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Energy Tax

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Ed Miliband’s promise to freeze household energy prices, even if it doesn’t happen, is a meaningful step towards a better understanding of what has truly happened to democracy in Britain in the last thirty years. The Labour initiative exposes a weakness in the hitherto unchallenged power of the mainly overseas investment agents who have taken over – or, in the case of the Royal Mail, are about to take over – formerly not-for-profit British providers of essential services.

These overseas investment agents – French and German utilities, Asian governments, the Canadian teachers’ pension fund – along with their few remaining domestically based counterparts, like Centrica, are not ‘bringers of much-needed investment’ in the sense that they build power stations or sewers out of the kindness of their corporate hearts. They do it for profit. Fine. But nor, crucially, are they ‘bringers of much-needed investment’ in the way, that, for instance, a car maker like Nissan was when it built its factory in Sunderland. The north-east needed Nissan; the jobs, the secondary economy around the plant, the experience gained by workers, the sense of security and purpose. But if Nissan decides it doesn’t need Sunderland – which, if Britain leaves the EU, it probably will – it could shut down the factory and open an identical one in Sofia or Brindisi without skipping a beat.

The big French, German and British energy companies who sell Britons their gas and electricity are not in this position. No one believes they compete with each other: the test of that is that they are unable to demonstrate, in a way anyone can understand, that they do. They are more like farmers who have acquired land on which to grow crops in perpetuity. No amount of investment in shiny new tractors or fertiliser can disguise this basic fact. The land they own is us, their customers, and the crop is our bills. Up until now they have seemed all-powerful. What Miliband’s initiative does is expose their vulnerability – that, like a farmer who cannot flee the country and take his land with him, the likes of EDF cannot take their customers (or, for that matter, their power stations) with them if the harvest falls short of their expectations.

To put it another way, it is us, the customers, that the energy companies cannot do without, rather than the other way round. What we cannot do without is energy – and nobody honestly believes that opening up the current opaque system of dividends from our energy bills flowing to Canadian teachers and the French government and a Hong Kong billionaire would mean the lights going out. So to Roger Carr, the chairman of Centrica, who according to today’s Times threatened that his company would leave the country if the Miliband programme were executed, I say: ‘Goodbye and good luck; and good luck taking your customers, your workforce and your infrastructure to Bermuda, or Grand Cayman, or wherever else you might be going.’

So far so nice. Unfortunately that doesn’t necessarily mean there’s a cheap and easy way to get energy. The conceptual transformation Miliband and his people need to begin working with requires a far more difficult and controversial leap. The truth is that, as German electricity customers are currently finding out, sustainable energy and energy security are expensive, and they do have to be paid for somehow. It is an element of British energy bills. But what, exactly, would you call that element? Up until now there has been an unacknowledged cross-party consensus that income tax is the only politically significant tax people have to pay. Poor people don’t pay income tax: rich people pay quite a bit. Now Miliband has zoomed in on another politically controversial tax. Just because it isn’t called ‘energy tax’ doesn’t mean it isn’t one. And once all, or part, of our energy bills – a sum of money we are obliged to pay for an essential service, whether we like it or not – is defined as a tax, a political debate can begin about its inequity. For, as with the detested poll tax that contributed to Margaret Thatcher’s downfall, the poor pay more, as a proportion of their income, than the rich.

Comments on “Energy Tax”

  1. JonathanDawid says:

    “And once all, or part, of our energy bills – a sum of money we are obliged to pay for an essential service, whether we like it or not – is defined as a tax, a political debate can begin about its inequity. For, as with the detested poll tax that contributed to Margaret Thatcher’s downfall, the poor pay more, as a proportion of their income, than the rich”

    I have great difficulty following this logic.

    Firstly, it follows almost as a matter of definition, that a poorer person will spend more of his income on life’s essentials than a richer person. Indeed treating poverty and richness as measures of the amount of disposable income remaining after life’s essentials have been paid for, it is mathematically inevitable.

    Secondly, to avoid this result, Mr Meek appears to be advocating treating energy costs as a form of progressive taxation with the poor paying less, subsidised by the rich paying more. But there can be no reason to restrict it to energy rather than all of life’s essentials. So on his logic, the rich should also subsidise the poor to obtain cheaper housing, food, water, clothing, transport etc.

    It’s not hard to see that this would be a very cumbersome system to administer. Far easier, surely, to charge the rich more income tax, and then redistribute the proceeds to the poor in the form of cash benefits that they can then use to defray the cost of those essentials. Which, oddly enough (and without going into whether the level of benefits paid today is sufficient), is pretty much what we have today.

    • Tim Sanders says:

      Yes, it’s true that fuel bills will be a higher proportion of income for a poorer person, unless size of houses and heating of swimming pools is quite out of hand. But think the point is that the government adds to the inequity by VAT on fuel.

      The Conservative government in 1994 introduced it at 8%, but were defeated in their proposal to increase it to 17.5% the following year. Labour did cut the rate to 5% after coming to power in 1997, but it’s time it was abolished.

    • John Cowan says:

      The difference is that not all of life’s necessities come from monopolists. Energy companies have franchises, which makes them effectively part of the state.

      In any case, income taxes are a disincentive to labor, as capital taxes are a disincentive to investment. But natural-resource taxes are not a disincentive to anything, because they merely capture the (economic) rent exacted by monopolists and franchisees for the benefit of the public.

  2. Tim Sanders says:

    Thanks for this, it needs saying as they try to effect blackmail on us !

  3. Gavin Comte says:

    As has been pointed out in the LRB before, utility privatization inter alia served to take debt-based investment in this area off the public books. This helps the govt to borrow on the markets to finance the deficit and also helps with meeting EU budget regulations (which would become legally binding should the UK ever join the Euro, an admittedly unlikely scenario today). Although govts (normally) borrow at cheaper rates than companies, no future govt will want to blow its budget by having to embark on debt-led investment programmes in the energy sector or raise taxes for the same reason.

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