In what could be seen as a stunning example of forgetfulness, Chancellor of the Exchequer George Osborne has weighed into the debate on energy prices by launching an “investigation” in to whether energy suppliers are passing on the fall in oil and gas prices to customers.
As we have covered elsewhere, the fall in oil prices is a relative red herring in the gas and electricity price debate, with a very limited, and delayed impact being overshadowed by the much more influential balance of supply and demand created by a relatively mild 2014/15 and a gas glut from burgeoning LNG supplies.
But these facts haven’t stopped a ‘useful’ bit of populism for the Chancellor.
The fact though that the government and Treasury appear to be unaware of the true economics of the oil and gas markets is worrying indeed.
A Treasury spokesman said:
“The Government is conducting studies of industries like the utilities and the airlines. We are examining if any action needs to be taken.”
They went on to cite the example of the fall in crude oil prices and the impact on the price of petrol following the supermarkets’ decision to reduce costs.
That no such direct correlation exists in the gas and electricity markets appears to have either have been conveniently forgotten or simply passed them by.
It is however a fair point that gas prices for Summer 2015 are 30.3% lower than 12 months ago and electricity 18.1% but this cannot be attributed to the oil market.
Taking a leaf out of Ed Miliband’s book of non-economics the Treasury spokesperson said:
“We’re going to be watching them like a hawk. So far it has worked with fuel prices. Pump prices are coming down.
“We believe it can work with other industries.
“Anybody involved in the supply of energy in terms of petrol, diesel, domestic heating, air fares and gas and electricity must make sure they are passing on the reductions in full. And they must be in no doubt that they should do it very quickly.”
Compounding the car crash economics of the coalition, Ed Davey, the Secretary of State for Energy and Climate Change said:
“The fall in oil and gas prices – it is vital that we get them through to consumers. I am glad the Treasury is now looking at this.”
Davey added that DECC had been looking at ways to force energy companies to pass on oil price falls to customers. Good luck with that Ed.
Whilst there is no doubt that wholesale prices have fallen significantly for Summer 2015 and beyond over the last 12 months and that these should be filtering through to retail energy prices this has no relation to falls in the oil price and indeed is muted by the ever increasing burden of green energy taxes placed upon energy bills.
The fact that the Chancellor and Energy Secretary still cannot have an honest and open conversation on the energy market and instead adopt political postures rather than tackling root causes is a damning indictment on their custodianship of the country.
Energy companies have a responsibility to justify their costs, but so does the government, until the latter does one wonders whether the energy suppliers themselves will ever feel the need to jump to the populist message.