With the government pressing ahead with a Bill to create an absolute cap on energy prices, the Adam Smith Institute laments the decision by the government to intervene in the energy market. Sam Dumitriu, research economist at the Adam Smith Institute, decried the move saying:
“The Government’s proposed price cap risks fatally undermining competition in the energy market. The evidence is clear: when price caps are imposed customers stop switching, the best discounts are withdrawn and prices bunch around the cap. Customers may become complacent, leading to fewer billpayers accessing deep discounts by switching suppliers.
Imposing an absolute rather than a relative price cap is especially worrying. If wholesale prices change significantly, as they have in the past decade, then the cap swiftly become out of date. High prices send a signal to suppliers to invest in new infrastructure to meet demand. If the cap is set too low, firms may be deterred from investing risking blackouts. As a result Whitehall may be forced to take even an even greater role in picking and funding new investments in power generation. Theresa May will inadvertently make Corbyn’s case for nationalisation for him.”
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