Think tank warns energy price cap artificially inflates bills

Initially, the government committed to consider whether the restriction is still necessary from 2020 and thereafter «no later than 2023». Credit: WAP Pool

Energy price ceiling artificially raises bills and fuels inflation, influential think tank warns.

The Center for Policy Studies (CPS) is calling on ministers to lift the cap, arguing it prevents people from accessing more cheap deals.

The energy price cap was originally introduced in 2017 as a stopgap measure to keep energy companies from overcharging loyal customers who weren't looking for great deals. The government argued that this would protect vulnerable customers, such as those with prepaid meters or those with disabilities.

The cap sets the maximum price that energy companies can charge households per unit of energy and is based on the wholesale cost of electricity . It is reviewed every three months and currently limits the monthly bill for a typical household to £2,074.

However, CPS said that in practice the cap has become a government-set price with limited incentives for service providers. offer better deals.

0808 Energy price caps actively harm competition

A think tank founded by Margaret Thatcher said a three-month delay in revising the cap also means that drops in wholesale energy prices reach households longer than in other countries.

CPS said this was partly why the inflationary crisis in the UK was worse than elsewhere. Inflation remained at 7.9% in June, compared to 5.5% in the Eurozone and 4.1% in the US.

CPS's Dillon Smith said: «Contrary to its original design, the energy crisis has changed the price the limit from genuine ceiling to government price controls for virtually the entire market.

“Utilities are actively discouraged from offering customers new, more affordable offerings due to government intervention in the energy market.

“Competition has all but disappeared, meaning that prices remain high, further contributing to moderate inflation.”

According to CPS, over the past two years, almost all tariffs have been set either at or slightly below the limit , and switching rates fell from 496,000 per month in 2019 to just 85,000 per month in 2019. 2022.

Competition in the energy market is 'essentially frozen', CPS says.

UK inflation

Economists blame the price cap for prolonging the pain in Britain as it takes longer to filter out changes in wholesale prices.< /p>

The Ofgem regulator will announce on 25 August how much average bills will cost from October.

Based on current market prices, consulting firm Cornwall Insight predicts the limit will drop to £1,860.

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Initially, the government committed to reconsider whether the restriction is still necessary annually from 2020 and thereafter “no later than 2023.” However, the onset of the pandemic and the surge in energy prices after the invasion of Ukraine extended this policy.

Rospotrebnadzor said the government should abandon price caps and instead introduce stricter measures to protect against fuel shortages, such as social a tariff for those who spend a significant portion of their income on their energy bills.

1603 Energy price caps have saved households hundreds of pounds

The think tank is closely aligned with the Conservative government, with director Robert Colville, co-author of the party's 2019 manifesto.

Dr. Craig Lowry, principal consultant at energy consultancy Cornwall Insight, said: «Despite recent cuts in the face of the tariff cap by default, households continue to face bills that are well above historical levels.

“In light of this, it is critical to explore alternative measures that can better protect consumers, promote fair competition, and ensure affordable and transparent energy pricing for everyone.»

A spokesman for the Department of Energy Security and Net Zero said: «The government will always make sure that the energy market works for consumers to protect them from sky-high bills and that households get the best deal.

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“We welcome this report as part of our ongoing consultation to implement the rules so that people can access the full benefits of moving to smarter and more flexible energy. system.”