An energy price cap still makes sense, argues Ann Robinson, an independent energy campaigner.
The energy price cap was a Conservative election manifesto pledge that appears to have been dropped from the party’s agenda.
But with British Gas announcing a whopping 12% hike in electricity prices for customers on standard variable tariffs last week, the issue is back in the spotlight.
While we’ve aready discussed why the price cap might be a bad move for households, we wanted to ensure you heard both sides of the argument.
That’s why we caught up with Ann Robinson, formerly of price comparison site uSwitch but who is now an independent energy campaigner, to see if she could convince us otherwise.
So Ann, why is the energy price cap needed?
Just 15% of people regularly shop around to get a better deal – the market works fine for them, but 85% do not.
This has created two markets and I think it’s time to do something about it to make sure the 85% get a fairer deal.
What’s stopping people switching?
There are many reasons why people don’t switch.
An awful lot of people don’t know how to go about it, don’t understand their bills and there are some that are frightened of losing their gas and electricity supply in the process – even though they won’t.
It’s also a lot to do with misguided trust. People think the ‘big six’ energy suppliers (British Gas, SSE, E.ON, Scottish Power, Npower and EDF) have been around for a long time so they’re the best companies to be with.
But I think British Gas hiking prices recently, in a way that’s completely unjustified, shows that that trust is very much completely misplaced.
Critics say a cap will reduce competition, do you think this will be a problem?
I don’t think so, no.
It’s the new entrants, for example, that are offering some of the best deals on the market at the moment. A cap is hardly going to affect them because they are already offering the top deals.
A cap won’t impact on competition if it’s done the right way.
How do you think a price cap would work?
There should be an upper limit to what people have to pay on standard variable tariffs.
It should be a fixed percentage of an energy company’s cheapest deals.
I think that’s the right way to cap prices.
Will a cap to help the worse off just punish everyone with higher bills?
I don’t think a cap would necessarily work like that.
A cap would, for example, be based on an index, or in other words, the cap would operate on a percentage of the fixed-price deals.
So there will be enough scope there for some attractive fixed price deals that still encourage people to shop around and get benefits. But at the same time make sure that people that are on these expensive tariffs who are less likely to switch are getting fair prices.
I think you can achieve both ends by having the right kind of cap.
What do you think of the British Gas price hike?
British Gas has said it’s increasing electricity prices because of increased network costs and Government policies, but I think that’s complete rubbish.
Since last December, these costs have gone down 9%. It’s not just me saying it; it’s Ofgem the regulator who publishes the supply cost index.
This index tells us about wholesale costs, network costs and Government policy and it says these costs have fallen. So why is British Gas putting the prices up? They must just be inefficient.
Is inefficiency the real problem?
At the moment, there are suspicions that many people on expensive standard variable tariffs are subsidizing energy company’s activities.
What that means in effect is that these companies are not as efficient as they should be and there’s no real pressure to change.
I think another side effect of having a price cap will be it will push them to become more efficient and improve the quality of their service.
What will it take for a price cap to get introduced?
I think this increase from British Gas that was announced this week is the final straw, it wasn’t justified.
We’ve seen wholesale prices nosedive over the last few years. In fact, the reduction in wholesale prices last year means the Big Six owe people on these expensive tariffs a 12% price reduction.
So, I think this might be what encourages the Government and Ofgem to take action on these standard variable tariffs and producing some sort of cap to make sure that people are treated fairly.
Do you think the Government has abandoned its pledge to introduce a cap?
I don’t think the price cap is off the table.
Energy companies left to their own devices won’t treat their customers fairly and therefore I think [the Government is] probably more likely to act now.
I think it’s reasonable to put it off for a bit – but I am pretty certain that, if the Government was to propose some legislation to handle this, there would be cross party support.
I also think there is more that Ofgem can do with the tariffs we’ve already got and I hope they will do it.
I would be very surprised over the next few months if we don’t see this cap evolve.
Finally, who should impose a cap on energy companies?
The advantage of the Government legislating to do it rather than Ofgem is speed.
If Ofgem does it, it will have to consult, for which we’ll probably have to wait at least 12 months.
If the Government legislates to do something now, that can put it in place very quickly, because they won’t necessarily have to consult.
So, for this particular issue, I would prefer Government action.