Three reasons Labour must not be bullied by fat cat energy bosses

The most important thing now is that Ed Miliband and the Labour Party stand firm against the inevitable cascade of sour grapes that are about to come their way. Here are three reasons why that is so important.

Fat cat

Conference is barely over and the hysterical reaction to yesterday’s speech by Ed Miliband is already filling the airwaves and the print media. The ‘Red Ed’ moniker is back, and judging by certain Tory op-eds you could be forgiven for thinking the Red Army has been given permission to water its horses in the Thames.

The source of most resentment was the announcement by Miliband that a future Labour government will freeze energy bills for 20 months should Labour win the 2015 election.

Unfortunately, many appear to still be stuck like glue to the dogma that one can never interfere in markets without fatally distorting them – quite forgetting that the country was only saved from utter catastrophe five years ago by…yep, the state intervening in the feted market so as to rescue our cavalier banks.

No matter. The most important thing now is that Miliband and the Labour Party stand firm against the inevitable cascade of sour grapes that are, like higher energy bills this winter, going to come their way.

Here, then, are three reasons why it’s so important to stand firm against the fat cats.

1. We’re getting ripped off

The cost of energy is increasingly unrelated to the cost of energy. In other words, the price consumers are paying for the power to heat their homes is increasingly unrelated to the cost of that energy on the wholesale markets. In 2009 wholesale energy prices fell by 46 per cent; yet during the same period energy bills dropped by just five per cent. Profits of the Big 6 energy companies have risen by 74 per cent since 2009, while prices have risen by 13 per cent. Centrica, the company that owns British Gas, saw adjusted operating profit rise by 9 per cent to £1.58bn for the six months of 2013 to 30 June.

The energy companies say they need to charge such high prices because they need to invest; however that’s not the only reason bills are rising…

2. Struggling pensioners are paying for fat cats to live the high life

It’s only 24 since Ed Miliband’s speech, and the threats have already started, with energy bosses warning of blackouts and saying that price controls may “threaten energy security in the UK”.

If energy security means anything, however, it means every family in Britain being able to afford to heat their home. It doesn’t mean is five bosses pocketing £16.4 million as us regular folk struggle with whopping bills, which is what happened at Centrica, the company that owns British Gas, in March this year. This is not investment – unless by investment we mean investment in mock Tudor mansions, Porsches, or whatever it is these fat cats spend their – correction, our – money on.

3. Ed has latched on to a genuinely popular policy at last

Popularity isn’t everything, and there are many policies we at Left Foot Forward would strongly caution against even though they are relatively popular with the electorate. That said, the energy price freeze announced yesterday strikes the right balance: it is both populist and progressive.

More than eight out of 10 UK consumers feel energy suppliers maximise profits at the expense of customers, with utilities coming behind only banking, gambling, local councils and government departments in terms of their sheer unpopularity with the electorate.

The utilities firms should also be wary of holding the country to ransom with threats of pulling the roof in should they fail to get their way, as there is evidence to suggest the public are significantly more Red than Ed Miliband on this issue. In 2009 for example, data showed that 31 per cent strongly supported the renationalisation of electricity, gas, water, railways and telecommunications, with 36 per cent slightly supporting renationalisation. More recently, according to a ComRes poll earlier this month, 69 per cent want energy renationalised.

23 Responses to “Three reasons Labour must not be bullied by fat cat energy bosses”

  1. Sid

    Energy prices up 85% 2000-2012,shame Ed did nothing when he was in charge.

  2. Selohesra

    Thats unfair Ed did do something – he lumped in a load of ‘green taxes’ on the the energy bills – he is a cause of problems not a solution

  3. Juteman

    Serious question. How can any government ‘freeze prices’ on a privately owned company?
    Maybe i’m stupid, but wouldn’t you need to own the company, to freeze the prices charged? Could any government freeze the price Ford sells their cars at?
    Is Ed nationalising the energy companies?

  4. henrytinsley

    Ed wasn’t even an MP till 2005.

