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Conservative energy price cap manifesto will ‘kill competition’

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Written by: Paloma Kubiak
09/05/2017
Prime Minister Theresa May has today announced she will take action to end injustice in the energy market by introducing a price cap if she’s re-elected - but critics say such a move would do more harm than good.

As part of the Conservative pre-election manifesto, its leader Theresa May said that, like millions of working families, she is “fed up with rip-off energy prices” which are eating up more of people’s pay packets.

As the major energy providers have upped tariff prices recently and a market investigation revealed households were already paying £1.4bn a year more than they need to, the PM said “it’s clear the energy market is not working for ordinary working families” as “too many people simply aren’t getting a fair deal”.

She made the following promise:

“If I am re-elected on June 8, I will take action to end this injustice by introducing a cap on unfair energy price rises.

“It will protect around 17 million families on standard variable tariffs from being exploited with sudden and unjustified increases in bills.”

The Conservative leader said the cap would be set by the energy watchdog, Ofgem, helping families save as much as £100 a year.

The pledge comes after rumours surfaced last week about an energy price cap promise in the party’s manifesto and then, as now, it’s been criticised by comparison sites and campaign groups.

‘Price cap is a red herring’

Richard Neudegg, head of regulation at uSwitch.com, said: “Energy bills are too high for many customers, but the suggestion that a price cap will fix the market is a red herring. Today’s pledge will ultimately kill competition, push up energy prices and leave consumers worse off.

“The Competition and Markets Authority (CMA) conducted a thorough investigation and offered a raft of practical measures to help boost competition and lower bills. Government should instead fully implement these remedies and give them time to succeed.”

‘Measures to reduce bills are welcome’

Alex Neill, Which? managing director of home products and services, said: “It is clear that millions of hard-pressed energy customers are still suffering due to a lack of competition in the energy market.

“Measures that significantly reduce the cost of your bills overnight will be welcomed, but this cannot result in an increase in bills overall, undermine improvements in service or bring much needed innovation to a halt.

“Tackling this broken market so that it works for everyone must be the priority for the next government.”

‘A price cap would be a disaster’

Stephen Murray, energy expert at MoneySuperMarket, said: “For customers who have the ability to switch – the majority outside the most vulnerable – an energy price cap would be a disaster.

“The energy market is working better than many people give it credit for. There is more choice for consumers, more innovation by suppliers and an effective switching industry with 50 suppliers to choose from and huge savings to be made.

“A price cap, whether relative or actual, will lead to many of the best deals disappearing, prices finding a higher level and a growing market of disengaged customers. Instead of bringing in a price cap, the government should spend some money raising awareness of switching and leave the mechanics of an increasingly vibrant and competitive market well alone.”

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