The energy price cap is a sledgehammer imposed to limit market freedom –

Now, of course, when that day in the future comes that government seeks to bring it to an end, (having concluded the market is now diverse and competitive enough to deliver affordable energy), just watch the outcry from all those who believe state intervention is the only response.

An energy price cap is a sledgehammer imposed to limit market freedom, albeit for honourable reasons. It limits market competition and sets parameters within which suppliers operate. The real challenge for our politicians is that with 3.18 million households in England in fuel poverty for whom price rises are intolerable, heating or eating for those families is already a truly a hard choice. 

Even with the current level of the cap, their bills are too high, so the cap serves the purpose of pleasing “the many”, but not solving the very real challenge for the few. 

The Warm Homes discount and the winter fuel payments are welcome interventions for the so called “fuel poor”, but subsidising homes with an old gas boiler, draughty windows and an uninsulated roof is a bonkers way to provide help and support, when a heat pump or better insulation could do the job and reduce the carbon footprint at the same time.

It is time for ministers to commission fresh advice on how to remove the cap and then address the cost of living challenge in a more targeted way.

Two ways to speed up green transition

As with every state intervention that is intended to “protect” the consumer, there will be howls of protest when the cap comes to an end. In reality, what government needs to do is speed up the transition away from fossil fuels. One key way to do this is to set a date by when new gas boilers must be phased out. Giving business that certainty will help them to dramatically drive the price down of heat pumps and other low carbon technologies. 

We have seen exactly this result before. When we set the date back in 2015 to take coal off the system entirely by 2025, and when we set the date in 2019 for zero emissions from the tail pipe in the automotive sector by 2030, there was huge pushback from business in each case. 

But the truth is, business innovation will always get ahead of the deadline once the direction is set by government. We have seen it with coal, and I’ve no doubt we will see it with automotives.

The second key step that the Government needs to take is to implement the second wave of electricity market reforms. We need an independent system operator that will promote local microgeneration to the grid through prioritising local grid connections.

We also need proper local energy pricing, so that an electric vehicle driver in Cornwall knows she can charge her car cheaply when the sun is shining, and a student in Scotland knows he can do his weekly washing on the cheap when the wind is blowing.

A combination of smart meters, local generation and local pricing could have a huge benefit for consumers, and setting hard regulatory deadlines for different sectors to transition away from fossil fuels will be the final piece of the jigsaw as we seek to solve the energy trilemma.

Andrea Leadsom is the former business secretary

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