Broken Energy Market: The £43bn Drag on Britain's Economy

We need to reform our energy market, it’s out of date and out of purpose.

Before privatisation it served the nation, now it serves a handful of large companies, mostly foreign owned, too often based in tax havens.

We need to restore the public service ethos and with it rebalance the flows of money.

We’re paying far more for our energy than we need to and our analysis shows the wider economic impact of that – it’s making us poorer as a nation and making our lives harder. We need an energy market that works for the many….

There are three big but simple changes we could make.

The first is to ‘Break the Link’ – the pointless link between the price of gas and the price of electricity made from our own wind and sun.

This cost us dearly in the recent energy crisis which wasn’t our first and won’t be our last – breaking the link will ensure we never have another one.

In the last five years breaking the link could have saved us nearly £9 billion a year and a grand total of £43.5 billion. Ker-Ching!

The second is to ‘Protect the North Sea’ – using a tried and tested green energy mechanism to fix prices and protect jobs and investments as our North Sea fossil fuel industry completes its decline (which started in 1999).

Over the last five years this could have knocked almost £10 billion a year from our bills on average and a grand total of £48.5 billion. Ker-Ching!

The third is to ‘Control the Networks’ – the almost completely foreign owned networks of pipes and cables that deliver energy from the national grid to our homes and businesses.

These regulated total monopolies need to be reined in with proper regulation – they are all regulated, but still they make 40% profit margins and ship tens of billions abroad and out of our economy every year – while failing to invest enough in our networks. And raising bills at every opportunity.

Over the last five years this could have knocked approaching £5 billion a year off our energy bills or £25 billion in total. Ker-Ching!

That’s three things we can do to reform our energy market, between them offering savings of almost £25 billion in a year and a whopping £120 billion over the last five years. These are serious sums of money that we could have – in our pockets and in our economy.

The wider economic impact we modelled, just from breaking the link – would be three times bigger if we do all three things. And there would be no fiscal ‘black hole’. Ker-Ching!

Beyond energy bills

We wanted to look beyond energy bills – to understand the bigger picture – what happens if we fix Britain’s broken energy system?

So, the Green Britain Foundation asked the National Institute of Economic and Social Research to model the wider impact of just one of our three proposed market reforms – which I’ve dubbed Breaking the Link – the link that makes the price of green energy the same as the global price of fossil gas.

The results were profound. In 2023 Breaking the Link would have knocked £43 billion off our national energy bill – saving £30 billion for businesses and £13 billion for households. That’s the starting place.

We asked NIESR to model the knock on impacts of this £43 billion saving – on the wider economy. What they found was profound:

• Inflation would have been 1.5 percentage points lower.

• Interest rates would have been 0.7% lower.

• Growth would have been 0.5 percent points higher.

• GDP would have been 1.1% higher by 2025 — a £36 billion boost to the economy.

• And we’d all have nearly 300 quid more in our pockets, each year till 2025.

This is a new perspective. Our dysfunctional energy market doesn’t just make us pay more for our energy than we need to, it drives inflation up, the cost of borrowing up, pay bargaining and the cost of doing business up – our entire cost of living – up.

And it drives poverty up – breaking the link could have lifted one million Britons out of poverty in 2023.

This is great economic and social harm – our lives made harder than they need to be, our economy weaker. If you look at global gas prices on a graph over time, it has the shape of a rollercoaster. We can jump off this rollercoaster and protect ourselves from energy price volatility, permanently – if we break this senseless link.