By John Kemp
LONDON, Sept 25 (Reuters) - Britain’s Labour Party has seized the initiative by promising to freeze gas and electricity prices for 20 months if it wins the next general election, due in May 2015, putting utilities and its political opponents on the defensive.
Price freezes may be poor policy, perhaps even irresponsible, but as a way to seize political advantage the pledge was a master-stroke, pushing questions about the cost of living to the top of the political agenda.
Concerns about high living costs resonate with voters more than fears about crime, immigration, unemployment or any other subject except healthcare and public services, according to polling firm YouGov. Polls show two-thirds of voters worry they will not have enough money to live comfortably over the next two to three years.
Consumer prices have risen faster than earnings for 58 out of the last 60 months, according to Britain’s Office for National Statistics, resulting in the biggest fall in real incomes in a century.
Between 2005 and 2013, gas and electricity prices have risen almost three times as fast as the overall rate of inflation. (For a related column: )
Together with big increases in other administered prices for transport, water and sewerage services, utility bills have been one of the biggest contributors to inflation and the squeeze on living standards.
Gas and electricity charges are a large and visible item of household expenditure. On average fuel accounts for 5 percent of household spending, but the share is considerably higher for families in the lower half of the income distribution.
In 2011, 4.5 million households were living in “fuel poverty”, needing to spend more than 10 percent of their income on fuel to maintain an adequate level of warmth, according to Britain’s Department of Energy and Climate Change (DECC). It is almost certain that fuel poverty has increased since then as bills continue to rise more rapidly than incomes.
In a detailed social attitudes survey into energy and climate issues conducted by the University of Cardiff in August 2012, four out of five respondents expressed concerns that gas and electricity will become unaffordable in future. (“Transforming the UK energy system: public values, attitudes and acceptability”, July 2013)
Keeping bills affordable was the most important single priority for respondents (40 percent), followed by making sure Britain has enough energy to prevent blackouts and shortages (32 percent). Tackling climate change came a distant third (27 percent).
Policy analysts and journalists obsess about the details of public policy, analysing promises made by parties forensically for their affordability, practicality and likely impact.
In a rather dry, hyper-rational model of the political process, politicians and the media explain and communicate the alternatives offered by the different parties and then voters weigh up the options and cast their ballots accordingly.
But there is not much evidence voters care about or are even aware of such nuances, let alone that they carefully and rationally weigh up the alternatives.
Successful politicians know they have to distil their ideas into a few simple messages that resonate emotionally with the electorate and appear to respond to its concerns.
In that respect, Labour Leader Ed Miliband’s promise to freeze utility prices was a superb piece of political messaging.
It connects directly with an issue that matters intensely to many voters, especially in the middle and lower parts of the income distribution and in the central regions of England where the outcome of the next election will be determined.
Polls conducted by YouGov show the ruling Conservative Party has an unassailable lead among voters in southern England, while Labour has equally commanding leads in northern England, Scotland and London. The split has been very stable for the past three years and is unlikely to shift ahead of May 2015.
The outcome of the next election will therefore be determined in swing districts of the Midlands, where the Conservatives (on 36 percent) and Labour (on 40 percent) are locked in a tight race.
The East Midlands and West Midlands statistical regions have some of the highest rates of fuel poverty in England, according to DECC, so this is where the issue of soaring utility bills is likely to resonate most strongly with voters. (“Annual Report on Fuel Poverty Statistics”, May 2013)
Under an alternative measure of fuel poverty, which the government will use in future, the West and East Midlands have the highest rates of fuel poverty in the country.
Compare that with the list of seats that the Labour Party must win in 2015 to secure an outright majority in the House of Commons over all other parties (), and it becomes clear why focusing on energy prices is smart political strategy.
Britain’s two major political parties are frantically trying to define the political narrative on which the next general election will be fought.
For the Conservatives, the narrative will centre around economic competence, welfare payments, and tax and spending policy.
The gradual upturn in the business cycle should ensure the economy is growing fairly briskly when the next election campaign is fought, enabling the party and its junior coalition partner, the Liberal Democrats, to make a strong showing on questions of economic competence.
For Labour, therefore, the challenge is to shift the debate away from the economy’s performance in broad terms (measures such as GDP and unemployment) to focus on the question of whether individual households are better or worse off and how they might fare under different governments in future.
Putting the spotlight on gas and electricity bills performs that role perfectly. Even if the economy is in a sustained upturn by May 2015, most households will still be worse off in real terms than in 2010, and a big part of the reason will be higher energy prices.
Labour’s plan for price controls has drawn predictable protests from energy suppliers, business groups, the financial services sector and many parts of the business-friendly media, all of whom have accused the party of cynical populism.
None of that matters very much, since these groups were not likely to support the party in the run-up to 2015 in any event, and the party’s election strategy does not depend on winning them over. In fact, Labour is likely to welcome the fight.
Much of the business and media establishment is preoccupied by the concerns of people in the upper half of the income distribution in southern England, an area where the party cannot win in 2015.
Labour’s promise to freeze prices puts its rivals in an awkward dilemma: back the freeze or appear to be supporting more price increases above the rate of families’ earnings growth. A major political fight over the level of utility bills would suit Labour well.
Much of the predicted increase in bills between now and 2020 will be driven by the costs of government policies to improve energy efficiency and make power supplies greener, all of which are being loaded onto power and gas bills.
All Britain’s major parties have supported this approach. Ironically, the Conservatives have been least keen on using energy bills to pay for green energy policies, with Labour and the Liberal Democrats more enthusiastic.
With bills rising rapidly, however, the consensus between the political parties and the industry over gradual decarbonisation of the electricity industry has been coming under strain, as everyone tries to blame everyone else for soaring prices.
If Labour’s call for a price freeze gains the traction it hopes, the fragile consensus underpinning greener policies paid for through higher bills could be blown apart.