Bim Afolami: The Chancellor has struck the right balance on easing energy bills

4 Feb

Bim Afolami is MP for Hitchin & Harpenden.

Last year on these pages, both in June and September, I wrote about the potential impact of rising global energy prices on the cost of living. Polls are clear that it is now regarded as the most important issue for the British public. Higher energy prices mean stretched budgets for households and for businesses. Higher energy prices mean higher food prices, and higher prices for goods; and are therefore a significant contributor to rising inflation. Winter is no longer coming; it has arrived.

Although nothing could compare to the shock of Covid, by any normal measure, the soaring gas price is one of the worst economic shocks this country has seen in years.  And it’s not just this country, of course.  Gas is an internationally traded commodity, so the price is much the same wherever you go.  That’s why even major gas-producing countries like Norway are enduring record electricity prices this winter.

First of all, we need to be honest with the public. The Government cannot alter these basic economic facts, and nor should it try. Price changes are at the heart of a free market economy, and a government that gets into the business of deciding what the price of any given good or service ought to be is playing with fire. As Conservatives, we should never forget that. However, I believe that government nevertheless has a role at a time like this. Why? The truth is that unless we help families manage this sudden upwards lurch in energy bills, not only will many hard working people simply not be able to cope, but that will have a deleterious macroeconomic effect by reducing demand in the economy in key areas (e.g. hospitality) that are still emerging from the difficulties created by Covid.

The Chancellor has done the right thing in his three point plan to do exactly that. First, we’ll give all households a £200 rebate on their energy bill, to be paid back over the next five years. Secondly, a non-repayable £150 cash rebate for homes in Council Tax Bands A-D. That’s equivalent to 80 per cent of all households, helping both lower and middle-income families. And finally, for the most vulnerable households, an increase in the Warm Homes Discount – and we’ll also extend eligibility by one-third, to three million people.

For most households, these measures will amount to £350 – approximately half of the energy bill increase they’ll see this spring.  They’ll feel the benefit, via their council tax bill, as soon as April, with the £200 rebate coming this autumn, in time for the winter increase in their energy consumption. And whilst our package helps the poorest the most, it also helps a very broad range of households, like many thousands of middle income people in towns in Middle England like Hitchin in my constituency. Middle income families need support too, and we are ensuring that they get it.

The overall up-front cost of this package is £9 billion. Over time, though, the cost to taxpayers will fall by about half, as the £200 pay-outs are repaid.  That’s fiscal responsibility in action, recognising that there’s still a long way to go before our public finances are restored to their pre-Covid state. The need for fiscal responsibility is why I voted for the new Health & Social Care Levy.  It isn’t popular, nor did I come into politics to raise taxes. I believe that the NHS and the social care sector need reform and real attention – spending money alone won’t fix its problems. However, we do need to finance a permanent uplift in the amount we spend on those things, as the demand for both is skyrocketing due to an ageing population.

Some people have argued for removing VAT from energy bills. But much of the benefit would have gone to the wealthiest, biggest-spending households.  This package, being a flat rate, will be proportionately more valuable to the less affluent.  Others may say that we should have got rid of green levies. But they only account for about 12 per cent of energy bills, and they are helping to fund the important shift to renewable energy sources, which is the only sure way to reduce our reliance on gas and unlock Britain’s rich endowment of wind and wave power.

This is not easy to deal with. I think that the Chancellor has struck the right balance here. The package isn’t about permanent intervention in the energy market – it’s about using the State’s balance sheet to smooth the edges of a particularly sharp adjustment in family budgets. As we put this package into effect, for the medium term we need to intensify our focus on improving home insulation so that households become more energy efficient (thereby reducing their bills over time), and we need to speed up and grow the renewable energy that we generate here in the UK – so that we reduce our dependence on natural gas.

 

Bim Afolami: Working from home means a radical culture shift – and it’s here to stay. Here are some of the consequences.

6 Sep

Bim Afolami is MP for Hitchin & Harpenden.

Holidaying in Cornwall this summer, I was struck by how many people I met who had relocated there (or elsewhere in the South West) permanently.

