Capping energy tariffs won't lead us down the road to Venezuelan-style ruin

The North Norfolk radio personality Alan Partridge once threatened to switch to a different petrol station because he felt the fuel on sale at his usual forecourt was "a bit obvious… a bit petrolly". But normal people don't care where they get their energy from so long as it's a good value. No one prefers the gas supplied by EDF to that from Centrica. The electricity from SSE doesn't work any better than npower's version. The only real source of competition in the retail energy market is price.

The same applies to current account banking. The days when we would take pleasure from visiting an avuncular bank manager for a useful chat about our personal finances are, for better or worse, over. The limit of what most of us demand nowadays is a half respectable interest rate, a non-extortionate overdraft charge and, if we're in a particularly demanding mood, a functioning website.

We're often told that the magic of competition in a free market drives prices down and the quality of services up. But while generally true, it's not universally so. If a seller knows more than the buyer about the product, ostensibly free markets can deliver some glaringly unsatisfactory outcomes.

The economist John Kay has written about "competitive misinformation" in markets such as retail energy where this kind of information asymmetry exists. The contracts offered by energy firms are nigh on impossible for the typical customer to understand. The same is usually true of the small print that outlines banks' overdraft charges.

The complexity is intentional. It is designed to extract fat profits from the less savvy. The seller knows more than the buyer. The result is customer confusion and inertia. Half of us have been with our bank for more than a decade and only three per cent switch each year. Around two thirds of energy customers never switch and end up on the costly "standard variable" tariff.

And this inertia is a major source of profit for an oligopoly in both industries; the big four in banking and the big six in energy. The Competition & Markets Authority concluded last year that the latter "enjoy a position of unilateral market power over their inactive customer base", earning them excess profits of £1.4bn a year. The CMA says banks cream off around £1.2bn a year from unarranged overdraft charges.

When companies sell essentially the same product at different prices to different customers it's usually the rich who tend to pay more: think of first class train or plane tickets. But in energy and banking it's often the poor, elderly and least clued-up that end up being penalised. Their loss is the gain of those who do switch, claim the oligopolies.

But even active customers still suffer notoriously poor levels of service in both banking and energy. When a bank's website crashes all customers are in the same boat. When a large energy company messes up its billing system no one is immune from the fallout.

One response to failing markets is to try to level out the informational playing field. This could be done by giving the least savvy customers more information through easy-to-use tariff or fee comparison websites, or by compelling providers to periodically remind customers that they might be able to switch to better deals.

Another response is to jump-start competition by breaking up the oligopoly of providers in the hope that this will encourage a larger number of smaller providers to focus on customer service and more transparent pricing in order to grow their respective market shares.

But the first route hasn't worked so far (although some still insist the breakthrough just need the right technology). And politicians and regulators have consistently balked at the second option, seeing structural reform of this nature as being too logistically and legally challenging.

So now we're circling a third option: capping prices. Proposals to cap standard variable tariffs relative to better deals are being worked up for the Conservative manifesto, and the Labour MP Rachel Reeves is campaigning to limit bank overdraft fees.

It's a gross error to assume that all markets are alike and always work perfectly. These economic forms are only valuable for the welfare their deliver; they are not an end in themselves. Structural reforms would probably be more effective and less prone to damaging political opportunism than price capping. But in already heavily regulated sectors such as retail banking and household energy provision it would be hysterical to suggest, as some free market fundamentalists do, that caps are the slippery slope to ruinous Venezuelan-style socialism.

Fundamentalist critics might care to consider a different risk: the discrediting of the many parts of the free market system that are working well from a chronic failure to fix those salient sectors that manifestly are not.

No, the rich are not bearing too much of the nation's tax burden

''Death and taxes, as we all know, are the two great guarantees of life. But a strong candidate for a third is crude anti-tax lobbying by the right-wing press.Their favoured argument in recent years has been that the "burden" of taxation is falling ever more heavily and unfairly on the very rich.

The Daily Telegraph this week presented an analysis showing that the top 1 per cent of income tax payers pay 27 per cent of all income tax receipts, up from just 11 per cent in the 1970s. The report also noted that the top 10 per cent of taxpayers account for 59 per cent of total receipts, up from 35 per cent in 1976.

It asserts that "the wealthy … are making a bigger contribution to the UK's income tax receipts than they have done at any other point during the post-war era". The piece throws in references to the pledge from the late Labour Chancellor Denis Healey to squeeze some unfortunate souls until "the pips squeak" and warnings from a Conservative MP about how oppressive taxes are in danger of deterring smart people from working.

But the analysis, like many previous ones in the same vein, is misleading because it neglects to mention a crucial piece of context, namely that the very rich have been getting richer in recent decades - especially those at the very top.

According to the World Top Incomes database, the total pre-tax income share of the top 1 per cent of UK earners has doubled since the 1970s from 6 per cent to around 12 per cent, largely a reflection of the explosion in pay of financiers and senior company executives. The pre-tax income share of the top 10 per cent has also risen since over that time from 30 per cent to 40 per cent. These groups are paying a larger share of the total income tax take because they have larger slices of the pie than they used to.

This says little about the direction of tax policy. Rather, it's an arithmetic property of a progressive income tax system, whereby above certain thresholds a fixed proportion of earnings go to HMRC.

Another vital piece of context which these analyses omit, as Jonathan Portes of King's College London exhausts himself in stressing, is that income tax is not the only tax. In 2015-16 the Government raised £630bn in taxes. Of this just 27 per cent (£169bn) came from the income taxes. Very large chunks came from National Insurance (£114bn), VAT (£116bn) and corporation tax (£45bn).

It is either ignorant or disingenuous to imply that the entire national tax burden is accounted for by the income tax take. Any consideration of the social fairness of the tax system has to factor in the incidence of other levies to be even vaguely credible.

There are, it is true, challenges presented by the disproportionate reliance of HMRC on a relatively small number of high-income individuals. But despite the complaints of Tory MPs and right-wing newspapers these challenges have nothing to do with equity or Ayn Rand-style effort deterrence.

This is rather an issue of practicality. The rich can shift their incomes about ominously easily, as we saw vividly last year when a change in the taxation of dividends prompted large-scale income forestalling. An army of well-resourced accountants generate (entirely legal) avoidance schemes, leaving HMRC outgunned and ministers chasing their tails.

A part of the solution ought to be to shift the focus of taxation from income to residential property, where wealth inequality is vast and avoidance is much harder. The capital gains and inheritance tax systems are also in crying need of reform. The tax rates on the income of company owner managers should be brought into line with that of employees to eradicate an obvious avenue for avoidance by the very wealthy.

But we should also be trying to reform the structure of our economy, which throws up such large pre-tax disparities in pay. Pay at the very top is sometimes a reward for outstanding effort, inspiration and entrepreneurial activity. But often it is merely zero-sum wealth extraction and the exploitation of uncompetitive markets.

A more equal distribution of earnings would make the tax system less fragile. There are also reasons to suspect this could result in more sustainable GDP growth due to higher corporate investment and productivity.

A new tax campaign angle for the right-wing press? Don't hold your breath.''