Sunday, 16 October 2011

Miliband offers only hot air on energy

The report by Ofgem last week showed the profit margin for energy companies has risen to £125 per customer per year. It expressed concern at the rampant profiteering by energy companies. This is important - let's remember that every winter an extra 20-30,000 pensioners die due to cold-related illnesses. With prices having risen by 10-20% this will be a life or death issue for tens of thousands this winter.

The Ofgem report did not surprise us; in March 2011 we published our report 'Restoring the Public' and noted:
The unusually cold winters in the past two years, and large margins, have led to bumper profits for energy suppliers such as British Gas, whose profits rose by 24% in 2010. The regulator Ofgem has found that energy companies increased their net profit margin per customer by 38% last November, and is currently reviewing energy prices. However the case for a windfall levy now is not in conflict with future recommended reforms to regulation.

At that time we advocated a windfall tax on these excessive profits. It's clear though that seven months later, the energy companies remain unconstrained by regulation. Ofgem deliberately does not have the teeth to prevent excessive profiteering.

In retrospect our call for a one-off windfall tax, combined with the review of regulation, underestimated the problem. Let's face it: no review of regulation under the current government is likely to constrain business to benefit consumers.

Ed Miliband writing in the Sunday Mirror, continues his 'moral capitalism' theme from his Labour Party conference speech, stating "there is nothing to stop those power companies giving up those profits".

But there is! The very reason the companies profiteer is because their purpose is to maximise profits for their shareholders. Ed's plea is as asinine as Vince Cable repeatedly imploring the banks to lend more. The lesson is companies (as they are designed to do) will act in their own interest, not the public interest (unless the two happen to coincide - rare).

If Ed Miliband wants cheaper energy prices exhortations are not enough. Neither would be his other plan: "more competition". More companies will act exactly the same as the big five already do - because they will also want to maximise profits.

The only permanent solution is public ownership. If something is 'too important to fail' as the banks and energy companies are then they have to be run in the public interest - that means control.

If Ed Miliband is going to inspire voters to return to Labour he needs something that will electrify the electorate. His current gas is just hot air.

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