The Guardian view on an energy price cap: a stopgap, not a strategy | Editorial

Editorial
‘It does send a clear signal to the big six suppliers: stop exploiting those who through loyalty, lack of familiarity with the internet, because they are renters or simply through inertia, never move off the standard variable tariff.’ Photograph: Yui Mok/PA

There is much to be said for a limited cap on energy prices. But the details of the government plan that was published on Thursday, promising lower bills for 11 million households, are so vague and its political purpose so brazen that it needs to be treated with great caution. Buyer, beware.

It is now the stuff of political legend that when Ed Miliband first proposed the idea of a cap in 2013, it was dismissed as a neo-Marxist project. Yet last year, the Competition and Markets Authority (CMA) itself came close to making the same recommendation, following an investigation triggered by the record of apparently unjustified price rises in the newly liberalised industry. Between 2004 to 2014, they rose by between 75% (for electricity) and 125% (for gas), for reasons that were impossible for most people to understand or for suppliers to explain. Then at the last election Theresa May poached the idea in a bid to plant the banner of Mayism firmly on Labour territory: the Conservatives would be the new party of the working class. Weakened by election humiliation, she dropped the idea. Last week it was recalled by a prime minister desperate to talk about something other than Brexit.

The Tory version of the energy cap is much more modest in its practical effect than in its political symbolism. Analysts estimate it will be fixed somewhere between the maximum chargeable on prepayment tariffs and the average bill. That might save around £50-£100 a year. It won’t transform household finances, and it won’t come into force before the end of next year at the earliest. But it does send a clear signal to the big six suppliers, which provide energy to six out every seven households: stop exploiting those who through loyalty, lack of familiarity with the internet, because they are renters or simply through inertia, never move off the standard variable tariff.

But the lack of consumer engagement is only one part of the problem. In its two-year investigation, the CMA identified a whole series of reasons for the obviously imperfect energy market. The worst of these were the prepayment tariffs, an explicit penalty on the poorest households who cannot pay by direct debit and were charged higher rates than anyone else. On the CMA’s recommendations, Ofgem introduced a cap that came into effect earlier this year; this week the regulator announced it would be extended to another million consumers, bringing the total to 5 million. The CMA report also criticised the relationship between the department and the suppliers and warned of disproportionately burdensome regulatory requirements. Among other suggestions, it argued for smarter incentives on limiting transmission losses and a more transparent way of passing costs from generators to suppliers to customers. All in all, it reckoned consumers had been bearing excess costs of more than £1.4bn a year.

Although it might buy time, this cap doesn’t tackle any of these structural defects and it is hard to escape the impression that the suppliers will still have the upper hand. The important detail is to be left to negotiation and the government appears to be relying on consumers being inspired to shop around through the rollout of smart meters – which provide accessible detailed information on usage – in a way they don’t at the moment. Yet so far only 6.6 million households have them, not even a quarter of the total who are supposed to benefit from the programme by the time it is completed in 2020. The business secretary, Greg Clark, seems to be trying to invent a form of light-touch interventionism, a middle way between a bigger role for the state as Labour envisages, and a completely free market that many Tory MPs would be more comfortable with. Mrs May hoped this policy would symbolise a new kind of Conservatism. Instead it has been launched by a weakened leader in an overhasty manner that makes it look more than anything like an exercise in political firefighting.

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