Yahoo Finance Tories pinched Labour's energy price cap – but now we need detail | Nils Pratley
The Conservative party’s proposed price cap on energy bills is “very different” from the price freeze advocated by Ed Miliband at the last general election, according to Sir Michael Fallon, the defence secretary and former energy minister. Really? In their initial impact, the two policies look almost identical.
Fallon’s thin argument is that a cap is more flexible because it would allow tariffs to be cut when the wholesale price of energy fell. That is a gross misrepresentation of the final version of Miliband’s proposal, which was tweaked to take account of falling wholesale prices. As the former Labour leader pointed out, his party’s manifesto at the 2015 general election was clear: “Labour will freeze energy bills until 2017, ensuring that bills can fall but not rise.”
If there’s a real difference, it’s that a Tory cap – probably set by regulator Ofgem – would allow bills to go up if suppliers’ wholesale costs increase. But that possibility, at least at the outset, is academic since Damian Green, the work and pensions secretary, is semi-guaranteeing annual savings of about £100 for an average family on a standard variable tariff.
The Tories’ silly spin, one assumes, is born of embarrassment in pinching a Labour idea. It would be more helpful if ministers stated the level at which the cap would be set, how long it will operate and what other reforms will follow. In those areas, policy differences could be meaningful.
The length of time is especially important since the energy suppliers are basically correct when they say price controls harm competition. It could hardly be otherwise. If you prevent the “milking” of the 70% customers on standard variable rates by imposing a price cap, suppliers will increase the prices of their fixed-rate tariffs. Prices for everybody will then tend to crowd around the officially approved tariff, reducing the incentive for consumers to switch supplier.
That is the eternal competition conundrum in the energy supply market: how to encourage switching? Labour, in Miliband’s day, addressed the question by saying it would shake up the market by separating the generation and supply businesses of the big six. The plan was widely criticised as impractical and wrong-headed, but it started from the premise that price controls would not last for ever.
Do the Tories agree that price caps are merely a means to an end? If so, what’s their formula for permanently repairing a market they regard as broken? They obviously won’t ban vertical integration – but the lack of alternative ideas for reform is striking.
Yes, it is fair to clobber the suppliers, who have virtually invited intervention via their strategies of exploiting loyal or uninterested customers. But unless the Tories intend price controls to be permanent, they must set out a proper plan for “resetting” the market, in the usual jargon. At the moment, they are merely shouting about the instant whoosh of price caps while saying next to nothing about how to create a better-functioning market.
The Tory manifesto had better be strong on detail. If Miliband had been so vague, they would have pummelled him twice – once for fixing prices and once for creating uncertainty.
Former BP boss Hayward fuels Genel gripes
Tony Hayward has many calls on his time – the former BP chief executive, who lost his job after the Deepwater Horizon disaster, is chairman of Glencore, for starters – but impoverished shareholders in Genel Energy are entitled to feel miffed that their chairman is bowing out now with the shares 90% below their launch price.
When he joined this Nat Rothschild-backed venture in 2011, Hayward declared the Kurdistan region of Iraq to be “one of the last great oil and gas frontiers”. Geologically speaking, he was right, even if Genel’s own reserves have had to be written down. One of the big challenges was getting the oil to market but that has been solved by the construction of a pipeline to Turkey.
Many of Genel’s problems came from outside, notably the arrival of Isis fighters in the region, which required the Kurdish regional government to prioritise spending on defence over paying western oil companies. But there is a fair argument that those pressures are easing and that Genel has the potential to recover value for investors, especially if its Kurdish gas assets live up to the hype.
The idea that Genel has achieved relative stability was offered as an explanation for the timing of Hayward’s departure. But surely the logic is the other way around: having stuck with Genel this far, and given the disastrous returns for shareholders in a company that was once worth £2bn, you would expect a co-founder to hang around for better days.
