U.K. Opposition May Drop Energy Price Freeze, Says Davey

The U.K. opposition Labour Party would probably drop its pledge to freeze prices for energy “like a hot potato” in the event of talks to form a coalition after next year’s election, said Energy Secretary Ed Davey.

Polls suggest that neither the ruling Conservative Party nor Labour will win an outright majority of seats in May’s general election. That means it’s possible Davey’s Liberal Democrats – the junior partner in the current government – will enter coalition talks to form a government for a second successive election. “The Labour Party would want to drop their energy price freeze like a hot potato because it’s a con,” Davey said yesterday in a debate with Caroline Flint, the Labour lawmaker in charge of energy, at Bloomberg’s London office.

 The freeze endorsed by Labour leader Ed Miliband is a cornerstone of the party’s program for government. Flint dismissed Davey’s remark, saying, “There’s not a cat in hell’s chance of that. This is our red line, and it’s going to happen.”

 As next year’s May general election approaches, Britain’s three main political parties are wrestling with the often conflicting objectives of keeping carbon emissions and consumer costs low while maintaining a secure supply of energy.

 Miliband last year vowed to freeze energy prices for 20 months if elected, and Flint said Oct. 14 in an interview that the party would aim to enact the policy in the early days of the next government’s mandate. Yesterday, she described plans to scrap the energy regulator Ofgem as another red line.

 Under the current government, the Competition and Market Authority has started an inquiry into the pricing activities of the six largest utility companies, due to be completed by next year. Together with Labour’s proposals that may be deterring investment in the energy industry, analysts have said.

 In addition, the prospect of price controls next year if Labour take office may also be discouraging energy suppliers from passing on lower wholesale prices to retail customers, said Lakis Athanasiou, utilities analyst at Agency Partners LLP.

 “We might be seeing some price reductions if it weren’t for Labour’s price freeze,” Athanasiou said in a phone interview. “If under normal circumstances you might think you could ease them down and be a bit more competitive, you aren’t going to take them down now, are you?”

 Still, consumer advocates say that action is vital on energy bills, which have risen faster than the wages. U.K. gas and electricity prices have more than doubled in the past 10 years, according to data from Eurostat.

 “For consumers to be able to afford to pay their bills there needs to be genuine competition in the energy market, improved energy efficiency and greater transparency,” Gillian Guy, chief executive of Citizens Advice, a U.K. charity that provides legal and consumer guidance, said in an email. “Struggling families have had to decide between heating and eating.”

 Energy bills are going to have to rise a further 40 percent between 2013 and 2020, according to PwC’s U.K. power and utilities leader, Steven Jennings.

Davey expressed concern that the Labour policy is unsettling the government’s effort to draw investment for replacing the fifth of the nation’s power generation capacity that will retire by the end of the decade.