Here's how the City is reacting to the Conservative plan to cap energy prices

Courtney Goldsmith
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PM Theresa May's plan to cap energy prices has been controversial in the City (Source: Getty)

Yesterday, Prime Minister Theresa May promised the Conservative party will put a cap on energy prices if it holds a majority after the election.

The decision has caused an eruption of opinions from energy bosses, consumer groups and business firms.

Here's what they're saying...

"Poorly justified political meddling"

The Institute of Economic Affairs said the price cap will cause more harm than good.

"This type of cap is a crude intervention which will not guarantee lower bills for consumers. The move may well end up backfiring with energy companies likely to raise prices before the cap is introduced," said Mark Littlewood, director general at the Institute of Economic Affairs.

"Poorly justified political meddling will also deter new entrants, undermine competition, reduce much needed investment in the industry, and potentially put jobs at risk."

Read more: Feeling the heat: Energy stocks take another hit from Tory price cap plans

A puzzling move

Alex Wild, research director of the TaxPayers' Alliance, pointed out a contradiction: "One of the Prime Minister’s first acts on moving in to Downing Street was signing up to the most expensive conventional power station anywhere in the world at Hinkley Point, so her new found concern for consumers is puzzling.

"Politicians have effectively banned cheap energy and driven up bills by insisting that expensive technologies are deployed at scale. This requires huge levels of investment by energy companies which has to be paid for with higher prices for consumers. Crude diktats such as this suggest that the government simply doesn’t understand the consequences of these ill-thought-out policies."

More intervention risks undermining progress

“Today’s announcement effectively risks giving up on competition at a time when we need engaged consumers more than ever," said Lawrence Slade, chief executive of Energy UK.

“Change is happening at a rapid pace in the energy sector – with ever-increasing levels of engagement, more choice and improving customer service. Further intervention risks undermining so many of the positive changes we are seeing in the market which are delivering benefits for consumers."

Read more: May confirms Conservatives will offer cap on standard energy tariffs

The PM should focus on switching

Sam Dumitriu, head of projects at the Adam Smith Institute said: "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.

"Since Theresa May floated resurrecting Red Ed's price cap, energy companies have hiked prices by as much as 40 per cent in anticipation of a cap."

The real solution to high energy prices is more competition, which both the Competition and Markets Authority and Ofgem have called for, Dumitriu said.

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.

A price cap alone isn't enough

Time has been called on the Big Six not doing enough for their customers, said Ian McCaig, chief executive of energy challenger First Utility.

“Saving standard variable tariff customers £100 a year is a welcome development, but it needs to be implemented in a way that helps those least able to access the market and those in the most vulnerable social groups first and as an immediate priority," he said.

“A price cap alone won't fix the broken market. More action is needed to drive simplification and much more transparency in energy pricing for all, and competition needs to be continually supported and encouraged.”

Abolish the standard variable tariff instead

The Conservatives asked the right question, but they came up with the wrong answer, said Keith Anderson, chief corporate officer of ScottishPower. Instead of capping prices, the government should get rid of the standard variable tariff altogether to end the market's status quo.

Rather than addressing the symptom of price pressure in the energy market, the next government should tackle the root cause of the problem and boost competition by abolishing the standard variable tariff.

Ofgem must get the balance right

GMB, the union for energy and gas workers, said the regulator could cause job losses if it isn't careful.

Justin Bowden, GMB national secretary, said: "Should this policy come into effect, and the regulator be given the job of capping energy prices, then Ofgem must distinguish between profiteering and the resources needed to generate jobs and to pay for the vital infrastructure needed to maintain our power networks.

“If the regulator gets the balance wrong, leading to cuts to jobs or terms and conditions as a result, GMB will not hesitate to defend UK jobs and fair pay and conditions."

Read more: Tory plans for an energy cap could cost consumers upwards of £200

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