The government's latest plea for households to read their energy meters is the equivalent of asking passengers on a sinking ship to rearrange the deck chairs. It does nothing to address the fundamental crisis: British energy prices are soaring, and the root cause is a chronic failure of market fundamentals.
Wholesale gas prices have surged by over 300% in the past year, driven by a confluence of factors: low storage levels, a cold snap in Asia that hoovered up liquefied natural gas cargoes, and the slow death of North Sea production. This is not a transitory blip; it is a structural adjustment. And the reaction from both government and regulator has been a masterclass in misdirected energy.
The call for meter readings is a distraction. It implies that the problem is billing accuracy, not the price of the commodity itself. The real issue is that the UK left itself dangerously exposed. The dash for renewables, while commendable in theory, left the grid reliant on intermittent sources and gas for backup. When the wind does not blow and gas prices spike, there is no hiding place.
Consider the market dynamics. The UK energy price cap, designed to protect consumers, has become a straitjacket. Suppliers are going bust at an alarming rate, unable to pass on wholesale costs. As of this week, over 1.5 million customers have been transferred to suppliers of last resort. The cost of these failures will be socialised, likely added to everyone's bills. Market efficiency says that price signals should adjust. Instead, we have a political price cap that encourages poor behaviour: suppliers underprice risk, and consumers are shielded from reality. The inevitable adjustment will be painful.
Gilt yields are telling a story of their own. The 10-year yield has risen 20 basis points this week, reflecting inflationary expectations. The Bank of England is in a bind: raise rates to curb inflation and risk crushing a fragile recovery, or hold steady and watch the pound slide as capital flight accelerates. The energy shock is a direct threat to the Bank's inflation target. We are already hearing the usual calls for “fiscal stimulus” to help households. That is exactly the wrong response. Printing money to subsidise consumption will only add to inflationary pressure, driving yields higher and sterling lower. It is a vicious cycle.
The government should be focus on two things: first, ensuring market signals are not distorted. Let prices rise at the margin to encourage conservation and investment in alternative supplies. Second, address the supply side. The UK needs to incentivise domestic gas production, streamline planning for renewables, and invest in nuclear. The current policy of hoping for cheap imports is not a strategy.
In the meantime, households face a winter of discontent. The average bill has already risen by £139 per year, and further increases are inevitable. Meter reading will not lower the price of gas. It will not fix a broken market. It is a bureaucratic gesture, a nod to helplessness. The City watches with unease. The bottom line is clear: this energy crisis is a function of failed policy, not faulty meters.
Alastair Thorne, Chief Financial Editor
