Utilities tax seen as `tip of iceberg'

Labour's plans to raise up to pounds 10bn from a one-off windfall tax on the privatised utilities is only "the tip of the iceberg" and could be levied on an annual basis, a leading institutional investor warns today in a downbeat analysis of the sector.

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.

Suggested Topics
News
The cartoon produced by Bruce MacKinnon for the Halifax Chronicle-Herald on Thursday, showing the bronze soldiers of the war memorial in Ottawa welcoming Corporal Cirillo into their midst
news
Voices
Funds raised from the sale of poppies help the members of the armed forces with financial difficulties
voicesLindsey German: The best way of protecting soldiers is to stop sending them into disastrous conflicts
Voices
Nigel Farage has backed DJ Mike Read's new Ukip song
voicesNigel Farage: Where is the Left’s outrage over the sexual abuse of girls in the North of England?
Property
One bedroom terraced house for sale, Richmond Avenue, Islington, London N1. On with Winkworths for £275,000.
property
PROMOTED VIDEO
News
The Edge and his wife, Morleigh Steinberg, at the Academy Awards in 2014
peopleGuitarist faces protests over plan to build mansions in Malibu
News
i100
News
peopleFox presenter gives her less than favourable view of women in politics
News
Mario Balotelli has been accused of 'threateningly' telling a woman to stop photographing his Ferrari
peoplePolice investigate claim Balotelli acted 'threateningly' towards a woman photographing his Ferrari
Arts and Entertainment
Paul Anderson plays Arthur Shelby in Peaky Blinders series two
tvReview: Arthur Shelby Jr seems to be losing his mind as his younger brother lets him run riot in London
Voices
Don’t try this at home: DIY has now fallen out of favour
voicesNick Harding, who never did know his awl from his elbow, is glad to see the back of it
News
ebooksAn unforgettable anthology of contemporary reportage
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

SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

Chief Financial Officer

120-150k: Accountancy Action: We are looking for an experienced CFO from a min...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again