I have just posted this thread on Twitter, dealing with how the government could keep prices down, but ignoring other ways they could help people with the cost of living crisis:
The Bank of England is saying that UK inflation might rise to over 10% later this year, largely as a result of domestic energy price increases, but also road fuel and other costs. There is no way this is necessary. In this thread I explain why and what could be done to stop this…
Many of the costs of supplying energy in the UK are fixed. So, energy company costs of managing and running consumer's accounts have not changed in this crisis. Nor have the costs of energy transmission changed much.
Come to that, there is no reason why the green levy on energy needs to rise. And actually, it's bizarre that the government is collecting much more in tax, whether as VAT or other duties as a result of fuel price increases, which tax increases make inflation much worse.
There is also no reason why, at this moment, the cost of electricity is being priced by the government regulator at the cost of the most expensive single way to produce it - which is by using gas.
If the electricity price was instead based on the average cost of its production its price would fall, which would immediately and significantly cut energy bills - whilst still allowing producers a profit. But the regulator won't do that. They'd rather allow excess profit instead.
And when the government could cut road fuel costs by imposing a price cap and changing fuel duty to keep the price within that limit without overall damaging government revenues it is crazy that they will not do this.
And still we have no windfall tax, or even a hint of it. And that is also bizarre, because the fact is that almost penny of the costs that are fuelling inflation is becoming profit in the hands of exploitative oil and gas producers, plus chemical companies in the food industry.
I stress none of the things I suggest to tackle this would be desirable normally. In the long-term there is no way I'd recommend cutting fuel prices when we need a green transformation. But we're facing a crisis where people's well-being, health and more is at threat. These are not normal times.
In the face of a crisis there is an urgent need for unconventional thinking to tackle something out of the ordinary. And what we're getting from the government and Bank of England is the worst thinking from an out of date textbook that failed its students when it was written.
Unless the government, the Bank of England and the political opposition parties get their acts together now and go radically off-piste to help the millions who will need it we are heading for something really horrible now.
I just hope all these organisations will rise to the challenge, but the reality is that none are showing any sign of doing so as yet. We are being failed, and the cost will be enormous.
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I suspect the Government is building up its election give away war chest.
One of the youngest generation asked me, ‘Grandad, if there was this windfall tax on energy providers, would the government use it to give to people to keep their bills down?’
I replied that I wasn’t sure of the mechanism, but that is the idea.
Her next question was, ‘so if the tax was used to pay the people’s energy bills, does that mean the money goes back to the energy companies?’
I have to admit I wasn’t able to give a confident answer.
But it is encouraging we have people able to question.
Indeed, and a good point
I don’t think that you can just blame “the government” for this crisis as Johnson and his bunch of public school incompetents are well and truly out of their depths.
Instead I blame the Tory MP’s who, despite knowing what needs to be done, are too frightened to oust Johnson and his rag bag of talentless incompetents and replace him with some of the more competent people from within their ranks. Even if this means a government of national unity?
ChrisK
I think the Tory Party is beyond repair. Don’t forget that one of the first things Johnson did after taking power was to purge the party of the more traditional One Nation Tory types. The Right Wing of the party has enormous power now, it’s Praetorian Guard being the ERG types and basically UKIP and far right infiltration. Even if they got rid of Johnson, no moderate could win. If they did, they would be spending most of their time looking over their shoulder waiting for the stab in the back.
The old, traditional Tory Party is dead.
What we need is constitutional change beginning with the end of FPTP. PR would send the the new Tories to the fringes of politics where they should be, alongside UKIP, the next Farage gravy train and whatever party these days calls itself the National Front, English Defence League.
I agree with your post but I am beginning to see what I can only describe as a mass-movement of denial around me that is being swallowed wholesale by peoples all over the world.
We are entering I think a new phase in exploitation by wealth and vested interests.
That’s why there are no new ideas being employed: because it prevents the exploitation agenda.
I cannot see this changing in my life time. Beyond that it will only change until things really get serious which is why I worry about my kids.
Re the energy price increase, one of the biggest cons being played upon us is the increase in standing charges. For many this means their electricity standing charge is almost doubling in price. I expect the Gas standing charge will go up substantially later this year – just in time for winter. These are charges that you have no choice to pay. No cutting back on your energy use will save a penny on them – they are fixed and a licence to print money.
Here is one of the main reasons.
“…network costs “inevitably go up, especially when inflation is high, as there are rising costs for wages, materials and so on”.
But a far bigger part of the increase is from the “supplier of last resort” scheme – every household is expected to pay the billions that have gone into rescuing customers from failed companies.”
https://www.theguardian.com/money/2022/mar/06/why-is-my-standing-charge-up-by-80-energy-firms-pile-on-the-agony
This would be like saying that if a broadband company goes bust, everyone else should pay for it on their bill in the future. What utter nonsense.
Remember, the Tories privatised gas and electricity because they supposedly believe in the free market. What they really believe in is Privatising the profits and nationalising the losses. Total disgrace.
