On the day after Andy Burnham became the British Prime Minister, he issued his "first blow" in the spirit of "new officials starting with challenges".
Effective October 1st this year, the Value-Added Tax (VAT) on electricity bills in the UK will be reduced from 5% to zero for a period of six months. Bernam calculated that through this measure, ordinary households can save approximately £45 per year. This savings will come from freeing up funds needed for the National Digital Identity Program, which costs £1.8 billion, without any additional financial borrowing being required.
As a supporter of Manchesterism, reducing the VAT is just the first step in Bernam’s policy of re-nationalizing key public services. Moving forward, Bernam will also carry out ‘nationalization reforms’ on major public services such as railways, subways, water supply, energy, and infrastructure.
For ordinary people who are deeply affected by high inflation and high energy prices, the direct benefit of tax cuts on electricity bills has indeed solved their urgent problems. Bernam's proposal to nationalize these resources also caters to the dissatisfaction of many people with the long-standing problems of neoliberalism. Over the past few decades, the privatization reforms initiated during Thatcher's era have indeed stimulated market vitality, but at the same time, public services in areas related to people's lives have gradually become tools for capital to pursue profits. The continuous increase in the prices of water, electricity, and gas, as well as frequent accidents on railway services, have led to widespread complaints among ordinary people.
So, is Bernam's movement to directly reflect on and adjust the 'T Thatcher legacy' a desperate attempt to survive, or an overcorrection? After all these attempts, will it be able to save the UK economy that has already fallen into a cycle of growth stagnation, and truly solve the long-standing problems in people's lives?
To understand the story behind these 45 pounds, we must return to the spring of 1990.
At that time, the Thatcher government passed the Electricity Act of 1989, which completely dismantled the Central Electricity Generating Board (CEGB) established after World War II. This state-owned power giant was split into competitive and natural monopoly sectors: the generation sector was divided into National Power, PowerGen, and Nuclear Electric; the transmission network was separated into the National Grid; and 12 regional distribution companies were established to handle distribution and retail electricity supply. The previously integrated processes of generation, transmission, distribution, and sales were divided, and their shares were gradually sold to private capital.
The reformers hope that through the separation of power plants from grids, distribution centers from generation facilities, and users choosing their power suppliers freely, electricity can be brought into the capital market. This approach aims to replace administrative management with capital constraints, and to improve allocation efficiency through price signals. The ultimate goal is to reduce electricity prices and alleviate financial burdens.
In June 1988, Lady Thatcher met with the then-American President Ronald Reagan in Toronto, Canada. Both were representatives of neoliberalism. Reuters
In the early stages of privatization, there was indeed an increase in efficiency: labor productivity doubled, fuel costs per unit decreased, gas turbine combined-cycle units replaced high-cost coal power plants, and electricity prices dropped for a short period of time.
However, the institutional design of this reform had hidden problems from the beginning. The 'Electricity Pool' trading mechanism was intended to allow all power generators to submit bids through a central bidding system, thereby increasing market transparency and establishing reasonable electricity prices. However, the market was quickly manipulated by two major power generation companies—National Electric Company and Electric Power Company. They used their market power to jointly raise prices, and the regulatory authorities at that time had limited powers and were unable to intervene.
It was not until 2001 that the UK spent a lot of time and money to introduce new electricity trading arrangements (NETA). This change removed the ‘power pool’ trading mechanism and replaced it with bilateral contract transactions and real-time balancing markets. The regulatory authorities were also given greater power to intervene in prices and impose penalties. Only then did the strange situation where wholesale and retail prices were decoupled from each other somewhat improve.
As the benefits from the North Sea oil field diminished and the income from the sale of assets ceased, coupled with factors such as fluctuations in international energy prices, electricity prices in the UK rose by 60% between 2005 and 2011. At the same time, the entire power system became a tool for extracting wealth. From 2010 to 2025, power giants distributed at least £70.7 billion in dividends to private and international shareholders. Furthermore, the investment in technological research and development of the UK power grid dropped from 2% before the reform to just 0.1%. The British public is paying a high price for this “privatization premium”.
