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Monday, February 02, 2015

Labour energy price freeze is 'preventing £130 bill cuts'

Nobody should say that they were not warned. When Labour first thought of their gimmick of freezing energy prices, wiser heads suggested that there would be unintended consequences. Specifically, the Energy Secretary, Ed Davey 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.”

Now the Telegraph reports Mr. Davey has been proved right, even before Labour have had a chance to implement their freeze.

They say that experts have claimed consumers are being denied energy price cuts of as much as £130 a year because of Ed Miliband’s price freeze proposal:

Energy companies are failing to pass on the full falls in wholesale prices because they are afraid they will not be able to cover their costs if prices rise again under a Labour Government, industry analysts say.

Companies should be able to afford to cut prices by "a double-figures percentage", Ann Robinson of price comparison site uswitch said, with average gas and electricity bills currently about £1,300 a year.

“We believe that Labour's price freeze proposal has been instrumental in the failure of the big six energy suppliers to reduce their standard prices, despite the significant fall in wholesale costs,” she said.

Nik Stanojevic, equity analyst at wealth managers Brewin Dolphin, said: “Baseload power prices for summer 2015 have fallen around 16 per cent since the middle of last year and summer 2015 gas has fallen about 24 per cent over the same period. Given the size of the moves, it’s safe to say that retail prices could be a least 5 to 10 per cent lower.”

Mr Stanojevic said that Ed Miliband’s “ill-conceived” price freeze was one of the main reasons for companies’ failure to pass on reductions, because if prices rose after the start of a price freeze “suppliers could make losses”.

“Counter intuitively, the proposed freeze has therefore caused consumer energy prices to be higher than they could otherwise have been at this time,” he said.

In Ed Miliband's world this amounts to be careful what you wish for, because it is consumers who are suffering.
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