Do the math, Miliband

The combined profits of the big 6 UK energy companies last year was £3.75 billion which is supposed to be a lot, but consider the following:

The average dual fuel bill last year was £1,420, and there are 26.4 million households so that works out at £37.488 billion of domestic fuel sales.  Of course not all of those energy sales were domestic.  We still have some industry and of course a lot of those sales were to government owned institutions such as schools, hospitals, the military and  government offices, so let us guess that only half of the profits were related to domestic sales, so that is profits of £1.85 billion on sales of £37.5 billion, or profits equal to 5% of sales.

Now consider the cost of the fuel, mostly gas.  Britain has had some of the cheapest gas in Europe because of the North Sea, and in fact at the moment it has the cheapest n Europe on average, and nearly half the cost of gas in Germany, but the difference is diminishing rapidly because North Sea gas production has been declining rapidly and we have had to import much more from Norway, from the Middle East via LNG carriers and from Siberia or Algeria via very long pipelines, all of which are much more expensive options than buying the gas that lies on our doorstep.

Why is that?

Because all the other suppliers always have the choice of selling to the rest of the world at the prevailing spot price delivered less delivery costs, and UK gas will always be sold at a price of world spot price delivered to the world market less delivery costs. In other words if a quantity Russian gas delivered to Germany costs 100 delivered, and it costs 20 to ship/pump the same quantity from the UK to Germany, then UK suppliers will happily sell to the UK market for 80 + a small bit.

On the other had if it costs 10 to ship from Norway to the UK and 25 to ship from Norway to Germany, the Norwegians will happily sell to the UK at 85+.

On the other other hand the Qataris will sell to the UK and Germany at about the same price because they bring their gas in by LNG and the Russians will probably charge the UK a bit more because the cost of shipping from Russia is higher to the Uk than from Germany.

So UK gas gives us cheap gas, but it is running out and the average wholesale price paid for gas is rising rapidly as more is imported, which is why average wholesale fuel prices have been rising at more than 10%.

So that in six months the likely rise in fuel prices (6/12 of 10%+ is probably greater than 5%) will wipe out most or perhaps all of the energy companies' profits, and a further 14 months retail price freeze will have them trading at a loss or going out of business.

Well done Miliband mi.  No idea what they teach on a PPE course but it doesn't seem to be Politics or Economics.  Must be a lot of Philosophy.

Scottish independence resolved

So Ed Miliband thinks he can control energy prices if he comes to power in 2015.  The only thing he can control is the price of hydrocarbons from the UK Continental Shelf.

And it's clear to see which way the Scots will vote now.

If Mr iliband is standing on an election promise of fixing energy prices, will he resign when it turns out that he can't.

As I was walking down the stair I met a tax that wasn't there

So the Labour Party say they are going to abolish the "bedroom tax". There is no such thing, so it shouldn't be too hard to abolish.

There's no such thing as a free lunch

Liberal Democrat Conference Stunt of the Day was the announcement of "free" school meals for the first three years of school.  Now it's never too early for our youngest students to learn that there is no such thing a s a free lunch (or dinner if you are up north or in a state school).

All these lunches have to be bought by the tax payer and cooked and served by paid staff (although the marginal cost of the latter may be relatively small if they were already working), and the cost of this will fall to the tax payer, or rather be added to the deficit.

So who is going to pay for it?  Why of course the very darlings who will be chomping the "gratis" Turkey Twizzler's, only they will be paying for it over 20 years with interest. Net gainers?  The middle class mums who will see their purses about £12 fuller every week?  The net losers?  The offspring of the "mostvunnerableinsociety" who will be paying for this mallarkey through the tax on beer & fags in 2035.

The value of nothing

I was struck by a claim at the BBC enquiry yesterday. In a typical piece of obfuscation Mark Thompson claimed that in laying off 227 managers in three years the BBC says it has spent £25 million over 3 years but saved £35 million in wages in the same period, and had thus saved money which is a good thing.

Maybe, but that isn't the whole picture because in saving £10 million the BBC loses up to 3 years of work per person, so it only makes a real saving if you assume that the work of those 227 senior managers had a value of less than £15,000 per year per person. Which makes you wonder why they were paid so much in the first place.

False economy

I've listened to it several times, but I must confess I am baffled by the suggestion.

Mark Thompson suggests that the BBC saved money by paying departing executives more than they were contractually entitled. The only way that works is on the assumption that BBC management are such bad negotiators that if they discussed paying less than the contractual obligation they would negotiate a figure that was far higher.

Oh how we laughed at Peston this morning

The idiot socialist who reports business for the BBC as though it is a crime gave us his low down on the Vodafone disposal of  its interest in Verizon Wireless.

There would be a substantial capital (true), which would be exempt from UK capital gains tax (true), because the shares in the US company were owned by a Dutch holding company (also true) and therefore outside the scope of UK Capital Gains Tax (no disposal by a UK company) and also exempt from Dutch tax (Peston didn'y go into theis but s called a Participation Exemption), If you really want to know  the participation exemption applies where a company holds at least 5% of the nominal paid-up capital of another company and the participation is not held as a portfolio investment or the company is subject to a tax on its profits that is reasonable according to Dutch standards or the aggregated assets of the subsidiary consist for more than 50% of business assets where the profits are taxed at a reasonable tax rate according to Dutch standards.

All bog standard tax planning, but likely to incur the ire of all the tax protesters of the world, particularly those who like camping outside big city churches that are handily placed for Starbucks.

So our joy was unconfined when Pesto came back on the radio at the next business broadcast to repeat the story, only adding this time, that if the disposal had been within the scope of UK Capital Gains Tax it would have been exempt under the Substantial Shareholdings Exemption, an invention of Gordon Brown.

The curious thing about the SSE, which I never really understood, was that according to the Scottish Fool who introduced it, it was supposed to encourage investment, yet rather than giving tax breaks when investments were made, the tax breaks arose when investments were sold, and applied equally to investments tat had already been made prior to the creation of the exemption. Still I am not the leader of a political party that was desperate for contributions from friends in the private equity business, and that's a story for another day.