I warned 20 years ago that Britain’s lights could go out. Our leaders have failed us all

The fool’s paradise of capped energy prices, cheap borrowing and working from home created by successive governments yesterday came to an abrupt end. The combination of a devastating rise in the cost of energy for 22million households, an end to bargain-basement mortgages, and the prospect of a heavy blow to the incomes of every citizen has been a disaster long in the making.

And the day the chickens came home to roost has quite rightly been dubbed Black Thursday.

Those among us who were so confident that Britain’s brilliantly successful vaccination rollout and bold approach to re-opening the economy would lead to a great bounce for growth and prosperity must think again.

For our political and financial leaders, with their short-term thinking and appallingly bad forecasting, have failed us all.

Putting the pandemic to one side, the roots of the current crisis can be traced to the energy price cap, a concept first propagated by Labour’s ed Miliband and then adopted by former Prime Minister Theresa May in 2017.

At the time it was seen as a quick fix of the problem of yo-yoing domestic gas and electricity bills.

But a steep rise in the wholesale price of natural gas as the world emerged from the pandemic blew the price cap to smithereens. And the problem is all the more serious due to the Government’s obsession with reaching its zero-emissions target.

In its haste to move away from fossil fuels, it made us more dependent on unreliable renewables such as wind and solar power. This paper warned two decades ago of the risk of the lights going out as the nation rushed willy-nilly into renewables, failed to invest in gas storage and processing terminals for liquefied natural gas and instead chose to rely on imports from Norway, Russia and France via pipelines.

As a result, we are now much more at the mercy of geo-political events, and with Russia – the world’s second biggest gas producer – massing its troops on the Ukraine border, we are more vulnerable than ever.

Meanwhile, the Bank of england has been caught hopelessly off guard by the steep rise in the cost of living.

For too long it stuck to the mantra that the rise in the consumer prices index was transitory (a position taken until yesterday by the european Central Bank in Brussels).

But it now admits that inflation will surge to 7.25 per cent in April and will be way above the 2 per cent target set by the Treasury right through this year and in 2023.

The Bank projects that inflation-adjusted post-tax incomes – including the swingeing 1.25 percentage point rise in national insurance contributions to be introduced in April – will fall by 2 per cent this year and a further 0.5 per cent in 2023.

To put the damage in perspective, that is a bigger reduction than the 0.3 per cent drop in real incomes in the aftermath of the 2008-09 financial crisis, which ushered in austerity and a decade in which earnings remained stagnant, or even fell. The impact of all this on growth in the current year, when the UK was set to be the fastest growing among the richest G7 nations, will be startling.

The Bank has already slashed its GDP forecast for 2022 to 3.25 per cent from its previous forecast of 3.75 per cent, a rate of growth that is barely sufficient to restore the nation’s wealth to pre-pandemic levels.

All this has left Bank governor Andrew Bailey with egg all over his face.

And by raising the interest rate in both their latest rate-setting meetings – it is now at 0.5 per cent, up from 0.1 per cent in December – the Bank has delivered an enormous shock to the money markets, homebuyers and borrowers.

BUT this is by no means the end of the tightening cycle. The Bank rate, which leads the cost of mortgages and other loans, is now projected to rise to 1.25 per cent by the year’s end and could go even higher in 2023, shutting the door on low-cost fixed rate mortgages and potentially taking the air out of the houseprice balloon.

In addition, the Bank has also called an end to the era of easy money by halting and reversing quantitative easing – under which the Bank injects cash into the economy by buying bonds on the open market – a policy introduced during the credit crunch and speeded up in the Covid era.

Instead of the coiled spring of recovery hoped for as the pandemic retreated and £220billion of savings was released into the economy, that money will now likely be burned on energy bills and mortgages.

On top of this, the country faces the selfinflicted wound of a national insurance rise which removes more than £14billion a year from the pockets of consumers and business.

Raising taxes at this point in the recovery cycle is an act of economic sabotage which should not be allowed to happen.