UK

UK Energy Bills Could Be So High Due To Red Tape, Say Ex-Regulators

11/08/2014 10:03 BST | Updated 11/08/2014 11:59 BST
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Energy prices may have been driven so high due to the amount of regulation piling costs on energy firms and holding back competition, a group of former regulators have warned.

The former regulators, who include former Ofgem boss Sir Callum McCarthy and Stephen Littlechild, who was head of electricity regulation from 1989 to 1998, suggested that the new rules added since 2008 could have been too resticttive.

Writing to the Competition and Markets Authority, they warned that "regulatory interventions to promote more consumer engagement can increase customer and supplier transactions costs, leading to lower customer benefits including via higher prices, and weaker rather than stronger competition."

"Regulatory interventions can also affect suppliers' ability to compete as well as their incentives to do so," they added.

Their warning comes in response to a competition enquiry launched by the CMA into the energy industry at Ofgem's request, amid mounting concern over how energy suppliers have been able to continually raise prices without bowing to competitive pressure.

The ex-regulators, who also include former gas watchdog Clare Spottiswoode, said that Ofgem's interventions in the market have piled extra costs onto energy firms and forced suppliers to remove some cheaper tarrifs.

The CMA"s enquiry, which will last until 2015, is significant as it could recommend the break-up of the big six energy giants that dominate Britain's energy market.

An Ofgem spokesman said: "Many of the current problems with retail competition in the energy market were showing before 2008 and the regulatory and policy environment has changed significantly since then.

"Our reforms to make the market simpler, fairer and clearer for consumers have been in place since earlier this year with the aim of tackling some of the issues affecting competition.

"Ofgem is fully focused on improving both regulatory and market performance for the benefit of consumers, including by co-operating with the CMA investigation that we initiated.

"In this context we will certainly pay close attention to the views of past energy regulators, as we do to all views and opinions that might contribute to better future performance."

The ex-regulators' warning comes days after the government announced that energy bosses who are convicted of rigging the market would face up to two years in jail.

Under the new laws, UK energy regulators will get new powers to prosecute people suspected of abusing the energy market, with the threat of criminal sanctions now similar to those that bankers risk if found guilty of market manipulation.

Energy secretary Ed Davey said in a statement: “Manipulating the energy market is absolutely unacceptable, and these proposals provide a much stronger deterrent – more in line with the approach taken in the financial markets."