Is the British Gas price hike a sign that the market requires government intervention?

Greg Jackson and Kate Andrews
British Gas Controversially Increases Its Energy Prices
British Gas claims that its price hike is partly the result of costly government policy (Source: Getty)

Is the British Gas price hike a sign that the market requires government intervention?

Greg Jackson, chief executive of challenger energy firm Octopus Energy, says YES.

The 12.5 per cent price rise from British Gas drew predictable ire. But the issue isn’t whether or not it’s justified (who asks that when Ikea changes price?). The real problem is that the energy market is so grotesquely distorted that there’s no competitive pressure on companies to keep prices down for loyal customers. The current system was created by regulators to improve efficiency and cut prices. Against that measure it has manifestly failed – our analysis indicates that The Big Six “bloat” is up to £150 per customer. For a market to work effectively, you need price transparency. Energy couldn’t be less clear – with four variables, estimated consumption and tariffs with all kinds of gotchas, the majority of consumers are too bamboozled to act.

That’s why we back the government implementing a simple rule to link the prices for loyal customers to those advertised for new customers. This would finally introduce competitive pressure on the prices paid by most customers – and make energy as competitive as supermarkets.

Read more: British gas owner will increase the price of electricity by 12.5 per cent

Kate Andrews, news editor at the Institute of Economic Affairs, says NO.

British Gas claims that its price hike is partly the result of costly government policy. This is in line with evidence from the past 30 years: increased state intervention often translates into higher costs and burdens for consumers. Throughout the 1990s and early 2000s, when energy policy was characterised by a liberalisation of the market, energy costs fell for consumers by 26 per cent. Compare that to post-2001, when state interference grew: electricity costs for households in Wales and England rose by a staggering 50 per cent in real terms. (See Diego Zuluaga’s 2017 report for the IEA.)

Many of the regulations implemented in recent years are related to green energy policies. While combating CO2 emissions is a worthwhile goal, this has resulted in increased energy costs, while the regulations themselves have often proved ineffective. If the government is serious about tackling climate change, it should address the issue with a simple and straightforward carbon tax or emissions trading policy. But increased tinkering and regulating will only worsen the burden felt by customers.

Read more: Here's why energy caps are clumsy and counterproductive

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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