Or, we could charge market prices for energy, and pay cash benefits large enough that people on very low incomes can afford to light their houses, heat their water, cook their food and heat their houses in winter, while not rigging prices for everyone else.

Just like we could abolish tax credits and raise the personal allowance.

But because people prefer a solution that sounds more perfect in theory, without giving thought to the enormous complexity and expense it’d involve (not to mention the disincentives provided to investment in energy when compulsory price controls are in place), the simple, almost-as-effective-and-much-less-wasteful measures get ignored.

(also re home sustainability – the most effective way to achieve this would be through doubling council tax and removing all council tax benefits. I imagine this isn’t on your agenda…)

john b, this is just one point of a whole raft of issues that need to be address. I didn’t go in to council tax because it would a) make this article way to long and b) I’d prefer it if other people got in on the debate about the various other facets of inequality in the economy as they see it.

But I fail to see how this, what I’ve written about, is “rigging” prices. Far from it the system I believe would work is it about making sure people are paying fairly for energy within the climate of environmental responsibility balanced with definite need. I also don’t believe it would cost much to implement nor that it would be too complex, not in terms of money available with the big 6 for certain, let alone government funding. Using simple information such as council tax banding isn’t a “perfect” solution in theory, it is what I feel would be a realistic solution much closer to the ideal situation.

I think you completely miss my point about keeping energy companies competative, and that is to find the right point of balance between not charging those that are truly needy too much for their basic energy (or indeed *anyone* for their basic energy) while making more money off of those that choose to use more. I don’t think the government needs to interfere any more than to set this control. In reality I believe the government under a correctly balanced system should rarely need to give benefits specifically on the issue of fuel poverty and that a free market solution is possible…it was that idea that I wished to explore here, especially given Labour’s propensity for moving away from their core values.

I’d also like to say that this was written before the 42 days decision, I’m much less inclined to believe anything is possible with Labour now 😉

“But I fail to see how this, what I’ve written about, is “rigging” prices.”

Because the government would be telling companies how much they’re allowed to charge to whom and for what. That isn’t a free market solution – at best, it’s a corporatist compromise, characteristic of the current lot’s approach.

I guess it comes down to whether or not you think the retail electricity/gas market as currently constituted is competitive. If it is, then your plans are clearly government meddling; if it isn’t, then they might be seen as a reasonable solution to market failure.

But I suspect it is competitive: the very limited price variance you describe is typical not just of cartels, but also of commodity markets with very limited product differentiation. Like, err, electricity and gas.

btw, I wasn’t suggesting that we pay benefits *specifically to counter* fuel poverty – rather, that all benefits should be set to guarantee an income large enough to pay rent, rates and bills on an appropriately-sized home at the actual, market price.

No, the government would be telling companies how much they’re allowed to charge as a rate for an objectively determined initial energy usage level. After that it’s fair game. And as I’ve said in the article it’s clear that the situation ISN’T competitive and hence why the government needs to step in.

Why should we be happy with a benefits system pumping money by bigger and bigger proportions in to energy companies, some of the biggest not even being UK owned? I’d much rather see that people paid a fair amount than the government pumping money in to a problem through benefits. As far as I’m concerned all that would do is alleviate a certain level of restraint that energy companies do currently have for not pricing the poor completely out of the market, as well as still failing to solve the issue of energy becoming proportionally cheaper the more you use despite supposed commitments by the government and energy firms to cut emissions.

“And as I’ve said in the article it’s clear that the situation ISN’T competitive and hence why the government needs to step in.”

No, you’ve said you believe that the situation isn’t competitive. It’s far from clear to me that that’s the case.

I don’t know enough about electricity and gas retailing to say for certain that it /is/ a competitive market, but I do know something about oil retailing – which is a market where nobody makes any money and margins are tight, because the producers capture nearly all of the market value.

Hence, I’m generally sceptical of claims in energy markets that retail suppliers are profiteering – when frequently what they’re actually doing is passing on cost increases without which they’d be unable to make an acceptable return on capital, and being blamed for it because the consumer gets their electricity bill from Centrica and not from Gazprom or Saudi Aramco.

If the market were not competitive presumably the companies would be making abnormally high returns on capital. Is there any evidence that this is the case?

