Centrica’s profits and Ofgem’s whitewash

While pensioners across the UK are having to choose between heating and eating Centrica’s obscene profits up six times on 2006!, cry out for a windfall tax.

Here’s a press release from The Campaign for Public Ownership, which

condemns British Gas’ announcement of annual profits of £571m, a six times rise in its profits over the last twelve months. The massive profits, which translate to £1,200 a minute, is due to windfall profits in the first rise of last year, when British Gas was slow to cut charges to customers to reflect the big fall in world gas prices. British Gas put prices up by 36% (£299) in 2006. After that, the wholesale price of gas has dropped by 56%. However, British Gas only reduced its prices by 18%.

Despite its huge profits, last month British Gas said it would raise the amount it charges for gas and electricity by 15%.

British Gas’ primary concern is not the millions of hard-pressed Britons struggling to pay their bills, but to its shareholders. Roger Carr, Chairman of British Gas’ parent company Centrica, which has announced profits of £2.1 billion, has said shareholder value was “top of the agenda”.

It’s time for the government to put an end to this blatant profiteering by bringing British Gas back into public ownership.

Thirty years ago, utility bills were a very minor item in the household budget, now millions of Britons are struggling to afford them.

It’s clear that while proving a bonanza for the banks and wealthy shareholders, privatisation of the utilities has been a disaster for the majority of the British public.

The Morning Star editorialises on Ofgem’s inquiry:

An Ofgem whitewash
(Thursday 21 February 2008)

THE hastily announced inquiry by energy regulator Ofgem into operation of the markets in electricity and gas fulfils the role that royal inquiries used to play for under-pressure governments.

They were designed to take the heat off and to report in due course that, apart from one or two cosmetic changes, everything that had happened had been for the best or, failing that, that no-one had really been to blame, so business as normal.

Who can have any real measure of confidence in a “regulator” whose brief is more to act as a PR consultant for the energy privateers than to expose their cosy, lucrative cabal?

Government and Ofgem claim that, with six major suppliers of energy, there is an adequate level of competition and consumers have real choice.

Such a picture is simplistically beguiling but far from convincing.

The main drive by the energy companies is to secure direct-debit, dual-fuel customers and the annual charges for this across all six companies vary by only £13. Some competition.

In addition, the level of concentration, in terms of vertical integration, in the energy provision market is such as to prohibit any realistic possibility of new providers entering the field.

Whenever these telephone-number profits draw criticism, British Gas and its major competitors/collaborators explain that they are dictated by wholesale markets over which they have no control.

But these companies themselves are key players in the wholesale market and pass on every price increase fully along the supply chain of their own subsidiaries to the consumer.

However, it is a different story when it comes to decreases in the wholesale price, the benefits of which are kept by the companies.

British Gas asserts that it needs higher profits to fund research into new natural gas reserves, but it has still seen its profits leap to £571 million from £95 million last year.

That cannot be justified by any stretch of the imagination, any more than its 17 per cent rise in shareholder dividends can at a time when the government going rate for public-service workers is 1.9 per cent.

The government has a responsibility to act in situations where an oligopoly is out of control. In effect, the energy market is a natural monopoly that is administered by six participants.

If competition is the key to good services and lower prices, as all the privateers declared when they were licking their lips at the prospect of getting their hands on our publicly owned utilities, why are 4 million people in Britain living in fuel poverty – paying over 10 per cent of their net income on energy?

Allowing Ofgem to go through the motions of another inquiry is useless.

As Centrica, the parent company of British Gas and proud beneficiary of its own record £2,100 million profits pointed out, there have been 15 inquiries into the energy market in the last seven years and each has given the industry a clean bill of health.

That’s because the operating guidelines laid down by the government favour profit maximisation rather than social justice or even fair play.

This profits glut for a relative handful must be reversed by taking the energy companies back into public ownership.

Rubbish! It can’t get worse than Granite, can it?

Has the government acquired the worst bits of Northern Rock?

It is a question easier to answer than “nationalisation – which nation?” or “temporary public ownership – temporary for years?”

The answer is yes, the government has got the worst bits of the Rock.

And yes, it does get worse than the Granite bank-within-a-bank farce.

Ron Sandler, the Lloyd’s man appointed by the government to run the Rock under “temporary public ownership” and make it fit for flotation again (sale to the private sector, in other words) – this guy is a non-domicile.

So Sandler doesn’t pay tax on his earnings abroad due to non-dom status, and his UK earnings aren’t bad – he’s getting ninety thousand pounds a month (that’s around three thousand pounds a day!) for running the Rock for us. His deputy is on a similar ammount and is also a non-dom.

Meanwhile, there are no firm guarantees that NR staff will not face compulsory redundancies, and since the Granite issue has been unveiled, no way of knowing if the debt acquired will be paid off by the Rock…

Worship of profit
(Wednesday 20 February 2008)
THE longer that the Northern Rock saga drags on, the shakier the grip that the government appears to have on what’s happening.

Alistair Darling and the real Chancellor Gordon Brown both insist that the bank had to be nationalised to get it back into financial order and to safeguard taxpayers’ money that was injected into it.

But how can these goals be achieved if the cream of Northern Rock’s assets has been shuffled off by a subsidiary called Granite to a tax haven and is not part of the nationalisation package?

Given that the residue of the bank’s “assets” include unsecured mortgages and those offering advances on the basis of no deposit and 125 per cent of property valuation, how long do the daring duo imagine that it will take to turn such boobies into cash prizes?

Treasury Chief Secretary Yvette Cooper seemed oblivious in Parliament to the Granite sleight of hand.

Is she alone in her ignorance? Or, if Messrs Brown and Darling were aware of this manoeuvre, why were they not straight with Parliament and the public by telling them that we were all becoming joint owners of what may be little more than a

John McDonnell is correct to point out that the government is hoist by its own petard, in that it slashed regulation of the financial sector, believing that banking could safely be left to bankers.

The sad truth is that it cannot, which is precisely why there was previously a framework of regulation.

New Labour swallowed all the Thatcherite guff from the 1980s about business being held back by red tape and how setting it free would release entrepreneurial spirit and prosperity for all.

All it did was encourage speculation, gambling without a safety net, and the results are BCCI, Hambro and now Northern Rock.

Adam Appleyard was regarded as a financial whiz-kid when he masterminded the demutualisation of the Northern Rock Building Society, which, like most societies, had ticked over by offering mortgages at a higher interest rate than that paid to savers and not overstretching itself.

Bidding farewell to this boring respectability, he offered members something for nothing – free shares for agreeing to become a bank.

From then on, Northern Rock financed long-term risky mortgages by borrowing on the international markets, gambling that low interest rates, especially in the US, would continue to underpin the bank’s expansionist scenario.

The Financial Services Authority, whose job it is to monitor banking conduct, did nothing, but that is hardly surprising when the government itself had given the go-ahead to regulation-light banking adventurism.

When these funds began to dry up, the bank was in trouble and had to approach the Bank of England for help.

This ought to have been the time for government consideration of public ownership, but so petrified is the Labour government by the thought of nationalisation that it dithered for six months.

The public can see that nationalisation does not lie at the heart of this problem any more than it does on the railways, water, gas, electricity and all the other public services plundered and degraded by dogged worship of private profit.

Follow

Get every new post delivered to your Inbox.