Pressure

Worries over energy provision are again top of the UK government’s agenda due to conflict in South Ossetia. BP has closed the Western Route Export Pipeline (WREP) and the South Caucasus gas pipeline and in doing so has caused uncertainty over the ability of EU countries to source oil and gas from the Caucasus.

The government is also feeling the pressure politically - it is 20 points behind the Conservatives in the polls (according to a recent Yougov poll) and, as yet, shows no sign of closing the gap.

Consumers are also experiencing a sense of pressure as they feel the effects of the current economic downturn. CPI annual inflation – the government’s target measure – was 4.4 per cent in July, up from 3.8 per cent in June with predictions of a further increase in the coming months. Last month, consumers were dealt a further blow by British Gas’s announcement of 35% price hikes. The average British family now faces annual energy bills of £1200. 

Energy Policy

The day after the announcement of 35% price rises for consumers, Centrica, the parent company of British Gas, announced first-half pre-tax profits of £1 billion. Unsurprisingly this generated outrage from consumer groups because Centrica’s profits and the increase in energy prices comes at a time when one in six British households is living in fuel poverty – defined as when a household spends more than a tenth of its income on utility bills.

Centrica have defended their position by claiming that the energy price increase was needed to offset higher costs. It is the secondary market for oil and gas that has caused an increase in price while demand has remained fairly constant. The secondary market is the transfer of securities between one investor and another - it is hugely speculative and prone to hyperbole. A recent Radio 4 special report quoted David Kelly, chief market strategist for the investment bank JP Morgan as one of the analysts who believe it’s this speculation that has caused the surge in prices. He said

“Over the last year we are seeing a speculative bubble in oil… this has really been the decade of the bubble. There has been a tech bubble, a real estate bubble and now we are seeing a commodity bubble and oil is at the vanguard of this bubble”

The profits generated by Centrica caused immediate demands by some of Labour’s leftwing backbenchers for a windfall tax on energy companies. They see a windfall tax as an opportunity for the Government to help those who are struggling to stay above the fuel poverty line, gain the political initiative and revive Labour’s dismal poll ratings. Aside from the political boost they think a windfall tax would generate for Labour, advocates of the initiative argue that part of the funding generated could also be used to invest in renewable energy.

MPs on the left of the Labour party are not the only ones who support a windfall tax. Geoffrey Robinson MP, a very close ally of Brown and former Treasury Minister has added his name to the list of supporters, as has Blairite former Minister and MP and safe-seat candidate Stephen Twigg . Earlier this year a Sunday Times poll showed that 84% of people believe energy companies should suffer from a windfall tax. This is cited by supporters as showing how much political capital would be generated if such a move was implemented. Furthermore, in a joint letter to the Guardian newspaper, influential members of organisations including the soft left faction Compass and unions Unite and Unison, stated: “We believe the moment is right for a one-off windfall tax to guarantee social and environmental justice”. 

It should be noted that Labour previously successfully generated £4.5bn through a windfall tax on the unearned profits of privatised utilities in 1997.

Lib Dem Leader Nick Clegg has stated that “Ministers should be clawing back the money from the energy companies’ £9bn European windfall to help protect struggling households from the effects of fuel poverty”. Interestingly, the Conservatives have kept relatively quite on the issue. This could be because the idea of a windfall tax does not appeal to them but they don’t want to explicitly argue against one in case it proves popular.

The Prime Minister has suffered politically from policy leaks over the last few weeks because a number of options that Brown and Darling are reportedly considering have reached the media. These include a £150 bonus to meet fuel payments for families who receive child benefit and ‘green tax’ on utility companies. Unfortunately for Brown, this has added to his reputation as a ‘ditherer’ who is indecisive with regard to policy decisions.

Potential Problems

Although the impact of the 1997 windfall tax was arguably positive, some commentators believe that if the concept of a windfall tax is unravelled, it can be seen as contradictory. A simple explanation of this is given by blogger Tim Worstall. He states that:

‘In order to get fuel prices down we’d like to have a greater supply of fuel and lower demand for it. These people are insisting that we should take the money away from those who would go and find more fuel and give it to the people who want to buy fuel. That is, their plan for reducing prices is to reduce supply and increase demand’.

The logic behind Tim Worstall’s argument is slightly skewed. However, it does emphasise the speculative nature of predicting the economic effects of a windfall tax. 

