Energy Belongs in Public Hands

Domestic energy bills are expected to rise 30% next year. This crisis is rooted in a system run for huge private profits – and can only be solved by taking energy into public hands.

Gas supply shortages are due to send domestic bills soaring up. Credit: zhaojiankang / Getty Images

Already reeling from the turmoil of Covid-19 and the complex challenges posed by Brexit, the UK economy is facing yet another crisis: extraordinary spikes in wholesale electricity and gas prices. With surging wholesale prices, domestic energy bills are predicted to rise by at least 30 percent by early next year.

The fallout from rising gas prices is already being felt in the retail energy sector. Thirteen energy companies have gone bust due to rocketing natural gas prices since the start of August, meaning that two million customers have lost their supplier. There are nearly 50 energy suppliers in the UK, but pundits are predicting a ‘massacre’ in the sector, with upwards of 20 more companies expected to fold this winter. The energy market, already dominated by a handful of large companies, is likely to experience further concentration.

Prime Minister Boris Johnson has tried to put a positive spin on the situation, claiming that the gas supply shortage is a knock-on effect of the pandemic recovery. But the problems with the energy market did not start with the current crisis. For years the UK energy system has been plagued by inadequate gas storage capacity, rising gas bills, and increasing profit margins for big energy suppliers.

So how did we get into this mess? A new briefing by Common Wealth argues that the flaws of the energy system are deeper, rooted in the privatised ownership model that has characterised the sector for three decades. Taking the energy sector back into public ownership is necessary to correct these flaws.

Privatised Energy: Who Benefits?

The privatisation of the UK’s energy system that began in the late 1980s and early 1990s has given rise to a highly concentrated market dominated by the ‘Big Six’ energy companies: British Gas (Centrica), EDF Energy UK, E.ON UK, npower, Scottish Power, and SSE.

Common Wealth’s analysis shows that the Big Six have paid out almost £23 billion in dividends the last ten years, nearly six times their tax bill for the period. These findings illustrate how the privatisation of utilities has redistributed income—previously destined for the public purse—to shareholders. Some of the major shareholders reaping these dividends are foreign governments, while others are asset management firms and investment banks that principally service rich households.

The interest that the energy companies pay on their debt is another vector through which income is channeled to financial actors, rather than consumers and citizens. According to Common Wealth’s analysis, the Big Six incurred £10.22 billion in interest expenses over the past decade. The effective interest rate paid by the Big Six on their total debt over the past ten years has been relatively high, standing at 4.1 percent, well above the 2.5 percent rate on long-term UK government debt.

The analysis further found that the average firm within the Big Six has, over the past ten years, awarded their highest paid director almost fifty times the pay of the average worker in the company. According to the data, the total number of employees of the Big Six has fallen by a third in the past decade, from 89,664 in 2011 to just 60,218 in 2020. The decline has been consistent each year, with no discernible impact from the Covid-19 pandemic itself.

As the analysis reveals, a sizeable pay gap and declining workforce at the Big Six raises questions about the unequal relations between top managers and average workers. This unequal relationship was laid bare when British Gas used ‘fire and rehire’ tactics, leading to 7,000 engineers staging 44 days of strike action after they were threatened with losing their jobs should they not agree to new terms and conditions. An agreement was eventually reached – but only after hundreds of engineers were sacked.

Public Ownership for a Just Energy Transition

Overall, the Common Wealth briefing reveals that the Big Six have been reproducing inequality within their own ranks through outsized director pay and worker layoffs, as well as in society at large via huge dividends to shareholders and elevated interest payments to private creditors.

In order to combat these grave dysfunctionalities, we recommend taking the energy sector back into public ownership. A publicly-owned energy system would not only be better positioned to redress inequality and tackle the climate crisis, it would also potentially secure better value for citizens and consumers. Not only would it mean that no money would be diverted to shareholders via dividends, it would also mean that utility providers would not be paying elevated rates of interest in private debt markets. Under public ownership, such savings could be recycled into lower household energy costs as well as expanded investment in renewables.

In addition to public ownership, the employment practices of the Big Six point to the need for a broader New Deal for workers that bansfire and rehire’, roots our precarity and insecurity, and significantly enhances workers’ rights and power.

A New Deal for workers can provide a foundation from which we can build an ambitious green industrial strategy, investing in green industries and infrastructures of the future, and significantly increasing renewable energy. An ambitious green industrial strategy should extend to all corners of the economy. National retrofitting programmes for homes can and should be a pillar of this, reducing energy costs, tackling fuel poverty, and creating good, green jobs throughout the UK. Importantly, while the fossil fuel era has been dominated by concentrated ownership and extraction, a just transition presents an opportunity to reimagine a new institutional framework centred on democratic management, sustainability, and shared prosperity.

Critics often dismiss public ownership as too radical, but the current energy crisis indicates that it is in fact sensible and long overdue: ecologically sensible, socially sensible, and financially sensible as well.