David Prosser's Outlook: The wind is blowing the wrong way on fuel prices and a cold front is coming

A promise that no Chancellor can ever make; The internet goliaths flex their muscles
Click to follow
The Independent Online

At the height of the Cold War in the early Eighties, Raymond Briggs's powerful cartoon novel, When the Wind Blows, painted a terrifying picture of the aftermath of a nuclear strike. Jim and Hilda Bloggs, a retired couple, survive the Soviet Union's initial attack on Britain but slowly (and stoically) succumb to the effects of radiation sickness. The story ends with their deaths.

In a version of When the Wind Blows updated for today's world, it would still be appropriate for the Bloggs to star. But this time around, the pensioner couple would fall prey (no doubt just as stoically) to the impossible cost of staying warm in an era of ever-higher home energy bills. This is the ultimate extension of Russia's message to the West on Ukraine and Georgia. Choose your side with care, the Russian Foreign Minister warned Western Europe this week, because it's us that own all the oil and gas.

The new Cold War may be fought on a more literal basis. Rumours abounded yesterday that the Russians planned to respond to any Georgia-related sanctions imposed on them at an emergency meeting of the European Union on Monday with restrictions on oil and gas exports. Russian officials subsequently denied the rumours, but as the stand-off escalates, it remains a possibility that Moscow might threaten to deploy such a powerful weapon, attempting to freeze the West into submission.

Oil traders are sceptical about the extent to which Russia would really cut back on supplies to the West. Gazprom, the Russian gas giant stands to make $60bn (£33bn) this year alone from exports to Europe, providing the country with substantial currency inflows. And practically speaking, major cuts in supply would be tricky – while the Russians could switch off pipelines flowing into Western Europe, exports carried in tankers by sea are far harder to control.

Still the threat is not an empty one. A dispute with Ukraine two years ago led Russia to suspend gas exports to its neighbour, hitting supplies to the West which depend on a major pipeline passing through the country. And this summer, shortly after the Czech Republic agreed the US could install an anti-missile shield in the country, mysterious technical problems reduced the oil and gas it received from Russia.

In any case, the Russians don't need to actually follow through on the threat of cuts to supplies in order to have an impact on Western European fuel bills – and the UK, which has so little in the way of storage facilities is particularly exposed. The mere threat of supply disruptions can cause very large spikes in prices on commodity markets. Gas prices rose by a third in a single day last week when it emerged that a major Norwegian field was going out of production for a period.

Could people really freeze to death in the UK this winter? Well, Scottish Power and Npower yesterday announced fuel price rises of up to 34 and 26 per cent respectively, which means all of Britain's biggest home energy companies have now announced very substantial price hikes in the past few weeks. That's bad enough, but energy experts think there will be another round of increases early in the New Year, unless prices on the wholesale markets fall significantly in the coming months.

Just to repeat that warning: there will be further big rises in your gas and electricity bills unless the oil price starts coming down soon. Unfortunately, it's going in the opposite direction. Having fallen back from the highs of close to $150 a barrel seen earlier this year, to a low of around $115, the price has been creeping back up since the escalation of hostilities in Georgia. Any serious hint from the Russians of plans to withhold supplies would accelerate the trend

This is an issue with which David Miliband must grapple. The Foreign Secretary points out that Russia's oil and gas industry needs to find customers for the natural resources it produces. He's right of course, but he'd be wise not to be complacent. Back home, Mr Miliband's colleagues at the Treasury will face renewed calls for new measures to protect the fuel-poor over the next few weeks, not least from backbench Labour MPs demanding a windfall tax.

That case is not a coherent one, however much it might appeal to populist instincts, but there is more the Government could do to help those struggling to pay fuel bills. It's plainly daft that the least wealthy in society are often charged the highest prices for gas and electricity because they don't pay through the direct debits on which utility companies are so keen. There's no reason why ministers couldn't require energy companies to stop charging more to customers who use pre-payment meters, for example.

It's also time to revisit the Winter Fuel Allowance, a ludicrously untargeted benefit. By restricting the payments to those who most need it, the Government could make it much more generous, paying a higher sum and even extending it beyond pensioners. That is, more help for the Bloggs, and for some of their younger – but just as needy – neighbours.

A promise that no Chancellor can ever make

Another day, another company moving its tax base overseas. On Thursday, both Charter and Henderson announced they were off to Ireland. Yesterday, it was Regus's turn, though this time it will be the lucky people of Luxembourg extending their hospitality to the office rentals group seeking asylum from Britain's corporate tax torture.

Naturally, George Osborne, the shadow Chancellor is rubbing his hands with glee over this row (though in public, of course, he must pretend to be deeply concerned). In an open letter to Alistair Darling yesterday, Mr Osborne urged his opposite number to adopt Conservative proposals for corporation tax cuts in order to stem the flow of companies leaving these shores.

The trouble is, the companies going overseas mostly insist that it is not the prospect of a tax saving that has persuaded them to do so, but rather their concerns about impending changes to the way charges are made on multinational businesses. And while there had been some uncertainty about Mr Darling's plans in this area, he has withdrawn the proposals which businesses said caused them most concern.

Moreover, while the business community understandably craves certainty about the future of the tax system – just as individuals would like to be promised that their income-tax bills will never rise – any Chancellor who makes such a promise is telling fibs. The fact is that tax always will be a movable feast, as the country's economic fortunes ebb and flow, and as the needs and priorities of business itself change.

Plenty of people blame Mr Darling and his predecessor at Number 11 for having allowed the UK's public finances to deteriorate to the extent that they have, even given the unforeseen credit crunch and the subsequent global economic correction. But that's not the issue here – the reality is that tax has to be raised from somewhere, however much the likes of Regus whinge.

The internet goliaths flex their muscles

Add one more big name to the list of giants circling the price comparison sector, where Moneysupermarket.com and Confused.com have both been linked to bid speculation. Microsoft's $486m purchase yesterday of shopping site Ciao takes it firmly into territory that is already being explored by the likes of Google and Tesco.

Ciao is more akin to a site such as Kelkoo than it is to Britain's Moneysupermarket.com, in that it enables users to find the cheapest prices for high street products, rather than for financial servicesor utilities.

However, the principles – and, more importantly, much of the underlying technology – are very similar. Keep watching this space.

Comments