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.

Corporate Britain: The wages into profits miracle

Times are tough - living standards are falling, as the IFS reported last month. Average wages are rising by around 2% while inflation is over 5%. Consumers are cutting back on spending, demand on the high street is suppressed and employers are laying people off: unemployment continues to rise.

Amid all the gloomy headlines about unemployment, pay freezes, lay-offs, the eurozone crisis and the imminent need for further bank bailouts, you might have missed this virtually unreported statistical release from the Office for National Statistics.

The release demonstrates that corporate Britain is actually doing rather well: the profitability of UK companies was 12.1% for the second quarter of 2011 - up from 11.7% in 2010 and 11.3% in 2009.

In the service sector the picture is even more rosy, with companies profit rate at 15% in Q2 2011, up from 14.7% in 2010 and 14.2% in 2009.

Now of course LEAP did point out in its March 2011 report that some UK firms were engaging in rampant profiteering. We identified banks, supermarkets and energy companies - and called for a windfall tax on each sector.

So how - when times are tough, wages are falling further behind inflation, benefits are being cut and unemployment is rising - is the corporate sector managing to increase its profits?

The answer is part of the reason why we're in this crisis: because there has been a power shift from workers to corporations ('from labour to capital' if you like it in Marxist terms). As the share of the national wealth going to wages has declined so the the proportion going to corporate profits has increased. Workers are easier to sack and harder to unionise, and we have deregulated, liberalised and privatised.

Take a couple of examples where this is true in corporate Britain today:

Newsquest, a company which owns a large number of local newspapers in the UK has frozen staff pay, slashed 800 UK jobs, and last year closed its pension scheme. Times are tough? Well, not for the shareholders: their profits went up 15% (£10.8m) to £82.5m. More on Newsquest here.

Park Cake is a company you've probably never heard of, but you have probably seen their products. Its biggest customer is Marks & Spencer, for which it makes its famous Colin the Caterpillar cake and its popular chocolate ganache birthday cake. This year Park Cake directors awarded themselves a 10.6% pay increase and the Managing Director a 15% pay rise. Their workers' pay was frozen. To compound their greed, they are also exploiting their agency staff by exploiting a loophole in the new agency workers regulations. No pay rise, no rights, let them eat cake. More on Park Cake here.

In both these cases, the workforce is unionised - which is why you've now heard of them - but the law is so stacked in employers' favour that even the best unions (and the NUJ and BFAWU are two of them) are struggling to fight back.

Of course this squeeze cannot go on forever - if wages continue to be squeezed and unemployment continue to rise then people will cut back on buying things like newspapers and caterpillar cakes. As Nouriel Roubini said, capitalism might eat itself.

The solution to this crisis is therefore to restore trade union rights, raise not cut (as Osborne is doing) taxes on big business, uprate the national minimum wage and invest to create jobs. Trade unions are saying it. They're right. Labour should say it too.

LEAP Budget report launched

PRESS NOTICE:

FOR IMMEDIATE RELEASE:


A Windfall Tax on Recession profiteers: banks, supermarket and energy companies
. . . LEAP launches 2011 Budget Report

A report by left economics think-tank LEAP has today dismissed the argument of Chancellor George Osborne that public sector spending has been a contributory cause of the UK’s economic problems. The report shows that actually instability as been driven by an increasing reliance on the private sector and is now being exacerbated by “a laissez-faire labour market policy”.

The report, published today, advocates a Windfall Tax on the excessive profiteering of the UK banks, energy companies and supermarkets to fund job creation and capital expenditure programmes to tackle unemployment and

John McDonnell MP, LEAP Chair, said:

“As they see their services cut and as they lose their jobs more and more people are beginning to understand the implications of the Government’s economic policy and are looking for an alternative.

“Funded by a windfall tax on recession profiteering we can put people back to work on greening and growing our manufacturing base to rebalance our economy. Demand is increased and by increasing demand we get onto a virtuous economic cycle

“The alternative is straightforward enough. We now need to bring this Government down so that we can implement it.”

Andrew Fisher, LEAP co-ordinator, said:

“Hacking away at spending – as Osborne is doing on an unprecedented scale – is reminiscent of the amputation of infected parts of the body by medieval quacks, who are then bemused when the patient dies. In fact Osborne is worse: he has misdiagnosed the illness too.

