The next Labour Government must reform the energy market

By Meg Hillier MP

As the summer of energy price hikes continues, it is becoming ever-more clear that the UK’s energy market is failing its customers. So far, three of the Big Six energy companies have announced increases in householders’ bills of around a fifth. It is likely the the remaining three companies will also put their prices up by the same. By the Autumn, virtually every householder in Britain will be paying 20% more for the same service from one of the Big Six. For those on middle incomes it represents another significant squeeze on household budgets, on top of price rises for fuel and food. For those on low incomes, it heralds a descent into fuel poverty, and a cold, harsh winter ahead.

British Gas has just been fined £2.5 million by Ofgem for failures in its handling of customer complaints. Ofgem is also investigating Npower and EDF Energy for similar failings. Scottish Power, Scottish and Southern Energy, EDF Energy and Npower are all being investigated by the regulator for mis-selling to their customers. Most customers struggle to understand their tarrifs and to make sense of their bills. They can’t understand why their bills go up when wholesale prices go up, but stay up when wholesale prices come down.

The government’s answer to this market failure – to encourage more people to swap supplier – is not working. Since the gas and electricity utilities were privatised 20 years ago, one third of householders have never changed their energy supplier, despite growing frustration and disillusionment. Those that do change supplier, often as a result of high-pressure sales techniques, can find that their bills have gone up.

Ofgem has described the ‘stranglehold’ that the Big Six have over 99% of the market. This is not the way a market should work; it has all the hallmarks of a cartel. Ed Miliband has identified the energy market as an example of an unaccountable concentration of power which must be broken up. Both Labour and the government parties want an effective energy market. The difference is that Labour is proposing a practical scheme to make the market work better, whilst ministers are sitting on their hands. We propose a system whereby the companies pool the power they generate and to make it available to any retailer. This would open the market and drive prices down. New firms would be able to enter the market-place, which is currently sewn-up by the Big Six. I would like to see more co-operative and social enterprise entrants into the market, to take on the big foreign-owned corporates.

In the meantime, Labour will campaign against unfair price rises, and highlight increases in the numbers of people shivering under blankets this winter. Let’s start by taking the £2.5 million Ofgem fine, and future fines on recalcitrant energy companies, and using it to help the very poorest people struggling to heat their homes.