BECAUSE THEY CAN

Supplying life’s essentials can provide a steady flow of business, even in a flaccid economy. While the latest widescreen telly or a week in the sun can wait, keeping the lights and heating on, paying the train fare to work or updating your status on Facebook are less discretionary.  None provides the retail therapy lift that a day trip to Selfridges might deliver, but that’s the price that’s due after the country spent too many years confusing ‘available credit’ with ‘disposable income’.

The illusion of growth, or simple inflation?

Identifying growth opportunities in a recession can be like trying to carry steam in a bucket. This is particularly true if you’re a utility-type business.  At this end of the market, there’s seldom a cluster of what the marketing department might call ‘unmet demand’ waiting to be introduced to the life-affirming benefits of your products and services.  Welcome to the joy of delivering revenue growth in a regulated industry.

If you’re an energy or broadband provider, for example, your business can grow in one of two ways: either you lure lots of customers away from a competitor, an expensive strategy with an uncertain outcome, or you jack up your prices.

Raising prices is relatively risk-free when the majority of your customers are handcuffed to long-term contracts with unpleasant penalties if anyone thinks about digging an escape tunnel.  Likewise, if you’re a monopoly rail company that ferries people to and from work, the risk of losing customers because they’re miffed that you’re charging a bit more is equally low.

The problem with jacking up prices for essential services is that the cost increase eventually finds its way into the price of other goods and services.  That is why the price rises announced recently by the rail companies (6%), Scottish and Southern Electricity (9%) and BT (6%) are regressive.  They might create the illusion of revenue growth for the businesses involved, but in reality, all they’re really creating is inflation.   When the cost increases are passed on to the businesses that sell more discretionary stuff, their sales fall further and people lose their jobs.

None of the businesses has been able to explain in simple terms why these price rises are necessary.  That’s because saying ‘because we can’ is not considered a strong message.  The rail companies simply blame a complex pricing formula they’d worked out with the rail regulator, the old “but he said we could.”  Not everyone is aware that, alongside rising rail fares, we contribute a further £4 billion of taxpayer subsidies to the rail companies every year too.

These particular price rises are happening because they’re possible, not because they’re justified.

Combined, it cost £200 million over the last year to fund Ofgem, the Office of the Rail Regulator and Ofcom.  Isn’t it time these regulators, appointed to regulate and look after the interests of consumers, stepped up?  It’s also time the government, tasked with looking after the interests of taxpayers and committed to keeping inflation under control, upped their active oversight of the railways a notch too.

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