Comradely Greetings to the Government of Hungary

Duncan_Oleary_állóThe Leader of the British Labour Party almost certainly knows about Fidesz’s proposal to reduce utility prices and was inspired by them, says the advisor to the party leader Ed Miliband in the interview. Duncan O’Leary, who is the Deputy Director of the British left-wing Demos, claims that Ed Miliband has the same problems and goals with the energy and banking sector as the leaders of the Hungarian ruling party.

The energy companies earn too much compared to the quality of their service and there does not seem to be any competition between them; referring to the state of the global market, they simultaneously increase prices. However, Ed Miliband’s proposal somewhat differs from the Hungarian practice; his objective is to freeze energy prices for two years, so that people can benefit from the competition created in the meantime. Miliband plans to tax banks, as well, which would be used to create new jobs. The British conservative party challenges the Labour proposals, calling them socialist.

 

Zentai Péter: Is it possible that the leader of the Labour Party has announced his energy price proposal – which everyone is talking about in the United Kindom – based on the idea of the Hungarian government? Do you personally know anything about the ongoing economic movements in Hungary?

Duncan O’Leary: Of course, I have heard about the experiments, ideas and arguments of the Hungarian government concerning the reduction of utility prices. Ed Miliband is somebody who takes his policy development very seriously and keeps tabs on global events. He looks at examples around the world and is thinking carefully about what they mean to the UK in economic and social terms. So I imagine he could have looked at effects of this experiment in Hungary and might have been influenced by tem.

 

Nevertheless, experts regard Miliband’s proposal as very controversial. Many of them interpret his words as he wanted to restore socialism in Great-Britain…

It is essentially controversial and causes harsh debates in the country. The future will decide, whether such a significant economic decision is serving the society or supports what the energy companies says: it reduces the amount of capital they have to invest and therefore, there will not be enough capital to develop the infrastructure. In the end, consumers will suffer because of the power-cuts and lack of modernization.

What the most people directly do not know is that the market itself is currently not functioning effectively. Consumer prices have been constantly increasing regardless of what happens in the global market. If wholesale energy prices increase, the service providers immediately take action and raise their prices; however, if wholesale prices dip, consumer prices do not go down. The six largest energy companies have made huge export profits in the past few years.

The British feel that they come off badly anyway and do not benefit from the positive effects of competition. The question is why the market is not functioning properly.  Because of the lack of competition or the lack of transparency? No one is quite sure about that but Miliband’s proposal is of great importance in this issue.

 

How do the six giant energy companies argue? Probably, they do not approve and think that the freezing of energy prices is unsubstantiated. What are their arguments?

They say that this sector is far not as profitable as stated by Miliband and that compared to other economic sectors, they have to bear more risk but make less profit. One of the energy companies came up with the argument that they are not earning any more than supermarkets. They also say that next year, they will start huge investments, such as building a power plant, modernize, and repair cables and networks and the current profit would be used for financing these investments.

According to them, it is wrong to suggest that there is no real competition. I think not many people in the UK believe that. Almost all of the consumers and household feel that the market is not working effectively because all of the dominant energy providers increase prices at the same time and never cut them, despite different tendencies of the global market.

Another problem is that the same companies generate and distribute the energy. This makes is possible for them to take advantage of price generation. During the price freezing period, actions would be taken to separate these activities and liquidate the monopolies.  Perhaps, if new players and service providers entered the market, more competition would be created, and therefore, lower prices.

 

So Mr. Miliband seeks more competition, although he is accused of being against the market?

Miliband plans to freeze prices for two years. During this period, he will reform the market itself, for example, he will promote more competition. However, it is obvious that this idea is a short term approach that can point to long term reforms. In those two years, it will turn out if this is a bad idea because energy companies may decide to leave Great Britain.

 

What is the reaction of the potential voters? Do they understand the goals of Miliband?

It is a little early to know exactly what the public thinks because we do not have any polls. What we do know is that the Labour Party tested members of the public before the speech – especially, from its focus and discussion groups. The research shows that this proposal is one of the most popular ones and supported by many. They are very confident that this will rather help the Labour in the public elections than harm it.

 

Are there any other sectors that Ed Miliband wants to reform due to public dissatisfaction?

Yes, there are many. One obvious example is the banking sector. The public opinion is that when banks fail, the tax payers have to save them, otherwise the charge higher and higher fees. Another example is the train companies in the UK, where again prices are rising very steadily in the recent years, although the number of passengers has also been rising. There is a concern there is not sufficient competition and the government simply gives a monopoly to the train companies and lets it to raise prices in a way that it ought not to be allowed to. There are also companies that provide short term loans with extremely high interest rates. Miliband wants to set a limit on the level of interest to protect those consumers who cannot pay and rack up lots of debt.

 

Does Mr. Miliband want to impose more levies and taxes on large financial institutions?

Taxing the banks is a big part of his position. The extra income from the levies would be used to reduce youth unemployment. Thus, banks would contribute to both the stimulation of real economy and the dealing with a severe social issue. However, the banking sector is the most important sector of our economy, so the British government has to be careful not to drive it away.

Miliband is aware of that the government, the state has less money to spend on social welfare and maintaining the social service system. Hence, he has no other alternative than support the society and the people by reforming the market itself. The more free market forces work, the lower prices go and the more profit is redirected to increase consumer purchasing power.

 

You say the Leader of the Labour Party is a market-oriented politician. However, Miliband’s opposition states the he is simply a socialist, who discourages large investors. In the end, everyone will be worse off: the infrastructure will suffer, the influence of the government will grow and then “everything will come to an end”. Is Miliband really a socialist?

I think it is wrong to describe him as a socialist. He is somebody who wants to reform the market rather than completely replace it, which is what socialism really stands for.  His opponents sometimes call him a socialist because they see it as a good criticism. Even the current government, which is a conservative and liberal democrat coalition, is in many ways quite interventionist in the market. They indentify which sectors are growing and put more resources into those sectors. So even though people are criticizing him for being a socialist, they are engaging into activities that reflect that they try to plan the economy in a way that we might not have done ten years ago.

 

What are Mr. Miliband’s plans with the European Union and the euro? The current government is preparing for a referendum to withdraw from the EU.

I do not see a big difference between the two parties regarding the euro. There is a consensus in the UK that we will not be joining the euro in the foreseeable future. An independent currency serves our economy better than a common European currency.

On the European Union, there are much clearer differences between Labour and conservatives. The conservative party is instinctively much more hostile to the EU as it sees a loss of British sovereignty, whereas the Labour Party is traditionally much more internationalist. Therefore, the Labour is favorable toward staying in the EU and do not think that the referendum in 2017 is necessary. However, they might have to change their mind, if there is be a public pressure for the referendum.