Energy cap hike condemned: have the critics got it right?

Ofgem’s cap on standard variable tariffs was always going to rise as well as fall, but past failures mean the government deserves the heat it’s getting 

James Moore
Chief Business Commentator
Thursday 07 February 2019 14:11
Wholesale energy prices have been rising, leading a sharp rise in Ofgem’s price cap
Wholesale energy prices have been rising, leading a sharp rise in Ofgem’s price cap

What the energy price cap giveth, the energy price cap taketh away.

Millions of people are set to pay extra under regulator Ofgem’s plans to hike the maximum providers are allowed to charge for their standard variable tariffs.

A typical household will see £117 added to their bills. That’s a lot of money for those who are just about managing. It’s a gut punch, and it predictably led to a chorus of condemnation.

Shadow business secretary Rebecca Long-Bailey accused the government of “resting on its laurels while big energy companies are ripping off their customers” and there were plenty of others expressing similar views.

Justified? It’s debatable.

The majority of the increase, which will come into force in April, is down to rising wholesale energy prices, which have in turn sharply increased suppliers’ costs.

Ofgem, and the government, always said the cap would be fluid and could rise as well as fall in response to these.

It may well fall the next time the cap is calculated because the calculation will take into account the fact that oil prices have started to head lower.

You could still argue that the cap is too generous to suppliers, but the regulator has to consider the fact that a number of them have gone bust recently. It faces a difficult balancing act.

One reason why Long-Bailey’s words resonate, however, is because even if the increase in the cap can be justified, the big guns, the big six energy firms, spent years raking it in.

This is a market that has been profoundly dysfunctional for a long time. During that period the government scarcely seemed to have an energy policy.

It was only when the former leader of Long-Bailey’s party, Ed Miliband, pledged a price freeze that the government – which tipped a bucket of slops over the idea when he first trailed it – started to seriously address the issue.

There is, of course, a way around the price hike for those minded to try it. It is to switch to a better deal. Too few people do that.

Ofgem has a list of accredited price comparison sites, which might help to counter concerns about the depressingly widespread sharp practice that has been found in the price comparison industry, and it has been trialling measures such as forcing suppliers to write to people informing them of the better deals that are available, including those offered by their competitors.

It says this is yielding good results. There are also other initiatives in train. Given the struggles faced by many British families they are sorely needed, because those families could make back more than the increase in the cap if they could but be encouraged to switch.

Even with that, Long-Bailey and others are entirely justified in generating heat over the issue and ministers deserve to pay an uncapped price for it.

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