Bad energy policy made Britain’s electricity the most expensive in the developed world, and stalled economic growth
Britain’s net zero policies have driven industrial electricity prices to the highest level in the developed world and left the economy stagnant, according to a new report from the Institute of Economic Affairs.
The report by energy analyst David Turver, a chapter of the IEA’s forthcoming publication The Great Stagnation, argues that a legislative labyrinth of restrictive energy laws, running from the Gas Act 1986 to the Climate Change Act 2008 and the Energy Act 2023, has made energy scarce and expensive, and dragged down growth across the productive economy.
World’s most expensive electricity
The paper shows the UK now has the highest industrial electricity prices of any country tracked by the International Energy Agency. Having sat close to the International Energy Agency median between 1998 and 2005, UK prices have since diverged sharply, and by 2024 British industry was paying 63% more for electricity than the median rate. The gap cannot be explained by gas prices, which remain marginally below the median; it is driven by the layering of renewables subsidies, carbon taxes and grid costs onto the price of electricity.
Growth strangled
The combined effect of high prices and heavy regulation has been a collapse in energy use: overall UK energy consumption is down 29.2% since its 2005 peak, and industrial energy consumption is down 45.3% since 2004.
Between 2008 and 2024 the UK cut energy consumption per person faster than Canada, the EU27, Japan or the United States, while its GDP per capita grew by just 0.4% a year, worse than every other G7 economy bar Canada, at a time when world GDP per capita grew by close to 2% annually. Energy-intensive sectors such as oil and gas extraction, refining and chemicals, which generate far more value added per hour worked than the economy average, have shrunk the fastest, with the closure of the Grangemouth refinery symbolising the wider retreat of energy-intensive industry from the UK.
The report concludes that energy is the foundation of economic growth, and that there are no examples of rich countries that are low energy users. Britain has nonetheless chosen, through its own legislation, to make energy scarce and expensive, and is now paying the price in an economy that has stopped growing.
Hundreds of billions in subsidies
Turver’s analysis, based on the government’s own Subsidy Control Transparency Database, totals £585bn in net zero and energy-related subsidies, including £260bn for renewables certificates and contracts, £72bn for the Capacity Market that backs up intermittent wind and solar, and £51.4bn to compensate energy-intensive industries for the resulting high prices. Support for renewables alone now costs £12.5bn a year, more than twice the cost of the gas needed to generate a similar amount of electricity. Once grid balancing, backup power and network expansion are included, offshore wind support costs £186 per megawatt hour and onshore wind £150, far above the cost of unsubsidised gas generation.
Taxing hydrocarbons out of existence
At the same time, direct and indirect taxes on oil, gas and fuel raised £42.7bn in 2024, including £24.6bn from fuel duty and £4.1bn from the Emissions Trading Scheme. Combined with a ban on new North Sea exploration licences and an effective moratorium on fracking, these taxes have accelerated the decline of UK oil and gas production. The OBR expects related tax revenues to collapse from £9.9bn in 2022/23 to just £0.3bn by 2030/31, amid industry estimates of around 1,000 North Sea jobs a month being lost.
This briefing is part of a series published by the IEA on Britain’s ‘Great Stagnation’, diagnosing Britain’s growth problem. The next briefings in the series will be published in the coming weeks and will be compiled into a full book published in September.
David Turver, author of the report, said: “Britain has spent hundreds of billions of pounds making its own energy expensive, and then billions more compensating industry for the damage that causes. That is not an energy policy, it is a self-inflicted wound. Every month this continues is another month in which factories, jobs and investment quietly leave Britain for good.”
Lord Hannan, director general of the Institute of Economic Affairs, said: “This report shows what happens when politicians treat cheap energy as something to be taxed and regulated away, rather than as the foundation of prosperity. Net zero has not just been expensive, it has been actively hostile to the industries Britain needs to grow. If we are serious about ending stagnation, we must be serious about scrapping the subsidies and taxes that got us here.”