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Ruth Lea: We Simply Cannot Afford The Government’s High-Cost Energy Policies

The Chancellor of the Exchequer recently conceded that the forecasts prepared by the Office for Budget Responsibility (OBR) for the March Budget will be undershot. There will be a new set of forecasts, along with measures to boost growth, in the Autumn Statement (29 November). Growth, or more accurately lack of growth, is rapidly becoming the big economic story along with the inter-related and intensifying crisis in the Eurozone – but more on this another day. Despite the disappointing prospects, the Chancellor reiterated that he would be sticking to his deficit reduction plans, rightly so in my view.

The British economy has almost flat-lined since the autumn of last year. And the latest gloomy labour market statistics, which showed rising unemployment, were only to be expected. The surprise has been that employment has held up so well, when there have been so many doubts over the strength of the recovery. Exports growth, in which the OBR placed such faith in their March forecasts, is faltering as our major exports markets weaken. The recovery in the US, Britain’s biggest single export market, is running out of steam. And the Eurozone is not just experiencing an existential crisis, its “powerhouses” look to be faltering too. After buoyant first quarter GDP figures for Germany and France, the second quarter data were especially disappointing. A measly 0.1% quarterly increase was recorded for Germany whilst France flat-lined. Granted that the quarterly patterns may be distorted by the effects of rogue seasonal factors over winter, but the underlying trends are not encouraging as confirmed by the ECB last week.

The recent OECD projections for the second half of 2011 for the UK were especially bleak, showing precious little growth. GDP growth for 2011 was projected at less than 1%, compared with the OBR’s March forecast of 1.7% – and their November 2010 forecast of over 2%.

In short, Britain’s economy is struggling to grow and will continue to struggle to grow. It could even flirt with a “double dip”. The Coalition Government, having promised us measures to boost growth, really needs to start to delivering. Many of us have already said this, several times. And, in particular, we have said that we simply cannot continue to shoot ourselves in the foot with our absurdly business-wrecking, especially manufacturing-wrecking, energy policies. We have been informed there needs to be a rebalancing of the economy from financial services to manufacturing, so “we are less dependent on financial services” (be careful for what you wish for). Well, then provide policies, please, that don’t kill chunks of manufacturing industry.

Green energy policies have already added a considerable “stealth tax” on electricity prices of over 20% for business consumers – which could rise to 70% by 2020 on DECC’s own figures (July 2009). High energy costs will block any expansion at home and, worse still, drive these industries abroad. It is sheer folly, or blind complacency, to undermine businesses with mistaken high-cost energy policies when we are faced with such exacting economic challenges. We simply cannot afford them. Of course this country’s economic problems are partly a legacy of Gordon Brown’s catastrophic fiscal profligacy. But there is no point in dwelling on this tragedy for too long. The Coalition must address the problems we are facing now.

We are told that the “Green Revolution” will create jobs – possibly up to 400,000. Old industries may be killed off by high energy prices and people may lose their jobs – tough – but squeaky clean “green” ones will more than replace them. And we’ll be leading the charge, banners flying, to save the planet from “dangerous manmade global warming” – a “double win”.

But before looking at the evidence for all these new jobs, the “jobs” objective should, in itself, be questioned. Job creation per se should not be regarded as the only objective policymakers should be pursuing. Total income, or welfare, matters too. Indeed increasing welfare should arguably be the key objective. If, for example, highly productive employees are replaced by twice as many employees with a third of the average productivity then net jobs would have risen, but total welfare will have fallen. The jobs objective really is a bit of a red herring. But putting this caveat aside there is increasing evidence that our green policies will damage both national income and employment. May I quote just two recent reports.

The first report is by Dr John Constable of the Renewable Energy Foundation for Civitas.1 Constable revealed that, according to some economic modelling conducted for the European Commission, current renewable energy policies would probably be negative for both GDP and employment in the UK. 2 Indeed the government’s green policies threatened up to 30,000 British jobs by 2020. This study needs to be much better publicised. Constable also pointed out that over the period 2002-2010 Britain had spent £5bn subsidising dedicated renewable electricity plant, at a cost of £230,000 per employee in the wind energy industry. Subsidy per worker in the year 2009-10 amounted to £54,000, which was greatly in excess of the median earnings in either the public (£29,000) or private sectors (£25,000). This is Alice in Wonderland economics.

The second report is by the economist Gordon Hughes for the GWPF.3 Hughes estimated that the cumulative impact of our inflationary renewable energy policies could amount to a loss of 2-3% of potential GDP for a period of 20 years or more. Concerning “job creation” he observed “…there are no sound economic arguments to support an assertion that green policies will increase the total level of employment in the medium or longer term when we hold macroeconomic conditions constant”. So there are no new net jobs – but just higher prices, lower disposable incomes and lower living standards.

And if the Secretary of State for Energy and Climate Change requires any more evidence, could I recommend Matt Sinclair’s Let them eat carbon. But I fear Mr Huhne is not listening.


1. John Constable, The Green Mirage, Civitas, July 2011.

2. European Commission, EmployRES: The impact of renewable energy policy on economic growth and employment in the European Union, April 2009.

3. Gordon Hughes, The Myth of Green Jobs, Global Warming Policy Foundation, August 2011.

Conservative Home, 18 September 2011