With the Ofgem price cap falling again, dropping the typical energy bill to £1,923, Rishi was immediately in front of the cameras to hail the good news. Although that’s still much higher than the £1000 bill from just three years ago…
Ithaca Energy have announced their investment in its North Sea oil and gas portfolio “has and will reduce” as a direct result of the government’s windfall tax, which now whacks energy firms with a raid of up to 75% of their profits. And would go even further under a Labour government…
The company say the fiscal uncertainty and punitive tax policies are forcing it to reduce production for next year. CEO Gilad Myerson said today:
“We continue to constructively engage with the UK government to highlight the impact of the current fiscal regime to the industry’s outlook and to the UK government’s stated energy security and net zero ambitions.”
Shell have already admitted the tax may cause them to withdraw their £25 billion investment in UK energy for the same reason. The government can’t tax its way to energy independence or cheaper bills. Who knew?
The government has just revealed the details of its “Energy Bill Relief Scheme” for businesses. The package will cap wholesale energy prices for all non-domestic customers at less than half what businesses had expected to pay for the next six months. The new cap is now £211 per MWh for electricity, and £75 per MWh for gas. BEIS say this will roughly align the plan with the domestic policy already announced.
Business Secretary Jacob Rees-Mogg said:
“The help we are already putting in place will save families money off their bills, and the Government’s plans for businesses, charities and public sector organisations will give them the equivalent level of support. This, alongside the measures we are taking to boost the amount of domestic energy we produce to improve both energy security and supply, will increase growth, protect jobs and support families with their cost of living this winter.”
A recent research note from economists at Deutsche Bank suggests that the energy price cap will be deflationary and the astronomical cost of the cap will be offset by tens of billions saved on inflation-linked payments due to be made by the government such as pensions, wages and inflation indexed gilts. Counter-intuitively this state subsidy saves the state, to some degree, in other areas.
A review into how the scheme might continue is set for March 2023. In the meantime the government says it’s looking at other ways to “reduce wholesale energy costs” and help vulnerable sectors beyond the six month cap. Full steam ahead…
Sir Keir is in a flap trying to work out how to attack Liz’s new energy policy. There are plenty of arguments against it being posed by her free market allies, though given the Government’s policy is much grander than Labour’s own price freeze, it leaves very little room for attack from the left. During today’s debate, Sir Keir came close to misleading the House. His argument, that corporations should pay for the energy bailout, heavily implies to voters that the only way we get money out of energy firms’ profits is via a windfall tax. This is obviously untrue. Energy firms already pay 65% tax on profits, and any rise in profits leads to increased tax receipts…
Labour frontbenchers have been claiming this week that a windfall tax should pay for the energy price freeze, though Labour’s own sums accept the current windfall tax funds just £8 billion of their £29 billion spending proposals. Asked by Tory MP Jacob Young precisely what tax level on energy giants’ profits should be set at, Sir Keir totally dodged the question. Asked again by Mark Harper how high he wants a windfall tax to go, he once again ignored the question. Almost implying this is ill-thought out politicking…
Mark Harper also raised another key point. During his statement Starmer referred to £170 billion of unexpected excess profits by energy giants – a figure being repeated by Ed Miliband and Angela Rayner among others. This £170 billion, Labour implies, is completely up for grabs if only the billionaire-boot licking Tories would take the opportunity to tax it. Unfortunately for Labour this is also wrong. The £170 billion figure is global profits, only a fraction of which are registered in the UK and therefore taxable. As Joe Armitage points out, the figure for the UK, projected in 2022, is around £40 billion. Which is already, as stated, taxed at 65%.
GB News’ Tom Harwood explained this point well:
'Can the UK government really raise £170 billion in tax just like that? The answer, bluntly, is no.'— GB News (@GBNEWS) September 8, 2022
Tom Harwood says Keir Starmer's implication that £170 billion could be raised in a windfall tax is 'nothing short of misinformation.' pic.twitter.com/NAp71fPZVi
“In total, extra profits of oil and gas giants this year amount to just £14 billion.” Even if all of that were taxed, it wouldn’t be a drop in the ocean of the government’s £100 billion-plus spend, and would certainly damage investment in energy extraction if taken off them. The commentariat loves to imply that Sir Keir’s some sort of details-obsessed political centrist. By the looks of it he’s got Diane Abbott doing his sums…
Full Fact has new analysis out this morning showing Labour’s policy of freezing the energy price cap at current levels has a multi-billion costings black hole at its heart. Their analysis says freezing the cap would cost around £8 billion more than Labour calculates, as they haven’t taken into account most consumers’ higher gas and electricity consumption during a typical winter. The fact-checking website previously said Labour’s “fully-funded” plan was out by around £2 billion. Now the IFS has flagged another problem…
The IFS told Full Fact:
“Energy use rises enormously over the winter months, and, as they stand, Labour’s plans would not cover the cost of freezing prices for the additional energy consumed by households over this period.
The roughly £8 billion of costs the plan does not currently cover would either need to be paid for by the government, energy suppliers or households.”
This £8 billion figure is in addition to previous IFS criticism that Sir Keir’s radical plan is an “illusion” as the party factored in £7.2 billion of savings from debt interest payments due to the lower inflation the freeze would cause. Obviously the moment the freeze was ended – as it would have to at some point – inflation would rise again and wipe out those savings.
The party also factored in £2 billion towards the policy from “not going ahead with either of the two proposals from the Conservative leadership candidates: cuts to green levies, proposed by Liz Truss, or cutting VAT, proposed by Rishi Sunak.” Given neither of these proposals are current government policy, deciding not to implement them saves precisely £0.
Labour’s had all summer to come up with one policy while the Tory Party tears itself apart, and it has around £17.2 billion of questionable sums behind it. Labour’s response has been to attack the fact-checking website, telling Politico “Full Fact don’t understand how energy bills work”…
Ofgem has, as expected, raised the energy price cap from £1,971 to £3,549 a year, starting in October. They ominously add:
“Although Ofgem is not giving price cap projections for January because the market remains too volatile, the market for gas in Winter means that prices could get significantly worse through 2023.”
Ofgem chief Jonathan Brearley says “it’s clear the new Prime Minister will need to act further”.