Friday, 8 July 2011

Will energy price rises invite calls for a new windfall tax?

The news today that British Gas will follow Scottish Power with huge price rises - in the case of the former, price increases of almost 20%, following on from a 7% rise at the end of last year - raises significant problems for a large number of people and a major headache for the government.

These significant rises - set against falling household disposable incomes, a weak economy and inflationary pressures - will hit people even harder than the headline figure suggests.

What can the government do? Well, its already been reported that Chris Huhne has met with smaller energy suppliers to try to increase the diversity of providers in the market. Now, this is a very free-market, neo-liberal approach to tackling this issue. Rather like the Republican Party in the US and their reaction to sky-high medical insurance premiums, the preference of right-leaning parties will always be for trying to increase competition as a method of tackling high prices, rather than using more direct regulation.

But intervention and regulation - proper regulation - can be far more effective than this more hands-off approach. And one piece of intervention that would be both hugely popular and would be a useful source of revenue for the government would be to resurrect one of Tony Blair's earliest policies - a windfall tax on utility companies.

The original tax in 1997 raised an estimated £5billion. The level of income in 2011 would be much higher, and could be used to stimulate the green economy or fund tax relief for households.

How tempting this would be for the Government, despite their ideological hue.

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