UK Politics

General election 2017: Tories to pledge energy bill cap

Man with bills Image copyright Getty Images

A cap on household energy bills is set to be included in the Conservative manifesto, a cabinet minister has said.

According to the Sunday Times the plans could cut gas and electricity costs by £100 a year for 17 million families.

Work and Pensions Secretary Damian Green told ITV people felt "taken advantage of" by energy firms.

Labour said the plan should be taken with "a pinch of salt", while price comparison company uSwitch said it would "do more harm than good".

The wider energy industry has reacted with scepticism to the plan, saying a price cap could have a negative impact on competition and lead to higher prices.

The manifesto pledge would outline plans to cap bills for seven out of 10 households paying standard variable tariffs, which are often criticised as bad deals for consumers by industry watchdogs.

It follows the introduction of a cap for households using pre-payment meters early this month, after the Competition and Markets Authority released a report saying customers were overpaying by £1.4bn.

Mr Green told the Peston on Sunday programme: "There will be a lot about energy policy in the manifesto [and] obviously there will be more detail.

"But... I think that people feel that some of the big energy companies have taken advantage of them with the tariffs they have got."

Mr Green said his party's promise on energy was not the same as Labour's 2015 election pledge to freeze gas and electricity bills for every home and business in the UK for 20 months.

"We would have [energy regulator] Ofgem setting the limits," he said. "So it would be a cap, it would be more flexible, it would be able to reflect market conditions [and] the market would still have an influence.

"That would mean in practical terms that if the oil price fell again, then consumers would benefit, which they wouldn't have done under [former Labour leader] Ed Miliband's proposal."

Mr Miliband responded on Twitter saying: "Where were these people for [the] last four years since I proposed [a] cap?" he wrote. "Defending a broken energy market that ripped people off. Let's see [the] small print."

Analysis

By Joe Lynam, BBC business correspondent

Image copyright Getty Images

After a two-year-long investigation, the Competition and Markets Authority published its final report last June into the energy sector.

Much to the chagrin of those who feel that Britain's energy market is rigged and that prices are unnecessarily high, the CMA did not break up any of the big energy companies

It suggested a number of remedies to improve things, but steered clear of outright price caps - with the exception of the pre-paid energy meter market.

The government, regulators and especially smaller energy firms are all agreed that regular switching is the key to driving up competition and driving down prices.

And although a record 7.7 million people changed their energy suppliers last year, 56% of households still have never switched.

After the Conservatives suggested some sort of price caps, some aggregators such as uSwitch said that caps would do more harm than good because it would lead to even fewer people switching energy suppliers, because they may feel changing to be no longer necessary.

The law of unintended consequences, would prevail again.

Labour has not come out against the proposals but told voters energy bills had "soared" under a Conservative government.

Mr Gwynne, the national elections and campaign coordinator in the shadow cabinet, said: "Time and again [the Tories] promised action, but when it comes to it, they broke those promises.

"At the last election when Labour promised action, the Tories opposed it, putting themselves on the side of protecting the big energy companies' profits rather than the interests of working people.

"Only Labour can be trusted to deliver a country for the many rather than just the few."

'Paying extra for being loyal'

Image copyright PA

Citizens Advice has released figures on how standard variable tariffs for energy bills affect people in the UK:

  • Around 800,000 of the poorest pensioners and 1.5 million low-income families with children in Great Britain are on their energy supplier's standard variable tariff.
  • These households are paying an average of £141 more a year for a dual fuel gas and electricity bill than if they were on the cheapest deal available from one of the nine largest suppliers.
  • Around 4.7 million households in England haven't switched their energy supplier for 10 years, with older people and people with low incomes more likely than younger and better-off households to have never switched supplier at all.
  • The Competition and Market Authority has estimated that all households on the standard variable tariff together pay an average of £1.4bn a year more than if the energy market was fully competitive.

SOURCE: Citizens Advice

Co-leader of the Green Party Jonathan Bartley said the policy did not go far enough and he wanted more local choices of supplier for consumers.

"We don't just want the big six energy companies, we want 6,000," he said. "We want a community renewable energy revolution.

"We want that control going down to local communities, so they can invest and get a return on their investment to have clean energy projects in their local area, have control of that energy supply and get that cheap, clean energy there."

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Conversely, industry leaders have criticised the Conservatives' plan for going too far.

Richard Neudegg, head of regulation at uSwitch.com, said previous market interventions had led to lower switching rates and higher prices for consumers.

"A price cap would be the death knell for competition," he said. "It would remove any incentive for energy companies to drive down prices and fight to keep their customers, entrenching the position of the incumbent big six.

"[And] it would create a false sense of security for consumers on poor value standard variable tariffs, reducing the chance of them seeking a cheaper deal."

Iain Conn, the chief executive of British Gas parent company Centrica, agreed that a highly competitive market was the best outcome for consumers.

He said: "Price regulation will result in reduced competition and choice, stifle innovation and potentially impact customer service.

"We are committed to more competitive pricing, improved service, rewarding loyalty and delivering propositions which customers want."

Spokesmen from EDF, Npower and E.ON said they would not comment until they saw the detail of the policy in the manifesto, but the latter did give its support to a "competitive market".

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