Prime Minister David Cameron has voiced support for energy market intervention in a heated session of Prime Minister's Questions today.
While the Prime Minister did support "rolling back the costs that have been imposed on people's energy bills" in the form of energy sector levies, he reiterated his backing for intervention that he claims will simplify energy tariffs.
Intended to restrict suppliers to offering no more than four tariffs for each type of fuel, the policy is far less likely to help customers with their bills than the Prime Minister suggests.
Stephen Littlechild, fellow at Judge Business School, University of Cambridge, wrote in City A.M. that the policy would see "a reduction in competitive pressure" and "would result in further increases in prices and retail profits."
The proposals will prohibit, or lead to the withdrawal of, some of the lowest price offers in the market. Consider what the Sunday Times currently rates as the best energy deal available – SSE’s Discounted Energy 2015 tariff. This guarantees 11 per cent off the company’s standard energy tariff for the first year, then 2 per cent off for the second. It also has a £50 exit penalty if the customer switches before April 2014.
Ofgem’s proposals, endorsed by the government, would prohibit SSE from offering this tariff. Why? Because the discount is expressed as a percentage, not a fixed amount, and because the discount is different in the second year compared to the first. Yes, it really is that petty. It is difficult to see why customers used to 10 per cent off labels in supermarkets would find the use of percentage discounts a barrier to spotting a good deal.