Public Ownership of Energy Companies

Alan Whitehead Excerpts

Monday 31st October 2022 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Thank you, Mrs Murray.

Before we go any further in this debate, we ought to be clear about what the petition is calling for. I congratulate the petitioners on bringing forward the petition, which has received over 100,000 signatures, 500-plus of which are from my city of Southampton. I congratulate the petitioners on bringing it forward because it really underlines just what a dreadful state we are in at the moment with our energy provision and energy markets. I take the petition to mean that the Government should effectively expropriate all generation, all transmission, all distribution and all retail energy; place it, with compensation, in the public sphere; and then run a fully nationalised energy system, as was the case 30 to 40 years ago, before the privatisation experiment came into being.

I can see why many people consider that that is the brief solution to the awful mess that we are in the moment. They see that they are paying sky-high energy bills and that, at the same time, a number of energy companies are making sky-high profits not from their ingenuity in suddenly developing new ways of delivering energy, but from doing what they have always done: supply gas to the UK market for the production of power, for which retail customers are paying sky-high prices.

Those customers scratch their heads about why that has happened: “How is it that we are paying absolutely out-of-the-window high energy prices while companies are making such enormous windfall profits?” They scratch their heads when the Government spend such a long time deciding whether to alleviate some of the problems caused by those sky-high bills by introducing any form of windfall levy on those companies, and when the Government put an enormous loophole in the windfall tax so that the companies get back most of what they would have paid in windfall tax if they are, so they say, in a position to undertake further gas and oil exploration. The grotesque result is that Shell has not—

[Mrs Sheryll Murray (in the Chair)]

Order. I remind the hon. Gentleman that he should address the Chair.

[Dr Whitehead]

I apologise, Mrs Murray—I will face the right way from now on.

The grotesque result is that Shell has stated that it has not actually paid any windfall levy because it has got it all back through that loophole. Customers see that the regulation of the system is so dreadful that they are paying enormously high prices for their power as if all of it came from gas, even though half of it now comes from much cheaper renewables. That is because the market is regulated in such a way that the marginal cost of gas provides the whole of the price for the market, and it is a substantial part of the reason why prices are so high. In short, customers have seen for themselves a thoroughly broken energy system in operation. They have perhaps concluded that the privatised norm of the last 30 years has failed, and that placing energy back in state hands is the relatively straightforward answer.

What a delight it is to see so many Conservative Members in the Chamber to support their Government’s response, which states:

“The Government does not agree that nationalisation of energy assets is the right approach. Properly regulated markets provide the best outcome for consumers as a driver of efficiency and innovation.”

Wouldn’t it be nice if proper regulation did drive energy efficiency and innovation? We know that it simply does not; the failure of proper regulation is at the heart of the many problems in our energy markets. We also know that the Government themselves have recently resorted to measures that might be compared to nationalisation.

As my hon. Friend the Member for Wirral West (Margaret Greenwood) said, Bulb—the seventh largest retail energy company in the country—went bust a little while ago, along with 40 other retail energy companies. Bulb, however, was regarded as too large to fail and was effectively nationalised by Government. It was put into special administration and has sat there for quite a while, at a cost to taxpayers of about £3.5 billion. It has just been sold for scrap, as it were, with its customers being transferred to Octopus Energy for, we think, several hundred million pounds—far less than the amount that taxpayers put in as a result of the Government’s reaction to appallingly bad regulation. Does the Minister have further information on exactly how much Octopus paid for the remains of Bulb, so that we can get an accurate grip on how much money has been retrieved from that episode?

An energy Bill that was recently mysteriously withdrawn by the Government proposed that the operator of the national transmission system be fully detached from National Grid and placed in the public sector. That means that it would no longer be a part of National Grid, even at a distance. As set out in the Bill, the future system operator would have full power to plan the system, commission investments in it, and run and balance the system overall as a public sector organisation. However, as I say, that Bill has mysteriously disappeared, but I would be interested to know whether the Minister continues to support the idea that the future system operator be a company in the public sector, not the private sector. I would also be interested to hear when that energy Bill will return to Parliament, if at all. It contains a great deal of things that could lead to better regulation of the energy system, which is exactly what the Government are saying is the alternative to nationalising it.

