Weekly Overview: All Change in the UK Government
The UK was left – briefly – without an energy minister July 14, as one of its biggest political upheavals in modern times handed the new prime minister bigger fish to fry. In an efficient transfer of executive power the ex-prime minister, David Cameron, and family left Downing Street July 13. Joined by her husband, Theresa May was installed as leader of the Conservative Party and the new PM later that day and promptly set about building her team.
Having voted three weeks earlier, like Cameron, for the safer ‘remain’ option in the June 23 referendum on whether Britain should leave the European Union or stay within it, Theresa May found herself propelled into the top post in UK government as the other horse that was still in the race, the junior energy minister and fervent Brexiteer Andrea Leadsom, dropped out after a weekend of disastrous, but apparently self-inflicted, press coverage and so spared the nation two months of further uncertainty.
May awarded important posts to those who had campaigned for the UK to leave the European Union. The often outspoken former leadership challenger Boris Johnson is unexpectedly the Foreign Secretary, and David Davis, another Brexiteer, is the Secretary of State for Brexit, a newly created role which may well outlast his tenancy.
Theresa May outside 10, Downing St (Credit: BBC)
The new finance minister is Philip Hammond, who can expect petitions from the UK offshore regarding taxes, although his predecessor George Osborne – now out of government – has already done much of the spadework with cuts in previous budgets. With falling revenues from low prices, companies are passing losses down the line, with the first major strike offshore in several decades threatening the summer maintenance at some of Shell’s platforms in the North Sea.
Workers contracted by Wood Group – coincidentally the company founded by Ian Wood, the author of the Wood Report that the last government commissioned to find how best to maximise the economic recovery of the UK North Sea – are facing cuts up to 30% in their salaries and terms and conditions, and those who are members of Unite and the RMT unions were, at time of press, preparing for strike but engaged in talks. If there is a strike then other engineers will have to be found. Shell said that it hoped that Wood Group’s employees and management can resolve their issues and its priority was to ensure that the safety of its people and assets will not be compromised during any industrial action.
Meanwhile Amber Rudd, the woman who inherited the Hinkley Point C nuclear dilemma last year from the Coalition government, has taken over from Theresa May at the Home Office and her junior minister at energy, Andrea Leadsom, is now – fittingly for one who made much of her stake in the future in an ill-judged interview – Secretary of State for the Environment.
Hinkley Point C, it is worth remembering, was not only, if at all, a Conservative idea: there was very little mention made, if any, by David Cameron in his farewell speeches of the support he enjoyed from the Liberal Democrats for the first five years of his six-year residency in Number 10. But it was Ed Davey, the Lib-Dem Energy Secretary, who was in the hot-seat when the value-destructive (from the UK consumers’ and taxpayers’ point of view) agreement was made.
The independent National Audit Office believes that honouring the terms of the deal, which sets a fixed price for the electricity generated, will now cost the UK £29.7bn in top-up payments, so £6.1bn more than an October 2013 estimate by government, because of weaker wholesale prices, it reported July 13. But EDF and its Chinese partner CGN are to take its final investment decision on whether to build the 3.2-GW nuclear power plant in September and Hammond says he is keen for it to start generating power – which it might, but not until 2025.
In the end, it was Greg Clark who became the Secretary of State for Energy. Formerly minister for communities and local government, he would have had to rule on the question of Cuadrilla's permits to drill for shale gas in Lancashire using hydraulic fracturing.
As well as energy, his brief includes business and industrial strategy, replacing the former Department of Energy and Climate Change – which he shadowed in 2008-10. The shift in title may be seen by some as suggestive of a shift towards boosting industrial performance at the expense of climate change targets. Energy intensive users in the UK have suffered over recent years from high power and gas prices compared with rival producers.
The report on fracking in Lancashire from the Planning Inspector was due on July 4; but Clark's old post has been awarded to Sajid Javid, who was Secretary of State for Business, Innovation and Skills, in which capacity he was watching over the fate of Tata’s steel plant in Port Talbot, which had fallen victim to the industrial recession, high UK energy costs and – allegedly – Chinese dumping.
Like many other problems facing the UK economy, that predates the referendum. The outlook post-referendum does not look much brighter either, as those earlier problems will persist while new ones are added, such as a weak pound. This will dampen the already sluggish market for mergers and acquisitions in the North Sea, hitting Shell hard, just when it needs to dispose of tens of billions of dollars of mature assets following its purchase this year of BG.
A partner at US law firm Akin Gump, Marc Hammerson, told NGE that he could imagine two options for Brexit: soft and hard. 'Soft' would see less disruption, but as it was modelled on the Norwegian example, with free movement of capital and labour, without any of the benefits of EU membership, it would not quieten the core Brexit voter, worried about the loss of employment. The 'hard' version would be more compatible with the spirit of the referendum, he said: there would be a series of bilateral agreements. But it could prompt another referendum on leaving the UK in Scotland, most of which wanted to stay in the EU and which has laid claim to a chunk of the UK's remaining oil and gas reserves, less valuable now.
There is also the possibility, Hammerson said, that without the presence of the UK as a partner, market liberalisation will be left to less enterprising countries and so it could slow down. There is also the view he shares with Russian energy economist and academic Andrei Belyi, who also spoke to NGE, that disconnection from the EU market will hasten the the shrinking – relative to the Dutch title transfer facility – of Europe's first gas hub, the UK's national balancing point, as traders prefer stick to euros for as long as possible.
William Powell