The Big Six energy suppliers must be desperately worried. Dermot Nolan, boss of energy regulator Ofgem, is demanding that they explain to customers why they have not lowered gas and electricity prices following wholesale price reductions. They are quick enough to stick them up when wholesale prices rise; they must explain why they don’t cut them when wholesale prices fall. Not only that, but Ed Davey, energy secretary, says they need to ensure they pass on savings to customers as quickly as possible. The Big Six must be quaking in their boots. Or perhaps not!
They don’t pass price reductions on, for the very obvious reason that they don’t have to. Energy supply was privatised because of a simplistic and profoundly misinformed belief in the automatic efficiency and effectiveness of for-profit business and a complete lack of comprehension of what constitutes a competitive market.
An entrepreneur contemplating entering an established market, would need to achieve a number of things in order to succeed. They would need to innovate a new and effective product, being both distinctive from others in the market, and capable of being produced at a competitive price; they would need to establish reliable supplies of raw materials of the right quality and price; they would need to establish there was sufficient demand for the product at a price for which it could be profitably produced; they would have to settle on a branding and promotion for the product which encapsulated its distinctive features and sold it to the customer; and they would need an appropriate mode of distribution. All that would need to be completed profitably within viable pricing. As a producer, they would need to demonstrate mastery of all these entrepreneurial talents that politicians and civil servants seem to assume are simply givens for any for-profit business.
Gas and electricity, along with most other privatised businesses, are not like that. The product is a standard commodity without any distinctive variation. The sources of supply are set. The customer has effectively no choice – they have to buy. So where is the entrepreneurial talent to be applied? The only room for manoeuvre they have, is in the prices they charge customers and the taxes they can evade or avoid paying. Given that their business is to maximise profits, they’ll seek to charge whatever they can and minimise their taxes.
The demands of Ed Davey and Dermot Nolan will not weigh much with the Big Six suppliers who see their first duty as to make as much money as possible for their stockholders, whether they are in France, Germany, Spain or Hong Kong. The ideology that all post Thatcher governments have subscribed to, simply agrees that the duty to stockholders is far more important than that to customers.
Messrs Davey and Nolan are thus merely performing a ritual dance. They know perfectly well that their message will be ignored now, as previously. Last October a posting on this site outlined why the Big Six energy suppliers are ripping off consumers. In March last year a posting flagged up how Centrica had substantially raised its prices and was passing GBP1.3billion surplus profits back to its stockholders. Every six months or so the Big Six hit the media headlines. The rip-off is not new and neither are the expressions of shock horror. But decisive action should not be anticipated by this government.
That is the direction the NHS is being pushed. The big pharmaceutical companies are already having a ball at patient expense. As more and more of the NHS is privatised, opportunities for exploiting patients for stockholder gain will multiply. All the main political parties support that approach. The only party that actually has the guts to stand up for public justice is the Green Party. They are not afraid of the N word – Nationalisation. They have no power yet to do anything about it, but they are making progress.