The recent announcement by Ed Miliband that Labour would freeze energy prices for 20 months if elected in 2015 has clearly struck a chord with ordinary people. Adam Booth looks at the facts behind the energy companies in Britain and examines whether Labour’s latest policy commitment is enough to tackle the problem of unaffordable energy.
Workers around the country are more than furious over the huge price rises now being announced by the fat-cat energy companies. Households are currently forced to pay an average of £1,315 per year in gas and electricity bills – a figure that is set to rise by a further £137 following the recent huge price increase announcements from the major energy firms.
Wages squeezed whilst profits soar
Whilst wages are being squeezed by the austerity regime on the one hand, gas and electricity prices are soaring on the other.
According to statistics from the BBC, between 2009-13, the average energy bill increased by a whopping 24%, compared to an average increase in household income of only 2.9%. The Economist (28th September 2013) provides an even higher figure, stating that energy prices have risen by 30% in the past three years.
This vast inflation of gas and electricity prices over the last few years is one of the main factors behind the fall in real wages and the worst decline in living standards for over a hundred years. Workers are increasingly worried about whether they can afford to keep their homes warm this winter.
Energy companies, meanwhile, have been laughing all the way to the bank. In the space of three years the “Big Six” energy firms - British Gas, E.On, EDF, npower, ScottishPower and SSE – enjoyed a surge in profits of 73%, rising from £2.16bn in 2009 to £3.74bn in 2012.
Families furious; capitalists in a frenzy
The Bix Six, along with the rest of big business, the capitalist media and their Tory backers, have reacted in a frenzy, with threats of job losses and blackouts in the case of any energy price freeze, such as the one being proposed by Ed Miliband. A fix on prices, the energy firms claim, would reduce their ability to invest in much needed new energy supplies and infrastructure, thus plunging the country into a future of cold and darkness.
With “Red Ed’s” policy announcement - and the right wing’s backlash - still fresh in people’s minds, the energy bosses responded with further price increases, causing even greater fury amongst cash-strapped customers.
Following their decision to increase electricity and gas prices by 10.4% and 8.4% respectively, British Gas invited customers to respond to their head of customer services – Bert Pijls – via Twitter. Pijls was left to absorb the justified outrage of over 10,000 people, including messages asking, “Is it true top shareholders heat their homes by burning loads of £100 notes they have from excessive profits?”, and, “Hi Bert, which items of furniture do you, in your humble opinion, think people should burn first this winter?”
This shows the real anger that exists amongst ordinary people towards these parasitic big businesses and their fat-cat bosses.
Subsidising the rich whilst dying in the cold
The gas and electricity companies have responded to accusations of profiteering with claims that price increases are beyond their control – the inevitable result of rising energy costs and government imposed environmental and social regulations.
But neither claim holds any water. Firstly, whilst energy prices have increased by approximately 24% in the past four years, wholesale energy costs – which account for between 50-70% of gas and electricity prices – have risen by only 3.2%. Meanwhile, whilst energy companies have more than willingly passed on the costs of increased wholesale energy to customers, energy prices have barely reduced in periods when wholesale energy costs have declined.
Secondly, far from it being the energy monopolies that are subsidising the true costs of new renewable energy supplies and insulation installations – as the Big Six claim – it is taxpayers that are subsidising the profits of these big businesses and helping their shareholders line their pockets.
Whilst it is estimated that 6% of the cost of gas bills and 11% of electricity bills is due to a government “green levy” – to pay for measures aimed at reducing energy demands and tackling climate change – it must also be pointed out that the government spends between £2-3bn every year on winter fuel payments – welfare payments given to the elderly who are at risk of dying from the cold every winter.
Such benefits are, in effect, a subsidy to the Big Six, rewarding them for their inability to provide affordable warmth to millions, with between 20,000 and 40,000 elderly people dying every year due to the cold and an estimated 4.5million households deemed to be in “fuel poverty” – defined as those who need to spend more than 10% of their income on fuel bills to achieve adequate warmth.
This simple example demonstrates the complete irrationality of the current energy system in Britain – a reflection of the irrationality of the capitalist system as a whole.
