OECD warns Labour price freeze could see lights go out

The secretary-general of the OECD, Angel Gurria has warned that the Labour party's planned energy price freeze could bankrupt energy investors leading to chaos in Britain's energy market.

Speaking to BBC's Panaroma due to broadcast on Monday night, he said:

If you freeze the price of energy and the international price of energy rises, it means there's going to be a very big difference to pay.

Who's going to pay the difference? Well, are you going to ask the investors to take the difference? Well, you know they'll probably go bankrupt. How are you going to get people to come in and invest to get their money back in 30, 40 years' time, when you are saying there's going to be a freeze? I think this is simply not consistent, not economically objective.

Ed Miliband certainly made waves at the Labour party conference with his announcement of a price freeze. However, a heavy price has been paid for the Labour leader's populism, with close to £6.7bn being wiped off the value of energy companies since the announcement, according to Liberum Capital.

The chief executive for Npower, Paul Massara who was also interviewed by the BBC said:

In [2012] we made about a 3.5% margin. That is hardly excessive. Unfortunately, the political dialogue right now means that with rising bills they want someone to blame and the suppliers are the easiest thing to shoot at.

The Labour party's slide back to the interventionism of the 1970s has been slammed by both the government and a host of economists. As well as interference in the energy market Labour has championed caps on the cost of payday loans which the government recently adopted as a matter of policy.

The deleterious consequences of price controls can be seen in whichever good or service they are applied to. Economists fear that the cap on the cost of credit from legal payday lenders will simply drive those are poorest and with the worst credit ratings into the hands of illegal loan sharks. With criticism now coming from respected international bodies Labour's policy of legislating away problems of scarcity seems to hold less and less credibility.

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