Creating better energy markets

Ensuring cheaper energy and availability for households

With gas bills going up our current system is failing. Families are being pushed into a situation where they have to choose between heating their homes or eating properly. We also continue to rely on fossil fuels which contribute to climate change and have increased in price substantially.

In order to prevent sharp increases in energy bills, we have cap on energy prices. This limits the amount energy companies can charge consumers and therefore it should protect them from sudden changes in the energy market. What we have seen recently is that this price cap may delay price increases but it doesn’t actually prevent them. Energy bills recently increased by 54% despite the cap being in place.

To support households through this the government ended up offering £350 to households in lower council tax bands. However, a large proportion of this will need to be repaid over the next five years by all energy consumers regardless of whether they benefitted from the reduction this year. Even this financial support is based on the unfair council tax system, something we discussed before during our event on a fairer property tax system.

Below are some ways we can create a fairer energy market:

Fairer financial support:

To begin with we should target financial support so it helps those who need it most. Any future financial support should be based on income rather than unfair council tax bands. More broadly we should look at replacing council tax with a Proportional Property Tax which would abolish council tax bands and would replace them with a single flat tax on the value of a property.

A new ownership structure for energy companies.

However, targeted support will only help people with energy costs in the short term, in the long term we need to change the way energy companies work. At the moment we have energy companies that make large profits but are then limited in how much they can sell the energy for due to the energy price cap. It’s meant that whilst ordinary people were struggling to pay energy the bills, BP made its largest profits for eight years.

The solution to this is to heavily regulate energy companies along with capping their profits. Any money over this cap would be used as a subsidy for renewable energy sources, to improve insulation in homes and for research into renewable energy sources.

This method of strictly regulated private ownership can also be used for other utilities and naturally occurring monopolies. For instance with railways we can cap the cost of train tickets as they do in Japan making increasing the cap dependent on how good the service the rail company provides is. It could also be used for water and sewerage companies with a cap on profits.

A Guaranteed Minimum income.

The government should also look at reforming the benefits system by introducing a Guaranteed Minimum Income that supports anyone out of work. It would automatically pay anyone earning below a certain amount of money and would gradually taper away at a rate much better than Universal Credit. This would support more people who are struggling to pay their energy bills and those who are more generally struggling to get by.

Energy independence.

Even with a change in how energy companies operate we also need to look at how our energy is generated. One of the big lessons from the recent energy price increases is that it shows why we need to move away from fossil fuels. For a start these energy sources damage the environment and contribute to climate change. This on its own threatens our planet and our economic stability.

The other reason for moving away from fossil fuels is the lack of competition in the current energy market. With most of the UK’s gas supplies coming from a few countries including Russia means we are very vulnerable to energy issues. With the conflict in Ukraine and economic sanctions these prices look set to increase even further.

Moving to renewables will therefore achieve two things. It will give us a reliable energy supply with more reliable prices and it will allow us to create a competitive energy market. We can also scrap the energy price cap instead focusing on making it easy to switch between suppliers.

About the author

Torrin Wilkins

Director and Founder

Torrin founded Centre in 2020. In the role has written numerous papers including one backed by the Gaps in Support APPG which contained 260 MPs. He has also written policies for political parties and appeared on a wide range of media including TV and radio. He has a Political Studies degree from Aberystwyth University.