Ofgem handed tough energy price cap balancing act | Nils Pratley

The big six energy suppliers would be wise to heed the advice of business secretary Greg Clark on Monday: accept that a price cap has support in parliament, so don’t do anything silly like launch a judicial review. Better to implement the cap in time for next winter without further complaint.

Yet, if Clark is dishing out advice, the person who could use some guidance is Dermot Nolan, chief executive of regulator of Ofgem, who has the unenviable job of setting the level of the cap. At best, he is being sent mixed messages by government. At worst, he is be asked to deliver contradictory goals.

The big idea is to abolish “rip-off” default tariffs, as the prime minister puts it, but Nolan is also being told to preserve competition between suppliers and maintain incentives for customers to switch.

If he opts for a cap on the high side, incentives to switch would remain intact but “rip off” prices would be only be curbed at the edges. If Nolan goes low, suppliers might respond by setting all their tariffs at the cap, or thereabouts, which wouldn’t meet anybody’s definition of a competitive market; all tariffs would be more or less the same, with active switchers penalised.

Two further demands complicate Ofgem’s task. Creating “incentives for suppliers to improve efficiency” might suggest a low cap, to force companies to cut costs and shed staff, as British Gas announced last week. On the other hand, “the need to ensure that efficient suppliers are able to finance their supply activities” could be an argument for leaving fat in the system to ensure money flows into new generating capacity.

The City – understandably – expects a grand fudge. Analysts guess that the cap to be set at about £1,050 for an average dual-fuel household, or about £100 below the current highest standard variable tariffs (SVT). That would allow Theresa May to boast about delivering a saving she has mentioned in the past. But the figure would apply only to a minority of the 11m households on SVTs, those currently paying top whack. If so, the price cap won’t end the debate. The next row will be about whether the companies have been left off the hook.

The big energy suppliers, to be clear, have brought this position on themselves by gouging their inattentive customers for years. But the price cap policy is still messy: ministers haven’t defined success in terms that can be understood easily. Heaven help Ofgem when, come 2020, it must decide whether it is safe to remove the cap and revert to today’s system. The basis on which the regulator is supposed to make its recommendation is as clear as mud.

Online rises could force Hammerson to lower rents

“Not all retail is equal and not all locations are well placed to support the future needs of brands,” says David Atkins, chief executive of Hammerson, before unleashing a relentlessly upbeat assessment of why his group’s shopping centres are in the winners’ camp. Occupancy stands at a 17-year high of 98.3% and earnings per share improved 6.5% last year.

Fine, so why do shares in Hammerson, owner of the Brent Cross and Birmingham Bullring centres among many others, stand at a discount of 40% to net asset value?

The answer emerges when only you look beyond Atkins’ cheerful take and see what’s happening of the ground. Retail sales at UK centres declined 2.7% in 2017, more than twice the rate of the previous year. The rise and rise of internet shopping is biting. Even in France, where Hammerson says online shopping is less advanced, sales were merely flat.

Hammerson is still squeezing out rental increases, but you wonder for how much longer. Atkins’ idea that large shopping centres “interact seamlessly with digital” sounds like wishful thinking. Yes, there is interaction in that traditional retailers still want stores to display products, even to customers who end up by buying online. But the process probably won’t be seamless. If in-store sales are falling, retailers will eventually demand lower rents.

That is why one reason why Hammerson’s shares have fallen by a third in three years. It is also why the group’s proposed £3bn takeover of Intu, owner of Lakeside in Essex and the Metrocentre in Gateshead, is best viewed as a deeply defensive deal – a case of two retail property specialists huddling together in search of safety. There has been little protection so far: Hammerson’s shares are down 13% since the deal was unveiled in December and exit from the FTSE 100 index looms. Funnily enough, Atkins didn’t mention that.