YOU do not need a PhD to know that the energy market is not working in the interests of consumers. In fact, a PhD may even hinder this analysis, at least if the liberal sprinkling of doctorates among the directors at Ofgem, the energy regulator, is anything to go by.

Despite nPower announcing a massive and unjustified increase in the cost of its domestic gas and electricity last week, the regulator continues to insist that the UK energy market is competitive and working well.

Sadly, the facts point in the opposite direction. The average cost of wholesale gas may have increased considerably over the past few months, but it remains about 20 per cent lower than its peak in 2006. Despite this, nPower’s gas prices are now at their highest level yet and the other suppliers, who always appear to act in unison, are expected to raise their prices to similar levels. Furthermore, when wholesale prices fell 60 per cent last year, average retail costs fell by only 12 per cent and most customers had to wait months for these cheaper tariffs to apply.

Last week nPower’s price rise took effect within one day and customers were left frustrated that they had enjoyed only eight months of lower prices, mainly during the summer period when energy usage is lower. The question is whether nPower would be able to get away with such tactics in a truly competitive market? Unless you work at Ofgem, the answer is clearly no. The idea that Tesco could get away with raising its prices by 18 per cent, even if wholesale food costs were temporarily spiking higher, is risible.

The regulator’s academics argue that the energy market is competitive because millions of people have switched supplier. Yes, there is some competition, but the market is not competitive in any real sense. Almost half of all households have never switched and a further 25 per cent have switched only once. More than three quarters of customers are not even on their company’s cheapest tariff, hardly evidence of an effective market. Apologists for the industry point out that retail prices in the UK are lower than in Europe, but that is irrelevant. Just because Europe’s energy market is worse does not mean that we should tolerate problems here. Ofgem does not have the ability to cap prices, but it has overseen structural changes and consolidation in the industry that have led to higher prices than necessary. Under Ofgem’s watch it has become almost impossible for new companies to enter the market and there remains a shocking shortage of gas storage capacity in the UK. The regulator has also allowed suppliers to continue to get away with woefully inadequate levels of customer service.

Of course, the problems of the industry are not all Ofgem’s fault. Some of the blame should also be directed at the European Commission for failing to enforce fair competition at the European level, which results in volatile wholesale prices in the UK.

The Government must also take action to help pensioners who cannot afford to heat their homes. It is nothing short of a national disgrace that about 40,000 elderly die each winter from the cold. The Government could save the money it has previously spent on winter heating allowances and have the same result by simply forcing suppliers to put all pensioners on their cheapest tariffs. At present, two thirds of the over60s have never switched and are paying £250 a year more than they should. This is the sort of policy that Ofgem should lobby for.

Sadly, nothing seems likely to change any time soon. Consumers cannot rely on the regulator to ensure that they receive a fair deal. The only option is to monitor closely your energy usage and ensure that you are on the best-priced deal available.

Only a matter of time before fixed-rate mortgages improve

ANYONE hoping for a little interest-rate relief after the spending splurge of Christmas was left disappointed when the Bank of England failed to cut borrowing costs this week.

Thursday’s controversial decision to leave rates on hold despite widespread evidence of a rapidly slowing economy and faltering housing market must have been a close call. The lingering threat of inflation must have persuaded a majority on the Bank’s nine-strong Monetary Policy Committee (MPC) to hold fire, at least for the time being. But those hoping for another rate cut will probably not have to wait too long. The Bank is almost certain to cut borrowing costs again in the coming months, with most economists expecting the MPC to move next month.

What is less certain is whether lenders hit by the credit crunch will pass on lower rates. The Council of Mortgage Lenders issued a forthright warning this week that each bank will “make its own commercial decision” on whether to cut rates.

So far, fixed-rate deals have failed to improve since last month’s rate cut, making tracker deals, which are directly linked to the base rate, look a better bet. Even though some banks, such as Lloyds TSB, have recently edged their tracker rates higher, they still look competitive compared with fixed rates – particularly with the prospect of further cuts ahead. Borrowers should be more cautious about deals that are linked to a lender’s standard variable rate as these leave you dependent on the whim of banks keen to protect profit margins.

Borrowers who prefer the security of knowing what their repayments will be each month should not despair. With lower base rates ahead and wholesale lending markets benefiting from the liquidity provided by central banks, it cannot be long before more competitive fixed-rate deals appear.