Profiteering from volatile energy prices. Record profits from the UK’s two largest oil majors led media headlines in recent weeks, as fossil fuel giants continue to benefit from the global energy crisis. We know where these profits are coming from, but where are they going? And with a form of windfall tax already in place, what more can be done to ensure more of this windfall is diverted into alleviating the cost of living crisis facing ordinary households?
What can the government do about profiteering? Labour has been calling for a stricter windfall tax in response to capture some of the unearned rents and use it to fund household support for the rising cost of living. Last year, Tax Justice UK modelled how a 95% tax on excess profits could raise £12.9bn instead of the £5bn planned in the government's original estimates. But other policies also exist which can disincentivise profiteering and other extractive behaviours from taking hold in the economy.
Publicly-owned energy companies? Nationalisation has been a topic of discussion in relation to the energy system ever since privatisation, and it is no surprise that the scale of these profits should spark the conversation again. However, unlike public ownership of energy retail companies or the energy networks, nationalisation of the oil majors is complicated by the risk of passing over billions in stranded assets onto the taxpayer. (Progressive Britain’s Tom Collinge argues that nationalisation may be too expensive for the current energy crisis, but energy security “cannot be left to the market”, and nationalisation must be recognised as “a long term, structural, solution to long term, structural problems.”)
Profiteering throughout the UK energy system. Profiteering is not just limited to energy generation. Common Wealth’s latest explainer details how profit is extracted at every stage of the UK’s privatised supply chain through extraction, generation, transmission, distribution and supply. Nationalisation could be more fruitful in natural monopolies of energy transmission and distribution.
Tackling profiteering in the rest of the economy. Profiteering is not limited to the energy system either. Unite’s Profiteering Commission accused many FTSE 350 companies of price gouging and argued that profiteering pushed a ‘second round’ of inflation last year: “This isn’t just about oil companies or a few “bad apples”. Even excluding energy firms, FTSE 350 company profits increased by 42% between 2019 and 2021.”
The cost of living crisis across the housing market. The Resolution Foundation’s Housing Outlook report for Q1 2023 finds that the effects of the cost of living crisis are being felt unequally across different housing tenures. While “mortgagors are feeling the effects of higher interest rates”, private and social renters “are much more likely to report falling behind or struggling with their housing costs than those buying their own home”. Half of social renters reported not being able to put aside £10 per month in savings. Over half of private renters reported struggling to meet their housing costs over the past three months.
The rise of corporate landlords. The ‘build-to-rent’ housing class, housing units owned by institutional investors, has grown significantly in recent years and is predicted to increase fivefold over the next decade. The growing phenomenon “exacerbates wealth inequalities” and excludes “established communities as rents are pushed up further”, argues the University of Sheffield’s Adam Leaver, Jonathan Silver and Richard Goulding.
Mapping the net zero economy. The ‘net zero economy’ is “highly productive”, generating 1.7 times higher Gross Value Added (GVA) per employee than the national average, according to new research by the Energy and Climate Intelligence Unit (ECIU). ECIU’s report also found that net zero ‘hotspots’ are spread widely across the country and that the “net zero economy is stronger - and significantly more productive - in regions such as Scotland, the Midlands, and Yorkshire & the Humber, compared to London and the South East”.
Lessons from across the pond. Labour leader Keir Starmer should take a leaf out of Joe Biden’s book, argues Global Justice Now’s Nick Dearden, with the US president using his State of the Union address last week to set out an alternative to “market-knows-best trickle-down economics”. Keir Starmer must echo Biden’s criticism of corporate greed, argues Dearden, and ensure that the missions that Labour has set out - such as a focus on renewable energy - must build “public, as opposed to corporate, value”.
Government shake-up implications. Last week, the Prime Minister broke up the Business, Energy and Industrial Strategy (BEIS) department, creating new departments for energy; business and trade; and science, innovation and technology. Many of the criticisms of the old system centred on the dominance of energy in the BEIS brief. So, will this shake-up mean better industrial strategy? Not unless it is combined with more consistent decision making and better cross-ministerial functions, argues the Institute for Government’s Olly Bartrum. Bartrum references a 2021 article by Cambridge professor Diane Coyle which explores the reasons behind Britain’s “institutional inability” to learn from its industrial policy mistakes.
A new politics of care? A new Institute for Global Prosperity (IGP) working paper by Henrietta L. Moore and Alexandra Boothroyd argues that the crisis in health and social care must be analysed as a wider issue: “a breakdown of [the UK’s] social protection system, as the state fails to fulfil its duty of care”. The study uses London’s Tuberculosis rate as a case study of the care crisis.
Childcare and the budget. Pressure is mounting on Chancellor Jeremy Hunt to use his budget next week to expand free childcare, including from the CBI which said that £9 billion is required to improve the childcare system. Members of his own party are also piling on the pressure: Education Select Committee chair Robin Walker has called on the government to do more to help working parents while members of the Conservative Growth Group have identified childcare as a potential method of boosting growth.
April cliff-edge for the Energy Price Cap. MoneySavingExpert Martin Lewis wrote to Chancellor Jeremy Hunt last week warning that 1.7 million more households will become ‘fuel-poor’ when the Energy Price Guarantee (EPG) increases by £500 in April. (See our previous analysis of the EPG.) Lewis joined Emma Pinchbeck, the chief executive of Energy UK (a trade body representing energy suppliers), in calling for fixing the EPG to £2,500 for the rest of 2023 to avoid a “national act of harm”.