Business leaders propose alternative to price cap

Institute of Directors calls on next government to create a transparent default tariff instead

The Institute of Directors (IoD) has called on whoever forms the next Government to force energy companies to create a new transparent default tariff instead of capping prices.

In a report published today (27 May), the business group said a new default tariff should be established, which directly shows customers how much of their money goes on wholesale energy, transmission and other fixed costs, and how much on the company’s unregulated profit margin.

It recommends Ofgem be tasked with regulating the new default tariff, which would also prevent customers having their bills ramped up when cheaper contracts expire.

The IoD has also called on the next government to organise large auctions when looking for nuclear suppliers, and so encourage a UK-based nuclear supply chain that comes with scale.

The group also calls on ministers to put the Smart Meters programme on hold and review the rollout to date.

“Energy bills have become the latest political football, with both the Conservative and Labour reaching for interventionist solutions,” said the IoD’s senior infrastructure adviser, Dan Lewis.

“There is clearly a problem, with standard variable tariffs not falling as wholesale prices fell between 2014-16. But cap or freezes don’t help competition in the long-term, and we really shouldn’t trust politicians to set the price and predict the market response.

“Something does need to be done, however, so we would support giving Ofgem responsibility for creating a truly transparent default tariff, which enables customers to see exactly how one company’s offering compares against the others,” added Lewis.

“The next government will also face several other energy challenges in the next parliament, not least how to cost-effectively build more nuclear power plants, make best use of our shale resources, and encourage more efficient renewable energy.

“These need to be tackled head-on. Another pressing issue is the failing smart meters programme, which risks wasting consumers’ money. The whole programme must be reviewed urgently following the election.”