Johnson’s caretaker government must act with care in a worsening energy crisis

With sanctions and counter-sanctions escalating since the Russian invasion of Ukraine, gas supplies to Europe may yet get completely cut off – posing an unlikely but incredibly serious risk of the UK facing physical shortages. A much more likely, and almost certain, outcome is that prices continue to rise above their current record-breaking levels. A recent OBR report outlines how this scenario could see inflation rise beyond 11% in the third quarter of 2023 and push the UK into a recession in 2022-3.   

So how could this caretaker government react? Boris Johnson and his ministerial team would have to navigate difficult questions around what decisions are appropriate for a caretaker administration, and find a balance between dealing with urgent business and crises while not binding their successor to a particular course of action. ^[1] Crucially, they must determine where decisions are absolutely necessary. 

A caretaker government should avoid antagonising the EU 

A gas crisis has the potential to be deeply politically divisive within Europe this winter, as governments make difficult choices about how to ration the scarce supplies of gas. The FT recently reported that the UK government, no longer bound by the EU’s “Security of Gas Supply Regulation”, will cut off the interconnectors that export gas to mainland Europe if the UK is hit by severe shortages. This would be self-destructive. The UK does not have much strategic gas storage so it essentially uses the EU’s: exporting excess gas when demand is low during the summer and then importing it during the winter when demand increases. In that sense, the UK and the EU are mutually dependent on one another for gas.  

Given this interdependency, cooperation would be the rational approach. But it is not safe to assume that this rationality will prevail, with UK-EU relations strained as a result of UK efforts to unilaterally renegotiate the Northern Ireland Protocol. 

But threatening to turn the taps off at such an early stage, and an apparent determination to keep the UK out of any sort of solidarity mechanism, risks dividing the Western response to Russia’s invasion of Ukraine. It would also bind whoever succeeds Johnson, and their business secretary, to a particularly antagonistic approach to energy and foreign policy. This caretaker government is responsible for ensuring UK physical security of supply in the unlikely event of any immediate threat, so it is right that it prepares for that outcome. But its focus should be on the less antagonistic measures in the National Grid’s emergency plan, with includes public appeals to use less gas, shutdowns of noncritical industry, and so on. 

A caretaker government should avoid broad-based fiscal support  

A cut-off of Russian gas to the EU would cause a huge rise in prices, and the government would come under pressure to support households, as it did with successive packages in February (£9bn), March (£9bn), and May (£15bn).  

However, such a broad-based package should not be the responsibility of a caretaker government. Fortunately, the Ofgem price cap will mean that any large spike in wholesale energy prices now would likely fall on most households from April 2023, by which point a new government will be in place. There is also limited scope for additional price rises (beyond what is already expected) from October 2022. But Ofgem will announce the new price cap for October in August, meaning the government will come under pressure to say what it is going to do (whether there is disruption to Russian energy trade or not).  

However, it should wait until a new leader can decide a on the appropriate level of fiscal support at their Budget this year, or at later fiscal events. 

The caretaker government should step in if immediate support is needed for some groups 

As we argued much earlier this year, the government should also be focussing on rolling out energy efficiency measures in order to improve energy security in the near term, though it is likely now too late for policies such as home insulation to make a difference before this winter. And announcing a big new programme of energy efficiency measures could likely be seen as a long-term policy decision that would not necessarily have the support of the next Conservative leader – Johnson would need to show that he had the support of Conservative MPs or leadership contenders, or argue that such policies are consistent with 2019 manifesto pledges. 

The caretaker government could justifiably wish to make more limited interventions. The half a million people who are on heat networks, for example, are not protected by the price cap so could be immediately paying many times more for energy than others.  Another concern could be the impact on businesses not protected by the energy price cap. Gas price rises last year forced the UK’s main CO2 producer to stop production, which rippled through supply chains and affected a number of other industries, notably food and drink. A price rise of the sort in the OBR’s scenario could force many more industries to shut down, potentially causing a supply chain catastrophe. The government would likely need to intervene to ensure the continued operation of critical industries, and should work now on identifying the most serious ‘crunch points’ .  

A sudden escalation in the cost of living crisis would dominate the final weeks and months of Boris Johnson’s premiership. But while a caretaker government should prepare for, and act on, the most immediate risks, big decisions must be left to the next prime minister. 

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1. https://twitter.com/cath_haddon/status/1544976130876260354