Oct 27 2013
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."