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.