A windfall tax on energy companies could damage the prospect of future investment in the UK’s energy industry, particularly an expensive new generation of nuclear power stations, by foreign energy companies. At a time when the government is trying to encourage buyers for British Energy, the possibility of a windfall tax on energy companies is unlikely to encourage a high selling price. The collapse of the sale of British Energy to EDF (the French utility company) could leave a massive hole in the government’s energy policy as it wonders how to provide for the planned expansion in nuclear power.

David Hunter, energy analyst at McKinnon & Clarke, commented: “EDF’s purchase of British Energy was the government’s ‘get out of jail free card’ which hasn’t materialised.

“There are tough decisions to be made as the reality is Britain will run short of power. Our crumbling infrastructure and lack of political will to sort has left assets ripe for picking off by larger European energy companies.”

However, two weeks after the collapse of talks, Bill Coley, Chief Executive of British Energy announced: “We continue discussions in respect of a potential transaction”, as the nuclear energy firm reports a 66% fall in profits this year. The government will be hoping a deal is completed as soon as possible.

The energy companies have a key ally in John Hutton, the Secretary of State for Business, Enterprise and Regulatory Reform (BERR). He is one of the most Blairite members of the cabinet and he expressed his views by saying:

‘We have got to have a fiscal and regulatory climate that encourages all of that [power generation] investment because, quite simply, it will go elsewhere if there is not the confidence in the UK market’. 

The pressure the government are facing on this issue and the financial hardship currently being felt by the City plays directly into the hands of Alex Salmond and the SNP. At a time when the government is expected to earn £16 billion through taxes on North Sea oil, the potential of a windfall tax increases calls from the SNP for Scotland to be given a percentage of this tax to generate an oil fund. Mr Salmond stated that:

“Right across government and local government, there won’t be a public service that’s not affected by high energy bills and the Chancellor can do something about it if he uses the windfall to ease the pressure. And secondly, from a Scottish point of view, this is the moment when we must start an oil fund”.

At a time when Labour is under intense pressure from the SNP in Scotland, a further tax on energy generating companies would give Alex Salmond even more ammunition to use against the UK government.

The re-launch

To escape from the windfall tax label, a report in the Sunday Times claimed Brown was planning a £500 million “green tax” where utilities must buy the right to produce carbon dioxide. Although this may sound like it avoids a windfall tax, the potential of being taxed through a ‘green tax’ is not exactly any more appealing to potential energy generating investors.

Whatever the Prime Minister decides, energy policy will certainly contribute to the government’s re-launch in the autumn. If the Labour left-wingers get their way and a windfall tax is implemented, the government would have implemented a policy for short-term popularity with their own activists not long-term sustainability in energy production or their own reputation as a business-friendly Party. 

Additional reporting by Liam O’Keefe

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The Boundary Commission – a bit of history

The great Reform Act of 1832 worked to abolish “rotten boroughs”, which were constituencies with few electors, and so-called “pocket boroughs”, where the constituency was believed to be controlled by the main land-owner or family. Later, in the constituency redistribution of 1918, the principle of creating equal sized seats was established.

However, in 1939 there were still 20 constituencies with more than 100,000 electors and 13 with under 30,000 (with a range from 15,000 to 150,000). To tackle this problem, the House of Commons (Redistribution of Seats) Act 1944 set up an independent Boundary Commission for England, Wales, Scotland and Northern Ireland.

The Commission are required to submit a report on a general review of all the constituencies in England every eight to twelve years from the date of their last. The last review, which was received Parliamentary approval last summer, is only the fifth report that the Commission has made.

Political Battle

The Labour Party has previously fared well from boundary changes, in particular their 1997 landslide was helped in part by the introduction of new boundaries that were detrimental to the Tories. Conservative Central Office have been viewed as making a greater collective effort in this round, and focusing their attention on the Labour Party, rather than getting caught up in internal squabbles. Opinion on how damaging this will be to the Labour Party is mixed. The Electoral Reform Society has conducted research into this matter and has concluded that if 2005 voting was replicated at the next General Election then the Labour majority would be reduced to 44, from 64. The Labour Party’s own private estimates put the impact rather higher and predict that the loss would be greater.

