Labour and energy prices

The chief executive of one of the UK’s biggest energy companies has said his firm has not reduced fuel bills because of the Labour party’s threat to freeze prices.

The claim was made in a letter from Paul Massara, the head of npower, to Ofgem, the energy regulator.

Massara claims that dropping prices – at a time when there is a dip in wholesale gas prices – would be risky because npower would not be able to raise them again should Labour win the next election and put in place a proposed freeze.

In the letter, published in The Times, Massara claims the Labour proposal has complicated any possible falls in energy costs at a time when gas prices have more than halved.

“The political and media pressures at the moment make it more difficult to reduce prices and then increase them again next spring,” he wrote.

“Then we are acutely aware that if the Labour party were to implement their proposed price freeze, we will be living with the consequences of our standard rate tariff price for a very long time and beyond the level of risk that we could manage in the wholesale market.”

Standard mistake the Milliboy is making here. There’s a very large group of people who think that if you just state that something must be so, if we pass a law or make a rule, then things will be as that rule or law insists. They fail to realise that people will react to the effects of said rule and or law.

As here: threatening to raise prices in the future means people will be less willing to lower them on a short term basis now.

There will always be a reaction to proposed rules and laws. And it’s worth working out what those are going to be before promulgating any.

17 comments on “Labour and energy prices

  1. Two Jags did something similar with rail ‘privatisation’ about 20 years back, threatening to renationalise, or some such, on gaining power, so the sell-off (more accurately, the sub-contracting) price was hit, and the sale was a bit of a dud.

  2. But the coalition, eager to find scapegoats for energy price rises caused largely by their own energy policies, have mounted such a propaganda campaign against the energy companies that the public will blame the companies, not Miliband.
    So Labour win politically; prices stay higher under the current government and Labour can then cap them then claim success.

  3. Isn’t the boss of npower admitting that it’s an uncompetitive, cartel? “Yes, gas prices are down, but we don’t give a fuck ‘cos our customers won’t move ‘cos all the other suppliers won’t cut their prices either.”

    Straight to the Competition Commission (or whatever it’s called). Shareholders, fire that man for writing a letter to the Times saying “Yes, of course it’s a cartel.”

  4. God, I hate the Labour party. I’m not sure if they’d even admit fault privately. Nothing is ever Labour’s fault, you see.

  5. “Isn’t the boss of npower admitting that it’s an uncompetitive, cartel?”

    He’s admitting that price-fixing government regulators are an uncompetitive cartel, yes.

  6. Wasn’t aware the coalition energy prices were any better or worse than Labours policies. Though it is nice to get a warm front grant these days.

  7. The scariest thing about this is that Millibean has a master’s degree in economics from LSE. If he were the usual lawyer you could understand the belief that if you make a law it is so.

    I can only presume, like another person much discussed around here, that he didn’t listen in his economics lectures.

  8. NiV
    “He’s admitting that price-fixing government regulators are an uncompetitive cartel, yes.”

    Nope. You might have a point if electricity regulators in the UK did actually set electricity prices, but they don’t. They try, with some success, to set a competitive framework in which suppliers will actually compete.

    It’s not a complete failure – ‘leccy prices in UK are (I think) relatively low by European standards.

    But imagine the head of Tesco saying “we won’t pass on lower *current* milk prices” because Milliband has said something that *might* discourage dairy farming in three years time, *if* he gets elected. Wouldn’t happen, as Asda, Lidl etc would all say “come to us for cheaper milk.”

  9. NiV

    Yes, that is exactly what he said. And I’m turn Militant said in simple language that he WOULD fix the price. It’s there in black and white; some people think it’s funny and clever not to see it.

  10. Luke>

    What you’ve missed is that the future risk being talked about is a genuine cost of doing business for all players in the market, so cartels don’t come into it.

    Imagine if milk was cheap now, but carried a risk that in six months the government would force you to pay out ten times the amount to consumers who bought milk from you. The actual cost of selling milk would include that risk, not just the wholesale price, right?

  11. The price fix is one element of this, but there’s another which is probably more important.. because it’s not linked to any particular government making any particular policy statement. That element being the PR impact of raising prices being a deterrent to lowering them.

    So even if they are not prevented from raising prices by a law, they are deterred by the likely reaction of the baying mob. By which we mean the entire media. The media which make ever price increase a headline story, and never seem to mention when the reductions are passed on.

    This is another example of the distinct anti-business tilt to a lot of the british media have a counterproductive impact. There’s a lot of this going around.

    The general principle of businesses being scared of doing things that customers don’t like because they will get loudly called out on it is something I applaud. But combine it with the level of ignorance of commercial realities displayed by our media and you’ve got a problem. Businesses should be able to assume that their customers are grown-ups, but I don’t think they can.

  12. “Millibean has a master’s degree in economics from LSE.”

    That’s quite irrelevant if he’s never mixed with humans.

  13. Dave,

    “Imagine if milk was cheap now, but carried a risk that in six months the government would force you to pay out ten times the amount to consumers who bought milk from you. ”

    Not a true comparison. Imagine Milliband threatened to fix the price of milk. Supermarkets wouldn’t be able raise the price now, or keep it high despite the fact that farmers were selling to them for a reduced price. (Caveat – they might be able raise the price of milk if some exit the market, but no power company has yet done that.

    I quite accept btw that fixing either milk or electricity prices is not a good idea – as above, it might cause some to leave the market in the long run.

    NiV, yes, but (a) he has not specified a price and (b) my point is that power companies are not competing *now* – npower has just said so.

  14. “Supermarkets wouldn’t be able raise the price now, or keep it high despite the fact that farmers were selling to them for a reduced price.”

    I think the supermarkets would be a lot more cautious about cutting prices on milk to gain market share if there were a credible threat of a milk price freeze on the table. Sure, the market for milk is a lot more competitive than the market for power so the effect probably wouldn’t be as strong, but it would still be there.

  15. Luke>

    I’m afraid it is a true comparison. All I’ve done is exaggerate the downside. The risk is that prices will be fixed and you’ll be forced to sell milk for less profit, rather than making a hefty loss – you’d just stop selling, obviously, hence the shortages price fixing creates – so you charge more to offset the cost of that risk.

  16. BICL
    ” Sure, the market for milk is a lot more competitive than the market for power”

    Yup, that’s all I’m saying. I should have said that at the start.

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