Weighing in on the windfall energy tax
Listening to Hilary Benn yesterday on the World at One, I have never been more convinced that this government lacks the nous to extricate itself from the stench of death which Polly Toynbee rightly says surrounds it. Benn was sent on to Radio 4 to justify the policies that Gordon Brown announced to the Scottish CBI as regards a one off windfall charge. Such a tax was dismissed as “gimmicks or giveaways” – an attitude which is not restricted to the Westminster / City of London bubble either.
The overwhelming suspicion is now that Brown has caved in to a blunt refusal from the energy companies, which warned against a ‘legalised raid’ upon profits. Trades union leaders, a hundred and twenty two MPs and a variety of editorials think that the government should swallow its pride and levy the cash necessary to help the millions of people who’ll be feeling the squeeze from the 30-something percent average rise in prices imposed by British Gas, Southern Electric and other energy companies.
I am very firmly of the same opinion. These companies are ensured revenue year after year because every single house in the country needs electricity, and every house uses either gas or oil as a form of heating. They are virtually immune from competition on the grounds that they are all in the business of ensuring a well-padded bonus to shareholders, and that rather reduces the desire to engage in protracted price wars. British Gas announced its price hike and shortly after the rest followed suit.
What is striking about the whole debate is the paucity of figures being mentioned. How much is each household getting in terms of grants versus how much does it cost to have builders actually carry out the insulating work? How many households under threat from rising energy prices already have insulation and will therefore have no additional cushioning from the 30-odd percent price rises? Of the 2.5 million households spending 10% of their income on energy, how many have insulation?
These figures are missing from the Independent, the Guardian, the Times and aren’t available via Google as far as I can spot. What is known is that one of the ways the government channelled money to its vaunted “long term” solution – a programme called Warmfront – had its budget cut by some £50 million pretty recently. The chairman of the Fuel Poverty Advisory Group, a non-governmental body sponsored by DBERR and DEFRA, is calling for £200 million in ‘new money’ for this programme.
An industry-led body called Heat Project 2008 gives some figures as to how much grants are worth for those people to whom Warmfront is not applicable (i.e. those not on these listed benefits). They aren’t encouraging – a few hundred pounds to pay for a job which those on benefits get up to £2,700 for. Bearing in mind that the cost of the improvements lies somewhere in between, either way it’s going to mean that those purchasing them are out of pocket to the tune of several hundred pounds.
If the average household opts for the government’s plan, it’ll be spending more on the insulation than the amount by which energy bills will increase – and so most households will probably not opt for the government’s plan in time for the winter bills. It is precisely those winter bills which are going to be the biggest increase in price – with long nights and cold temperatures requiring lights and heating to be used. So the government’s plan is a good idea, but it is not going to help things this winter.
The idea of insulation also doesn’t take into account that it provides only a set level of cushioning. Energy consumption is reduced, but as the unit price of energy continues to skyrocket, this cushioning will be rapidly worn away. Bearing in mind that many millions of households already have insulation, it’s worth considering that the value of this cushioning to the poorest might still be less than they need at a time when prices in all spheres are going up.
To give Compass their due for co-ordinating a lot of the pressure the government is currently facing, they’ve focused on energy as one of those things dominated by huge companies and which is inescapable for virtually every household in the country. A windfall tax on the energy giants and their profits (upwards of £4 billion for Shell last quarter, around £4.4bn for BP and British Gas combined, all of which are an increase) is eminently justifiable in a way that a tax on supermarkets, for example, isn’t.
People have the option not to shop in supermarkets – they don’t have the option to buy from a company which hasn’t dramatically hiked its energy prices: all the companies have done just that. The energy companies have of course hit back with their claim that over the next eleven years, the utilities producing the energy for the country require an investment of some £100 billion, but with the ‘big three’ set to earn around £30 billion per year – a figure which will probably increase bearing in mind rising energy prices and the ownership by each of rights to vast fields of resources – there is still ample reason for people to invest in these companies.
This also escapes the point that what Lindsay Hoyle proposed was a levy to help the most vulnerable in society: pensioners. This is a levy of a few hundred pounds per likely beneficiary, plus enough to pay for the requisite staffing time needed to allocate the money, perhaps via the Department for Work and Pensions. It’s not the most radical suggestion – but it would help those whose health is most at risk from high energy costs and it passes the expense on to the people who are allowing it to hurt those people.
Honestly, I can’t see why the government is so afraid and why the energy companies are so dead-set against any such tax, or why they haven’t raised other suggestions such as voluntarily reducing prices for households with pensioners. That wouldn’t be a difficult programme to implement. In the absence of reason on the part of the government however, I am absolutely behind Tony Woodley who declared that Labour’s shirking of its responsibilities is a ‘betrayal of our people and a betrayal of our party.”