Politics

Is it time to scrap Ofgem?

By refusing to implement a proper price cap, the energy regular is proving itself to be spineless

September 05, 2017
Photo: Yui Mok/PA Wire/PA Images
Photo: Yui Mok/PA Wire/PA Images

Whatever you think of the Conservative election campaign, we got one policy offering absolutely right: the energy price cap. We promised to end energy rip-offs for 17 million consumers and it was, unsurprisingly, very popular on the doorstep. So popular, in fact, that it achieved a rare moment of cross-party consensus by cropping up in both the Labour and SNP manifestos too.

Job done then? Well, no because, bizarrely, the energy regulator Ofgem is refusing to implement the cap at all. It says it is too political, that it is worried about legal challenges, and wants parliament to pass a law ordering it to do it first.

Which is pathetic, because the whole point of Ofgem—the reason it was created in the first place—is to protect consumers from being abused by the “Big Six” energy firms. Not only that, but it is explicitly set up to be politically independent, so politicians can't make grubby deals to intervene on behalf of big businesses, to make sure they don't go soft on standing up for hard-pressed consumers struggling to pay their energy bills.

Odder still, Ofgem has told me they already have all the legal powers they need to implement a price cap if they want to. So it is asking parliament to pass a law ordering it to do something that parliament has already passed a law giving it the powers to do.

This isn't just circular, it's spineless. Because, at the first whiff of gunpowder, these supposedly-fearless champions of consumer rights have turned tail and run for the protection of approval by the very politicians they're supposed to be independent from. Approval which already appears in three election manifestos which, between them, commanded well over 80 per cent of all the votes cast in June.

Even worse, the cowardice of asking for a special law is a recipe for even more delays while the Big Six carry on ripping us all off. Ofgem knows it will take months or years for a new law to wind its way through parliament, particularly while Brexit negotiations are taking up so much political bandwidth.

But even though the Competition and Markets Authority found a £1.4bn a year detriment to retail energy customers on poor value standard variable tariffs, Ofgem won't act. It is doing nothing.

“If Ofgem won’t act, it will only strengthen the case for replacing it completely”
That’s unfair: it is doing something. It’s just that that something is exactly what the big six energy companies want it to do. In July, Ofgem announced a timid, shriveled form of cap which only helps a tiny percentage of the population. Around two million customers will get help while the remaining 15 million will be left to be preyed upon by the Big Six.

If Ofgem doesn’t have the guts to go into battle with the big six on behalf of consumers—if it scuttles away at the first sign of a legal challenge—it is utterly useless.

The cross-party relative price cap plan says that there should be a maximum mark-up between each energy firm’s best deal and their default tariff. It would mean that, once your existing deal comes to an end, if you forget to switch to a new one then you won’t be ripped off too badly.

Crucially, this would be a lot better than an absolute price cap or freeze, because each energy firm could still adjust prices whenever it wanted, if the wholesale price of gas or electricity went up or down.

It’s not just a cross-party group of MPs who have been arguing for this. The 30 or so challenger energy companies that are snapping at the big six’s heels agree, and have been clamouring for a relative price cap for some time. They realise that under such a cap they will still be able to have as many tariffs as they want, so there would be plenty of customer choice, and competition would be red hot.

I think we should listen to these challenger companies: they are the competition we are trying to promote and unlock, so they can offer better deals for consumers that chisel away at the big six monopoly.

Let’s be bold. Ofgem shouldn’t be enthralled to big business or vested interests. It should use the powers it’s already got to stand up to them, or give up its claims to political independence and protecting consumers entirely. If it won’t act, it will only strengthen the case I have been making for replacing it completely, with a new, heavyweight, cross-sector regulator that isn’t scared to do its job instead.

The price cap was a popular manifesto pledge and my cross-party letter shows that there is broad and growing support in parliament for it. If Ofgem refuses to grow a spine on this, it will be for parliament to surgically insert one by replacing it with an organisation which will act. There is no way on this planet that its measly proposal can solve such a big problem. Whatever it takes, we will ensure that 17 million customers are protected one way or another.