Opinion: Coalition’s inaction on ‘profiteering’ betrays liberal principles

The Coalition’s apparent decision not to hold an enquiry into the Energy Industry, as reported by the Independent , is something which Lib Dems of all stripes should campaign against.

Those who may regard themselves as economic liberals will object to this decision on the grounds that it is an example of a Government refusing to act to free up a market which currently is dominated six major players who control 99% of a market where inflation busting annual profit rises have become the norm, with British Gas reporting a staggering 98% rise in profits last July.

Economic Liberalism is built on bedrock of tackling such uncompetitive markets in order to benefit the public, and the fact that there is a Liberal Democrat Business secretary should mean an enquiry is a priority.

Lib Dems of a more Social Liberal persuasion will be anxious that the government try to address the growing phenomenon of ‘fuel poverty’, defined as spending 10 per cent or more of their income on fuel – and has trebled in five years to around 6.6 million people in the UK.

Both the Lib Dems and the Tories indicated before the election that they would hold an enquiry into the level of competiveness in the Energy Sector, and its important that Lib Dems, fulfil this pledge and address an issue which literally kills thousands of societies poorest every year.

Labour’s attempts to address this problem, the winter fuel allowance, while not without its merits, shows the inherent failings of the last government’s purely statist approach to solving social problems.

As the mortality figures contained in the article above indicate the help those who need it most are receiving is not enough, while the energy companies, guaranteed a certain level of profit from the poor, have no incentive to reduce prices to encourage more use of their product.

At the same time those who can afford the current energy prices receive a payment they don’t need. A scenario has thus been created where the suffering of the poorest has not been adequately alleviated, while the big companies and the middle classes get a guaranteed income boost courtesy of the government.

Indications are that one part of this conundrum is about to addressed with moves means test the fuel allowance to people at the higher end of the income scale.

This goes some way to addressing the problem, but is no more of a rounded or just solution than the method used by the last government.

Reducing or abolishing the Winter Fuel payment for the better off recipients, coupled with tackling the supernormal profits of the big six energy companies would help to deliver a fairer Britain and is something which should unite all strands of opinion within the party.

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10 Comments

  • david thorpe 21st Aug '10 - 12:47pm

    but will there be an enquiry, what does the bill contain?.
    legislation is not effective unless its the right legislation?

  • John Richardson 21st Aug '10 - 1:35pm

    a market where inflation busting annual profit rises have become the norm, with British Gas reporting a staggering 98% rise in profits last July.

    And equally sharp falls in profit. In 2005 BG profits fell 63%. In 2008 they fell 65%. Trouble is when the media reports BG profits they only report against the previous year instead of looking longer term. Profits are extremely volatile UP and DOWN. They are so volatile it’s impossible to say whether there is even an upward trend at all. So to argue there is a problem because profits are up 98% in the first six months of this year is pure sophistry. They could just as easy lose most of it in the next 6 months.

    The actual margin is not all that greater either relative to the size of the company. Something like 5% on average. If you spread the entire profit out amongst residential customers the reduction in energy bills per customer would be very small.

    And if we do force down profit on already slim margins who do we expect to pay for the next generation of energy infrastructure?

  • david thorpe 21st Aug '10 - 1:50pm

    some very good point john.

    yes energy companies are vulnerable to market conditions and supply to a much greater extent than those in other sectors.
    The infrastructure should be paid for by granting tax allowances

  • what does an ‘apparent decision ‘ mean ?
    Some journo has heard a rumour. I suggest the reason no inquiry has yet been announced may be that they have not got around to it yet!
    As Adam correctly points out the energy bill needed soon might be the time to do it, there might even be a a debate in parliament. Now there’s a novel idea.

  • While I agree with the posters assessment of the issue, I don’t agree that economic liberals should agree with his description of the problem. The economic liberal (for lack of a better name) might conclude that government regulation is the source of the problem, creating distorted markets. That being the case, they might argue that an energy market with complete freedom of contract is the only solution to the problem. Many, who can broadly be described as social liberals would be unable to stomach the full implications of such a policy.

  • a market which currently is dominated six major players who control 99% of a market

    A market in which there are six players is a market in which no one has a monopoly. So why is it worrying to have six players? Two players is enough for competition.

    British Gas reporting a staggering 98% rise in profits last July

    So what? If they made £1.98 that year, and £1 the year before that would be “a staggering 98% rise in profits”.

    These are the kind of arguments you might expect to find if someone started with a conclusion, and then tried to frame arguments that would lead to it.

  • @ad

    You communicated the point I was trying to make in the previous post: but with more clarity and eloquence.

  • @mpg

    Thanks. It’s always nice to receive a complement.

  • david thorpe 23rd Aug '10 - 9:26am

    Thanks to one and all for the replies.

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    You are correct to say that six players in a market is not a monopoly, but it is an ologoply, and the investigation which I am advoacting to ascertain wether the market is free enough as it is or whether there are barriers to entry.
    The fact that there may hypothetically be an enqwuiry doesnt invalidate my point, which is to campiagn to ensure there is one, and that its part of an overall solution to tacjkle the problem of fuel poverty

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