261. Dire straits: Should the Royal Navy end the Iran oil blockade?

18:30Robert Peston:You know, it's important to point out that we haven't yet got all the detail about the price support scheme that the Prime Minister is about to announce to help people who are struggling to pay these bills. I mean, you know, one of the things that he will inevitably talk about is this so-called price gouging. He will say that when the suppliers massively put up prices in a way that's way beyond what's actually happened to the price they're paying for the oil, that, you know, he will say that's unlawful and they'll take every measure they can to prevent that from happening. But even without unfair practices, prices, you know, has gone up very significantly.

19:11Robert Peston:And as you say, you know, whether you're a farmer or whether you're somebody living in a rural area, you're really struggling with this. The part of it that I am most interested in is whether they will link the amount of help that the individual receives to their income. And all the signs are that they are going to sort of means test the support they give.

19:38Steph McGovern:Oh, wow. Right.

19:39Robert Peston:But I think that's really quite hard because you could be, for example, let's just say you're a farmer. Technically, on paper, your income may look pretty good, but actually what's happening to the price of your fuel oil may wipe out any profit that you're making on your farm. So it's very, very difficult to actually make a calculation about who deserves the support and who doesn't. But the problem for them of not means testing is that creates a massive and very difficult precedent for them when it comes to the support that they almost certainly will have to give almost every household in the country in a few months.

20:31Robert Peston:If the oil and gas price doesn't fall back fairly rapidly, and I think if I'm honest with you, given how messy this war is, I think it's highly unlikely that the oil and gas price is going to fall back rapidly. So I think it's highly likely that when the regulator sets the oil and gas price in three months time, that's going to go up very sharply. um but if the the government does what the previous government does um and i think you know you can remind us of of what that support was but if the government does what the previous government does and gives blanket support across the board for uh energy bills frankly in the current climate that's totally unaffordable you've been looking at the numbers again haven't you and i mean just

21:21Steph McGovern:tell us about the scale of what the last government did so this was um when trust and and jeremy hunt came out with this energy price guarantee so you're a member off the back of russia invading ukraine energy costs absolutely rocketed so in the autumn of 2022 there was this kind of massive intervention by our governments that capped the typical household energy bill and it worked out at around two and a half grand annually and it was originally meant to be for two years although that changed as time went on it got cut to six months and then it was there was another extension and it got lifted to uh three thousand annually it's really important to point out it didn't mean that no one's bill went over three grand annually it just meant that the typical bill was capped it's similar to what we have with this energy price cap now in the sense of It's not a cap of your bill.

22:14Steph McGovern:It's a limit on how much suppliers can charge people.

22:17Robert Peston:For a typical bill. Yes. But nobody is actually typical. Everybody either buys more or less than that. But it's a framework for understanding the degree of support. And so what was the degree of support per household? If they capped it at£3 ,000, what was the effective subsidy in all of that?

22:36Steph McGovern:Yes, because the government committed to paying energy suppliers is the difference between the actual cost of energy and the reduced capped price that consumers paid. So we're talking about this cap of a typical bill at around£2 ,500 annually. And if you were looking at actually what people should have been paid, it was about£1 ,000 more than that when this was first announced, so in the autumn of 2022. A few months after that, into January, again, it would have been even higher than that. So that's a subsidy being paid, essentially, by the government. And this is money that they would have to borrow.

23:10Steph McGovern:So, you know, we're talking something in the region of£78 billion in terms of, I mean, some people are putting the estimates even higher than that of how much it did actually cost because you also had the energy bill support scheme. So this was this£400 discount given to all households with a domestic electricity connection. You'll remember we all got this paid in instalments and it was a discount on your bill. and that ran from October 2022 to March 2023. So that was another thing that the government were paying for. All in all, this is really expensive. And Robert, what can our government now do?

23:47Steph McGovern:Because could they afford this?

23:49Robert Peston:So the reason I was saying that how they designed this support scheme for fuel oil, you know, will, in people's minds at least, politically create a precedent. I mean, when I talk to very senior people at the Treasury, they are very clear that they can't afford, the government chancellor feels she can't afford to simply follow the scheme that was originally designed by Liz Truss with Kwasi Kwarteng, her chancellor, and then was taken over when Truss and Kwarteng were forced out by Jeremy Hunt. And that was a blanket. Everybody effectively got a thousand pound subsidy, more or less, from the government.

