The energy death spiral grows
Although it is far from obvious, Ofgem – Britain’s energy regulator is supposed to act in the interest of energy consumers. As the UK government explains:
“The Office of Gas and Electricity Markets (Ofgem) regulates the monopoly companies which run the gas and electricity networks. It takes decisions on price controls and enforcement, acting in the interests of consumers and helping the industries to achieve environmental improvements.”
This will come as a surprise to the millions of UK households struggling to pay energy bills which are – now state subsidies have been withdrawn – higher this winter than last. Indeed, we are now entering our third winter of eye-wateringly high energy prices, with no obvious respite in sight… the only consolation being that the closure of Britain’s heavy industries has at least prevented widespread power outages so far.
On the downside though, among the millions of households struggling to pay their bills are thousands – and growing – of households who are in default. Not least because increased energy costs are hitting just at the point when general inflation has eaten into wages, when the Bank of England has jacked up interest rates (causing rents and mortgage payments to spike) and when governments (national and local) have decided to raise taxes to cover their own excessive debt.
So, what to do about the growing outstanding debt to the energy companies? A genuinely consumer orientated regulator might tell the energy companies to eat the loss – perhaps taking the hit to shareholder dividends or senior management remuneration. Alternatively, since this issue isn’t going away any time soon, they might tell government that now is the time to bring an end to this quasi-market farce and take the energy monopolies back into public ownership. Like everything else in the UK these days though, the energy regulator is broken. And so, its economically illiterate “solution” is to add the debt onto the remaining bill-payers’ bills.
This merely creates an additional death spiral on top of the energy-price death spiral which has been growing in recent years. Because the pressures which are forcing households into default are worsening – housing costs will increase through next year, taxes are rising, inflation is slowing but is still eating household incomes, and a gathering globally synchronised recession is on the horizon – adding existing debt to the bills of households currently still in credit can only result in driving thousands more into default. And if these debts are added to the shrinking number of households still in credit, then eventually we end up with too few bill payers to maintain the energy companies.
If this was happening in isolation, we might talk about solutions. But the UK is entering an everything death spiral from which there is no coming back. UK government is “bankrupt” (a sovereign state may print its way out of debt in its own currency) and faces increasing difficulty borrowing the foreign reserves required to pay its way. Consumers are already tapped out, leaving falling demand across the discretionary sectors of the economy. And with housing, energy and food costs continuing to increase even as government hikes taxes, a wave of business closures and unemployment is surely only months away. And then, of course, there are all of those flaws in the banking system that we somehow failed to fix after 2008, just waiting to bring the entire currency system crashing down.
It goes without saying that the Marie Antoinettes in Parliament will continue to try to load the costs onto ordinary people. But since the half-century long neoliberal project was designed precisely to liberate prosperity from working people and transfer it to the already wealthy, we are fast approaching the point at which there is no more wealth to be transferred. This, in a sense, is what the energy debt is telling us. In the course of 2024, that energy-debt death spiral will be joined by a tax-debt death spiral as businesses and households can no longer meet their tax bills. And, of course, the mother of all banking crises will begin when it becomes obvious that billions of pounds of consumer, business and government debt is not going to be repaid… and the trillions of pounds of derivatives based on that debt become worthless overnight.
Another bad omen
In the late summer of 2008, I was on retreat on the shores of St. Bride’s Bay in Pembrokeshire. Although blissfully unaware of the economic storm that was gathering, during the week, the arrival in the bay of a large number of oil tankers piqued some curiosity, even among local residents… this was something out of the ordinary.
Of course, we now know what had happened. Demand across the western economies had plummeted following earlier oil price spikes and central bank interest rate rises. And the reasons those tankers were anchored in St. Bride’s Bay – a sheltered natural haven – was that they had nowhere to go. Demand for oil had fallen off a cliff, and the western economy was not far behind it. Just weeks later, the entire global banking and financial system came crashing down.
It is with this in mind that I ask you to consider what has been happening across the western economies in the last couple of years:
- Big oil price spikes
- Rapid interest rate hikes
- Banks tightening lending standards
- Falling currency supply…
And then, quite suddenly, just as prior to the 2008 crash, oil prices fell. After floating between $85 and $100 per barrel since the end of lockdown, Brent Crude is currently down to $76 per barrel, while the American WTI price has fallen even more steeply to $73 per barrel – this despite OPEC+ cutting production in an attempt to raise the price.
Just as the increase in price following lockdown was a result of too much consumer demand, so these price falls demonstrate the massive fall in demand which has occurred in recent months as rate rises and inflation eat away discretionary spending in the western economies. And it is why oil tankers are once again using the haven of St. Bride’s Bay as a free mooring until demand picks up again. Nor is St. Bride’s Bay the only place where idle tankers are piling up. The leeward side of the Isle of Wight in the English Channel, the waters off Rotterdam, and the nearshore Gulf of Mexico near Galveston are witnessing the same phenomenon… just like in the run up to the 2008 crash.
Might it be some kind of omen?
Former Plaid Cymru leader Leanne Wood asked recently whether Wales was the only country whose parliament (Senedd) seemed to be constantly under review, with poll after poll questioning whether it should be abolished. As it happens, Ms Wood answered the question herself many years ago – “if you give a Stradivarius to a monkey and you get a horrible screeching noise, that is the fault of the monkey not the violin.”
Since government was devolved to Wales in 1998, we have had continuous Labour government. And despite early hopes that devolution would result in a fairer and more prosperous Wales than Tory England, the reality is that the Welsh economy still lags behind the rest of the UK; the health of the population and the educational achievement (sic) of Wales’s children lags far behind the rest of Britain; and since the end of a particularly pernicious Welsh lockdown, things are more broken in Wales than across the rest of the UK.
Perhaps the only achievement the Welsh government will be remembered for is outgoing First Minister Mark Drakeford’s traffic reform which obliges drivers to have a man with a red flag walk in front of their cars as they drive through the Principality’s built-up areas – the petition against which secured more signatories than Labour secured voters at the last election.
Thankfully, Welsh voters will not have to choose Drakeford’s replacement – that task will fall to Labour Party members (unless they rig the results like they do in London). But the dearth of talent on the Labour benches is such that the likely choice will be between the one who fucked up the Welsh NHS and the one who fucked up Wales’s schools. Meanwhile, ordinary voters in Wales will no doubt be wondering whether the lady in charge of the Senedd tea trolly might be a more competent person to see us through the gathering economic storms which will inevitably hit Wales harder than the rest of the UK.
As you made it to the end…
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