Energy Price Freeze

Tessa Munt Excerpts

Wednesday 6th November 2013 Commons Chamber

[Tessa Munt (Wells) (LD)]

Labour's 20-month price freeze has hit the headlines and will prove superficially popular with the voters, but there are many reasons why it will not work, much as we all want to reduce people’s bills. It is a hopeless strategy to try to control the sales price of businesses that have volatile raw material costs, because prices will go up before the freeze as companies try to hedge against the risks of a Labour election win. In fact, that has probably already begun. Prices will go up again after the freeze as companies seek to recover any losses that they think they have sustained.

During any freeze prices will stay artificially high even if raw material costs go down. Having begun to take the drug of price fixing it would be hard to kick the habit after 20 months. Why not 24 or 30, or doing it again the following winter, or the one after that? The proposal risks further damage to the market as a result of uncertainty, which may well spread to other industries. There would be huge political pressure to freeze prices in other sectors, risking further chaos and a return to the situation facing us in the 1970s.

This all has to be paid for—that is the economic inevitability. History shows that price fixing does not work and damages the economy in turn. The willingness of the right hon. Member for Don Valley (Caroline Flint) to interfere with the market would unsettle other sectors, break some smaller suppliers such as First Utility, which was promoted with the switch of the Leader of the Opposition. The supplier has gone public and explained that its most famous customer’s policy would put it out of business.

The UK energy system clearly needs modernisation and massive investment. The proposed price freeze increases the political risks for this country and for its new investors. All of this will put up long-term prices—the consumer will pay. Any Government who freeze prices would undermine the role of the independent regulator, Ofgem, and no doubt would succumb to the temptation to recruit their own staff of bureaucrats and inspectors to enforce their policy.

We should ensure that Ofgem does its job; keep up the pressure on the big six suppliers; look at encouraging more new entrants; do lots more to save energy in the first place; get a fair deal for people on pre-payment cards and meters; ensure that consumers receive bills that they can understand; support the development of many more green energy provisions on a local basis such as the Wedmore power co-operative solar array, which opened this weekend in my patch; and make it swift and easy to switch suppliers.

Finally, it is unclear whether the shadow Secretary of State was advocating a windfall tax rather than a price freeze. However, such a tax seems to be a better idea by far as there would be an opportunity to redistribute any windfall to those who need the most help. Every pound spent to support those with disproportionately high bills, particularly on energy-saving measures for those very households, is a pound well spent. Planning a price freeze demonstrates a lack of understanding of business, and shows the impact of interfering in this market, which would cost consumers more, not less.