I posted this on Twitter last night:
Gordon Brown has suggested temporarily nationalising energy companies that struggle over the next year or two, before handing them back once the crisis is over. I'm baffled. Why should the state suffer the losses and give the upside profit to private sector owners? Truly baffling
— Richard Murphy (@RichardJMurphy) August 10, 2022
The Tweet was in response to an article in the Guardian.
This morning there are quite a number on Twitter saying this is the plan that has long been waited for on how to tackle the cost of living crisis, but I have to disagree.
Sure, Brown is saying tariffs have to be looked at and I agree. But right now whatever is done with tariffs in the way he suggests will not bring the level of payments owing by many people down to a level they can afford, and so the ambition is far too small.
And in any event, the focus of this is on letting the energy companies survive and not on letting people still live in their homes with heat, food and their bills paid and credit record intact, which is important in the modern world.
To cap all that, what Brown is saying is that the state should absorb energy company losses, and then restore them to private control when profits return. That is madness: the state needs the upside too if it is to provide support or take social advantage of ownership to deliver long-term gains from ownership for the benefit of society as a whole.
So, as I have suggested:
- Change the tariffs by cutting out standing charges and making the charge for consumption progressive, increasing as usage does;
- Put pre-paid meters on the lowest tariff automatically
- Require tariffs to be cut so that if each household paid the same proportion of its income in energy cost none would be in fuel poverty
- Then let the energy companies squeal if they wish if they cannot afford that, and take them into public ownership at rock bottom prices if their business model has failed as a result.
I will have more to say on this later today, but this is a half-baked plan from Brown, at best, not least because it focuses on handouts for energy companies, and that is not what we need right now.
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You took the words right out of my mouth.
Yet another crises from which the private sector can get free money from Government whist the rest of us endure austerity.
Labour and its politicians are a parody of their former selves.
Well quite, Brown seems to be reprising his role in PFI – private sector takes the money, gov takes the risk.
Brown does not know enough about the energy sector to pass useful comment. He is an amateur & proposes to fix symptoms not causes. The cause of ultra-high elec prices is an elec market based on marginal pricing. Worked fine in 2000, does not work now due to renewables (which have zero marginal cost). Thus fast reform of the elec market is the solution. Easy & straightforward to do. Greeks were proposing just such a reform for their own market – this time last year (nothing happend by the way). Electricity needs to be priced on the basis of what it costs to produce. For example, the old nuke stations produce at a cost of around £60/MWh – yet are getting £200/MWh++ – mad stuff. But you could see how the owners of these assets are perfectly happy to keep the marginal pricing show on the road. More puzzling is that Brown is unable to see this. Or perhaps not… after all he is a politician…. & thus woefully ill informed on technicalities and detail.
Agreed
Half baked is better than no plan at all.
What he does do is challenge is the pricing regime. He talks about “discussions with energy companies” but it is clear that the result would be tight price controls based on true costs for suppliers and affordability to users… with State intervention if the private sector does not play ball.
Now, I accept that his description of state intervention looks like “privatise profits, socialise losses” (which is crazy) but it is sufficiently vague to (a) not frighten the horses and (b) allow full, permanent nationalisation.
14 years on, despite a Tory government desperate to sell its stake, RBS is still majority government owned. We all know how “temporary” becomes “permanent”… especially if the public like the results.
So, although I share your reservations, I think Gordon Brown has moved the debate forward. I just hope Labour can pick this up and run with it.
I’d rather they used a better plan
This is 2008 again
In 2008 Bank shareholders lost 90% or their money. Perhaps it should have been 99%; perhaps managers (as well as owners) should have been penalised more heavily…. but the system remained functioning. On the whole, a successful outcome. So, as a model, I don’t think 2008 is such a bad template given that it was cobbled together in a few hours.
In this energy plan I see all the elements (at least in embryo) that I want to see.
(1) Prices controlled by the State according to the interests of a broad range of stakeholders (not just the Energy companies as at present).
(2) Public ownership being “chosen” by energy companies. Ie. either live with the prices we set or we take over. (Compulsory nationalisation would be tricky).
(3) What the endgame is after a “temporary” state takeover remains unclear. After such state intervention it is highly unlikely that private sector player would take the risk of taking them back again so we would just have the thorny issue of compensation. And, in that regard, “possession being none tenths of the law” would suggest the State could get away with a “book value” payout rather than any market based scheme.
(On that front, I note that (for example) SSE trades at more than twice book value. This suggests that the premium the market places on the shares is the Present Value of the rent extraction possibilities of being in the energy business…. or that asset values are mis-stated but valuing assets is tricky. A cost basis looks sensible because any “market value” would depend on rent extraction possibilities.)
Noted
If takeover is required distressed valuation bases apply: the assumption is that they need capital otherwise unavailable and so a massive discount to value is appropriate
But what is irksome about this Clive is that I don’t think that 2008 will happen again like it did.
After the crash, the private sector waited for more stringent action to be taken because it was self-evident that the market and literally destroyed itself and what happened?
Nothing. Not really. A few bankers went to prison; a number got off. It was not long before the derivatives were being traded again.
2008 was some 14 years ago? Market actors have realised that they can get away with their scams and that the central bank will always bail them out with sympathetic politicians looking for campaign contributions to boot.
No – sorry, I’m with Richard on this one. Never has rapacious capitalism been so brazen as it is now.
Greed rules and chaos is its enabler.
