Cancel October energy price rise says Ed Davey

Just last Friday I was saying that while we were saying some good things about the cost of living emergency, we needed to come up with something bolder to deal with such a massive economic shock.

I should have been more patient. Ed Davey has stepped up to the mark, calling for October’s energy price rise to be cancelled, with part of the cost covered by a windfall tax on the energy companies. Given that some of them are making quarterly profits larger than the GDP of some countries, that is entirely justifiable.

Under our plans, the 70% increase in the energy price cap expected to be announced by Ofgem later this month would be cancelled, with the Government instead paying the shortfall to energy suppliers so that they can afford to supply customers at the current rates. The party estimates that this would save a typical household an extra £1,400 a year.

This is not cheap, but the party says that the estimated £36 billion cost should be met by expanding the windfall tax on oil and gas company profits, and using the Government’s higher-than-expected VAT revenues as a result of soaring inflation.

The party is also calling for more targeted support for vulnerable and low income households. This would include doubling the Warm Homes Discount to £300 and extending it to all those on Universal Credit and Pension Credit, while investing in insulating fuel poor homes to bring prices down in the long term as well as reinstating on permanent basis the £20 per week Universal Credit uplift introduced during the pandemic.

Ed said:

The contest to be leader of the Conservative Party might as well be happening in a parallel universe. Neither candidate has any idea how to help families and pensioners through what could be the toughest winter in decades.

We need bold and urgent action to help families pay their bills and heat their homes this winter. There is no other choice.

Energy bills have already gone up by £700 this year, and Conservative Ministers have barely lifted a finger to help. We simply cannot afford more inaction in the face of another even bigger rise in October.

This is an emergency, and the Government must step in now to save families and pensioners £1,400 by cancelling the planned rise in energy bills this October.

The very first thing journalists, particularly right wing journalists, are going to ask is how this is going to be paid for. The party estimates that an extended Windfall Tax could raise around £20 billion. Given that BP and Shell made £29 billion in profits in the first six months of the year alone this does not seem unreasonable.

The party says that the Government should also use the extra VAT revenues it is receiving as a result of inflation. It took in £11 billion more in VAT last fiscal year (2021-22) than it was expecting in March 2021, and is now expected to take in an extra £9 billion this year and £10 billion next year compared to last year’s forecasts.

This has been covered by the Guardian and the BBC

On Twitter, journalists have recognised that this is the sort of scale of idea that we need:

With even relatively affluent households are starting to worry about how they will cope with this Winter, this is the sort of intervention that the country needs. With the Tory leadership candidates unwilling to do anything else and No 10 confirming that it will do no more as the PM and Chancellor are nowhere to be seen, someone needs to step up. A few days ago, Gordon Brown, who had the 2008 crash to deal with, called for an emergency budget. Now Ed has come up with our radical plan. Let’s hope that this puts pressure on the Conservatives to recognise what they are facing and to up its game. I am not going to hold my breath, however.

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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21 Comments

  • Good to see a ‘go big’ approach to recognise the seriousness of the crisis but I would prefer to subsidise vulnerable households directly rather then subsidise cost of energy for all.

    Allowing full market price of energy to flow through to customers will encourage conservation (and suppliers to invest in lower cost alternatives). This reduction in demand and shift in energy mix should stabilise prices in the long run and not detract from the move to green energy. The direct subsidy to poor households will keep the wolf from the door and avoid the heat or eat crisis. This approach would also mean a lower total cost for the government by not subsidising richer households energy bills.

    ASI (!) set out well, even if, as per usual, I don’t like their ‘tone of voice.’

    https://www.adamsmith.org/blog/the-oddity-of-economic-othodoxy-being-what-absolutely-no-one-is-doing

  • Brad Barrows 9th Aug '22 - 10:15am

    I like the bold thinking but, unfortunately, the suggestion would mean that the energy costs of millionaires would be subsidised alongside those of everyone else. We need to target help at those who really need it if we are to have maximum benefit from the cost of any scheme.

  • Lorenzo Cherin 9th Aug '22 - 11:46am

    I agree with Caron, the party ought to be more definite. Sorry but some of us have called for more than this, for months, even before the early increase. It is not good enough that parties play catch up. Labour have not even yet come up with even this!

    Also, there are people on tax credits, and other legacy support, its not enough to only refer to uc and pc.

    The trouble is the early increase added to inflation. The French, with their correctly, nationalised energy company, maintained only a five per cent increase. Ours might be one hundred and plus per cent. There is more than a crisis here. Some predict riots and more.

    The game is up, on unregulated market capitalism. OFGEM are not a regulator at all. They are worse than a deregulator. Davey ought to admit it. Declare conversion to social liberal or social democratic economics, markets add to and serve us, not us the markets.