They all wanted a change of pace of life, a larger home in a cheaper area, and could work from home more often than not. Speaking to my constituents over the break, in a sear in which there are a large number of commuters to central London, the overwhelming feedback is that most former daily commuters are trying to restrict themselves to working only two or three days a week in the office, and working from home as much as they can (though some firms are resisting this change). Things have changed a lot in a very short period of time.

I believe that this is a trend that we will have to contend with, because people want more choice about how and where they work. This will have some significant political consequences in the shorter term, and over the longer term may have quite profound economic consequences that we should be wary of.

First, the number of working parents who are more involved with home life is palpable. Many more professional commuter dads (and mums) are more present in the local community – people who previously only saw their local area at weekends (they left early and came back late during the week) are now much more engaged with local issues, and noticing improvements they want to make to their area.

In my experience, many of these voters are highly intelligent and informed about a wide range of issues. But they used typically to consider political issues on a national, macro level. I am willing to wager that these voters are now going to be a little more localised in their perspectives: what their local MP does, and says, will matter more and more to them.

This does not necessarily make these voters more parochial – many people value their MP if they have a high profile and speak sensibly about national issues. Yet overall, I think the impact will be more variation in voting patterns seat by seat, as local issues and the reputation of individual MPs will increasingly drive voting patterns.

Second, with less commuting, there is a certain amount of spending that is not going to return to cities, and will instead be spent in affluent commuter towns in the Home Counties. Towns such as Hitchin, Tunbridge Wells, Ascot and Sevenoaks will thrive even more, and the propensity of local people to spend more of their money locally has increased, is increasing, and will continue to do so. People feel more connected with their local areas, and they are spending less money in London and other major cities.

What will be the political impact of these changes? In the short term, I fear that they may strengthen the existing divide between affluent areas and less affluent ones. Major cities will be a small net economic loser. This will perhaps slow or even reverse the rise in property values in our cities, which will perhaps lead to more young people, and more people in lower earning professions being able to live in the centre of cities like London.

Third, the environment will continue to grow in importance as a critical issue. The voters will increasingly focus on their own experience of the green spaces near where they live and reducing local air pollution; for most voters, the environment will not primarily be considered in an abstract sense about getting to net zero or reducing carbon emissions.

New large housing developments or new major roads over green fields will become even more unpopular. This is why the Government’s policy of introducing “biodiversity net gain” is so important. It is an opportunity to show the public, particularly in the Home Counties and in other areas outside major cities, that we can actually improve the provision of nature in their local area.

When the policy starts to bear fruit, people will know that we are serious about the environment in a way that directly matters to them. I think that the implementation of this policy should be sped up, and by doing so we can demonstrate our environmental credentials faster and in a more impactful way. I wrote about this a few months ago on this site.

As a Conservative politician, I instinctively take the view that the Government’s job is to support people’s aspirations and aims for themselves, their families, and their local areas. Many millions of white collar workers prefer to work a lot more from home; especially commuters who previously used to dread their commutes, whether by train or car; and there is mounting evidence that this shift is particularly pronounced amongst women.

However, we must be careful about the impact of this over the longer term. If accountants, solicitors, marketing executives, or insurance underwriters demand to work from home in Hitchin or Oxted, why can’t the firm hire someone with similar skills on half the pay in Hyderabad or Odessa? Even in situations where having a high standard of written English is fundamental to the job, technology for real time translation services is developing extremely quickly.

We know from the 1980s and 1990s how societally and economically difficult it was to lose millions of manufacturing jobs – let us beware of inadvertently accelerating the same process for services jobs, which would have an even more widespread and profound impact. Also, as my friends and colleagues Claire Coutinho and David Johnston have argued, younger workers lose out from the shift to home working – since they frequently don’t just lack space at home but also lack connections to help them develop the employability skills and social capital they need for the workplace.

We need to support the aspirations of all those who want more control over when and where they work – and more home working is inevitably here to stay. Yet in responding to this trend, our policies also need to take the interests of everybody fully into account, and bear in mind the longer term interests of the country as a whole.