Another day, another nationalisation proposal from Labour. Now the plan is to bring the supply arms of the big six energy firms under public ownership. We’re talking here about the retail units of EDF Energy, Centrica (meaning British Gas), Npower, E.ON, ScottishPower and SSE, businesses that supply gas and electricity to about 75% of households in the UK. In other words, it’s a big proposal to be slipped into a single paragraph of an election manifesto.
You might have assumed the big six were already on Labour’s nationalisation list, but they weren’t. The original plan for the energy sector, unveiled in May in a 24-page “bringing energy home” document, confined the ambition to the energy networks. They are the companies that own the cables, pipes and pylons that transmit and transport electricity and gas.
Labour members voted in favour of including retail supply operations in September, but the formal change of stance looks bizarre for a few reasons.
First, there were good grounds to exclude retail supply. A price cap now exists and an incoming administration would be free to tweak its terms and scope. Social tariffs could be extended, for example.
Second, the price cap seems to be working. The fear was that competition would evaporate once regulator Ofgem started to set maximum prices, but that hasn’t happened in practice. Independent suppliers have continued to gain market share. British Gas said on Thursday that it lost another 107,000 accounts in the past four months.
Third, the retail landscape is changing. Shell has big ambitions in supply and privately owned Ovo is set to buy SSE’s business, thereby changing the big six lineup for the first time.
So what problem is Labour trying to address? The government can set the price of gas and electricity if it wishes and there is no shortage of would-be suppliers. Of all the proposed nationalisations, this looks the strangest.
The final oddity is that the shadow chancellor, John McDonnell, said only last week, when launching his “free broadband” proposal, that BT Openreach would be the last company to be included in Labour’s nationalisation plans. He omitted to mention six other large businesses.
Taxing oil companies is a slippery problem
Labour’s other new proposal for the energy sector was a £11bn windfall tax on oil companies “so that the companies that knowingly damaged our climate will help cover the costs”. One assumes this tax would fall solely on operators in the North Sea and UK waters but there is an obvious problem: ownership of producing fields has changed over the years.
One long-term trend has been a gradual exit of US oil companies as they have sold assets to concentrate more production in their home market. How do you impose a retrospective tax on foreign-owned companies that are former, or smaller, North Sea producers? Tricky.
Threat of postal strike still looms large
Royal Mail’s share price stood at an all-time high of about 600p only 18 months ago. Now, after Thursday’s 14% fall, it is within pennies of an all-time low, just below 200p. To see why, look at the first-half financial outlook, which was even more gloomy than the City had anticipated.
The latest “transformation” programme isn’t doing much transforming because it is “behind schedule” to an unspecified degree. The UK letters and parcels business, the core of the group, could fall into loss next year. The rate of decline in letter volumes is accelerating. And the threat of industrial action, delayed when the company won an injunction last week, still looms large.
“We have changed many times before. We will do it again,” said the chief executive, Rico Back, trying to sound upbeat. Yes, the need for change is obvious. Revenues from parcels will soon overtake revenues from letters but the automated handling of packages is still in its infancy. Royal Mail is at 26%, but wants to get to 80% within four years to improve productivity.
But the scale of the automation challenge also underlines the need for peace with the Communication Workers Union. There hasn’t been a strike at Royal Mail since privatisation in 2013 but the current escalation of tensions looks more serious than in the recent past.
Last year’s £5.8m “golden hello” for Back to break his contract at GLS, a Royal Mail subsidiary, is bound to inflame any quarrel that involves pay and conditions. And management’s room for manoeuvre is more limited now that the pressure in letters is even more acute. Until the dispute is resolved, the City’s increasing scepticism looks entirely justified.
