Labour’s Hypocrisy on Rising Energy Bills

If you go to the Labour Party’s website there is an announcement.

Clicking down will take you to energy price calculator. I found out with Ed’s policy I could save £112 per year.

Two weeks after the announcement, still no links to the actual plan, but there is a video to watch.

Just one minute and twenty-six seconds for a distinguished actor to say the following:-

How do you feel when you see your energy bill sitting at the front door and you know that it is going to be even higher than the last one?

And how do you feel when you read in the newspaper that your energy providers’ profits are up yet again?

Millions of ordinary families are struggling to keep up with bills. Bills that are rising faster than wages.

Since David Cameron became Prime Minister, he’s allowed gas and electricity to rise by an average of £300 a year and sat by as energy companies make record profits. Under this Government a privileged few come before hard-families. Ed Miliband and Labour are going to change that. Ed’s energy plan will mean a tough new regulator with the power to challenge the energy companies and keep prices down. Under Ed’s energy plan gas and electricity bills will be frozen. That’s right frozen. Under the Tories you have overpaid. Labour will fight the cost of living crisis and build an economy that works for working people.

The inference is that your bills are rising solely due to the ever-increasing profits of the energy companies. Further the nasty Tories had it in their power stop it. Along will come Labour and stop all that.

I have looked up the figures. Since the 2009, the energy regulator OFGEM has required the six big energy companies to produce financial data by five segments. That is for electricity generation, along with supply data for electricity and gas, each split between domestic and non-domestic supply. I have analysed all four years of data for the six companies, using links provided by OFGEM. There is, of course, no financial data available for 2013 as the year has yet to finish.

If Labour are correct in their inference of price rises being due to increasing profits then profits will be increasing as a percentage of sales. With the typical household’s bill rising by over 20% between May 2010 and the end of 2012, profits as a percentage of revenue would be rising sharply. The following shows the percentage components of revenue.

The narrow band in purple for profit increased from 1.8% of sales to 3.8%. It is not increasing profits that have caused the price rises. The reason for doubling is because, in total, the six major companies lost money on gas supply in 2009. Nor is there a sharp difference between domestic and non-domestic supply margins. You could claim that the energy companies are making more money on generation instead. They are not, as the full margins, by segment, by year, show below.

The total sales breakdown enhances the picture.

Although total are broadly the same in 2009 and 2012, revenue from domestic customers was 13%, whilst that from non-domestic customers was 17% lower. The reason Labour have a higher figure is they rely on OFGEM’s notional average user, who uses the same amount of energy year-in-year out. Real hard-working families have responded to rising prices by reducing consumption.

What is most important is why unit costs have risen. Labour are correct when they say it is not due to the wholesale price of energy. As already demonstrated, they are incorrect to say it is due to rising profits. The real reason is “other costs”. These rose from 32% to 40% of revenue in just four years. That is from £14.1bn to £17.7bn in just four years or a 25% increase. On declining volumes this is more significant for consumers.

These figures are corroborated by a breakdown by my energy supplier, Scottish Power.

With VAT at 5%, the Scottish power says that its charges to the domestic customer in 2013 are made up of 53% for fuel and 43% for other charges. This compares to the industry average in 2012 of 55.7% for fuel and 40.6% for “other costs” plus “amortization”. The higher proportion of other charges to domestic customers is to be expected, as small domestic customers have lower costs. The relevant domestic figures from the big six are 51.8% for fuel and 44.0% for other charges. Given the obviously rounded Scottish Power figures, they are remarkably close to the industry average.

The supply market is fiercely competitive, hence the real reason for the ability of customers to save money by switching suppliers. Therefore it is doubtful that internal costs will have risen. What has risen is the delivery of the energy to the home (National Grid, local delivery, and cost of meters), along with green levies. So it is likely over 75% of the price increases to the customer are due to factors outside of the energy supplier’s control.

Where does responsibility lie for the above-inflation price increases?

The dash for “clean” energy to save the planet is enshrined in the Climate Change Act 2008. It was pushed through the House of Commons when Ed Miliband was Environment Secretary. This accelerated the growth in green levies and the requirement for a more extensive grid network to carry the wind-generated electricity from remote turbines. Delve further in the profits on electricity generation and you will find that fossil fuel generation has margins of 10%. A price freeze will eliminate the supply profits in six months, and the generation profits in two years. The is a sure way to get a near monopoly in gas supply, and cause the rapid shut-down of three-quarters of generating capacity. It is an act of gross hypocrisy by Ed Miliband to threaten to destroy a competitive industry to remedy a problem that he is responsible for.

