General election 2017: Tories vow to end ‘rip-off’ energy bills

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The Conservatives say customers are being overcharged by £1.4bn a year

Theresa May has vowed to end the “injustice” of rising energy bills by promising a cap on standard variable tariffs in the Tory election manifesto.

The prime minister said the market was “not working”, with vulnerable people worst hit by “rip-off” bills.

Industry figures have criticised the plan, first announced last month, saying it could lead to higher prices.

Labour, which offered its own bill cap ahead of the 2015 election, accused the Tories of “desperate stuff”.

And the SNP described the proposal as an “election bribe”.

Under the Conservative proposal, industry watchdog Ofgem would set a ceiling on default standard variable tariffs. These rates are used by seven out of 10 households and are often criticised as bad deals by industry watchdogs.

Mrs May suggested the move could save about 17 million customers up to £100 a year.

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Media captionLawrence Slade, CEO of Energy UK, on energy tariff cap proposed in the Tory manifesto

“Like millions of working families, I am fed up with rip-off energy prices,” she wrote in The Sun. “Gas and electricity bills only ever seem to go in one direction, eating up more and more of your monthly pay packet.”

The prime minister said five of the “big six” energy companies had recently raised prices while their profit margins hit “record levels”.

“It is clear to me that the energy market is not working for ordinary working families. Too many people simply aren’t getting a fair deal.”

Business Secretary Greg Clark told the BBC that the industry had overcharged customers by an average of £1.4bn a year between 2012 and 2005, equivalent to between £70 and £200 extra on bills.

Setting a “maximum level” for those on standard variable tariffs would ensure people who were not on fixed-price deals and did not want to switch did not “pay through the nose”, he said.

Asked whether people would see their bills fall next year, he told Radio 4’s Today “the purpose of the exercise is to remove the abuse and bring down bills”.


Analysis

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By Laura Kuenssberg, political editor

I understand ministers had not originally intended to go ahead with a full cap when the PM first gave her hint in the autumn. There was an element of wait and see.

One minister told me they hoped that they had put the firms on notice, and they would only crack on with a full cap if the “big six” continued with price rises.

That is, of course, precisely what happened.

Perhaps the energy firms even put up some bills in anticipation of the government acting. (Chicken and egg, would they have put up bills without the threat of a cap to keep bills down?)

In any case, the prime minister is pressing ahead with a policy that’s more or less out of Labour’s 2015 playbook that the Tories hope will appeal to voters across the board, even though it will rankle with some of their true believers.

  • Read more from Laura
  • How might an energy price cap work?

Following a two-year investigation, the Competition and Markets Authority said last year that excess profits were largely being caused by inefficiency in the market and recommended a cap on pre-paid energy bills – a measure that was introduced last month.

It decided against extending this to all standard variable customers, saying this would “run excessive risks of undermining the competitive process”.

Conservative sources have told the BBC there was opposition to the cap when it was discussed at cabinet, with Mr Clark among those expressing doubts.

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Media captionBusiness Secretary Greg Clark tells Today the energy tariff cap will safeguard vulnerable people

It is understood he favoured a “relative cap” that would allow energy companies more flexibility but the prime minister was determined to press ahead with her plan for a fixed price cap.

Former Conservative chancellor Lord Lawson has said the idea is “crazy” and the government should concentrate on reducing bills by sourcing more energy from the cheapest and most reliable technologies.

There is evidence that some suppliers have started raising the price of their cheapest offers in the past six months, but some in the industry put that down to rising wholesale costs rather than the threat of the cap.

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The cap would take into accounts wholesale energy prices and distribution costs

British Gas owner Centrica said it did not believe in “any form of price regulation”, citing evidence from other countries that it pushed up average prices.

Energy UK, which represents the “big six” energy firms as well as smaller players, said five million people switched suppliers last year and people could save much more than £100 by visiting a price comparison website.

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“I worry that all this competition that we are starting to see could go away, we have seen that in other markets,” Chief Executive Lawrence Slade told Radio 4’s Today. “It risks investment and it does ultimately risk profit levels.”

And the CBI urged the government to let existing changes in the market “bed in” before intervening further.

According to Citizens Advice, about 800,000 of the poorest pensioners and 1.5 million low-income families with children are on standard variable tariffs.

These households are paying an average of £141 more a year for a dual fuel gas and electricity bill than if they were on the cheapest deal, it said.

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Under former leader Ed Miliband, Labour went into the 2015 general election promising to freeze all energy bills for 20 months, saying they would be able to fall but not rise. At the time the Conservatives said the policy was proof Labour was in a “Marxist universe”.

Mr Miliband tweeted on Tuesday: “As far as I can tell, no guarantee that energy prices won’t rise next year under Tory policy. Is that right?”

Lib Dem former energy secretary Ed Davey said: “It is never a good idea to copy the economic strategy of Ed Miliband. As the Conservatives pointed out at the time, this will damage investment in energy when it is needed more than ever.”

The SNP said the Conservatives had “failed to tackle fuel poverty” in the past seven years while unions said regulators must differentiate between profiteering and the resources needed to generate jobs and pay for infrastructure.

The main parties have yet to publish their full manifestos ahead of the 8 June general election.

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