Theresa May’s plan to cap energy bills ran into trouble last night as Tory MPs accused her of living in a ‘Marxist universe’ and warned some households could actually see their prices rise.
Ministers unveiled legislation yesterday that will give regulators the power to set maximum gas and electricity prices for 18million households on standard variable tariffs (SVTs).
Business Secretary Greg Clark said the cap, which will not come into force until next year, would run initially until the end of 2020, but would be kept under review with extensions possible until the end of 2023.
Business Secretary Greg Clark (pictured on Sky News today) is publishing draft laws today in a bid to force regulator Ofgen to toughen up its own plans to protect consumers
However, Tory backbenchers warned the move could lead to energy firms charging all customers the maximum price – in the same way as universities set tuition fees.
Former minister Sir Desmond Swayne told the Commons: ‘I want to escape this Marxist universe. We cap university fees and, lo and behold, all the universities charge the maximum.’
Fellow Tory MP Robert Jenrick added: ‘I’m naturally suspicious of caps, particularly being introduced by a Conservative government.
‘But would the Secretary of State be able to reassure me… that actually what the energy companies won’t do is just bunch up all of the prices around the cap.
Ex-Tory minister John Penrose – who organised a lobby of 213 MPs from across the Commons to demand a price cap – said Mrs May’s plan would ‘throttle competition’
‘And that what little competition, imperfect competition, that we see in the energy market today won’t be further eroded and more customers put off from switching in the complacent, mistaken belief that they’re going to get the best price thanks to government intervention?’
Mr Clark told MPs the Government wanted to create more competition in the market, while protecting those on standard variable tariffs. He argued that suppliers would still be able to offer attractive deals in the competitive side of the market.
But experts raised concerns about how the move could distort the market. Julian Jessop, chief economist at the Institute of Economic Affairs, warned the introduction of the cap risked that ‘consumers end up paying more than they would otherwise have done’. He added: ‘Given the cap is unlikely to be introduced until next year, suppliers could simply raise prices in the meantime.
‘What’s more, because the cap will only apply to standard rates, suppliers are likely to increase their discounted prices, or withdraw special deals altogether.’
The Government plans place a maximum bill on standard rate tariffs and will stop price increases on 18 million customer accounts for three years
Tory MP John Penrose, who has led the campaign for action, said ministers should instead have introduced a relative cap where SVTs are linked to the prices of the best deals on the market.
He said: ‘An absolute cap would throttle competition, be out of date as soon as the wholesale price of gas goes up or down, and energy firms would spend more time lunching their regulators than delighting their customers.’
The Prime Minister revived the plan for a price cap last week following pressure from dozens of her MPs. It was a flagship policy in the Tory manifesto in June but did not appear in the Queen’s Speech after the election, sparking claims it had been ditched.
After 72 Tory MPs backed a cross-party call for Mrs May to honour her pledge to cap bills, the plan was re-announced in last week’s conference speech. Standard variable tariffs tend to be much more expensive than contracts that customers can get by shopping around. Many households are pushed on to them when their fixed-term deals come to an end.
Just a handful of rebels could doom Mrs May’s draft laws if they fail to win Labour’s support. Sources close to Jeremy Corbyn (pictured at this week’s PMQs) said the party wanted to see more than a simple cap
Ed Miliband, who backed a price cap as Labour leader, yesterday mocked the Government for adopting his policy. He told Mr Clark: ‘Given that this policy was once described from that despatch box as a con, a joke, disastrous and living in a Marxist universe, it would be churlish not to welcome his conversion to it today.
‘Well done – he’s very welcome to the party. However, I still think that his voyage into the Marxist universe is a bit slow, if I can put it this way.
‘Because it’s a draft Bill, it’s four months since the general election, he’s said there would be help this winter, he could have chosen to fast-track this with the frontbench, and get the help in now.’