...a blog by Richard Flowers

Wednesday, September 25, 2013

Day 4650: Mr Ed is Mr Freeze (just don’t mention the VATman and Robbin’)


Just when you thought Hard Labour conference was going along nicely, copycatting all our Liberal Democrat policies – tax cuts for low-income workers, check; paid for by a mansion tax, check; more apprentices, check; more affordable and social houses, check; garden cities, check; votes at sixteen, check; net nannying, check (no, hang on, we voted to refer that back!) – when along comes Mr Milipede’s leader’s speech with a totally unexpected policy to capture the headlines freeze (for twenty months) the prices that companies can charge for energy.

I don’t know whether it’s a work of genius or lunacy.

It’s clearly pitched as a “game-changer”, after the fashion of Master Gideon’s 2007 Conference announcement of a cut in Inheritance Tax for dead millionaires that so derailed Mr Frown’s plans for a snap general election. As such it’s much more political than practical.

In practice it’s a four-and-a-half billion pound windfall tax on the profits of the energy companies, distributed directly to energy users.

(Obviously that’s a hugely regressive tax giveaway as it will benefit rich people with large houses and big companies with large energy bills much more than the less well off, an “energy cut for millionaires” as Hard Labour might call it, if the Coalition had suggested it.)

There’s also a serious question of who pays this four-and-a-half billion pounds. Four-and-a-half billion pounds is quite a lot of money and it’s going to come from somewhere. And the answer isn’t just “the energy companies”, because companies are just people really, and money that companies make gets paid out, either in salaries or to the shareholders. It’s not just the money paid to shareholders that is affected by this profit hit – companies may choose to cut bonuses, curb salaries, or just plain axe jobs to claw back some of the cost of Mr Milipede’s largesse with other people’s cash. But let’s assume that it mainly hit’s the shareholders: that’s fat cats in the city right? Well again, not really.

Of the “big six”, Centrica and SSE plc (formerly Scottish and Southern Energy) are British-owned, quoted on the London Stock Exchange and are FTSE100 companies; npower, as a subsidiary of RWE, and E.ON are usually described as German-owned, but like their British equivalents they are public companies listed on the German stock exchange and are members of the blue chip DAX index; similarly Scottish Power are a subsidiary of Spanish company Iberdrola who are quoted on the Spanish IBEX 35. The one of those kids doing her own thing is EDF (Électricité de France), Europe’s largest energy supplier, providing power to more than a fifth of the continent, including us (Mr Farage, take note). Although theoretically privatised and quoted on the Euronext exchange, the French government remains the largest shareholder, owning 85% of the shares.

Crudely speaking our energy generating capacity is owned by: 23% British, 34% German, 9% Spanish, 17% French and 17% smaller companies (including the Irish EDS and France’s GDF-Suez).

But because they’re almost all publically quoted, anyone with a European portfolio – and that means most British pension funds and British Insurance companies – would ultimately be affected. Yes, a fair amount of that pain would be “exported” to our no doubt very grateful friends in the European Union, so that’s fine isn’t it – let’s shaft French and German pensioners instead of our own.

And don’t think the French government wouldn’t be narked. I mean it’s not like they’ve got a history of hauling Britain in front of the European Courts… oh…

But the practical considerations of setting your face against the worldwide trend in energy inflation or launching another raid on pension funds or pissing off Europe again, even without getting into the legal challenges from the six power companies that have sewn up the UK energy market, are almost neither here nor there.

It’s bound to be very popular, isn’t it. The energy companies, after all, are disliked almost as much as Mr Milipede (maybe not as much as Cap’n Clegg). More importantly, it’s going to be popular between now and the general election in May 2015, and never mind whether or not Hard Labour ever have to implement it. (Remember, Master Gideon’s “Tax Cut for Dead Millionaires” was merrily traded away in Coalition negotiations in 2010!).