Uh… 500% increase in profits for British Gas in two years. I guess it’s a matter of perspective as to whether you think that is an abnormal return or not in two of the worst years for energy pricing globally.

Where do you get 500% from?

(clicking subscribe)

Andrew: It’s called maths. 😉 £95mil to £571mil profits in two years. This is all in the public domain, check it for yourself. As our own casting the net has pointed to today as well, British gas aren’t the only ones profiting so vastly off of us, NPower seem to have gained 41% profits off of 17% rise in prices.

I accept not all profit comes from bills and that extra services, streamlining and such can also create greater profit margins…but my point is that the ethical implications of an energy company in the position they are with the sheer power they have means that I don’t believe governments can sit by and let these sky rocketing profits happen without much better assurance and business regulation to protect the poor, keep pricing fair (this doesn’t necessarily mean cheaper for everyone or even the majority), and to aid environmental efforts.

Easy there Lee. Your link in the article went to the Centrica Group accounts, not to the page that specifically dealt with British Gas Residential. Looks like the relatively low profits in 2006 are mainly accounted for by higher commodity prices than in 2007. Arguably some element of getting fat on the higher margins then in 2007, although they claim to have reduced prices in response during that period. But doesn’t this invalidate your argument? When commodity costs are high (as in 2006, and right now), British Gas seems to make less money than when costs are lower, as they can’t pass on price changes very quickly in response to changes in wholesale markets. Do you think they should be penalised further when their business is struggling?

I’d hardly call £571mil in profits struggling, Andrew. Also, if you read my article you’d understand there is no penalising that I’m suggesting, just restructuring of tariffs to redress equality issues.

I’ve posted a follow up to this article here which is in response to john’s piece on the Sharpener.

I think you’re missing the point. If you think that the pricing structure is unfair, you’re talking about revenues, not profits. Profits are affected, as John has amply demonstrated over at the sharpener, by other factors. British Gas Residential’s revenues dropped by nearly 10% between 2006-2007, in the same period when profits went up by 500%. That doesn’t suggest that people were being gouged in 2007 to me.

Using a large percentage increase over a small base, and cherry-picking your time period to maximise that value is just sensationalism.

You might be right, and energy companies might be evilly exploiting the poor, but I don’t think that pointing at a big profit figure makes your case.

Andrew: You (and john) are confusing the issue of pricing relative to previous years and versus wholesale gas prices with what I’m talking about. I’ll repeat as I have on my blog to john’s asinine comments, I’m not claiming that the companies are evil only that they are not operating an environmentally sustainable method of charging or an equitable structure of rates to benefit basic essential use while trying to curb extraneous use.

I’ve repeatedly said I don’t mind the companies profit situation, but that they have roughly increased charges on customers in line with wholesale gas price rises (you talk about us cherry-picking a time period, yet both you and John use the very short period of this singular year to show how energy companies are absorbing cost, ironic that) and as such there is no argument for them being required to keep the pricing structure they have because “times are tight”, in fact with the reserves they have to hand right now it’s the most opportune time do something revolutionary.

Consequently I was never pointing at the big profit to make my case for pricing reform, only for why announcing big subsidy figures needs to be compared to how much money it is in relative terms., you guys have just jumped on that through lack of forethought to tackle the real debate at hand (and given it is the lengthiest aspect of my article it’s not like you can miss it without having simply ignored it), to fight a point I never made.

Let me just break it down for you, in some simple small paragraphs that even you and john won’t fail to understand…

Energy companies are *not* in a precarious position and *haven’t* over the long term been absorbing the costs of wholesale gas prices until possibly only a couple of months ago. They do currently charge for the first (and therefore most essential) energy use disproportionately to how much they charge for more extravegant or needless energy use.

The time has come to say it is fairer on everyone, specifically the poor and the old, to reverse that scale so the more necessary energy use is cheaper, enforcing this would give Labour some headway back in to quelling the anger in their core vote. It is also a perfect solution to actually attempting to tackle climate change as it punishes disproportionate energy use through additional charging, rather than just saying “we’re reinvesting the money”. All of this doesn’t mean the companies should be making less or even more profit…the profit levels don’t come in to it, only the amount being charged for a proportionate level of “necessary” use.

I eagerly await more ignoring of these points so that you can roll about moaning about how people keep picking on the energy distribution industry.