Power and Political Economy from Thatcher to Blair by Robert Ledger

Author:Robert Ledger [Ledger, Robert]
Language: eng
Format: epub
Tags: Business & Economics, Economic History, History, Europe, Great Britain, General, Modern, 20th Century
ISBN: 9781000352320
Google: YHwSEAAAQBAJ
Publisher: Routledge
Published: 2021-03-04T03:42:22+00:00

Concentration since privatisation: energy markets

In the last chapter, we examined how privatisation had liberalised some markets while moving monopolies from state to private sectors in others. Energy markets have attracted intermittent attention in Britain, following the gas and electricity privatisations of 1986 and 1990, respectively. Such was the negative public perception of energy privatisation that Gordon Brown felt confident enough, despite his attempts to show that New Labour was dissimilar to its tax-and-spend predecessors, to levy a one-off ‘windfall tax’ on energy companies in 1997 on “excess profits”.39 Energy markets in Britain, however, have not followed a linear progression towards more concentration, like many other sectors in the modern era. As a broad figure, the number of electricity suppliers in the domestic sector has increased from a sole provider during the nationalised period to double figures by 2000s, and rising further in the 2010s. HHI figures for the UK electricity sales market show increasing concentration until around 2002, before the trend reversed and then plateaued for the rest of Labour’s time in office.40 A report by free market think-tank the Institute of Economic Affairs (IEA) suggested that the energy regulator had indeed made a concerted effort to reduce barriers to entry at the turn of the century, although companies were, according to one IEA study, subsequently prone to collusion with the watchdog.41 Nevertheless, data show that the HHI in the electricity markets oscillated between 1,500 and 2,000 for most of New Labour’s time in office—closer to the latter figure at the beginning and end of the 2000s—suggesting moderate concentration.

The privatised gas market has followed a similar, more marked, trajectory to electricity. Since the early 2000s, the UK gas market has become less concentrated,42 and in recent years the HHI for gas supply is the least concentrated in Europe, with a figure under 1,000, and, for retail markets, the UK is also an EU leader in terms of competition, with HHI at around 1,700.43 British energy markets made a further shift after New Labour left office, with HHI figures decreasing in both gas and electricity markets during the 2010s. British energy regulators seem clear that lower concentration is primarily a result of reducing barriers to entry and encouraging new market participants.44

Looking at the evidence for UK energy markets appears to validate the privatisation process. Despite intermittent public disquiet about energy prices and the conduct of some companies, particularly over long-term pricing, the ‘Big Six’ cartel and the ease of switching suppliers, these markets seem to be functioning as well as could have been predicted. The regulatory structure has led to an activist regime that encourages new market entrants, lowering concentration as a result. The energy markets show the interplay between competition, consumer choice and promotion of lower concentration. Nevertheless, it is not as simple to say that increased competition leads to lower prices in markets as complex and dependent on external factors as commodity prices and even geopolitics. At certain points in the 1990s and 2000s, UK energy regulators imposed price controls to prevent spikes in payments.

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