Manifesto commitment will “ultimately kill competition” claims price comparison website

The Conservatives have been warned that their proposed cap on retail energy prices is a potential “disaster” that could hit investor confidence and kill of competition.

Responding to today’s announcement that Ofgem will be given the power to police household energy bills, CBI deputy director-general Josh Hardie urged the government to allow the remedies outlined in last year’s Competition and Markets Authority report more time to bed in.

He said: “A major market intervention, such as a price cap, could lead to unintended consequences, for example dampening consumers’ desire to find the best deal on the market and hitting investor confidence.”

Lawrence Slade, chief executive of Energy UK said that a cap risked undermining steps to increase competition across the energy market.

“Today’s announcement effectively risks giving up on competition at a time when we need engaged consumers more than ever.

“Change is happening at a rapid pace in the energy sector – with ever-increasing levels of engagement, more choice and improving customer service. Further intervention risks undermining so many of the positive changes we are seeing in the market which are delivering benefits for consumers.

“The solution is not to distort the market as a whole but see through the market reforms, allow competition to drive innovation and benefits for customers, while ensuring that there is targeted support for those most in need.”

While the GMB union’s national secretary, Justin Bowden, said that the mooted cap should not eat into investment in infrastructure.

“Should this policy come into effect, and the regulator be given the job of capping energy prices, then Ofgem must distinguish between profiteering and the resources needed to generate jobs and to pay for the vital infrastructure needed to maintain our power networks.”

Richard Neudegg, head of regulation at the comparison website, backed the CBI’s calls to allow the CMA’s recommendations time to succeed rather than introduce a cap, which he branded a ‘red herring’.

He said: “Today’s pledge will ultimately kill competition, push up energy prices and leave consumers worse off.”

Stephen Murray, energy expert at MoneySuperMarket, said: “For customers who have the ability to switch – the majority outside the most vulnerable – an energy price cap would be a disaster.

“A price cap, whether relative or actual, will lead to many of the best deals disappearing, prices finding a higher level and a growing market of disengaged customers.

“Instead of bringing in a price cap, the Government should spend some money raising awareness of switching and leave the mechanics of an increasingly vibrant and competitive market well alone.”

But the proposed price cap was welcomed by First Utility.

The challenger energy company’s chief executive Ian McCaig said: “The big players have simply not done enough to address this issue and time has been called on their behaviour.”

He added though that there needed to be more action to promote transparency in the market.