The energy regulator Ofgem would like you to believe its new measures to ringfence customers’ deposits are “tough”. They certainly ought to be. About £400m of customer money evaporated with the failure of 28 energy suppliers since last September – the coffers only refilled via a charge on all households.
Unfortunately, the regulatory boast of toughness looks premature. A properly robust plan to prevent deposits being used like “an interest-free company credit card”, as Ofgem’s chief executive, Jonathan Brearley, put it, would be adopted immediately. Some suppliers would have to raise equity to replace deposits they have been using as working capital, but a determined regulator would insist that they do.
That is not Ofgem’s plan – or, at least, not yet. Instead, it has entered a world of consultation and evidence-gathering. On the one hand, the regulator says it is “minded to” introduces full ringfencing “as soon as possible”, by which it means the end of the year. On the other, it wants to “better understand the magnitude of any risks to supplier business models”.
In other words, it is prepared to listen to pleas from some quarters that full and immediate protection of deposits would tip some suppliers over the edge. The document mentioned a figure of only 30% as the level of ringfencing that domestic suppliers “could be able to accommodate” this winter.
A 30% outcome – ringfencing-lite, as it were – would be a sign of regulatory weakness, not toughness. £94 has already been added to households’ bills to replace deposits and green levies that were missing at failed firms. It would be a disgrace if that figure were to rise again this winter.
Yes, Ofgem must follow due statutory process so as not to invite legal action. Ultimately, though, it needs to face down the cries for delay and lengthy transition periods. Brearley, in reforming mode after two decades of lax regulation at Ofgem, needs to live up to his promises from him. No backsliding.
Easyjet and others will be in no position to grumble
EasyJet’s shareholders, rather like some of the passengers with booked flights, are in the dark. The missing element in the airline’s announcement that it is “proactively consolidating” a few thousand flights over the summer was an estimate of what the “resilience” measures mean in financial terms.
“There will be a cost impact,” said the statement, without offering guidance. Much depends on how many affected passengers take up the offer of an alternative flight. Past experience says the percentage should be high – punters tend still to want to go on holiday – but the difference between 70% and 90% is still large in terms of the compensation bill that easyJet will end up paying. The most that can be said is that, whereas the City previously thought the company would break even this financial year, a loss is now on the cards.
The bullish case says one terrible summer doesn’t interrupt long-term recovery prospects; the strength of demand for flying has been demonstrated in spades, after all. An alternative view is that the disruption may have long-term consequences for all airlines. Passengers’ rights are being flouted as a matter of course, said the consumer body Which?, in testimony to MPs last week. If the current turmoil acts as a prompt to rewrite the rules – or just to enforce the ones that exist – the industry is not in a position to grumble.
Why resisting full conversion to online is sensible for Primark
Operating profits at Primark – a retailer that has resolutely refused to sell online – will be almost £800m this year, if City analysts’ forecasts are correct. Over at Asos, the online pioneer, the equivalent figure could be as little as £20m, according to last week’s warning. So why would Primark wish to even dabble in the online game by experimenting with a click and collect service?
Well, the answer seems simple. Under click and collect, customers still have to turn up at the store, where they may decide to buy extra stuff. If the trial with children’s clothing and accessories in 25 stores in the north-west of England works, the chain should generate incremental sales.
What will never happen – almost certainly – is a conversion to full online offer at Primark, delivery and all. The economics don’t work at the cheap end of the market, the company has always insisted. Given Asos’ latest woes with elevated levels of fiddly returns, one suspects that conviction is greater than ever. Just copy the bits that work, and stay clear of the hassle. Sensitive move.