Friday, October 13, 2017

You can’t buck capitalism

When the Labour Party first announced a cap on energy prices before the 2015 election the Tories denounced it as a ridiculous attempt to buck the market, an exercise in state economic control. Now, the Tories have decided to copy the idea, at least temporarily until 2020. But it will be doomed to failure, just as the Milliband's proposal would have been. You can’t buck the market. energy companies are not some sort of diabolical agents of evil. They’re private companies in the business of supplying and/or generating gas and electricity and supplying it to businesses and homes.

 Somewhere, somehow, the energy companies will find a way to structure tariffs to get their revenues back. That, in fact, is what, as businesses supposed to generate a profit, they are supposed to do. The simplest way would be to reduce the appeal of all those special offer “teaser” rates they offer new customers and switchers. So there’ll be a net effect of transferring money from the more sassy and discriminating consumer to those who are not computer-literate to shop around.

Stephen Murray, energy expert at MoneySuperMarket, said “Realistically, it could be Spring 2019 before customers on standard variable tariffs start to see their bills come down,” he said.

Energy companies need to generate profits. They have to, like all firms, reward shareholders for supplying the equity capital they need, and banks and bond holders for the money they have lent to the utilities to build infrastructure such as wind farms, invest in new power sources and storage, and so on.  Profits are needed for investment. Restrict prices and you restrict revenues and you restrict profits and you restrict investment. 

May's plan to simply cap tariffs for all, is also an indiscriminate solution which will help the rich.

The GMB union said the proposal “falls short” of what is needed to protect consumers from “excessive profiteering” by energy companies. 

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