How the Tories can reform energy companies without a price freeze

Part of the problem with the big corporates is that the regulators often act as company secretaries rather than as powerful consumer bodies.

By Robert Halfon

Ed Miliband’s proposed energy price freeze is seductive for two reasons. First, it shows a serious attempt to alleviate financial pain caused by high utility bills, and second, it taps in to a deep unease about the actions of big corporations. The public instinctively knows that many large multinationals are behaving unfairly, charging more than they need for essential services, while their directors give themselves huge pay rises or bonuses.

However, seduction is not the same as a long-term solution. The price freeze is flawed because it will push up prices in the short term and long term. It is not clear how the freeze would work in the event of large increases in the worldwide energy markets. It could also put badly needed investment in infrastructure at risk, threatening our long-term energy security.

But just because there are problems with Labour’s solution, that does not mean, to use a broken train analogy, that the Conservatives can simply pull up the blinds of the railway carriage and say “the train isn’t working, the train isn’t working”.

First, we have to recognise and condemn the behaviour of the big corporate utility companies. Not just energy but across the board: water corporates and oil behemoths act just as badly. In a study I did of water companies in the east of England, I found that they were hiking up both their customers’ bills and their own bonuses. Oil companies also behave anti-competitively, operating de facto cartels, pushing up the wholesale price and allegedly manipulating the oil market.

Part of the problem with the big corporates is that the regulators often act as company secretaries rather than as powerful consumer bodies: Ofwat sets weak targets for water leaks, Ofgem has been criticised for being powerless and failing to protect the consumer (the recent £8.5m fine it imposed on Scottish Power was a rare example of tough action) and the Office of Fair Trading acts as if it were a lobby group for oil bosses.

So how can the Conservatives deal with this? First, by reforming regulators, so that they have the power to charge huge fines and proper powers to look out for the best interests of the consumer. Second, by getting rid of unnecessary burdens, such as the non-social related elements of green taxes and excessive VAT (after an EU renegotiation) and third, by doing everything possible to increase competition.

Finally, and perhaps most significantly, we should impose a windfall tax on the utility companies. This tax would be handed back to the public through lower utility bills. A windfall tax would also make an important statement to the energy companies: “Enough is enough – the government can no longer stand by and see the public being ripped off.” It would send out a very powerful signal that the Conservatives want to stop the corporate juggernaut and are on the side of the poorest, who are suffering the most from high bills.

It is not sufficient for us Tories just to focus on reducing green taxes, however important. If we are to argue that we won’t save the planet on the backs of the poor, we also have to prove that we can help the poor by getting on the backs of the big corporates. As a party, we have always been successful at the ballot box when we have “elevated the condition of the people” and been the party of small business. A windfall tax would cement our place on the side of those who are doing the right thing, rather than those who are doing such wrong.

Robert Halfon is the MP for Harlow (Conservative)