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The United Kingdom Going From Failed Energy Privatisation to Partial Renationalisation

As a consequence of privatisation, UK consumers and workers have suffered from increasing energy prices, fuel poverty and thousands of job losses. Between the early 1990s and 2001, 60 per cent of jobs in the energy sector were lost to efficiency gains and downsizing.2 Meanwhile, private firms are recording ever-growing profits. Transmission grid operator National Grid, for example, paid out record dividends of £1.4 billion in 2021.

While the fragmented and liberalised energy market fails to meet the people’s basic needs, unions, activists, and some within the opposition Labour Party are putting forward proposals to restructure the country’s energy sector around public ownership, democratic governance and just transition.

Thatcherism and its legacy

To strengthen the post-Second World War economy, fundamental industries, including electricity, railways, coal and steel, were nationalised by the Labour Government. Yet following the 1979 election of the Conservative Party, under the leadership of Margaret Thatcher, public ownership was largely reduced to a tale of the past. Although the privatisation agenda was initially a minor part of Thatcher’s manifesto, it grew to become a central dimension of her government’s ideology and programme during the 1980s. As a result, more than 40 UK state-owned businesses employing 600,000 workers were privatised between 1979 and 1990.4 What’s more, Thatcher’s model for energy privatisation and liberalisation became a template enforced across the world for years to come.

Arguing that privatisation would make firms more efficient and increase labour productivity, Thatcher moved to privatise the country’s energy market in the mid-1980s, in the aftermath of the global 1970s energy crisis.5 To transform the natural monopoly into an artificial, competitive market, the energy sector was ‘unbundled’ into the separate components of generation, transmission, distribution, and supply. In 1986, the gas sector was privatised, and the electricity sector followed in 1990 when twelve regional electricity companies in England and Wales were sold off to private firms. In the end, virtually all components of the British energy system had been placed under private ownership.

The unbundling of the energy sector in the 1980s paved the way for an oligopolistic structure in which the so-called ‘big six’ firms (British Gas, EDF Energy, E.ON UK, Ovo Energy, ScottishPower and SSE) currently control 70 per cent of the household energy market.6 Far from the competition that privatisation advocates promised, these large, often foreign owned, energy companies drive out smaller suppliers. Recent attempts to establish municipal energy companies have failed due to the difficulties these small firms faced in competing with huge transnational corporations, alongside the challenges of operating within a highly volatile market context.7

The failures of privatisation

The results of decades of neoliberal market policies are still felt by consumers today. With gas prices soaring during the 2021 energy crisis, many households were unable to handle steep increases in energy bills. At the core of the crisis lies the UK’s dependency on imported fossil fuels, reinforced by a lack of investment in renewable energy due to higher profit prospects in the gas sector and planning laws skewed  against renewables. Following the privatisation of gas in the 1980s, the famous ‘dash for gas’ fast-tracked a transition away from coal-fired power plants, while creating a dependence on newly discovered gas supplies in the North Sea. By the mid-2000s, gas production in the North Sea fell sharply, prompting the UK to import gas from Norway, the Netherlands, Belgium, Qatar, the US, and Russia. When international gas prices rose in 2021, 86 per cent of British homes were dependent on gas for heating, while more than one-third of electricity in the country was produced using gas power plants.8

The 2021 crisis also showed the government’s determination to prioritise private profit over the common good. The crisis saw dozens of smaller suppliers go out of business and British consumers overwhelmed by 250 per cent gas price increases. Meanwhile, large private energy firms on the brink of collapse were bailed out by the government to the tune of billions of pounds.9 These firms have continued to record disproportionately high profits. In comparison to 2021, BP’s profits tripled to nearly £7 billion in the second quarter of 2022 due to rising oil prices.10 The UK’s big six energy suppliers made more than £1 billion in profit in 2020/2021, shortly before consumers were hit with major price increases.11 Centrica operates with a profit margin of 60 per cent in its generation business.12

Despite skyrocketing profits, evidence for the failure of Britain’s privatised energy sector could not be more obvious. In November 2021, news of yet another collapsed energy supplier surfaced, as private company Bulb was put under special administration. Responsible for the supply to 1.7 million households, the country’s seventh largest gas supplier was originally awaiting a multi-billion-pound government bailout,13 a figure that as of September 2023 was reduced to around £250 million because of a decrease in the wholesale price of gas.14 As more and more energy suppliers go out of business, it has become obvious that the market cannot deliver the competition and lower prices that privatisation advocates promised. At the same time, domestic energy bills are constantly on the rise: in real terms, energy bills increased by 50 per cent between 1996 and 2018, leaving increasing numbers struggling to heat their homes.15

