PROFITS BEFORE PEOPLE

The news that the ‘Big Six’ energy cartel members are set to double their profit margins over the next year (and this is according to estimates by the regulator, Ofgem) probably won’t surprise anyone. Back in 2013, Ofgem estimated that suppliers would make an average pre-tax profit of £53 per dual fuel customer (a margin of 4%). Now, in the year ahead Ofgem expects the energy firms to make £106 per customer (increasing their margin to 8%). Naturally the cartel members have accused Ofgem of releasing inaccurate figures.

Ofgem has said that it was further evidence that the market was not working as well as it should. The big six (and the profits they make) have already been referred to the Competition and Markets Authority (CMA). Ofgem has also written to the suppliers asking why the falls in wholesale prices last winter have not resulted in lower bills for hard-pressed energy customers.

As part of the on-going struggle with the ‘Big Six’, Ofgem has also announced that electricity customers will see an average reduction of £12 a year on their bills, from April 2015. This follows plans to limit the prices that can be charged by Britain's six distribution companies, which carry power to homes and businesses. The price curbs could affect 29 million English, Scottish and Welsh energy customers. Ofgem's plans will also see the distribution companies spend £ 17 billion pounds to upgrade their networks. The distribution element makes up about 8% of a typical dual-fuel bill and is the only part controlled directly by Ofgem.

Five out of the six network companies (UK Power Networks, Northern Power Grid, SP Energy Networks, SSE Power Distribution and Electricity North West) were ordered by Ofgem to cut their prices. So far, only Western Power Distribution had its pricing and investment plans approved by Ofgem. The new energy prices will apply for eight years, from April 2015 until 2023. Ofgem will announce a final decision on the proposals in November 2014 after carrying out a consultation.

While this may bring a crumb of comfort to hard-pressed customers, it fails to address the fundamental problem with the so-called energy free market. The ‘Big Six’ can do because they are pretty much free from any meaningful and effective regulation. Any criticisms that may periodically emanate from Westminster can be pretty much ignored as the Westminster based political parties have little appetite to reform the deeply flawed energy market and even less inclination to curb the excesses of the ‘Big Six’ energy cartel members.

Meanwhile, in Wales, Plaid has been argued the case for the establishment of a ‘not for dividend profit’ company, simular to Glas Cymru which works within our water industry. This would firmly ensure that customers come before shareholders dividends and the City of London. An all Wales ‘not for dividend profit’ energy company would mean that all the profits would be reinvested back into the energy sector in our country. This would also ensure that Welsh families, households and small and larger businesses get a good deal on their energy and our country will end up with secure sustainable energy supplies.

MORE SMOKE AND MIRRORS

If you were looking for a classic bit of spin, then David Cameron’s promise to reduce or remove the so called ‘Green levies and subsidies’ of energy bills comes close to being it. This is classic misdirection, it makes DC look good, and distracts people’s attention away from the recently agreed guaranteed (and well above the market rate) energy price for the planned nuclear plants, something that should permanently skew the alleged ‘free market’ for energy.

It also effectively ignores the excessive profits that have been generated by the ‘big 6’ a situation that has been aggravated by a lack of effective regulation. One way of the other we are all paying the price for effectively having a pretty much unregulated energy market. This is one of the legacies of the last Labour government, who spent 13 years in office sitting back and watching this situation develop. 

Excessive profits and Tax evasion - surely not?

The ‘big 6’ energy cartel members, coincidentally ramp up the energy bills as our winter approaches, yet this is only part of the ‘corrupt’ legacy that surrounds the few remaining energy giants. The independent on Sunday (27.10.2013) and Corporate Watch (a not-for-profit research group) have revealed that more than 30 UK companies have cut their taxable profits by racking up interest on debt from their owners.

This minimises or in some cases entirely wipes out their UK corporation tax bill.  As most of the owners are based abroad, 20 per cent of the interest payments would usually have to be sent straight to HMRC, minimising the overall saving. As a result of swift footwork by the accountants, the money is lent via offshore stock exchanges this means that it qualifies for a regulatory loophole called the "quoted Eurobond exemption", no tax is withheld.

Scotia Gas, 50 per cent of which is owned by SSE, the energy giant which is about to put its prices up by more than 8 per cent, has avoided an estimated £72.5 million pounds in tax. UK Power Networks and Electricity North West, responsible for running large sections of Britain's electricity network, have both saved more than £30m. Scotia Gas is the second-largest gas distribution firm in the UK, serving 5.8 million people in Scotland and in the South and South-east of England.

