Hospitality industry calls for probe into ‘broken’ energy market

UKHospitality has written to the competition watchdog calling for an investigation into the energy market over its treatment of restaurants, hotels and pubs.

 

The trade body said the business energy market was “not fit for purpose” and “one of the biggest millstones around hospitality’s neck”.

 

UKHospitality has requested a formal probe into the sector in a letter to the chief executive of the Competition and Markets Authority (CMA).

 

It said the criteria for a Market Investigation Reference (MIR) had been “undoubtedly met”, including grounds for suspecting competition is not effective on a large scale.

 

A formal investigation would allow the CMA to suggest ways to fix issues with the market.

 

In 2016 the CMA found that a lack of competition in the energy market was causing SMEs to pay 18% too much for energy – estimated at £500m per year.

 

This came to a head during the energy crisis in 2022/23, when prices spiralled and hospitality businesses were hit with extra costs and, in many cases, struggled to secure supply.

 

Hospitality venues continue to report issues with the energy market, including being treated as high risk and therefore charged premiums or denied supply.

 

UKHospitality said businesses cannot afford to go through the same issues again if another major shock to the energy market occurs.

 

The proposal for a MIR was developed by David Osmon of Ideal Economics.

 

Osmon, a former economist at Ofgem, the Competition Commission and the Office of Fair Trading, said: “The energy market is completely broken as far as many businesses are concerned. A fresh market investigation would deliver a significant boost to economic growth at virtually no cost to the government.”

 

In March 2023, Ofgem made a commitment to the then chancellor to consider recommending a market investigation by the CMA if it had reasonable grounds to suspect that competition in the market was not effective.

 

In July 2023, Ofgem’s own review confirmed a lack of effective competition but there was no mention of the promised recommendation of a market investigation.

 

Kate Nicholls, chief executive of UKHospitality, said: “The business energy market remains one of the biggest millstones around hospitality’s neck.

 

“Over decades, it has been proven that it is not fit for purpose. It has unscrupulously excluded businesses from accessing energy, charged them extortionately when they do offer contracts and treated operators with contempt when they come to suppliers for help.

 

“All of the conditions have been met to justify a thorough investigation and both the CMA and Ofgem have recognised independently that the market is not working effectively.

 

“With the government rightly looking at how regulators operate, a swift investigation into the non-domestic energy market would be a prime example of a good regulator acting to the benefit of the market and investment.

 

“After all, there is nothing more detrimental to business investment in the UK than having to pay an excessive amount for energy and potentially not even being able to access it at all.”

 

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