David Cameron’s solution to tackle widespread concern over rising bills attacked as a ‘mistake’ that would ‘kill competition’
David Cameron has been warned he will kill off competition in the energy market after he announced that companies will be forced to give all their customers the lowest tariff available.
To the surprise of some of his own officials and amid consternation in Whitehall, the PM told MPs the government would introduce legislation to compel companies to offer the lowest tariff.
Cameron said: “We have encouraged people to switch, which is one of the best ways to get energy bills down. I can announce that we will be legislating so that energy companies have to give the lowest tariff to their customers – something that Labour did not do in 13 years, even though the leader of the Labour party could have done it because he had the job.”
The unequivocal pledge by the PM on the forthcoming energy bill caused some surprise in the Department of Energy and Climate Change (Decc). One source said: “We are looking at lots of ideas about how to use the law to get the lowest tariffs. We are exploring all the options.”
One price comparison website warned that legislation could work against consumers’ interests by killing competition. Ann Robinson of uSwitch.com, said: “This has to be a mistake – the unintended consequences would be to kill competition. Consumers will be left with Hobson’s choice – there will be no spur, no choice, no innovation and no reason for consumers to engage any more. The only glimmer of hope would be that smaller suppliers will be able to offer cheaper prices than the big six and therefore competition is able to continue in that arena.”
Cameron made his announcement in response to mounting concerns over rising household energy bills – four of the UK’s big six energy firms have already announced above-inflation winter price hikes.
After the announcement, a spokesman for the PM said: “We’ve asked energy companies to take action themselves and make clear what the lowest available deals are. The point is, in practice this market is not operating for everyone. A small minority of people are actually switching deals, therefore we need to push some of this responsibility on to the energy companies.”
He said customers would have to wait until the bill was published, possibly in the autumn, for details of how the change would work in practice. The move did not mean energy companies would offer only one tariff, as different customers would need different rates. “At the moment, the way the market works, people are encouraged to switch but many people don’t … so lots of people are not benefiting from that market, particularly vulnerable people who are less likely to switch deals.”
The announcement followed a strongly-worded open letter to Cameron from consumer rights group Which?, calling for an independent review into energy bills.
In the letter, the group’s executive director Richard Lloyd wrote: “It’s time to face facts: the energy market is broken. The sector is dominated by a handful of big and powerful players who are seemingly unaffected by the normal competitive pressure of price and customer service.”
Reacting to Cameron’s announcement, Lloyd said: “Legislating so energy companies have to give the lowest tariff to their customers is a big statement from the prime minister and acknowledges that competition in the energy retail market has failed. This is a big moment for consumers, but we must now see these words turned into action and see the detail from the government in the energy bill.”
Angela Knight, chief executive of Energy UK, the trade association for the gas and electricity sector, said: “Rebuilding trust with customers is a priority. Britain may have the cheapest gas and fourth-cheapest electricity prices in western Europe, but wholesale energy prices have been rising and now only represent half of a standard energy bill.”
Regulator Ofgem has already announced that it is looking into predatory pricing and tariff simplicity as part of its retail market review, while the government has encouraged consumers to shop around to make sure they are on the best available deals: the Decc has backed collective purchasing schemes such as the controversial Which? Big Switch initiative.
On Monday SSE increased gas and electricity prices by 9%, with more price rises coming in November from other suppliers.
British Gas has announced price increases of 6% in both gas and electricity; npower will raise the cost of gas by 8.8% and electricity by 9.1%; while Scottish Power’s prices will rise in December by an average of 7%.
The effect on household bills has spurred consumer advice groups into action. The National Right to Fuel Campaign warned that the UK was facing “an energy bill crisis”, with cold and poorly lit homes posing “a serious health risk to people of all ages”.
Citizens Advice is launching the Big Energy Saving Week on 22 October to target millions of families across the UK with advice on keeping energy bills down.
The campaign coincides with a warning from price comparison site energyhelpline.com that the best fixed rate energy deals – including deals from Ovo Energy and First Utility – are “disappearing fast”.
The government will outline plans on Thursday for a new £160m gas market infrastructure. The government will “remove an ambiguity” in the Gas Act to make it easier for Ofgem to launch an innovation competition that could attract £160m of extra investment. The Electricity Act will also be amended so developers will only need to undertake a three-month consultation if they want to change plans to incorporate the most energy-efficient measures.
In the final announcement the energy secretary, Ed Davey, will say that reforms in the energy bill will unlock £110bn of new investment in the electricity market.
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