Back in July, Centrica, the owner of British Gas, tried to sound sheepish about reinstating its dividend at a penny a share at a moment when customers were braced for higher energy bills. The company accompanied its move with feelgood boasts about how it expected to pay £600m under Rishi Sunak’s three-year “energy profits levy” on North Sea oil and gas production.
Four months later, there is less bashfulness. Earnings will be “towards the top end of the range” of analysts’ expectations, Thursday’s trading update said, and shareholders can have a much more significant distribution – a buyback of 5% of the share capital, which will cost roughly £250m. The shares rose 6%.
Centrica, it seems, will live with the flak – and since its largesse is nothing compared with the oil majors’, you can understand the thinking. But Sunak, let’s hope, read Centrica’s update in detail. The North Sea fields and energy traders are still doing nicely (less so British Gas during warm weather) but an unspecified chunk of the forecast-beating returns are coming from electricity generation.
That refers to Centrica’s 20% holding in the UK’s nuclear power stations, a part of the energy industry untouched by the North Sea-only windfall tax. Nuclear, though, is every bit as much of a cash cow currently. Its operating costs haven’t budged but, since the price of electricity is tied to the price of gas, revenues will be through the roof.
The government has danced ineffectually around the generation sector for months, pondering price caps and voluntary negotiations to switch projects on to new-era “contracts for difference”, but no solution has yet appeared. It’s time to make a decision. If all the technocratic solutions are deemed to be too fiddly, then it has to be windfall levy.
With nuclear, the case is particularly strong because there is no question of creating disincentives to future investment (the grumble from renewables developers). Any future nuclear plant, such as Sizewell C, would be funded by a bespoke financing and pricing model.
Centrica, note, will have taken its share buyback decision in full knowledge that some form of levy is likely on nuclear’s windfall returns. And it still thinks it can afford £250m. Sunak should take the hint.
Wolfson is right about foreign workers
The last time Simon Wolfson, the chief executive of Next, pleaded for the government to allow more foreign workers into the UK, he received a pile of abuse from a prime minister (Boris Johnson) who hadn’t bothered to understand his proposal.
The leave-supporting Wolfson wasn’t – and still isn’t – advocating uncontrolled immigration. Rather, he wants a demand-led system that would incentivise UK businesses to hire local workers. Overseas recruits would have to be paid the same as local counterparts, and the employer would pay a 10% surcharge to the Treasury on the wages of foreign-hired labour.
“It would automatically mean that businesses never bought someone into the company from outside if they could find someone in the UK,” he said in a BBC interview released on Thursday. “But if they genuinely can’t, they’ll pay the premium.”
Last time around, Johnson launched a kneejerk Brexit refrain about British business being addicted to cheap foreign labour, which completely missed the point. A question now, then, is whether the latest inhabitants of Downing Street will engage with the real issue: the lack of flexibility in the UK’s labour market that plainly comes at a cost to growth.
Under Liz Truss, there were nods of recognition. The deregulation part of her short-lived agenda contained a push to reform the shortage occupations list to cover, for instance, seasonal agricultural workers and broadband engineers. Where does Sunak stand?
We’ll find out (possibly) in next week’s autumn statement, but business lobbyists suspect he’ll be in the Johnson camp. They anticipate no pro-business measures on immigration. If so, it will be another missed opportunity. Wolfson is right that it’s time to move on from tired referendum-era arguments. Hospitals, pubs, restaurants and many other sectors are crying out for a pragmatic approach. His proposal offers a sensible way forward.
FTX’s big-name backers exposed
As long as they do no harm to the rest of us, crypto punters are free to gamble as much of their money as they wish on their fantasies of alternative asset classes. But the astonishing detail in the implosion at FTX, the world’s second largest cryptocurrency exchange, is that the operation had so many big-name backers. BlackRock, SoftBank and Sequoia Capital can all afford their write-offs, but we used to think of them as financial grownups.
