23 October, 2013

Energy prices

There seems to be a reluctance to face reality in Britain over the cost of energy. For years we have been told that the price would go up and up, and now it has, it is somehow a disaster. And not only a disaster but a fiddle. 'We are being cheated', they cry, and it is, of course, the horrid big companies doing the cheating. Trust me, when it comes to fuel prices, big companies are good; you don't want to be buying your energy from some tiny local supplier down the road, like a corner shop. That would cost far more.

Then someone introduced the idea of 'fuel poverty', where people were deemed to be fuel poor if they spent more than 10% of their income on fuel. Instead of pointing out that this is a complete nonsense - some people live in large houses in cold, exposed areas, some live snugly in city flats; some need to be warm, others don't - the BBC and several newspapers have been treating this bogus concept as if it were important..

Next we had David Cameron's wizard scheme to tell the horrid companies to put everyone on the 'best' tariff, thereby reducing the number of different tariffs available and reducing consumer choice which is what keeps energy prices down.

Then we had the astonishing economic illiteracy of Ed Miliband, announcing a price freeze if he won the election. Of course it is quite easy for the Government to announce a price freeze, simply by reducing fuel taxes by the amount the market price had risen. But this wasn't Mili's idea: he wanted to ban the horrid energy companies from increasing prices, even if their cost of fuel goes up. Of course what would happen is they would put up prices on election day, particularly if it looked as if the country were daft enough to vote for Miliband, and they'd put them up again at the end of the freeze period.

After all this swaggering incompetence, all it needed was for some senior political figure to keep the 'debate' going and attack those horrid companies. Step forward Sir John Major, Prime Minister, astonishingly, for more than six years. Now, this was a fairly inglorious moment in our history (remember the Cones Hotline? Back to Basics? Edwina Curry?) and you would have thought that having been such a risible disaster in power he would have had the decency to keep his mouth shut after he had been found out. But no, the man with the blue underpants wants a windfall tax on the horrid companies.

One wouldn't have thought this needed saying, but it obviously does. Energy is a fairly long term business, and the investors need to be fairly sure about future prices and returns. If the government suddenly intervenes with a new, unexpected tax they grow nervous and don't invest because there is an atmosphere of uncertainty. They invest somewhere where the government is more sensible.

Going back to the Miliband Plan, there are a few things people should know. The first is that part of the taxation regime is arbitrarily imposed 'green' taxes. These were popular with the previous government and several were introduced by Ed Miliband when he was Energy Secretary. They were very popular with David Cameron, who also fell for the Global Warming twaddle, although less so now that it has been disproved (the IPCC say Britain is due to get colder). The green taxes amount to around 15% of fuel bills, all based on some fashionable bogus science. They tried to cover up the additional cost by making it illegal for companies to mention them on the bills they send out.

The next thing people should know is that the Miliband freeze could well make things much worse. As stated, the companies will put up their prices to cover the uncertainty, but 2015-17  will be a period of stable or falling energy prices, as the Americans release their vast reserves of shale gas on to the world markets. At best, the Mili-freeze is unlikely to have any impact.

As to the claims that there is no competition, there are six large energy suppliers and I believe this is enough to permit competition to flourish.

I am not, here, appealing for lower energy prices or lower profits. I am appealing for some common sense to be spoken on this subject.

No comments: