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John Constable: Labour’s Energy Nationalisation Plans

Dr John Constable: GWPF Energy Editor

Jeremy Corbyn, the leader of Britain’s Labour Party, has set out his vision for nationalising the UK energy sector. Rather than returning to Attlee’s centrally controlled system he seems determined to steer energy provision, particularly the electricity industry, back towards a form of distributed generation and Municipal Trading that would in practice be an even more complex and intrusive form of administration than that undertaken during the post-war era. This is a hazardous undertaking.

In his closing speech to a Labour Party conference on Alternative Models of Ownership (10.02.18), Jeremy Corbyn renewed his commitment to bring “energy, rail, water and mail” into public ownership. In doing so he explicitly rejected the view that this was a “return to the 20th century model of nationalisation”, and insisted that, on the contrary, his plans were a “a catapult into 21st century public ownership.”

The proposals are certainly unlike the Attlee nationalisations, but, on the other hand, they certainly aren’t novel in character; for on closer examination the nature of public ownership proposed turns out to have a close resemblance to the enthusiasm for Municipal Trading in the late Victorian and Edwardian periods.

The fundamental justification for taking what Mr Corbyn describes as “vital public services” back into public ownership is simple: “where there are natural monopolies, markets fail”. Some will wonder whether “energy, rail, water, and mail” are unquestionably both “public services” and “natural monopolies”. The carriage of letters and parcels never was so, and telecommunications, which haven’t been associated with mail for some decades, ceased to be a natural monopoly with the advent of wireless transmission. Rail other hand, seems a clearer case, but whether it is a “vital public service”, rather than a valuable private one, is at least questionable.

For many people, however, energy and water fall more straightforwardly into Mr Corbyn’s categories, and some will agree, forgetting damaging state coercions, that both are sectors where markets have certainly failed. Indeed, Mr Corbyn, rather predictably, supports his views on energy by referring to Lord Stern’s opinion that climate change is the “the greatest market failure the world has seen”.

Claiming a similarity with Attlee’s post-war reconstruction through “collective action”, Mr Corbyn expresses his view that the effort to “avert climate catastrophe requires us to be at least as radical.” But the concrete proposals offered, in the energy sector at least, do not resemble those of the Attlee governments. There is no suggestion of resuming state ownership of the coal industry, for example, perhaps because miners are no longer a significant part of the Labour movement. Instead, it appears to be Mr Corbyn’s ambition to replace coal with a state owned, high employing, low labour productivity, renewable energy sector that will be equally politically powerful.

Mr Corbyn is well aware that renewables require state support, and indeed lambasts the present government for its moratorium on new subsidies for them. This might seem inconsistent with his attack elsewhere in the speech on “corporate featherbedding” at the consumer’s expense, but it rapidly becomes apparent that Mr Corbyn believes this circle can be squared by public ownership of renewable energy generation assets. Of course, from the consumer’s point of view nothing would change. A rigged system run for the benefit for the renewables investors would now be run for the benefit of its employees.

This muddle is hardly surprising since Mr Corbyn is very confused about subsidies in general. He reproves the present government for “massively subsidising” fossil fuels. No details are given, so we can only speculate as to the grounds here, but it seems likely that Mr Corbyn’s researchers are thinking of the findings of the Overseas Development Institute (ODI), discussed in this blog last year (Subsidies to Fossil Fuels). In summary, the ODI absurdly claimed subsidies of about $6.5bn to fossil fuels in the UK in 2013 and 2014. The figure in fact consists of $1bn of tax relief, mostly for the decommissioning of oil rigs, and $5.5 bn of public finance for overseas development of fossil fuel related projects, in other words development aid to extend energy access to the world’s poor. Neither of these are subsidies.

Mr Corbyn would, perhaps, cite tax expenditures relating to 5% not 20% VAT on domestic energy, but these are consumer subsidies at the expense of taxpayers. In other words, they are subsidies of the kind of which he presumably broadly approves in, for example, Venezuela. Of course, lower consumption taxes are also, technically, a subsidy to the energy industry, since they make energy more attractive as a purchase compared to other goods or services. Even so, it seems very unlikely that a Corbyn government, however purist, would remove this “subsidy” by applying the full 20% VAT rate on domestic electricity and gas bills.

It is also just possible that Mr Corbyn was thinking about the uncertain, and endlessly debatable, externalities of fossil fuels, but if so it is strange that he did not explain that fact, justifying, for example, his preferred value for the Social Cost of Carbon, which would have to be high to support his view.

There is, then, really no strong ground at all for claiming that fossil fuels are “massively subsidised” in the United Kingdom. Indeed, by comparison with other countries subsidies to fossil fuel producers in the UK are almost non-existent.

This careless attitude towards the facts is confirmed in Mr Corbyn’s headline commitments, which restate his earlier manifesto promises

to ban fracking, insulate four million homes, invest in rail and bus networks to reduce traffic on our roads, invest in tidal and wind, and deliver 60% of our energy from renewable sources by 2030.

Putting aside the gesture politics, the promise to provide 60% of the UK’s energy from renewables by 2030 is quite remarkable. Such a level represents a fourfold increase on the already wildly unaffordable 15% target for 2020 required of the United Kingdom under the European Union’s Renewables Directive (2009). A target of 60% of Final Energy Consumption in the UK would come to about 1,000 TWh, just under four times the national total of Final Electricity Consumption. That is a vast, and utterly unachievable target, and the British economy would die in the attempt.

