Energy Regulations in the UK

The United Kingdom’s Primer Minister, David Cameron, announced in October that new legislation would be put in place to ensure that energy companies give consumers the lowest tariff available.  Cameron’s announcement is due to rising energy costs in the UK and concern over the cold, expensive winter months soon to come.  The energy industry in the UK is essentially made up of six big companies.  There is little competition and the industry is heavily regulated, making it almost impossible for new entrants.  Forcing energy suppliers to give the lowest tariff seems like a good idea to keep prices under control for consumers.  However, reporter Eamonn Butler has a different, long-term solution to the energy crisis in the UK.  He thinks the best way to act in the interest of consumers and to lower prices is to foster competition, not to regulate prices. 

"One of the big downsides of regulation is that it makes people feel safe and comfortable. They don’t imagine that they should be questioning the probity of their bank, or the prices charged by their energy suppliers, because they feel that the government’s regulators have already done that. But competition is a much better protector of the consumer than any number of regulators can be…”

If the government were to repeal some of its regulations of the energy industry and introduce more competition, competitors could undercut each other until the prices got as low as possible.  This would help the consumer much more than the current price regulation.  Stigler’s capture theory does a good job of explaining the current situation in the UK.  The regulations recently put in place by Cameron may seem like they are helping energy consumers, but in reality they are keeping prices regulated and limiting competition.  You can imagine that the six big energy companies are very satisfied and comfortable with the these regulations.