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Tory claims over energy price cap are just hot air Tory claims over energy price cap are just hot air
(about 4 hours later)
The most irritating part of Theresa May’s presentation of her price cap on energy bills is not her silly pretence that her policy, and Ed Miliband’s, are chalk and cheese.The most irritating part of Theresa May’s presentation of her price cap on energy bills is not her silly pretence that her policy, and Ed Miliband’s, are chalk and cheese.
Under a microscope, it’s true one can tell the two apart. The Tory version could see prices increase sometimes under regulator Ofgem’s six-monthly reviews; and, as far as we can tell, it will be imposed indefinitely. Labour’s idea was a less flexible cap – prices could fall but not rise – that would last for only two years. But these differences are minor. The approaches come from the same philosophical bucket: the market is “broken” and so politicians and/or the regulator must set maximum prices to ensure nobody is ripped off.Under a microscope, it’s true one can tell the two apart. The Tory version could see prices increase sometimes under regulator Ofgem’s six-monthly reviews; and, as far as we can tell, it will be imposed indefinitely. Labour’s idea was a less flexible cap – prices could fall but not rise – that would last for only two years. But these differences are minor. The approaches come from the same philosophical bucket: the market is “broken” and so politicians and/or the regulator must set maximum prices to ensure nobody is ripped off.
It’s a point of view, and few hearts will bleed for the suppliers. For 20 years, they’ve run a business model that gives loyal customers the worst prices – a “tease and squeeze” tactic. The regulatory system may have encouraged them down this route, but the companies cannot be surprised that so many people think it odd that there are differences of £200 or more between the same company’s standard rate and fixed tariff for a commodity product.It’s a point of view, and few hearts will bleed for the suppliers. For 20 years, they’ve run a business model that gives loyal customers the worst prices – a “tease and squeeze” tactic. The regulatory system may have encouraged them down this route, but the companies cannot be surprised that so many people think it odd that there are differences of £200 or more between the same company’s standard rate and fixed tariff for a commodity product.
So what’s the most irritating aspect? It’s the Tories’ breezy use of last year’s report by Competition and Markets Authority to justify a price cap.So what’s the most irritating aspect? It’s the Tories’ breezy use of last year’s report by Competition and Markets Authority to justify a price cap.
The key passage of that report said four out of five members of the panel had rejected their own initial analysis and now thought price controls were a bad idea: “The majority of us believe that attempting to control outcomes for the substantial majority of customers would – even during a transitional period – run excessive risks of undermining the competitive process, likely resulting in worse outcomes for customers in the long run.”The key passage of that report said four out of five members of the panel had rejected their own initial analysis and now thought price controls were a bad idea: “The majority of us believe that attempting to control outcomes for the substantial majority of customers would – even during a transitional period – run excessive risks of undermining the competitive process, likely resulting in worse outcomes for customers in the long run.”
That part wasn’t mentioned by May in the Sun as she confidently referred to “a government-backed report last year that found households are paying £1.4bn a year more than they need to”. Yes, the £1.4bn figure was highlighted by the CMA – but it concluded that a short-term fix in the form of a price cap would risk bigger problems.That part wasn’t mentioned by May in the Sun as she confidently referred to “a government-backed report last year that found households are paying £1.4bn a year more than they need to”. Yes, the £1.4bn figure was highlighted by the CMA – but it concluded that a short-term fix in the form of a price cap would risk bigger problems.
Business secretary Greg Clark, to his credit, acknowledged that he’s backing the minority view within the CMA. But he and May have completely failed to explain how competition is meant to flourish while price caps exist. It’s not hard to guess what will happen if suppliers are forced to cut £100 from 17m standard-rate bills. The companies will yank their discount fixed-price tariffs to minimise the financial pain for themselves. Indeed, they are already doing so. Switching rates may not collapse to zero – but a carrot worth, say, £30 won’t appeal to active punters like a £200 one does.Business secretary Greg Clark, to his credit, acknowledged that he’s backing the minority view within the CMA. But he and May have completely failed to explain how competition is meant to flourish while price caps exist. It’s not hard to guess what will happen if suppliers are forced to cut £100 from 17m standard-rate bills. The companies will yank their discount fixed-price tariffs to minimise the financial pain for themselves. Indeed, they are already doing so. Switching rates may not collapse to zero – but a carrot worth, say, £30 won’t appeal to active punters like a £200 one does.
