Martin Vander Weyer Martin Vander Weyer

Capping prices to win votes is no substitute for a serious energy strategy | 29 April 2017

Is capping domestic energy prices an equitable way to help the ‘just about managing’, or an electoral gimmick with a whiff of anti-free-market ideology? When it was Ed Miliband’s idea, it was certainly the latter. Now it’s likely to be included in Theresa May’s manifesto, offering a potential £100 saving for millions of homes on ‘standard variable tariffs’, it is defended by the ever-plausible Sir Michael Fallon as a matter of ‘intervening to make markets work better’. And that, after all, is what the Prime Minister said she would do, wherever necessary, in the interests of fairness.

In a regulated market, within which the consumer’s ability to choose the most favourable tariff or supplier is notoriously obscured by complex competing offers, an intervention to help inflation-hit householders is hardly a serious assault on capitalism, even if it hurts the shareholders and even dents the executive bonuses of suppliers such as Centrica and SSE. Well maybe, but it is still a dangerous precedent created by an easy promise, and Centrica chief executive Iain Conn was justified in reacting like a scalded cat.

The underlying risk is that prices will go on rising above inflation year after year, because successive governments go on failing to secure future power supplies, instead relying on imports at fluctuating exchange rates. In consequence, ever bigger price interventions will be called for, making the industry less profitable and less willing to invest in new capacity. To avoid that vicious circle, the Tories — given their apparent winning hand — should drop the price-cap vote-grabber and promise instead a serious long-term energy strategy.

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