Using the Data and Your Knowledge of Economics Assess the Arguments for and Against the Government Intervening in the Uk Electricity Industry. (25 Marks)

1205 Words Jan 26th, 2016 5 Pages
June 2015 Unit 3
Context 1 Q3
‘Critics of Big Six might argue that electricity companies should not have electricity companies should not have been privatised as they can never behave or perform like supermarkets.’ (Extract C, lines 15-16)
Using the data and your knowledge of economics assess the arguments for and against the government intervening in the UK electricity industry. (25 marks) The big six energy firms effectively have an oligopoly on the UK energy market despite the existence of some smaller firms who are mainly involve in the retail aspect of the market (extract A). The market concentration of these firms and the
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If this industry is indeed a natural monopoly with such significant structural barriers to entry then the government should fully renationalise it and allow it to operate fully in this structure.

The concerns around renationalisation and indeed any form of intervention is the lack of supernormal profits being earned which reap positive benefits beyond the profit flow to the shareholders themselves. If the government were to take this course of action they firstly would not receive the tax revenue they do at present from these highly profitable energy firms. This has the obvious consequence of potentially reducing government spending elsewhere in the economy. Furthermore the government would now have the burden of buying back all of the private assets from the private firms, running this industry and all of the future investment that goes with it. This again presents as a heavy weight on the public purse at a time where the economy and the government budget cannot really cope with it. Indeed it could mean higher prices (or at least higher taxes) for the public. In addition there are the arguments over the lack of efficiency as a result of lack of competition and profit motive as there are with any government run industry.

There is evidence of tacit collusion in the energy market with prices tending to stick throughout the year and

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