Ed Miliband’s proposed energy price freeze is seductive for two reasons. First, it shows a real attempt to alleviate financial pain because of high utility bills, and second, it taps into a deep unease about the actions of big corporations. The public instinctively know that many large multinationals are behaving unfairly, charging more than they need for essential services, while their directors give themselves huge pay rises or bonuses.
However, seduction is not the same as a long-term solution. The price freeze is flawed because it will push up prices in the short-term and long-term. It is not clear how the freeze would work in the event of large increases in the worldwide energy markets. It could also put badly-needed investment in infrastructure at risk, threatening our long-term energy security.
But just because there are problems with Labour’s solution, this doesn’t mean, to use a broken train analogy, that Conservatives can simply pull up the blinds of the railway carriage and say “the train isn’t working, the train isn’t working”.
First, we have to recognise and condemn the behaviour of the big corporate utility companies. Not just energy, but across the board: water corporates and oil behemoths act just as badly. This is clear when we look at recent announcements regarding energy bill increases. For example, the energy company SSE are going to increase bills by 8.2%, despite awarding four of their senior directors over £5m in bonuses. Water companies have a similarly poor record. In a study I did of water companies in the east of England, I found that they were hiking up both their customers’ bills and their own bonuses. One company’s average bill increased by 33% and, strangely, their directors’ pay also increased by 33%.
Oil companies also behave anti-competitively, operating de facto cartels, pushing up the wholesale price and allegedly manipulating the oil market. Why is it that prices at the pumps continue to rise even when the cost of international oil has fallen? In December last year, the AA showed that from October 2012, the wholesale price of oil had fallen by at least 10p, but only 4p of this saving had been passed on to motorists.
Part of the problem with the big corporates is that the regulators tend to act as company secretaries rather than as powerful consumer bodies (in the Which? Consumer Association mould) OFWAT sets weak targets for water leaks, OFGEM has also been criticised for being powerless and failing to protect the consumer (the recent £8.5m fine they awarded to Scottish Power for giving misleading pitches was a rare example of tough action), and the OFT acts as if it is a lobby group for oil bosses rather than on the side of the consumer.
So how can Conservatives deal with this? First, by reforming regulators so that they have the power to impose massive fines and real powers to look out for the best interests of the consumer. Second, by getting rid of unnecessary burdens, like the non-social related elements of green taxes and lowering VAT (after an EU renegotiation), and third, by doing everything possible to increase competition.
Finally, and perhaps most significantly of all, by imposing a windfall tax on utility companies. This tax would be handed back to the public through lower utility bills. A windfall tax would also make an important statement to the energy companies: “enough is enough, government can no longer standby and see the public being ripped off”. It would send out a very powerful signal that the Conservatives want to stop the corporate juggernaut and are on the side of the poorest who are suffering the most because of high bills.
It is not sufficient for Tories just to focus on reducing green taxes, however important. If we are to argue that we won’t save the planet on the backs of the poor, we also have to prove that we can help the poor by getting on the backs of the big corporates. As a party we have always been successful at the ballot box when we have ‘elevated the condition of the people’ and been the party of small business. A windfall tax would cement our place on the side of those who are doing the right thing, rather than those who are doing such wrong.