Britain faces a triple crunch – and the political cost for the Tories could be huge

Long before there was talk of an energy crisis, the government had been looking vulnerable. Economic growth is slowing and inflation is rising. Despite the Indian summer, Covid-19 infection rates remain high, and the warm weather won’t last for ever.

The prop provided to the labour market by the furlough scheme will be kicked away at the end of the month, and nobody can be sure of how that will affect the businesses that have grown used to the wages of their staff being met by the state. Millions of struggling people are about to become £20 a week worse off when universal credit reverts to its pre-crisis level. There will be tax increases next spring to bring down NHS waiting lists.

Add in higher fuel bills and food shortages, and it is easy to see why ministers are getting a bit jittery. The deal cobbled together to reopen plants producing the CO2 needed to maintain food and drink supplies encapsulates the fundamental problems within the British economy: its short-termism, its lack of investment, and its over-reliance on long supply chains.

The sad fact is that the UK was ill-prepared for a pandemic and it is now ill-prepared for the spiralling costs of energy. Sure, there has been an unfortunate concatenation of events, from an exceptionally windless period to a fire that forced the closure of a power cable importing energy from France, but these things happen when a country lacks self-sufficiency. Being adequately prepared means hoping for the best but planning for the worst, and that simply hasn’t happened.

A triple crunch now looms: an economic crunch as the post-lockdown bounce in activity falters; an energy crunch that will make it even harder for those on low incomes to make ends meet; and a climate crunch as the government struggles to turn its fine words about a net-zero transition into action.

It speaks volumes that the business secretary, Kwasi Kwarteng, felt it was necessary to say that the lights would not be going out this winter and that there would be no repeat of the three-day week of 1974, a legacy of Ted Heath’s Conservative government. This is a low bar to clear, as those of us who can remember doing our homework by candlelight can testify.

Kwarteng is probably right. The UK should be able to continue importing enough gas and electricity to prevent power cuts during the winter – but at a price. Businesses will see their energy costs rise and consumers will see their living standards squeezed. Tory MPs know they will be blamed for the tough times that lie ahead, and are starting to realise just how painful the loss of the £20 a week extra in universal credit will be. There is talk of a “winter of discontent”, and it is not entirely hyperbolic.

It doesn’t really matter that the UK’s energy crunch is partly the result of global forces that are beyond the government’s control. That was also true – more so, in fact – of the financial crisis that came close to bringing down the banks in 2008, but that didn’t prevent the then Tory opposition blaming Gordon Brown’s Labour government for the subsequent recession. There is no little irony in the role reversal.

What’s also evident is that free-market principles count for little if serious trouble arrives. When the banks came within hours of running out of money, the state stepped in and bailed them out. When energy companies fail because they lack the capital to cope with wholesale gas price increases, the state gets other suppliers to take on their customers and makes it financially worth their while. Price caps, loan guarantees, subsidies: this is the most interventionist Tory administration since Heath’s. The steel industry is next in line for a bailout.

Just as in the early 1970s, the structural problems of the economy are being disguised by a property boom. A combination of rock-bottom mortgage rates and Treasury tax breaks has meant house prices have risen by £31,000 in the past year – equivalent to the annual wage of the average worker. Over the past half-century, Britain’s economic recoveries have relied on property-owning consumers embarking on spending sprees with money extracted from the rising value of their homes, and this is no exception.

The political impact of the energy shock of the 1970s was enormous. It was not just that it helped bring down the Heath government, but rather that it ushered in a new way of thinking about economic problems based on the need to control inflation, tame union power, reduce the size of the state and allow markets to set prices.

Whether today’s events have the similar effect in upending assumptions about the economy depends on three things: the size of the shock, the fragility of the status quo and the strength of new ideas.

The dwindling band of true Thatcherites in the Conservative party view these developments with alarm, and they are right to be worried. Without question, the global economy seems to be recovering more quickly from the pandemic than it did from the financial crisis, although in part that’s due to a more interventionist approach by governments, even those ostensibly of the right.

If the state has been prepared to subsidise wages during the pandemic, why not follow the TUC’s suggestion, and have a permanent short-term working scheme as a bulwark against future shocks?

Similarly, if the Treasury thinks it is a good idea to make low-paid workers stump up higher taxes to pay for the NHS, what’s the argument against a windfall tax on companies that made excess profits due to the pandemic to help create a citizen’s wealth fund and spread the benefits of growth more widely? This was an idea floated by the IPPR thinktank this week, and is an example of how a succession of crises has led to new thinking on the left.

The chances of a wealth fund being part of next month’s budget are close to zero, because this is an administration now in firefighting mode. Boris Johnson could make life easier for himself by making the £20 a week universal credit uplift permanent, but there is little sign that he is willing to make yet another U-turn. The assumption seems to be that such is the weakness of the opposition, the government can get away with anything.

That view is about to be tested. After struggling to inflict serious damage on the prime minister during the horrors of the past 18 months, Keir Starmer is never going to have a better opportunity in the coming months to land a knockout blow.

• Larry Elliott is the Guardian’s economics editor