Utility companies face legislation if they do not bring down consumers' energy bills in line with falling wholesale prices, the Chancellor threatened yesterday.
Alistair Darling noted widespread concern that lower bulk prices for gas and electricity have not been reflected in household bills. Not only is the energy regulator, Ofgem, to monitor price changes and publish a quarterly report on the issue, but the Government could also get directly involved.
"If sufficient progress is not made in the next few months in closing unfair gaps in pricing between payment methods, the Government will use statutory powers to end unjustifiable pricing differentials," Mr Darling said.
But while the measures make good soundbites for a Chancellor keen to be seen to be looking after citizens at a difficult time, experts say Mr Darling is betting on a foregone conclusion.
Energy companies' wholesale buying takes place as much as a year in advance, rather than on the spot market, so retail prices will always lag the wholesale trend. Utilities are yet to feel the effect of lower wholesale prices, but when they go to the market in the new year to hedge their supplies for 2009 they will, and retail prices are likely to come down soon after.
TheEnergyShop.com, a price comparison website, is predicting a 10-15 per cent fall in retail gas prices, and a 5-10 per cent fall in electricity bills, early next year. "The falls will take around £150 off the average annual bill," Joe Malinowski, the founder of the site, said. "Perhaps the Chancellor wants to take credit for something that was a sure thing anyway."
Scottish and Southern has already gone public on future price falls. And a Centrica spokesman said yesterday: "While wholesale gas prices are still high relative to last winter, they have been falling. If that continues, we are hopeful we'll be able to reduce prices next year."
Charges of extortion oversimplify the energy business, utilities say. E.ON, for example, made a loss in its retail business in 2007 and is continuing to do so in 2008. And although the generation arm is making good money, investment requirements more than outstrip profits, the company says. "The industry needs to invest billions of pounds just to upgrade the infrastructure keeping the lights on, and to meet the Government's environmental commitments," a spokesman for E.ON said.
Brown on Brown: We need incentives to cut emissions
Andrew Brown, 44, is a livestock and arable farmer in Rutland. He and his father, 73, have kept the business running smoothly, despite what he says have been wildly varying costs and burdensome red tape.
"The hardest thing about the current economic climate is the uncertainty. Last year, fuel prices shot up, and because farmers use a lot of fuel in fertilisers and sprays our production costs soared. This year the fuel prices have dropped and everything's reversed. In my opinion the biggest threat to the country, indeed the world, is climate change.
"The Government really needs to improve its environmental policy – it should offer businesses incentives to curb carbon emissions and should start taxing air fuel. My overheads are huge, so I wanted to see the pre-Budget report offering more tax breaks for small businesses, especially for building and machinery. I'm disappointed with the fuel price staying the same, and the increase in national insurance.
"It feels like the Government is giving with one hand and taking away with another. They seem to be offering a lot of little 'sweeteners' to persuade people to vote for them if they call a snap election. They created a black hole in their finances and now we're going through a rocky patch there's nothing to fall back on. Anyone in business knows you have to save for a rainy day, but the politicians have failed to do this – which in my opinion is due to their lack of business knowledge and practical experience."Reuse content