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David Cameron shock statement rocks energy markets

Did the PM fluff his lines?

Yesterday Prime Minister David Cameron met with members of the cabinet, including Deputy Prime Minister Nick Clegg, Chancellor George Osborne and Energy Secretary Ed Davey, to discuss the coalition’s future.

The meeting took place amid rising concern over the country’s stuttering energy investment programme and fears from both consumers and politicians that the cost of energy bills are becoming untenable for consumers.

This has been compounded by the growing threat that power station companies may pull out of the UK due to delays, creating the possibility of blackout within three years if action is not taken.

Political tension and shock statements

Currently, the energy department is influenced heavily by the Liberal Democrats, with Mr Clegg, Mr Davey and Chief Financial Secretary all key figures. This has caused tensions within the coalition government and turned energy reform into a key political question.

The Lib Dems have already expressed frustration at dwindling support for renewable energy investment as well as the potential axing of governmental green targets, both of which are expected to play some part in the much-anticipated Energy Bill that will aim to reform the energy market.

It was on this topic that headlines were made today, namely the unprecedented revelation made by David Cameron that the government will require energy firms to give customers the cheapest available tariff.

“I can announce that we will be legislating so that energy companies have to give the lowest tariff to their customers,” the Prime Minister stated, adding that this is a measure current Labour leader Ed Miliband could have introduced while he was energy secretary.

Labour has previously noted it would introduce legislation forcing energy companies to offer the lowest tariffs, but only to the over-75s and called for Ofgem to be replaced with a more powerful regulator that could force down prices, if necessary.

However, quite how Cameron intended to introduce this reform – which would mean a total overhaul of tariffs and a potential threat to customer engagement in the energy market – remained a mystery.

Commenting on the statement, Ann Robinson, Director of Consumer Policy at uSwitch, said:  “This has to be a mistake – the unintended consequences would be to kill competition. 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.

“The only glimmer of hope would be that smaller suppliers will be able to offer cheaper prices than the ‘big six’ [the UK’s largest energy suppliers] and therefore competition is able to continue in that arena.”

When questioned, Energy and Climate Change Secretary John Hayes refused to confirm whether the revolutionary overhaul of the energy company would indeed take place – saying on that it was an option being considered as part of the Energy Bill.

Consumer bodies clash

The idea that suppliers would each offer only one rate could only alarm consumer bodies, who are already concerned that energy suppliers are not competitive enough – if only one rate was offered, what motivation would energy companies have to introduce cheaper and more varied prices?

Mr Cameron has recently come under pressure from the consumer body Which? to review energy prices – another issue that was addressed at yesterday’s cabinet meeting.

The watchdog has argued that a re-evaluation of the energy market would establish whether it would be feasible to foster competition between suppliers in a way that helps consumers.

Richard Lloyd, executive director at Which?, said it is “no wonder” energy prices are one of the top financial concerns among consumers, considering costs have risen 13 per cent since last year’s government energy summit.

At the moment, there is little evidence that the coalition is sticking to its promise to boost competition among energy companies, as three-quarters of customers are still on the most expensive tariff and consumer switching – vital for increased competition in the energy market – is at an all time low.

“The time for action is now. Warm words alone are not enough to keep consumers from the cold this winter,” Lloyd explained.

Mr Lloyd’s words were met with contrasting responses, with a spokesman for DECC arguing that households are unlikely to benefit from more inquiries or investigations that could take “years” to complete and implement.

“We know what the problems are; we want to get on with tackling them now. We’re focusing on action, not more words,” the representatives added.

However, shadow energy secretary Caroline Flint claimed Which? is right to question the future of the country’s energy market and its perceived failure to work in the interest of consumers.

“For too long energy companies have been able to get away with blaming wholesale prices when bills go up, but failing to pass on savings when wholesale prices fall,” she added.

Ms Flint’s words have gained support and the government is now tasked with exploring how changes can be implemented sooner rather than later.

The summit has already been compared to an “unholy war” by some commentators, but with a resolution urgently needed, the Chancellor, Prime Minister and Lib Dem-led DECC will need to work together to formulate a plan of action.