Arbitrarily capping prices on energy bills would be counterproductive
24 April 2017
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Reaction to Conservative party plans to place a cap on household energy bills
Commenting on the Conservative Party’s plan to cap household energy bills, Julian Jessop, Chief Economist at the Institute of Economic Affairs, said:
“Introducing a cap on household energy prices would be a clumsy and counterproductive government intervention that could have an adverse effect on the energy market. A cap would likely backfire with companies finding some way around them: either by pushing prices higher now in anticipation of the cap; by increasing their lower prices to offset the cap at the top; or even by cutting back on much-needed investment in the sector to make savings.
“There is some market inefficiency in the sense that it is made difficult for customers to find cheaper tariffs and switch providers. But for the Government to arbitrarily decide that the bill is too high and therefore set an explicit cap is an ill-measured reaction to the problem at hand.”
Notes to editors:
For media enquiries please contact Nerissa Chesterfield, Communications Officer: nchesterfield@iea.org.uk 020 7799 8920 or 07791 390 268.
Relevant IEA publications
Energy policy
In 2017 the IEA released a briefing on energy policy, ‘A post-Brexit framework for electricity markets’ which argues that Brexit provides a real opportunity to bring down electricity bills for low-income households. The full report can be downloaded here.
In 2015 the IEA released a report on energy policy, ‘Power Cut? How the EU is Pulling the Plug on Electricity Markets’. The full report can be downloaded here.
In 2013 the Institute of Economic Affairs published ‘From Nationalisation to State Control – The return of centralised energy planning’, which calls for government to step back from energy markets to lower prices. To download this report please click here.
Price controls
In 2015 the Institute of Economic Affairs published ‘Flaws and Ceilings: Price controls and the damage they cause’, which explains why price controls are so damaging to our economy. To download this please click here.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
The IEA is a registered educational charity and independent of all political parties.
“Introducing a cap on household energy prices would be a clumsy and counterproductive government intervention that could have an adverse effect on the energy market. A cap would likely backfire with companies finding some way around them: either by pushing prices higher now in anticipation of the cap; by increasing their lower prices to offset the cap at the top; or even by cutting back on much-needed investment in the sector to make savings.
“There is some market inefficiency in the sense that it is made difficult for customers to find cheaper tariffs and switch providers. But for the Government to arbitrarily decide that the bill is too high and therefore set an explicit cap is an ill-measured reaction to the problem at hand.”
Notes to editors:
For media enquiries please contact Nerissa Chesterfield, Communications Officer: nchesterfield@iea.org.uk 020 7799 8920 or 07791 390 268.
Relevant IEA publications
Energy policy
In 2017 the IEA released a briefing on energy policy, ‘A post-Brexit framework for electricity markets’ which argues that Brexit provides a real opportunity to bring down electricity bills for low-income households. The full report can be downloaded here.
In 2015 the IEA released a report on energy policy, ‘Power Cut? How the EU is Pulling the Plug on Electricity Markets’. The full report can be downloaded here.
In 2013 the Institute of Economic Affairs published ‘From Nationalisation to State Control – The return of centralised energy planning’, which calls for government to step back from energy markets to lower prices. To download this report please click here.
Price controls
In 2015 the Institute of Economic Affairs published ‘Flaws and Ceilings: Price controls and the damage they cause’, which explains why price controls are so damaging to our economy. To download this please click here.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
The IEA is a registered educational charity and independent of all political parties.
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