Don’t bemoan bills; bemoan wages

By Nathan Lee, Politics and Finance Writer 

Households squeeze energy prices

It would seem we’re missing a crucial economic component.

Price rises – as inevitable as the morning sun – are not being met with real wage increases, leading to a proverbial squeeze on households.

The Bank of England’s two per cent base rate hasn’t been realised for some time which means not only are wage levels stagnant, inflation is high and quite evidently out of the control of monetary bodies, leading to a cocktail of discontent for the average British citizen.

While economists scratch their heads over our high job growth/ low spend anomaly, those in touch with real standards of living are showcasing their shock that there’s any spend at all.

Sustainable energy solutions have been tabled which are a welcome change to the current state of the energy market; reviewed by Joe Mellor here. But all eyes will be on the Chancellor’s Autumn budget to see what the Tory’s can do to loosen the belt on the average household, rather than stuffing the pockets of multinational corporates.

Big Bills

A new report from the National Audit Office has warned consumers in the UK could face 17 more years of above-inflation increases in energy and water bills, largely to pay for £310 billion of planned infrastructure investment over the next decade.

The solution from a public perspective is to start shifting some of the green measures placed on bills onto taxation, but that risks presenting the public with a double edged sword of raising taxation and increasing bill prices; our nation’s energy companies are not known for cutting prices.

The study on Consumer spending trends to 2030 said: “The period since 2007 has been a stressful time for UK households with negative real consumer spending growth and price pressures mounting.

“Households have had to make tough choices as housing and utilities have taken up an ever greater proportion of total budgets and food prices have risen, which is a reversal of historical trends.”

No Wage

In real terms, the average earnings of UK employees in 2012 were at roughly 2003 levels, an article from ONS has shown. After three decades of strong growth, real wages peaked in 2009, and have since been stripped by inflationary pressures.

Workers in the UK have seen the biggest fall in real wages than anywhere in the world’s top ten developed economies. The Trades Union Congress said real wages fell by 4.5 per cent in the UK between 2007 and 2011, in comparison to Australia and Canada, where there were increases of 6.9 per cent and 5.4 per cent respectively.

Most of the decline was in 2011, when energy companies launched a full scale assault on British consumers. As the winter months roll around, it has become worryingly commonplace to expect double-digit price rises in energy. With 24,000 people likely to die from cold this winter and six million others fearing they cannot heat their home, this is a worrying trend.

Energy investment solution

Nigel Robinson, head of power at Investec Power and Infrastructure Finance, outlined a prudent and sustainable solution to our energy woes in CityAM. He believes we must revert back to Blair-Brown days and visions of a “clean, self-reliant energy platform based on 10,000 megawatts of new nuclear and at least 39,500 megawatts of offshore wind,” with changes on a few key aspects; notably the cost of nuclear power and the interrelationship between the two sources of power.

“So what can we do about this?” He questions. “In my view, the answer lies in removing the significant level of uncertainty in the power market over prices, structure and returns on capital. This uncertainty has caused utilities to shelve investment plans, and institutional investors to largely stay away from direct investment in the sector.”

Financing the industry through institutional investors will take the cost burden away from the general public and instead create a viable money-making proposition for investors. However, to make this achievable wealth funds and retail investors need “well-structured assets, earning a regular and visible rate of return”. They “must acknowledge that power generation is capital”, which is easier said than done when dealing with the murky waters of Britain’s energy industry.

Autumn Statement

Ed Miliband has gone all out on energy, and it will be hard for Osborne to deliver a proposition that competes with the Labour leader’s 20 month price freeze. Tim Yeo, chair of the House of Commons Energy and Climate Change Select Committee will call on the Government to be “far more radical” on tackling energy bills, but he’s not the only one who needs to apply pressure over the Great British household squeeze.

We need a more sophisticated approach to both economic forces and cultural change that’s impacting the lives of millions across the UK. Inflation, rested in the hands of the private sector, will invariably rise and there should pressure on firms to increase wages in line with prices. Wherever the solution comes from, it’s no place for short-term solutions.

As Yeo says:  “Trimming a bit off an average bill which is fast approaching £1,500 a year by switching the cost of green levies from consumers to taxpayers, who are actually the same people, fails to address the need for fundamental reform.”

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