Half of it is owned by SSE, the rest is owned by the Ontario Municipal Employees Retirement System and the Ontario Teachers' Pension Plan. After they bought the networks from National Grid Plc in 2005, the new owners lent the majority of their money – about £530m at a 12.5 per cent interest rate – through the Channel Islands Stock Exchange rather than investing it in shares in the company.

Scotia has since paid interest of £537.3 million pounds on these loans. The £268.7 million pounds  of this that went to the Ontario pension funds cost the UK an estimated £72.5 million pounds in tax revenues. SSE Plc pays full UK corporation tax on the interest it receives as it is based in the UK but will have signed off the scheme.

More than 30,000 people contacted the Citizens Advice Bureau in the 13 days after SSE started the latest round of price hikes. It announced its increase on 10th October and was quickly followed by British Gas, Npower and Co-operative Energy. The massive rise in those contacting the charity represents a 55 per cent increase on the number of consumers normally seeking advice about the best power deals.

The Ontario Teachers' Pension Plan also owns National Lottery operator Camelot and Bristol Airport, both revealed to be using the tax-avoidance scheme last week. It is among several foreign pension funds investing through this legal loophole. Two of Britain's 14 privately run electricity networks – Electricity North West and UK Power Networks – also use the loophole.

A portion of every Briton's electricity bill payment is given to their local power network to pay for the running and maintaining of cables in their area. UK Power Networks, which owns and maintains power cables and lines for eight million people in London, the South-east and East of England, has avoided an estimated £38 million pounds since 2010 from paying £164.4 million pounds via the Cayman Islands to firms controlled by Li Ka-shing, a Hong Kong tycoon and Asia's richest man.

The Cheung Kong group also owns Northumbrian Water, among several water firms that use the quoted Eurobond exemption. Electricity North West owns and operates the region's electricity distribution network, connecting 2.4 million properties to the National Grid. It has avoided an estimated £30 million pounds in tax after sending £107.2 million pounds to its owners, JP Morgan Infrastructure Investments Fund and Colonial First State, since they bought it in 2007.

The Eurobond exemption was introduced in 1984 to encourage third-party investment into UK companies. But analysis of listings on the Channel Islands Stock Exchange and UK company accounts shows firms across the economy are using it to minimise tax bills by borrowing from their owners. More than £2 billion pounds a year has left the UK as interest payments to owners, avoiding an estimated £500 million pounds compared with if loan amounts had been invested in companies' shares.

Considering that other stock exchanges such as the Cayman Islands and Luxembourg also qualify for the exemption, the reality is that the total amount of tax being avoided is likely to be much higher. Incidentally HMRC, who are busy shedding jobs and cutting services to the bone, know that the exemption is being misused and even considered restricting it last year, but they backed down after lobbying from the financial industry. 

WAITING FOR A TRAIN!

I now regularly sees the sun come up whilst trundling rapidly across the Gwent levels and regularly stand on Cardiff (Central) Station waiting for connections amidst the tantalising smells wafting across from the Brain brewery (at least when there is a South West or West wind). I find that I have become a regular rail user, joining the many thousands of people commuting to (and from work) in the south.

As a regular rail user (Arriva Trains)I find that to be honest, aside from the occasional glitch (over running maintenance from weekends, periodic broken down trains, point’s failures and cable thefts, etc) most of the time the system seems to function. Having lived, worked and commuted in London (for some seven and half years) I find myself commuting by train again. On a good day I can make it from station to station (Treforest to Newport, etc) in around 50 mins (and that with one change) which is not too bad.

A simple choice: People before Profits

Other rail travellers are not so lucky, with rail franchise operators running services that ensure certain connections literally cannot be made, which is one way to avoid getting fined. This is not a satisfactory way to run a rail service, the key word here being ‘Service’. Obviously this state of affairs speaks volumes,especially as it fails to impact on the Westminster elite (I use the term loosely) as they tend not to travel by train very much (save when cultivating votes).

In much of our country trains a once cheap and reasonably reliable form of public transport is conspicuous by its absence, that not to mention costs and infrequent services deter actual and potential rail passengers. When you factor in the legacy of the Conservative and Labour rail service rundown and cuts in the 1960 and early 1970’s and excessive profiteering on the part of the privatised passenger franchise holders and much is explained.

Our country suffered particularly badly from rail cuts in the late 1960’s when Labour was in office under Harold Wilson, that and the pit closure programme that hit hard in the south and north east. The privatisation of British Rail, something that New Labour loudly boasted that they themselves would have done if the Conservatives had not already done it, was one of the latter significant more questionable ideologically driven batch of privatisations (between 1994 and 1997).

