Utility Week

Utility Week 8th November 2013

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Comment Utility Week expert view Trevor Loveday "Political threats of intervention with price freezes, cheapest tariff obligations and competition reviews are really only for the chattering classes." H igh energy prices are not going to go away, and someone should press this fact on British punters, who are being duped into thinking that a substantial part of their energy bill could be magicke d away by a new government – or any government. Politicians have successfully sold the idea that they can end "rip-off" energy bills. Implicit in their claims is the notion that they can reduce bills by a significant amount. But the pounds and pence involved are being ignored because the political points value is huge. Suppliers are being criticised for making 6 per cent profit. According to a 2008 Ofgem estimation, it should be 1.5 per cent, or so the argument goes. On that basis, politicians are whipping up the baying crowd without spelling out that the saving up for grabs is about £60 a year. Nevertheless there are people for whom a bit more than a quid a week would be welcome. And although there are measures in place to help the elderly and other low-income groups – the Warm Home Discount currently stands at £120 year – they could always be better. Britain is home to more than five million fuel-poor people – in the European Union only Estonia has more. And this is where action on energy prices is needed. Britain requires policy that will give a helping hand to people who actually do have to choose between heating or eating, as opposed to people who have to ponder heating or eating out for the second time this week. There are those who advocate transferring the climate change elements of energy bills to general taxation and the government has made noises that it could go that way. While it's at it, the coalition might want to consider extending the carbon floor price to gas, shedding reduced VAT on power and gas, and using the £8  billion a year that would generate to raise the tax exemption limit. Or even change from carbon trade to carbon tax at about £60 a tonne and use the £50 billion a year to reduce income tax. Heavyweight economists quite like that one – including one Nobel prizewinner. Meanwhile, the government could look into using its VAT windfalls from rising prices and cold winters to boost the Warm Home Discount. The anticipated VAT receipts from domestic electricity and gas for 2013 come to more than the total £1.2 billion cost of the four-year scheme. Outside the world of the fuel poor, the indignation over power prices is bordering on the grotesque. Britons dived into the trough to buy shares in energy because they wanted a piece of the action they saw coming after the BT sell off. Two million people sold their shares after they jumped 25 per cent on day one and doubled within weeks. They wanted the benefits of a being a shareholder without, it seems, expecting to see the businesses act in the interests of their shareholders. Nigel Lawson, in his memoirs, The view from No 11, justified privatisation with the line: "There is no equivalent in the state sector to the discipline of the share price and the ever-present threat of bankruptcy." And the natural business response to that threat is to seek ever- present profits. Lest we forget: energy companies are private businesses and the British electorate chose that. In fairness, few could have guessed that the electricity bill might ever become something to fear. In 1989 the price of gas and electricity rarely, if ever, made the news. Energy-saving technology was difficult to sell in the 1980s because energy was not a big financial issue for most people and businesses. The increasingly strident reactions to energy price increases have probably been stoked by the fact that before 2004, according to Decc figures, energy prices fell by close to 2 per cent a year for ten years. Since then, prices have risen at some 8 per cent a year. And from 1990 to date, figures from the Office of National Statistics show that the weekly spending power of the richest 10 per cent has grown by more than £200 – four times the pace seen by lowest the 10 per cent and twice the median. Outrage against energy bills, it seems fair to say, is a matter of perception among the better off and real hardship among the poorest. It's the second lot who need the politicians' help. But political threats of intervention with price freezes, cheapest tariff obligations and competition reviews are shooting in the dark and are really only for the chattering classes. And the companies are much better at political football than governments and regulators. Ofgem had to fight tooth and nail to get information out of the suppliers during its 2009 supply market "probe", which ultimately changed nothing. However, there are calls from the companies' camp to bring on a Competition Commission investigation. Let's do it. And then, depending what it uncovers, decide just how and where to intervene. Meanwhile we need some meaningful intervention to help people who clearly need help. Because 200 old people dying of the cold every day of winter should be a medieval statistic not a 21st century one. UTILITY WEEK | 8th - 14th November 2013 | 7

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