Here's why energy caps are clumsy and counterproductive for consumers

 
Tracey Boles
gas flame
Source: Getty

When it comes to energy, the UK wants to have its cake and eat it: cheap and endless supplies. However, without heavy investment we may get exactly the opposite, namely higher bills and blackouts.

It may sound like scaremongering but look no further than Hinkley Point C, the UK's great white hope for plugging a looming energy gap. Originally scheduled to come online next year, we will be lucky to see it up and running by 2028. While the timeline for the new twin reactors stretches out into the distance, the projected cost creeps ever upwards. Renewable alternatives that would also allow the UK to meet ambitious carbon reduction targets lack the maturity to meet energy needs. As older power stations are decommissioned, that leaves us with some tough choices to make between costs, supplies and emissions.

Ministers have realised there is political capital to be made in the consumer-facing energy sector. But rather that looking at long-term solutions, they have plumped for a short-term plan that amounts to little more than botched work on the electrics by a cowboy builder: energy caps.

Caps sound consumer friendly but are far from it. Free marketeers rightly feel that introducing a cap on household energy prices would be a clumsy and counterproductive government intervention that could have an adverse effect on the whole market. As Julian Jessop, chief economist at the Institute of Economic Affairs, says: “A cap would likely backfire with companies finding some way around them: either by pushing prices higher now in anticipation of the cap; by increasing their lower prices to offset it at the top; or even by cutting back on much-needed investment in the sector to make savings.”

At a time when billions of investment into energy infrastructure is urgently needed, the last thing the government should be doing is jeopardising it for the sake of political tinkering. For a generation or two brought up on cheap and plentiful energy, blackouts may be hard to imagine. But energy operators warn privately that the risk is very real. We ignore their warnings, and fiddle with ill-thought out caps, at our inevitable cost.

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.

Related articles