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Cameron's fuel price chimera

David Cameron's move to reduce the impact of fuel price rises on consumers over the winter is a profoundly unimpressive one.

The downsides to easing the pressure on fuel companies to implement green policies and shifting some of the burden to taxpayers outweigh the advantages on almost every level.

Meanwhile, the political gain from the Prime Minister's seemingly hasty manoeuvre is far from assured. The Labour leader Ed Miliband has made the running on this issue, ever since he included an energy price freeze as an unexpected commitment in his party conference speech.

He appeared to make headway with a policy designed to help hard-pressed households pummelled by increases in the cost of living. It is hard to see Mr Cameron's new pledge as other than a reaction designed to thwart his opposite number. However, what has been announced by the Coalition Government is not a price freeze. Instead, the Prime Minister argues consumers will see a cut of around £50 in the bills they would otherwise have expected this winter.

This has been done by slashing green levies on power firms which helped provide free insulation to households on low incomes. Meanwhile another measure, the warm homes discount for eligible pensioners, is to be funded by the taxpayer. But will this work? If, as Labour say, the autumn round of power increases means bills will still rise by an average of £70, the political dividend could be light.

People simply will not feel the benefit, and may even end up feeling they have been misled, as the Coalition is left explaining "but for us, it would have been worse".

The fact several of the "big six" power firms have readily fallen into line, pledging to pass on the savings to consumers, is another example of the industry moving as one.

Just as with price rises, also often announced in quick succession, the companies react together, reinforcing the sense that this is a cartel in all but name. Mr Miliband says that, as well as a price freeze, the market should be "reset". The need for this - so that consumers can benefit from true competition - is ever clearer but it is not at all obvious how this can be done.

It is possible to argue, of course, that this is an example of people power in action. It would be churlish not to acknowledge that politicians should respond to public demand. Mr Cameron deserves some credit for acknowledging the pressure on household budgets and the pain from rising energy bills.

However, if green levies are reduced and, in part at least, the cost transferred to the taxpayer, who really wins? It seems, again, to be the energy companies, whose profit margins will remain undented. Inevitably, the concession has led to pressure from other industries to cut the green taxes imposed on them. Firms such as Ineos and Tata have already warned George Osborne this week that green taxes are pushing them to crisis point.

Regrettably, this has all the hallmarks of a knee-jerk stunt rather than a true attempt to engage with the problems of the market or the struggles of ordinary families.

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