Ofgem rule change too little too late for cowboy energy industry

Perhaps it was a desperate measure to soften the coming blow from the National Audit Office. On Monday this week, the energy regulator Ofgem announced “tough new measures” to discourage energy suppliers from using semi-captive customers as piggy banks. Well, jolly good. Once upon a time, you got the gas bill and paid it. Nowadays you sign up for your supplier to help himself from your bank account, which he does. Usually, the amount is enough to ensure that you never owe him money – an interest-free source of working capital.

This sea-change was behind the explosion of suppliers once the May government had decided that six suppliers was an oligopoly, and that anyone could play. No experience, capital or even competence necessary. The results have been disastrous.

Twenty-eight of these suppliers have gone bust, skewered between the low price that won them the business in the first place and the quintupling of the cost of gas that followed the post-Covid recovery. Two days after Ofgem’s “tough new measures”, the National Audit Office reported on the horror show that is the collapse of the market. The cost which is being passed on to the customers of the survivors to clean up the mess is estimated at £2.7bn, or £94 for each household.

Even that is only part of the story, since it excludes the failure of Bulb, the smugly “green” supplier which had got too big to be rescued by the rest of the industry. It never made a profit and had £254m of customers’ deposits when it failed. It is still bleeding cash and may cost the taxpayer £2.2bn to fix. Altogether, this is the biggest state rescue since the collapse of Royal Bank of Scotland.

Some of the “challenger” suppliers were little more than a laptop and a marketing budget, but so keen was Ofgem to encourage competition that this hardly mattered, and thanks to the customers paying in advance, there was no need for significant outside capital. Unsurprisingly, the owners of these unstable businesses paid themselves handsomely. It was always going to be: Heads I win, tails you lose.

Around £400m has evaporated from the failure of the 28, and as Chris O’Shea, the CEO of Centrica, told the FT this week: “some of which reappeared in the pockets of wealthy private owners of failed suppliers”,

However, it’s all different now, thanks to those “tough new measures” trumpeted by Ofgem. Well, new, perhaps, but hardly tough. Centrica, the owner of British Gas and one of those beastly six which were supposedly rigging the market, already ring-fences customer money, and the measures are allowing the survivors who don’t do this plenty of time to improve – that is, of course, if they don’t fail first.

The train now standing…

As the rest of us slowly work out that a humdinger of a railway strike is just what Boris Johnson ordered to distract attention from his own calumnies and to have someone else to blame, a solution, of sorts, presents itself.

It is, of course, HS2. At a guess, this benighted project has probably spent about a tenth of its (budgeted) £100bn cost, with much of the money going on buying land around Euston station in London, and the rest on chewing up the Chilterns. In other words, the real spending has hardly started, and scarring the countryside is the relatively cheap bit.

As experience with the Channel tunnel and Crossrail has demonstrated, the serious money goes on signalling and safety systems, where estimates of both time and cost are little more than aspirations. The effort currently planned here for HS2 would be better diverted towards the goal of driverless trains, as suggested by Reaction this week. It would cost far less than £100bn.

The railwaymen are presenting an opportunity that will not recur. The government can argue that they simply cannot be trusted, striking during the cost-of-living crisis despite a median wage which is getting on for double the national average, and after the £16bn spent keeping empty trains running during the pandemic. These are the people who will be driving the high-speed trains (when they are not striking) so can we take the risk and spend another £90bn to build the line?

Even were HS2 to be completed, nobody seriously expects the fares to cover its running costs – the Channel Tunnel Rail Link was sold for half its construction cost – so it will require a continuing subsidy from the day it opens. Far better to use a fraction of the £100bn to give the northern cities a decent bus service such as Londoners take for granted. Proper connectivity there would benefit far more people than HS2. The railwaymen have offered the perfect excuse to scrap this wealth-destroying project. Don’t miss it.

Safe as houses

The stock market is the least poor forward indicator we have, as market participants look for tiny changes in the financial weather. At the start of this year a share in Taylor Wimpey, Britain’s biggest housebuilder, cost 178p. The housing market had defied all predictions of a post-lockdown slowdown, and prices had carried on going up.

TW had capped the cost of fixing its cladding problems, acquired a female CEO and an activist investor, and raised the dividend. Yet today a share in Taylor Wimpey costs 117p, where the yield is over 7 per cent. It’s not the only housebuilder reporting booming profits to be greeted by a falling share price. Britain’s house prices have beaten all previous calls of the top of the market, and should it show signs of faltering, our interventionist government will doubtless dream up more subsidies to prop it up. Even so, that Taylor Wimpey price is surely telling us something.