The FT reports this morning that:
Households facing a “cost of living catastrophe”, including soaring gas and electricity charges, in April could yet be spared a £100 levy on their bills which had been intended to recoup the money to cover recent energy company failures. Ofgem, the energy regulator, is looking to spread the cost of the failed suppliers over time, according to people briefed on the situation.
There are a number of issues arising from this. The first is that the maths looks to be wrong. I understand that there are around 27 million domestic properties in the UK, although I am of course aware that some are in multiple occupation. Dividing the £1.8 billion cost of failed energy companies between those 27 million households would suggest an additional bill of £66 per household. Where the £100 charge comes from is, in that case, open to doubt.
However, what troubles me more is the principle of charging for that cost on what would appear to be the basis of a poll-tax arrangement. Poll taxes are, of course, those charged as a fixed sum on every liable person. They do not take into consideration capacity to pay. It is also possible that in this case they will not be proportional to use. The very obvious injustice of trying to recover the cost of failed energy companies in this way should be readily apparent.
Worse, though, is the premise that the cost of this failure should be paid through energy bills when it was not the fault of any consumer that their supplier failed. Those supply failures were the consequence of failed regulation which was in turm the consequence of a failed political objective to create a supposed market in consumer energy in the UK when it is very obvious that this should be under state monopoly control.
The price of failure should, in that case, fall across the body politic, and to general taxation. I am, of course, aware that we have little better than a flat tax across income bands in the UK, but even that delivers a little more social justice than the regressive imposition of a poll-tax on energy consumers might do.
There can be no doubt that we will face an energy price crisis in the UK in 2022. Making it worse by the imposition of anything that looks like a poll tax on consumers to pay for failed government policy, at whatever the chosen rate might be, would add insult to the injury already being imposed by speculative price increases from which energy companies will be profiting enormously.
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A great big thanks Richard for all the information you send out to us. It’s much appreciated.
In addition to the above, the climate crisis requires that most fossil fuels be left in the ground asap.
Either poorer folk in wealthy countries like ours will be cold and have little access to transport or there must be rationing of some kind … such as Tradable Energy Quotas (TEQs)
Caroline Lucas has written: “TEQs would provide the fair and transparent system we believe is needed to reduce energy demand, and give each person a direct connection to the carbon emissions associated with their lifestyle. It would guarantee that the UK’s targeted carbon reductions are actually achieved while ensuring fair shares of available energy.”
Tradable Energy Quotas:
1. TEQs is an electronic energy rationing system designed to be implemented at the national scale. 2. a) Climate change: to guarantee achieving national carbon reduction targets, b) Energy supply: to maintain a fair distribution of fuel and electricity during shortages. 3. TEQs (pronounced “tex”) are measured in units. 4. Every adult is given an equal free Entitlement of TEQs units each week. Other energy users (Government, industry etc.) bid for their units at a weekly tender, or auction. 5. If you use less than your Entitlement of units, you can sell your surplus. If you need more, you can buy them. All trading takes place at a single national price, which will rise and fall in line with demand. Buying and selling would be as easy as topping up an Oyster card or mobile phone. 6. All fuels (and electricity) carry a “carbon rating” in units; one unit represents one kilogram of carbon dioxide – or the equivalent in other greenhouse gases – released in the fuel’s production and use. 7. When you buy energy, such as petrol for your car or electricity for your household, units corresponding to the amount of energy you have bought are deducted from your TEQs account, in addition to your money payment. TEQs transactions are generally automatic, using credit-card or (more usually) direct-debit technology. 8. The total number of units available in the country is set out in the TEQs Budget. The size of the Budget goes down year-by-year – step-by-step, like a staircase. 9. The Budget is set by the Committee on Climate Change, which is independent of the Government. The Government is itself bound by the TEQs scheme; its role is to support the country in thriving on the available carbon/energy. 10. Since the national TEQs price is determined by national demand, it is transparently in everyone’s interest to help each other to reduce their energy demand, and to work together, encouraging a national sense of common purpose.
See https://flemingpolicycentre.org.uk/teqs/
[…] article first appeared in my blog, […]
“Those supply failures were the consequence of failed regulation”.
I’d argue that it was an inappropriate method for setting prices (marginal pricing) that paved the road to the current fiasco. Given the diverse parc of generation (and the cost-base under which each type functions) in the Uk and elsewhere, what has happened was inevitable. Recent EU whoelsale prices were an amusing Euro500/MWh in late Dec which translates into household bills of Euro0.75 per kWh (vs a more typical Euro0.3/kWh). The picture will be the same in the UK. As I have already noted, taking a basket approach to wholesale prices would deliver energy at around Euro100/MWh – still higher than the usual circa Euro50/MWh run rate but possible to absorb with modest increases in bills e.g. to Euro0.33/kWh.
I do not think that the regulators or the poiticos (either in Uk or EU) will go for subtantive change due to the usual combo of stupdiity and religious fervour (We believe in one market etc etc). That said, once bills start rolling in, I am hopeful of some meaningful riots which will focus the minds of politicos (Macron might face a tough time in April – given he is up for re-erection (sic) – gilet janues 2 anybody?). As for the energy poll-tax – hmm, remind me how well that worked out last time.
Thx