Labour’s Announcement on Energy Bills

The energy market isn’t working for working people…

  • Energy bills have increased by over £300 since the last election.
  • The number of families with children who can’t afford to heat their homes is at an all-time high.
  • Limited competition, in a market dominated by 6 companies, and weak regulation has resulted in 3 out of 4 families being overcharged.

 

Energy companies hike prices when the cost of energy rises but don’t cut them fully when it falls…

  • When wholesale prices rose, energy companies hiked up bills.
  • Over the last year, wholesale energy prices have fallen by an average of 20%, yet the Big 6 have only passed on cuts of 1- 5% on gas bills and nothing on electricity bills.
  •  The consumer group Which? estimates that further cuts of up to 10% in electricity and gas bills are possible this year – saving families up to £2.5bn a year

 

Tory failure

The Tories know that this is a problem…

  • In January this year, George Osborne admitted “We need to ensure falls in wholesale prices are properly passed on to all consumers and we will continue to monitor this very closely.”
  • …but they won’t act because they won’t stand up to the energy companies…
  • In Opposition, David Cameron said “You have to give the regulator the teeth to order that those reductions are made and that is what we will do.”
  • Six years later, his government voted against Labour’s plans for a regulator with the power to order energy companies to cut bills when wholesale prices fall and they opposed Labour’s price freeze.

 

Labour’s Better Plan:

Labour has a better plan – we will give the regulator the power to cut prices by winter and freeze energy bills until 2017 whilst we reset the market…

  • Labour will put an immediate stop to this overcharging by giving the regulator the power to cut prices and a duty to act in time for this winter.
  • We will freeze energy bills until 2017, so that bills can fall but not rise, whilst we fix the market
    • By getting the Big 6 to separate out the parts of their business that generate energy from the parts that sell to consumers;
    • Getting them to sell all their energy in an open pool;
    • Introducing a simple new tariff structure; and
    • Abolishing Ofgem and replacing it with a tough new energy watchdog from January 2017.

 

Policy detail:

The problem:

  • The energy market is broken. It is dominated by six companies that supply to over 90% of homes and generate 70% of the power we use.
  • Limited competition and weak regulation has weakened the incentives to keep prices low. So when the price of energy rises (wholesale price), energy companies pass this on to consumers but when it drops consumers don’t see the benefit of this through reductions in bills.
  • On David Cameron’s watch, energy companies hiked up bills by an average of 10.4% a year between 2011 and 2013, blaming rising energy costs.
  • Since December 2013, wholesale gas prices have been falling by an estimated 22% whilst electricity prices have fallen by 17%. But the Big 6 have only passed on a fraction of this – between 1 and 5% for gas and nothing for electricity – to consumers as cut in bills. The result has been a growing mark-up between the price energy companies pay for the energy they buy and the price they charge their customers.
  • The consumer group Which? estimates that further cuts of up to 10% in electricity and gas bills are possible this year. This could save families up to £2.5bn a year – about £100 off their annual fuel bill.
  • Despite claiming that ‘we need to ensure falls in wholesale prices are properly passed on to all consumers’, the Government has failed to act.

 

Solution:

  • We will introduce legislation immediately on entering office to freeze prices, so they can fall and not rise, and give the regulator the power to cut prices and a duty to review prices and act in time for winter.
  • We will then fix the market so that it delivers a better deal for working families in the long run by forcing energy companies to separate out the parts of the business that generate energy from the parts that sell to homes and businesses; requiring them to trade their energy on a pool; introducing a simple new tariff structure; and creating a tough new energy watchdog with new powers to police the market.