 

NB First time comments are moderated. The comments can be used as a point of contact.

Kevin Marshall

Tram to East Didsbury – a net detriment to Society

Today was opened a 2.7 mile tram link. The plush new trams will transport people to the centre of Manchester in 25 minutes. For those who normally take the car, there is a large car park, meaning people do not have to endure up to sixty minutes of heavy traffic congestion and then to face exorbitant city-centre car parking charges. For people normally taking the bus, there is a similar time saving, and a much more pleasant ride. Further the route goes via Chorlton, a route that is only served with public transport by a painfully slow bus at any time of day. People who do not use public transport now will start doing so. People who already use public transport have a much superior option.


So how on earth, with all these positives can I claim that this fantastic new tram is to the net detriment of society?

Within 400 metres of East Didsbury tram station is East Didsbury railway station. To Manchester it takes 12 minutes, half the time of the tram. Off peak by train is around £2.50, as against £3.80 tram cost I was quoted at 8pm when I took the photograph.

The bridge in the background is of the A34 Kingsway. Less than 50 metres away is a stop for the 50 bus into Manchester. 100 metres left of shot is East Didsbury Bus station. In between on Didsbury Road is a bus stop for buses from Stockport going through towards Altrincham, Chorlton and also North through Didsbury, Withington, Rusholme into Manchester. The Withington to Manchester bus corridor is probably the busiest in Europe, mostly due to serving two large University campuses. The tram route is useless to the students.

Then there is the cost. A weekly ticket on the tram to Manchester is £21.00. An annual ticket is £800.00. This compares with £12.50 for a weekly bus ticket. For students, Stagecoach (the dominant bus company) provide an unlimited travel ticket for £60.00 a term, equivalent to £5.00 to £7.50 per week.

But the biggest costs are to society as a whole. In December 10th 2008 there was a referendum in Greater Manchester on a package of measures to improve public transport, paid for by a congestion charge. There was a huge, publicly-funded website called “wevoteyes.co.uk”. The most expensive item Although the website is now suspended, thanks to the Wayback Machine, the claims can be charted. Most important amongst the claims was


FACT: There’s no Plan B. If we vote NO in December the money goes back to Government, all £3 billion of it.

I wrote on 09/11/08, a full month before the referendum:-

…..it is a false statement, as the total investment is less than £2.8bn, including £313m for the congestion charge investment. The central government is only providing, £1.5bn of this, £1.2bn is to be funded by the congestion charge and £100m is from other sources. The full £2.8bn includes contingencies, so will only be “achieved” if there is an overspend.

Anyway, the full and permanent withdrawal of the £1.5bn funding may not occur. The Prime Minister, in a response to a question tabled by Manchester Withington MP John Leech, said “If Greater Manchester came back with a revised proposition, we would need to assess it on its merits.”

Just six months later the decision was made to go ahead with the scheme. Maybe you can excuse a Government trying to cajole people into making people decide in the general interest. But they commissioned a detailed study which relied upon a congestion charge to force large sections of the community from private to public transport. That the people who would be forced to switch would be those currently only just able to afford the luxury of private transport, or that the figures ignored empirical economic evidence that undermined their case are beside the point. What is important is that the wider economic validity of the case for an expanded Metrolink to East Didsbury relied upon the “stick” of the congestion charge. Without that “stick”, the costs of the Metrolink extensions are significantly greater than the benefits, so society as a whole is worse off than if the money had never been spent. The Labour Party would have known this if they had read and interpreted the report they commissioned. Yet the spin doctors put Labour Party interest before the interest of the wider society and ploughed on regardless. If a GP had done this in regard to a patient they would have been struck off. If a business director had put personal interest before the interests of the company they would have been disqualified, with all costs falling upon them personally. But when a political party tries to hang onto power by favouring voters in areas where they are strong, or marginals where they are a close second, at the expense of the country at large, then this is not viewed as a moral issue. I beg to differ. Political decisions have wide implications. Our political masters should seek the net betterment of society as a whole. In the case of the Metrolink extensions we have a lovely service that will never justify the original outlay of £1.6 billion, but the long-term passenger revenues may not cover the operating costs, whilst custom taken away from the trains will increase subsidies and/or reduce services in that area along with bus services being diminished that currently run without subsidy.

http://www.manchestereveningnews.co.uk/news/greater-manchester-news/first-passengers-travel-tram-extension-4004861

Higher Tax Rates – a Poison Pill for Government Finances?