24:31Robert Peston:The scale of the subsidy over time was absolutely enormous. And as you say, 78 billion, 80 billion quids worth of subsidy, which right now, if they went down that track, would be 78, 80 billion quids worth of additional borrowing for a government that has pledged to get the public finances under control. Britain's debts as partly as a result of of Covid and indeed this the the the Ukraine energy price shock rising very significantly. You know, if if if there is one pledge most closely associated with Rachel Reeves, it's to get the public finances under control. So the government is looking at doing something that Jeremy Hunt felt he couldn't do.

25:19Robert Peston:So Jeremy Hunt, basically, it was it was an economic and political crisis. and technically means testing it restricting the help only to those on lower incomes was just felt to to be too complicated yeah and and so they they went with the simpler route of simply giving help to absolutely everybody um uh because they just thought it would take too long um uh to uh and And of course, could create quite a lot of unfairness if you decide that only certain people on lower incomes get the help. So as I understand it, an enormous amount of work is going on at the Treasury at the moment so that this time round, the help is restricted to those on lower incomes.

26:10Robert Peston:But it isn't that easy. I mean, let's just say, for example, they found a way of restricting the help to those who got universal credit. Or if you're a pensioner, pension credit, which is one definition of people on low incomes. As we know and as we saw from the massive furore when they withdrew universal entitlement to the winter fuel payment, you know, when you restrict support in that way, quite a lot of people who are on low incomes miss out.

26:46Steph McGovern:The working poor, it's more often than not, it's the working poor. They're the people who I see at like our local food bank all the time. It's people who, that society, that government says have got an okay income, but they literally cannot afford to pay all their bills.

27:02Robert Peston:There are real difficulties with designing a scheme that doesn't go to everybody. And, you know, this is going to be a really big, you know, really big challenge. Because on the one hand, giving it to everybody, we could see if they did give it to everybody, lenders to the UK reacting very negatively, because this would be, in their view, another example of how vulnerable the public finances are and how we have a government, despite its majority, that isn't able to come. control the growth of debt. So you could get a negative reaction from the markets where the government ends up having to pay more interest if it gives the money to everybody.

27:43Robert Peston:But if it doesn't give the money to everybody, there could be a political backlash because some very vulnerable people might end up not receiving it. Lots of Labour MPs might rebel against the scheme designed in that way. So, you know, this is really difficult for the government.

27:58Steph McGovern:And we've seen, haven't we, when backbenchers are unhappy, the government often U-turns on the decision they've made. And so that is another problem here. That uncertainty could be really crippling. I think just from another point as well in all of this is, from years spent on the road, on budget day and things like that, going out into businesses and talking to them, you know, I was always reporting on BBC Breakfast for some type of business. One of the things that, one of the most tangible things to people when it comes to how they feel is how much they're paying for energy, but also how much they're paying for fuel at the pumps.

28:35Steph McGovern:And that's the other big problem here as well is how much petrol and diesel has gone up by. That's what all my mates are talking about now. Everyone's talking about, you know, around the WhatsApp chat group, the parents chat group is get your cars filled, girls. You know, the prices are going up. Those types of tangible things are really, really impact people in terms of how they're thinking of politics as well. And so that's the other big problem here is it's not just energy, it's the cost of fuel for your car too. And the government are in real danger of facing the wrath of everyone going, the government did nothing for us in terms of how am I going to get to work?

29:16Steph McGovern:It's cost me this much more now to get to work. And obviously there's all this problem around whether there's price gouging going on with retailers of petrol and diesel as well. And that's another big problem. So it isn't just about energy. It's about how people are feeling about moving about the country as well and paying for fuel to get to work.

29:35Robert Peston:And actually, we've been quite lucky so far that there hasn't been, you know, the kind of panic that's seen queues at petrol stations. We are lucky. Because, you know, even when it's not, I mean, do you remember at the beginning of Covid when supermarkets ran out of loo paper? I mean there was no national shortage of loo paper but people just somehow a rumour went round that if you didn't get your loo paper you won't be able to get it during lockdown or anyway literally if you remember supermarkets had to ration it and we have seen essentially panic buying of petrol on a number of occasions over the last 20 years or so and that's another really big political risk for the government because people hate it you know, when there's, you know, essentially a fear about not being able to buy your petrol and fuel.

