The price of both oil and gas has doubled across the world in the last year. The price of crude oil is at $84 a barrel for the first time in three years. As a result, fuel of every kind, for every purpose has become more expensive.
The public has reacted in the most extraordinary way. Impassioned demands have been made from almost every quarter that Boris Johnson and the rest of the government must, well, get their fingers out and do something about it.
The last two days have been filled with reports of fierce clashes between Cabinet ministers about what, if anything, can be done about it.
The simple, inescapable fact is that an increase in the world price of energy transfers income from countries which are net energy consumers to those which are net producers. The national income of the UK has fallen in real terms. We are worse off.
We have been here before, in even more dramatic circumstances.
In the winter of 1973/74, the price of oil did not just double. It quadrupled. While comparisons to the 70s have been ceaseless, there is plenty to learn from this fraught period.
Then, there was already inflationary pressure in the system.
The Conservative government in office, under the helm of Edward Heath, had engineered an economic boom – the so-called Barber boom named after the then Chancellor – essentially by printing money. Both output and prices were rising.
Then, just as now, world commodity prices in general, not simply in the energy sector, were rising strongly, adding to pressures on inflation.
Although North Sea oil was beginning to come on stream, the UK was a net energy consumer rather than producer. The oil price increase therefore reduced the real income of the nation, as the recent energy price rises have done.
The same was true across the whole of the EU, which, at the time, we had only recently joined.
Inflation rose everywhere, reaching an annual rate of 12 per cent in what was then West Germany, famed for its intolerance of inflation.
But by 1975, inflation was back to a mere 4 per cent in Germany. In the UK it was over 20 per cent.
The crucial difference between the two countries was the reaction of the labour force and the wage demands made. Essentially, German workers took the hit. They accepted that they could not protect real wages – wages after allowing for inflation – by large money wage demands in the face of higher inflation.
The UK at the time was on a different planet. Trade unions were very powerful. Heath called an election in February 1974 on the theme “who governs Britain? The government or the miners?”. He lost.
Wage demands accelerated in a lunatic way. The National Union of Railwaymen turned down an offer of a 27.5 per cent increase because it was not enough.
These higher wages fed into higher costs and inflation soared. It was only checked by a sharp rise in unemployment from 1975 onwards.
2021 is not 1974. Inflation is not going to go to 20 per cent. But the government needs to be honest with the nation. The country has been made worse off. Schemes attempting to deny this fundamental reality will only end in tears.