Dominic Alexander analyses the energy cost crisis and explains why the solutions cannot be found within the neoliberal free market model

The incoming Tory government, whatever its complexion, will be forced to make some kind of meaningful intervention in the cost-of-living crisis. Their reluctance is palpable, with the chancellor, Nadhim Zahawi, calling on people to cut down their energy use in the same breath as he admits that the next prime minister will have to do more to help.

Saying that energy consumption remains in the realm of “decisions for individuals” reveals a desperation to maintain a business-as-usual approach to the economy, where free markets are the unchallengeable, natural way of things. However, this crisis goes far beyond any feasible amounts of economising here and there, and shows that the market model for essential services cannot deliver.

Already in April 2022, energy bills had increased by over 50%. They will rise by 80% in October, and are projected to reach an average rate of £3,549 from last winter’s £1,277. For those on pre-payment meters, who are usually poorer to start with, the rise will be worse, to £3,608. Soaring energy rates will also affect schools, care homes, small shops and so on, none of whom benefit from the cap; their collapse could spark real social breakdown.

All this is before further rises next January are considered. The government’s existing £400 rebate spread over six months will not touch the sides of the desperate need these bills will create. Already, one estimate says that as many as seven million low-income households are having to cut out essentials such as heating, showers, and adequate clothing, or even sufficient food. 

According to the End Fuel Poverty Coalition, fuel poverty, where more than 10% of net income is spent on energy costs, will hit about 10.5 million households this year:

‘parents will be unable to feed their children, the sick and elderly will be condemned to worsening health, disabled people will go without vital medical equipment and households will be forced into poverty for the first time in generations.’

Another estimate is even starker, finding that by January 2023 as many as eighteen million households, over two thirds of those in the UK, will fall into fuel poverty. This will become more than just an energy crisis. With the NHS also in a desperate condition, people’s inability to afford both food and heating costs will create a public-health emergency where poverty will ‘exacerbate circulatory, respiratory and mental health problems across all age groups and drive health inequalities’. That is to say, people will die.

After over a decade of austerity and the decay of public services, there is just not any spare capacity in society and the economy to absorb this level of shock. The Tories know that they will not be immune to the tide of public anger this situation will create, and will be forced into taking some measures in response.

Their prime focus will, however, not be on relieving suffering as such, but on protecting profits and the viability of the private energy companies. Their measures will be designed to be minimal and temporary, just until a return to ‘normal’ market conditions can be justified.

The market is broken

Britain’s particular commitment to letting ‘free markets’ rule with impunity is part of the explanation for the Tories’ sluggish approach to the issue. While it is true that a major component of the crisis is the collapse of Russian exports of natural gas, prices were already rising before the war began, so there is an underlying issue as well.

It is also the case that gas supplies are not very elastic, with Germany, for example, having to lease four temporary floating storage and regasification platforms for receiving liquid natural gas from non-Russian suppliers. Nevertheless, that has been possible, and, together with coal and nuclear sources, unpalatable as they are environmentally, should enable Germany to avoid an absolute shortage of energy in the short-term. More long-term plans to increase renewable capacity offer the better way out.

Since Germany is far more exposed than Britain to the supply shock from Russian gas, its extensive measures, although largely neoliberal in form, seem to be much more effectively proactive in shielding its population than is the case here.

It is, however, the nature of the market economy which lies behind the acuteness of the world shortage of gas right now. In May 2020, gas prices had in fact reached an all-time low, and after a decade of low prices, investment decisions by producers have led to supply bottlenecks appearing as demand rises, causing a good deal of the worldwide inflation problem. In Britain, with its own supplies of natural gas, energy companies are nevertheless benefiting from high global prices, and their profits have soared. From a national energy-security perspective, this makes no sense.

Far from the capitalist free market providing, through those hallowed laws of supply and demand, the engines of growth, their dynamics have created the underlying problem. Cost-cutting, poor investment in storage capacity, and failures in long-term planning for alternative energy sources (such as renewables) have all created immense vulnerabilities in national economies. The withdrawal of Russian gas exports has ignited the crisis, but wiser economic planning would have enabled economies like Britain’s, or indeed Germany’s, to show more resilience.

Solutions beyond the market

The suggested solutions to the crisis are many and varied. In some quarters, both here and elsewhere, there is an enthusiasm for telling consumers that they must cut back on energy use. This entirely fails to respond to the scale of the issues involved. The minor rebate and windfall tax the Tory government has come up with so far are widely accepted to be inadequate.

The French government, otherwise devotedly neoliberal in outlook, has nationalised its energy company, and is willing to spend the necessary money to hold bills down. As it stands, this is still a limited measure that is designed as much to protect French capitalism from crisis, as done out of concern for social discontent. It is not, in fact, out of character for states to take control of infrastructure directly for the benefit of capitalism; it was the US government that built that country’s railways in the nineteenth century, after all.

The Resolution Foundation makes some suggestions for an immediate solution, including various rebates and tax rises, but argues that nationalisation is irrelevant as it wouldn’t affect prices. This is nonsense, of course, since nationalisation of all energy suppliers in the UK means that profits wouldn’t have to go to shareholders, and the cost of North Sea gas wouldn’t have to be tethered to world prices.

Complex combinations of targeted help, price freezes and temporary windfalls are really distractions. The state needs to take control of the industry so that it can control and plan the use and development of resources. It needs to cap prices universally, and raise corporation tax and income tax on the higher bands (how about a 60% rate on incomes over £100,000?) as much as necessary in order to pay for the required energy imports.

The cost of all this might be higher than taxation of wealth can generate, but the state will have to pay out large sums anyway, and the pandemic has shown it is capable of this. Equally, the money for wars has always been there, and as of 15 August, the government has spent £2.3 billion on arms to Ukraine. Instead of this funding of death and suffering, the world needs a genuine push for a ceasefire and a peace deal.

The crisis needs to wipe away the illusory assumption that markets are like natural forces that can only be endured. Planning is possible, and indeed necessary, because markets will fail. The long-term solution to the present crisis is, of course, to build a renewable energy infrastructure, but note that even if our present renewable capacity was much larger than it now is, we would still be paying high energy bills if we allowed it to remain embedded in the market system. Currently, the cost of privately produced renewable energy has gone up just like North Sea gas, responding to market conditions.

This is why we need to take the whole energy infrastructure out of the market entirely. Nationalisation is the answer to the crisis in the short-term, as it would enable the state to control prices directly while managing supply, but it is a long-term necessity also. The crisis is one more catastrophic failure of capitalism to meet basic needs, and yet another argument for a system of democratic planning that can respond rationally to humanity’s and the planet’s needs.