Up to 10,000 jobs are expected to be lost in energy retail this year as the industry struggles to adapt to the price cap, an Energy UK director has said.
Audrey Gallacher made the prediction during a debate about consumer trust hosted by the Ombudsman Services this week.
The trade body’s director of policy said the cap, which was introduced in January, had left companies with little scope to invest in the innovation and new technologies that would ultimately make them more efficient. She said the next stage of the debate needed to centre on ways to achieve these efficiency savings.
Labour’s energy spokesman, Alan Whitehead, who was instrumental in pushing for the introduction of the cap, told the audience his concern was around how the decision would be made as to when the cap is removed. Octopus Energy’s director of external affairs, Clementine Cowton, said this should come when “it no longer matter if it’s there or not because suppliers are competing so aggressively”.
Gallacher said: “Ofgem have set the cap at a level where most companies will make a loss or no profit. We estimate that over this year about 10,000 retail jobs will go in order to meet that cap.
“It’s quite a complex picture, which takes in the efficiency of companies, the technology that has been available and lots of other elements. The price cap means nobody will make any money and at the same time companies need to invest to become more efficient. So, we’re in quite a difficult position.
“The price cap has reset the market and we now need to move beyond the debate about unfair profits and think about where we can go with efficiency savings.”
Matthew Vickers, chief executive of the Ombudsman Services, which operates the Energy Ombudsman, said the key task for the price cap was to drive a change in mindset, adding: “If it doesn’t then the danger is that companies look for the easiest places to mitigate those pressures – and that often means looking at their people. If the price cap drives that kind of behaviour the risk is that it further erodes trust.
“While the price cap has driven some change, what we should be asking is whether there should be a service cap – or a trust cap – as well.”
Cowton said in her view the price cap was “absolutely working”. She added: “You see what is happening in the market – the Npower/SSE deal breaking down and the latter being taken over by a very good, newer entrant to the market; the howls of protest about loss of profits from those bigger companies; switching rates increasing – the perceived norms are changing.
“Having the price cap in place makes people think – ‘what’s the worst that could happen, I’ll try another energy provider and if I end up on the price cap, I’m no worse off’.”
She argued that if suppliers are seen to be competitive, customers will have more trust that they are being offered a good deal.
She said: “If you look at food retail – there is a huge problem with food poverty but supermarkets aren’t blamed for that. And I think the reason they are not blamed is that they are very obviously in a brutal price war, which is very transparent and untargeted. You don’t get the supermarket manager chasing you out of the store saying ‘ok, just for you, for a limited period only you can have this deal’.”
Dr Whitehead said one of the long-term implications of the cap may be that some of the biggest players seek to exit the retail sector entirely because they are not willing to make the changes necessary to compete with the disruptors.
He said: “If that is a result of the price cap that is probably a good thing.”
He added: “The price cap is an instrument which hopefully unpicks the issue of large companies using customers in an unfair way and operating on a basis of considerable margin and inefficiency.
“If the price cap shakes that out, then it will be a really good outcome. However, it’s a very blunt instrument for a very complex market.
“We tried to move amendments when it came in to define much better the point at which it comes off. What is it that dictates the market has moved on? As it stands we have a rather unsatisfactory outcome, which is that Ofgem is supposed to produce a report to the minister saying they think the market is at the right time.”