The pitfalls of being a price fixer

IT IS hard to believe that a Tory Government, committed as a matter of principle to the primacy of free markets, would introduce a price cap for energy bills – but there seems little doubt one is on the way. After all, Theresa May has repeatedly said the energy market ‘is not working as it should’.

Nor is any cap likely to be limited to just the poorest of households, which would be the least worst option as far as the energy companies are concerned.

Instead, the Government aims to kick-start change for the vast majority of consumers who stick on the most expensive standard tariffs come what may – and that’s about three-quarters of us.

The problem for the Government is that once it sets a price cap, it ‘owns’ pricing. Voters will naturally blame the Government for any rise in prices and there’s only one way prices are going over the next few years, once additional levies for the change to low-carbon energy (subsidised wind farms and solar panels) are taken into account. And that’s up.

As the full effects of the fall in sterling feed through to the economy leading to rising inflation while wages stagnate, no Government wants to be responsible for hiking prices.

It means the Government is a step away from deciding what is a reasonable level of profit for companies to make – at which point it should throw off any pretence of competition and turn the retail energy market into a fully regulated business.

It’s a tricky conundrum for Theresa May, committed as she is to helping those who are Just About Managing – which is why so many governments in the past have shied away from the course she now seems determined to take. ROYAL Mail has said it is closing its final salary pension scheme for good so the postal unions are up in arms – and rightly so.

Royal Mail was privatised just four years ago in a way which immediately enriched the City and harked back to the worst of the 1980s’ underpriced privatisations of national assets.

The then Chancellor George Osborne said at the time: ‘We have a win all round – for customers, the workforce, and the taxpayer’. Four years down the line it doesn’t look that way for the workforce.

The Government took on responsibility for the old pension plan and the new Royal Mail made it clear pensions would be protected. So the newly privatised Royal Mail started afresh with a defined benefit pension scheme.

Royal Mail has said it wants to move forward by agreement with the unions. Let’s hope it means it this time.