Rather than using this £2-3bn per year of winter fuel payments to boost the profits of the energy monopolies, we should take these giant private monopolies into public ownership and spend this money directly on insulating homes, thus eliminating the need for such benefits in the first place?
The government’s own estimates for the costs of a large-scale insulation programme are placed at a value of £17bn – in other words, such a policy would pay for itself within nine years.
Meanwhile, the Coalition’s flagship policy to insulate homes has completely flopped, with only twelve homes taking up the government’s “Green Deal” (compared to initial hopes of over 10,000 homes by the end of 2013), whereby energy efficiency measures would be funded privately through loans, rather than through government grants, as existed under the previous Labour administration.
The perversity of profit
How can such a perverse situation be allowed to exist, whereby thousands die of cold every year and millions of families struggle to pay bills, whilst the Big Six see rising profits, subsidised by the very same households?
In addition, it should be pointed out that the government regulations regarding a “green levy” on energy bills are also the response of the failure of the markets to tackle climate change.
All attempts to stimulate investment in green energy through market mechanisms – e.g. carbon trading – have failed miserably, with an oversupply of carbon credits being printed - under pressure from big business and their lobbyists – leading to a collapse in carbon prices and the death of the EU’s experimental Emissions Trading Scheme. As always, we see the inability of capitalism – an inherently anarchic system of competition and market forces – to solve the fundamental problems facing society.
In Britain, rather than investing in green, renewable energy supplies and helping to reduce the demand for energy through insulation, etc., the energy monopolies have preferred to make a quick buck by simply increasing prices across the board, squeezing struggling families, and pocketing the difference. It is the Big Six, through decades of negligence and profiteering since privatisation, who are to blame for the poor state of the energy infrastructure and the potential for blackouts.
The logic of capitalism
The behaviour of the energy monopolies, whilst morally repugnant, is simply the inevitable logic of the capitalist system – a system in which investments are made and services are run only if a profit can be made. In this respect, whilst Miliband’s suggestions may strike a chord with ordinary households who are under the thumb of the Big Six, they are just tinkering with the problem.
Under private ownership, the recent price increases and potential future blackouts are the logical conclusion to the attempt to regulate the forces of the market. If energy prices are fixed by government, the profits of the energy monopolies will be under threat. But such firms will only invest if future profits are guaranteed.
All attempts to try and regulate the capitalists, therefore, only lead to a lack of investment – i.e. a strike of capital. In a globalised world, where capital is international, such firms will simply sell up and leave to more business-friendly shores. Centrica, the multinational energy giant that owns British Gas, has already threatened to leave the UK if Labour’s policy comes into play.
Half-measures against the capitalists will solve nothing. Trying to drive the car from the passenger seat only leads to sharp turns in the opposite direction from that intended, as demonstrated by the recent increase in energy prices that followed on from Miliband’s proposals. In trying to regulate the market for the benefit of ordinary people, the government only makes things worse. Under capitalism, it is not government that dictates to big business, but big business that dictates to government.
Nationalise the energy industry!
The solution is simple: Labour must commit now to nationalising these major energy firms, taking the Big Six into public ownership and running them under democratic control. Such a policy would undoubtedly strike an even bigger chord with ordinary people, whose anger towards the gas and electricity companies has reached a fever pitch.
Such a step, in conjunction with public ownership of the other key sectors of energy use – including transport, major industries, and construction – and the nationalisation of the banks, would enable us to have a truly integrated energy plan, as part of a wider rational plan of production. Homes could be insulated; transport could be electrified; and energy supplies could be made green – all funded by the enormous amounts of idle wealth (estimated at £750bn) that sits in the banks of big business, who refuse to invest.
Energy is a global resource, and the issues of climate change and resource depletion are global problems. The nationalisation of the energy firms in Britain is an important first step; but the problems of the UK’s energy system cannot be solved within the confines of private ownership and the nation state.
Only with the socialist transformation of society, in Britain and internationally, can the energy crisis – nationally and globally – be solved and the needs of humankind and the environment be met.