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How the energy market fails us all

“Anger as energy bills rise by 37%”

That is the headline in the Telegraph this morning and we are now hearing a whole set of rhetoric about lack of competition in the energy market and the proposed Tory cap on energy prices. I don’t want to sound political here but this was the cap that was widely derided when proposed by Labour. The Liberal Democrats are right to question what it will do to energy investment in this country.

You can’t ignore the rules of economics. Every government policy that has done that has eventually failed and we get a lot of posturing until it does. While this goes on the damage is done. What is the problem here? The answer is the market doesn’t work. Why doesn’t it work? Most of us are too lazy to swap our energy bills. The issue is that a few of us – and the few are probably the elderly and those on lower incomes and less internet savvy – are paying the price. It is just like the situation where we will pay £5, or even £9 for a telephone enquiry call!

So will an energy price cap work? It will in the short term, but it will reduce price competition, could put some of the smaller providers out of business reducing competition further, and it will make anyone considering investing in the UK energy market think again. And with the French supplying a large chunk of our energy, Mrs May hasn’t even thought about playing that card in the Brexit negotiations (or has she!).

It will bring down the headline energy price for a short while, but if world energy prices rise or the pound falls further, prices will increase, or supply will stop.

So what is the alternative? Make the market work! One simple solution would be to force every customer to renew their energy supply each year. PA pain for us all, but at least we would have a free market. It would also increase competition and Britain would still be open for business.

 

Mike Bourne

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