  5. Mr Spock

    apart from what you call green taxes making up la very small part less than ten percent of what energy companies make in profits of course Governments can control prices they can just pass a law. They control rail fares for instance and the mayor of London controls the fares that the private companies who run London Buses charge. Its about time that prices were controlled

  6. Juteman

    So when will Eds ‘freeze’ start? He said immediately, but if he needs to pass a new law, then that will take at least a year.

  7. freepete

    The implication is clear, that the energy companies are using imaginative accountancy practices to disguise their full profits (on paper they make their money selling power contracts to each other, not to the consumer, who obviously pays in the end) and the whole regulatory system needs overhauling. A government can do what it wants – if it wants to freeze prices for 20 months it can do so by statute. The trick is not to drive away investment. Ed is clearly not nationalising the companies, but giving them a pretty big warning that they need to behave responsibly. And when that 20 months is up, there should be a new regulatory environment present – or the policy would have failed. The challenge for Labour’s advisors will be how to do this and maintain confidence for investors. Too loose and the public ripoff continues. Too tight and the energy market collapses and companies go under. It’s a tight finesse.

  8. Juteman

    Can you give me a link to these powers? I’m pretty sure a government can’t do ‘what it wants’.
    I think Ed (not red) is simply making empty noises.

  9. Juteman

    Can you give me a link to these powers? I’m pretty sure a government can’t do ‘what it wants’.
    I think Ed (not red) is simply making empty noises.

  10. Mr Spock

    Not at all, legislation can be pushed through parliament fairly quickly and anyway there are probably provisions in existing legislation that can be used.

  11. Juteman

    Legislation ‘might’ be speeded up if you had a huge majority.
    Now that Ed (not red) has pissed off the SE Tory vote he needs to get elected, good luck with that!
    A link to that ‘probable’ legislation would be nice.

  12. freepete

    Precedent…this government, for example are currently capping charges on payday loans companies. It is what regulatory capitalism is all about. It is what Ofwat, Ofcom, the FSA do all the time. There is no huge precedent here…

    http://www.theguardian.com/money/2012/nov/28/payday-loan-cap

  13. Juteman

    Without looking at your link, I fear there isn’t much relevance.
    A government can have (limited) control over interest rates, but a whole new law concerning ‘acceptable’ profits is a different matter.

  14. freepete

    Look, Im not or a lawyer so I don’t know the exact issues. But I would say the following points:
    1) Governments have capped prices before so there clearly are precedents.
    2) I doubt that Labour would trumpet this policy as a key campaign issue if their legal wonks hadn’t considered the viability – rule 1 in politics is not to promise policies that are not deliverable
    3) if they get a majority Parliament then they could put a new law through very quickly.
    4) if they get a Lib-ab coalition then all promises are out of the window anyway, they’ll have to be negotiated with the LIbs, but I doubt they would reject this one.

    I guess we’ll both have to wait and see. They have to get into government first. But Ed has quite a lot to prove and I can’t see him committing to impossible or illegal policies. I know politicians make mistakes but I doubt they would promise a change if a final year law student could put his hand up and say “not possible”. Or you’ld like to think….?

  15. Juteman

    You said “rule 1 in politics is not to promise policies that are not deliverable”.
    That IS the first rule of politics.
    Ask Nick Clegg.

  16. freepete

    Hee hee, fair point. But the LibDems dont really count do they, their chances of securing an absolute majority is, well, I’m struggling to come up with an apt metaphor of unlikeliness! Lab and Con at least have to imagine being in power.

  17. JR

    Wow, what a load of rubbish this is generating.

    In short:

    Yes he could control prices (there is some truth in saying govt. can do what it wants)

    But, he has ALREADY scared investors.

    Now Miliband needs to roll back far enough to still look credible on the economy and broker some sort of path that allows him to capitalise on the media storm at the same time.

