“Welcome to the political hothouse, Dermot Nolan, chief executive of Ofgem. We’re giving you more powers to regulate the energy market. Specifically, we want you to extract the prime minister from a mess of her own making over energy bills by setting a price cap that does all of the following: it will deliver £100 a year in savings for households; it will preserve competition between suppliers; and it will maintain incentives for consumers to switch.
“Please do not make trouble by pointing out that these goals may be incompatible in practice. And certainly don’t make a fuss about how independent regulators are supposed to be free to make up their own minds. If you don’t deliver this damned price cap, we’re toast and you’ll have Jeremy Corbyn as your boss. Good luck – we’re relying on you.”
That, more or less, is the government’s latest energy policy. A bill will be introduced to give Ofgem the power to cap standard variable tariffs (SVTs) in England, Scotland and Wales. The regulator will have to be mindful of “the need to protect consumers and maintain incentives for switching, and for suppliers to innovate, compete and finance their business”.
This structure would address one perceived problem. Were Ofgem to propose a price cap now, the energy suppliers might protest to the Competition and Markets Authority in the confident hope of getting it overturned (because the CMA itself rejected a blanket cap only last year). Under the new plan, there is no ambiguity: Ofgem’s word would be final.
Jolly good, but will Nolan jump through the hoop Theresa May is frantically waving? Hard to say. On one hand, he doesn’t sound impressed with the way the market is working at present. On the other, a full SVT price cap, as opposed to one that merely protects “vulnerable” customers, would run counter to the pro-competition regulatory philosophy of the past 25 years. The risk is that companies yank their discount fixed-price tariffs and switching dries up.
It’s probably best not to try to guess Nolan’s response, assuming the bill gets though parliament, but it is easy to see that the plot could turn messier. The government has semi-promised savings of £100 a year for households on SVTs. Yet it is relying on somebody else to make it happen. And it is skipping over the fact that customers who switch between fixed tariffs could end up paying more. What could possibly go wrong?
Tesco share price shows turnaround packaging nice, but contents same
Is the great corporate turnaround at Tesco as phoney as the farm brands that replaced various own-label ranges? A glance at the share price would suggest so.
On the day in September 2014 that the freshly arrived chief executive, Dave Lewis, had to tell investors that profits had been overstated, the share price fell to 203p, which was an 11-year low at the time. Now that three years’ hard work is supposedly coming good, the shares are even lower, at 184p. Lewis can’t control the share price, of course, but you can understand why investors are underwhelmed.
First, Tesco’s recovery is happening, but progress looks a slog. Half-year headline figures, such as the 23.7% improvement to £759m in operating profits, met City expectations, but the missing ingredient is momentum.
Like-for-like sales in the UK rose by 2.3% in the first quarter but fell to 2.1% in the second. Both numbers would have counted as strong a year ago, but inflation is blowing through prices these days. In a turnaround that was advertised as volume-led, Tesco’s volume of transactions advanced by only 0.3% in the half. That’s better than most competitors are managing, says Lewis, but it’s not going to excite investors.
Second, there are factors that Tesco can’t influence. Consumers’ real incomes are being squeezed. Aldi and Lidl continue to act as price policeman – and Amazon may join them before long.
On the plus side, Lewis can point to more solid financial foundations. Debt has fallen sharply on his watch, thanks to disposals and cash generation, and the deficit in the pension fund looks less daunting after a tweak to assumptions about mortality and investment yields. And, on the usually reliable principle that bonus-chasing bosses only set targets they are confident of achieving, Tesco’s profit margins will probably hit the 3.5%-4% range within two years, allowing the dividend to improve from the token distribution unveiled on Wednesday.
Maybe that will be the moment when the City gets excited. For the time being, the correct stance on the turnaround tale is the one that also applies to the made-up farm brands: nice packaging, but what’s really different?