Although it is true that part of the answer to the problems we face in the energy system at the moment is proper regulation—and the Government have an enormous amount of work to do get it properly regulated—we also have to give careful consideration to where our energy system is going now, because it will not be successful in reaching its targets, particularly in the low carbon context, if we simply continue the privatisation experiment of the past 30 years. Of course, the energy system is changing before our eyes. All the old considerations about 80 or so power stations providing power for the grid and then to customers through retail sales are effectively disappearing. We now have about 1.5 million inputs that are owned by all sorts of different people. Indeed, some of that input is from companies and bodies that are not in the private sector, but are community owned or locally owned. There are all sorts of generators providing a different form of input to the grid.

Of course, the grid itself is changing rapidly. National Grid Electricity System Operator, the forerunner of the future system operator set out in the energy Bill, considered in a recent holistic design plan that accommodating the new way in which the energy system is going to work, and making sure that it works well in future, would require a huge recalibration of the grid system, both onshore and offshore, at the probable cost of about £62 billion. An enormous amount of investment is needed to make the future energy system secure, and to get the green and low-carbon generators into it for the future. We will not sort that out by just hoping that somehow the market will come to the rescue and provide all the investment for the future based on our current regulation and system. My hon. Friends the Members for Wirral West, for Leeds East (Richard Burgon) and for Ilford South (Sam Tarry) both pointed to how that needs to be done. Perhaps we should not have to rely on the private sector to come to the rescue and sort out the future system.

The Labour party wants a Great British energy company —a publicly owned company at the heart of investment and driving forward, planning and managing that new energy system. As my hon. Friends have pointed out, that company would stand alongside companies elsewhere in Europe that have already started that energy revolution with investments not just in their own countries but on an international scale. Companies such as Vattenfall in Sweden, which owns the largest onshore wind farm in the UK, Ørsted in Denmark, Equinor in Norway and a number of others across Europe are making investments in the future system and, moreover, keeping the equity in those investments for the people of the countries on whose behalf they are working. Either individually or in partnership with the private sector, they are turning over those investments for those people, and keeping their equity in them.

In this country, as members of the public and customers we are spending enormous amounts of money each year on providing energy transmission and distribution companies with the means to invest in the grid system—the assets of which stay with those companies, even though we the public have paid for those assets. That is also the proposal for the new nuclear programme—we pay the money, they get the asset—but a Great British energy company would put a stop to all that. The assets would stay with the public and the money would come back to the public purse. That is the right approach. Our investment ought to go towards producing our future energy system.

I reject the Government’s idea that this will all happen via better regulation—though it would be nice if that did happen—and the operation of the market. We need to be much smarter than that. I do not agree that we should nationalise the energy system as it stands. Among other things, if a lot of the junk and clapped out stuff in the energy market were nationalised, the people who own those stranded assets would be delighted to have them put out to grass and taken off their hands as the energy system changes, so that they could run off with the compensation money.

We have to think smartly about the future of our systems. They will certainly not be funded, run or sorted out on the basis of the failed privatisation experiment of the last 30 years.

--- Later in debate ---

[George Freeman]

No, I am going to make some progress. Since privatisation, the UK’s energy sector has attracted around £20 billion a year of private capital investment into our energy infrastructure. That money would otherwise have had to come from higher taxes or additional borrowing. Those are policies that the Opposition may prefer, but we prefer to secure private capital to secure those public goods.

The cost of transporting a unit of electricity has fallen by 17% since the 1990s, while investment has increased. Energy efficiency has gone up. Reliability has increased. Customer service has improved—though it is still not perfect. The number of power cuts has almost halved. These are the real lived experiences of people over the last 30 or 40 years of privatisation. Finally, current market arrangements have allowed for massive decarbonisation of our energy system, with dramatic drops in the cost of renewables.

