Labour party leader Ed Miliband delivers his speech at the annual Labour party conference in Brighton

Labour to get tough on 'Big Six' energy companies

Gas and electricity prices will be frozen for 20 months after the 2015 election if Labour wins power, Ed Miliband announced today.

The Labour leader said the move would save the typical household £120 and an average business £1,800 between May 2015 and January 2017, but the dramatic policy will put him on collision course with the "Big Six" energy companies, which stand to lose an estimated £4.5bn and have not been consulted on the scheme.

Speaking to Labour's annual conference in Brighton, Miliband said: "The companies won't like it because it will cost them money. But they have been overcharging people for too long because the market doesn't work. It's time to reset the market."

Miliband accused the coalition Government of allowing energy prices to get out of control because David Cameron did not have "the strength to stand up to the strong".

Families' energy bills have risen by almost £300 since the coalition took office in 2010, and companies now say that energy is the second biggest cost they face, after wages.

A report by consumer group Which? last weekend estimated that flaws in the market had left consumers paying £3.9bn a year over the odds.

In a keynote speech Miliband said soaring energy prices were part of a "cost-of-living crisis" which had left ordinary people struggling to pay their bills, while the proceeds of the UK's economic recovery were siphoned off by a "privileged few".

"In the 1990s, Labour committed to a dynamic market economy," said Mr Miliband. "We were right to do so. But what happens when competition fails, what happens when it just fails again and again?

He added: "Some people will just blame the companies, but I don't think that's where the blame lies. Ultimately it lies with the Government for not having the strength to take this on, not having stood up to the powerful interests, for not having had the strength to stand up to the strong."

Aides said that Labour believes energy companies will be able to absorb the cost of the price freeze, because of the large profits they have made in recent years and they said that if companies sought to dodge the freeze by hiking prices before the election, the Government should be ready to act to hold bills down.

Ofgem already has the powers to enforce a freeze but Labour will legislate to reinforce this, said a party source.

Labour has already said it will legislate to force energy companies to separate into energy generation and retail arms, to create more competition, and will abolish regulator Ofgem and replace it with a new watchdog with sharper teeth.

Speaking at the conference earlier shadow energy and climate change secretary Caroline Flint said that if Labour won power in 2015, the party would also prevent power companies doing their trades behind closed doors.

Flint said there is currently no incentive for energy companies to keep prices down, telling the conference that power stations would no longer be run by the companies that supply gas and electricity directly to consumers.

She said: "Now is the time for politicians that are bold enough to argue for big changes in our energy market. Today, I promise with a Labour government the most radical, comprehensive reforms since energy privatisation.

"The energy companies will be forced to open their books and do all their electricity trading on the open market, in a pool: a single place, in public, for everyone who wants to buy or sell power. The days where a company generates energy, sells it to themselves and then sells it to us will end."

She added: "The power stations will be separated from the companies that send you your bill. Just as the banks will have to separate their investment and trading arms from the high street branches, so we will make the energy companies separate their production from the companies that supply your home.

"Under Labour, on every bill you will see one standing charge and one unit price; simple, straightforward, easy to compare and easy to switch."

Speaking to the BBC World at One, shadow business secretary Chuka Umunna said that energy regulator Ofgem had done a "lamentable job" and would be replaced with a "tougher" alternative under a future Labour government.

But asked if there were any plans to introduce a windfall tax on energy companies' profits, he suggested the party would resist the move.

Umunna said: "There has been a demand for that as one way of sorting out the energy markets for the consumer, but the package of measures we've put forward, we hope, will do that without necessarily needing to implement all the other measures that people have suggested."

However, the idea had not been rejected outright. "These are all things that are being looked at in the context of Labour's policy review and I'm not in a position to make announcements on that right now," he added.

But John Cridland, director-general of the CBI, was critical of the proposals saying the businesses will see them as “a setback for Labour's pro-enterprise credentials.”

"Rising energy bills are tough on families and businesses. But the proposed energy price freeze will deter much-needed investment and is at odds with Labour's pledge to decarbonise the economy and create a million green jobs,” he added.

"The main reasons that bills are going up is the combination of rising wholesale prices, the cost of policies needed to keep the lights on and the move to a low-carbon economy.”

In a strongly worded response to the speech Energy UK, the sector's umbrella group, warned the surprise pledge would hit the building of new power stations, jobs and the livelihoods of 600,000 people dependent on the industry.

Chief executive Angela Knight said: "Freezing the bill, may be superficially attractive, but it will also freeze the money to build and renew power stations, freeze the jobs and livelihoods of the 600,000 plus people dependent on the energy industry and make the prospect of energy shortages a reality, pushing up the prices for everyone.

"No other industry is facing the investment challenge of the energy sector. Last year alone the energy industry invested £11.6bn, the equivalent of building the Olympic stadium 20 times over. We need to invest £110bn over the next 10 years to build and renew the power stations, the wires and the pipes everyone in the country needs to keep the lights on, our homes warm and to supply the power for British business to compete, to recover and to grow.

"And as for breaking up the energy companies or banning them both making and selling electricity; that is not the way to bring greater competition into the market or to provide the range of services which domestic and business customers want.

"What it does is send a clear message to overseas investors that the UK is closed for business when just today the World Energy Council said the UK has one of the world's fairest and most secure systems for supplying energy.

"Disbanding Ofgem to create Ofgem II is posturing to no purpose. Energy companies have already simplified the tariffs they offer. The energy companies are already regulated and fully open about what they make, what they pay and the amount they are reinvesting. Today's announcement is not the adult debate the industry has long been calling for and that customers deserve."

Paul Massara, chief executive of RWE npower, said: "It's very easy for politicians to come up with simple-sounding solutions to difficult problems. But in reality, there are three main factors that influence prices: fixing inefficient housing stock, the investment required to replace the UK's energy infrastructure, and the cost of the buying energy on the global market.

"If the Labour Party can commit to reducing policy costs on household energy bills, stopping the smart meter roll-out, preventing commodity cost increases and accept that there won't be any investment in new power stations and infrastructure, then we could freeze our prices. But will this make things better for Britain?"

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