Over three decades ago, the UK’s gas and electricity were privatised, starting with British Gas. Ever since, consumers have had to endure a fragmented system which combines privatised transmission and distribution with a so-called market in energy supply. In reality, people very seldom switch energy companies, and have been repeatedly ripped off by the Big Six which dominate the market.
Before this crisis came to a head, there were already fears that the triple-whammy of the end of the furlough scheme, the callous cut to Universal Credit and the increased energy price cap would plunge millions of families into fuel poverty this winter.
But even before the current crisis, privatisation was failing. Instead of competition driving down bills, we have seen unaffordable energy bills coupled with unacceptable treatment of workers (such as British Gas’ appalling fire and rehire tactics) – and a refusal by the energy generation giants to invest enough in our future by switching to sustainable sources.
The collapse of smaller firms shows that the dominance of the Big Six is alive and well, as they can more easily afford to withstand tougher conditions, or lobby for bailouts as they are doing now.
There are smaller players out there offering better deals and greener energy, but they were already struggling to compete with the energy giants who continue to pollute and rip us off with impunity. Smaller providers are most vulnerable to price fluctuations – with some experts predicting that almost all of the smaller energy companies could go bust in the coming months. Ofgem say they will move the accounts of customers whose suppliers have gone bust, meaning that users will still have access to the utilities they need. But such switching could lead to people being moved on to higher tariffs.
Rather than short-term, costly emergency measures, there is a sustainable solution: buying out, not bailing out, the failing energy supply companies to create a new publicly owned company in the market. This new company or ‘default supplier’ would deal directly with customers and make sure they’re getting a decent deal. In addition, the government should also buy back the National Grid and regional distribution companies to create public ownership of energy transmission and distribution. Taking control of the energy grid would pay for itself within ten years. Not only would these measures be effective, but they’d be a popular move for the government: 52 percent of people polled in 2019 were in favour of public ownership of energy.
Unlike privatisation, public ownership is a pragmatic solution that would result in more affordable energy. Studies show that the UK’s energy prices are 10-20 percent higher than they would be without privatisation, and that taking the National Grid and regional distribution companies into public ownership would save £3.7 billion every year. This eye-watering amount, currently lining the pockets of high-salaried executives and shareholders, could be used to cut costs for families and make the network more sustainable.
The latest energy crisis throws this solution into sharper focus. The government is reportedly ‘poised to step in’ and bail out the energy supply companies, potentially to the tune of billions of pounds. Providing loans to giants like British Gas so that they can take on ‘unprofitable’ customers from collapsed smaller firms would see public money going in, but none of the benefits of public ownership or control coming out. There is truly no justification for this more-of-the-same approach.
Instead, the government should seize the opportunity to take public control of the failed suppliers to create a publicly owned energy supply company. This has been proven to work in places like Germany and Denmark, where people enjoy cheaper prices, greener options, and greater democracy.
Business Secretary Kwasi Kwarteng’s willingness to prop up a dysfunctional industry shows that there is money available to do the right thing. It simply doesn’t make sense to plough public funds into bailing out private companies when it could be used to benefit the entire country.
In public ownership, the finances would be available to shore up supply against fluctuations in commodity prices, ensuring better security for the many industries affected. What’s more, a public institution would be accountable to the public. And any profits could be reinvested to improve the system.
This moment is an enormous opportunity to turn our energy industry around, powering the transition to greener energy while keeping prices affordable. The government cannot afford to squander it by staying wedded to an outdated ideology of privatisation.