The Conservatives have pledged to allow Ofgem to implement a price cap on energy tariffs should they win the upcoming 2017 general election, causing the value of shares in Centrica and SSE to dip.
Rumours of a cap have been brewing for some time, particularly since energy secretary Greg Clark promised “muscular action” against overcharging energy companies last week. Work and pensions secretary Damian Green confirmed rumours on ITV’s Preston on Sunday.
“Some people feel that the energy companies have taken advantage of them,” he said, explaining that a price cap should save households an average of £100 a year.
Details of the pledge will be fleshed out in the upcoming manifesto, due next month.
While the decision will be welcomed by many consumer groups who had already called for a cap, it has drawn criticism due to similarities Ed Miliband’s 2015 election pledge, which the Tories roundly attacked. At the time, Miliband was accused by David Cameron of trying to live out a fantasy in a “Marxist universe in which it is possible to control all these things”.
Miliband took to Twitter to accuse the Tories of hypocrisy:
Where were these people for last 4 years since I proposed cap?Defending a broken energy market that ripped people off.Let’s see small print. https://t.co/iSBUc1Mob1
— Ed Miliband (@Ed_Miliband) April 23, 2017
Some, including defence secretary Michael Fallon, argued that the policies are different; that the Tory price cap is not the same as the price freeze proposed by Labour back in 2015. This is little more than semantics though; as Miliband reiterated, the wording of the Labour manifesto clearly proposed measures that would “ensur[e] that bills can fall but not rise”.
Better to argue that the apparent change of heart from the Tories is a result of changed material circumstances and, more importantly, a change of approach toward markets. Theresa May has made it clear previously that she is prepared to intervene “where markets are dysfunctional”, presenting this rather than a laissez-faire approach as a better way to defend the free market whose principles are so integral to the conservative ideology.
It also fits in with May’s claim to be wanting to do more for working families, for the ‘just about managing’, and for those whose dissatisfaction with the current system fuelled so much pro-Brexit sentiment.
Green explained: “There are groups in society in certain areas of the country and in certain parts of society that feel that life has become unfair, that even if they are working hard and doing the best for their families that somehow they are getting a bad deal and that does involve changing things like the energy market.”
Criticism of the proposed cap is not just political; energy industry insiders have raised concerns that it might negatively impact competition.
Among these insiders is Iain Conn, CEO of Centrica who, according to research published in the Financial Times, stand to lose £332m in profits should the cap be implemented. Conn said that a cap would “reduce competition and choice, stifle innovation and potentially impact customer service”.
There is a concern that intervention of this kind could stymie investment in the energy industry, potentially impacting jobs, as the head of Energy UK, Lawrence Slade, warned. Until the details of the cap are unveiled, we will not be able to tell exactly what kind of impact it will have, on energy companies, on competition and on consumers.
