Clark rejects energy price cap criticisms

“A well-designed cap is dynamic and fluid,” insists business secretary

Greg Clark has rejected concerns that capping standard variable tariffs (SVT) will destroy competition and switching in the energy market.

Delivering the keynote lecture to the British Institute of Energy Economics in central London this evening (31 October), secretary of state for business and energy said that cut price offers were still being offered in the prepayment market, which has been subject to capping since April.

“That is not what we have seen in the prepayment market. Some suppliers are still offering tariffs below the cap – the cheapest across the market was £70 below the cap in August,” he said.

“And in Northern Ireland, where price controls have been in place since 2010, the incumbent has lost 40 per cent of the market share since 2010.”

Clark also addressed concerns that the price cap, which the government is preparing to introduce through legislation, could reduce companies’ incentives to supply energy if it was set too low.

“This is a matter for the careful design of a cap, and goes to the heart of the difference between a price cap and a crude price freeze. A well-designed cap is dynamic and fluid; a freeze – as its name suggests – is not. But it also gives consumers comfort that they are getting a fair deal. That their loyalty is not being exploited.”

The secretary of state also said that the aim of the government’s mooted price cap was to enable the energy market to work better for consumers.

“A well-functioning market is not one in which consumers are forced to enter a suspicious, defensive relationship with their suppliers, always attentive being overcharged, and in which the virtue of loyalty is slapped down by high bills.

“I believe that as government and regulators we should be working to ensure good markets emerge, markets in which companies care for their long-term reputations and individuals can form long-lasting bonds of trust without having that trust abused.

“This is a theme that we find in many parts of the economy today, a polarisation, with the savviest getting good service, good prices and feeling that the new future opening up to us is brave and bright while others are more and more powerfully discriminated against by suppliers, who know their behaviour very well – whether that is driven by loyalty of lack of confidence or not having access to online material.”