Editorial: The energy cap can’t go right now – but free markets have better answers
It is not, perhaps, the best time to argue for free markets and open competition in the energy market.
Analysts are anticipating that the increase in the wholesale price of natural gas will see a host of firms wiped out; their economics are simply unworkable. The only thing protecting consumers from spiralling energy prices, then, is the so-called energy cap.
It’s that same energy cap, of course, that is turning the lights out on those same firms. In a normal market economy, the firms would pass on the rise in wholesale prices downstream – in this case, to those turning on the heating as the weather turns distinctly autumnal.
Without that ability, they have no way of keeping themselves going, let alone their energy supplies.
Yet for all that, no Government – blue, red, or anywhere in between – would choose now as the moment to dump what is a market-distorting regulatory intervention.
The political cost, at a time when inflation is spiking and the poorest are having an uplift to benefits removed, would be catastrophic. It would also do little for the economic recovery which, for better or worse, appears still to be driven by a post-pandemic consumer boom.
So if the energy cap must stay, where should the Government draw the line?
A refusal to offer bailouts is a welcome start. If taxpayer-backed support is to be dished out to those players who can demonstrate they have planned for and hedged against higher prices, it must be in the form of loans at commercial terms. The moral hazard of more intervention in the market should be obvious.
But if the upward pressures are short-term, lasting only through the winter, then coming out the other side it is beholden on Government to recreate a genuinely free market in energy.
Indeed as we recover from the pandemic, Westminster would do well to remember that staying out of the way may not grab the headlines, but is often better in the long-run.
Read more: Energy sector braces itself for wave of supplier bankruptcies as crisis grows