Business

Centrica warns Labour energy plan risks 'ruin' for firms

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Media captionCentrica's chairman warns of potential 'ruin' for energy firms

Britain's biggest energy firms have rejected Labour leader Ed Miliband's plan to freeze energy prices.

He pledged to freeze gas and electricity bills for every home and business in the UK for 20 months if his party wins the 2015 election.

The chairman of British Gas owner Centrica told the BBC that Labour's plan could potentially cause "economic ruin" for energy firms.

Sir Roger Carr said the plan would leave firms in a precarious position.

"When costs are outside your control, but someone is fixing your price and putting a ceiling on it, the risk of course is that it is potentially a recipe for economic ruin for a company." Sir Roger said.

Other energy bosses also condemned Mr Miliband's proposal.

"It's very easy for politicians to come up with simple-sounding solutions to difficult problems," said Paul Massara, chief executive of RWE npower.

"But in reality, there are three main factors that influence prices: fixing inefficient housing stock, the investment required to replace the UK's energy infrastructure and the cost of the buying energy on the global market."

Superficial

Energy UK, which represents the power industry, said the policy would threaten the entire UK economy.

"Freezing the bill may be superficially attractive," said Angela Knight, chief executive of Energy UK.

"But it will also freeze the money to build and renew power stations, freeze the jobs and livelihoods of the 600,000-plus people dependent on the energy industry and make the prospect of energy shortages a reality, pushing up the prices for everyone.

"We need to invest £110bn over the next 10 years to build and renew the power stations, the wires and the pipes everyone in the country needs to keep the lights on, our homes warm and to supply the power for British business to compete, to recover and to grow," she said.

However, Labour's business spokesman Chuka Umunna told the BBC's Newsnight that claims that the policy could see the lights go out were "patently absurd" and "nonsense" put about by the large energy companies.

He suggested that firms had under-invested in the past.

Energy firms have been accused of quickly raising prices when wholesale energy prices rise and being slow to lower prices when wholesale prices fall.

Gillian Guy, chief executive of national charity Citizens Advice, said: "Energy firms must keep price rises to a minimum and make sure that any drops in wholesale costs are passed on to customers.

"A fresh round of energy price rises could be the nail in the coffin for people's household budgets - many are already being pushed to breaking point by a perfect storm of price rises, wage freezes and benefit curbs."

Good intentions

Energy firms argue that they work hard to keep costs down, but are hampered by government policy.

SSE said in a statement: "We need to do all we can to keep energy prices affordable. At the moment, the actual energy consumers use makes up just half of a dual-fuel energy bill.

"Well-intentioned government policies to promote household energy-efficiency and renewable energy, supported by all parties, have been placed on energy bills and are rising significantly in cost."

Business lobby group the CBI said that there now appeared to be a contradiction in Labour's energy policy.

"Rising energy bills are tough on families and businesses. But the proposed energy price freeze will deter much-needed investment and is at odds with Labour's pledge to decarbonise the economy and create a million green jobs," said John Cridland, CBI director-general.

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