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Coffee House

The politics of energy

20 November 2012

9:13 AM

20 November 2012

9:13 AM

When David Cameron made his surprise announcement about forcing energy companies to offer customers their cheapest deal, he added, as an afterthought, that the leader of the opposition had missed the chance to be on the side of the consumer when he was energy secretary. I would be surprised if the average voter knows that Miliband was energy secretary; but, from Cameron’s perspective, the line of attack makes sense: energy prices and the cost of living are vital political issues for this government.

The government, then, will be thrilled that Energy Secretary Ed Davey’s plans (which appear to be based largely on Ofgem’s recent ideas about simplifying tariffs: Davey will limit companies to 4 tariffs), to deliver Cameron’s unexpected promise were the lead news item on Sky News and BBC Breakfast this morning, as well as featuring prominently on ITV’s shows. The policy ought to have cut through to the people who stand most to benefit, which will make the task of selling the government to voters easier.

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Yet, as the Guardian’s Patrick Wintour points out, the real test of the policy is whether it lowers prices. Wintour quotes several commentators who warn that the plans will kill off price competition within the energy market, and therefore increase prices. They also warn that the proposals do not address the fundamental problem of rising energy costs.

These points were reinforced by Angela Knight, the former Tory cabinet minister now representing Energy UK, who reminded viewers that ‘more than half’ of our energy bill contains costs beyond the energy firms’ control: pipes and wiring for the network, fluctuations in the wholesale market, ‘social obligations to insulate people’s homes’ and the increased ‘renewable obligations’. Knight’s comments suggest that prices will not fall dramatically.

Labour is trying to pre-empt Davey’s announcement. Energy spokesman Tom Greatrex told Sky News that he believes the energy market needs to be reformed and made more transparent. He wants to see cuts in the wholesale price of fuels passed on to the consumer, which will require the creation of an emboldened regulator. And he wants market reform to weaken the influence of the Big Six. Labour clearly reckons that prices will not fall substantially without deeper changes than those being proposed today, and that there is capital to be made by making this argument.

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