Back to this household electricity tax issue. In 1993, the Conservative government imposed a value-added tax on residential energy sources in order to cover financial deficits. It was proposed to eliminate the zero-rate policy in two stages: first, the rate was increased to 8% in April 1994, and then from April 1, 1995, it was raised to the standard value-added tax rate of 17.5%. Due to bipartisan opposition, the rate for the second phase was ultimately frozen at 8%.
By 1997, this tax rate had been reduced to 5% under the new Labour government. Moreover, the 5% tax rate remained unchanged under the EU framework for nearly thirty years, until Britain gained the ability to reduce it after Brexit. In other words, British citizens not only lost money due to the privatization of electricity, but also faced a value-added tax that they never had before. Now, Burnham’s “zero rate” seems to have slightly alleviated the negative effects of Thatcherism on the public, though only slightly.
Privatization has far more impact on the UK's power system than just the numbers on the bills. When the power grid falls into the hands of private capital, the instinct to make profit becomes irreconcilable with long-term infrastructure investment.
The characteristics of the power grid dictate that it requires substantial capital for construction, maintenance, and upgrading. Most of the existing power grids in the UK were designed during the coal-fired era, with the purpose of transmitting electricity from a few large power stations to thousands of households. However, new technologies such as distributed wind power, solar energy, electric vehicle charging stations, heat pumps, and AI data centers are constantly emerging. These new technologies bring about bidirectional energy demands, which have become overwhelming for this aging power system.
According to Reuters, the UK electricity grid operator stated in 2026 that the UK must invest around £89 billion in the transformation of its grid during the 2030s. Otherwise, the efficiency of the grid may decline, and consumers will face higher costs. However, companies under privatization systems prefer to distribute profits rather than undertake forward-looking maintenance efforts. As a result, the huge costs associated with grid upgrades are passed on to ordinary consumers. For a typical family with an annual electricity consumption of 3100 kilowatt-hours, the cost of grid transformation (referred to as “Network” in the figure below) increased from £136 in 2019 to £250 in 2026.
Changes in the composition of annual electricity bills for ordinary British families
Meanwhile, UK oil and gas production has significantly declined. The UK's crude oil production was halved from 1.1 million barrels per day at the beginning of 2020 to 570,000 barrels per day by 2025. The proportion of natural gas imports is expected to reach 94% by 2050. With the collapse of the domestic energy infrastructure and the refusal of the power grid to expand connections for clean energy sources, more than two dozen renewable energy projects are waiting to be connected, with some even having to wait for over a decade. Currently, a significant portion of electricity in the UK comes from natural gas generation. Therefore, British citizens can only watch as their electricity bills increase due to rising international natural gas prices.
Of course, Bernham faces not only the dual pressures of aging infrastructure and a huge energy gap. There is also skepticism from political opponents. Members of former Prime Minister Starmer's camp immediately questioned the digital identity plan, claiming that it lacked sufficient funding. They considered this a tax cut without any financial support and demanded that the autumn budget clearly outline the funding arrangements. Conservative Shadow Chancellor Mear Stearrie added that “just one day has passed, and the public finances have already been thrown into disarray.”
Secondly, the universality of the policy is also questioned. Since VAT is levied based on usage, households with high electricity consumption and higher incomes will actually receive more benefits. Adam Skoller, the CEO of the British charity ‘Energy Action’, believes that this measure has little impact on most low-income households who use natural gas for heating, as they simply cannot afford the upfront costs of switching to solar energy, batteries, and heat pumps. The Institute for Fiscal Studies (IFS) states that from a cash-flow perspective, most of the costs associated with this tax cut policy will go to high-income households. Although their electricity expenditure accounts for a smaller proportion of their total expenses, they have a higher overall electricity consumption.
