by Harry Fone, grassroots campaign manager at the TaxPayers' Alliance
An energy company owned by Bristol City Council is up for sale, having cost ratepayers £37.7 million. As a former Bristol resident of nearly 12 years, this is unsurprising to me. Time after time, it was clear that poor council decision-making was hitting local taxpayers in their pockets.
Bristol Energy’s losses are hardly a surprise, given what a competitive market energy is. Any price comparison tool can highlight the multitude of tariffs on offer within a fraction of a second. With a few mouse clicks you can make savings of hundreds of pounds. Of course, the level of competition in the market and the variety of tariffs mean lower prices for customers and show exactly how privatisation has benefited consumers.
As explored in our Restate the Case series, privatisation has been a massive boon compared to what came before. What didn’t reduce prices was the anti-competitive introduction of price caps on energy in 2018. As Matthew Lynn of The Spectator argued, “Far from ripping off consumers, the energy business is now so competitive that it can be quite a difficult business to make money in — and certainly a difficult one to break into.”
It’s not just Bristol that has taken the risk of plugging into the energy market. A number of other councils have tried and failed to set up profitable energy companies. Some are still striving to enter the fiercely competitive sector. As of December 2019, there were 58 firms supplying energy in Great Britain. Some councils think they have the business acumen to take on not just the “Big Six” but over 50 newer, smaller players in the market. More competition is a good thing. But market competitors should be private organisations, not pseudo-public bodies using taxpayer cash on a wing and a prayer, with the weight of evidence pointing to big losses. As we have discussed previously, there are very serious risks when it comes to councils investing in the commercial sector. Examples of failure abound.
Bristol
Bristol Energy was the brainchild of the city’s first mayor and formally created by the council in 2015. It would “provide ethically sourced, low-cost energy and with the aim of returning a profit for council tax payers.” Five years and nearly £40 million later, ratepayers won’t ever be enjoying any profits.
It’s not surprising, given what a disaster the firm proved to be. In 2018, Bristol Energy failed to win a contract to supply electricity to Bristol City Council because British Gas undercut them on price. It was forecast to be profitable in 2019, but updated predictions suggest that it will only break-even in 2023/24! In the five years since the company was founded, council tax was raised by the maximum permissible rate every year. A double whammy for taxpayers who might have seen lower tax bills had the council not embarked on this disastrous scheme. It makes sense that the new mayor, Marvin Rees, has given it up.
Nottingham
Nottingham City Council setup Robin Hood Energy in 2015. As of March 2019, it had made a loss of £23.1 million. In October 2019 it was reported that the energy supplier could have its licence revoked by Ofgem after failing to pass on £9.5 million in renewable energy subsidies collected from customers. In a recent survey by UKPower.co.uk, Robin Hood Energy ranked as one of the worst suppliers in the country. Amazingly, despite these sizeable setbacks, other council-owned energy companies are looking to partner with them. Southend Energy (Southend-on-Sea Borough Council) and White Rose Energy (Leeds City Council) are both promising to save households money on their bills.
Portsmouth
Yet another English council-owned firm that left ratepayers out of pocket. Victory Energy never even launched properly and didn’t have a single customer, but it still cost Portsmouth taxpayers £3.1 million. This included £100,000 in sponsorship paid to Portsmouth Football Club just months before it was lined up for the axe. Leader of the council, Gerald Vernon-Jackson, pulled the plug soon after inheriting the calamitous company. Other council leaders should take note of his refusal to throw good money after bad.
Scotland
North of the border, there was no respite for ratepayers. Edinburgh-based Our Power was set up in 2016 and backed by the Scottish government. In their desperation to be seen ‘doing something’ about fuel poverty they cost taxpayers £10 million in unpaid loans to the energy supplier before it went bust in January 2019.
Still to come: London
Despite overwhelming evidence that councils shouldn’t get involved in energy companies, Mayor of London Sadiq Khan has recently launched London Power. It’s too early to know the outcome but like its forerunners, it promises cheaper and greener energy. On no account should anyone hold their breath.
The answer
Cheaper energy is a good thing, because customers pay less and we all benefit from the economic boost it provides. But local authorities forming micro-nationalised companies is a very long way from how best to achieve it, and ends up costing a small fortune. Instead, they should eradicate wasteful spending, keep council tax bills low and focus on delivering essential frontline services.
If Alok Sharma, the secretary of state for Business, Energy and Industrial Strategy, wants lower prices for consumers he should power ahead with eliminating ineffective green subsidies - and councils should leave electricity to the experts.