In 2022, the government approved a new coal mine, the first since Thatcher began closing them down in the 1980s. The mine, which is ultimately owned by private equity investment firm EMR Capital, will create a maximum of only 500 jobs and its coal quality is poor, discrediting any claim that this project will significantly benefit the local economy or energy security. Then, in 2023, the government approved 100 new North Sea oil and gas licences.16 The UK tax rate on oil and gas is currently lower than that of many equivalent economies such as Norway. Moreover, additional changes to carbon-trading are now making it cheaper to pollute.17

A return to public ownership?

After years of public dissatisfaction and the obvious failures of privatisation, marked by the collapse of over 30 energy suppliers since 2021, the Conservative government has decided to take a first step to partially nationalise the British energy sector. The government announced in April 2022 that it would re-nationalise the Electric System Operatora division of private energy company National Grid. In its place, a publicly owned ‘Future System Operator’ will be set up to operate energy grids from 2024 onwards.19 The new public body will be responsible for managing the planning and distribution of Britain’s electricity system to prevent supply interruptions. While the Conservative Party is framing the partial nationalisation as essential to reach net-zero emission targets by 2050, the move attests to the recognition of a wider failure of the UK’s privatised and fragmented energy sector.

Calls from trade unions and activists to take back public ownership and transition to renewable energies are getting louder, with 66 per cent of the UK population supporting nationalisation of the country’s energy system.20 The trade union UNISON is advocating for the nationalisation of the big six energy retail companies. This would mean transferring over 34,000 energy workers from private companies into public service employment, allowing the state to leverage this workforce to promote a transition to renewable energies.21 In 2019, UNISON, GMB, Unite and Prospect, the UK’s four main energy trade unions, published a list of demands to protect energy workers’ jobs in a just transition to renewable energy. These include, most importantly, greater influence for unions and workers affected by the transition, granting them a voice in policy-making and the opportunity to contribute to solutions.22

A further proposal for public energy ownership has been brought forward by the We Own It campaign organisation, which advocates for a public takeover of public services. Instead of a government bailout, We Own It advocates for nationalising Bulb and other energy companies. The campaign’s petition to nationalise energy outlines four further actions to reclaim public ownership, including:

  1. Nationalising the Big Five (SSE has now been absorbed by Ovo Energy) energy suppliers, which would cost the state approximately £2.85 billion
  2. Taxing giants BP and Shell at the same rate as Norway: a permanent tax rate of 56 per cent
  3. Setting up a new state-owned renewable energy company to invest in wind- and waterpower while creating public jobs
  4. Nationalising the energy grid, which would bring expected annual savings of £3.7 billion, and would pay for itself in under eight years.23

Democratic and public ownership of the energy market was a central proposal of the 2017 Labour Party programme, when the party was under the leadership of socialist Jeremy Corbyn. The Party’s 2019 proposal ‘Bring Energy Home’ introduced plans to fundamentally transform the energy sector, bringing gas and electricity networks back into public ownership and incorporating participation of energy sector workers and consumers.24 The plan proposed setting up a National Energy Agency that would own and maintain transmission infrastructure, alongside establishing regional and municipal energy agencies. In the proposed two-step transition process, Parliament would transfer assets into public ownership and former owners would be compensated with bonds issued by the Treasury. In line with We Own It’s calls for returning grid ownership into public hands, this switch would save the government £3.7 billion a year, meaning the investment would pay for itself within seven and a half years. Profits would be reinvested into renewable energies, expanding the UK’s renewable energy sector and decreasing its dependency on imported gas.25

With the Labour Party now under the leadership of Keir Starmer and adopting a more moderate political programme, it is unclear how much of the 2019 plan would be advanced should Labour win the next general election. However, Starmer’s Labour did recently commit to establishing a new publicly owned energy generation company named Great British Energy, tasked with accelerating new renewables investment.26Research by think-tank Common Wealth estimates that this could reduce electricity costs by £20.8 billion or £252 per household a year.27 Considering that over 3 million people in the UK live in fuel poverty,  according to 2023 government data,28 this would be a much wanted reduction.

Source: tni