Don't pin hopes on a price cap, stick to guaranteed savings like freezing subsidies

Daniel Mahoney, Head of Economic Research at the Centre for Policy Studies, responds to reports that the Conservatives will include an energy price cap in the manifesto:

“Theresa May is, quite rightly, seeking to reduce energy bills for consumers. But the claim that an energy price cap will save households £100 a year is by no means a guarantee. In fact, an intervention of this kind could be detrimental to competition in the market, meaning that this reform could end up doing more harm than good. 

Rather than focusing on a measure that may not end up reducing bills for consumers, political parties should propose measures that are guaranteed to benefit consumers. A review of the escalating costs of subsidies for renewable energy would do just that. If renewable energy subsidies were frozen from 2016-17, households would save £173 per year in nominal terms by 2020-21 compared to current plans. Some of this would come directly off household energy bills while consumers would also indirectly benefit from the reduction in business energy bills through lower prices for products and potentially higher wages. 

Customers would also gain in the medium to long term from measures that tackle the current failure to incentivise adequate new baseload gas capacity. A lack of capacity could damage the competitiveness of UK industry and lead to the electricity system being prone to spikes in demand. Political parties should – among other things – commit to removing the unilateral Carbon Price Floor that is damaging the prospects of UK gas.

We hope that all political parties will include these measures in their manifestos, which are guaranteed to lower the cost of energy bills in the short and long term.” 

Date Added: Monday 24th April 2017