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20 November 2012

The problem with Cameron’s energy plan

A tariff is not "the lowest" if it's the only one available.

By George Eaton

When David Cameron boldly declared, to the surprise of his ministers, that the government would force energy companies to put all their customers on the lowest tariff available, few expected his proposal to last. But the coalition will today attempt to fulfil the Prime Minister’s pledge. Energy Secretary Ed Davey is expected to announce that suppliers will be required to offer no more than four core tariffs (including fixed and variable rates) and to automatically move customers on to the cheapest one in each case.

Yet if companies are forced to offer consumers the lowest tariff in each category (be it fixed rate or variable), this won’t be the lowest tariff available – it will be the only one. It would be as accurate to call it “the highest” tariff as it would be to call it “the lowest”. And why should we assume that this single tariff will be set at the lowest rate currently available? The danger is that that the “Big Six” will simply raise the level of the lowest tariff, so that consumers pay no less, or even more, than at present. Ann Robinson, director of consumer policy at uSwitch, has warned that the unintended consequence of the move will be “to kill competition”. She told the Guardian: “Consumers will be left with Hobson’s choice – there will be no spur, no choice, no innovation and no reason for consumers to engage any more.”

Labour too is sceptical. Shadow energy secretary Caroline Flint notes that “the cheapest deal in an uncompetitive market will still not be a good deal. Unless David Cameron stands up to vested interests in the energy market and creates a tough new watchdog with powers to force energy companies to pass on price cuts his warm words will be cold comfort to people worried about paying their fuel bill this winter. “

In promising to win a better deal for consumers and denouncing the last Labour government for its failure to do so, Cameron has raised significant expectations. If he proves unable to fulfil them, it is his government that will pay the price.

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