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Energy firms accused over tax move
Consumers are right to be "livid" about companies pursuing aggressive tax avoidance, a senior Treasury minister said today, amid reports that energy firms are saving millions by exploiting a legal tax loophole.
The Independent on Sunday reported that three energy companies have saved an estimated £140 million by reducing their taxable profits by racking up interest on debt from their owners.
Chief Secretary to the Treasury Danny Alexander declined to comment on the individual cases, but told BBC1's Andrew Marr Show: "My message to any company that is engaged in aggressive tax avoidance is to stop it."
He added: "People are rightly livid about companies and individuals avoiding paying the proper amount of tax. I'm livid about that. It's something which is not acceptable at any time, but particularly at a time when we are going through tough spending choices.
"Everybody needs to pay their fair share."
The Independent on Sunday reported that gas distribution firm Scotia Gas had reduced its tax bills by a total of £72.5 million through a legal procedure under which its owners lent it money through the Channel Islands Stock Exchange rather than investing it in shares. The paper said UK Power Networks had saved £38 million and Electricity Northwest £30 million by similar deals.
Scotia Gas and Electricity Northwest declined to comment on the allegations, while UK Power Networks told the Press Association that it "fully complies with all applicable regulatory, tax and legal requirements relevant to a group operating in the UK".
Mr Alexander also indicated that the cost of helping vulnerable people keep their homes warm could be switched from energy bills to general taxation, but made clear that Liberal Democrats were not willing to ditch levies to subsidise renewable energy sources.
David Cameron told MPs on Wednesday that measures to "roll back" the green levies - estimated to add £112 to the the average household's annual bill - would be included in Chancellor George Osborne's Autumn Statement on December 4.
A poll released today indicated strong public support for a reduction in the taxes, with 60% of those questioned by Survation for the Mail on Sunday saying they opposed them, against just 18% who backed them. Some 61% favoured repeal of some of the levies, compared to 11% who did not.
But Mr Alexander said: "Our commitments to green energy, our commitments to renewable energy, are vitally important and they are not something that we as Liberal Democrats will compromise on."
The cost of measures like the Warm Homes Discount - which together account for about 4-5% of energy bills - could be switched to general taxation, he said, adding: "That's a discussion within Government about what is the right way to achieve the social objectives that we all agree about."
The political implications of the row over energy were made clear in the Survation poll, which found almost three-quarters (72%) believe energy prices will affect the way they vote in the general election.
More of those questioned (40%) backed Mr Cameron's approach to the issue than those of Labour leader Ed Miliband (33%) or Liberal Democrat Deputy Prime Minister Nick Clegg, who has indicated he will fight to protect the green levies (7%).
Some 35% said that Mr Miliband's plan for a 20-month freeze on prices following the 2015 general election would help keep the cost of bills down, but 54% said that energy companies would get round it by raising prices before or after the freeze period.
But the Survation poll for the Mail on Sunday found that more people blame the energy companies (59%) than either the current government (15%) or the previous Labour administration (15%) for the spiralling cost of gas and electricity.
The poll came as energy minister Greg Barker promised to "come down like a ton of bricks" on energy companies which are stockpiling cash from customers' direct debits.
Unless customers ask for the money back, energy companies are able to hold on to sums from monthly payments in excess of the amount owed for power used, and are able to earn interest on the money while it is sitting in their accounts. Industry observers believe the total held could be as high as £2 billion.
The Big Six suppliers are being summoned to talks with ministers about the issue, and Whitehall sources told the Mail on Sunday they could face fines or be encouraged to pay customers interest on the money.
Mr Barker told the paper: "Customers will rightly feel outraged that they signed up to direct debit payments for cheap tariffs but instead find their cash stockpiled.
"We need to stamp this out now and energy firms must come clean on how much cash they are sitting on. If we find serious abuse, rest assured we will come down on them like a ton of bricks."
An Npower spokesman told the paper: "We automatically refund any customer with over £60 credit at this time."
A Scottish Power spokesman said: " Scottish Power will pay a customer £1 for every full multiple of £33 above a minimum credit value of £100 - to the maximum payout of £12 for a credit balance of £496."