Finally, the gloomy clouds of geopolitical tensions remain. The situation in the Russia-Ukraine battlefield and the Middle East is still confusing, and this remains a 'Demonacles' sword hanging over the global energy market. According to Xinhua News Agency, many rural houses in the UK are not connected to natural gas pipelines, so many residents have to rely on heating oil to cope with cold weather, making them highly vulnerable to fluctuations in international energy prices. Please note that the VAT reduction for household electricity bills applies only to electricity costs and does not include gas costs. These vulnerable groups who do not benefit from this policy have been left behind.
Just attributing Burnham’s new leadership's initial struggles to the burden of privatization is not enough to explain Britain's difficult situation. What is truly thought-provoking is that while privatization has dragged Britain into a mess, state ownership also seems incapable of saving this once-great empire.
In 2020, China Jingde Group invested a large amount of money to acquire the bankrupt British steel company. It provided substantial funding to keep the company operating and maintain jobs for its employees. However, the Labour government forcibly took control of the company in April 2025 under the pretext of “industrial security.” Later, in July of this year, it implemented an “unconditional property transfer” under the Steel Industry (Nationalization) Act. The government dodged issues related to reasonable compensation and tried to take advantage of Jingde Group’s acquisition and investment income, amounting to over 1.2 billion pounds. This action is just another episode in the repeated struggles of the British steel industry between nationalization and privatization.
From the establishment of a unified industrial system through massive state ownership by the Labour Party in 1945, to the dismantling and sale of industries under the Thatcher era of the Conservative Party in the name of "efficiency," and now the re-nationalization in the name of "security," ideology has not served industrial competitiveness effectively. Instead, it has led to the decline of the British steel industry from being a pioneer of the Industrial Revolution to a loser in global competition.
Today's Britain has lost the material basis on which state or private ownership was successful. Its labor productivity has fallen to 0.6% per year. The manufacturing sector is declining in the wave of de-industrialization. After Brexit, increased trade costs and limited markets have further damaged the economy.
On November 22, 2023, in Manchester, England, a homeless person lay in front of a closed shop. Photo provided by Xinhua News Agency.
In this context, "King of the North" Bernard has strongly advocated for Manchesterism, suggesting the nationalization of public utilities such as water, energy, and transportation. However, the financial reality is harsh: the net debt of the UK public sector has reached 99.5% of GDP. The Tories have left a financial deficit of over 22 billion pounds. The yield on government bonds is the highest among the G7 countries, and the cost of government bond issuance is exorbitantly high.
Bernam is trying to replicate its local governance experience across the country. However, when a nation loses its physical industries as a buffer, loses the ability to intervene in capital markets, and embarks on a debt load that is astronomical, neither forcing Steel Company into state ownership to assert ‘sovereignty’ and ‘security,’ nor temporarily setting electricity tariffs and value-added tax to zero to give people a ‘leeway,’ can be a ‘miracle solution’ to save the situation.
It is regrettable that, from the privatization of electricity under Thatcherism, to the current slight adjustments in taxes by Burnham, and the repeated transfer of British steel between state ownership and privatization, the British public has always been the silent payers.
They are bearing the consequences of privatization, including rising costs and aging facilities. They have also witnessed the financial depletion and policy failures associated with the return to state ownership. In 1993, they were subjected to a fuel value tax; in 2026, a temporary exemption was promised, but they still face the continuous addition of costs such as grid upgrading expenses, additional fees for renewable energy, carbon emission costs, and geopolitical premiums.
Bernham said in Downing Street that "Westminster has not worked for the people for a long time," which summarizes the difficulties that Britain has faced over the past half century, especially in the past decade. But will the £45 that the British people have managed to save be enough to light up the long twilight of the once-great empire?
When a country loses its industrial base that continuously creates wealth, whether it is privatization or nationalization, it can only redistribute the shrinking pie, and cannot make the pie bigger. This is the real dilemma that Britain faces in the Bernanke era.