“The real problem for the UK economy is not public spending, but high and rising unemployment. We need to restore the public and create jobs to grow and rebalance the economy.”

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Download the report

Osborne’s policies risk deflationary spiral, warns LEAP

. . . Calls for a Windfall Tax on profiteers to fund investment and jobs

The Coalition Government risks pushing the UK into a deflationary spiral warns the Left Economics Advisory Panel (LEAP) ahead of Wednesday’s Budget statement.

Osborne’s plans to date have already sapped demand from the economy through job losses, wage freezes, welfare cuts – and the full impact of cuts and job losses is yet to hit. LEAP identifies rising unemployment, pay freezes and sub-inflation pay deals, higher pension contributions, reduced capital spending and rising food and fuel prices as factors which could combine to push the UK into a deflationary spiral and possible double-dip.

A full report, published on Monday, will set out in full LEAP’s proposals ahead of the Budget. As well as the windfall tax on recession profiteers to fund investment in infrastructure and jobs, LEAP will also be calling for tax reforms to close the £120bn annual tax gap, introduce a Robin Hood Tax and to implement Land Value Tax.

John McDonnell MP, LEAP Chair, said:

"If the rumours around Osborne’s plans prove correct then this government and this Budget could send the economy into a deflationary spiral.

"We need an interventionist Budget that plans large scale investment in green jobs paid for by an immediate windfall tax on the profiteers from this recession: the banks, energy companies and supermarkets."

Andrew Fisher, LEAP Co-ordinator, said:

"Neoliberal policies were the cause of the recession and more of the same will deepen the crisis and make a double dip more likely. Osborne’s deregulating, tax-cutting agenda for business will only serve to further increase profit margins and executive salaries.

"While cuts have sapped demand, there has been rampant profiteering by the banks, energy companies and supermarkets. A windfall tax would prise open that capital and invest it in the jobs we need to bring down unemployment and avoid further misery for millions."

-Ends-

HSBC bank big-wigs brag of super-profits

From today's Morning Star

Louise Nousratpour

Banking giant HSBC has boasted that it had more than doubled half-year profits to £7.2 billion - prompting demands for a windfall tax and the nationalisation of the banking system.

The British-based group's super-profits roared 121 per cent ahead in the first six months of this year as bad debts plunged to their lowest level since the financial crisis.

In Britain, where HSBC cut 4,600 jobs last year, profits totalled £1.3 billion, an increase of 26 per cent. The bank has also set aside £6.2bn in staff pay, bonuses and benefits for the first half of the year - up 7 per cent on a year earlier.

Left campaigners said that the recent super-profits announced by the corporate sector confirmed that we are not "all in this together," as Prime Minister David Cameron keeps telling the nation, with big business flourishing while Chancellor George Osborne "robs ordinary people of £6bn in austerity measures."

Left Economics Advisory Panel co-ordinator Andrew Fisher said: "The eye-watering figures from HSBC reinforce the fact that the corporate sector has had a good recession.

"We are seeing the same phenomenon whether it's BT, British Gas or the banks - corporate profitability restored to or above pre-recession levels, while the recession they barely felt is used as an excuse to cut jobs, suppress wages and raise prices."

Mr Fisher warned that a "stark class warfare" was being waged by the Con-Dem government and "its corporate pals who were given £25bn in tax breaks in the last Budget.

"The reality is that the government still holds over £850bn in bank assets.

"There is no need for a single job to be cut or for a penny to be taken away from a single public service."

Communist Party of Britain general secretary Rob Griffiths renewed the labour movement's demand for a windfall tax on all super profits and for the banking sector to be brought in-house to plug the deficit and fund public services.

"Banks were kept afloat because the government and the Bank of England pumped £1.3 trillion into Britain's financial system, yet the working class are being forced to pay the cost of the crisis while the fat cats grow fatter on their ill-gotten gains," he added.

Britain's other major banks are due to report their results later this week. Part-nationalised Lloyds is forecast to report £800 million in profits, while the 83 per cent state-owned Royal Bank of Scotland (RBS) is expected to post interim profits of around £200 million.

Labour leadership frontrunners David and Ed Miliband have both called for the recently introduced banking levy to be doubled.

David Miliband told a south London party meeting on Sunday that the tax, expected to raise £2bn a year from banks, was "incredibly small."