An SSE spokesman said: "If customers are more than £100 in credit, w e automatically refund the credit back to their bank account."
A British Gas spokesman said: " The amount of time customers are in debit far outweighs the amount of time customers are in credit."
And an EDF spokesman said: "Monthly direct debits are the cheapest way for people to pay their bills."
:: Survation questioned 1,000 people for the Mail on Sunday on October 25.
Angela Knight, the chief executive of trade association Energy UK, told Sky News's Murnaghan: "Why are prices going up? There are a number of reasons, because the bill is only partly the wholesale cost of energy.
"There's other things in there as well, such as the various levies, and such as the distribution and transmission. One of the things the energy companies have been doing is putting all that information into the public domain and I think that is the right thing to do."
The Big Six energy companies are due to appear before the House of Commons Energy and Climate Change Committee on Tuesday to answer questions about prices. But the companies have come under fire after it emerged that only one of them - E.On - is expected to send its chief executive to face MPs.
Ms Knight rejected criticisms of the companies: "I would imagine that they have all sent their head of retail operation and that is the important area in which, as I understand it, the select committee is looking into.
"Whoever is going to appear will come with all the facts and all the figures and are there to answer the questions because as an industry it is better to answer the questions, to be open, to be transparent and to come to the select committee with all the information that the select committee is asking for."
On Mr Miliband's promise of a price freeze and Conservative former PM Sir John Major's call for a windfall tax, Ms Knight said: " They might be politically popular, but price freezes have never worked and never will work... Windfall taxes have taken place in the past where there have been windfall profits. The profits here of four or five pence in the pound aren't particularly big."
Conservative MP Phillip Lee told Murnaghan: "The Prime Minister is right to look at the green levies again in the light of decarbonisation targets that are increasingly making us uncompetitive on the global stage, but ultimately a fundamental restructuring of the energy market is required."
Conservative minister Baroness Warsi told Sky News's Murnaghan: "What ordinary families want to know is that when they are paying their bills they are paying the lowest possible tariff - and the Prime Minister has been leading the charge on energy companies to make sure that that's what consumers get.
"What ordinary families also want to know is that when they have accumulated credit with the energy companies, that isn't just held by them and that it is passed back at a time when people are watching the pounds and the pennies.
"And what ordinary families also want to know is that what the energy companies are making in profit is transparent and that they are paying the taxes that are due to this country."
Lady Warsi revealed that she had switched energy supplier twice in three years in search of a better deal. She said the onus was on energy companies to make their tariffs clear and understandable rather than trying to "blind us with science" by offering numerous complicated deals.
"I fell it's important to keep an eye on those tariffs," she said. "But it's also important to know that you are with a company that cares about its consumers. For me, that was also an important factor."
Labour leader Ed Miliband said: "Since David Cameron has been Prime Minister, energy bills have gone up by an average of £300 because he has refused to stand up to big energy companies.
"On top of failing to address the broken energy market, David Cameron is failing to stamp out tax avoidance. We have a Prime Minister unwilling to take the side of hard-working people. Unwilling to act against the energy companies, unwilling to clamp down on tax avoidance and close down tax loopholes."
Liberal Democrat deputy leader Simon Hughes urged Mr Osborne to use the Autumn Statement to announce a rebate on energy bills for poorer households, which he said could deliver an immediate reduction in the cost of heating homes.
Mr Hughes told BBC1's Sunday Politics: "What I would like the Chancellor to do in the Autumn Statement is to do for energy bills what he has done for road traffic users, for drivers, which was to freeze fuel duty.
"I would like people to have a rebate on energy bills that would help the poorest most and would mean that there would be immediate relief this year, not waiting for the post-election period."
Mr Hughes made clear that Lib Dems are not ready to ditch the green levies, but signalled that the party is ready to strike an agreement with Conservative coalition partners on shifting the burden onto the taxpayer, telling Sunday Politics: "There is a deal to be done. We understand we have got to take the burden off the consumer."
He said he was "open" to the "progressive" idea of funding schemes to help vulnerable people keep heating costs down through general taxation, rather than energy bills.
