When an energy price freeze was proposed by Ed Miliband in 2013, the Conservatives attacked it as “Marxist”. Like so many Left-wing ideas, it had superficial attractions. The Government should indeed be focused on ensuring that businesses and households are not paying a fortune for energy, but constraining the ability of firms to set their own prices not only jeopardises investment but can lead to perverse outcomes that are not beneficial to consumers.
Just a few years later, however, the Tories had a change of heart. Theresa May introduced her own version of the policy: an energy price cap. Set every six months by Ofgem, its deficiencies have become painfully clear over the past year. Energy prices have still risen to record levels. But around 30 energy firms have gone bankrupt, and the cost of moving customers from failed suppliers is itself believed to be contributing to bills.
Now Ofgem has suggested that changes to the cap should be made more frequently. It believes that doing so every three months would make it easier for suppliers to manage their costs. It could also mean that price falls, when they come, could be passed onto customers more quickly. But it may also result in the opposite effect. The change could herald a price shock in January at the height of winter, and companies may still get into financial peril because they cannot pass on costs sufficiently quickly, thereby reducing competition.
The whole energy market is being suffocated by red tape, while politicians have indulged in facile interventionism as an alternative to making the hard decisions necessary to bring down costs sustainably in the long term. It would be better to scrap the cap entirely and let the market do its job.
