Theresa May's energy price cap will backfire

In response to Theresa May's call for an energy price cap, ASI Head of Projects Sam Dumitriu, commented:

"When Ed Miliband called for 70s style price controls on energy prices in 2013 the Tories were right to oppose it. The facts haven’t changed since then, only the politics. We said back then that proposing a cap would force energy companies to keep prices high even as wholesale prices fell as a precaution – and, with the price cap on the table since then, that’s exactly what’s happened. Since Theresa May floated resurrecting Red Ed's price cap, energy companies have hiked prices by as much as 40% in anticipation of a cap.

"The real solution to high energy prices is more competition – something that the Competition and Markets Authority and five previous Ofgem regulations have said is the real problem with the British energy market. Britain used to have an incredibly competitive energy market with the highest rates of active customer switching in Europe, but since 2009 over-regulation has lead to a nearly 50% fall in switching rates. Theresa May’s proposed cap on Standard Variable Tariffs would destroy the incentive for customers to shop around for cheaper tariffs making the market even less competitive.

"Ultimately expensive bills are caused by high wholesale prices and bad regulation, not profiteering – energy firms are no more profitable than similarly sized companies in other sectors. If the Prime Minister really wants to cut energy bills, she should go for competition and make switching easier and more attractive for billpayers."

For further comment or to arrange an interview please get in touch at samd@adamsmith.org,