Utilities tax seen as `tip of iceberg'
Monday 27 January 1997
And an even bigger threat to the utilities comes from the prospect of tighter regulation and increased competition, regardless of the outcome of the general election, leading to "severe downward pressure" on the share prices of the utilities.
"Labour is likely to inherit a high public sector borrowing requirement [PSBR] if it forms the next government, with pressure to reduce it to meet the convergence criteria for European monetary union [EMU]," argues the report's author, Julian Fosh, investment director with Scottish Amicable Investment Managers.
"It is difficult to see how this, or any possible recipient for the cash raised by a windfall tax, could effectively be addressed by a single levy."
Instead, a one-off tax raising up to pounds 10bn, divided into a pounds 2.5bn levy over four years, would provide Labour with a steady income stream. "From there it is only a short step to make it an annual levy," Mr Fosh continues, noting that the targets for the one-off tax - training, education, and youth unemployment - are by their very nature medium- or long-term commitments.
"The motive for making a one-off tax an annual levy is, therefore, strong," he concludes.
Mr Fosh also claims that the impact of an ongoing tax on utilities has been underestimated by investors. "With strong balance sheets, utilities could relatively easily withstand a one-off tax, raising up to pounds 5bn. By contrast, an ongoing tax, even if a lesser sum were raised each year, would reduce future revenues at a time when these are already threatened by limited growth prospects and tighter regulation."
But it is the introduction of full competition that will hit the utilities hardest. "The effects of competition may be sudden and dramatic," Mr Fosh warns. "In gas and electricity, for example, there could be a significant and damaging overnight drop in margins as the regulator hands power to the market."
The regulatory outlook was clouded last week when Professor Stephen Littlechild, the electricity regulator, signalled he might be prepared to loosen price controls on power companies if they were hit by Labour's windfall tax. Labour has consistently denied the tax would have any effect on consumers' bills.
- 1 What happens to your body when you give up sugar?
- 2 Drugs Live cannabis trial: Hash is less harmful than any other drug, expert claims
- 3 Turkish Airlines flight TK 726 crash-lands on Nepal runway amid dense fog
- 4 Penis size: Study revealing 'what's normal' sends international media into meltdown
- 5 Have sex with your iPad thanks to the new sex toy no-one asked for
Turkish Airlines flight TK 726 crash-lands on Nepal runway amid dense fog
Ayesha Ali death: Mother and her girlfriend found guilty of manslaughter of eight-year-old
George Clooney and Amal fail to get special treatment at New York restaurant
Cindy Crawford 'un-PhotoShopped' viral Marie Claire image was doctored, claims photographer
'A girl is more responsible for rape than a boy': The statement that shocked the world... except India
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
Boris Nemtsov shot dead: Outspoken Putin critic who had expressed fears for his life is killed near the Kremlin
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...