Robert Halfon is a member of the 1922 Committee Executive and MP for Harlow
It is interesting that when Ed Miliband made his ‘surprise’ Conference announcement, there was no mention of water bills, or the price of petrol and diesel. Yet the price of petrol rose by around 76 per cent under Labour and has risen by 118 per cent since 1998 (in part due to their fuel escalator). I set out how to deal with this on Monday.
On water, the average family is now spending 64 per cent more than they did ten years ago on water bills. Gas and electricity bills increased by almost 40 per cent under Labour. As did bonuses for company bosses.
Whilst we know that a price freeze will push up prices and curtail investment, we have to come up with our own solutions. Here are three ways that the Conservatives can tackle this.
First: Scrap VAT on essential utilities. Although VAT is not paid on domestic water supplies, a reduced rate of 5 per cent is applied to household energy bills. According to the House of Commons Library, the average family paying by direct debit spent £1314 on their gas and electricity bills. So removing VAT could save each family around £65. It is somewhat of an anomaly that gambling is VAT free, but energy is not. It would be preferable to have VAT on gambling to allow the cutting of energy bills.
Due to current EU law, it is very difficult for the Government to lower VAT on energy bills. That is why a fundamental part of our renegotiation with Europe must be about VAT. As a country, we must regain sovereignty over our VAT rates.
Second: Scrap Labour’s Green Taxes. A recent report by the DECC estimated that 17 per cent of the average electricity bill is spent on Government energy policies predicted to rise to 33 per cent by 2020. Some of this money is socially just as it goes to help the most vulnerable like the Energy Companies Obligation and the Warm Home Discount (which needs to be made much more consumer friendly).
We are plagued, however, by a hangover from Labour Party ‘environmentalist dogma’. More than seven per cent of electricity bills goes to schemes such as the Renewables Obligation, which imposes fines on electricity companies which don’t use enough renewables, and the EU’s Emission Trading System, which forces companies to buy permits for their emissions. This is not only bad for businesses who are being punished for expanding, but these fines and levies are passed straight on to the consumer.
Third: ‘Utility windfall tax’, competition, and regulation. There are a number of problems here: inadequate regulators, lack of competition, and greedy companies. Too often regulators seem to act as company secretaries rather than consumer pressure groups (which they should be). Take water, where there are lax leakage targets, where company directors give themselves excessive bonuses, and where prices have increased to an incomprehensible amount for most of the public to accept.
In a study I did of water companies in the East of England, one company put up directors’ pay by 116 per cent, whilst consumer bills went up 14 per cent.
The Water Bill brings more competition to businesses in their water supply, but competition should be extended to domestic customers, and water companies given shorter leases in the same way train operating companies have to rebid for their franchises.
Regulators should be transformed to be more consumer-focused. They should have the power to impose huge windfall taxes on companies that are underperforming, and if they don’t do it, the Government should step in. The caveat of the ‘utility windfall tax’ would be that all monies raised would be passed back to consumers through lower prices.
But policy changes are not enough. Conservatives should not be afraid of calling a spade a spade, i.e: criticising big companies when they are found wanting. We should acknowledge the failure of some corporates, of the regulators and empathise with an anxious public.
It is simply not the case of ‘public sector bad, private sector good’. That does not mean we have to come up with socialist panaceas to these problems. There are always Conservative solutions to be found.