Is it dawning on the Competition and Markets Authority that, maybe, market-based competition doesn’t always work? That individuals are not perfect economic agents, and don’t act in the way that economists predict?
There is a hint of desperation in the CMA’s report into the energy industry. Half the households in the UK, it has found, have not taken advantage of the multitude of tariffs on offer to switch their supplier. This wasn’t supposed to happen. Privatisation, we were told, would bring the white heat of competition to the business, with consumers choosing the best tariffs, in turn keeping the industry on its toes and bringing huge efficiency and service gains.
Anyone left waiting half an hour on the phone trying to sort out their bill, or wondering why they are paying so much for gas and electricity when wholesale prices have fallen so far, knows that the industry has largely failed on prices and service.
But such is the ideological belief of competition theorists in the efficacy of markets that the CMA is likely to conclude not that competition has failed, but that we need more competition. This thinking suggests a break-up of the big six into maybe the quite large 10, or perhaps the middling 15.
Why would that work? Will the people who haven’t switched start doing so because nPower is broken into nPower, oPower and pPower? No, we will carry on with the situation where the benefits of competition flow to those who switch, mostly middle-income households, who are in turn subsidised by those who don’t – the older, the poorer, and those who just can’t be bothered.
What would happen if we had less competition, rather than more? Where perhaps there are fewer tariffs, with pricing caps imposed by a regulator? Or (say it quietly not to frighten the CMA) we have just one heavily regulated monopoly provider whose prices are a mathematical average of those on offer now? There will be losers, no doubt – the price tarts who jump from one supplier to the next, and the switching sites themselves. But there will be gainers, such as the millions who don’t switch now, and who won’t have to bother in future. But the challenge for this sort of de facto renationalisation is to establish incentives to draw in the vast amount of capital the industry needs, while treating customers fairly and efficiently.
Competition works well where shoppers can choose between frequently purchased and easily comparable items. But the evidence suggests it might be entirely the wrong approach when it comes to energy supply.
