As the Labour Party has moved ever further to the left since the 2010 election, the Tories have capitalised on the opportunity to capture the centre ground by replicating headline Labour policies floated just two years ago. This is no more true than the energy price cap, confirmed by Theresa May this week as a cornerstone of the Conservative election campaign.
On the face of it, the price cap proposal is a direct copy-and-paste job from the 2015 Labour manifesto. But the Conservatives have been keen to highlight the cigarette-paper thin gap between their forthcoming manifesto pledge and the policy famously carved into the ‘Ed-stone’ in 2015.
Miliband’s proposed energy market intervention was lambasted when it was announced in 2013 – not least by the Tories themselves. This iteration featured different language, changing from a ‘freeze’ to a ‘cap’. So what’s different this time?
Despite the Business Secretary’s best efforts in the media yesterday, there doesn’t seem to be much in it. John Penrose MP, a long-time campaigner for intervention in the energy market to protect customers, had been proposing a ‘relative’ price cap which would limit the difference between the cheapest and standard tariff offered by each supplier (this data is now published by Ofgem). Murmurings in the Conservative party suggested this model could be adopted by Number 10, but yesterday’s announcement confirmed an absolute cap – a figure set by Ofgem and reviewed every six months, which will limit what suppliers can charge.
Twenty-four hours after the announcement, it is clear that the industry is still dead against the policy. Energy UK and Centrica have led the charge in the media, arguing that the move will damage competition and investment and, essentially, harm customers and UK infrastructure in the long-run. International comparisons seem to bear this out. One question the industry is struggling to answer, however, is “What won’t you invest in because of the price cap?”. Although a tricky line to walk given the level of uncertainty all markets are experiencing, the absence of tangible examples of where investment will be withdrawn threatens to paint the industry’s warnings as empty threats.
Looking further to the future, implementation will clearly be a challenge. When should the Government remove the price cap, and how can they control prices in the run up as companies re-model to anticipate changes? How do ministers push through a policy that officials may see as impractical?
The answer may lie with the smart meter roll out, which promises to simplify energy switching and return stronger competition to the market; perhaps the price cap will go down in history as a short-term intervention. The pressure of expectation and the hope for a smart meter nirvana is mounting. Getting it right could reduce bills up and down the country and make sure we use and generate energy as efficiently as possible. That’s still a few years away, however. The incentive for companies to innovate and compete when there’s a set price on offer in the meantime could mean that transition isn’t a smooth one. The price cap may prove the storm before the calm.