Government questions energy price hikes

28 July 2008 / by Rebecca Sargent
The Government's Select Committee on Business Enterprise has released a report of its inquiry into the UK retail gas and electricity markets that poses questions over the recent price hikes hitting consumers.

The inquiry was launched in February as a direct response to the 'big six' energy companies raising their prices at the start of the year. Since then the market has deteriorated further amid the credit crisis and fuel poverty is becoming a huge threat to millions.

The report works alongside regulator Ofgem which has also launched an investigation into the UK gas and electricity market and the prices charged. Ofgem has focused on how Britain is becoming part of Europe's energy market, and prices should depend upon the European markets and competition.

Competition was one area that the Government's report highlighted. Speculation has been rife that the 'big six' UK energy companies have been colluding together and conspiring to keep prices unnecessarily high. The report states:

"We have concerns that the UK's energy markets are not functioning as efficiently as they should, and that UK prices may be higher than those in competitor countries."

Gas and electricity price rises continue to hit the UK. Just last week EDF Energy announced an increase of 22 per cent for gas and 17 per cent for electricity, and despite the current economic climate there are doubts as to the legitimacy of the rises.

The report concluded: "We note that no witness has suggested that there is any evidence of active collusion in the wholesale retail markets. It is clear, though, that in a retail market dominated by six big players, it is easy for those players to make informed judgements about the behaviour of their competitors.

"This can distort competition, without any active collusion occurring. The regulator (Ofgem) therefore needs to remain very watchful," committee chairman, Peter Luff warned.

The report also focused on provisions for those in need, such as the elderly and low income households. There has been much controversy of late over the fact that pre-pay metres generally charge more although it is low income households that require them.

Fuel poverty is estimated by the Government to affect 2.5million households, whereas other predictions are in excess of four million, as prices continue to rise and incomes fall. Consequently the report is calling for action, and said:

"A great many households face a difficult winter; it is imperative that the Government reviews its approach to fuel poverty and does so urgently."

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