You don't need Ed Miliband to fix your energy bills

Labour has committed to forcing energy firms to freeze their bills should the party win the next election. But is this the right way to tackle price rises?

The Labour Party has committed to freezing energy bills for two years should it win power in the next General Election in 2015.

Ed Miliband, the Leader of the Opposition, argued that energy providers have been overcharging the likes of you and me for years and that a temporary price cap would help struggling families.

The cap would save the average household £120 a year and businesses £1,800.

Unsurprisingly the energy providers are awfully upset, claiming that the cap would cost them as much as £4.5 billion. Some have also suggested that the providers would simply raise their prices in advance of any cap, rendering the whole exercise pointless.

Something must be done

In the open letter Miliband has sent to each of the ‘Big Six’ energy providers, he says that it’s clear that the public has lost faith in the energy market, resulting in a crisis of confidence.

If the energy providers don’t agree to the price cap, they will simply be reinforcing in the minds of the general public that “you are part of the problem, not the solution”.

Miliband is absolutely right that there is a huge distrust of energy companies. There is a perception that the moment wholesale prices inch upwards, our bills rocket. But when wholesale prices fall, it’s not reflected in price cuts.

Figures from the Office for National Statistics show that gas bills have grown by 41% in real terms since 2007, while electricity has jumped 20%. The suppliers have blamed everything from wholesale price rises to the need to be more energy efficient for these bill rises, yet they have also posted staggering profits in recent years. The economy may still be struggling, but energy suppliers are doing just fine.

Regulator Ofgem has proved somewhat toothless in tackling the issue, so perhaps it is time for Government to make a stand.

Is a price cap the right way to do it?

Yet there’s something about the concept of a price freeze like this that leaves me uneasy. It just seems far too open to abuse.

And that’s before you get into the rights and wrongs of Government being able to dictate what private companies can charge for their services.

Critics have pointed to the failed attempt in California to fix energy prices, which resulted in blackouts, warning something similar could happen here. They’ve also suggested that a price freeze would put investment into clean energy in doubt.

What we can do

Rather than imposing an arbitrary cap on suppliers, we need to find a way to make it worthwhile for suppliers to keep price rises under control. And it’s up to us, the customer, rather than the (would-be) Government to do that.

Energy bills, much like death and taxes, are all but unavoidable. Yet most of us do nothing to reduce the pain. Instead, we sit on a supplier’s standard tariff, paying through the nose.

Energy firms rely on that apathy. Sure, they may launch a great fixed rate tariff here, or an online exclusive there, but they know that if you do happen to switch, chances are you’ll lose interest in checking each year that you’ve got the best deal and just end up back on an expensive standard tariff.

The best way to force energy companies to compete is to play them off against each other. Shop around every couple of months. Keep looking for better deals. And if you find one, but aren’t actually that keen on switching, see if your existing provider will match it.

If you don’t want your energy bills to change for a couple of years, you can already do that. The tariffs below allow you to fix your energy bills for a while, in one case until March 2017. And you don’t need to rely on a Labour majority to take advantage.

What do you think? Should energy prices be capped? Let us know your thoughts in the Comment box below.

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