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The head of Britain’s biggest energy supplier has warned the prime minister against making his company a scapegoat for the perceived failures of business, though he conceded that economic inequality had brought “capitalism into disrepute with voters”.
Iain Conn, chief executive of Centrica, owner of British Gas, said Theresa May was right to focus on the problems of “people left behind by globalisation”. But he said the “big six” energy companies were the wrong target for a threatened clampdown on market failures.
Last week Mrs May told the Conservative party conference in Birmingham that “where markets are dysfunctional” she was prepared to intervene, citing as an example the “two-thirds of energy customers stuck on the most expensive tariffs”. This fuelled speculation the prime minister is considering energy price caps of the kind once proposed by Ed Miliband, former Labour leader, as part of her pledge to put government “at the service of ordinary working-class people”.
The Competition and Markets Authority last June proposed a limited cap on prepayment meters— typically used by the poorest and most vulnerable consumers — after a two-year investigation into alleged overcharging. But the regulator ultimately stopped short of market-wide price controls.
Mr Conn said the CMA’s proposals, which included a range of measures aimed at encouraging consumers to shop around, should be given a chance to work. “There is a lot going right in this market,” he said. “It is one of the most competitive markets in the world and it is becoming more so. Before we jump to conclusions about more regulation being necessary, we should give the momentum from the CMA a bit of time to work through.”
Centrica was “facing massive competition and huge pressure on margins” from more than 40 rival operators, he said, adding that the intensity of the competition helped to explain why his company was in the process of cutting 3,000 jobs to save costs.
Critics of Centrica and the other “big six” suppliers — EON, Npower, EDF, Scottish Power and SSE — say tougher intervention is needed to protect consumers on standard rates who can end up paying £300 a year more than those on cheaper deals.
Consumer advocates say a two-speed market has developed, with about a third of consumers shopping around and two-thirds remaining, either through inertia or ignorance, on typically more expensive floating rates.
The CMA proposals also included creation of a database of customers on standard tariffs who could be targeted by marketing for cheaper deals. Critics said this risked bombarding people with junk mail.
Speculation about additional Downing Street intervention has focused on three potential measures: an extension of the price cap on prepayment meters to other vulnerable groups; automatic switching of people to cheaper rates if they remain on standard tariffs for a certain period; or a limit on the tariff increase allowed when a fixed-price contract expires.
Mr Conn said price controls risked unintended consequences by reducing incentives for suppliers to compete for business.
Which?, the consumer group, backed Centrica’s view that government should avoid “meddling” before the CMA measures bedded in. “If it becomes clear they are not working, that would be the time to act,” it said.
The Department for Business, Energy and Industrial Strategy, said: “Energy markets must work for all consumers and the government is committed to making that happen.”
Mr Conn, who faced an investor revolt this year over his £3m pay package, said big companies must work with government and civil society to address the populist political impulses exposed by the vote to leave the EU.
“Globalisation has been, on average, good for the world but it has left a significant number of people behind and created this strong sense of inequality,” he said. “Returns to capital have grown as returns to labour have declined. Businesses have benefited. The international community has benefited. Labour-intensive industries in the west have not. Over time it starts to bring capitalism into disrepute with voters.”
About 15 per cent of Centrica shareholders voted against Mr Conn’s pay deal at the company’s annual meeting in April. He said it was up to Centrica’s remuneration committee to set pay, adding that its members “wrestled” to find the right balance between attracting talent and avoiding excess.
“It gets out of hand in the US, where some CEOs are paid hundreds of millions,” he said. “I do not think we have got the worst of this disease.”