It is worth making the point that between 1990 and 2019, we grew the UK economy by 76%, and we cut our emissions by over 44%, decarbonising faster than any other G7 country. That is an extraordinary achievement, secured by the private sector working in partnership with Government. There is more. In the last 15 years, not only have we led the way in decarbonisation; we have also led the way in many of the specific areas of clean energy. We have put it at the heart of the UK’s commitment to reduce emissions as we expand our economy.

Personally, having arrived here following the 2010 election, I would have liked to have seen the coalition and the Lib Dem-run Department of Energy and Climate Change take the opportunity of a “buy one, get five free” nuclear deal and double and modernise our nuclear capacity. The Lib Dems were religious in opposition to anything nuclear—a position seemingly mirrored by the SNP—but they also thought it would take too long to come on stream. I have news for listeners. It would have been on stream now. We would have had a high-quality, green, resilient supply of nuclear energy for one more generation, guaranteeing clean and green resilience, and many jobs in Scotland, and we would have been able to use this period to invest in the range of renewables that hon. Members have hardly mentioned. I will come to those in a minute.

Nobody can look back and say that this was all easy. A lot of mistakes have been made, but the truth is that our net zero strategy is the most comprehensive of its kind. The British energy security strategy sets out extra ambitions to those we set out in 2010. It is on track to secure 480,000 well-paid jobs by the end of the 2030s, unlocking £100 billion in private investment by 2030 and mobilising £30 billion of Government investment. That is not the free market with no support from Government. It is a massive programme of Government in partnership with the private sector, and that is why we have driven down emissions at the fastest rate in the G7.

[Dr Whitehead]

Does the Minister agree that, as has been suggested in this debate, quite a lot of the investment that has been achieved for future energy—indeed, it is coming in now—is from companies representative of other states in Europe putting forward that investment, so we could say that he would be happy to have publicly owned investment in this country, provided it is not from the UK? Is that the right conclusion to come to?

[George Freeman]

I am not totally sure I understand the question. The point is that we live in a modern global economy. I do not think anyone other than political dinosaurs would think we can ring-fence all investment to only one country. We live in a global economy, and that is all to the good. This country benefits hugely from that investment. A huge risk of the proposed renationalisation is that, internationally, it would destroy investors’ confidence in the UK, and that is something we have to think seriously about. We do not have a right to attract international investment. We need to be competitive, and this debate has lacked that point.

We are a world leader in offshore wind, with an ambition to deliver up to 50 GW of offshore wind power by 2030, including 5 GW of floating wind. That is something to be proud of. In my part of the world in East Anglia, the southern North sea is rapidly becoming the Saudi Arabia of wind energy. With proper interconnected offshore grid connectors, we will be able to use off-peak energy to generate green hydrogen. That is an exciting development and it has all been provided by the market—not the free and untrammelled market of the profiteering stereotype, but businesses investing in partnership with Government.

We continue to break records in renewable energy, which has more than quadrupled since 2010, with low-carbon electricity overall now giving us more than 50% of our total generation. It would have been nice to hear Members at least pay tribute to that achievement, rather than attack the profiteering businesses that have been at the frontline of delivering it.

We have installed 90% of our solar capacity in this country since 2010, which is enough for 3 million homes. That has happened—

[George Freeman]

No, I am going to make some progress.

That capacity has happened by harnessing the power of the market. I do not think anyone would suggest we have had an untrammelled free market. I am not here to make that case; others may. It has been a partnership of the private and public sector. That is why the Government continue to believe in properly regulated markets.

I have written and spoken widely about the opportunity Brexit gives us to set our own regulatory standards—not in a race to the bottom, but in a race to the top—and to set the standards in the smart grid, in digital energy and in new forms of energy. There is a huge opportunity for us to use that freedom to incentivise private capital to invest in the energy system, provide the best outcomes for consumers, and promote market competition as the drivers of efficiency, innovation and value.

