The UK is at risk of experiencing ongoing gas price shocks in the coming decades due to its decision to increase LNG imports from nations like the US, following the invasion of Ukraine and Europe’s subsequent reduction of Russian supplies.
The UK, unlike countries such as France, Italy, and Germany, has lessened its investment in renewable energy, thereby escalating the potential for an extended reliance on gas, the OBR highlighted.
This leaves us susceptible to future price shocks.
The OBR warned that persisting with the current level of gas dependence could equate fiscally to the expense of achieving the transition to net zero in a negative scenario.
The OBR stated that if substantial energy shocks occur every ten years and the Government continues to offset the cost for households as it did in the past year, these shocks could impose a yearly cost on the Treasury amounting to between 2% and 3% of the GDP.
Accounting for additional debt interest expenses and the impact on the economy, such regular gas price spikes could lead to a 13% increase in public debt relative to GDP by 2050-51. This is nearly double the central estimate of 6% of GDP for the total cost of public investment required to achieve a transition to net zero by mid-century.
