Gavin Rice is head of political economy at Onward.
Scarcely a week goes by without Ed Miliband, Britain’s zealous Energy Secretary, insisting that it is only by unshackling ourselves from fossil fuels that we can escape the headwinds of global energy shocks such as that occurring as a result of the war in Iran.
By continuing to throttle the North Sea with taxes and exploration restrictions, and by doubling down on renewables subsidies, we can evade the fate otherwise doled out to us by capricious oil and gas markets and the whims of foreign leaders.
Yet reality may yet be dawning even for Miliband, with the Government refusing to rule out approving new North Sea drilling at Jackdaw and Rosebank, in breach of Labour’s 2024 manifesto pledge not to explore new fields in UK waters. The fact is Britain is no less reliant on fossil fuels as a proportion of national energy consumption than in Tony Blair’s day, according to data from the Department for Energy Security and Net Zero (DESNEZ). In 2025, oil and gas continued to supply three-quarters of the UK’s power. This is unsurprising given 86 per cent of households rely on gas for home heating, most cars remain petrol-fuelled and gas is needed as a source of electricity generation on the grid 97 per cent of the time.
We are constantly told that the North Sea is pointless to continue exploring as it’s a mature basin. But the evidence from the sector tells us the opposite. There are 51 new fields energy companies could be exploring in British waters, held back only by policies that make the sites unviable, according to a report by Offshore Energy UK, the trade body. And 60 extensions to existing sites would be possible but for the punitive tax regime – amounting to a 78 per cent effective rate – current policy imposes on producers. Joe Swinney, the SNP leader, Octopus CEO Greg Jackson and even Renewables UK boss Tara Singh have all backed an expansion of domestic drilling.
How can the UK still be so reliant on natural gas in particular, if we have decarbonised further and faster than almost any other developed country (which we have)? The answer lies in offshoring: the UK now imports well over half its gas supply through Liquid Natural Gas (LNG). This is a more expensive, more carbon-intensive and necessarily less securely available form of gas, shipped around the world in tankers from America – where gas is one quarter of the price – or the Middle East. In the Miliband worldview this is fine, since the emissions created by LNG and transporting it don’t count towards our national target. Global emissions and domestic energy security don’t matter, since it’s the terrestrial political target that matters.
It’s true that radically expanding Britain’s domestic supply of gas won’t immediately cut wholesale prices, since these are fixed by a Europe-wide marginal pricing system; so long as we need some imports, this will be set by the price of imported LNG. It’s insane that we got ourselves into this position in the first place, given our domestic reserves, but there you have it – “you wouldn’t start from here”. But what expanding North Sea drilling would achieve is significantly greater security of supply, leaving us far less exposed to geostrategic shocks like Iran choosing to blockade the Straits of Hormuz. And right now, the Exchequer is missing out on all the potential tax revenue from greater North Sea production – revenues collected instead by the Norwegian government, which drills the same sites we refuse to exploit before selling the gas back to us.
However, when it comes to electricity, it’s a different story. The Climate Change Committee itself has admitted that Britain will need fossil fuels – including for power generation – for decades. On any given day, depending on the weather, gas may be providing half of the electricity on the grid. This is due to Britain’s chronic underinvestment in baseload nuclear power and the as yet unsolved problem that wind and solar power is inherently intermittent, requiring a firm, dispatchable fallback (in our case, gas). The price of gas-generated power almost always determines the wholesale price of electricity due to this country’s auction system. But that price is itself artificially inflated in several ways.
First, gas generators are forced to operate in a highly inefficient way. Because they always get the last bite of the cherry in our half-hourly energy auctions, there is uncertainty about how much power to generate – and what can be sold – literally from one minute to the next. Secondly, the Government chooses to impose taxes on gas generators designed to disincentivise gas use – despite the fact that we need the suppliers’ generation. If you add together the effect of Carbon Price Support – a tax introduced to kill off coal – with the UK carbon pricing system and VAT, the state is adding 15 per cent to a typical household bill in gas levies alone. The Conservatives have called for VAT to be slashed from consumer bills altogether – a laudable but expensive move. A good first step would be cutting VAT – together with carbon taxes – on Britain’s essential gas generated electricity.
Zooming out further, is it even true that gas is really driving electricity bills? The truth is wholesale costs only count for around one-quarter of a typical bill. Even if wholesale costs fell to zero, bills would barely fall at all – because most of the costs to consumers come from the assortment of policy levies imposed on suppliers that get passed on to you and me. This includes network charges, grid upgrade and expansion costs, balancing costs and curtailment payments – when renewables companies are actually paid to take excess power we can’t transmit, off the grid – and Contracts for Difference (the subsidy mechanism for wind and solar developers).
Taking together the costs that could plausibly be reversed by the state, Onward calculates that 30 per cent of a typical bill – or £285 per year – is due to policy choices. Our recent report, Cooking on Gas – the first in our major commission on overhauling UK energy policy – makes the case for rolling back these imposed costs, starting with the carbon taxes on gas power.
Offshoring energy production to tick domestic decarbonisation boxes is leaving Britain dangerously exposed. By making ourselves more reliant on shipped LNG we are increasing global CO2 emissions, increasing costs and leaving ourselves at the mercy of global events. With pipelines that go straight to the UK shore, the North Sea is a gift horse we are choosing to slap in the mouth. And at the same time we are driving up bills through our policy choices – whether through our energy pricing mechanism, renewable subsidies or carbon taxes on energy.
It’s easy for Miliband to blame Iran, or Donald Trump, or global markets. But it would be open to him to change path – we have the domestic supply and the policy levers to do so.
