Cap the price cap

12^th August 2022

A dog’s life? More children will face poverty as the economic crisis deepens

Energy prices are soaring.  Gas in particular has increased in price by 400% in the past year and 1000% since 2019.  As well as direct gas supply, gas accounts for around 45% of electricity supply, through gas fired power stations.  In 2019 the energy price cap set by regulator Ofgem stood at £1,254; latest estimates suggest that this may hit £4,200 in the New Year, rising to £5,000 according to some calculations.

The energy cap was introduced by Ofgem in 2019 to help those on standard variable tariff dual fuel energy bills, meaning the price paid is subject to changes beyond the consumer’s control.  The price cap sets a level beyond which consumers under its protection cannot be charged.  At present it covers around 23 million households in Britain.

The debate in the media and between Prime Ministerial hopefuls, Rishi Sunak and Liz Truss, has focussed upon the illusory notion of putting more money into people’s pockets, the better for them to decide how to spend it.  If that is a choice between heating and eating, which for many it will be, an extra few bob to feed the gas meter is hardly likely to win out.

Quite apart from the fact that Truss’s tax cutting mantra will not assist the poorest anyway, there is always the option of not taking the money out of people’s pockets in the first place!  This of course is not very Conservative, as robbing the poor to give to the rich is part of Tory DNA.  Rishi Sunak may put more of a clever spin on his proposals than Truss but they still amount to the energy producers getting rich while the most vulnerable in society pay.

So, what can be done in the world of neo-liberal capitalist market economics, where the market dictates and we all have to live with the consequences?  Well, if you are a bank which has run up over its credit rating in gambling debts, as happened to many in 2008, the State can step in to save you.  ‘Too big to fail’, was the phrase commonly bandied around then. 

If you are a Tory Party supporter with no experience of public health, pandemic protocol or quality control over PPE equipment, you can get lucrative government contracts and walk away rubbing your hands in glee at your lucky payday.

Under capitalism the myth that the State does not play is a con trick, pedalled by pro-capitalist politicians who want to ensure they retain control, or to circumscribe the activities of those bits of the State which might show signs of resistance, local government historically being a case in point.    

The reality of course is that the State always plays.  The State is run by the ruling class in the interests of that class and can manipulate markets and make adjustments to its advantage at certain times, should it choose to do so.

The government could choose to fix the price cap so that energy bills in households affected did not increase massively and plunge more families into poverty.  This would put the pressure back onto energy suppliers, even the energy producers, who may have to reduce their profits and cut the dividend to shareholders; but it could be done.  With half of the current inflation rate being down to rising energy costs there would even be the benefit of prices across the economy not rising so quickly.

Energy companies would weep and demand a bail out, as the banks did in 2008, but taking them into State control would settle that issue.  The French government owns energy supplier EDF, is keeping prices capped and has an inflation rate of less than half that of Britain at 5.8%.  The French economy is no less capitalist than Britain, so there are options.

In the short term a windfall tax is another option.  When he was Chancellor, Rishi Sunak raised a levy on the industry’s windfall profits that raised £5 billion.  Less widely publicised was the fact that Sunak softened the blow by allowing firms to offset 80% of their new investment costs against tax.  The outcome of this was that, combined with existing tax breaks, oil and gas firms get 91p off their corporation tax for every pound spent on investment.

However, there is no evidence that windfall profits are actually being invested.  On the contrary higher dividends to shareholders is the reality, while energy bills soar.  Another windfall tax, levied to put that money into the pockets of consumers, is an option.  Estimates suggest that raising £15 billion would be a reasonable outcome.

Without any significant action it is estimated that those in fuel poverty could rise to 39 million people by next January, over half of the population of the UK.  After a visit to Britain in 2018, the United Nations Special Rapporteur on extreme poverty and human rights, Philip Alston, expressed great concern that “14 million people, a fifth of the population, live in poverty. Four million of these are more than 50% below the poverty line, and 1.5 million are destitute, unable to afford basic essentials.”

Those figures will not have improved since the pandemic and will only worsen as the economic crisis deepens. To suggest that this is a scandal in the world’s fifth richest nation does not even come close.

The scandal is compounded by the absence of any real fightback from Labour on the issue of energy costs.  Kier Starmer is on holiday, which could be the Labour Party’s strapline on this, as on so my other issues.  His last set piece speech on anything significant saw him resurrecting the Theresa May mantra that there is no magic money tree, as he tried desperately to assure the banks and corporations that capitalism will be safe in Labour’s hands.

The fact is that there is a money tree.  Working class families water its roots throughout their working lives in the payment of taxes. The problem is that its fruits are not fairly distributed. 

The energy crisis, the cost of living crisis, are just euphemisms for the capitalist crisis, which is the real long term issue that must be dealt with.  That will only be resolved with a socialist economy, planned and organised around people’s needs, not the desire for profit of a minority.  

Until then measures which ameliorate the suffering of the poorest and prevent millions more being plunged into poverty are the least we need to achieve.  That will require pressure from the trade unions, community organisations and the Labour Party.  That means Labour getting off the fence, and into action to force the government, once there is one, to act swiftly.

Arrivederci per ora

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