Coalition pulls the plug on Miliband's energy bill freeze as power market probe will clash with Labour bid to curb fuel rises
Ed Miliband’s pledge to freeze gas and electricity bills for every home and business in Britain for 20 months if Labour wins the 2015 Election is set to be scuppered by a competition investigation into the sector ordered by the Coalition.
The Labour leader’s pledge at his party conference last year to freeze energy bills within a month of coming to power boosted his poll ratings as households struggled with soaring energy prices.
But last year Energy Secretary Ed Davey commissioned an assessment of competition in the energy supply market by Ofgem, the Office of Fair Trading and the Competition and Markets Authority.
Energy market: The report is expected to highlight 'vertical integration' where a firm owns the means of power production, such as gas fields and power stations, and is also responsible for selling fuel to consumers
They are due to report by the end of this month, but energy industry insiders and Whitehall sources reckon the report will call for a full review by the Competition and Markets Authority, a process which would take up to two years – well past the Election next year in May.
With a competition review under way, Labour would find it all but impossible to impose a price freeze without waiting for the results of the report if it came to power.
Privately, industry insiders concede that the competition review makes sense.
One leading energy executive said: ‘The biggest issues for the regulators are that some of the businesses do have a pretty hefty market share in some areas and have had for years. You’d have to be pretty blind not to see that.’
Enough talk: Shadow Energy Secretary Caroline Flint says action, not a review, is needed
The report from the three regulators is also expected to highlight so-called ‘vertical integration’ where a firm owns the means of power production, such as gas fields and power stations, and is also responsible for selling fuel to consumers.
‘When they come to vertical integration, we expect the report to say they simply have not had enough time to look at the question properly and only a full-blown review will enable them to do that,’ said another energy industry source.
The Department of Energy and Climate Change declined to comment ahead of the report’s publication, which could come in the next few days.
A Whitehall source said: ‘The assessment is part of the long-term retail market reform aimed at providing the best deal for consumers and certainty for investors.’
Energy bills have risen by nearly 40 per cent in the past three years to an annual average of more than £1,300. Davey and the Government have been under intense pressure to help consumers hit by soaring bills following Miliband’s pledge.
But for a Labour Prime Minister to announce a price freeze before a full-blown competition inquiry was concluded would lay him open to charges of political expediency.
Caroline Flint, Labour’s Shadow Energy Secretary, said: ‘Anything which can help shine a light on the workings of the energy market is welcome.
‘But consumers will be rightly disappointed if the Government uses this review as an excuse to kick the problem of rip-off energy bills into the long grass. We have hardly been short of reviews of the energy market in recent years – but what has been missing is decisive action to protect consumers.’
The regulator’s assessment is likely to highlight the high market share of the ‘legacy firms’ now owned by the Big Six that dominate the market: British Gas, SSE, EDF Energy, RWE npower, ScottishPower, and Eon.
Ed Miliband pledged to freeze gas and electricity bills for every home and business in Britain for 20 months if Labour wins the 2015 Election
Legacy firms include the former South Wales Electricity Board, owned by SSE, and the former London Electricity Board, owned by EDF, which before privatisation were monopoly providers in their areas and so retain a disproportionately high share of customers.
An Ofgem report showed the former SWEB has 82 per cent of the electricity market in its core region and the former LEB 74 per cent.
Angela Knight, head of Energy UK, which represents the industry, said she had commissioned an independent report which showed competition was beginning to improve.
Smaller suppliers now hold a 5 per cent share of the household energy market, the highest since competition started in the late 1990s, while more people were switching providers to get a better deal than ever before.
She said: ‘New suppliers have come into the market, in particular in the last 18 months, and are getting big numbers of customers and growing fast. They are giving the Big Six a run for their money.’
However, British Gas, which declined to comment, is expected to be singled out for particular attention, with insiders expecting the report to claim that its share of the gas supply market is far too high.
This has been a contentious issue since Davey wrote to the regulators on February 10, urging them to look at the gas supply market and British Gas’s share of it, suggesting the company could be broken up if it was found to have acted unfairly, while reminding the regulators that they are independent.
It was a move some lawyers reckoned could allow British Gas to take legal action on grounds of political interference.
The Government responded to the charge of failing the ‘cost of living test’ on fuel prices by cutting annual bills by £50. It did this by reducing environmental taxes. And in last week’s Budget, it froze the carbon tax which penalises polluters but adds £15 to bills, as The Mail on Sunday revealed it would in January.
The economy may be recovering but for most consumers suffering from years of minimal wage rises, worries over the cost of living have not gone away and this report is likely to turn attention right where the Government does not want it.
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