Is Centrica’s chief executive right to claim the government “lacks faith” in the free market?

Cleaning Takes Place At Landmead Solar Farm
Can the energy market ever be completely free? (Source: Getty)

Vicky Pryce, board member at CEBR and a former joint head of the UK Government Economic Service, says Yes.

It is ironic that, having trashed Ed Miliband in the 2015 elections when he proposed freezing energy prices, Theresa May is now adopting a policy that is classic central planning: deciding what prices can be charged in an environment where different companies have to compete with each other.

Admittedly, there is meant to be flexibility up and down in the proposed cap if wholesale prices vacillate, but more detail is needed. And focusing on the standard variable rates charged could well result in companies raising other fixed tariffs offered now to customers to make up for lost revenue.

Yes, there is a need to look at energy markets and whether they are competitive enough. And yes, there are still serious problems with fuel poverty. But by reducing pricing flexibility while British energy companies and the government have been pushing for greater liberalisation and deregulation in Europe, this move, whatever its potential electoral appeal, has nothing to do with free markets.

Rachel Cunliffe, deputy editor of Reaction, says No.

Perfect free markets require healthy competition, consumer choice, and the free flow of information. The energy market has none of the above. It is dominated by six giant conglomerates with high investment costs crowding out insurgents, switching is a logistical nightmare, and even figuring out how much you’re paying, let alone if the cost could be cheaper elsewhere, is a Herculean challenge.

Nonetheless, the government has a responsibility to make sure the lights stay on. Like other markets that impact the stability of the entire nation (healthcare, pensions, infrastructure), some government intervention is needed to prevent utter chaos. The Conservatives’ proposed cap on energy prices may or may not be the smartest move, but it is an intervention in a market that has never been – and can never be – completely free.

It is not a sign they lack faith in the free market, only that they understand its limitations. And the fact that Centrica has never minded accepting government subsidies shows that the energy bosses are happy to shun the free market too.

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