What role do companies play in modern society, and what role should they play in modern society?  Do companies operate in the service of society, or does society operate in the service of companies?  In other words, which of the two elements, society or companies is the priority?

The reason I ask this, is because today Liz Truss, the Prime Minister of the United Kingdom, announced the imposition of a freeze in energy prices for domestic users – which will be paid for by government borrowing.

The pricing of energy is a complicated affair and involves a number of factors; the combined tariff for a unit of energy (wholesale) is calculated based upon the ‘marginal cost‘ – the cost of the last unit of energy produced in order to meet demand.  This effectively means that when solar and wind together do not meet supply, if the additional energy needed comes from gas, then it is the price of gas that determines the price of energy – the most expensive sets the price for the whole.  For the UK, solar and wind only meet on average 40% of supply, which invariably means that the wholesale energy price is set by the price of gas.  The price of gas in turn is set on a global market, therefore whether or not the gas comes from a domestic or foreign supply, the price is theoretically the same.

Ofgem then sets a price cap which is determined by the wholesale price of energy over the previous period (was six months, will now be three).  All of which means that the price of energy is always set to the highest possible value, as opposed to the real value.  All of which means, the energy producers are charging vastly more for their energy than they should because of the price being set by the ‘marginal cost’.

All of which means that the energy producers are experiencing a massive increase in profits (Excess Profits) due to the increase in the wholesale price of gas – which is not a true reflection of their production costs.  One of the reasons for the increase in the wholesale price of gas is the invasion of Ukraine by Vladimir Putin.

The freeze that has been proposed for domestic users today will do nothing to affect the underlying issue in the calculation of energy costs, and in all likelihood will lead only to a situation in which the UK government ends up subsidising the energy producers for the difference in the cost of energy and the sale price to domestic consumers.  (This is estimated to cost as much as £200 billion over the next 2 years.

From where will the government get this amount of money?  Realistically, this can only come from taxes – either taxes on the energy producers or taxes on the general population.  Since Liz Truss has ruled out extending an extension of the windfall tax on the excess profits of these companies, this means that the general population will be paying not only the initial amount, but also any interest payments accrued for the money for however long it takes to repay.

All of which means… that whilst the energy producers rake in money, the public are being asked to put their hands in their pockets to pay for it.

Capitalism has always supported the principle that companies can make profits by charging consumers more than the cost of production: yet this is very different.  This model is such that the whole of society is paying for the profits of energy producers, whether they consume or not.

This model effectively prioritises the importance of energy producers over the importance of the needs of the population.  There can be no doubt through this move that the role of taxpayers is to fund corporations.

Despite Liz Truss saying that it is wrong to consider everything though the lens of redistribution [of wealth], her very first act as Prime Minister is to effectively redistribute the wealth of the many into the hands of the few.  Her decision to ask an entire nation to pay for the excessive profits of the energy producers is a clear statement of priority.  The government has suggested that a windfall tax would deter investment – a point which was contradicted by BP.  Under this plan, the British public have already vastly overpaid for the energy they have used since the start of the year, but are now being asked to continue to do so for decades to come.  The impact of increased borrowing will undoubtedly again be used as an excuse to reduce government spending in future years – just as it was after the financial collapse of 2008 – further bringing down the quality of life for the general population.

The policy of a price freeze for domestic users will indeed limit the domestic retail price for a unit of energy in the medium term, however it will not prevent the price being charged by energy producers for this energy – a price which will have to be paid by the whole population eventually.  This policy comprises no review of the energy pricing system and no limitation to profiteering – either past or future.  Nor does this policy force re-investment of funds.  If Liz Truss really does believe that taking back some of the excess profits will limit investment, then why doesn’t she seek to force that re-investment through legislation?  Why doesn’t she seek to direct it any potential investment if she is so sure… to make double, triple sure that the whole economy will benefit from having been scalped for the past year on energy prices?

This policy, although it does provide some short-term support to UK domestic customers, in reality serves to maintain the existing pricing structure and the profits of the energy producers.  The balance of support therefore is weighted towards the corporation – even for a policy which is supposedly destined to help the consumer.

Clearly then companies are more important that people…