Think Tank warns UK Government to stop soviet-style interference in Energy markets

Ministers must stop ‘Soviet-style’ interference in energy markets, says IEA

Think tank warns that Government policies are distorting energy markets and driving up costs
electric pylons powerlines

Louise Armitstead By Louise Armitstead, Chief Business Correspondent6:00AM GMT 11 Dec 2013Follow CommentsComments

The Government must “step back” from energy markets and desist from “Soviet-style planning” in order for fuel prices to fall, the Institute of Economic Affairs (IEA) has said.

In a hard-hitting report published on Wednesday, the IEA has argued that the UK energy markets have deteriorated from being “highly competitive” just a decade ago because of state interventions.

“A remarkable change has come over the UK energy market in recent years as governments have reverted to a regime of centralised energy planning not seen since the late 1970s,” the report says. “Since then, governments have reverted to centralised action, importing many of the defects of discredited Soviet-style planning. In particular, they effectively control the types of power stations that are built, even though they lack relevant knowledge.”

The report adds: “Centralised planning has created a complicated network of administrative subsidies to promote renewables and nuclear power, at a significant cost to the consumer. This has played a large part in spiralling living costs, rising fuel poverty and decreasing disposable income for families across the country.”

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 report credits reforms that were started by Lord [Nigel] Lawson when he was Energy Secretary in the early 1980s for freeing the markets from Government controls. “At the turn of the millennium, the UK energy market was highly competitive, probably more so than the comparable market in any other major economy,” the report said.

But the pursuit of green policies has meant that the governments since New Labour have “begun once again to constrain the fuel choices of electricity generators, reverting to the old policy of carrying out centralised energy planning principally through the medium of the electricity industry.”

The IEA said the raft of interventions has led to poor deals for the taxpayer and the consumer, such as the Government’s deal with EDF to start building nuclear reactors at Hinkley Point in Somerset. “The recent nuclear deal with EDF is symptomatic of what happens in a market where government support is known to be available,” it said. “EDF was able to hold out for a price for its electricity twice the present level for thirty five years.”

The report added: “The government’s interventionist approach is also encouraging inappropriate proposals [such as price freezes and windfall taxes] that would have perverse effects and are another step along the road to central control. Less government action and more competition to protect consumers are required.”

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