The Labour Party’s victory in 2005 was characterised by the fact that many of the seats they retained had such small majorities. Whilst the review abolishes nine seats and creates thirteen new ones entirely, there are a number of small changes to other seats. In lots of constituencies, wards have been removed and put into another constituency. In seats with small majorities, this has the effect of altering the balance of the constituency away from Labour.

The Conservatives’ strategy has been to funnel money to these newly-drawn seats, as well as marginal constituencies. The Government had designed legislation to cap spending at £12,000 for the duration of a parliament, starting the moment a candidate is adopted by the party, leafleting or gives interviews. No local candidate would get more than £12,000. However, an article recently leaked to The Guardian suggests that the Electoral Commission has concerns about this strategy.

“The commission’s view is that it would not be able to issue finalised guidance in this area until the relevant primary legislation had received royal assent and the commission had carefully considered the wider context in which guidance would operate, and consulted widely on the content of the guidance,” It is reported.

If the proposals became law by next summer there would then be a consultation period. This delay would leave little time for the funding changes to be introduced by the next election.

Affected MPs

Ed Balls’ seat of Normanton was one of the seats that was completely abolished in the review. Along with the three other MPs in the area (Jon Trickett, Yvette Cooper and Mary Creagh) he applied to the High Court for a judicial review of the change. This bid was rejected, leaving him without a seat. Both he and Colin Challen applied to stand for the new seat of Morley and Outwood constituency which incorporates around 2/3 of Challen’s current seat and 1/3 of Balls’.

Colin Challen subsequently announced that he would be standing down in order to campaign full time for global action on climate change, leaving the seat to Balls. 

Secretary of State for Communities and Local Government, Hazel Blears, was also affected by boundary changes to her constituency. Her constituency Salford was merged with the neighbouring  seat Eccles, meaning she was forced to fight Ian Stewart MP for the selection. Blears was chosen to be the Labour candidate for Salford and Eccles by 174 votes to 79.

Sarah Teather – the Liberal Democrat Shadow Secretary for Business and Enterprise, also loses her seat as part of the review. Her constituency, Brent East disappears at the next general election – most of the seat will go to form part of a Brent Central seat, while three wards covering Kilburn area will be part of the new Hampstead and Kilburn constituency. Teather has announced that she will stand for the new Brent Central seat. However, the Brent GLA results saw either Labour or the Conservatives leading in every ward in the Borough, and the Lib Dems down on their 2004 in every ward except a minor rise in one. This would suggest that Teather faces an uphill struggle to win this seat.

New constituencies created:

Broadland
Chelsea and Fulham
Chippenham
Derbyshire Mid
Devon Central
Filton and Bradley Stoke
Kenilworth and Southam
Meon Valley
Northamptonshire South
St Austell and Newquay
Witham
Wyre and Preston North
York Outer

Constituencies to be abolished:

Birmingham Sparkbrook and Small Heath
Brent East
Eccles
Hornchurch
Knowsley North & Sefton East
Normanton
Sheffield Hillsborough
Tyne Bridge
Vale of York

The Next Election

The next General Election is already looking difficult for the Labour Party, with the outcome of the Boundary Committee firmly adding to its woes. The Party does have a difficult challenge ahead of it. We will have to watch and see it can reverse its fortunes and overcome the problems that the Boundary Review has presented. 

Additional reporting by Lucy Jenkins

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Legislation

It is easy to presume that with the intensely negative media coverage over this parliamentary session of the government’s performance that it has been unable to effectively carry out its agenda in a politically expedient fashion.

Yet, twenty-one bills received Royal Assent in this session of Parliament of which sixteen were government backed Bills which included, the Finance Bill, the European Union (Amendment) Bill and the Health and Social Care Bill.

While the legislative programme may well have been overshadowed by the passing of the Counter-Terrorism Bill from the Commons to the Lords as well as the Banking Bill, to term this legislative session unsuccessful would be unfair.

The Government has done well to rescue the Northern Rock debacle and, in the face of stiff economic turbulence, has managed to guide through the Parliamentary process a number of Bills of note.

While critics will point to the number of set piece Bills passing to Royal Assent being down on previous years (the previous low was twenty for the year 2004-05, the year of the last election), the Criminal Justice and Immigration Bill at least showed the government to be attempting to deal with the political plays made by the Conservative’s in their ‘broken society’ gambit of the last legislative session.

What’s 10p as a polling percentage?

