Shadow Energy Secretary Caroline Flint’s motion to introduce a freeze on domestic energy prices has been narrowly defeated in the House of Commons by 275 votes to 248.
Labour leader Ed Miliband has pledged to introduce a 20-month price freeze if his party wins next year’s General Election. But Labour also introduced a motion calling on the coalition government to bring in a price freeze during the current parliament.
Flint said: “The big fall in the Government’s majority shows that Tory and Lib Dem MPs are panicking because they know Labour’s energy price freeze is popular and the right thing for hardworking people facing a cost-of-living crisis under David Cameron
“Last week Britain’s second-largest energy supplier, SSE, said it would freeze its customers’ energy bills. But only a Labour Government will freeze gas and electricity prices until 2017 and reform the market to break up the big energy companies and make tariffs simpler and fairer.”
Energy Secretary Ed Davey told MPs: “We do not need an investment-damaging, Government-imposed, heavy-handed, blanket price freeze because the markets are already responding to the Government’s actions, sometimes by cutting prices.
“Following our action at the end of last year to reduce bills by an annual average of £50, the rises that were announced by the companies last year have been reduced, and, as a result, all the major energy companies have said that there should be no need to raise prices this year.”
Tim Yeo, MP, Chairman of the Energy and Climate Change Committee said the largest component of an energy bill is set by the wholesale price of gas, “dependent on volatile international markets and not within the reach of Westminster.
“Other parts of a bill are more easily controlled and all new proposals to cut costs should be judged against the three principal aims of energy policy: security of supply, affordability and reducing greenhouse gas emissions”
Referring to Labour’s price freeze proposal Yeo warned it would deter investment, particularly in gas-fired power stations.“The cost to consumers of investment in low-carbon technologies is capped under the Levy Control Framework and is therefore guaranteed until 2020/2.
“Ironically a price freeze would also not necessarily cut bills as companies would have an incentive to raise prices before the freeze could be imposed and consumer bills could therefore rise faster than they otherwise would have done,” he said.
Meanwhile, SmartestEnergy also warned that Labour’s price freeze proposals would be counter-productive and damaging to the wholesale electricity market.
Colin Prestwich, Head of Regulatory Affairs, SmartestEnergy, said that although there was room for improvement in the wholesale market, the non-domestic retail market was relatively successful and competitive.
He said: “It is important that changes to the domestic market don’t unnecessarily impact on the non-domestic market. If pursued, a price freeze should explicitly only be available to customers on tariffs, not those on bespoke contracts which are entered into at market prices”.