Andy Burnham's Golden Chance to Fix Britain's Energy Market

Be bold and strike gold for Britain

Britain's energy market is broken. For years, successive governments have tinkered around the edges while working families and businesses have been failed. It's part casino capitalism, part state controlled. It's dysfunctional, unnecessarily complex and it does not work for Britain.

It doesn't have to be this way. A new Labour government under Andy Burnham has a golden opportunity to transform the engine room of our economy – to make our energy market affordable, fair and stable.

All in three bold moves.

The first is to introduce wholesale price control, finishing what the Tories started with their price cap – a bad job, half done.

The second is to extend price control to our North Sea. Giving the same protection that we give to green energy and making some sense of the arguments for new production.

The third and possibly most important is to break the link. The mad market mechanism that ties the price of cheap green energy to the international price of expensive fossil gas.

In combination these measures could slash our energy bills and boost our entire economy.

1. Take control of wholesale energy prices

One of the biggest failures in our energy market was controlling retail prices while leaving wholesale energy prices largely at the mercy of global markets.

The Conservatives introduced a retail price cap nearly seven years ago, supposedly to protect households from profiteering. It has done little to protect us and, crucially, nothing to control the wholesale price of electricity – the biggest component of most energy bills.

Labour has an opportunity to finish a bad job, half done by introducing wholesale price control. The mechanism already exists.

Contracts for Difference (CfDs) have successfully supported Britain's expansion of renewable energy, already covering a significant proportion of our generation fleet. Almost half operate under some form of CfD.

By extending the principle and bringing the rest of the energy generation fleet into a consistent system of price control, generators will receive a fair and predictable return while consumers are protected from the wild swings of the global fossil-fuel markets.

Much of our energy infrastructure has benefited from public support: legacy green energy has public backing; nuclear has public backing; and gas generators have received billions in public funding over the past decade.

There is nothing radical about asking for something in return.

Just as we expect "a fair day's pay for a fair day's work", we should introduce a new expectation into our economy of "a fair day's profit for a fair day's business".

2. Put our arms around the North Sea

Politicians have extracted more political opportunism than there is oil and gas left. It's time to end this incessant debate. Should we drill? What happens to jobs? What happens to energy security? What happens to net zero?

The debate goes round and round while the North Sea continues its decline. The basin is almost running on empty – that's a geological fact. But that doesn't mean we should abandon the industry and the people whose livelihoods depend upon it. There is another option.

Put our arms around the North Sea – and extend Contracts for Difference-style price control to its remaining oil and gas production.

That could stabilise the sector, protect jobs and investment, maximise recovery from fields that already have licences and potentially remove the need for a windfall tax.

Most importantly, it changes the economics of the argument. We constantly hear that new drilling will bring down energy bills. It won't – not while global markets set the price. Whether Britain produces another barrel of oil or another cubic metre of gas makes little difference to the price UK consumers will pay if they are still traded into a global market.

But introduce price control and immediately the argument changes. If we can produce some of the oil and gas we still need here, and sell it at a controlled price here, then there is an economic benefit to doing so.

It offers something to both sides of a debate that has become unnecessarily polarised. And perhaps, finally, it gives us a way to move on.

3. Break the link

And now we come to the biggest absurdity at the heart of our electricity market. Right now, we operate in a mad system where the priciest electricity needed to meet demand effectively sets the price for all electricity.

And that expensive source is nearly always fossil gas. The more renewable electricity we generate, the more obvious this absurdity becomes. We are building a world powered increasingly by green energy, yet we continue to price much of that electricity as if we were entirely dependent on gas.

Our modelling shows just how expensive this link has become. In 2023, Britain paid an estimated £43billion more for energy than it would have if this link had been broken - around £13billion extra for households and £30billion for businesses.

The consequences went far beyond energy bills. The additional costs fed inflation, pushed up interest rates and damaged growth.

It makes the whole country poorer. By breaking this link we can slash bills and be truly energy independent, not just making the energy we need here but pricing it here too.

These three reforms belong together. We cannot continue with a system designed for a different age.

A Labour government has the chance to build an energy market that puts Britain first: producing our energy here, pricing it here and making sure the benefits flow to the people and businesses that power the country.

We can change the economic fortunes of the country.