Windfall tax to tackle fuel poverty

The behaviour of energy companies who are refusing to pass price cuts on to consumers, in spite of the sharp falls in the world price of crude oil, is of great concern to many.

Average annual spending on energy per household has breached £1,200 (since 2000 gas prices have risen 100% and electricity 61%, with further increases – on 30/07/08 British Gas announced record 35% gas price rises), correspondingly energy providers' profits have risen from £557 million in 2003 to over £5 billion today (similarly oil companies have announced huge windfall profits).

These companies are continuing to receive unearned profits at the expense of everyone. Furthermore the record price rises coupled with the refusal of companies to pass on cost cuts could increase those in fuel poverty beyond six million. This is utterly unacceptable.

Free market competition and current regulations are not producing any real competition between suppliers. Energy companies say that they need these huge prophets to invest in new, more environmentally friendly technologies, yet, so far, they have failed to do so.

In order to bring some justice to those facing huge bills Compass has re-launched the windfall tax campaign by tabling Early Day Motion 268 'Windfall Tax On Energy Companies'. Revenues from any windfall tax should be ring-fenced and targeted at homes in fuel poverty to give them immediate help and could also be used to start an adequately funded program of home insulation to protect people from inevitable future price rises. Some of the money could be made available as grants to both energy companies and individuals who want to invest in carbon free energy production or it could be used to make a contribution towards an integrated super conducting electricity grid that can simultaneously harness and distribute solar energy from northern Africa and offshore wind energy from Northern Scotland and other places. Lastly, any windfall tax could be done in such a way that companies who commit to lowering costs in line with drops in oil prices and to invest a certain percentage of their turnover in new technologies could avoid the tax. In such it would not be another revenue raising tax but a nudge to energy companies to do what is in the long term interests of the UK not their shareholders.

As Matti Kohonen and Francine Mestrum state in their new book Tax Justice: “It is largely a consequence of reactions to the Second Oil Shock in 1979 … that Denmark today manages to cover 25 per cent of its energy consumption with wind power. Public subsides paved the way with research and development, certification, testing and standardisation to build an industry with exports over $7 billion in 2007.” Similar investment had led to Germany producing 46 per cent of the world’s solar power and France producing 35 per cent of their energy through nuclear power. In the same way that state funding propped up the micro electronics industry in the US during its early, unprofitable years, so to can the UK government support green energy production. As economist Frank Ackerman says not only would this make sense morally, in the long term it would also make sense financially.


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