Jeff Salway: Energy summit fails to provide spark for vital industry changes

ENERGY suppliers have somehow managed to avoid a full-scale investigation into their shameless profiteering, but surely it can’t be put off any longer.

The timing of the revelations that the UK’s big six energy suppliers enjoyed a 700 per cent increase in profit margins over the summer couldn’t have been worse, as forecasters warn of brutal weather over the winter months.

The government responded by holding a “summit” with energy suppliers on Monday – except it seems to have been spent ambling around the foothills of the issue. Far from giving firms the hurry-up, David Cameron urged households to switch supplier, pay by direct debit and save energy, while suppliers agreed to write to people telling them they could switch.

And that was pretty much that. Energy bosses will have left feeling they had once again got away with it.

In case anyone had forgotten, each of the big six UK suppliers raised their prices over the summer, with increases of between 15 per cent and 20 per cent. They claimed to be responding to higher wholesale prices – even though they don’t all pay the same for their supply – and to growing pressure on their bottom line. They weren’t making the profits we assumed they were, the suppliers wailed, exploiting a lack of clarity over the profits they make on domestic energy supply.

However, the profit figures published by Ofgem last week supported previous research by Nera Consulting suggesting that in 2010 – before the last two rounds of increases – five of the big six firms collectively made £1.4 billion from domestic energy supply.

The other argument employed by suppliers concerns rising wholesale prices, which they last week claimed were the reason why bills were raised in the summer. But you can’t have your cake and eat it. They also blamed wholesale prices when domestic energy bills soared by 42 per cent in 2008. Yet when wholesale prices plunged again the following year, the average household energy bill was reduced by just 8 per cent.

As it happens, wholesale prices have come down again in recent months, so, bearing in mind the lag between wholesale movements and the change in domestic prices, can we expect our bills to be cut over the coming months? Don’t hold your breath.

Instead, suppliers have the nerve to boast that they will “freeze” prices over the coming months. How convenient.

The energy bills for the winter months will be the biggest ever, following the recent increases. The average household faces a bill of £550 for the months of December, January and February alone, according to Energyhelpline.com. It estimates that the national fuel bill for December on its own will hit £14.7bn, up from £11.8bn last year.

The cost of last winter’s freeze was painful enough for Scottish households, but the coming months will be even worse. The sad fact is that thousands of people will have no choice but to leave their heating switched off for as long as possible, fearful of the financial price they could pay just for keeping warm during the winter months. The elderly are particularly at risk.

Energy suppliers have made some progress in recent months, most notably by ceasing door-to-door sales. Under pressure from Ofgem, they are also slowly simplifying their tariffs and billing structures.

But far closer scrutiny of their pricing is required – not least the dubious claims made to justify each increase and their reluctance to pass on cuts in wholesale costs.

Until they do start passing on those reductions, households will continue to pay a hefty price – and in some cases a fatal one.

CREDIT to the government for delaying by six months the rise in the state pension age, a measure for which I called in this space last week.

The amendment was accepted last Thursday and means hundreds of thousands of women who faced, at short notice, having to wait up to two more years to collect their pension have been given a pocket of breathing space, with the rise in the pension age to 66 put back from April 2020 to October that year.

The change is costing the government around £1bn, which once again raises questions over its judgement in accelerating the increase in the first place. Six months is a very modest U-turn, but it does suggest the government realises it is in danger of losing a lot of ground with women. Unfortunately for both the coalition and for many women in their fifties, however, a six-month concession will make little difference.