Wednesday 10th September 2008
by Bob Bardsley
Know Your Money Editor
As energy costs continue to make the headlines, some industry participants have been calling for a windfall tax to be imposed on suppliers, with the money raised to be ploughed back into helping the UK's poorest families to meet their bills. But why should the utilities firms be expected to pay their own customers for using their energy? And to what extent are the suggestions linked to wider economic circumstances? In his recent speech to the Trades Union Congress, chancellor Alistair Darling called a stable economy "a means to and end" and not "an optional extra". As such, returning some of the firms' earnings to their poorest customers might be seen as one way of ensuring that everybody can continue to meet their household bills in the long term.
How much are they earning?
It might seem reasonable to ask just how much the utilities suppliers actually are earning - after all, wholesale prices for oil have been rising recently along with the prices charged for energy by the providers. Has this left revenues up or down overall? Well, in the case of British Gas parent group Centrica, overall revenues were up by 16.3 per cent year-on-year in the first six months of 2008. Overall, though, the group reported that operating profit had slumped by almost 20 per cent over the same period of time. However, over the six-month period, the organisation still recorded profits of almost £1 billion.
Of course, British Gas is not the only UK provider - EDF Energy, for example, previously reported a slump of almost seven per cent in its overall full-year profit between 2006 and 2007. Within this figure, however, the total amount of revenue derived from supplying customers increased in the same time, from £54.1 million to £62.8 million. The decrease in profits resulted from the firm's regulated networks operations, under which it is involved in the maintenance of public energy networks overseen by the industry's regulatory body Ofgem. It might be worth remembering, though, that EDF Energy and Centrica both published their reports ahead of the recent round of tariff hikes which has left many Britons facing higher electricity bills.
Who wants a tax?
Taxes are rarely among the world's most popular things, but when there is the potential for a tax to actually help out some of the nation's poorest families, it might be expected to earn widespread support. In the case of the proposed windfall tax, however, there is some disagreement. National Energy Action, which campaigns for "warm homes", asserts that imposing a one-off charge on utilities providers "can be justified" given the combination of increasing tariff costs and relatively high profits. The organisation adds that other measures could be introduced to help vulnerable households - such as allowing homes with young children or disabled residents access to the Winter Fuel Payment, which provides a little extra cash to the elderly to help cover higher heating costs over the winter months.
Fair Investment Company, meanwhile, warns that a windfall tax could "come back to haunt the Treasury" if energy firms were to respond by raising their tariffs still further to cover the lost earnings. Energy spokesperson Steve Wagner advised that consumers might benefit from switching to a fixed-rate tariff as a precaution, giving them some protection against any further rises in the coming months.
What is being done?
Speaking to the Trades Union Congress earlier this week, chancellor Alistair Darling pointed out the efforts already being made by the government and the industry to help different groups of UK citizens to meet the cost of heating their homes. He explained that the energy providers already committed earlier this year to helping poorer families with more affordable tariffs for their most vulnerable customers. Mr Darling also reminded those present that the Winter Fuel Allowance is being increased in 2008 to £250 for those over the age of 60 and £400 for the over-80s - increases of £50 and £100 respectively.
But he also called for a long-term approach to the issue - with energy firms committed to enabling all UK homeowners to heat their domiciles in the colder months of the year. Ultimately, Mr Darling suggested that a move towards more renewable power and energy-efficient homes could combine to lower costs and bring utility bills further within the reach of Britons' affordability. Without adopting an approach that ensures economic stability, he warned that the low-paid, elderly and unemployed would be likely to pay a higher price than those in well-paid, secure jobs.
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