30:26Robert Peston:The other thing which I think is sort of relevant to all of this, we had this fascinating chat with Mohamed El-Erian, you know, just the other, you know, last episode. And, you know, Mohammed was saying that in his view, if you look at the medium term here, the most important thing that the chancellor can do to get at least economic confidence up, particularly for businesses, but also for households, is to persuade people she does have a credible growth plan. Yeah. Looking effectively beyond this crisis. And one of the things that is striking to me is certainly the penny appears to have dropped for the Chancellor because she is giving something called the Mays lecture tomorrow.

31:19Robert Peston:What's that? Remind us. So the Mays lecture is a lecture that's given in London, typically given by chancellors, but also other big economic players, which sort of sets out big economic plans. And, you know, pretty much I think every chancellor in modern times has given a Mays lecture. Rachel Reeves, interestingly, this is an interesting fact, is she is the only chancellor to be giving. This is her second one. No chancellor has given more than one Mays lecture. But tomorrow she is giving a second one. And apparently the Treasury had to have quite interesting conversations with the organisers. It's given at City University in London.

32:06Robert Peston:And the reason she wanted it is because she sort of thought nobody would take any notice of her growth plans if she announced them in the spring statement that we just had. So she needed a separate occasion. So we're getting that tomorrow.

32:19Steph McGovern:But the big thing for me, Robert, in this is, why do you need to do this to announce your growth plans in a lecture in a university? Like, it feels so out of date. just get yourself on YouTube or TikTok and do it there. That's where everyone is these days, aren't they?

32:33Robert Peston:Yeah, well, we could say that I think the media plans of this government are somewhat in transition. And you're right, it is quite interesting the way that they're still wedded to particular traditional ways of making announcements. I mean, I think it is going to be a worthwhile lecture. As I understand it, there are going to be sort of three pillars of her growth strategy. One is more powers, something we've talked about for those who run our second cities. We've talked a lot in this programme about how productivity and living standards are so much lower in our big cities outside of London. The income and wealth gap between London and Liverpool, Manchester, Birmingham, Newcastle, your favourite Middlesbrough, still far too big.

33:24Robert Peston:And so one driver, she hopes, of growth will be giving more economic decision making power to those who run those places. The second element of all of this is helping the rollout of artificial intelligence services throughout the private and public sectors, AI diffusion. This is something, again, that we have recommended many times on this podcast. podcast. And then finally, she will put some flesh on stuff we've been hearing from the government. Some would say this is a very belated realisation, but she wants to cut the cost of trade with the European Union single market for British exporters.

34:10Robert Peston:We know, for example, that she thinks that if she adopts what's known as dynamic alignment with EU rules for the chemical sector. That will allow our big chemicals industry to have better exports to the EU. Politically, this is a little bit controversial in the sense that dynamic alignment means that rules the chemical industry in this country would be set in Brussels. It'd be interesting to see whether she gives us more detail about which other sectors she thinks she well she's relaxed about having rules uh imposed on them by by brussels but the the price from all of that is it becomes way cheaper for those important export industries to trade with the eu and that that she hopes drives growth i suppose the thing is is pointless at this particular moment to make a judgment about this framework because we haven't got the detail.

35:10Robert Peston:And so, you know, both you and I will be tuning in to what she says in her Mays lecture and we'll try and assess that, you know, whether it makes sense in our next podcast.

35:23Steph McGovern:I will be watching it afterwards on YouTube.

35:28Robert Peston:Because you're a thoroughly modern, you know, consumer. That's the point we would make.

35:35Steph McGovern:But you're right, though. we will do a full analysis of all of this in our next episode. But until then, yeah, that's it for us for now. Bye bye.

35:43Robert Peston:See you soon.

36:05Steph McGovern:up to$3 million in coverage. I'm so relieved.

36:08Robert Peston:No problem. I'll be with you every step of the way. One in four was a fraud paying American. Not anymore. Save up to 40 % your first year. Visit lifelock.com slash podcast. Terms apply.

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