Soaring gas and electricity prices could cripple UK manufacturing and leave millions of households struggling to pay their bills, MPs have warned.
Thousands of jobs are at risk because British firms are forced to pay more for energy than their European rivals, according to a report by the House of Commons Trade and Industry Committee.
The committee said it was concerned that British gas and electricity sales were dominated by just six major companies – Npower, Centrica, Scottish and Southerm, EDF Energy, Scottish Power and E.ON – which may have prevented the creation of a truly competitive market.
The report warned: “Wholesale gas prices have increased throughout 2008. As a result, we expect gas and electricity bills for domestic customers to rise significantly in the near future, over and above the increases already announced this year, with serious consequences for millions of households, especially the fuel poor.
"If these price differentials are sustained, they will affect the competitiveness of the UK economy, and put many thousands of jobs in manufacturing at risk.”
The report continued: “The evidence put to us by small companies in the market for small and medium enterprise electricity supply is compelling and suggests some of the ‘Big 6’ companies may be abusing their market position to choke off new entrants.”
Committee chairman Peter Luff (Con Mid Worcestershire) said: “Just because we have found no evidence of collusion does not mean we have given the big six energy companies a clean bill of health – far from it.
“It is clear that there are very real problems in the energy markets at all levels, and going beyond these six companies, which need to be addressed.
“Some of these are strategic issues such as the functioning of wholesale markets, while others are more specific concerns, for example, how suppliers conduct their doorstep sales to encourage switching.”
Birmingham Chamber of Commerce and Industry spokesman John Lamb forecast “mayhem” in the manufacturing sector if energy prices continued to rise by between 20 and 30 per cent.
Mr Lamb added: “Businesses are trying to hold off job losses, but interest rates are on a knife edge and we just can’t keep taking these hits. This will have an enormous impact on industry and is bound to drive up costs and hit the competitiveness of manufacturing. We are looking to the Government to find a new way of doing things.”
MPs also said there was evidence that the six big companies were preventing smaller companies from entering the market. The committee said fuel companies should be given one year to ensure they offered all customers a fair deal, and official watchdog Ofgem should step in to fix prices for them if they failed.
The MPs called on the Government to encourage investment in storage of gas, to ensure Britain had reserve supplies when shortages occurred. They called on the EU to ensure energy markets across Europe were opened up to genuine competition. The Government had not responded quickly enough to the UK’s increasing dependence on gas imports by encouraging investment in storage, the committee said, adding: “This is now an issue of national importance.”
It recommended Ofgem carried out an urgent investigation into wholesale gas prices as part of its wider probe into the energy market.
The report also called on the regulator to introduce price controls if suppliers did not narrow the gap between direct debit tariffs and standard credit and prepayment meters.
Mr Luff said: “Our view is that changes can best be made through improving market design, by taking specific regulatory steps and by continuing to work for liberalisation of European markets.
“Such an approach is more likely to bring real and lasting benefits to consumers. It is also less likely to inhibit the investment the UK needs so urgently if we are to ‘keep the lights on’ as we lose a large proportion of our generating capacity around the middle of the next decade.