But in any case the policy measures proposed by Mr Corbyn are unsuited to deliver the goal. Lest I be accused of selective quotation, here is the vision for the electricity sector in its entirety:

A green energy system will look radically different to the one we have today. The past is a centralised system with a few large plants. The future is decentralised, flexible and diverse with new sources of energy large and small, from tidal to solar.

Smart technologies will optimise usage so that instead of keeping gas plants running just in case there is a lull in renewable generation the system fulfils needs by identifying the greenest, most local energy source.

There will be much more use of local, micro grids and of batteries to store and balance fluctuating renewable energy.

We will still need a grid to match energy supply with demand and import and export renewable energy abroad because the wind won’t always blow where energy is needed.

But it will be a smart grid, radically transformed.

Transforming the grid will require investment and planning on a scale that is simply not happening under the current system.

It is clear from this sketch that Mr Corbyn has no clear understanding of the magnitude and difficulty of what he is suggesting, or of the inadequacy of micro-grids and distributed and local generation. And when he observes that the “greenest energy is usually the most local” he betrays an historical and a technological naivety that is simply astonishing. The Labour Party used to be full of engineers; no longer.

At this point Mr Corbyn would defend his position by saying that he is not thinking here of rooftop solar, and that his understanding of “local” and “democratic ownership” has nothing to do with privately owned small-scale generation. Indeed, by speaking of “actively devolving power to local communities, by giving community energy practical support and encouragement” he is presenting a thoroughgoing collectivist model of energy sector ownership leaving little or no room for the individual:

Energy transition will depend on the initiative and ingenuity of the many to localise the production and consumption of energy.

We need public ownership and democratic control to make that happen and use the skills and knowledge of the workforce and communities across the country.

There are some who hanker after a Thatcherite so-called “prosumer” model where people produce and consume their own energy and whole communities opt out of the grid.

But not everyone has the resources – natural or financial – to go it alone. Energy independence for some will mean rising bills and unreliable energy for the rest.

We need a publicly-owned grid to act as the great leveller, distributing energy from where it is plentiful to where it is scarce and guaranteeing that everyone has access to clean, affordable energy all of the time.

With this speech the Labour Party is returning to a very longstanding interest, eclipsed since and in part by the Attlee government, namely Municipal Trading, which was a key element in late nineteenth and early twentieth century socialist policy. Indeed, interest was not confined to the socialists. The Electric Lighting Act of 1882 not only put a ceiling on prices, but also mandated the sale of private electricity companies to local authorities at a written down value after 21 years, with the consequence that by 1903 local authorities were supplying over two thirds of electricity load in Britain.

Mr Corbyn’s speech hankers after that past quite as much and probably rather more than he longs for a restoration of Attlee’s nationalised industry. But in spite of its romantic and somewhat nostalgic character, it would in practice necessarily result in a multilayered and extremely coercive administration dressed up as local ownership.

This was in fact obvious to early enthusiasts for Municipal Trading. In 1904, George Bernard Shaw, one of the socialist movement’s principal theorists at the time, noted the administrative and physical difficulties in providing electricity by means of limited municipal enterprises, and observed that “the remedy is, not to make our petty local authorities still more petty, but to develop our system of local government so that there shall be machinery for provincial and national collectivism as well as for parochial collectivism.” (Bernard Shaw, The Common Sense of Municipal Trading (1904), p. 64.)

That logic still applies, and any realistic plans for collective ownership of “local” energy provision would, as Shaw recognised, almost certainly involve regional bureaucracies under the very close control of the national government, with each collective authority being nested within and subject to the higher authorities.

Superficially this might seem to be a resurrection of the hierarchy familiar from the British Electricity Authority (BEA) and the fourteen Area Electricity Boards (AEBs), established by the Electricity Act of 1947, which together absorbed some six hundred small power companies and municipal authority electricity providers. But I am inclined to take as sincere Mr Corbyn’s remarks on avoiding this classic, explicitly centralised, model of nationalisation. In the version presented in this speech there would be at least the appearance of local ownership and of something like Municipal Trading, with the system probably resembling the tense and awkward relationship between the now abolished and little lamented Government Offices for the English Regions (created by John Major) and the 418 principal councils in the United Kingdom.

This immensely complicated endeavour would fail in its own terms. Mr Corbyn’s intentions are to move towards a publicly owned and democratic system of distributed generation producing affordable, clean energy for all, but his concrete proposals would be counterproductive. They would result in all but unaccountable legislating bureaucracies and overloaded executive bodies much more worried about the workforce unions than their electorates or customers. The energy generated would be very expensive and extremely unreliable. Imagine an electricity system run by your Council’s Planning Department on the basis of guidance from Whitehall and pressure from the local branch of UNISON.

To preserve the appearance of efficiency, and prevent public dissatisfaction, artificially low electricity prices would have to be imposed by the administration, implying substantial subsidies to consumers on the Venezuelan model. How these below-cost prices and the necessary income support subsidies to the renewable generators would be paid for is anyone’s guess.

Furthermore, as if it mattered, the system as a whole would have very low productivity and be about as “green” as a Soviet steel works.