What we need is communal ownership of gas, electricity and water, some of the essentials of life. The opposition need to wake up and smell the coffee on this. If ever there was a time to do it, it’s now.
Privatising the profits and socialising the losses has been the story of privatisations since Thatcher.
I wholly agree with your analysis and the proposals outlined, Richard. It is really irksome to realise as you say that the actual real costs of extracting, producing, delivering and servicing the supply of energy to households and industry have not really increased at all. So, it seems so simple to extrapolate that if the costs aren’t going up but the prices being paid by consumers are going up then someone is making a lot of money somewhere within the supply chain!
It also annoys me when economists, commentators, and others refer to the ‘market’ as if it were a person with agency making the decision to change prices. No, it is actual real people who are making the decisions to alter the prices. These are the people to ‘blame’.
When one considers what’s happening in India and how likely it is large areas of the planet may well soon become uninhabitable, it becomes apparent not everyone will be able to survive and carry on in anything like the manner which they/we’ve become used to. A cull, then, would be useful from the POV of some, and perhaps this explains the direction of political travel over recent decades. Perhaps in some circles the impending catastrophe is accepted and planned for and removing the gullible masses, governed by headlines as they are, is their malevolent response.
“But the regulator won’t do that. They’d rather allow excess profit instead.” sigh.
Yes & it is the same over here. ACER/CEER produced their report on energy markets.
In summary: reform is not needed and they claim that marginal pricing (or as they call it: “pay as clear”) is the most econometrically efficient.
& that moving to pay-as-bid (sort of basket) is all far too difficult.
Not just imbeciles but religious imbeciles who repeat their mantra each & every day
…..”our market which art in heaven, blessed is they name and the name of marginal pricing etc etc.
None of this is rational, it is about (religious) belief systems, that need to be destroyed, urgently.
Thanks
This is microeconomic theory gone mad
If electricity prices are high, due to a shortage of supply, suppliers who are producing electricity above the average cost will cease to produce it, if they will only paid thst average cost, rather than their margins, cost (or higher).
So your proposals would further reduce the supply of electricity, increasing the price yet further.
Isn’t this basic economics?
Electricity is sold as a bundle from a mix of suppliers, combined by the regulator
There is no reason why everyone in the bundle need be paid the maximum production cost
They can each be paid their average cost
Do you know any economics?
How do you know what each company’s average cost is?
If companies are only covering average costs, how will they find investors?
The regulator asks for data
And includes a fair profit as part of that cost
Next problem?
Seriously, how do you think regulators work?
Responding to Mr Boxell
“If electricity prices are high”, ……..true
“due to a shortage of supply”………not true.
The way the Uk reaches a wholesale price is via “marginal pricing” – is, in summary, the day is split into 30 minute blocks and a price reached based on the last bid which causes the system to balance (i.e. production = load), at gate-closure (i.e shortly before the end of the 30 min period). What tends to happen is that gas is the most expensive generation and thus sets the price for all the rest of generation (“price as bid” to use the new ACER terminology). Thus high pricese have little to do with “shortage” & everything to do with the most expensive generators (& yes I agree – only a moron would think up such a system)
In the case of renewables – the only generation that is growing, – most new RES are based on contracts for difference – they get paid a fixed priced – regardless of the wholesale price (the fixed price is reflective of CAPEX plus financing costs plus a return). Far from reducing the supply of electricity, there is fierce competition for CfDs – suggesting that companies quite like them (this is not my point of view – look at recent auction results – the CfD system is so popular – the gov’ runs auctions – to get the best prices).
Obviously, if you have a growing number of fixed price suppliers it is a short step from that to ….. an average price – which would mean that you – personally and milions of others would be financially far far better off.
So there is no incentive for anyone to invest to provide electricity more efficiently, as they won’t increase profits, they will just have to reduce the price they charge?
Brilliant, I can really see that helping to solve the supply issue and help encourage new sources of energy to deal with climate change!
Did you not notice that no said this was a short term solution?
And do you not know that excess profits are a sign of market abuse?
Do you know any economics?
Can i offer a bit of unconventional thinking on another financialised issue? I know you’d be able to say if it has any ‘workability’ value.
The gov was recently touting the idea of ‘right to buy’ for housing assoc tenants (which i thought already existed, but never mind…), yet what we really know is that they loathe social and council housing, love private equity vampires sucking up much of the housing on the market, along with ‘modest’ b-to-l landlords.
What if, instead, the ‘discount’ they would be given on the social home they live in was given as a deposit for a house bought on the open market? Some canny politician might find some way of enabling this to apply to private renters too, which would provide some relief to all renters unable to build up a deposit, despite sometimes having quite adequate incomes.
Anyway, it’s just an idea.
Quite a good one….
