As the FT has noted:
The UK energy crisis has claimed its biggest victim with Bulb, Britain's seventh-biggest supplier, to enter special administration backed by taxpayer money.
Bulb has 1.7 million customers. As the FT also noted:
One government figure acknowledged that taxpayers would end up having to pay hundreds of millions of pounds to support Bulb through the administration and beyond, saying the precise cost “depends on the length of time it remains in this state”.
The Guardian's analysis is harder hitting. They note:
Government officials and ministers were also taken in by Bulb's seemingly unstoppable success, and as one senior industry source said, and “loved them” because “they came in to challenge the incumbent suppliers and grew at scale”.
As they add, the trouble was:
Bulb's major strength was its marketing: it excelled at attracting new customers through lucrative referral payments and green energy claims, and managed to secure willing investors by talking up its credentials as a tech startup.
But Bulb's rivals have long claimed that the company's business model, green credentials and fundraising were all unsustainable because it relied on greenwashing, and “too good to be true” energy prices to help fuel its rapid growth.
Not quite a pyramid selling scheme then, but at least a company motivated solely by growth at all costs, with little regard to the true cost, the claims made and the methods used. As the Guardian also notes, Bulb's actual investment in technology was minimal: this was a free-riding company capable of operating whilst the going was good.
And now the going isn't good and Bulb has failed, to no one's great surprise. Even the government had anticipated the need for a special arrangement for a failure of this scale as if they too knew that for all the bluster and hype, which they were happy to promote, this was always a 'too good to be true' story.
The result is a stark reality. The upside went to those who promoted this company. The downside is being borne by the state. The market has failed again. The state has to bail it out. But, apparently, and despite that fact, it is always the market that has to be believed in.
The actual truth is that Bulb did not make gas. It just traded it. Bulb's existence did not change the gas coming out of anyone's gas pipe. It just changed the price of it. And Bulb added nothing technical to the market, it would seem. It simply played the markets, as the backgrounds of its founders would suggest was what they always intended since this is where their skills were.
In that case a simple question has to be asked. If a gas company can be too big to fail - and it is now really apparent that this is possible - why shouldn't the supply of domestic gas be nationalised since it is now clear that all the big players in this market are operating with an unstated but nonetheless profoundly implicit state guarantee underpinning the activities? Why in that case don't we just create a state energy company to do the job instead? Call it English Gas if you like - because Scotland and Wales should have their own energy companies - and let's move on. What is the counter-argument?
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There is no good counter-argument for a national gas company. It would be paid for by public money, NOT taxpayers’ money. We must begin attacking this trope. The entire MSM uses it. A good idea will be put forward and the news person will ask how it will be paid for, whereupon the individual with the iitial suggestion fails to say: well, the government, of course. I have yet to see an attack on this trope.
Never understood why “The Best People” (Westminster politicians) find it so difficult to make a nationalised company/industry/etc.. profitable for the benefit of the country they’re supposed to serve? They always seem to struggle when run by the state, yet suddenly make great profits for shareholders and huge salaries for directors etc… the instant they’re privatised.
Maybe we DON’T have the best people in government , or “privatisation” is the obvious con it always was?
Beyond the obvious injustice of managers/owners pocketing the upside while we wear the downside the damage goes further – it destabilises the whole market. Prudent companies are forced to match the prices of the imprudent or else lose customers and go out of business….. this is (to me) most clearly seen in the credit cycle.
Banks are forced to compete and lend at tight spreads or else go out of business. Everyone knows that this will end in tears…. but current managers hope the tears belong to their successors and owners hope to have extracted enough dividends before they need a bailout. This is the reason that banks MUST be regulated… and similar reasoning applies elsewhere, too (eg. Gas supply).
In a world that permits (excessive) debt finance, limited liability and “non-owners” as managers this instability and danger is hard-wired into the system. It is not an aberration it is inevitable.
Neo-liberal nutters will claim that the solution is “more markets”… but after 40 years it is time to call a halt.
Limited liability is a privilege – it must come with more responsibilities (ie regulations on activity)
Managers need to be held personally accountable.
The tax advantage that goes with debt finance needs to me controlled.
Not a lot to disagree with there
Richard
I’d totally agree that there are too big to fail (many of which we need to actually live) such as gas, electric, water etc.
Others which I would consider too big to fail , hence natural monopolies, such as health/public transport etc which could be much more efficient run as a joined up publicly owned service.
The common factor seems to me to be that the end product is not really changed by allowing different companies to supply them but the scale of what they deliver is nationwide (or further).
So, my question is, if the above is a reasonable definition of what may be considered as things that are too big to fail, then where do commercial banks sit?
The banks are also underpinned by state guarantee
The whole superstructure of the 40 (or 70 or whatever it is) ‘gas market’ companies beyond the ‘big 6’ suppliers must have only come into existence through rigged and/or subsidised arrangements. Subsidised by consumers and / or the state. As Richard says, they dont do anything other than buy and sell the same gas that willy nilly will come through the single pipe into your house.
All the hassle of ‘shopping around’, changing ‘supplier’, and being ripped off through shady non transparent offers can be regarded as increased exploitation rather than increased consumer sovereignty.
All the attention and analysis should be on how we could make a publicly owned entity work really well – with guaranteed terms of service and consumers in charge as far as possible.
It sounds to me as if Bulb copied the Enron model somewhat. If so, why were they allowed to exist at all?
Certain banks were effectively nationalised in 2008 – in my view to protect the assets of the rich who then benefitted from QE.
To nationalise gas to the benefit of everyone is just not in the DNA of this Tory Government and once again one can only hope that the voter remembers this during the next election.
[…] final comments are appropriate. First, as I have already suggested today, the reliance of so many UK households on such a peripheral company within the UK energy market, […]
Scotgov had a National energy co as a manifesto commitment. It was all gung ho, then it wasn’t. Because it would have to operate in the UK wide energy market with all the attendant risks just as gas prices were shooting up.
If there are only sub UK energy suppliers then there will need to be sub UK markets or England will simply dominate by scale as usual.
This will not hapoen because it would require transfers and the scale at which Scotlands electricity, green electricity is excess would be made manifest.
Then all this too wee, too poor to be independent would be blown. So we would be in McCrone report territory or the we have to stop collecting country by country economic stats territory again.
So no UKgov us going to go there until Scotland leaves then there will be One Co and Cymru and NI will have to lump it.
@Peter
Scottish independence would clarify many issues.