Dangers of an energy price freeze

It is based on emotion, imperfect information and flawed assumptions. Miliband's pledge has five main problems. First, the policy is based on faulty analysis. In a recent parliamentary debate, shadow energy secretary Caroline Flint said that large supply companies had made £3.3 billion "windfall" profits since the Coalition government was formed. In fact, the big six energy supply companies made around £900 million on their domestic supply businesses in 2012 on a turnover of just over £27bn. Secondly, the policy is a response to what Labour says is the blatant exploitation of consumers. However, Labour fails to take account of the significant increase in network and policy-related costs that suppliers have borne since April. Nor does Labour factor in the wide range of new price offers from the big six. Thirdly, the costs of being a supplier will continue to rise. Third party charges in a typical domestic bill have risen by 40% since 2010. Suppliers can expect to see further sustained rises in the costs of environmental programmes and levies. Fourthly, the policy will not benefit consumers. Labour says the freeze will knock £120 off the typical domestic bill while delivering a £1,800 saving for the average business. But if third party charges don't fall, suppliers won't make a profit. Consequently, the market could go into stasis in the run-up to the May 2015 election because suppliers will not want to add customers and innovations we see now will stop. Finally, Labour's policy proposal ignores the progress made in increasing competition in the market over recent years. The number of customers served by a non-big six supplier in the domestic market has doubled since 2010 and independents now serve 25% of total supply. A price freeze would introduce significant unmanageable risks at a time when policy-related costs are set to increase. The energy supply markets are far from perfect, but Labour's new policy would be destructive and fail to benefit consumers.