For the best part of ten years prior to privatisation British Rail could best perhaps have been described as starved of funds. The passenger arm was initially broken up upon privatisation into 25 seperate passenger franchises. Our country’s rail region Wales and West ended up as Wessex Trains and Wales and Borders which at one point included the Cardiff Railway Company services which operated as Valley Lines. This franchise was then split into two separate franchises, which are currently run by First Great Western and Arriva Trains Wales.

Our current franchise was awarded to Arriva Trains Wales in 2003 and runs for 15 years, and is due to end in 2018. There have been many persistent calls for the rail franchise to be run as a not-for-profit operation – with profits being feed back into the system, rather than vanishing to pay shareholders dividends. The Welsh Government has been considering this option for when the deal ends. Arriva Trains Wales is the only train firm covered by the Welsh Government’s transport remit. Any longer-distance services e.g. Swansea or Cardiff to Paddington are currently operated by First Great Western who have their fares regulated by the Westminster Department for Transport.

Now while this may well be ancient history, but it has implications for the way the railway franchises run how their profits are made and where they go. Despite the best efforts of New Labour and the Con Dems to reduce it, the franchise companies still receive a significant chunk of public (state) funding. Basically this has to be repaid to the Government before any profits can be made on top – hence the regular (and painful) rise in rail fares. It would make more sense for profits made to stay in the system rather than get hovered up to pay shareholders dividends and senior mangers fat bonuses.

The service we currently get reflects the disinterested priorities of the franchise holder rather than our national priorities when it comes to our railways and the services we need. A couple of weeks ago, I used the Arriva trains service from Betws-y-Coed to Llandudno junction (my actual destination was Conwy) but connecting trains (that stop) could best be described as infrequent. The friendly advice was to walk across the bridge to the town rather than wait a few hours for the connecting service (as Conwy appears to be an infrequent request stop).

For those people who don’t know about it, the Conwy Valley line is one of our country’s most beautiful rail journeys (at least in my opinion) it runs from Llandudno (via Llandudno Junction) to Blaenau Festiniog is single track and served by a series of unstaffed  stations (some of which are request stops). If I am being honest the service provided could best be described as minimal and inconvenient for potential passengers, possibly far less of service runs on the line than at any time since the railway was built with a train every three hours on weekdays and Saturdays, with six departures per day each way in total.

The electrification of the local lines into Cardiff, Bridgend, Newport and Swansea is long overdue as is the tram system to link the Bay properly with the rest of Cardiff. The Transport (Wales) Act which came into effect in February 2006 gave the National Assembly the powers to plan and co-ordinate an integrated transport system, how much longer do we have to wait to see some vision? In the meantime the rail companies have been busy ramping up rail fares, attempting to reduce rail services, all with the tacit co-operation of the Westminster Labour Government and the Department for transport (in London).

Such duplicity has never been acceptable - it’s time for our government in Cardiff to take the long term view, to bite the bullet and actually put its money where its mouth is and work to redevelop our rail services, boost the development of rail freight and to co-ordinate rail and bus services across the whole of Wales. To do this effectively Wales needs to have full control of its transport policy and transport budget devolved as quickly as possible and the franchise when it is renewed in 2017 needs to be run on a not for dividend profit basis. That day cannot come soon enough!

A WELSH NATIONAL ENERGY FIRM

Plaid Cymru Shadow Energy Minister Llyr Gruffydd has rightly called for a new Welsh energy company to break the stranglehold of the Big Six energy cartel members on the energy market. Wales needs a ‘not for dividend profit’ company, along the lines of the way Glas Cymru works within our water industry. This would firmly ensure that customers come before shareholders dividends and the City of London. An all Wales ‘not for dividend profit’ energy company  would mean that all the profits would be reinvested back into the energy sector in our country. This would ensure that Welsh families, households and small and larger businesses get a good deal on their energy and our country will end up with secure sustainable energy supplies. 

Plaid Cymru Shadow Energy Minister Llyr Gruffydd said:

“For far too long, the big six energy companies have hiked their prices when the wholesale cost of energy goes up but don’t bring it down when they reduce.

“A Welsh national energy company, an Ynni Cymru, would follow the same successful model as Glas Cymru has done in the water industry.

“This Welsh energy company would buy gas and electricity at wholesale prices and sell direct to Welsh consumers and businesses.

“The company could be set up by the government at arms-length.

“Profits made would be used for protecting consumers from volatile wholesale prices and introducing energy efficiency measures to keep costs down for families and households.

“When we see that gas price hikes were the highest in Europe in 2011, and have risen consistently, then it is clear that families have not been best served by the private energy market.

“Plaid Cymru believes that we should move towards a system where investment and long-term development take priority ahead of shareholders’ profits.

“That is why at our party conference this weekend we will be having detailed discussion about the energy industry, including how we can ensure best value for hard-pressed families and a long-term energy policy for Wales.”