Scottish Power chief has a bright idea to ease cost of living crisis | Nils Pratley
When the cabinet is reportedly debating the merits of extending MOT tests to two years as a way to tackle the cost of living crisis, one can conclude that the well of big ideas in government has run dry. Or perhaps ministers simply haven’t grasped that high energy bills will go even higher in October when the consumer price cap increases again – by £500-£600 on current projections. Fiddling with £40-ish MOT delays is risible.
Instead, the most interesting proposal has come from the energy industry. Keith Anderson, the chief executive of Scottish Power, banged the drum in front of MPs last week for his “deficit fund” idea that would have the government remove £1,000 from the bills of low-income households, and he gave another thump alongside the company’s first-quarter numbers on Wednesday.
He should keep going for three reasons. First, £1,000 off bills for vulnerable households recognises the scale of what’s needed. The price cap was £1,277 before this month’s rise to £1,971, but soon could be £2,500. A round thousand pounds, coupled with the chancellor’s already-announced £150 cut in council tax bills for selected bands, would approximately fill the gap, which ought to be a minimum aim: poorer households could not possibly have been expected to prepare for the size of the energy shock.
Second, one can see how Anderson’s fund would operate even if it needs to cover 10 million lower-income households and thus be as large as £10bn for a single year. The government would underwrite the lot and the fund would be paid down over a decade, when, one hopes, wholesale energy prices will be substantially lower. The process could happen either by adding £40 a year to all households’ energy bills for 10 years, or (more progressively) via general taxation.
The third reason Anderson should continue pushing is that any system to relieve fuel poverty (defined as a household spending 10% of its disposable income on energy) cannot be willed into existence overnight. The details of implementing Rishi Sunak’s other energy measure – a structurally-similar but catch-all £200 “rebate” on bills from October – are still being worked on. The mechanics are do-able, but a period of preparation is needed. In a targeted intervention, qualifying thresholds needed to be hammered down, for instance. July is probably the latest the government could commit to a scheme along Anderson’s lines.
The Scottish Power boss does not have a monopoly on ideas to soften the energy blow, but he’s surely right that the scale of the problem is too big for the industry to handle via swallowing consumers’ bad debts, which in any case get recycled into bills eventually. If the government has an alternative proposal, it’s time to air it. At the moment, ministers give the impression they are the only ones who can’t see the colossal storm that is about to hit.
GSK activist shareholder short on change but long on return
Elliott Advisors hasn’t obviously altered GlaxoSmithKline’s strategy or boardroom lineup one jot during its months of agitation: the pharma firm has merely advanced further down the demerger path it had already embarked upon. But the activist fund was right about the shares being cheap.
Elliott revealed its stake in April last year when GSK’s price was bobbing around the £13 mark, and may even have picked up a few shares during the previous month’s dip to £12. Share price now: a whisker under £18. So, ignoring any use of turbocharged derivatives, Elliott may have made about 40% on its punt over 12 months. Not bad versus the FTSE 100 index’s pedestrian 6% return in the same period.
Viewed another way, Elliott caught the bottom of the V-shape that describes GSK’s share price performance since the arrival of Covid in early 2020. One effect of the pandemic was to disrupt sales of GSK’s important shingles vaccine Shingrix (some patients were shielding; healthcare systems prioritised Covid jabs when they arrived) but that drag has now reversed. Within GSK’s everything-on-track first-quarter update on Wednesday, Shingrix was predicted to achieve record revenues in 2022.
Chief executive Emma Walmsley’s plan A, the demerger of the Haleon consumer products division, happens in the summer, at which point the focus will turn exclusively to progress from the pharma labs. Seven potentially important treatments receive critical readouts this year and, given inevitable uncertainties, one hesitates to say GSK is fixed. But the improvement in mood, helped by the arrival of credible long-term sales and profits targets, is undeniable. Elliott’s sound and fury didn’t amount to much, but its timing was excellent.