Energy cap could reduce competition, groups warn

PUBLISHED: 14:05 24 April 2017 | UPDATED: 14:05 24 April 2017

The government's proposed energy cap is a warning to suppliers, experts have said. Picture: Gareth Fuller/PA Wire

The government's proposed energy cap is a warning to suppliers, experts have said. Picture: Gareth Fuller/PA Wire

Proposals for a cap on energy prices are a warning to suppliers, an expert has said, but could reduce competition in the sector.

The Conservatives have pledged to limit gas and electricity bills ahead of the general election on June 8.

However, the energy industry has reacted with scepticism as to whether such measures could have the desired impact.

There are concerns among suppliers that intervention in the market could reduce competition.

Lee Hart, head of knowhow at energy broker Indigo Swan which works with businesses, said he thought consumers would not see huge changes if a cap was introduced – with those on better rates seeing a slight increase in price while those on worse rates could see a fall.

“I think it is the government sending a very strong message to suppliers, and it is also something which will appeal to voters.

“There has been a series of price rises and the government has tried to encourage people to switch to different tariffs, but it doesn’t seem to be working.

“The government is pushing for the suppliers to do more to make people switch to cheaper rates.”

The ‘Big Six’ energy firms, British Gas, EDF Energy, npower, E.ON UK, Scottish Power and SSE, have spoken out against stifling competition and warned it could increase prices rather than lower them.

Lawrence Slade, chief executive of trade association Energy UK, said: “Only last year, the government’s own competition regulator decided against introducing a wider price cap, instead opting for a cap for prepayment customers which came into force this month.

“Intervening further would undermine so many of the positive changes that we are seeing in the retail market. It would be giving up on competition, and at a time when we need engaged consumers more than ever.

“Intervention on this scale will additionally create huge uncertainty around government intentions, potentially putting at risk the billions in investment and jobs needed to renew our energy system.

“Switching levels and consumer engagement are up but, as in any competitive market, those who engage stand to benefit most. But the answer is not to distort the market as a whole and risk households who do shop around suddenly finding there are no more cheap deals for them.”

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