Ed Miliband has promised to freeze gas and electricity prices for 20 months if Labour wins the next election. It sounds like a bold move, but will it solve the underlying problems in the energy market?
Ed Miliband’s promises at the Labour Party Conference will give hope to the millions worrying about how they will heat their home this winter.
Consistently, we find that rising energy prices is one of the top worries for hard-pressed consumers, with some people even having to dip in to their savings to cover ever spiralling household bills.
Freezing prices to 2017 is a bold move and we look forward to seeing the detail of how this will work. However, the market itself is broken and temporary price promises won’t solve the underlying problem.
With rumours of yet more inflation busting energy bill hikes to come this winter, and the average annual bill standing at a staggering £1,300, it’s no wonder people are questioning whether the price they pay is a fair one.
Radical action is needed.
Ring-fence energy companies
Which? has been calling for a ring-fence of the Big Six so it was encouraging to hear Labour rubber stamping this.
While energy companies blame price rises on an increase in wholesale costs, which make up 60% of bills, or on government policies, while at the same time announcing huge profits; public trust in this industry is shamefully low. Which? research shows less than a quarter of us trust their gas or electricity suppliers.
The truth is that it is almost impossible to establish whether the price we’re paying for our energy is a fair one. For many years a lack of transparency has meant we could not establish whether price hikes are always a fair reflection of wholesale costs or confirm whether the way the market operates ensures that retail prices are being kept in check by competition between suppliers. You’re being left to take it on good faith alone that your interests are being well served.
Lack of openness in the energy market
Part of the problem is that the largest six energy suppliers in the UK are ‘vertically integrated’, supplying 98% of the domestic market and generating 70% of electricity – very little electricity has to be sold on the ‘open’ wholesale markets. Most of what other trading there is also happens behind closed doors, with estimates suggesting relatively little goes through the ‘open’ wholesale markets.
This lack of openness and external scrutiny means it is almost impossible for anyone looking in from the outside to obtain robust price information.
The very structure of the largest companies, the low levels of trading and competition on the open market and the closed nature of trading and price setting could be adversely impacting on the competitiveness of the market and on prices.
As it stands, the energy market needs fixing.
The regulator has taken steps to make changes, but we don’t think these go far enough. It’s time for radical action from all political parties setting out how to build trust and ultimately improve competition.