My party believes profoundly that private ownership of energy assets, properly regulated, improves performance and reliability, and offers consumers greater choice and higher standards of products and services. No market is perfect. There are always pay-offs and balances, but it is very difficult to see how nationalisation would work, particularly as it has been set out this afternoon, with no detail, vague assumptions that there will be lots of money, which would come in the end only from taxation or borrowing, and very little understanding of how it would be done. Anyone listening to this debate has not heard a serious proposal for how nationalisation would happen. They have simply heard a ragtag of arguments against the private sector and against business.

The argument becomes even more important when we look at the global market and the international energy market in which we find ourselves. These days, no energy market exists in isolation. We do not exist in a vacuum. The pandemic and the war in Ukraine have revealed painfully the interdependence of our global energy supplies. We are not in a position where we can unilaterally declare independence from the global markets. Any renationalised energy company would still have to buy its gas on the global market at the same price—there is no way round that. But it does heighten the urgency of reducing our dependency on foreign actors, hostile states and those who might use their energy power to exercise geopolitical influence on us.

We are absolutely committed, as we have set out, to diversifying our energy supply and resilience. We understand that sky-high global energy prices, caused by Russia’s appalling invasion of Ukraine, are having real consequences for consumer bills across the country, exacerbating the consequences of the pandemic shutdown of the global economy and its refiring up and opening, which has driven inflation into the system. European gas prices soared by more than 200% last year, and coal prices by more than 100%, leading to an inevitable increase in the cost of energy, which drives the cost of living across our economy.

That is why, through our British energy security strategy, we are absolutely committed to—and are already implementing—support for diverse sources of home-grown energy to provide greater energy security in the longer term. Let me unpack that: we have set out, first, a comprehensive long-term plan, just as today’s motion calls for, to 2050 for our energy system in 2020’s 10-point plan for a green industrial revolution and the energy White Paper. It needed doing and it has been done. Secondly, the British energy security strategy, published in April this year, charts a pathway to reducing our vulnerability to international energy prices by reducing our dependence on imported oil and gas.

We will achieve our ambitions by accelerating the deployment of wind, solar and new nuclear energy, supercharging our production of low-carbon hydrogen, and within my portfolio supporting next-generation energy sources including fusion and small modular nuclear. We will support North sea oil and gas in the near term for security of supply, and the important work that is being done in Scotland, particularly on the North sea transition, to turn that infrastructure into the infrastructure for clean, green energy.

Thirdly, we will ensure a more flexible and efficient system for both generators and users, undertaking our comprehensive view of electricity market arrangements to ensure that consumers fully benefit from the next phase of our energy transformation. That is why we have committed to publishing, with Ofgem, a strategic framework this year on how networks will deliver net zero. Fourthly, not only are we thinking about reforming energy supply, but we have an ambitious programme of energy efficiency measures to lower demand, and to bring down bills and emissions.

Nationalisation, however, will not solve or help to tackle those challenges, for a number of reasons. First, as I have said, nationalised energy companies would still have to buy gas on the international markets. There is no price reduction that comes with being nationalised. Secondly, if a Labour Government, or perhaps more likely a Labour-SNP-Lib Dem coalition, who were committed to renationalisation came into office, their measures would mean that the British taxpayer would have to compensate directors, shareholders and creditors to the tune of tens of billions of pounds—money that would otherwise be spent on schools, hospitals and public services. Thirdly, the sort of nationalisation that has been talked about blithely but not explained would hugely damage our ability to attract the international investment that I have set out, which is key to delivering net zero.

[Dr Whitehead]

The Minister is either not hearing what is being said by the Opposition, or he is going out of his way to put it in an entirely different light. Neither the Scottish nationalists nor the Opposition have said that we want to renationalise the whole energy industry; we have said that different ways of working from the complete market fetishism that has been going on would be much better for attracting investment from the private sector. A reliable partner in Government could, among other things, bring the cost of capital down. That is very different from what he is talking about.

