On Tuesday, Ed Miliband announced that a future Labour Government would cap energy prices for its first two years.
At first glance, this seems like a great idea. Many people have struggled because of the rising costs of gas and electricity over recent years and the cost of living is set to be a key theme of the next general election.
However, Britain is facing a looming energy crisis: over the next decade, due to power stations reaching the end of their operating life and EU Directives, a total of 20GW of generating capacity needs replacing.
This is an unprecedented challenge. Ofgem have said that meeting it (and the additional “Green” targets we have imposed upon ourselves) will require an investment of £200bn by 2020. The “cliff edge” effect we face is steeper than any other Western country.
By banning companies from passing on their costs to consumers, Ed Miliband is making those companies extremely unattractive to investors. Just at the time our energy infrastructure is crying out for investment, it will be starved for the next four years.
If private investors will no longer touch the energy industry with a bargepole, there are two alternatives: blackouts because of a shortage of generating capacity (as happened when something similar was tried in California) or the Government has to make up the difference.
If the Government steps in, that means that power stations will be competing for money from the same pool as that which is used to build our schools and hospitals. So in the end, the cost is likely to fall back on the taxpayer.
At the moment, average returns on investment in the industry are about 6%. If Labour feel that such returns can only have been produced by market failure, there are many other industries which should be worried that they could be next.
What Mr Miliband is proposing is great politics but terrible Government.
*David Mowat is the MP for Warrington South and a former Head of Global Energy at Accenture. He is author of ‘Cutting Carbon, Cutting Costs’, in Politeia’s Freedom, Responsibility and the State.