Politicians are addressing the symptoms of a dysfunctional energy market but are failing to get to grips with the reason for failure – a lack of genuine competition, according to a report from the Institute of Economic Affairs (IEA) think tank.
In a report entitled “From Nationalisation to State Control – The Return of Centralised Energy Planning”, the IEA said it had charted the failure of state interventions in the UK energy market.
The study blamed “powerful interest groups” for leading governments to fall back on centralised planning at the expense of consumers nationwide.
The IEA warned against a “price freeze or windfall tax”, claiming such policies would “seriously undermine the incentives to invest in the UK energy sector” and “would also have the perverse effect of increasing demand whilst restricting supply”.
Interventions in the 1970s, 1980s and over the past decade have pushed up prices for consumers, the report said, compared with a “very short period” at the turn of the millennium when the UK energy market was “highly competitive and offered consumers choice and low prices”.
The IEA accused governments of promoting “wasteful investments” in nuclear power and renewable energy, which it claimed had “played a large part in spiralling living costs, rising fuel poverty and decreasing disposable income for families across the country”.
Taking responsibility for energy security away from suppliers and giving it to government is more likely to reduce security than to increase it, the study found.
Large incumbent companies are often all too happy to be regulated, as it raises potential rivals’ costs and restricts market entry, the IEA added.
Mark Littlewood, Director General at the IEA, said: “For too long consumers have been ripped off because of government interference in energy markets.
“Politicians need to realise that more controls are not the answer to energy companies not behaving in a manner they see fit.
“Proper privatisation and a return of market forces are the best ways to ensure both security of supply and the lowest possible prices for consumers.”
The IEA describes itself as a “registered educational charity and independent of all political parties”.