Don't make the consumer pay for these inflated fuel prices

It was only last April that energy secretary John Hutton persuaded Britain's big six energy companies to double their spending on social tariffs for the fuel poor, to £100m this year. The proud boast was an extra 100,000 people would pay greatly reduced fuel bills. Then came commitments to invest in renewables and nuclear as part of a concerted drive to make Britain's energy more secure, cheaper and with a lower carbon footprint. In energy legislation, economic rationality, social justice and business-friendly policies were marching in happy union. Labour had everything under control.

Four months later and the story looks very different. Oil prices have rocketed; gas prices followed suit. Although they try to hedge against such massive price hikes, energy companies are having to increase their tariffs. Centrica has been pilloried on all sides for raising gas prices by 35 per cent; frankly, given that the price of natural gas in the wholesale markets has risen by 350 per cent in 12 months, the surprise is that the hike is so small.
If John Hutton had succeeded in taking 100,000 out of fuel poverty, gas price rises on this scale will plunge another million straight back into a grim universe in which 10 per cent of their income is dedicated to paying energy bills, the definition of fuel poverty. Suddenly the air is thick with calls for windfall taxes on energy companies, particularly as oil giants BP and Shell are reporting massive profits.

Such loot should be diverted to alleviate the conditions of approaching five million fuel-poor, runs the argument. After all, in 1997 New Labour raised some £5bn in a windfall profits tax - justified because the privatised utilities had been given away too cheaply - to fund spending on education and the New Deal. Now it should do something similarly radical and popular to head off electorally damaging increases in its voters' fuel bills. Chancellor Alistair Darling is said to be actively considering just such a move.

But as much as introducing a one-off tax on the energy companies to make a one-off payment to the fuel-poor, the government needs to address the way the entire energy market - and welfare system - is organised. To further tax Centrica, for example, whose 58 per cent tax rate is the highest in the FTSE 100, simply because the oil price has gone up is arbitrary. Is the government proposing a rebate when oil and gas prices fall?

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