An energy price freeze is a very bad idea

The confirmation of the huge jump in the Ofgem cap on domestic energy bills in October, and forecasts of even worse to come, have fuelled more calls for prices to be frozen at current levels. This is not a completely daft idea, but it is not a good one either.

There is no shortage of suggestions for how to solve the energy crisis. Labour has proposed a six-month bills freeze, financed by higher taxes on energy producers, the redirection of the £400 energy discount, and assumed (but largely mythical) savings on the debt interest bill due to lower RPI inflation.

An alternative, being promoted by the energy suppliers, is to freeze bills for up to two years, with any shortfall covered by a ‘deficit fund’. The money here would be provided by government-guaranteed loans from commercial banks, paid back over a long period (perhaps ten to 15 years) from a surcharge on customer bills.