    Not doing so will prevent climate change objectives being delivered – objectives that he put through whilst in office. Nobody wants to invest in a country where they will end up out of pocket, not even good guys who like green power.

    The reasons why controlling prices would be too complicated to go into here, but to give you a clue; WHICH price will be frozen? What about the small suppliers the Labour party talks about all the time? Ironically, the only companies able to withstand a price freeze like this are the large suppliers he is complaining about.

  18. Selohesra

    Now Ed had discovered the power to control prices perhaps he could turn his hand to fixing the price of beer at 50p per pint & exotic holidays at less than £100.

  19. George

    This is bad news for the environment.

  20. Anthony Masters

    Let’s go through the points raised here.
    0. The author notes “yep, the state intervening in the feted market so as to rescue our cavalier banks”. The 2008 financial crisis and subsequent interventions were not one market intervention to rule them all. One intervention does not justify another. This proffers the point that the government can and does intervene in markets, but does not suggest why a particular intervention is a good idea.

    1. “The cost of energy is increasingly unrelated to the cost of energy.” I assume, from the rest of the paragraph, that the author means ‘The price of energy’ here. Consumer prices are never going to be completely in step with wholesales price, since energy companies buy and sell some of their energy years in advance. The quoted profit increase – “Profits of the Big 6 energy companies have risen by 74 per cent since 2009” – was an increase from a low point. Consider the net margins for dual fuel shown in Ofgem’s Electricity and Gas Supply Market Report: https://www.ofgem.gov.uk/ofgem-publications/39782/smrdec2011.pdf
    These margins were largely negative between 2004 and 2009.
    The typical net margin in September 2013 was £65, or 4.9% of the annual £1315 bill. https://www.ofgem.gov.uk/ofgem-publications/83392/smiupdate25-09-2013.pdf
    Even if energy companies had a zero net margin, this would not be a massive cut.

    2. Five Centrica executives earn, in total, £16.4m. According to this Sky News article http://news.sky.com/story/1057524/british-gas-sees-profit-up-11-percent-to-606m, British Gas has 15.7m customers. This would mean, if those five executives denuded themselves of their pay and returned it all to British Gas customers, that would be about £1.04 each, or 2p per week. This is cheap demagoguery over expensive energy.
    Also, the authors says “whatever it is these fat cats spend their – correction, our – money on.” I have no idea how Centrica executives spend their money on, though it might be as human as feeding their children or giving to charity. However, it is an indisputable fact of ownership that customers pay the company, then the company pays the executives, so it is their money.

    3. It’s certainly true that railing against “fat cat energy bosses” is popular and populist. I thought the One Nation Labour was about national unity, but this move is rather divisive. It has led to articles like this, where someone is either on ‘our side’ or ‘the side of the energy bosses’. Nationalisation runs counter to the EU’s energy liberalisation directives, so nationalising energy utilities would most likely necessitate leaving the EU.

  21. Evan

    Sadly for Ed, simply capping prices would probably be illegal under European Competition law …

    Not only did he not discuss it with the energy regulator, let alone anyone from any of the companies that might be affected, he appears to have failed to consider the legal consequence of his proposal.

    As to the proposal itself, in asserting that the companies have made super-normal profits, it appears that their margins being lower than those at our supermarkets – whose margins are also amongst the lowest for supermarkets in Europe.

    When Ed was energy secretary, he imposed expensive green targets on these companies and much of the increase in the costs to consumers is to pay for Ed’s own interference in the market. The sheer chutzpa is astonishing!

  22. Harry Leslie Smith

    Ed is being made over by his party’s media suits to be Labour’s answer to Pope Francis. As much as I would like to see energy prices frozen or returned to civilized proportions that toothpaste can’t be put back in the tube. Besides, Big Energy doesn’t have to bully anyone at Whitehall, they own it lock, stock and barrel. So don’t be fooled by party convention slogans because it has been a long time since, “we were all in it together.”

  23. JR

    Yes. Scaring off green investors will undermine the investment that Ed started to campaign for when in office at DECC.

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