Price freeze proposal ignites UK policy debate

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A national debate about energy policy has been raging fiercely in the UK since the leader of the opposition, Ed Miliband, announced a price freeze and a shake-up of the electricity and gas industries if his party were to win the coming general election in 2015.

In his speech to the Labour party conference in Brighton on the 24th September, Miliband said: “If we win the election in 2015 the next Labour government will freeze gas and electricity prices until the start of 2017. Your bills will not rise. It will benefit millions of families and millions of businesses . . .

“The companies aren’t going to like this because it will cost them more but they have been overcharging people for too long because of a market that doesn’t work. It’s time to reset the market. So we will pass legislation in our first year in office to do that, and have a regulator that will genuinely be on the customers’ side but also enable the investment we need.”

Electric shock: The reaction was immediate and electric – with commentators polarised into those who believed Miliband’s proposal would be popular with voters and was long overdue, and those who decried “Red Ed” for proposing to drag Britain back to the dark days of 1970s socialism. Miliband also proposed issuing an ultimatum to private developers that if they hoarded land without building on it they would face compulsory purchase of that land, and a rise in corporation tax for large companies.

Labour claimed the gas and power price freeze would save the average household £120/year and the typical business £1,800/year.

Predictably, the big energy companies threw their hands up in horror, protesting that a price freeze could lead to the lights going out. Centrica chairman, Sir Roger Carr, said the policy was “potentially a recipe for economic disaster”, while several newspapers focused on comments by Neil Woodford of Invesco, Centrica’s largest shareholder, who was quoted as saying:

“This policy is economic vandalism at a time when this country needs all the help it can get. It is insane. If Centrica and SSE cannot make any money supplying electricity to the retail market then they won’t supply it. The lights will go off, the economy will shut down.”

Certainly the markets seemed to take Miliband’s proposal, and the chances of his party actually winning the election with some seriousness, as shares in Centrica and SSE fell by around 5% in the wake of the announcement.

Open letter to the Big Six: Some of Miliband’s detractors, apoplectic with indignation, criticised his naivety and claimed that his proposals would run counter to European legislation. Others pointed out that Miliband had served for several years as energy and climate secretary in the last Labour government and was well aware of people’s disgruntlement with the escalating costs of their energy bills. He told the BBC in an interview: “When wholesale prices go up, people pay more. When they come down, people still pay more.”

His familiarity with the energy companies comes across clearly in an open letter to them, published just after his conference announcement. In it, he writes:

“You and I know that the public have lost faith in this market. There is a crisis of confidence. We face a stark choice. We can work together on the basis of this price freeze to make the market work in the future. Or you can reinforce in the public mind that you are part of the problem not part of the solution . . .

“Our intention is to now reset the market that has consistently failed to secure the confidence of the public or the investment Britain needs. Doing that requires two steps. First, it means legislating to build competition and transparency into the market, with a trusted regulator standing behind the system. Second, it means ensuring that in the time it takes to put a new system in place, up to the start of 2017, we ensure the prices paid by consumers do not rise.

“A fairer market for consumers must be matched by a better deal for investors. So we have also committed to set a 2030 power sector decarbonisation target; hold to the system of contract for difference in the Energy Bill; create an Energy Security Board with responsibility for identifying our energy needs and providing a clear framework to deliver this; and give the Green Investment Bank borrowing powers to support investment.

“We believe that this framework will create certainty and attract the range of domestic and international investors we need in the years ahead.”

“Good politics”: It remains to be seen how the energy policy debate will play out as the hue and cry dies down – and as the complex issues that the UK faces in ensuring affordable and secure energy supplies, while at the same time addressing the issue of climate change, become clearer in the minds of the public.

For now, the furore appears to have had two effects. Firstly, it has raised the political profile of Miliband, who in recent months has been facing criticism even from within his own party over a perceived lack of leadership. Secondly, it has pushed the debate about energy policy in the UK much higher up the political agenda.

As one observer wryly noted: “Whatever the merits of the policies, it was certainly good politics.”

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