May burying head in sand with energy and housing policies

Today at Conservative Party Conference in Manchester the Prime Minister said she wanted to defend and explain the benefits of the free market. Sadly her words are not backed up by her actions as she announced an energy price cap and government housebuilding. Sam Dumitriu, research economist at the Adam Smith Institute, criticized the move to cap energy bills saying:

"Theresa May began her speech today saying she had a duty to defend and explain the free market. But her actions fail to match her rhetoric. Capping Standard Variable Tariffs will stifle competition and likely raise prices.

“The best way to make energy bills work for ordinary people is to boost competition, but May’s price cap will destroy the incentive for many customers to switch to a new provider, squeezing out new suppliers and will cause suppliers to raise prices on their cheapest tariffs. This is why the Competition and Markets’ Authority opposed price caps when they investigated the energy market in 2015.

“Huge price gaps between otherwise identical tariffs may seem bonkers, but it’s standard behaviour in any competitive market with high fixed costs. It costs Starbucks just a penny more to make a large rather than a small cup of coffee. But, politicians rightly don’t call for a price cap on Venti Chai Lattes.

“Excessive intervention by OfGem has reduced consumer choice, caused switching rates to half, banned the best deals on the market and led to E On’s Stay Warm tariff, which was praised for helping old aged pensioners, to be pulled from the market.

“Capping energy prices may be good politics, but it’s bad economics.”

On housing, where the Prime Minister committed the government to intervening in the market a rash move by the government could miss a golden opportunity to liberalise housebuilding and to win over younger voters. Sam Bowman, Executive Director of the Adam Smith Institute, says:

"It's tempting to laugh at today's speech but really it was quite sad. The Tories seem to have no idea what to do about housing, because they're so afraid of alienating their base that they won't do any substantive policy that could properly boost the supply of new homes. Again and again this week people asked how to connect with younger voters - the simple answer is to give them somewhere to live.

"Social housing isn't what people want to live in. Almost everyone would like to own their own home. We can do that, but only if we're prepared to change the rules of the game so that new developments benefit existing residents, and so that constraints on densification are eliminated. Take away the rules stopping streets of semi detached houses from being upgraded to terrace flats, and to build densely around railway stations and tube stations. Planning is the huge bottleneck here that is stopping millions of new houses from being built privately and affordably, and if the Conservatives are going to bury their heads in the sand about that then eventually voters will punish them for it."

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