The government has finally announced its ‘solution’ to the energy crisis – a repayable £200 loan to every customer and a £150 cut in council tax for homes in bands A-D.
This came on 3 February, the same day that Ofgem, the energy regulator, announced that their price cap will rise by 54%.
Unfortunately, the government’s plan is nowhere near a solution to the energy crisis – in fact, it’s barely a sticking plaster.
The £200 loan won’t come until October, after another price cap adjustment and it will need to be repaid. It’s also uncertain how the council tax cut will be delivered to some, for instance to renters whose landlords include council tax in the rent.
The energy crisis will be with us for a while yet - the International Energy Agency recently predicted that global fossil price will probably remain high for two more years.
The question is: how can we really fix the problem, so everyone can afford to heat their homes and cook their food?
Short-term: Take off the tax
It’s within the government’s power to remove VAT and other taxes from energy bills, which would be worth around £300 per household – that’s half the impending rise in the price cap – without needing to pay it back.
They could fund this quite easily with a windfall tax on North Sea operators, to claw back some of the £20 billion extra profit they’ve made this winter.
This is the ethical approach. Around 40% of Britain’s gas supply comes from the North Sea and the price of that has gone up tenfold during the energy crisis. It’s not costing any more to get out of the ground, it’s just pure profit at the expense of bill payers.
Given that the government aren’t willing to apply a windfall tax, our founder, Dale Vince, has a radical idea – a progressive tax on energy:
“Create bandings of annual consumption and apply the existing taxes in increasing amounts as consumption increases. So that the more energy you use the more expensive it gets. At the lower end we would have a tax-free element of energy consumption - as we do with income.”
“And it fits the bigger picture - where the 10% of wealthiest people are responsible for 50% of carbon emissions - they can and should pay much more for this than they do.”
Long-term: A public enquiry
The energy sector isn’t going to magically fix itself. When this energy crisis ends, you can bet there’ll be another one along – the only question is when.
That’s why we need a public enquiry, to identify the problems so that we can rebuild Britain’s broken energy system.
1. Fix the price cap
The Price Cap only controls retail prices, not wholesale. Dale Vince believes we need to examine “the role of government’s refusal to adapt that - in the face of this crisis - which has bankrupted 26 energy firms since summer.”
2. Who pays for the stranded customers?
Dale says: “We need to look at the cost of that market failure - four million stranded customers promised credit balance protection and access to unrealistically low energy prices (lower than it can be bought for wholesale) has a current running total cost of £4 billion.
“We pick this up one way or another and currently government seem set on adding it back to energy bills.”
3. Stop the stealth tax
An average customer has around £100 of VAT added per year to their energy bill. They also have around £200 of stealth taxes, to fund social and environmental programmes, making it an average of £300 added by government every year.
Dale says: “We also need to look at the £9 billion of stealth tax government adds to energy bills to pay for social and environmental programs - it’s unique to load the cost of such things on any sector of our economy - for example the £2.5 billion per year that subsidises farmers is not added to food.”
4. Exactly why did all those energy companies go bankrupt?
Some energy companies went under because they didn’t hedge, which means buying their power ahead of time to fix the price, helping to smooth out fluctuations in the market.
Oddly, though, some companies may have gone bankrupt because they hedged too well – and the cash in value of that energy was too much for their owners to resist. Here’s Dale to explain:
“Bulb is a good example of a large company going bust due to not hedging properly. So big that government had to effectively nationalise it and take a £1.7 billion hit just to operate this winter.
“Pure Planet is a good example of a company that was well hedged, and that appears to have been their downfall - as the value of the hedge was so high, it appears to have been cashed in by BP, dumping up to £500 million of cost on the taxpayer.
“A handful of smaller companies also went bust this way when the ‘gas shipper’ that did their gas hedging for them decided to exit the market and walk away with the hedges.”
The even longer term solution
The real solution to all future energy crises is Energy Independence, where Britain is free from global market price setting.
This means getting all our electricity from the wind, the sun and the sea – and making our own sustainable gas from grass. We have enough natural resources in Britain to power ourselves many times over – and we can get it done in 12 years or so if the political will is there.
As Dale Vince says: “With our own renewable energy and our own pricing we can have affordable energy bills that never need to go up - if we get it right.”
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