Has the fact that this legislative session has been difficult to swallow for the general public contributed to the sense of gloom that surrounds the government at present?

The debacles of 42-day detention without trial and the 10p tax rate have certainly hindered an already difficult situation for the government.

The Counter-Terrorism Bill, as it is more formally known, is a prime example of a piece of legislation which the government passed which the majority of the public agreed with in principle. The efforts it went to, however, helped to firm the opinion that this year especially, the government has been unable and indeed unwilling to listen to a sizeable minority of opposition to its plans.

This was not the most costly piece of legislation however. The abolishment of the 10p tax band came into effect at the start of the new tax year, right in the build up to the local and Mayoral elections. Set against a darkening economic backdrop, this only served to undermine the message which Brown and Darling between them had been promulgating for weeks of “…listening to the electorate.”

How much of an impact this had on the election results which followed, we will never know, but it is interesting to note that the government were clearly concerned enough to announce a rebate shortly before the Crewe and Nantwich by-election – which was still lost. Perhaps the biggest failing of both these policies as practical legislation was not their ramifications, but that the aims were so broadly political in nature, that they suffered from the law of unintended consequences - making the government look like a bully over 42-days, and careless over the 10p rate of tax abolishment.

YouGov Polls

With the decision not to have an election last Autumn so intimately connected to the Tories resurgence in the polls after David Cameron and George Osborne’s performances at the Conservative Party conference, it is worthwhile tracking YouGov polling.

Before the Conservative Party conference last year, YouGov had Labour 11% ahead of the Tories. Off the back of a relatively successful summer for the Government, following the crisis management of the floods, the attempted terrorist attacks and foot-and-mouth, the Tories were very concerned, especially considering their own ugly and internal grammar school debacle. At the same time that Brown was assuming control. An election was imminent.

After the Tory conference, that double digit gap, had been shaved to just a 4% lead, before Brown wound down the hysteria surrounding the ‘election’.

YouGov has been involved in several disputes regarding its accuracy and viability as a polling group by competitors and politicians alike, yet intriguingly, it has not been substantively wrong in its indicators during its short history.

A good example of this would be the recent Mayoral election in which YouGov accurately, on the day of the poll, indicated that Boris Johnson would receive 43% of first preference votes (he actually received 43.2%) and only 12% of second preference votes (he actually received 12.86%).  When other more established polling groups like Ipsos-MORI were predicting a Livingstone victory by 4% - this feat is all the more impressive.

With this in mind, it is worthwhile considering that at present (polling done 10th – 11th July) the Conservatives are shown, in a poll conducted for the Sunday Times, to lead Labour by 22%. (You can read the YouGov poll in more detail here: here)

This does not make for good reading especially in light of recent by-election performances in Crewe and Nantwich and Glasgow East.

Using this as an indicator, when should Mr Brown call the election?

Perception to election

With Labour resolutely entrenched in record-breaking low polling scores nationally, and an election needed inside the next two years, it is at this stage becoming more apparent that Gordon Brown may need all the time he can lay his hands on to draw back the lead the Tories have etched out to put Labour into a competitive position. The reasonable bet would be to expect an election in 2010.

To rely too heavily upon polling is a political faux-pas. Elections are not won by polls alone which is why despite his preeminent position in them at present, David Cameron and the Conservatives can ill-afford to relax. Despite winning handsome returns in the local elections in May, having won three by-elections on the bounce as well as the Mayoralty, any premature chicken counting would be foolish.

The Economist recently ran a leader regarding Cameron’s dilemma. His repositioning exercise has successfully weathered Labour attacks, although for a while it appeared as though he would become another Tory ‘would-be prime minister’. Yet still the public are not convinced. In the same 11th – 12th July YouGov poll which showed the Tories to be 22% ahead of Labour, 34% of respondents disagreed with the statement “The Conservatives would handle Britain’s problems better than the current government”, while only 35% agreed.

While the government is, without doubt, in the midst of an extremely difficult time, Brown could still yet bounce back.

For Brown, style and a deftness of political touch, in the next legislative session will be crucial. For Cameron, substance in the coming months will be crucial. Political role-reversals are notoriously difficult to pull off, but if either is to succeed at the polls, and not just in the public’s consciousness, they will have to – or at least do it better, than his opponent.

Additional reporting by James Horrax

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