Saturday, 28 September 2013

Sharing the pain

We’re all in this together.

David Cameron made that pronouncement soon after he formed the current British government in 2010.

David Cameron: sharing the pain
It made sense. The crash in 2008 affected us all. It was only right that we should all pay for the consequences, and the cure.

In fact, the government has done all it can to make sharing the pain a little easier. For instance, it provided a generous tax reduction for the people with the highest salaries. It is also now taking legal action to protect the right of bankers to go on paying themselves seriously interesting bonuses, against the officious interference of the European Union.

Sadly, the opposition Labour Party isn’t getting with the mood. Its leader Ed Miliband told the Party Conference last week that if he formed a government he would freeze energy prices for twenty months. What a wet blanket, spoiling the party.

And he’s had just the reaction he deserved. The cries of outrage have been deafening. I mean, how are the energy companies going to continue paying for the investment we need in renewable energy sources if they can’t charge enough to cover their costs?

Just because one of the big six companies, Centrica, announced in February they would use £500 million of their ‘surplus’ capital to buy back their own shares, doesn’t mean they’re not investing. They have to make that kind of payment to keep their shareholders happy, and we all need to keep shareholders happy, or they won’t share the pain with us.

And Centrica’s Chief Executive took only £5 million in pay last year, which is barely 200 times the national median income.

It was explained to me that the energy companies have to keep increasing their charges anyway, because of the weakening pound. The pound was at $1.58 at this time in 2010 and it’s sunk to $1.60 now. Meanwhile a barrel of oil, which cost $71.21 on average in 2010, hit an average of $87.67 this year.

Obviously the oil price will only affect part of the costs of the energy companies, but even so that’s a massive increase: 23%. So how can anyone complain that household energy costs have grown by 40% in the same period?

The trivial objection has been made to me that industrialists squealed just as loudly in the refrigerator manufacturing sector when CFCs were being banned, from the late 1980s. When the ban was adopted, the industry quickly found alternatives and settled down to making its fridges, and its profits, again.

This is nothing like the same situation. The objection to the Labour proposal from the six companies that dominate 98% of the market isn’t just carping by a bunch of oligarchs watching the gravy train come to a stop, it’s a matter of principle. If this terrible measure is adopted, Britain might find itself in the same position as the rest of Europe, where prices are growing less quickly, or even France or Spain, where they are falling.

Let’s remember that though the six companies seem to increase their charges absolutely in step with each other, this isn’t the classic behaviour of an oligopoly, protecting profits through unjustifiable price rises. It just reflects the fact that they are guided by the views of recognised experts who interpret movements in the industry in the same way. And the fact that prices rise quickly in response to increased raw material costs, but somehow fall much more slowly when they come down, is just a natural law of the sector, about which we can no more complain than we can about the law of gravity.

Ed Miliband needs to think again. He should not draw satisfaction from the terror of the energy company executives, thinking that it implies that they, at least, expect him to win the next election. Nor should he be pleased at the apparent popularity of his proposal. He should realise that this is immature, adolescent politics, and the mere fact that’s it realisable, popular and would bring much needed relief to the poorest in society, in no way justifies his behaviour.

Doesn’t he realise we’re all in this together? That he needs to pull with the government? How else can we achieve the kind of prosperous and just society we all desire?

No comments: