Ed Davey nails Labour’s energy price freeze: “Prices go up, small, independent competitors go out of business, the big six is created again. Well done, Mr Miliband!”

Here’s Lib Dem energy secretary Ed Davey highlighting one of the many flaws in Ed Miliband’s promise to freeze energy prices in today’s Guardian interview:

ed davey energy prices

(Hat-tip: John Rentoul in The Independent: Quotation of the Day.)

* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.

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48 Comments

  • Peter Watson 27th Oct '13 - 12:24am

    It strikes me that Lib Dems and the Tories have yet to come up with a compelling alternative to Milliband’s price cap, and make apparently contradictory statements about market forces being the solution while advocating a little bit of interference with those same markets (or in some cases, like the housing market, making some big interventions).
    Surely market economics is what has given us the big 6.
    And why is 6 not considered enough for a competitive market?
    And if one of these small, independent sellers becomes very successful, will a big 7 be magically better?
    Will Ed Davey step in to prevent one of the big 6 from taking over a small, independent seller?

  • Yes, but what are YOU going to do about energy prices?

    Also, why the constant attacks on Labour, when it is the Tories who are attacking YOUR policy on green taxes?

  • The price cap is a massively flawed policy also if wholesale prices fall, as we will all still be milked. However, Davey is not proposing anything, which means a continuation of the status quo. Well done Ed, maybe you can buy each of us a woolly jumper.

  • So what are you going to do about wholesale prices going up by 3% in the last 24-36 months but the energy bill to customers raising by 35%… on that example a price freeze of 20 months while reviewing the energy market is not going to do any harm whatsoever… (and please stop blaming labour) look at the price rise since you came to power 35%)

    This is the whole problem with the free market without proper rules, you end up with a cartel the can sell energy to themselves… and then the retail side say wholesale price has gone up… just how stupid do you think the British public are.

    Unless we sort out the energy market any reduction now; will only offer short term gains as the energy companies will again increase the price next year, wiping out any benefit from removing the green levy…
    Whatever happened to the market will drive prices down, it has actually drove prices up… and what do our MPs do… bicker and play school yard politics instead of doing something about it… and if you truly believe removing or lowering the green levy is the right way to go then GOD help us…

    I don’t really are if we are cheaper than the rest of the EU, I care about my bills going up by £300 in 3 years when there is no other reason than profit margins by the big six, we need to look at prices they sell to themselves, transparency which we do not have at the present is desperately needed.

    Understand the market of course we all do, greed and profit first, why because our shareholders come before the people of the UK…

    No windfall taxes that only gives the government extra cash… how about a reduction of 35% off consumer bills for the same period of time as the energy suppliers have been making excess profit… give it back to the people who bloody need it.

  • Paul in Twickenham 27th Oct '13 - 8:36am

    @g – perhaps Matthew d’Ancona’s article in today’s Telegraph helps answer your question. D’ancona writes : Cameron, under pressure, announced a review of green energy taxes…Clegg was dismayed. “Until we know what we are going to do,” he told senior colleagues, “we should attack Miliband and defend our present stance, but not wriggle about.”

  • jenny barnes 27th Oct '13 - 8:41am

    Why doesn’t the government borrow / print the money to build nuclear power stations and build them? They could be run by a quango British Nuclear Energy or something like that, and supply electricity at whatever price the government liked – as most of the cost of nuclear is the upfront capital. Much better investment than Trident, HS2, aircraft carriers with no aircraft, the Olympics, etc. There seems to be an inability of government to distinguish between essential and nice to have.

  • @g
    “Yes, but what are YOU going to do about energy prices?”

    Yes, but what are YOU going to do about gravity?

    Energy prices are set by international markets. That is the whole point. Ed Miliband’s Canute-like gesture aimed at fixing the market isn’t going to solve this. (and yes, I am aware that Canute’s point was that you can’t stop the tide, not the opposite).

    The whole point is not about energy prices, but about people’s bills. Apart from improving the way the market works, energy conservation and lower consumption is the only rational response to this. We need to move on from the Green Deal, which has failed, and find new ways of spearheading a massive effort to insulate Britain’s homes and bring down energy consumption.

  • The so-called ‘market’ in centrally-provided Energy is and always has been a complete sham, used to justify the original privatisation of the original government monopoly. ‘Profit’ is not only taken by clever international deals but also through the massed echelons of senior staff paying themselves massively-inflated salaries.

    Retail energy sales is essentially about the right to bill for the energy bought from the central market which no company does particularly better than others unless it has a ‘vertical integration’ fiddle. The entire central billing operation could easily be merged with electoral registration and council tax collection and be provided by a state monopoly (I’d say HMRC if they weren’t so poor) which would either be more efficient or less efficient depending upon who was monitoring them and how good a job they did. There would be no ‘joint fuel billing’ issues, everyone would have this by default.

  • RC – I appreciate these are your views, I’m criticising the lack of any ideas from government – other than cutting green taxes, which would make green improvements harder, and are only a tiny proportion of energy costs.

    FWIW I also agree with you about insulation – the cost of putting modern insulation/windows in the flat I rent is about £10,000, the energy savings would be £1-200 per year at most. Given I let, it is not in my landlord’s interests to insulate. He doesn’t care about my energy bills, and even if he did, the costs would not justify the savings.

    For insulation to be cost effective energy prices would have to rise substantially higher than the already substantial increases over the last decade.

    As someone who believes carbon reduction is as important a political goal as free healthcare, jobs and employment rights, I recognise the system is broken and something must be done.

    The music has stopped though, the coalition are in charge, and rather than propose solutions to this, they just attack the opposition.

    It’s all very depressing and only increased disillusionment with politicians.

  • The root issue is the wholesale price of energy and the problem is that we in the UK have yet to grasp that, when it comes to imported sources, there are more and more competitors with ever increasing spending power. the BRIC and other rapidly advancing economies are now major buyers in a market that countries like our own used to dominate. This is a situation in which playing to the gallery policies like the prize freeze or scrapping green taxes, or even a windfall tax, are simply dog whistles as they ignore the true reality of the situation. Short-term popularity against long-term competent strategy.

    This means that we should not just rush out with any old policy worked out on the back of an envelope just so we can be seen to be doing something, the issue is far too important for that – and as pluralists we should be making that case. This has to be a truly cross-party matter in which we move politics to the side and seriously consider a plan about how the UK become more reliant on its our resources, whether it be nuclear, fracking, renewables etc. Labour and the Tories have created a hysterical situation in which a proper discussion can hardly take place. Here’s hoping a LibDem Energy Secretary can lead the debate to more sensible ground.

  • Stuart Mitchell 27th Oct '13 - 1:18pm

    The usual drivel from Ed Davey. If a 20-month price freeze would be so terrible for the energy companies, how come they’re happy to offer fixed tariffs over much longer periods? I still have over six months to run on my current tariff, which I signed up for over two years ago. Even the small suppliers offer them (some small suppliers offer no other kind of tariff), so Davey’s argument is nonsense.

    The Lib Dems are really floundering on this issue, with no coherent policy at all, and looking like the one major party that isn’t trying to do anything for consumers. They can’t make their mind up whether cutting energy bills is a good thing or not (it seems to be good for residents of South Lakeland – but if we all did it, the consequences would be disastrous), or whether it’s right for the energy companies to be told what prices to set (Ed Davey calls this damaging state intervention, but Tim Farron was calling for a stronger regulator to do the same thing on Question Time the other night).

    If the Lib Dems ever come up with a consistent and coherent policy on this, would somebody let me know?

    RC: “The whole point is not about energy prices, but about people’s bills. Apart from improving the way the market works, energy conservation and lower consumption is the only rational response to this.”

    I don’t see why you should think that. Given the current rate of price increases, even the most comprehensive treatment of a previously uninsulated house will only take your bills back to the level they were at perhaps three years ago. While desirable, this is certainly not the “only” response required to the problem.

  • Not a clue what to do….. why, bash Labour as that will all make us feel better in the Lib Dems… its not working so how about sitting in front of a nice warm fire with a copy of the Independent and then decide what might really matter..

    http://www.independent.co.uk/news/uk/home-news/exclusive-the-other-energy-scandal–power-giants-use-loophole-to-cut-their-own-tax-bills-8906447.html

  • If a 20-month price freeze would be so terrible for the energy companies, how come they’re happy to offer fixed tariffs over much longer periods?

    Fixed price deals come with a premium on the current market price. They are not fixing the market price as Miliband is proposing. They are expensive at the start and cheap at the end so the profit is front loaded. Which raises another point – which price is to be fixed?

  • RC is spot on, saying :
    “Apart from improving the way the market works, energy conservation and lower consumption is the only rational response to this.”
    John Hemming MP was/is?, chairman for a parliamentary study group, looking at a very well thought through policy, on domestic energy use. Not sure where it is up to, or whether it has withered on the vine, but it is the best (if not perfect), solution I have seen.
    Just a few of the people involved in the study are/were, John Hemming MP, Jonathan Porritt, Tim Yeo MP, Caroline Lucas MP, Jeremy Leggett, Rob Hopkins (Transition Towns Initiative), …. amongst others, and last but not least David Fleming (since deceased), who invented the original idea.
    Well worth a visit to the site, to watch the series of short videos explaining the policy idea of Tradable Energy Quotas.
    http://www.teqs.net/
    In the meantime, for those that own them, you could make a good start, by putting the leaf blower, patio pressure washer, patio gas heater,…to name just a few of the many, pointless energy guzzzzzlers, in the recycling skip

  • Enron

  • Simon McGrath 27th Oct '13 - 2:28pm

    @stuart Mitchell: “The usual drivel from Ed Davey. If a 20-month price freeze would be so terrible for the energy companies, how come they’re happy to offer fixed tariffs over much longer periods? I still have over six months to run on my current tariff, which I signed up for over two years ago. Even the small suppliers offer them (some small suppliers offer no other kind of tariff), so Davey’s argument is nonsense.”
    Because energy companies can fix the price they pay for wholesale gas in advance. Of course they will have to pay a premium for thst and take the risk thst other input prices will increase which is why fixed rate deals are more expensive.

  • Peter Watson 27th Oct '13 - 2:39pm

    @Simon Shaw “But you have said yourself that you think the Milliband “promise” is a joke”
    Actually, I don’t think I’ve expressed any opinion at all about Milliband’s policy. If Labour is going to be in government it won’t be for another 18 months and might then be a coalition with Lib Dems, so right now, Labour’s policy is irrelevant compared to the coalition’s. Which is what exactly? Green taxes? No green taxes? Let the market decide? Interfere with the market? Sneaky surprise tax after the event? Maybe just wear a jumper? In a couple of years time collective responsibility might mean that Ed Davey is telling us that a price cap is the best thing since sliced bread (in the same way that a few years ago he told us, “In addition to posing safety and environmental risks, nuclear power will only be possible with vast taxpayer subsidies or a rigged market.”).

  • There are many sources to compare wholesale prices, the problem is the main retail suppliers sell for their own generating arms, so when they say the cost has gone up because of wholesale price they actual mean from their own generating arm has increased the cost to the retail front the world price of gas has actually dropped according to infomine, yet we know the UK retail prices have soared.
    We need transparency in the generating arms of each of the big six so we can have trust in what they tell us.
    The tompride graph is taken from fullfact

    http://www.infomine.com/ChartsAndData/GraphEngine.ashx?z=f&gf=110558.USD.mmbtu&dr=5y

    http://tompride.wordpress.com/2013/10/23/this-graph-shows-wholesale-energy-costs-are-not-the-reason-our-bills-have-been-going-up/

  • Richard Dean 27th Oct '13 - 4:55pm

    If the wholesale price is 47% of the bill and it goes up10%, it would only result in a 4.7 % (4-point-seven) increase in the bill, or a 4.7% decrease in the energy company profits. If companies presently earn 5% profits, they still make a 0.3% profit if the price is not allowed to rise.

    The real problem is that the companies will borrow to get through the 20 months, then recoup their losses plus the cost of the borrowing by increasing the bills more than would otherwise be the case. In the long term, Miliband’s plan makes the customer pay more, because the customer has to be pay the company’s borrowing costs as well as the bills.

    In short, Miliband’s plan is good for bankers. Ed’s plan is good for people.

  • Paul in Twickenham 27th Oct '13 - 5:22pm

    People confused as to why wholesale prices of gas have barely shifted in three years but retail prices have skyrocketed might be interested to read this report from the house of commons website : http://www.parliament.uk/briefing-papers/sn04153.pdf‎

    I would advise you to take note that the graphs for retail prices show changes in energy prices (since 1987) relative to RPI : so this is indicating (for example) that in 2013 the retail price of gas is about 50% higher in real (inflation adjusted) terms than it was in 1987.

    Ofgem are quoted as reporting that the 44% (not 47% as reported above) of bills are made up of wholesale costs. And the wholesale spot prices (for which the graph on page 10 is *not* RPI adjusted) have indeed been broadly flat for 3 years apart from a temporary spike earlier this year. The spike (on the spot market) was triggered by the record-breaking cold snap in March, but that should not affect prices to the big suppliers as they buy future contracts that are largely immune to the vaguaries of the spot market.

    So indeed: why are prices rising so sharply when wholesale prices are evidently flat? I would perhaps look at the line item “Transmission, distribution and metering” and ask the question “what are the companies providing these functions, why are their costs rising so sharply, and what is the nature of their business relationship with the energy companies?”.

  • Peter Watson 27th Oct '13 - 10:09pm

    @Simon Shaw
    I was merely pointing out that, like any policy, if it turned out to be wrong then Milliband’s price cap could be reversed, so on that basis is no more of a joke than any other Labour / Lib Dem / Conservative policy. Sadly, Lib Dem leaders don’t have to wait that long or even have the wrong policies before reversing them 🙁
    It is impressive though that the Opposition have struck a nerve, and timed it brilliantly with the energy companies announcing price rises shortly afterwards and keeping the issue alive. The Government appears to be in disarray weeks later, with Cameron appearing to abandon green taxes on the fly at Prime Minister’s Questions, and Davey and others advising everybody to switch (probably not the best advice – fixing might be better). And how exactly does government fixing the price of nuclear energy (albeit at a high level and many years in advance) differ in principle from the sort of thing that Milliband was trumpeting?

  • Eddie Sammon 27th Oct '13 - 10:41pm

    I am glad that Ed Davey is communicating the problem of regulation acting as a form of protectionism for the rich. I think the solution is progressive regulation. We do not want to go back to the failed post-war consensus.

  • Martin Caffrey 28th Oct '13 - 3:10am

    Ed talks with forked tongue (his 180% about face re: nuclear for example) and cannot be trusted.

  • Remember all you need to do is switch provider, problem solved.

  • Martin Caffrey 28th Oct ’13 – 3:10am
    Ed talks with forked tongue (his 180% about face re: nuclear for example) and cannot be trusted.

    This is undeniable – this is a question of trust .
    Ed Davey was elected at 4 general elections saying he opposed new nuclear, that it was too expensive, that it was dangerous, that there were better and cheaper and sustainable alternatives. He then became the minister responsible and suddenly tells us he has “changed his mind”. How can we ever trust him not to “change his mind” on any other key Liberal Democrat policy?

  • I think we all know that energy prices would have risen without Milliband and to pretend otherwise is just political shenanigans. The energy companies have also been threatening power cuts for months as a precursor to rises long before Milliband’s announcement.

  • Peter Watson 28th Oct '13 - 3:57pm

    @Simon Shaw
    If Lib Dem opposition is purely on the practicalities of capping the price at which energy can be sold regardless of the cost of a raw material, then I don’t really have a problem with that. Though as has been pointed out regularly, despite the vagaries of international hydrocarbon markets energy providers feel there is nothing inherently wrong with the idea of offering fixed price contracts for far longer than Milliband’s 20 months at a level that suits them, so in principle there could be a price cap which would satisfy providers and customers, perhaps at the price which suppliers are offering now. I would much prefer to see Lib Dems responding to this in a more positive and constructive way; such an approach is something that always attracted me to the party but it seems not to be the way a “party of government” operates.
    I object to the sort of criticism which is on the ideological basis of market = good, state = bad (i.e. Marxist return to the seventies, etc.), when many of those commentators seem hypocritically to support a degree of rigging the market when it suits them, whether that is fixing high energy prices for foreign firms with a degree of foreign state control to build nuclear power stations or manipulating the housing market.

  • Stuart Mitchell 28th Oct '13 - 7:06pm

    @Simon Shaw and @Simon Mcgrath
    Energy companies use forward contracts to buy most of their energy, often two years or more in advance. This energy is then sold to both fixed and non-fixed tariff customers, so what you are saying is irrelevant to my original point.

    Simon S, if you really think Miliband’s proposed price cap is so reckless and foolish, how did you feel five years ago when Nick Clegg called for the energy companies to give back £9bn in price CUTS – at a time when they were making much smaller profits than they are now? You must have been apoplectic with rage!

  • Peter Watson 28th Oct '13 - 8:24pm

    @Stuart Mitchell “how did you feel five years ago when Nick Clegg called for the energy companies to give back £9bn in price CUTS”
    Just imagine the horror in 2008 when reporting Vince Cable’s response to Gordon Brown’s “eminently sensible, but very, very modest” measures that “The Lib Dems did not back a windfall tax but did want a cap on price rises and a Competition Commission inquiry into the energy industry” (http://news.bbc.co.uk/1/hi/uk_politics/7609036.stm).

  • Eddie Sammon 28th Oct '13 - 8:54pm

    Ed Davey’s message can also be repeated for cost controls :

    “imagine a carbon tax, costs go up 5%, if you are a small supplier you go bankrupt… recreating the big six… you really don’t understand market economics do you?”

    This is partly why I think we should be careful about slamming Ed’s suggestion too hard. We intervene in markets all the time, plus it is popular. I’m not saying get rid of all green taxes, I’m just saying let’s not go OTT on the criticism.

  • Miliband is proposing to fix prices whilst restructuring the market along genuinely free market principles. This is an entirely liberal policy. By getting so apoplectic in his objections to it, Ed Davey, along with the majority of Liberal Democrats, is arguing against the liberalism he claims to espouse.

  • Julian Dean 29th Oct '13 - 7:40pm

    It’s a shame that the LDP and Tory response to this is to lambaste EdM and Labour without outlining a detailed policy to reform the market in favour of the customer.

    Personally I would start the process to re-nationalise the industries, no civilised nation should allow hundreds of oaps to die each winter due to fuel poverty but sadly this will happen, the increases just make the situation even worse.

    Good on EdM for bringing this to the forefront of national debate.

    Well done, Ed.

  • Stuart Mitchell 29th Oct '13 - 8:51pm

    Simon Shaw: “You clearly don’t understand.”

    Very biting, but if you’ve bothered to read any accounts of today’s ECC Committee meeting, it cannot have escaped your notice that there is virtually no resemblance between the facts of the current energy market, and the nonsense you’ve been spouting here.

    Of particular interest are comments by the MD of Ovo Energy (one of the small suppliers Ed Davey claims would be damaged by Labour’s price cap), who said that wholesale prices are actually falling. “I can’t explain any of these price rises [by the Big Six]. I have been somewhat confused by looking at the explanations for the price rises that we’ve seen in the past three or four weeks.”

    Read and learn, Simon :-

    http://www.bbc.co.uk/news/business-24730122

    Pay particular attention to the graph showing how wholesale prices have remained virtually static over the past four years, while bills have rocketed. Given that Clegg was accusing the energy companies of “profiteering” back in 2008 when their profit margins were much smaller, it’s really shameful that Lib Dems are now defending the right of the suppliers to charge what they like. All I can say, Simon, is good luck trying to sell this particular pup on the doorstep.

  • Helen Dudden 29th Oct '13 - 10:06pm

    Ed Miliband is talking a great deal of sense. I like his ideas, and I support him totally on the subject of the cost of energy, and not to forget the problems caused to families, by this Government and their policies.

  • Paul in Twickenham 29th Oct '13 - 10:42pm

    Here’s a few quotes from the story “Energy firms overcharge by £3.7 billion per year” in tonight’s Guardian:

    Some of Britain’s biggest energy companies have been accused of raising households bills for no reason and systematically overcharging customers by £3.7bn a year.

    Millions of British households are on the most expensive tariffs, which cost up to £150 more – or £3.7bn in total – than the prices that Ovo claims accurately reflect the costs of supplying energy with a 5% profit margin.

    I personally disagree with Mr. Miliband’s proposal since I am firmly of the view that the law of unintended consequences generally applies to price controls: but Mr. Miliband is to be congratulated for starting a debate that has shone a bright light on some of the murky practices of the energy companies.

    Once again, the Liberal Democrat leadership has failed to reflect or inform public opinion: the Liberal Democrats are now (rightly or wrongly) viewed as the party of the energy companies: swallowing the corporate communications hook, line and sinker and failing to defend citizens against the operation of a cartel.

  • Stuart Mitchell 29th Oct '13 - 11:16pm

    Paul in Twickenham: “Once again, the Liberal Democrat leadership has failed to reflect or inform public opinion: the Liberal Democrats are now (rightly or wrongly) viewed as the party of the energy companies: swallowing the corporate communications hook, line and sinker and failing to defend citizens against the operation of a cartel.”

    This is all the more difficult to fathom when you consider how hard Clegg was on the energy companies while in opposition. For instance :-

    https://www.libdemvoice.org/pmqs-nick-tackles-gordon-on-northern-rock-and-energy-prices-2210.html

    What a difference a change of job makes. Now, as you say, his leadership is seen as pro-energy companies and anti-consumers by just about everyone, save for a few tribal loyalists like Simon Shaw who, if this page is any indication, is in a tiny minority in his own party.

  • Helen Dudden 30th Oct '13 - 8:59am

    The Lib Dems have failed to listen for too long. You had the chance as “King Makers” to make a difference.

    You have, and this will go down in history. But not for the right reasons.

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