Ed Miliband wants the energy regulator to use a proposed legal power to enforce an additional cut in annual fuel bills estimated to be worth £100 per household.
The Labour leader has already pledged to introduce an energy bill price cap, freezing bills for six months, which the party says will cut annual bills by £120 a year. Miliband’s latest proposal would almost double that saving for most consumers by 2017.
If Labour wins the general election, it will hand Ofgem a new legal duty to review energy prices by the autumn – and the power to order price reductions before the winter if it is shown that individual firms are not passing on cuts in wholesale prices.
The cut would last at least until the energy market had been reset by the end of 2017.
The legislation, Labour said, would be fast-tracked to bring about an immediate end to the overcharging by the big six energy firms. But the proposed law may be seen as a new intrusion by Ofgem into the market.
Critics have claimed the freeze policy had lost its political clarity owing to the fall in energy prices caused by the slump in the price of oil.
But Labour now says that despite wholesale energy prices falling by an average of 20% over the past year, the big six energy firms have reduced gas bills by only 1-5%, while electricity bills have not been cut at all.
“What better evidence do we need of the chronic overcharging, the broken market and the ripoffs being faced by millions of families and businesses across Britain?” Miliband will say.
Consumer groups estimated that the failure to cut prices is costing families and businesses £2.5bn a year.
Which? has said that further cuts of up to 10% for gas and electricity bills should be made this year. Such a reduction would save the typical family almost £100 this winter, on top of the forecast £120 savings they would get from Labour’s plan to freeze energy bills until 2017.
Bills have increased on average by 4.2% (£70) in the last 12 months, according to consultants Apollo Energy. Since 2008 the total cost of gas, electricity and other fuels have risen by 57%. In January 2013 fuel bills accounted for 18% of consumer expenditure.
Energy firms are likely to be furious about the new threat to their revenues, but ministers have also said there is a problem with consumers not receiving the full impact of falling wholesale prices.
In November Danny Alexander, the Treasury chief secretary, wrote to all of the main fuel suppliers and distributors to demand that they pass on the benefits of falling oil prices to customers as quickly as possible.
The chancellor, George Osborne, has also promised to monitor the behaviour of the big six energy firms “like a hawk”.
But the firms say they have to purchase their oil many years ahead, and details of their hedging strategies have to be kept commercially confidential. They argue that the cost of fuel is only half of their overall costs, and does not take into account network expenditure.
Miliband’s announcement on energy policy comes as part of Labour’s fifth and final pledge on living standards to be unveiled at its pre-election event in Birmingham on Saturday.
The coalition claims that his campaign about living standards has now been blunted by wages starting to rise in real terms.
But Miliband shows no sign in backing down, and will say: “The vital link between the wealth of our nation and working families has been broken. It’s been 18 months since I announced the next Labour government would freeze energy bills – so they can only go down and not up – until 2017 while we reset this broken market.
“In those months we first heard loud protests from the big six energy firms and their PR guys in the government. Then we saw prices continue to rocket upwards, unchecked by the government.
“Now something else is happening. The costs of energy are tumbling down, not because of anything the government or the big six energy firms have done, but because of global changes in oil and gas supply.
“The cost of energy to the big six firms fell by 20%. Your gas bill fell by between 1 and 5%. Your electricity bill probably hasn’t fallen at all.
“Even the PR guys for the big six – David Cameron and George Osborne – admit this is a problem. But they have not acted and the whole country knows why. It’s because they will never stand up to powerful interests and they never stand up for you.”
Last month the Competition and Markets Authority released early findings of an inquiry into the sector that the big six were overcharging millions of loyal customers by up to £234 a year.
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