David Prosser: An industry that is even less trustworthy than the banks

Ofgem should accept its fair share of the blame for what has gone wrong – it appears tohave got wise to the tricks of the trade only very recently

It is 16 years almost to the day since trade unionists turned up at British Gas's AGM with a pig named Cedric in order to express their anger about the pay packet of the company's then chief executive, Cedric Brown. In the context of annual rewards worth tens ofmillions of pounds, for which the bankers have been vilified since the financial crisis, the £2m or so Mr Brown earned at the time looks modest. But the parallels between the public outrage over his pay back then and what bankers have been earning more recently are significant, for the energy sector has developed in similar ways to retail banking.

Above all, both banking and home energy are industries that make a lot of noise about competition even though precious little of it has existed. In banking, four large institutions have dominated the high street for as long asanyone can recall – and, really,continue to do so. In home energy, the big six providers have a market share of more than 99 per cent.

It is from this lack of competition – and the fact that bills vary by only a few pounds between the big six suggests there is little competition between them – that consumer detriment springs. Thelatest inquiry into the sector, the conclusions of which were unveiled by Ofgem yesterday, reveals this detriment has become markedly worse over the past 18 months. Broadly, Ofgem's conclusion is that the big six have been exploiting price changes on the wholesale gas market at consumers' expense while attempting to hide what they've been up to behind an ever-more baffling range of tariffs.

It is the sort of behaviour of which the banks would be proud. Just as mortgage lenders used to overcharge loyal customers in order to subsidise eye-catching introductory offers to attract new borrowers, so customers who stay with their existing energy provider for an extended period end up paying more than those lured from rival suppliers by an aggressively priced new tariff. And just as the banks mis-sold customers inappropriate savings and borrowing products, so the mis-selling in the energy sector is still going on.

Indeed, one of the most striking of Ofgem's conclusions is that the energy industry's customers now have even less trust in the big six than they do in the banks. That's quite an achievement.

Now, Ofgem should accept its fair share of the blame for what has gone wrong. It appears to have got real to the tricks of the trade only very recently – not all that long after the Conservatives, while still in opposition, began making noises about its abolition, in fact – though campaigners for consumers, including The Independent, have been complaining about them for many years.

Will the reforms it has proposed finally improve the situation? Not on their own, perhaps, but if they really do encourage significant new players to come into themarket, then maybe. What Ofgem hopes is that a company of the stature of, say, Tesco will bepersuaded to bid for some of the 20 per cent of energy the big six have been told to auction off.

Does that sound familiar? This is the preferred prescription for banking too, where Sir JohnVickers' inquiry is just the latest attempt to break the stranglehold of the big four. Experience tells us that this sort of stuff is easier to talk about than achieve.



The route to a more honest tax system

Is he really going to do it? That the Chancellor of the Exchequer is considering a move towards integrating national insurance and income tax in tomorrow's Budget was first revealed in The Independent last week. Since our report, it has become increasingly clear that this is a policy goal that George Osborne hopes to work towards.

Even leaving aside the dishonesty of the current tax set-up – in which income tax and national insurance raise £150bn and £100bn a year respectively for the same spending pool but the Treasury pretends they are independent taxes – there is an excellent reason for doing so. The administration costs of this twin-track tax system run into tens of millions for employers, as well as Her Majesty's Revenue and Customs itself, and are a total waste of cash. That's leaving aside the millions in tax revenues foregone because of the tax planning opportunities the two systems generate – like, for example, businesses that pay their owners dividends, on which no NI is payable, rather than salaries.

Still, if Mr Osborne really wants to get rid of national insurance, at least for employees, he is going to have to be imaginative as well as courageous.

The latter quality is required because adding the NI people pay on to their income tax bills is going to make for tax rates that range from 30 per cent to 50 per cent. Not only are those figures much higher than many people realise, the difference between top and bottom is much smaller than you might expect given that the income tax rates currently are 20, 30 and 50 per cent.

As for imagination, the Chancellor will need plenty of it to get past the problems created by the abolition of NI. What do you do about the contributions paid by employers – simply maintaining them would mean leaving open many of the loopholes merging the two systems is supposed to close – or the fact that NI is not paid by pensioners? How do you cope with the additional cost of tax reliefs, particularly on pension contributions, that would result from the higher income tax rates? And how do you mollify losers from the changes, such as those who live on savings or investment income, who currently don't pay any NI?

It isn't at all clear what the answers are to some of these difficulties. But Mr Osborne should not lose sight of the prize – a simpler, more honest tax system. It would certainly be an admirable legacy to pass on to future Chancellors – and it might just mean that cuts are not the only thing for which Mr Osborne is remembered.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor