The Local Government Association have argued that, as energy companies have increased their dividends this year, their profits are not necessary to make investment possible that can secure more affordable energy for British consumers in the year to come:
"LGA's acting chairman, Sir Jeremy Beecham, said the figures showed that energy companies were not necessarily guarding profits to invest in new future technology.
"This research torpedoes the energy companies' justification for their profits," he said."
Dividends are a signal to investors that the energy companies are a good investment. That directing capital towards investing in Britain's energy infrastructure is a good idea that will pay off. If energy companies can't make a profit on investments in energy infrastructure when prices rise then that case becomes very weak and the sector won't be able to attract capital.
The Local Government Association are basically pushing a windfall tax that would take £500 million from the energy companies and spend it on providing home insulation. If energy companies are forced to cut their dividends following a windfall tax, they will find it extremely difficult to raise investment for the new infrastructure which Britain’s utilities desperately need.
A windfall tax would also be a huge risk to families struggling under the credit crunch because utility companies would be under a lot of pressure to pass the cost of the tax straight on to consumers. Making everyone pay more for electricity and then passing that money on in the form of subsidies for home insulation would punish those who have done the responsible thing and already insulated their homes.
If the Government want to help people improve insulation they should cut back on wasteful spending and cut the VAT on home improvements, including insulation. A windfall tax is the last thing Britain needs during these tough economic times.