News

Financial Times, September 24th, 2011

Miliband promises action on energy prices
By George Parker, David Blair and Jim Pickard

Britain's opposition Labour Party leader Ed Miliband delivers his speech to delegates at the annual Trades Union Congress, in central London.

Ed Miliband is to commit Labour to breaking the dominance of Britain’s “Big Six” energy companies, promising radical reform which, he says, will allow in new market entrants and force down prices.

The party leader will commit a Labour government to stop the companies from producing gas and electricity and then selling it on to themselves. Instead, all their energy would go into a central pool, allowing supermarkets and others to enter the supply market.

The plan will be cheered by consumer groups, but the energy companies say such reforms would undermine their ability to deliver a £200bn investment programme by 2020.

Mr Miliband, who will put the “squeezed middle” at the heart of his message when he addresses Labour’s conference in Liverpool on Tuesday, has identified rising energy prices as an issue of growing concern.

His energy reforms go well beyond the pro-competition moves proposed by Chris Huhne, energy secretary, at this week’s Liberal Democrat conference, and could herald a structural upheaval in the sector.

Labour officials say the shake-up would force traditional suppliers to bring down their prices. A new “simple tariff” system would also be introduced to ban complicated charges that make it harder for consumers to compare costs.

The policy would undermine the integrated business model employed by the Big Six utilities, analysts believe. The groups’ likely response would be to sell less-profitable household supply businesses while keeping power stations.

Analysts predict the utilities will argue that Labour’s policy would make the UK a far less attractive destination for investment, as the sector prepares for a £200bn plan to upgrade Britain’s energy infrastructure by the end of the decade.

“Everywhere you turn, there’s this inevitable coming together of the Big Six to say, ‘You need our money to keep the lights on,’ ” said David Hunter, an analyst at M&C Energy Group consultancy. “But the more you give in to that view, the stronger the Big Six become and the more people complain about their power in the market.”

Mr Miliband’s move to tackle energy prices is part of a “new settlement”, in which Labour will commit to address the “new inequality” between struggling middle-income families and the very rich.

His speech will concede that Margaret Thatcher’s reforms of the 1980s were largely right for the time, and that the growth of the financial services sector made sense. But he will argue that the “Thatcher settlement” of the last 25-30 years ended with the 2008 financial crash, and that Labour would now work to rein in the excesses of financial capitalism and the widening gulf between the rich and middle.

The party conference, which begins on Sunday, will be focused heavily on the economic crisis.

On Monday, Ed Balls, the shadow chancellor, will make a renewed call on George Osborne, the chancellor, to adopt a “Plan B” to tackle a “crisis of debt and growth”.

Meanwhile John Denham, the shadow business secretary, believes that Labour’s new strategy of focusing on families struggling with rising living costs and job insecurity will play not only in the “physical south” but also the “political south” – including areas such as East Anglia and the Midlands with higher-than-average numbers of university-educated people. “They may be in higher tech jobs, and yes those areas are going to be crucial,” he said.

ENDS.