But he added: "We are not going to back off from being a green party on energy policy because unless we continue to invest in renewables, we won't have the British-produced energy at cheaper cost to keep bills down in the future. That's not going to change.
"The part of the energy bill that may be up for negotiation seems to be the part where we subsidise either to help poor people pay less or to insulate their homes."
Mr Hughes added: "We have also got to deal with the energy companies who look as if they are not paying all the taxes they should be, and the regulator which doesn't regulate quickly enough to deal with issues coming down the track.
"We could toughen the regulator, and I hope the Chancellor will say in the Autumn Statement that energy companies, like water companies, will not be allowed to get away without paying their taxes."
Former chancellor and energy secretary Lord Lawson backed the Prime Minister's plans to look at green taxes in an effort to bring household energy bills down.
The Tory grandee disagreed with Sir John Major's suggestion of a windfall tax on profits as he claimed energy companies keep deliberately profit margins low because they do not want more competition.
He told Sky News's Murnaghan programme: "I don't think a windfall levy makes sense unless there are windfall profits and there are no windfall profits. In fact the big electricity companies deliberately keep their margins low because the last thing they want is to have more competition."
Lord Lawson also said he disagreed with Mr Miliband's plans for a prize freeze.
He said: "The Mr Miliband thing, and of course it was Mr Miliband's act, the Climate Change Act which is driving all these dear energy policies, but his threat - because they see it as a threat - t o have a price freeze can only have one effect and that is if any electricity company thinks that there might be a Labour government in 2015, it will put the prices up now in order to get ahead of the freeze so it is totally counter-productive.
"The point is, this policy cannot make sense on a unilateral basis. Only if you could get a global agreement could it conceivably make sense. China each year increases its carbon dioxide emissions more than the total we have so what we can do is absolutely neither here nor there and all we are doing is damaging poor households and damaging British industry."
Shadow energy secretary Caroline Flint said that there should be a debate on the future of the Energy Companies Obligation (ECO), which makes up £47 of the £112 green levies on the average energy bill.
The ECO scheme, introduced at the start of this year, is intended to ensure that power companies fund energy-efficiency improvements to those in fuel poverty, but Ms Flint said it has proved "expensive and bureaucratic".
The IPPR think tank claims that 80% of the £540 million raised by ECO has gone to the wrong homes, leaving 1.3 million fuel-poor households without help to fund insulation or new boilers.
Ms Flint told Sunday Politics: "What we do believe is that the ECO scheme, which is a Government invention and which is £47 of the £112 on our bills each year, is expensive, it's bureaucratic and it's not going to the fuel-poor.
"I'm up for a debate on these issues and I'm also open to discussion about what Government should do and what these energy companies should do. We can't let Cameron or the energy companies - who seem to to be backing this idea - off the hook about the way in which they organise their businesses and expect us to pay ever-increasing rises in our bills."
She added: "The ECO project is one of the ones where the energy companies are saying it's too bureaucratic and it's proving more expensive than Government estimated - apparently double the amount Government thought.
"These are all worth looking at, but they don't go to the heart of the issue, which is about the way the market is regulated."
Ms Flint said: "What I support is making sure that we secure for the future access to energy that we can grow here in the UK, whether it's through nuclear, wind, solar or maybe other technologies that are yet to be developed, to be sure that we can protect ourselves against energy costs that we can't control.
"We also need to hear... about the cost for fuel-payers if we didn't invest in new indigenous sources of energy supply for the future, which in the long run will not only be cheaper but also more secure and create the jobs we need around the whole of our country."
Labour's shadow chief secretary to the Treasury, Chris Leslie, said: "David Cameron needs to explain why he decided not to close down this tax loophole which we now know some energy companies are using to avoid millions in tax.
"And it's not good enough for Danny Alexander to simply say he is angry about companies exploiting loopholes. As the Chief Secretary to the Treasury he should be acting to close them down.
"While families and pensioners are struggling with soaring energy bills, it's now clear this Government is not on their side, but on the side of the energy companies instead. At a time when families face a cost of living crisis and the deficit is still high, we need a Government that's going to take tax avoidance seriously."