John Redwood and the Adam Smith Institute may have inadvertently exposed a poison pill left by the outgoing Labour Government.

I completely agree with the contention that in the medium to long term higher tax rates reduce revenue. The ASI obtain this conclusion from the analysis of Capital Gains Tax Rates and revenues over the past fifty years. However, looking at the ASI’s graph on page 3, suggests something important for short-term tax policy as well.

For instance, in 1986, the year before tax rates rose from 20% to 28%, revenue rose 96%. In 2002, the year before tax rates dropped from 20% to 15%, tax revenue dropped 26%.

The expectation of a change in tax rates is highly significant on short–term revenue as people optimise the year in which they declare the capital gains

The UK had just the same effect with income tax in March. The deficit for the last financial year was £11bn lower than forecast in the last budget, (due to higher tax receipts from top earners than expected), and over £20bn lower than forecast last autumn.

In the budget I would therefore expect an adjustment for lower than expected tax revenues from higher rate tax payers in next month’s budget of at least £10bn.

Labour Totally Loses It

Labour seem to have totally lost any sense of proportion when

  1. They talk about less than cuts of 0.5% of GDP sending the UK back into recession when most of that will due to not replacing leavers.
  2. When Gordon Brown is angry about other parties proposed Cuts in child Tax Credits and trust funds. Something that would hit the wealthier families. Or Ed Balls saying it was a “mistake to ghettoise the welfare state”.
  3. They attack the Conservatives innovative education policies, that could push up standards, because of potential minor budget cuts in LEAs that lost pupils.
  4. On cancer care, the target of seeing a specialist within two weeks is mostly met, but survival rates for most cancers are amongst the lowest in Europe.

 

Until last autumn they refused to discuss how to tackle the £70bn structural deficit they created in the boom years, instead parroting on about “Labour Investment v. Tory Cuts”. They then refused to have a full spending review until after the election.

Labour have further refused to answer questions on the Banks and the Deficit.

Labour are desperate. If they come third, they will be racked by in-fighting more gruesome than in the early 80s. The Lib-Dems will overtake them as the major left-of-centre party.

As a result, Labour lack any sense of proportion. Their very desperation makes them unqualified to govern, or even represent any of the constituencies.

 

(this is an updated version of a comment made on John Redwood’s blog today)

The Economic Legacy of Labour – A Summary for the Tories

Thirteen years of Labour has increased the National Debt by £600bn or £10,000 for every person in this country.

How is this worked out?

  1. A prudent government would have kept the National Debt at a constant level of GDP in the boom years. From 2001 to 2007, Labour let this grow by around 15% of GDP.
  2. A prudent government balance the budget over the course of the business cycle. In 2007 Labour were at least 4% short of that. That is, they had a structural deficit.

 

Take the two together. Under current forecasts the structural deficit will still be around in 2014. That is after four years of strong growth, the economy will have grown maybe 15% from the bottom in 2009 and be nearly 10% above the 2007 level. Yet the deficit will still be over 5% of GDP. Seven years at 4% is 28% of national income.

15% + 28% is 43%. Translate this into pounds by multiplying 43% by national income of £1400bn, gives £600bn.

Some could be a little less generous by adding compound interest to the extra £200bn of debt acquired in the good years and 4% structural deficits for seven years the at least £150bn to add to the end of 2014. So that is £750bn.

Under a Prudent Government, this very severe recession would have added up to £300bn to the National Debt. It would have peaked slightly higher than Labour managed in 2007 before the downturn. Most of that could be reduced with a sustained strong recovery and without real cuts in public expenditure.

Instead, the legacy of 13 years of economic mismanagement by a Labour government will be high taxes and a squeeze on public expenditure for a generation.

More detail for my earlier posting at https://manicbeancounter.wordpress.com/2010/03/21/the-impact-of-labour-on-the-current-crisis/.

This is prompted by John Redwood’s posting “Labour Government’s end in Economic Chaos“.

Thanks to Stuart Fairney for the suggestion of passing this idea to the Tory Front Bench.