Wednesday, January 14, 2015
Labour go quiet on their energy price freeze
It was only just over a year ago that Labour politicians were shouting loud and proud about their big idea, a freeze on energy prices. Suddenly it has all gone quiet.
The reason, as the Daily Mail points out, is that at long last power companies have started to cut their bills. If Labour had had their price freeze in place already then consumers would have been worse off. And that underlines just how irresponsible the pledge was when other mechanisms are available to government to help consumers.
At the time the argument against the freeze was that it would stifle investment by the power companies and put the smaller companies out of business. The Energy Secretary, Ed Davey was very forthright on this. He said:
the move is “highly irresponsible and fails to deliver what consumers want,” adding “we think it’s a con, because the energy companies will all shove up their prices before and certainly shove them up afterwards, so the consumer won’t get any benefit.”Mr Davey said that the price freeze would hit the small, independent, gas and electricity companies much harder than the Big Six suppliers.
That was because a significant rise in the wholesale price of gas – the main determinant of household energy bills – could push the retailers’ into loss if they are not allowed to pass that increase on to their customers.
The greater financial strength of the Big Six would enable them to absorb retail losses for two years, while the smaller companies could potentially go out of business. “Labour is actually a friend of the Big Six,” he said
As it happens, Ed Miliband has been saved from an embarrassing U-turn in government by events, though he still contends that his freeze will become a cap. That potentially has the same disadvantages as a freeze.
What needs to happen is the break up of the energy companies oligopoly and for excessive profits to be passed onto consumers as price cuts. That is a different sort of regulation and a much more deliverable one.
The reason, as the Daily Mail points out, is that at long last power companies have started to cut their bills. If Labour had had their price freeze in place already then consumers would have been worse off. And that underlines just how irresponsible the pledge was when other mechanisms are available to government to help consumers.
At the time the argument against the freeze was that it would stifle investment by the power companies and put the smaller companies out of business. The Energy Secretary, Ed Davey was very forthright on this. He said:
the move is “highly irresponsible and fails to deliver what consumers want,” adding “we think it’s a con, because the energy companies will all shove up their prices before and certainly shove them up afterwards, so the consumer won’t get any benefit.”Mr Davey said that the price freeze would hit the small, independent, gas and electricity companies much harder than the Big Six suppliers.
That was because a significant rise in the wholesale price of gas – the main determinant of household energy bills – could push the retailers’ into loss if they are not allowed to pass that increase on to their customers.
The greater financial strength of the Big Six would enable them to absorb retail losses for two years, while the smaller companies could potentially go out of business. “Labour is actually a friend of the Big Six,” he said
As it happens, Ed Miliband has been saved from an embarrassing U-turn in government by events, though he still contends that his freeze will become a cap. That potentially has the same disadvantages as a freeze.
What needs to happen is the break up of the energy companies oligopoly and for excessive profits to be passed onto consumers as price cuts. That is a different sort of regulation and a much more deliverable one.