May and Clark seem to believe Ofgem can somehow magic a figure that delivers both “fair” bills for everyone and a competitive market that encourages switching. Good luck with that, Dermot Nolan, Ofgem boss, it looks a tall order. Good luck, too, in trying to retain your status as an independent regulator: you’ll be kicked from pillar to post, especially when there’s an election around the corner.May and Clark seem to believe Ofgem can somehow magic a figure that delivers both “fair” bills for everyone and a competitive market that encourages switching. Good luck with that, Dermot Nolan, Ofgem boss, it looks a tall order. Good luck, too, in trying to retain your status as an independent regulator: you’ll be kicked from pillar to post, especially when there’s an election around the corner.
xx Go tell Aviva
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Shareholders are spoiled for choice with Wednesday’s bumper crop of annual meetings. Is the best entertainment to be had at Barclays, where there’s an opportunity to prod chief executive Jes Staley and ask him what on earth he was playing at in trying to unmask a whistleblower? Or should one be at ITV to tell chairman Sir Peter Bazelgette that, if he’d been on his game, he would have started looking earlier for a replacement for outgoing chief Adam Crozier?Shareholders are spoiled for choice with Wednesday’s bumper crop of annual meetings. Is the best entertainment to be had at Barclays, where there’s an opportunity to prod chief executive Jes Staley and ask him what on earth he was playing at in trying to unmask a whistleblower? Or should one be at ITV to tell chairman Sir Peter Bazelgette that, if he’d been on his game, he would have started looking earlier for a replacement for outgoing chief Adam Crozier?
Actually, the place to be could be Aviva, where Philip Meadowcroft, an activist veteran of these occasions, will be posing a tricky question to chairman Sir Adrian Montague: shouldn’t you thinking of selling Aviva Investors, the fund management division?Actually, the place to be could be Aviva, where Philip Meadowcroft, an activist veteran of these occasions, will be posing a tricky question to chairman Sir Adrian Montague: shouldn’t you thinking of selling Aviva Investors, the fund management division?
Aviva Investors, in the usual parlance, is in turnaround mode. The trouble is, it hasn’t turned terribly far. Meadowcroft calculates that it delivered 0.2% of the cash remitted to the group last year and contributed just 4.6% of operating profit. Aviva is a large company but Aviva Investors is big in its own right – it has £345bn under management. As for its flagship multi-strategy AIMS fund, it may be gathering assets but the investment growth was a miserable 1.07% last year.Aviva Investors, in the usual parlance, is in turnaround mode. The trouble is, it hasn’t turned terribly far. Meadowcroft calculates that it delivered 0.2% of the cash remitted to the group last year and contributed just 4.6% of operating profit. Aviva is a large company but Aviva Investors is big in its own right – it has £345bn under management. As for its flagship multi-strategy AIMS fund, it may be gathering assets but the investment growth was a miserable 1.07% last year.
In reply, Montague may plead that profits at Aviva Investors improved 30% last year to £139m, so describing it as a “permanent flop” is harsh. Yet even he would surely admit that the division is not pulling its weight in the way that M&G does at the Prudential and LGIM does for Legal & General.In reply, Montague may plead that profits at Aviva Investors improved 30% last year to £139m, so describing it as a “permanent flop” is harsh. Yet even he would surely admit that the division is not pulling its weight in the way that M&G does at the Prudential and LGIM does for Legal & General.
A truly frank chairman might also concede that Aviva Investors needs to shape up faster if it is to remain a “core” business. That would be a reasonable stance. Montague won’t dare to be so bold, however, since anything less than full-blooded commitment tends to make investors, and the fund managers, nervous. Thus the chairman will be obliged to display confidence, however awkwardly. But it won’t make the question – or the commendably persistent Meadowcroft – go away.A truly frank chairman might also concede that Aviva Investors needs to shape up faster if it is to remain a “core” business. That would be a reasonable stance. Montague won’t dare to be so bold, however, since anything less than full-blooded commitment tends to make investors, and the fund managers, nervous. Thus the chairman will be obliged to display confidence, however awkwardly. But it won’t make the question – or the commendably persistent Meadowcroft – go away.