Carole
There is RTB process for HA tenants known as ‘Right to Acquire’ – it is slightly different because the HA concerned may still be paying a private bank for the loan the HA took out to build it in the first place (as well as an Homes England Affordable Housing Grant). These are called ‘cost floor’ issues and I think it depends on how old the house is from being built and how much the value is compared to it being new at the time of valuation (new versus used, where component wear and tear is taken into account) but also, how much of the original loan has been paid. If you are a Council tenant I think that your RTB rights can be transferred over to RTA and vice versa, if you are an HA tenant who becomes a council tenant. It’s a bit of minefield. And subject to all sorts of caveats.
https://www.gov.uk/right-to-acquire-buying-housing-association-home
My late father believed in exactly what you propose about money being made available by the state for people to buy their own homes and therefore get their own equity. However, it is fraught with problems that come out of the failure of other systems to support home ownership, like the economic system.
When a RTB property is put on the market by the owner for first time from RTB, the Council gets the first dibs on it if it wants to buy it back – which my employer (a council landlord) nearly always does because we have a shortage of stock.
But what do we find in nearly every case?
That the property is in a neglected state because the owner did not have the money/income to retain or enhance the value of his/her asset. Also, having taken out RTB, the house is no longer eligible for any programmed enhancements from the original council landlord so we also find that these 1st case RTB’s coming back are also in need of modernisation – some of which is very expensive. So, we sort all this out and guess what? The next tenant lives in it , puts in the RTB and then that modified and updated house is lost to the Council for ever having been fixed from our housing revenue account. We’ve essentially subsidised the private ownership and the market!!
What a load of bollocks eh?
If wages are to continue to decline, how the hell can people afford home ownership? What are we doing giving valuable social homes to people who cannot afford to look after them?
But it also shows something else that is unpleasant and that as these homes decline, there will be rich buyers lining to buy these as assets which will be a huge wealth transfer to the already wealthy which leads us to mass private landlordism and rentier-ism all of which compound the issue of over-expensive housing costs as a proportion of income – a disease that has afflicted this country for too many years and even negatively affected employment patterns (think about nursing for example).
It undermines to me that home ownership was always a bourgeois thing anyway, for well-healed people who can afford to run property. Our lying and malfunctioning capitalist system is increasingly not supporting home ownership – it is just a mechanism in my view for wealth and asset transfer to the rich.
Home ownership is both an asset and liability management issue. There is too much emphasis on the former (asset acquisition) and not enough on the latter. People just sit on the asset and let the market increase the value rather than invest. One area where the tensions about this come out are in the leasehold sector, where caveat emptor is even more pertinent.
It takes money to do ownership properly and the inadequate distribution of money is causing problems now and I can only see this getting worse. And I can see national housing stock condition surveys getting worse too as a result and a lack of inclination to do them in the future to reveal the true extent of the problem – this of course cuts into the low carbon issue too. It’s a problem that is there and will get worse.
P.S.
Viz a viz RTB Receipts, the sale of one social house does not result in us being able to use that money to build a replacement house.
We have to sell 3/4 houses to build 1 in our LA because of the enhanced discount the Tories brought in and that can only get worse as inflation rises. So we have to use reserves and a loan from the HRA as well to build all the replacement 3.
The system is designed to eventually bleed council housing dry I can tell you that. There is no way way we are keeping up with RTB sales and demand.
The is the scandal
The issue at the moment is that the Government is giving out large amounts of money either as right to buy discounts or ‘Help to Buy’ effectively at random to those lucky enough to ne in the right place at the right time.
Its for another thread but as even the right wing Tory Bow Group have said sanity needs to be restored to the land and housing markets, and pouring money into it isnt the way to go.
Agreed
‘The issue at the moment is that the Government is giving out large amounts of money either as right to buy discounts or ‘Help to Buy’ effectively at random to those lucky enough to ne in the right place at the right time’.
You are right about ‘Help to Buy’. I know of someone who works in the financial sector whose 3 kids all go to private school and who got his 4 bed house in the South East on ‘Help to Buy’ from Homes England and that’s the truth.
Amber Valley increased its Tory councillors in this election and then look at how many new executive homes have been built in their area in the last 10 years. There is a serious gerrymandering issue behind this too in my view which is going to get worse as planning decisions increasingly come down on the side of housing under the artificial crisis created by the Tories with their centrally determined housing needs numbers they are imposing on councils.
But your bit about the Tories giving money away is even worse than you say because it’s not their money: its the landlord’s money that is being given away. It’s the landlord’s receipt from the sale that is being lost because of Tory ideology.
In Ealing, the council has spent £107m buying back 516 former council properties that it had originally sold for £16m!!!
Under the Tories, the Housing Revenue Account (HRA – where its income and expenditure is accounted for) is now the sole responsibility of the Council – it will not be topped up by Government as it might have been done in the past. The whole service – housing services, day to day repairs, investment programmes and development are all now essentially self -financed (unless you apply for Affordable Housing Grant for Homes England or enter into partnerships with other developers (private and public sector).
Recently, the Government has relented and given councils more time to spend the receipts but if the RTB receipts remain spent they still have to be sent to Government. This was too late for Ealing Borough council in London who – having no land to develop on apparently gave all of its RTB receipts to Government in the middle of an austerity drive.
The odds long term are stacked against social housing.