Labour Drills Down Into Energy Policy

Energy looks like it will be one of the major themes of John Healey’s first Budget next week. Seven days out and the government grid had the energy secretary in Aberdeen today announcing the go ahead for the Jackdaw gas field.This will irritate some on the Labour left and the Green party which, despite its defeat in this month’s byelection, still has the potential to threaten Andy Burnham’s Labour. By having this fight now, the government looks to be deliberately repositioning its energy policy.

Everyone will be watching next week to see how generous the energy support package for poorer households will be. Today Energy Secretary Miatta Fahnbulleh has been impressively candid in saying she doesn’t think Jackdaw will lower UK consumer prices any time soon.

Jackdaw’s productive capacity is a classic Rorschach test. Critics argue that the 2% of the UK’s annual needs it could produce at its peak proves it’s paltry, while proponents argue that every little bit of domestic energy helps. For what it’s worth, here at the Readout while we predicted the government would go ahead with Jackdaw, the oil fields of Rosebank will be harder. Carbon emissions look to be much higher than Jackdaw and, since its energy is less clearly ear marked for UK consumers, it does less for the energy security argument. Strikingly, Fahnbulleh emphasised today in interviews that the gas from Jackdaw is predominantly used domestically, while the oil from Rosebank is predominantly exported.

Instead, the government is putting the receipts from the tax on Jackdaw’s gas into funding new renewables, which also feels smart. It may not win over Green voting refuseniks but the sensible middle who polling shows still care about climate action should see the logic.

And even though we predicted a pragmatic decision coming, we’ve also hoped it wouldn’t bring with it performative net zero bashing - kudos to the energy secretary for appearing to walk that line.

This is not a government embarrassed by the decision it’s taken. It could so easily have announced this via a buried press release rather than send a cabinet minister to Scotland. But in returning the government to the position closer to the Johnson-era government that I worked in - that gas will still be required in a net zero era - it is shifting Labour to safer terrain that can garner broader support.

They will hope approving Jackdaw neutralises some of the more lurid attacks from the Conservatives - remember a big turning point for Kemi Badenoch was winning the Aberdeen South by-election on a pro-exploration platform. Voters still care about climate change but with living costs high, they also need relief on energy prices. At PMQs this lunch time Burnham’s comments about the possibility of removing standing charges from consumer bills will see many wonder if that could be in the Budget next week.

In part, this morning’s higher-than-expected inflation figures should remind everyone of the economic, not just green, logic of the energy transition - the higher than expected numbers are largely driven by a surge in motor fuel costs and energy. They are leading traders to price in a rate hike in November. I’ll leave the Markets Today team to talk you though, just a little lower, how cheerful that’s going to make all of our Christmases.

This is a government that tells us it wants to find breathing space for voters when world events are constantly reducing the oxygen supply.

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Markets Today: Hold Onto Your Hikes

Hi, I’m Morwenna from Markets Today. September’s UK inflation came in hotter than expected, but the main drivers may give slightly less cause to panic than the main headlines suggest, at least in terms of interest rate expectations. Higher fuel prices were a major factor. That’s an area that, while painful for consumers and businesses, the Bank of England has been inclined to “look through” because it fluctuates with oil prices. And monetary policy is unable to fix it. While the core reading, which strips out more volatile elements, including fuel, rose, it was in line with what economists had been expecting.

Food inflation, meanwhile, stayed flat. That may give the BOE some comfort , given it quickly hits household budgets and shapes consumer inflation expectations. However, the ONS warns it may simply arrive later and then prove hard to shift.That said, I wouldn’t want to overstate any potential relief. Services inflation also came in ahead of forecast. And while it’s decreased in importance recently, it’s historically proved stickier and more difficult to calm, filtering through to inflation perceptions and wage demands. A higher energy price cap coming into effect in January will also hurt consumers.As far as market expectations go, a lot of this was already priced in, particularly after the most recent jobs report showed wage growth picking up and a stabilizing labour market. That helps to explain why we’re seeing some of those bets on interest hikes dialed back today, despite the headline figures.

Read the Markets Today live blog for rolling news and up-to-the-minute analysis during UK market hours.

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Allegra Stratton worked for former Prime Minister Rishi Sunak when he was chancellor and runs an environmental consultancy, Zeroism.

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