  • We have been calling for higher taxes on fossil fuels and polluting industries for years. Well now higher prices are here. The problem is that wholesale prices have tripled rapidly, rather than rising gradually as happened with tobacco taxes over many years.
    Oil and gas companies already have higher corporation tax rates on their profits than other companies. Oil and gas firms operating in the North Sea pay 30% corporation tax on their profits and a supplementary 10% rate on top of that. Other firms pay corporation tax at 19% rising to 25% next year. While a windfall tax is a one off, a Land value tax in the form of petroleum revenue tax is ongoing.
    The Petroleum Revenue Tax (PRT) should be reestablished. PRT was effectively abolished by George Osborne, having cut it from 50% to 35% in 2015 and to 0% in 2016. The supplementary charge for oil companies was also cut from 20% to 10%, at the time.
    Freddie is right to prefer subsidising vulnerable households directly rather then subsidising the cost of energy for all. However, like Saint Augustine the current dilemma is a case of “Lord Make Me Chaste … But Not Yet”.
    In the immediate short-term (this winter), a windfall tax and energy subsidies is the right call. In the medium to long-term, an accelerated switch to renewables and nuclear energy with fossil fuels being gradually priced out of energy markets with fuel duty and other tax levies akin to those on alcohol and tobacco should be the way forward.

  • To counter the argument that energy costs of millionaires would be subsidised, why not at the same time increase the income tax rate for earnings over £150,000 from 45% to 46%?

  • Nonconformistradical 9th Aug '22 - 3:52pm

    @Ric
    Without knowing if you’ve done the maths to establish how much that would raise – I do think the better off should be paying more tax – just not sure how much more.

    And what about a wealth tax…?

  • Lorenzo Cherin 9th Aug '22 - 5:22pm

    The Liberal Democrats are ahead of others here, though slow in my view as too lets say keen on a more economically traditional approach, at least for uk norms.

    The party is so in love with European countries, yet on models for public services, like health, clings to the state, on utilities clings to the market. France do the reverse. They have a public private partnership with choice, in health, giving them the best in the developed world often, in the past, as well as a national, state funded energy compaany policy .

    We need to be far more radical and look to other ways than business as usual. OPur health services are dire, our energy policies likewise!

    But good on Ed for waking up on this price rise issue, and kicking others to wake up , Truss for example is a disaster!!

  • Need to be careful, if the government steps in and effectively caps energy prices, that will also cap VAT receipts. So the extra VAT etc. should be seen more as a windfall than an ongoing income stream.

    The question also arises as to how long the government can print money with which to buy energy on the global market, so perhaps to make Sterling attractive we may have to rapidly raise the BoE interest rate to 15% ?

  • Freddie is right. With gas in short supply the last thing anyone should do is to encourage demand by keeping the price artificially low. What the govt should be doing is providing income support to those who would not otherwise be able to pay the vastly higher energy bills.

  • Whatever the problems with the details (and let’s face it any policy has those) I do think that in ‘Big Picture’ terms this is very good politics, and that’s what we need to focus on. Frankly, Ed is not going to be in a position anytime soon to be able to implement this policy, or any other. What he’s doing here is asserting a bold and clear line that people will understand. He’s saying that it us not acceptable to the LibDems that people will die while fuel companies rake in billions.
    If we can get this simple message through to people, it will work for us. But we need to all get behind the message and push it as hard as we can.

  • Ianto Stevens 9th Aug '22 - 6:38pm

    Well done Ed Davey for being radical and bold. As a former energy minister, who did a lot to help establish solar and offshore wind, he is owed undying gratitude.
    That said, should it not be possible to make X units of energy – eg 75% of the present consumption of a typical lower income household – available at a low rate? Higher consumption would attract (possibly in stages) a higher rate.
    Small businesses should surely be helped by a similar type of cap to households. We need to avoid as many bankruptcies, closures and redundancies as possible.
    Wasteful, uninsulated premises need to have an added incentive to change.
    Standing charges for meters need to be abolished.
    Suppliers need to be required to read metres frequently. Failure to read should make the company forgo any increased revenue that is detected since the last reading.

  • Helen Dudden 9th Aug '22 - 7:22pm

    Charges for meters have always been a money maker.
    I must admit I get so frustrated by the attitude of the government. Control by the Torys is becoming very unhealthy.
    The NHS is the next lost cause as the son of a prominent Tory is now tunning a private ambulance business.
    Unless, those brave enough keep pushing we are getting lost in serious Tory control.

  • James Fowler 9th Aug '22 - 8:56pm

    Thanks Freddie for posting that link. The Adam Smith Institute have it right. By all means subsidise or raise incomes, but don’t tax supply in order to foster demand. Prices tell us things. In this case, compelling a search for alternatives to a fossil fuel provided by an aggressive autocrat makes both economic and moral sense. The poorest must be protected, but I do not want the government to provide any proportion of 36 billion pounds to underwrite Russia’s war machine.

