Shock value: Will Labour’s plans to hold down electricity bills work?

Ukraine. Iran. Over just six years, two seismic conflicts have created global energy crises, sending utility bills skyrocketing. The UK’s energy prices are now notoriously high, particularly for industry, but also for households, contributing to the cost-of-living crisis plaguing our society. The UK managed the 2022 price spike with £35bn of government bailouts for households. This time, the Chancellor, Rachel Reeves, has rightly ruled this out, saying it disproportionately benefited the better off.

With changing who pays the bills off the table, the alternative is to tackle the problem at the roots: by changing pricing. Currently, the UK uses around two-thirds of cheap, low-carbon energy from renewables and nuclear, particularly wind. On some days, the entire UK grid can be powered by clean energy. But energy prices aren’t directly set by what we use. In fact, nearly half our renewables – that’s a third of our energy supply – are paid for at wholesale prices, which in turn are often dictated by globally set (expensive) gas energy prices. Much of the rest of our energy is on long-term, fixed cost contracts, but for a third of it, we’re significantly overpaying compared to the cost of generation.

There is reason to be sceptical

So what’s the new plan? Ed Miliband says he’s “doubling down on the clean energy mission”. The government says many contracts enabling wholesale energy trading of renewables will be replaced with longer-term contracts, reducing how much of what we pay is set by gas. Additionally, the tax on excess profits from these, the ‘Windfall Tax’ or Electricity Generator Levy, introduced in 2022, is now permanent, and rising from 45% to 55%. More government action is also coming, with £9k grants to households for boiler replacements, £1.2bn for social housing insulation, and plans to optimise creaking energy infrastructure, which is a major cost centre and bottleneck. The government has also authorised ‘plug-in solar’. This summer, consumers will be able to purchase panels from retailers, install them themselves, and benefit from solar energy, no wiring required.

However, there is reason to be sceptical. The change to new contracts is “voluntary” – so it relies on renewables producers, who have benefited from the current state, taking them up. This is expecting turkeys to vote for Christmas. True, they may be facing a higher tax rate. But despite talk of “break[ing] influence of gas on electricity prices”, that’s not what’s really happening. If this were the aim, the model suggested by energy tycoon Dale Vince, where companies pay exactly what they bid to supply energy, would be the path to follow. This would cut out profit margins originating from margin fluctuations that are essentially ‘dumb luck’, saving each household around £356 for 2025 on average, and focusing competition squarely on the price of generation. Vince’s campaign, incidentally, is called “Breaking the Link”. A cynic might even suggest the government has tried to bury his proposals by aping his rhetoric, without taking on his proposals’ substance.

The Iran war has merely brought confrontation over energy policy to the fore again – and the answer is still the same

Some institutions and economists have suggested that Britain’s key problem is price, not carbon emissions, and that a change in focus is required. And while it’s true that lowering costs is also central to reducing carbon emissions – because heat pumps, EVs, and other clean tech rely on low electricity prices to ensure adoption, it creates a false dichotomy. The Tories and Reform have both suggested re-opening new licences for the North Sea basin to “unleash” oil production, with the implication that this would lower energy prices. Beyond their environmental criminality, they’re also economically illiterate. North Sea oil is in a “mature” basin: one where extracting new oil is viable only at eye-wateringly high prices. Secondly, there isn’t enough there to push the dial on global energy prices: the only way that British fossil could assist price drops would be state ownership. And finally, any such action would take between 5 and 10 years. This approach would leave us without any real answers for short-term price pressures. It’s a policy direction pushed by the big-oil-bankrolled Tony Blair Institute, and serves to do nothing but fuel Reform and Tory talking points.

The Iran war has merely brought confrontation over energy policy to the fore again – and the answer is still the same. Green energy remains cheaper per kw/h than fossil fuels. While storage technology is still developing, we will have to use fossil fuels to shield against the intermittency issue – but there is no sense in extolling the virtues of green energy if consumers are still paying fossil prices for clean generation. The Energy Secretary’s ambitions are in the right place. To cut costs and carbon, prices need to come closer to the cost of generation, and the rule of rip-off wholesale prices on energy markets must end. Profits that have no relationship with productive contribution are trickle-up economics, a useless burden on consumers and the economy. Fixing energy prices is more urgent than ever: we can only hope Labour gets bolder.