And it helps to move the agenda onto the territory that Hard Labour want to play on: away from the wreckage of the economy that they left in 2010 (and whether or not the recovery is enough to mean the Coalition have fixed it) and onto their so-called “cost of living crisis” where people as individuals feel very small and disempowered against these large (and largely privatised) companies that seem only to put their prices up and up, and widening the gap between the end of the money and the end of the month.

(Hard Labour’s part in setting up these massive near-monopolies – the mergers that turned a “Big Ten” energy companies into a “Big Six”, say, taking place between 2006 and 2010… who was Energy and Climate Change Secretary at that time? – all quietly swept under the carpet. Just as with shifting their complicity with the Banks for the crash, “Big Business = Tories” sells too easily for any blame to stick.)

Clearly it’s better to be known as “Red Ed” than as “Mr Nobody”, and – like Master Osborne – with one bound Mr Milipede has re-established his reputation. He makes a very good story out of joining the dots, too, from his “squeezed middle” via “ predators v producers” to this. (Though I’m ever so reminded of the Dr Woo story “The Curse of Fenric”: not because of “something nasty rising up from the sea” in Brighton, but for taking disparate and unconnected plot points and post-facto justifying them as a “story arc in retrospect”.)

He’s certainly created “clear red water” between himself and the Conservatories (possibly making Cap’n Clegg’s positioning of the Liberal Democrats as the moderate middle look wise in the process). And ironically – after a summer spent trying to distance himself from the Unions that got him elected – he’s made the Unions very happy with this apparent rediscovery of Socialism. Or at least Statism.

Big, sweeping State interventions are the stuff of Old Hard Labour’s Sixties and Seventies heyday, when then Industry Secretary (and now darling of the Left) Tony Benn would impose massive mergers on British industrial sectors – computing, motor cars – and… well how did that work out? Or to put it another way, why don’t we have a British computing or motor car industrial base anymore?

(There’s got to be something wrong with the thinking of a man who diagnoses the problem as “the Civil Service stands in the way of progressive change” and the cure as “Nationalise all industry… into the hands of the Civil Service”. Maybe get back to us on that, Tony.)

There’s even an element of the Social Market in it that might appeal to Liberal Democrat hearts – note that even I’m not wholly ruling this out as an idea – with Milipede justifying his sweeping – and entirely arbitrary – market intervention as a “correction” when the market has “failed”. How exactly has the market “failed” though? Repeated MMC investigations have failed to turn up evidence that the power companies are collaborating. And Tesco makes a higher profit margin that several of the “Big Six”. Are we suggesting that the government should freeze Tesco’s prices too? I suppose, every little helps.

But it doesn’t just end there, does it. If Mr Milipede can wave his wand and, on a whim, freeze the price of one group of supposedly private companies, why not wave it again over the price of, say, houses? Everyone agrees that house prices are too high, so how would you feel if Prime Monster Milipede just declared that the value of your house was halved? (Not your mortgage, just the house. Can you say: whoops negative equity?) Not similar? Well, people will have paid money for shares in the power companies; arbitrarily freezing the income of those companies cuts the value of those shares just like that too. Pity if it was your pension pot that suddenly fell short.

This is where we get to the real problem – and the real danger - of Mr Milipede’s rabbit-from-the-hat policy announcement. In the Sixties and Seventies, the government thought it could “pick winners” and it did it very badly. Mr Milipede thinks that he can “pick villains”. What if he is just as wrong?

When that other Phoney Tony, Lord Blairimort (what is it with Tony B’s?) got into Downing St, New Hard Labour discovered that pulling the levers of government didn’t change things as quickly as they wanted, if at all. Their solution? More levers!

Mr Milipede appears to have discovered the Mother of all levers.

It is genius. But it is lunacy.


Edited to add:

Beaten to the punch by Alisdair at Lib Dem Voice with similar points: "terrible economics but excellent politics".

Factcheck response: "skeptical".

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