“Energy provision, so we can turn on our lights, cook meals, and heat our homes, is not a privilege but a basic necessity. Access to it should not be in the hands of a company making decisions on our energy bills in order to maximise their profits and reward their shareholders.”
By Jon Trickett MP
Christmas headlines about a cost of living crisis for many people caused by rising cost of gas and electricity underline the poor state our economy is now in. Less often discussed is how we got here. It is less discussed because even a brief exploration reveals the way in which the energy market in the UK has been distorted to work in favour the interests of the executives and the shareholders but against the interests of the customers.
Rising energy bills will push another 150,000 pensioners into fuel poverty this winter. And an estimated 1.1m older households will struggle to pay their energy bills. That was the finding by one charity recently. Across the country, over 3 million households are living in fuel poverty.
Yet in February, as we are likely to be facing the worst winter weather, the energy regulator will announce a new consumer price cap that could see gas and electricity bills soar further.
Fuel poverty – the increasing struggle for millions to pay energy costs – and it’s stark health implications in winter for those on low incomes and in poor housing – is a direct result of government priorities that have left energy supply in private hands and pricing decisions left to the market.
Energy provision, so we can turn on our lights, cook meals, and heat our homes, is not a privilege but a basic necessity.
And it’s supply, through a limited set of power lines and gas pipes, laid down over decades, make energy a natural monopoly. It is a market constructed by conservative ideology. Access to it should not be in the hands of a company making decisions on our energy bills in order to maximise their profits and reward their shareholders.
But thanks to Margaret Thatcher and her ‘big bang economics’, it is.
In the late 1980s, our public energy suppliers, the Central Electricity Generating Board and British Gas, were broken up into multiple transmission, distribution, generation and supply companies, with the argument that competition could lower bills and with the sweetener of a ‘people’s share’ – promoted through the ‘Tell Sid’ TV adverts.
Fast forward to 2021, and we have the Big Six energy companies (Centrica, e-on energy, EDF, npower, SSE, Scottish Power) competing to sell us electricity and gas that travels down the same power lines and through the same pipes.
For the privilege of that choice in supply, our bills fund massive profits and chief executive pay. Over the last decade, Centrica has regularly reported annual earnings before tax, to the watchdog OFGEM, of over half a billion pounds. e-on and SSE similarly, report earnings of hundreds of millions. In both 2016 and 2017, the big energy firms reported over a billion pounds in earnings before tax. But this masks their real costs – paying their shareholders. As Common Wealth recently highlighted, the big six energy companies have paid £23bn in dividends over the past ten years, equivalent of 82% of pre-tax profits and six times their corporate tax bill.
With this, they pay their chief executives obscene salaries and share payments. Iain Conn, who headed Centrica from 2015-2019, reportedly regularly earned over £3m a year, paid from your gas bills, whilst Alastair Phillips-Davies at SSE is reported to regularly take home over £2m.
That they could record such earnings was down to consumer bills running ahead of inflation for the past decade. The price of gas for consumers has fluctuated with the steepest rises around 2013-16, but for electricity, there has been a consistent increase in bills above people’s take-home pay, through the decade meaning they are now nearly 50% more expensive than they were in 2010.
These escalating bills came about in spite of increased competition of suppliers. New smaller competitor companies offering new tariffs or marketing themselves as greener options, have not brought down the cost of bills overall. The central claim of Thatcher that competition would deliver a better service for consumers has been proven wrong, as pensioners make tough decisions on heating their homes.
That is why there have increasingly been piecemeal proposals to intervene in the energy market to regulate pricing.
It wasn’t until after the passing of New Labour that Ed Miliband correctly proposed a 20-month price freeze on energy bills in September 2013. The then Conservative Prime Minister condemned him as wanting to live in a Marxist universe. However, after the changed political circumstances of the 2017 election and the popularity of an interventionist approach, a similar tariff cap was later adopted by Theresa May in light of her election losses.
That cap is now in place, but as it is reviewed every six months, updated bills continue to eat up more and more of people’s real incomes. In August 2021, the new six-month cap to run from October 2021-March 2022 was lifted by an eye-watering 12%, far outstripping incomes. We Own It have argued, that electricity prices are 10-20% higher than they would have been without privatisation.
And energy firms have since condemned its rigidity for preventing them responding to fluctuating wholesale energy prices. Over two dozen smaller competitors have collapsed, leaving the big firms in control with an increased market share and demonstrating through their oligopoly control that the market really is a natural monopoly.
And following the increase in wholesale prices, investment banks are now predicting the next cap rise could be over 50%, massively exacerbating fuel poverty and the cost-of-living crisis.
No wonder then, the regulator is now consulting on further changes to the operation of the cap with energy firms applying pressure to give them more flexibility in setting bills, despite inflation-busting increases. At the same time, the Government is consulting on an updated Retail Energy Market Strategy, to be published ‘when the market has stabilised.’ This may come to late for many bill payers.
However much the cap might be strengthened – and there is clearly pressure to weaken it from the energy firms – the reality is that these consultations seek to keep the basic structure of the marketised energy sector in place. Large private firms, supplying energy through a centralised distribution system originally funded under public ownership, and setting the price for consumers to maximise profits and reward shareholders, with a toothless regulator heavily lobbied to limit its scrutiny.
Labour pledged a public energy sector at the 2019 election – a new UK National Energy Agency, with 14 Regional Energy Agencies and the supply arms of the Big Six restored to public ownership. And Labour members continued to back a public ownership model at party conference this year.
And it is popular. We Own It found in 2019 that 52% of the public backed energy in public ownership, compared to 20% who opposed it. And since then the popularity of public ownership is undiminished. This Autumn, further polling found 60% of those asked supported bringing energy companies back into public ownership compared to 17% who opposed any such move
There is an alternative – the restoration of public ownership that would remove the profit motive, prioritise investment and restore public accountability.
My final point is this: it is not possible to imagine that the private energy markets will operated in the interests of our planet. In every respect, the market and private ownership have failed to deliver the manifest needs of humanity. Time to change direction before its too late.