Price caps: The default policy of modern politicians
Marcel le Gouais
If political party conferences form some sort of weatherglass for the public, they may think the lunatics have finally taken over the asylum
Most viewers, even those whose political compass points towards the hard left, might have felt a modicum of sympathy for the Prime Minister while watching her infamous speech to the Conservative Party.
It was a kind of comeback keynote designed for revitalisation, that instead revived widespread use of the term ‘omnishambles’.
But there were elements Theresa May was not in control of – a prankster (security, anyone?), a cough (fewer TV appearances the day before might have been sensible?) and a falling sign.
In a nightmare speech littered with references to the British dream, erecting a backdrop pledging to build ‘A Country that Works for Everyone’ – that began to collapse – wrote a script only Britain’s best satirists could conjure.
Amid such mishaps was her promise to legislate for a price cap on energy tariffs, following a threat made in the Tory party manifesto before the election.
Since the announcement a couple of the big six suppliers have acknowledged a need for structural change in the retail energy market, but the common thread through their concerns is that a price cap would slash choice, limit competition and ultimately result in tariff prices clustering around the cap.
One can imagine the reaction among those in senior credit and collections roles across the energy companies. Here was another example of a lack of practical insight and knowledge about how such measures, eventually, impact customers, and the ability to be flexible with product features.
More generally, as the policy weapon of choice for politicians, price caps are in fashion.
Ministers appear to be satisfied with a situation where carefully considered action is abandoned for advisors’ views on a simplistic measure that ensures an impactful headline.
Perhaps credit card providers could glean a level of assurance from the Financial Conduct Authority’s chief executive Andrew Bailey, who delivered a speech earlier this month that encompassed recent regulatory measures on plastic.
Bailey said the FCA had identified that about five million people experience real difficulties in paying off their balance, and credit cards have become a source of long-term expensive debt, “something for which they were not designed.”
The regulator has therefore proposed a set of measures to reduce the number of borrowers with persistent credit card debt, and give them a greater level of control over credit card limits.
But, he added, “the FCA has stopped short of introducing a cap on charges. Why? Credit cards are a form of revolving credit, and we do not see it as practical to implement a cap in the way that is, by comparison, straightforward for fixed sum payday loans.”
In this case financial services firms could benefit from a temperate analysis, but in the energy market, there’s no sign of the regulator Ofgem doing anything other than its master’s bidding. Maybe there’s also the chance of a policy dilution as the legislation trudges through Westminster readings.
There is of course the possibility of a new occupant in Number 10 within the next year, in which case an energy price cap could get kicked into the long grass, or much like that notorious sign, just fall away completely.