Huhne needs to impose competition on the energy ‘market’

The Government's proposals so far to bring down energy bills are tinkering around the edges - the problem will only be properly tackled when competition is enforced.

By Charles Samuda

Earlier this month Chris Huhne voiced an unconvincing proposal to help households deal with the rapid rise in electricity bills. In response to Scottish Power hiking their gas bills by 19%, the energy secretary used an interview in the Observer to tell households to “hurt” energy companies by switching providers if their current one raised their prices too aggressively.

This all sounds sensible until you remember that a rise in wholesale gas and oil prices means bills are likely to rise at all of the ‘big six’ energy providers – E.ON, Scottish Power, British Gas, EDF, Southern Electric and nPower.

For example, only weeks after Scottish Power’s price hike, British Gas has just announced their plans for “retail margin recovery” which in practice means a likely rise in prices before winter. In the energy market as it stands customers have nowhere else to go.

That is why Huhne’s latest idea is a better one, but only just. He plans to force energy companies to offer their customers the cheapest available tariff on their existing energy bill. If households can’t save money going elsewhere they should be able to benefit from companies treating them fairly by being clear on the deals they do offer.

The energy secretary has invited providers to voluntarily display the lowest tariff they offer and how to switch, hinting that he will make the move mandatory if firms do not comply. In fairness this is not Huhne’s brainchild – in a statement last week Ofgem kicked-off a consultation into simplifying the tariff process –  but it is nonetheless welcome to see government backing intervention to provide a good deal for the customer.

Unless Huhne addresses the wider issue of market competition, however, his proposal will end up seeming timid given the seriousness of rising energy costs. In a recent article for Left Foot Forward, Olly Parker highlighted the impact of rising fuel bills on low-income households. Like food, low-income families spend a high proportion of their disposable income on energy and are thus exposed to price shocks.

Factor in the VAT rise and stubbornly high inflation and the need for radical action on energy prices becomes even more pressing.

Last week Ofgem told MPs it would force the big six to open up 20% of the energy market to competition but so far there has been a disappointing lack of detail from the government on how it would support new entrants into the crowded market.

It is not hard to draw a parallel between household energy providers and commercial banks: both industries rely heavily on customer apathy when it comes for searching for a better offer. That is why Huhne’s move to improve bill transparency is a welcome but limited advance from empty calls to switch provider in a stagnant market.

Like the dominance of the ‘big four’ in banking, much bolder steps are needed to introduce more competition between energy firms not just within them.

Smart intervention in the energy sector will lead to a good deal for households and no party should shy away from saying so. Huhne may be onto something with his bill transparency proposal, but to address the needs of families feeling the heavy impact of energy prices he needs to think a lot bigger.

Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by becoming a Left Foot Forward Supporter today.