There are two areas I'd like to think about, one fairly obvious and the other more reflective.
1. Fuel Poverty
Fuel Poverty is a relatively new term that refers to a situation where households spend more than 10% of their income on keeping warm. (The definition is vague on gross or disposable income, but only the latter makes sense.)
Clearly an 11% price rise will cause more households to fall into this category. If we taxed energy then people would explain that this was a 'regressive tax'. It would fall more heavily on the poorest households as it takes up a greater proportion of their income.
Therefore we should be worried about these energy price rises on the grounds of equity and income distribution. The Sunday Mirror article below looks at the effect on Fuel Poverty which may now affect one in four households.
2. The privatised energy market
In the 1980's the energy market was privatised. The aim was to introduce competition and force prices down and so making everyone better off.
The effectiveness of this policy should now be reassessed. Has it led to lower prices? Is there actually competition? Was it, in retrospect, a good idea?
Supply side policies take a long time to yield their results. It took two attempts to get the gas market right as well.
Is there really competition in this market? All the big companies are going to raise their prices by about the same amount. This is to be expected as their raw material costs are changing in exactly the same way.
If government still controlled this market then they could moderate the price rises, allow special tariffs to vulnerable groups etc. But the energy companies are private, profit making, firms and they work in the interests of their shareholders.
The Government has proposed forcing all energy companies to make sure customers are on the lowest possible tariff. This implies one tariff per company, probably all pretty identical. A major blow to competition and without any price controls. Politically popular but hardly market economics.
Energy bills have been steadily increasing since 2004 and as a result of this, more households have been plunged into fuel poverty. This is a particular problem for pensioners as they simply cannot afford to turn down their heating.The guardian covers this in more detail:
ReplyDeletehttp://www.guardian.co.uk/society/2012/jan/23/growing-numbers-pensioners-fuel-poverty
But to resolve this problem would involve 'de-privatising' energy companies to avoid fierce competition. I trust the government have our better interest, in comparison to major profit making companies.
If the government did control this market, would it be probable that it could replicate the situation that occurred in the 1970's with mining and end up become a huge expense for the government?
ReplyDelete'Probable' is difficult to say, but possibly. Governments are full of weak-kneed politicians who pander to the electorate in order to retain or gain powe. So you could see a situation where a government subsidises power and slowly runs the industry into a loss.
ReplyDeleteThere should be a windfall tax on the Big Six energy companies with the proceeds reinvested into a massive home insulation programme with those in fuel poverty prioritised. Also, Ofgem should start to cap prices and push for more energy co-operatives - like what happens in America - in order boost more competition and so users can have much more of a stake in the energy companies they rely on.
ReplyDeleteWhere do you stand on windfall subsidies for firms who make losses?
ReplyDeleteAs is stands the government is still quite capable of offering grants to those worst affected by the fuel rises without the need to de-privatise this sector. De-privatising this sector is by far a worse option in trying to solve this issue: the government simply does not have the capital to be able to afford and investment of this size and it certainly shouldn't be considering anything of the sort with the level of debt it has accumulated: instead it should be diverting excess funds there and to sustaining the departments which it already has, especially with the GFC still having knock on effects. Spending more money which it doesn't have on buying this market back and then subsidising it on top of that would just be a massive drain on resources which would make all the budget cuts which it has gone through with so much hardship almost useless in comparison, not only this but as Harry mentioned, this policy gives no guarantee of fixing the problem: it's quite possible we could have a repeat of the 1970's.
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