Is anyone able to comment on how these alternatives compare with what Macron is doing in France with the wholesale nationalisation of EDF? I accept that the both energy and geopolitical configurations are quite different to those in the UK. But it does appear that he has the clout to challenge the providers to implement a longer term strategy to the benefit of the population. How do his moves compare to Brown’s proposals? the EDF minority shareholders are issuing a legal challenge, which I am assuming Macron will be able to navigate. Ideology aside, do the energy companies have more leverage in the UK?
I may easily be missing something. Maybe our resident EU Energy Correspondent Mr Parr, or others with more knowledge than myself, can shine a light 🙂
Nit right now I am afraid…
I will be speaking to one of the leading lights in the French power engineers union next week. They firmly want market reform (the re-nationalisation of EdF is partly a recognition that new nukes will not be built under commercial terms – witness Hinkley Pointless). Discussions with the union are aimed at building a united front. I will be speaking to the Greeks soon (who are likewise keen). The French gov is keen on market reform ditto Spain and ditto significant elements within the Commission. The Germans are holding out against it (ideology) – but will lose. The big problem at the moment is that power companies (i.e. owners of generation assets) are making money hand over fist – in some countries. The overall picture is somewhat variable – any renewables under symmetric contract for difference are making no windfall profits. The rest, have their noses firmly in the trough – both UK and EU. Taxing windfall profits is fine – but is addressing a symptom of a market design no longer fit for purpose.
Mike, many thanks. It will be interesting to keep abreast of the outcomes, should you be so inclined. Once a furrow is ploughed, others may follow – one can only hope – and direct a little, maybe. As Richard posted, campaigns to beat the distress of the coming winter need to be solution focussed – also clearly explained in as many fora as possible.
You say ABC, anything but conservatives but you spend most of your time undermining Labour from your keyboard..its tedious
I agree
I wish I did not need to do so because it came up with good ideas
I don’t agree that Labour is being undermined on this blog. They are doing an admirable (sic) job of undermining themselves without any assistance. Can you point to a single policy that Labour has proposed that will do anything to ameliorate this situation?
Agreed.
Labour do not Richard’s help to be craven and cowardly.
All they want to do is to pretend to manage the situation. Well, we don’t need more management – we need ideas, policies and social justice.
My thoughts are very similar to yours.
By the way, Ofgen recently ran a call for ‘stakeholder’ participation regarding how energy bill payments are structured, focussing on standing charges in particular. I had no wifi access for over a week, so couldn’t email.
Standing charges are iniquitous. They are highest on prepay meters (while costs went up approx 55% for ‘normal’ meters, ours went up *65%* in April). So we’re making the highest contribution to the bills from all the failed suppliers and the various levies.
All costs should be folded in to the unit price. Why are we constantly told a ‘price cap’ of £x000? It bears no relation to my, or probably most others annual usage. BUT – if that can be done, it must be *just* as possible to come up with annual usage figs for a very modest semi across the country. Then, with the folded in unit price, Ofgen could institute ‘banded’ pricing – lowest costs applied to average modest semi usage, increasing on two or three upper bands. As well as covering the costs already being paid, part of that could be used to adjust (or cap) the bills of disabled (including elderly disabled) who have an absolute need to use higher amounts for greater warmth or for equipment essential for life.
Why the heck not?
I pretty much agree with that
Super idea, Carole. I just wish you were in charge. And I agree with you. Why the hell not? We both know why, of course.
From the Gordon Brown article in the Guardian “Six million households, an astonishing number, will be forced to pay an unprecedented 25% of their income in fuel costs and 4.4 million will be subject to a virtually unaffordable 30%”.
From Martin Lewis, on the Today Programme “State Pensioners, the new energy price cap on typical use, and many pensioners have higher than typical use for obvious reasons is going to be 45% of the current state pension and more of the older state pension: 45% is not a mortgage, not a rent, this is just energy bills”.
The energy sector is divided into upstream and downstream companies.
Is it reasonable to say that it is the upstream companies that are getting the windfall revenues?
The downstream companies – power generation, transmission, distribution, lng trains – are largely just markups on the price that they pay to the upstream companies.
The profits of the likes of Bulb and Robin Hood would not have been significantly affected by the current oil and gas shortages.
If you work through the centrica.com website it is the upstream business that has seen a 637% increase in adjusted operating profits. The other businesses have either losses or much smaller profit increases, < 50%.
In the 1980s the marginal rate of tax on upstream oil and gas companies under Margaret Thatcher and Nigel Lawson was 84%. It did not stop investment in the UK upstream oil industry.
You are right
But there are some seriously integrated companies too
Basically you want to change the rules to make providing energy unaffordable for companies, thereby decimating their values and forcing them into the hands of the state.
In the process wrecking the investments of many private sector pension, but notably keeping public sector pensions unaffected.
And you really can’t see any unfairness to this?
Tell me what is fair about enriching a very small part of the population at cost of the lives (literally) of many and the devastation of millions of households and businesses?
Come on, full justification please for the ethics of doing what you want done, please
I love the corruption implicit in your post Outgoing Actuary.
1. The utility companies are destroying themselves and the Thatcherite dream that created them. Can you remember the adverts when gas and electric were privatised? Can you remember the promises of lower prices through competition and ‘choice’.
2. What you are cynically banking on like the gas and electric companies is that politicians won’t do anything and that the utilities will hide behind the lack of action and continue to roll in it. This market – like most of our crappy under-regulated Thatcherite creations – has manifestly failed.
Deal with it.