Collapsing energy use reveals Britain’s economic disaster

By Paul Homewood

 

 

Dwindling domestic consumption plunges the UK back into the dark years of the 1970s
Doomsayers warn that Britain is returning to the bad old days of the 1970s – yet by one measure, we are already there.
The country’s energy usage has tumbled to its lowest level since the era of Edward Heath’s three day week, official figures show.
In 2022, excluding the 2020 Covid lockdown, the country used less energy than in any year since at least 1970. This figure includes energy generated from all sources including coal, gas and renewables.
The Government puts the decline down to “a variety of reasons, including unseasonably warm weather and continued improvements in energy efficiency”.
Officials add that energy usage is expected to decline because of net zero “as we transition to a more efficient use of energy through electrification”.
Yet experts argue the numbers tell a story of economic decline rather than energy efficiency improvements.
“Electricity consumption isn’t an independent variable. It is linked to the fact that we’re not equipping ourselves to maintain our living standards,” says Gordon Hughes, a former senior adviser to the World Bank.

Hughes, who is also a former professor of economics at the University of Edinburgh, believes Britain’s economy is in a similar state to the dark years of the 1970s when dysfunction forced the country into an IMF bailout.
Domestic capacity is winnowing away and the country is increasingly reliant on infusions of foreign cash. Energy use is falling as factories and businesses close and as families become poorer, not because of efficiency benefits.
Britain used enough energy to power 155 million homes for a year in 2005. By 2022, the equivalent figure had fallen to 128 million – a slump of 17pc in less than 20 years.
Historically, there has been a strong correlation between higher energy consumption and faster economic growth, says Ben McWilliams, an affiliate fellow at Bruegel, a Brussels-based think tank.
“That goes back to the industrial revolution,” says McWilliams. “Ever since then, you typically see there’s an association between high energy consumption and higher GDP.”
The link will eventually break as energy efficiency improves. But this is not what is happening now, he says.
There were some exceptional circumstances in 2022 that should be taken into account. Massive jumps in energy prices following Russia’s full-scale invasion of Ukraine reduced usage as people and businesses could simply not afford as much.
Warm weather also meant there was less demand for heating or electricity-sapping indoor entertainment activities such as watching TV.
Domestic energy consumption fell by 14pc year-on-year to hit a record low.
However, the record forms part of a longer-term trend. Energy use peaked in the UK just before the financial crisis and has been in decline ever since.
Since then, falling energy consumption has mirrored snail-like productivity growth and economic growth. The UK’s GDP per capita has never recovered and is still 8pc below where it was in 2007, according to the World Bank.
“Declining energy consumption is definitely not on the back of efficiency,” says Jorge León, who leads oil market research at Rystad Energy. “Definitely not.”
He believes the fall in energy consumption is a direct proxy for economic decline. No coincidence, then, that the economy tipped into a technical recession at the end of last year as the effects of tumbling energy use began to be felt.
Hughes says: “[Falling energy use] is a symptom of economic stagnation and a symptom of the fact that we are not investing enough as a country to maintain our infrastructure and maintain our level of income.”
Investment in Britain is equivalent to 13pc of GDP annually. That is the money spent on new technologies, buying or fixing machinery, training staff – all drivers of economic growth.
“Historically, it averaged somewhere around 17pc or 18pc,” Hughes points out. “In other countries in the world, it is significantly above 20pc.”
Investment is falling just as our population is growing, which should be driving up the need for spending.
While declining energy use is happening across the economy, a large part of the story is the ongoing demise of Britain’s manufacturing sector.
The first – and best known – wave of deindustrialisation came between 1970 and 1990, when Thatcher closed down Britain’s steelworks and coal mines. Manufacturing shrank from 27pc of the economy to 17pc.
Since then, however, the sector has continued to decline as Britain’s factories struggle to compete with China. Thousands of steel job losses have been announced in recent months as Port Talbot and British Steel’s Scunthorpe plant shut their blast furnaces, changes partly driven by struggles to produce competitively priced metals.
“This is a broad macroeconomic environment where things are not looking great, where output is decreasing,” says León. “And on top of that, for energy intensive industries, energy costs have increased massively.”
Industrial energy consumption hit a record low in 2022, down 35pc since its pre-financial crisis peak.
Households have also been crippled by high energy costs and high inflation, which triggered the biggest drop in real household disposable incomes in 70 years.
“People might be using less energy but it’s not because their homes have become more efficient, it’s just because it’s more expensive,” says Jess Ralston at the Energy & Climate Intelligence Unit.
“As we move towards net zero, things are going to become more energy efficient. But is that already coming from things like insulating homes? No.”
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