Gavin Rice is head of political economy at Onward.
Scarcely a week goes by without Ed Miliband, Britain’s zealous Energy Secretary, insisting that it is only by unshackling ourselves from fossil fuels that we can escape the headwinds of global energy shocks such as that occurring as a result of the war in Iran.
By continuing to throttle the North Sea with taxes and exploration restrictions, and by doubling down on renewables subsidies, we can evade the fate otherwise doled out to us by capricious oil and gas markets and the whims of foreign leaders.
Yet reality may yet be dawning even for Miliband, with the Government refusing to rule out approving new North Sea drilling at Jackdaw and Rosebank, in breach of Labour’s 2024 manifesto pledge not to explore new fields in UK waters. The fact is Britain is no less reliant on fossil fuels as a proportion of national energy consumption than in Tony Blair’s day, according to data from the Department for Energy Security and Net Zero (DESNEZ). In 2025, oil and gas continued to supply three-quarters of the UK’s power. This is unsurprising given 86 per cent of households rely on gas for home heating, most cars remain petrol-fuelled and gas is needed as a source of electricity generation on the grid 97 per cent of the time.
We are constantly told that the North Sea is pointless to continue exploring as it’s a mature basin. But the evidence from the sector tells us the opposite. There are 51 new fields energy companies could be exploring in British waters, held back only by policies that make the sites unviable, according to a report by Offshore Energy UK, the trade body. And 60 extensions to existing sites would be possible but for the punitive tax regime – amounting to a 78 per cent effective rate – current policy imposes on producers. Joe Swinney, the SNP leader, Octopus CEO Greg Jackson and even Renewables UK boss Tara Singh have all backed an expansion of domestic drilling.
How can the UK still be so reliant on natural gas in particular, if we have decarbonised further and faster than almost any other developed country (which we have)? The answer lies in offshoring: the UK now imports well over half its gas supply through Liquid Natural Gas (LNG). This is a more expensive, more carbon-intensive and necessarily less securely available form of gas, shipped around the world in tankers from America – where gas is one quarter of the price – or the Middle East. In the Miliband worldview this is fine, since the emissions created by LNG and transporting it don’t count towards our national target. Global emissions and domestic energy security don’t matter, since it’s the terrestrial political target that matters.
It’s true that radically expanding Britain’s domestic supply of gas won’t immediately cut wholesale prices, since these are fixed by a Europe-wide marginal pricing system; so long as we need some imports, this will be set by the price of imported LNG. It’s insane that we got ourselves into this position in the first place, given our domestic reserves, but there you have it – “you wouldn’t start from here”. But what expanding North Sea drilling would achieve is significantly greater security of supply, leaving us far less exposed to geostrategic shocks like Iran choosing to blockade the Straits of Hormuz. And right now, the Exchequer is missing out on all the potential tax revenue from greater North Sea production – revenues collected instead by the Norwegian government, which drills the same sites we refuse to exploit before selling the gas back to us.
However, when it comes to electricity, it’s a different story. The Climate Change Committee itself has admitted that Britain will need fossil fuels – including for power generation – for decades. On any given day, depending on the weather, gas may be providing half of the electricity on the grid. This is due to Britain’s chronic underinvestment in baseload nuclear power and the as yet unsolved problem that wind and solar power is inherently intermittent, requiring a firm, dispatchable fallback (in our case, gas). The price of gas-generated power almost always determines the wholesale price of electricity due to this country’s auction system. But that price is itself artificially inflated in several ways.
First, gas generators are forced to operate in a highly inefficient way. Because they always get the last bite of the cherry in our half-hourly energy auctions, there is uncertainty about how much power to generate – and what can be sold – literally from one minute to the next. Secondly, the Government chooses to impose taxes on gas generators designed to disincentivise gas use – despite the fact that we need the suppliers’ generation. If you add together the effect of Carbon Price Support – a tax introduced to kill off coal – with the UK carbon pricing system and VAT, the state is adding 15 per cent to a typical household bill in gas levies alone. The Conservatives have called for VAT to be slashed from consumer bills altogether – a laudable but expensive move. A good first step would be cutting VAT – together with carbon taxes – on Britain’s essential gas generated electricity.
Zooming out further, is it even true that gas is really driving electricity bills? The truth is wholesale costs only count for around one-quarter of a typical bill. Even if wholesale costs fell to zero, bills would barely fall at all – because most of the costs to consumers come from the assortment of policy levies imposed on suppliers that get passed on to you and me. This includes network charges, grid upgrade and expansion costs, balancing costs and curtailment payments – when renewables companies are actually paid to take excess power we can’t transmit, off the grid – and Contracts for Difference (the subsidy mechanism for wind and solar developers).
Taking together the costs that could plausibly be reversed by the state, Onward calculates that 30 per cent of a typical bill – or £285 per year – is due to policy choices. Our recent report, Cooking on Gas – the first in our major commission on overhauling UK energy policy – makes the case for rolling back these imposed costs, starting with the carbon taxes on gas power.
Offshoring energy production to tick domestic decarbonisation boxes is leaving Britain dangerously exposed. By making ourselves more reliant on shipped LNG we are increasing global CO2 emissions, increasing costs and leaving ourselves at the mercy of global events. With pipelines that go straight to the UK shore, the North Sea is a gift horse we are choosing to slap in the mouth. And at the same time we are driving up bills through our policy choices – whether through our energy pricing mechanism, renewable subsidies or carbon taxes on energy.
It’s easy for Miliband to blame Iran, or Donald Trump, or global markets. But it would be open to him to change path – we have the domestic supply and the policy levers to do so.