  • George Thomas 9th Aug '22 - 9:10pm

    I don’t know what the right answer is but it feels very cruel to me that energy companies working with fossil fuels are today making massive profits, tomorrow will be pushing millions into fuel poverty and sending out debt letters, and the day after will be (partially, a bigger percentage than most though still significant oversimplification) responsible as increasing number of our homes overheat in the summer and flood in the winter due to increased impact of climate change. And we will be relatively protected compared to most in the world.

    It’s 10 years and a handful of months since David Cameron told us we’re all in it together…

    Apart from the fact that no one wants to be associated with the campaign group, is there an argument that “Insulate Britain” have the right idea in the longer term?

  • Rif Winfield 10th Aug '22 - 8:10am

    Sadly I think that some of your contributors don’t appreciate the scale of the assault on the least well off in society. Look for example at pensioners – those on a state pension, hopefully topped up by pension credit. Many will additionally have a company pension from their former employers to add to this, but an awfully large number will not. For a start, they obviously don’t pay National Insurance, and since state pension levels (again, topped up by pension credit as appropriate) fall well below the £12,500 personal allowance for income tax levels, they will not now be paying income tax either. So Liz Truss’s ideas of cutting NI and tax rates will not add a single penny to their income! Meanwhile, the horrendous rise in energy prices will affect them, like everyone else. In many cases, those on the lowest levels of income (and there are millions in such dire straits) can expect by January to be paying HALF their incomes to the electricity supply companies. And this on top of rising housing and food costs. No wonder the situation is unsustainable.

  • Nonconformistradical 10th Aug '22 - 8:30am

    “So Liz Truss’s ideas of cutting NI and tax rates will not add a single penny to their income!”

    Exactly. I do wonder if people like Liz Truss have the slightest understanding of some basic statistical concepts – such as mean, median, range and mode.

    If they’re boasting about what help has been provided it seems likely to refer to averages – what sort of ‘average’ are they talking about?

    And referring to ‘pensioners’ as a block of people ignores the range of pensioner incomes and may well leave the poorest pensioners (and the lower end of the pensikoner income range) with woefully inadequate help. And these people might be the most dependent on affordable energy supplies during winter.

  • James Fowler 10th Aug '22 - 10:56am

    @Rif Winfield. I for one do note the assault on the least well off in society. However, they are mostly not pensioners. The poorest in our society are the working poor or people on state benefits other than state pensions.

    State pensions have been uniquely protected by triple lock for over a decade. This has meant that, unlike all other benefits or low and insecure wages, they are a reliable, regular form of income that has risen in value in real terms.

    This does not make all pensioners wealthy, but it does make them remarkably privileged in relation to almost all other groups in society except the very rich, whose incomes have also increased in real terms. The real losers of the past ten years have been children, school leavers, single parents, the disabled, the unwell, and the unemployed.

  • David Goble 10th Aug '22 - 1:39pm

    I read, the other day, that Shell were going to pay dividends of £1.6bn to their shareholders as a result of the massive profits they have made in the most recent quarter; would it not be a good idea for them to pay an equivalent sum (£1.6bn) to the Government, expressly to help fund the Government’s feeble efforts on the cost of living crisis?

    What is happening now is proving what I have said for many months, on this and other forums; this Government has no sense of social responsibility and this is showing more and more, day after day.

  • Jason Connor 10th Aug '22 - 7:07pm

    Home insulation wasn’t their idea, it was around before that extreme group even existed. There are lots of pensioners who are struggling. The cost of care homes is a joke in itself as just like the private rented sector the costs have already spiralled out of control unless you are very well off. I don’t believe most pensioners are. I actually think Ed Davey has come up with some really good ideas here and deserves to be applauded for this. It is not at all socially liberal to introduce more privatisation into the NHS. Far better to build more hospitals, recruit more frontline staff less at management level. I don’t have the figures but imagine many good staff left after we left the EU. It takes a good 5 years to train up a GP. Our health services are not dire but just need more support in the right areas. I know a few French people living here and they have nothing but praise for our NHS.

  • Speaking about how France is dealing with the energy crisis, I see EDF is suing the French government for £7 billion after being forced to sell energy at a loss EDF sues French government for £7bn after being forced to sell energy at a loss

  • Peter Martin 15th Aug '22 - 11:14am

    Discussion of energy costs has tended to go no further than the domestic price of gas and electricity. The impact on schools, hospitals, and businesses, and who aren’t so far covered by any price cap, has tended to be overlooked.

    Any coherent plan has to include the wider economy.

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