The UK sells and buys its fossil fuels on the world market. It is, therefore, subject to the same marginal prices as all other market participants. 

The UK, unlike Opec, the US or Russia, simply does not have the productive capacity to raise global fossil fuel supplies by enough to lower market prices.   

Shifting quickly to alternative energies is also far easier said than done. About three quarters of the UK’s energy mix is still oil and gas. 

Adding new nuclear or wind capacities would require a multi-year process of complex planning and investment. 

That leaves the Government with only one realistic option, to issue yet more debt to increase subsidies – even as energy supplies are constricted. 

The Government is apparently mulling over various options. They include scrapping the planned rise in national insurance in order to raise disposable incomes, providing loans to suppliers to mitigate price rises, and targeted financial support for particularly hard-hit households. 

Whether or not the Chancellor will tomorrow go further than the £9bn package of household subsidies announced on Feb 3 is an open question.   

Politics argues for some kind of intervention. 

First, if the fallout from Putin’s war badly hurts UK living standards then popular support for continued or increased sanctions could falter. 

Second, a sustainable strategy to green the economy must involve a transition that directly raises or at least coincides with rising living standards. 

Of course, subsidies are no long-term solution to a broken market. But the Government may see them as an attractive option that hopefully buys enough time to ride out the current energy price crisis as well as take the necessary steps to improve energy security and future proof the transition to renewables.   

The economics of such policies are much less persuasive, however. 

In the already high inflation environment, it is not obvious that fiscal subsidies will actually ease the pressure on household budgets on a sustained basis. 

The UK is suffering through its worst bout of inflation for decades. It is the result of widespread global supply problems combined with excessive demand side support from central banks during the pandemic recovery. 

The Government continues to make the misguided argument that the UK has sufficient energy supplies – often highlighting that only 4pc of our gas comes from Russia. But this misses the point. 

If continental Europe, which gets around 40pc of its gas from Russia, faces supply disruptions linked to the war, it will bid up global prices as it secures supply from elsewhere. 

Sure, the UK can get whatever supply it needs, but at what price? You can get anything if you are willing to pay enough.  

More debt-financed demand side stimulus in the form of subsidies will not raise energy supply.   

It is common to hear people compare the current situation to the 1970s. While that probably overstates the situation, it is a risk. 

To keep employment high in the 1960 and 1970s, successive governments pursued a policy of subsidising and bailing out failing companies. 

In the end, it resulted in a major bout of stagflation. The UK suffered a period of longer and higher unemployment than if rotten companies had been allowed to fail once, they had become uneconomical. 

Subsidies can be a slippery path. The commitment to keep energy costs affordable with direct fiscal support will be hard to reverse if it stokes even higher inflation down the road. 

The Government would come under pressure to widen support for living standards for those workers whose wages are not keeping up with inflation. Where would it end? That we know. 

Eventually, the Bank of England would be forced to bring inflation under control by slamming on the monetary brakes and triggering a recession. Persistently high unemployment would be much worse for living standards than high energy prices.

So, what should the Chancellor do? Doing nothing remains a perfectly good option. 

A cost of living shock now might be a price worth paying to avoid worsening the inflation problem and suffering a period of high interest rates and elevated unemployment.