By Mark Connolly
On 3rd February, Rishi Sunak stood up in the House of Commons and made a long-anticipated announcement. Recent disruption to nuclear and wind production, surging demand in manufacturing centres throughout Asia, as well as the diplomatic turn away from dependence on Russian gas in the wake of the Ukraine crisis, have all seen gas prices rise (not just in Britain but across Europe and the rest of the world).
Ofgem, Britain’s central energy regulator, has subsequently announced that it would move to increase the cap on gas prices to £1971, [HS1] meaning an increase of almost £700 for the average British household. In response to the looming crisis, the Chancellor of the Exchequer committed the government to forking out £350 – half the expected price increase – for every struggling household. The policy represents a total of £9 billion in government spending, and aims to target support “where it is needed most.” However, when questioned on the potential for a more drastic overhaul, the Chancellor was quick to rule out any such possibility.
It is worth noting for context the makeup of the UK energy sector, which was split up into four separate companies for transmission, distribution, generation and supply under Thatcher in order to make way for privatisation; this same model was later adopted by the European Union. International Public Services researcher from Greenwich University, Professor David Hall, has highlighted the central problem with this privatised model, which is that its primary aim – of delivering value to shareholders – has given no incentive to modernise the monopoly grid. Instead of reinvesting in the grid itself, shareholders extracted £1.4 billion in both 2020 and 2021. That is £1.4 billion that could have been reinvested in, for example, renewables. Instead, the government had to take the initiative there, and corporate giants were allowed to pocket the surplus.
The solution to this should be obvious. First and foremost, some form of public ownership makes intuitive sense: as long as the business model of Britain’s energy supply remains oriented toward shareholders rather than quality service, then the needs of the British public will remain neglected. And we can see this at work elsewhere: Germany, despite following the UK down the path of privatisation, now obtains as much as 70% of its electricity from publicly-owned, community-run companies known as Stadtwerke, which are well-trusted by those who rely on them. Since 2016, Munich City Council has supplied enough renewable energy for every household in the city, outperforming any private alternative by a long shot. Similar arrangements are in place in France, where the major supplier EDF is majority state-owned, and in Italy, which gets two-thirds of its energy from AU, a company owned by the regulator.
Even in the Land of the Free, the failure of market competition has been acknowledged: when California liberalised its energy market, the private company Enron was found to have been unfairly inflating prices in 2000. Only by setting up the municipal company the Los Angeles Department of Water and Power (which supplied 100% of the city’s energy) did LA manage to escape the blackouts which plagued the rest of the state. Ever since, other states have avoided introducing any commercial competition, in silent recognition of what in the UK seems unspeakable – that an essential necessity like energy is not a consumer good, and therefore cannot be supplied and distributed like one.
A second way to relieve the pressure on working families would be to simply scrap the price rise which is still set for 1st April. Contrary to how this is being framed, there is nothing necessary about the price rise; it is simply a measure to protect the margins of multinational corporations like BP and Shell, at a time when they are recording record profits. Adding insult to injury, the Guardian found that neither of these companies had paid tax on their North Sea operations for some three years. Given these facts, any government that claimed to prioritise the interests of ordinary people would demand that corporate shareholders take a hit to their profits, rather than placing the burden onto working families.
European governments have shown it is possible to stand up to industry in the interests of citizens. Portugal has completely frozen energy prices (albeit an unsurprising approach from an informal coalition of Social Democrats and Communist parliamentarians). But this isn’t just for administrations of the traditional left. Even Emmanuel Macron imposed a windfall tax on the state energy behemoth EDF of more than €8 billion in order to shield households from rising energy costs – more than a fifth of the company’s market value. Thus, French families will face no more than a 4% increase in their energy bills, while Brits face a rise of more than 50%. If such a supposedly ‘radical’ policy is possible in France – hardly a socialist state – then why not here?
