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Political Silly Season in the UK

Posted in Retail,UK by Cheryl Morgan on the September 22nd, 2008

Party conferences are always a time for posturing and staking out of positions. Thus far the Labour Party has refrained from requiring Gordon Brown to fall on his sword, but with opinion polls predicting an electoral disaster of unprecedented proportions there is plenty of rushing around looking for policy positions that might revive the party’s flagging popularity.

Business Secretary, John Hutton, being in the hot seat and unable to say anything too silly, is holding out for a common sense solution. He warned the party that, regardless of what Greenpeace, juries and NIMBYs might say, coal and nuclear power are essential to the UK’s energy security:

No coal plus no nuclear equals no lights. No power. No future.

But elsewhere free thinking was in full flow. Brown and his Chancellor, Alistair Darling, have been stoutly refusing calls for a windfall tax on energy companies. However, outside of the Cabinet, there have been calls not just for increased taxation, but for nationalization. Former minister Michael Meacher said:

Is this government on the side of big business or is it on the side of the fuel poor? If privatisation of energy is going to lead to this massive exploitation and stuff the consumer, then, yes, we should be thinking again about having a public sector role in our energy sector.

While Tony Woodley, joint general secretary of the UK’s largest union, Unite, went even further:

If they [the power companies] still don’t get the message, this government should consider taking these essential industries – gas, electricity, water – back under public ownership.

Is that likely? Well, state ownership doesn’t appear to be much of a problem for Mr. Bush, so why not? Also the UK is bitterly regretting its initial enthusiasm for privatization, which saw its energy companies split up into small units that were later gobbled up by “national champions” from around Europe. There is also an argument that, as far as residential consumers go, retail competition has been a dismal failure. Householders are simply not interested in switching suppliers, at least not for the small savings possible in a market where all of the choices are seen as equally horrible and new entry is pretty much impossible. On the other hand, this is no longer a question of bullying UK companies. To re-nationalize energy supply the British government would have to buy out companies based in France, Germany and Spain. Questions, I suspect, would be asked in Brussels.

What is more likely is that the government will pressure Ofgem to place limits on the size of retail price rises. Supply companies will then need to manage their future cash flows rather more carefully (something that will put a damper on what little competition exists). France apparently already has such a system, so there is reasonable precedent.

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