have a clear aim that by the end of the parliament Britain will be building 200,000 homes a year, more than at any time in a generation.”.
Hilary Benn said that “our housing system is broken,” arguing that the Coalition has cut the affordable housing budget cut by 60%, and pointed out that the IMF said to the Chancellor that Britain should be investing £10 billion in infrastructure – that would build 400,000 affordable homes. He proclaimed “No wonder housing completions are at their lowest peacetime level since the 1920’s.”
He also stressed that land is too expensive, and “too often developers hang on to it hoping for the price to rise. And communities feel powerless.” But he argued  communities should know where land is available, and  “that’s why we will ensure developers register the land they own or have options on. And where land is not brought forward for homes, communities should be able to do something about it.”
When communities have given planning permission, he stated, they should be able to say to developers “we’ve given you the go ahead so please get on and build the homes you said you would. And if you don’t then we’ll charge you and, if you still don’t, we’ll sell the land on to someone else who will.”
He also announced that the next Labour government will give communities a new ‘Right to Grow’, allowing them – if they want – to expand and ensuring that neighbouring areas work with them to do so.
Mr Benn did not make clear how many of the 200,000 new homes would be classed as ‘affordable’, or how sustainable they would be, but he did announce a new Rebuilding Britain Commission, headed by former BBC chairman Michael Lyons, charged with fleshing out the planned housing proposals.

Other reaction

Alistair Phillips-Davies, chief executive of Scottish and Southern Energy said "Instead of price freezes which will lead to unsustainable loss-making retail businesses, the Labour Party should put policy costs into general taxation, taking them off energy bills.

John Cridland, CBI director general, caustically commented "Businesses will view the proposals on tax and energy as a setback for Labour's pro-enterprise credentials.Rising energy bills are tough on families and businesses. But the proposed energy price freeze will deter much-needed investment and is at odds with Labour's pledge to decarbonise the economy and create a million green jobs.”

Financial Times specialist energy blogger, Nick Butler, commented “Some might suggest that a hard freeze will not only deter new investment, but also lead to some companies exiting the business with the net effect of reducing competition. Mr Miliband clearly believes there is profiteering but he has not published the evidence. The Labour leader should and there needs to be a full competition inquiry. It may well be that if there is profiteering a price freeze is not the only nor the best solution. The real reason behind price increases is the enforced shift of the energy mix in favour of expensive renewables.

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