Great British Energy, a new publicly owned clean power company, is set to be established as part of Labour’s plan to decarbonize the UK economy. The company, initially capitalized at £8.3bn, is among the last remnants of the ‘green prosperity plan’ devised and championed by Ed Miliband, the shadow secretary of state for energy security and net zero, three years ago.
Miliband’s original vision was to spend £28bn per year in the first five years of an incoming Labour government on decarbonizing the UK economy. However, as the current leader Sir Keir Starmer recognized, the issue was swiftly weaponized by the Conservatives because all the money would have been borrowed. This led to the plan being scaled back in February of this year to a spending pledge of £23.7bn over the life of the next parliament.
A significant portion of this spending will go towards Great British Energy, which will be funded by a windfall tax on big oil and gas companies. The windfall tax is an extra 25% tax on the profits earned by companies from the production of oil and gas in the UK and on the UK Continental Shelf in the North Sea.
Labour plans to raise this tax even further, from 35% to 78%. This increase has raised concerns from the industry, with Offshore Energies UK warning that it could lead to job losses and a decrease in economic value. The party has also stated that it will remove some of the investment incentives put in place by the current windfall tax.
However, questions have been raised about the necessity of a state-owned company in the UK’s already rapidly decarbonizing market. Private companies, such as National Grid, Scottish Power, and SSE, are already investing billions in renewable energy projects. Labour argues that Great British Energy will contribute to energy security and help lower household energy bills by £300 per year.
But, concerns have also been raised about the return on investment for the company and the potential for wasteful spending without the discipline of shareholders. The UK government, with its lower cost of capital, is in a unique position to take on such investments. However, it is important for Labour to clarify what changes in investment and hiring it is factoring in from companies operating in the North Sea as a result of higher taxation.
The establishment of Great British Energy raises further questions about the cost of the energy transition to households. While energy bills are unlikely to see a substantial decrease over the next decade, it is concerning that it is left to a regulator, rather than politicians, to spell out the costs to households. As the UK moves towards its goal of becoming a clean energy superpower by 2030, it is important for all parties to address these questions and concerns.
