Is the proposed price cap for pre-pay customers an unwelcome intervention in the energy market?

Gas Dispute Threat To UK Power Supplies
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Tim Worstall, senior fellow of the Adam Smith Institute, and author of Chasing Rainbows: Economic Myths, Environmental Facts, says Yes.

Of course the Competition and Markets Authority’s (CMA) intervention is unwelcome: any price fixing whenever would be. The entire point of a market economy is that prices change to balance supply and demand. Price fixing, by definition, means that those two will no longer balance: if the price is set lower than the market, as here, then there will be shortages. If higher, as with the EU’s former very stupid indeed farm price supports, we get mountains of butter and lakes of undrinkable wine. There is no way out of this. Price fixing means that supply and demand no longer balance – unless the price is fixed at the market clearing price, in which case why make the effort? If there is an absence of competition in the market, then the CMA might well have a job to do. But that job should not be done by messing with prices, for they are the information that makes the entire economic system work.

Bruce Davis, co-founder of Abundance and a fellow at the Bauman Institute’s Finance Innovation Lab, says No.

Competition is one way to keep markets fair and stop power concentrating to the detriment of individual or corporate actors. But history shows us that competition alone is not sufficient. Regulators also have to look at the purpose of a market and how it serves all parts of society. The Competition and Markets Authority (CMA) was right to intervene on this open scandal in the energy industry where people with poor credit ratings or problems with paying their energy bills were placed on tariffs that exacerbated those very problems. The idea that paying in advance for your energy meant you paid more than those who could be “trusted” on credit, almost as a punishment, is not the function of a fair market. But the CMA shouldn’t stop there. It should also look at how individuals are able to access forms of renewable energy and energy efficiency that would level the playing field between producer and consumer in energy as a whole.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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