The weakness of price caps is clear. Energy markets need bolder action | Business

Many of the 5 million vulnerable households who already have their energy bills capped will be hit by an average price hike of £57 a year from Sunday.

Five of the big six energy firms are raising their tariffs for prepayment meters – mostly used by renters and people who have fallen behind on payments – to within £1 of the new £1,089 cap. SSE may yet follow and make it a full house.

Some might call it cynical to price so close to a cap intended to protect society’s poorest. Consumer champion Martin Lewis says it shows how “flaccid” the cap has proved.

The bigger question is: if this is how energy companies act towards vulnerable consumers, why should they act differently when Theresa May’s flagship cap comes in? The prime minister’s wider cap for 11 million households on poor-value standard variable tariffs is expected to get royal assent this summer, and take effect at the end of the year.

The Conservatives promised people savings of up to £100 on their bills. The cap would, the party’s manifesto said, “protect energy consumers from unacceptable rises”. But the reality is that a cap is not a freeze, as the former Labour leader and proponent of price-freezing Ed Miliband has been at pains to point out since the Tories remixed his idea.

A freeze results in prices staying the same for a set period. The cap means that every six months the energy regulator reviews the costs facing suppliers – and potentially hikes the ceiling up, just like the regulator, Ofgem, has just done with the prepayment cap.

Ofgem says those vulnerable customers are better off under the cap than without it.

But one comparison site, Energyhelpline, calculated that those households will lose 42% of the savings they were making when they were first protected in April 2017. Lewis notes that three of the big six energy companies are less than £15 cheaper than they were before the cap started. That may be significant for some low-income households, but it’s no game-changer.

The furore over the prepayment meter cap raises doubts over whether the standard variable tariff cap, backed by draft legislation fast making its way through parliament, will really end “rip-off” prices.

If the cap for vulnerable customers acts as a price floor for the wider cap, as most experts expect, how do the Tories deliver on that £100 saving that May promised to readers of the Sun?

Figures from comparison site uSwitch show that the biggest gap between prepayment meter tariffs and standard variable tariffs paid by direct debit is £81. But for the other big suppliers, the gap is much smaller. For British Gas, the UK’s biggest supplier, the gap is just £13.

It’s impossible to see how the numbers stack up, unless there is a rush of big suppliers raising their tariffs in coming months. E.ON has broken ranks, with a stealth energy bill increase this month of up to £50 for some customers. As our sister publication the Guardian has argued, the cap is a stopgap, not a strategy to fundamentally shake up the energy market, and it won’t transform household finances.

The only real answer to protecting consumers from rising energy bills is twofold. First, a serious energy efficiency scheme to permanently cut costs. That would also help address the energy security fears raised by recent cold snaps, energy researchers concluded last week.

On Friday the government took a small welcome step by refocusing its £640m-a-year energy efficiency scheme, ECO, 100% on low-income households (it was previously 70%). But the funding is still much lower than under previous insulation schemes.

Second, there needs to be a U-turn on the government’s ban on onshore wind subsidies, which offer the UK the cheapest form of new low-carbon generation.

Ministers know that, economically speaking, onshore wind makes sense: they just need to execute the political acrobatics and back a policy that will genuinely help billpayers.

M&S is changing fast. But the high street is changing faster

When Marks & Spencer chairman Archie Norman took charge last year, he said that the struggling retailer had been “drifting” for more than 15 years.

No one could accuse the top brass of being asleep at the wheel these days. Barely a week goes by without M&S “accelerating its transformation plan” or “powering” ahead with change. A fortnight ago the upheaval was in M&S’s food aisles as Andy Adcock, the boss of its upmarket grocery business, paid the price for its poor performance.

The clearout made way for Norman protege Stuart Machin. It looks like a sensible hire but, in the telling of it, M&S’s chief executive Steve Rowe reveals deep-seated problems in the business. “We need to sharpen our prices, improve our products, drive profitability and grow market share,” he said.

Then last week the retailer’s clothing team got a spring makeover, with Jill Stanton, fresh from the turnaround of the Gap-owned chain Old Navy, parachuted into the new mega-job of womenswear and childrenswear director.

Reassuringly, M&S’s top clothing bod, Jill McDonald, said that it was “crystal clear on the challenge” it faced: “We must become more relevant to more people, offering the right products at the right prices to appeal to our core customers and attract new ones.” Sounds easy, no?

Even if M&S has finally arrived at the right leadership team, the high street is changing faster than one might believe. A series of high-profile failures, including Toys R Us, Maplin and Wine Rack owner Conviviality, underscore the unforgiving times retailers live in as the cost of running physical stores increases and the virtual high street gets ever stronger.

Norman has put a rocket under the boardroom, but the change being discussed is fundamental to the core of both M&S’s food and clothing businesses, and such upheaval usually comes at a heavy price. Shareholders should have their tin hats at theready for when the company next updates the City in May.

Wishy-washy response over GKN falls far short of an industrial policy

Shareholders have spoken and Melrose’s £8bn takeover of GKN will proceed. But debate about the UK’s free-and-easy takeover culture won’t end there. The government must decide what it wants: the current system, or an interventionist approach where it can block bids that don’t fit its new ambition to operate an industrial policy.

In the final week of the contest for control of the UK’s third-largest engineering company, Greg Clark announced that he had secured undertakings from Melrose. The business secretary satisfied almost nobody and sowed confusion.

Takeover purists in the City cried foul, arguing that Clark had no grounds on which to intervene. GKN may be a big firm, with 6,000 employees in the UK, but it is a tiny supplier to the Ministry of Defence, so a threat to national security didn’t exist. The minister was interfering in the free market, in the style of a wishy-washy continental politician, it was argued.

Others took the opposite view: that Clark’s measures were too little, and too late, and obliged Melrose to do virtually nothing. The new owner of GKN wouldwill have to keep a UK head office and a stock listing, and commit to an undemanding level of investment in research and development. All were probably part of its plans anyway. The most notable pledge – to keep GKN’s aerospace division for five years – was volunteered by Melrose and is not legally binding. Clark, many concluded, need not have bothered if he was going to be so feeble.

There is a real problem here that the government must resolve. More Labour than Tory MPs spoke against Melrose’s bid but both sides of the house were heard. You can’t blame the Tories for pushing. Theresa May herself, when running for the leadership in 2016, had argued for a right for the government to step in when British jobs or the national interest were at stake. The slogan was “an economy that works for everyone” – and is still meant to be.

The GKN/Melrose saga was a tricky case, admittedly. Both companies are British and both were offering break-up strategies of a sort. Where would Clark and May stand on a more testing takeover bid? David Cameron huffed and puffed in 2014 and said he was “not satisfied” when Pfizer bid for AstraZeneca, a takeover that would have damaged the UK’s life science industry. He was relieved when it went away, just as May was when Kraft Heinz’s cost-cutters were rebuffed by Unilever last year.

One of these days a hostile bid will be launched, for a big and strategically important UK company, that is demonstrably bad for the country. The public will not be satisfied if the government flaps ineffectually, as Clark did last week.

The best solution is a public interest test on takeovers – with independent advisory panels if necessary. But if the government can’t even rise to those low heights, it should stop pretending otherwise. Get a policy and say what it is.