[George Freeman]

It is. It is also different, as the record will show, from what Opposition Members said. For an hour, I listened to a reheated hash of the same old anti-capitalist, anti-business, easy—

--- Later in debate ---

[Dr Whitehead]

Did you?

[George Freeman]

Yes, I did, and the record will show it. Those interested in how we might build a modern energy economy will observe that there was very little detail on how nationalisation will be done. Very little was said about innovation, new sectors, or how we create exciting areas of innovation, use the smart grid, create a network of incentives, penalties, rewards and points, and empower consumers. There was none of that. It was a litany of the same old Labour and SNP anti-business, anti-capitalist talk of profiteering companies. Those are, by the way, the same companies that pay dividends into the pension funds of our constituents—and probably the trade union barons who are lobbying for this nationalisation. It is old-fashioned economics that has been proven not to work. I was hoping to come this afternoon and hear—

--- Later in debate ---

[George Freeman]

The hon. Lady makes an important point about the particular circumstances of those people on prepayment meters and those who are most prone to energy poverty and vulnerability. Again, I am not the energy Minister so, with permission, I will allow the Minister for Climate, my right hon. Friend the Member for Beverley and Holderness, to follow up that point with her.

This is a long journey. It is one that we, as a country, started on a little late, but we have led the world in moving at pace, and that is a tribute to all the parties involved, to be fair. The last Labour Government before 2010 began some important measures; we in the coalition took things forward; and the Conservative Governments have pursued things at pace since. I believe that we are on the road to success and I have no doubt that consumers will be at the heart of Government policy every step of the way.

Right now, that means we are focused on doing all we can to support consumers through the very difficult winter ahead, but nationalisation is not the right solution. I will just say that it has been rather extraordinary for me this afternoon to see how strongly the old anti-capitalist politics of the hard left have been shown to continue to thrive in the Labour party and the Scottish National party. We have heard aeons about anti-business millionaires and profiteering, and there has been no talk about companies generating the profits that drive dividends that supply pensioners with revenue, or public sector workers with their pensions, or, for that matter, the trade unions with their pensions.

We have heard nothing serious from the SNP about how it would pay for independence, which has traditionally been based—on its own assumptions—on the revenues from oil and gas. The SNP is anti-nuclear—it appears to be anti-everything that will score a point—but there is no serious and costed plan for how Scotland could be in the vanguard of the new energy economy. The Liberal Democrats, who are not present here today in Westminster Hall, have described Labour’s policy of nationalisation as “pointless and costly”.

[Dr Whitehead]

We have not got a policy of nationalisation. The Minister is not telling the truth.

[Mrs Sheryll Murray (in the Chair)]

Order.

[Dr Whitehead]

Sorry—I am getting very annoyed about this.

[George Freeman]

Thank you, Mrs Murray.

We have heard nothing today about the really exciting opportunities in our energy sector: the new renewables, including those in marine, tidal, geothermal, hydrogen and fusion, that this Government and I, as Minister with responsibility for research, are supporting. There are also opportunities for the UK’s cleantech sector—the small and large companies that are in the frontline of developing global solutions for new energy. We have heard nothing about the smart grid, the importance of incentives or the digitalisation of the grid to create a micro-market and bring net zero down to the ground in different communities. We have heard very little about energy use. We have heard a lot about generation, but very little about how transport and agriculture—the two big industries on the frontline of energy usage—are making huge strides in decreasing their reliance on energy. Instead, we have heard quite a lot of the old dogma of decline.

To be honest, I think that explains why there are so few colleagues from other parties here this afternoon; most of them are more interested in trying to develop practical solutions. I honestly think that the 100,000 people who petitioned for a proper debate about long-term energy strategy deserve something slightly better than we have heard today, and the Government are determined to provide it.