One of the excuses offered by supporters of the government’s approach is that a windfall tax would actually hit hardest the elderly, whose pensions are often invested in big ‘blue chip’ companies like Shell and BP. This point was put to former Labour leader Ed Miliband in a Radio 4 interview, and he rightly pointed out that pension funds are part of an international funding pool, meaning only 6% of UK pension funds are invested in UK shares at all. British pensions more commonly go towards safer government bonds overseas; therefore, a price cap on energy through windfall tax would likely benefit pensioners far more than continuing to protect the profits of gas producers.
A third potential solution lies in the government simply stepping in to cover people’s energy bills in a substantive, meaningful way. Britain should again look to other countries for inspiration. For example, Norway’s minority government has committed to paying 80% of energy bills above a certain threshold. Further still, in Honduras the newly-elected Xiomara Castro has pledged to subsidise the entire energy bills of the poorest families (those who consume less than 150kWh per month). This policy is funded by placing an additional charge on those who consume the most electricity – thus simultaneously discouraging fuel overconsumption and easing the worst effects of fuel poverty. The idea that a temporary loan only covering half of the expected increase in people’s bills comes anything close to a sustainable support system during times of crisis is laughable when compared to the actions of governments serious about meeting their citizens’ needs.
Why is it, then, that Britain is condemned to struggle on with an archaic system of energy supply and a government uninterested in doing anything about it? Rhetorical framing from the government and the media ecology at large suggests it has something to do with the inescapable legacy of Thatcherism. This goes far beyond the business model, which has remained privatised since the 1980s. Indeed, it shapes how politicians conceptualise the problem of rising energy prices. Gas is a consumer good and its prices are decided through market competition, rather than a public good essential to our survival; government assistance should be issued on an individual basis in the form of a loan, rather than as part of a systemic restructuring of a model clearly out-of-step with the rest of the developed world. These foundational assumptions that inform the government’s approach today appear to resonate with the individualistic, free market ideology which marked Conservative governments of the past. As far as the cost of living crisis is concerned, Britain is still firmly in the grip of the Iron Lady.
But putting the onus onto individuals and households misses the problem entirely, and dangerously so. These problems aren’t hypothetical. 10,000 people die every year from living in cold homes in England and Wales alone, not to mention the long-term social and health impacts of more than 3 million homes forced to choose between heating and eating, according to Britain’s leading fuel poverty charity, National Energy Action. That this is clearly a life and death issue should be enough to throw the government from its current course: if saving thousands of lives and protecting children from the very harshest consequences of poverty is not considered to be a public good, then a serious review of our priorities is in order.
Walter Mondale – United States Senator from Minnesota and one-time Democratic Presidential candidate – compared the idea of political possibility to cement: sooner or later, it hardens, and almost nothing can reshape our perception of what politics can deliver. It would seem that this is precisely what has happened in the UK. Despite all evidence to the contrary, we tacitly accept the way things have always been, and extinguish any hope that we could arrange the system better.[HS2]
There are things that governments can do, should do, and indeed are doing to assist struggling citizens through this crisis. France is doing it. Germany is doing it. Portugal, Honduras, Norway and the United States are all doing it. Yet in Britain, our government tells us that nothing can be done – they tell us it’s too hard, too expensive, too reckless. Don’t let them.
References:
Image – Unsplash
https://www.bbc.co.uk/news/business-60242432
https://novaramedia.com/2022/02/07/three-things-the-tories-could-easily-do-to-slash-living-costs/
https://www.nea.org.uk/wp-content/uploads/2021/09/NEA-Strategy-2021-2026.pdf
https://www.ft.com/content/7d5aff7f-9e9f-494c-a8f1-a4dc72f98d88
https://www.ft.com/content/6ab9001d-ea72-4e79-879f-25b2e604d572
https://www.ft.com/content/c8523679-15a8-4006-9dc8-e68e63353800
https://www.theguardian.com/commentisfree/2021/sep/23/uk-energy-suppliers-publicly-owned-crisis
https://www.theguardian.com/business/2022/jan/14/france-edf-cap-household-energy-bills
The St Andrews Economist 