A fairer energy system for families and the climate

By staff - Trades Union Congress, July 25, 2022

Executive summary

Publicly-owned energy retail companies can deliver fairer bills for households, accelerate the rollout of household retrofits and reduce energy use.

Soaring energy bills are causing untold suffering for low-income households and workers across the UK. The “typical” bill was increased by 54% with Ofgem’s April increase in the energy price cap.[1] Many households have already seen bills go up by over a thousand pounds. Ofgem is expected to increase the electricity and gas price cap again in August by a further 51%, so that average bills pass £3,200.[2]

But allocating the burden of the gas price crisis to domestic households at this scale is not inevitable. Other European countries have demonstrated that it is possible to insulate many or all households from the fallout of the invasion of Ukraine, Putin’s gas politics and global volatility in terms of energy bills. Our analysis shows that this is because governments in those countries have more levers to intervene in energy pricing – and are more prepared to use the levers that they have. Part of this comes down to questions of who owns and controls our energy system, and whom it serves.

There is widespread recognition that the UK’s energy system is broken.

The costs and burdens of soaring global gas prices have been passed through directly into domestic energy bills – hammering the finances of the poorest households. This adds to already unfair energy pricing mechanisms, where the poorer households pay a disproportionate part of their income for their basic energy needs.

In parallel, the Climate Change Committee has slammed the failure to retrofit our homes as “shocking”, as “installations of insulation remain at rock bottom”.[3]

Meanwhile, pay and terms and conditions for workers in energy retail have been eroded and become increasingly precarious. Employers reacted to lower profits by suppressing staff pay, transferring the burden of poor market design onto their workers. Workers in energy retail firms have seen their real-terms wages suppressed by about £1,000 between 2019-2021, with firms passing through shrinking profits to suppress staff pay.[4]

The TUC has developed a set of proposals to reform the UK’s energy system, that can:

• Protect all low-income households with fairer bills and a social tariff
• Deliver lower bills and a faster climate transition through the rapid rollout of fully-funded home energy efficiency retrofits
• Ensure that energy is a public good and that energy retail is both democratically accountable and transparent

The TUC is proposing a pragmatic reshaping of the UK’s energy system, to be more in line with our European neighbours that are finding it easier to weather the current crisis:

• Take the Big 5 energy retailers and other failing retailers into public ownership, at a similar cost (under £2.85bn) to what Government already spent on keeping failed energy supplier Bulb in business;
• Task publicly-owned energy providers with offering a social tariff capped at 5% of income for low-income households;
• Recognise that energy is a common good: restructure tariffs to provide all households with an initial free energy allowance, and increase the cost per unit for high-consumption households;

This is the first of a series of TUC papers on reforming our energy system. Future papers will explore questions around public equity stakes in new clean generation and the need for improved regulation of energy networks to deliver climate action and social justice.

This paper is in two parts. Part 1 sets out the current problems in the energy system, and the role that public ownership of energy retail could play alongside other interventions in addressing them. Part 2 sets out more detail about how public ownership could work, including costings and policy levers.

Notes:

• [1] Price cap to increase by £693 from April | Ofgem
• [2] https://www.cornwall-insight.com/default-tariff-cap-forecast-climbs-further-as-ofgem-announcement-looms/
• [3] Current programmes will not deliver Net Zero - Climate Change Committee (theccc.org.uk)
• [4] Prospect (2021) Fixing the UK’s broken energy retail market: a Prospect Discussion Paper

Read the entire, detailed proposal here.

Disclaimer: The views expressed here are not the official position of the IWW (or even the IWW’s EUC) and do not necessarily represent the views of anyone but the author.