Tuesday, 20 November 2012

Why does Cameron want to destroy customer choice in the energy market?

To spare David Cameron's blushes after he announced a stupid idea in the House of Commons the other month, the government plans to destroy competition in Britain's energy market.

After Cameron's bizarre promise to put gas and electricity customers on the "lowest" tariff automatically, apparently whether they wanted it or not, Energy Secretary Ed Davey has decided to reduce the number of tariffs offered by each supplier to just four, and will "require that the companies put consumers on the lowest tariff available to them."  Customers who prefer a different arrangement, such as a fixed price deal, will have to go out of their way to request it, and it's not clear if there will be enough tariffs available to allow a choice between tariffs that have a standing charge and those charging merely be consumption.  Depending on one's energy use, the difference here can be as much as £300 a year.

The inevitable result of this patronising proposal will be the disappearance of the best deals, which have always been unusual, eye-catching offers designed to tempt canny shoppers-around away from the competition.  It was worthwhile for supply companies to make such offers because, human inertia being what it is, customers who can be bothered to swap suppliers on a regular basis will always be in a minority.  And the special tariffs are still profitable, because energy profits are enormous.  If everyone was on a special deal, profits would still be tangible, but would be considerably lower.  It would of course be nice if all customers were on a special deal, but that would require action to limit the profits of energy companies, and that isn't going to happen under this government or (probably) under any other.

Many poorer, less tech-savvy customers are on deals that are lower than they could get by shopping around; but so are many better-off customers who have enough spare cash not to worry about cost.  The real losers will be people on tight budgets who can be bothered to undergo the fairly minimal hassle involved in logging onto one of the "switching" websites to find the best deal.  If everyone is forced onto the same "low" tariff, it will self-evidently be a higher one than is currently available.  People currently on the best-value deals will, therefore, face an avoidable hike in their gas and electricity bills.  The principal result of this idiotic policy will be enhanced profits for energy companies.  A market that is perceived to be failing will be replaced by one that isn't any longer a market at all, but a mere cartel.

It is a myth that there is no effective competition in the energy market.  It's just that only people who make the effort to shop around take advantage of the lowest tariffs.  This is not a bad thing.  People who make an effort to shop around should be rewarded with cheaper prices.  People who care more about continuity of supply and who are less price-sensitive should pay more.  It's called the free market.  The government doesn't insist that Sainsbury's only offer four different varieties of bread, or ban them from offering special offers on one type of fruit but not another.  Some shoppers have hours to spend chasing down the best prices.  They will save money compared to people who want to get the shopping over with as quickly as possible; but they will almost always be poorer to start with.  The energy market is not that different.

If poorer pensioners and others unable to access the internet are, at present, paying over the odds, there are ways in which they could be offered targeted help to find a better deal.  For example, the energy suppliers could be required to identify such customers and offer them a better deal.  This would be considerably cheaper and less intrusive than the anti-competitive, paternalistic and statist measures that are being set in motion.

Another stupid policy from an increasingly stupid government.

UPDATE I see it all now. 

Asked if the government would regard the policy as a failure if it led to some people’s fuel costs rising, Cameron’s official spokesman told a regular media briefing in Westminster: “Our objective has been to work to help hard-working families who often struggle to pay their energy bills.

The government is obviously concerned that too many of those currently taking advantage of tariff-switching are on benefits, or lack the distracting presence of children, or are otherwise insufficiently hard-working or insufficiently families.  So if they end up paying more, good. Not so stupid after all?