The government is facing an economic forest fire – with no choice but to spray money at it

Editorial: Boris Johnson faces inevitable, unavoidable financial challenges. Some will mean extra taxation and borrowing, as well as higher charges to consumers – and generally higher inflation

It is usually the more vulnerable in society who tend to be hit hardest (Reuters)

Once they proliferated faster than TikTok videos; but now Britain’s pioneering, sometimes ethical and innovative squad of small energy companies are collapsing at an alarming rate.

Or, at least they would be under the usual rules of market economics, which would have the disastrous effect of leaving their customers without hot water and heating. That, of course, is a degree of neglect that is unthinkable – even under this administration.

Formal and informal “supplier of last resort” arrangements are in place so that the companies might be bust, but the gas remains on tap. If needs be, the government stands ready to lend the surviving gas suppliers the funds to take on stranded customers.

The gas price cap will also be maintained, as a matter of policy, but not at its current level; increasingly out of line with soaring market prices. The energy price cap is already planned to increase from October for the 15 million customers it protects, by about £140 for a year’s worth of energy – or around 15 per cent.

The next six-monthly review might see it rise again, unless the price of gas subsides as rapidly as it has increased. The prime minister says this is an “interim period”, but many will be concerned that at least some of the increase in the role of gas (and reduction in competition) will stick.

The emergence of an oligopoly of suppliers and a state-controlled cap may see pricing cluster close to the official “cap”, turning it into more of a target. New entrants would be wary about taking the risks necessary to break into such a volatile scene. The gas market looks to have been broken.

In any event, as the business secretary Kwasi Kwarteng admits, this is likely to be a very harsh Christmas and spring for many poorer families, with the imminent removal of the £20-a-week universal credit uplift, and a hike in national insurance next spring.

Inflation is already turning sharply upwards, with looming shortages of everything from turkeys to toys. The otherwise welcome boost to wages rates will eventually feed through into prices, and, possibly, spark a wage-price spiral.

Not everyone will see a rise in their incomes: even as labour shortages in some sectors intensify, some workers will find themselves coming off furlough and onto the dole. The outlook is uncertain.

To deal with all these economic forest fires, the government has little choice but to try and spray money at them. Such are the combined effects of Brexit, Covid and the spate of calm weather (reducing wind energy production) and other unusual factors, that a Conservative government is weighing up the merits of nationalising gas supply, and will be dishing out subsidies to everyone from Scottish shellfish farmers to car makers to big fertiliser producers (to protect the supply of carbon dioxide and frozen foods).

At the same time, the state is faced with huge bills for “levelling up” infrastructure schemes, new zero carbon electric cars and heating systems, and reform to social care.

All are inevitable, unavoidable financial challenges, and some will mean extra taxation and borrowing, as well as higher charges to consumers, and generally higher inflation. In such circumstances it is usually the more vulnerable in society who tend to be hit hardest. The latest economic shocks look set to follow the usual baleful pattern.