Energy prices: Turning up the political heat Energy firms argue that they have had to raise prices due to the increased cost of gas and electricity on the commodity markets. They also blame the array of energy-efficiency taxes imposed by the Government. Figures from Ofgem, the regulator, partially back this up. The proportion of a gas bill made up by the wholesale cost has hovered between 50 and 60 per cent for the past five years. But environmental taxes have significantly added to a bill. Green taxes account for around £75 of a £1,000 bill and this is set to double to £150 over the next three years. Energy companies argue that their profit margins are low at around 5 per cent, which is about the same as "pile-it-high-sell-it-cheap" supermarkets. But they are also masters of bamboozlement when it comes to the different tariffs they offer consumers, which in turn sow confusion, lack of trust and the suspicion that we are being ripped off. Between them, the big six energy firms and the UK's eight smaller providers offer around 80 tariffs. The public simply do not know whether they are getting a good deal. Just tapping details of my annual bill - £1,200 - and my south-west London postcode into a price comparison site brings up 54 alternative tariffs. Some claim to save me £222 a year while others will cost over £80 more. None of the rates is simple to understand. Some of the "cheapest" deals come with hefty cancellation fees and will automatically dump me back into a more expensive tariff after just over a year. Certain cheaper deals also require me to manage the account online rather than by post or phone. Alternatively, some of the more "expensive" tariffs have no cancellation fees and offer fixed prices until 2015. It was into the complex issue of tariffs that the Prime Minister stepped this week. Mr Cameron said that he would force firms to give every customer the cheapest deal possible. At the moment, homeowners are automatically placed in costly "standard" tariffs unless they have specifically asked for a cheaper deal. Such a move might save around 20 million homes up to £200 a year. However, Ed Davey, the Liberal Democrat Energy Secretary, speaking the day after the PM's intervention, said that rather than automatically place people on the cheapest tariff, firms must notify customers of the best available deals. The difference in approach is subtle but huge. Mr Cameron's scheme would mean state intervention in a free market and forcing companies to offer a fixed low price. Mr Davey's approach is one step back from compulsion: it would put the onus on homeowners to shop around for the best deal, with a nudge from the suppliers. In the end, John Hayes, the Tory Energy Minister, said that Mr Cameron's plan was one of a "number of options" under consideration. The energy industry was incensed by Mr Cameron's announcement, accusing him of forming "policy on the hoof." Insiders said that even if Mr Cameron's idea was put into practice, it might not make any difference. If firms had to offer the "cheapest" deal to householders, there would be nothing to stop them ditching their lowest tariffs so that more expensive deals became the "cheapest." "The danger is that they will pull their cheap deals and put everyone on more expensive standard tariffs, meaning that people will end up paying more," said Mark Todd, director of Energyhelpline.com. By the time the Government realised how tricky this proposed policy would be, the consumer group Which? was calling on the Prime Minister to "stick to the promise." The timing of Mr Cameron's intervention was unfortunate. Today, Ofgem will announce its plans to reform the household energy market by simplifying the number of tariffs on offer and making bills easier to understand. The bold statement from the top is likely to confuse this message. The truth is that the Government's hands are tied. While there is clear political capital in wanting to help hard-pressed families, the commercial realities limit its options. First, the Government is partly to blame for the price rises due to its green taxes. Second, government intervention in a functioning and open market would probably be anti-competitive and would certainly go against the beliefs of most Tory and Lib Dem MPs. And third, George Osborne needs the firms to invest in next-generation energy provision - be it shale, wind or nuclear - before the lights go out. He needs their money, their goodwill and their co-operation. Telling them to fix their prices is certainly not the way to do this. Some critics have called for a Competition Commission inquiry to force the big six to break themselves up, but this would be costly and take years. That said, the Government's policy thus far has been about increasing competition, not meddling with prices. Last year, when Mr Davey was Consumer Minister, he told me that government intervention in the energy market was off the agenda. "The only way to tackle [high prices] is to ensure that we have got competitive energy markets," he said. I would be surprised if The Daily Telegraph would be keen for us to intervene in the market. We have shown that it actually works the other way round - state intervention can be very inefficient and lead to higher prices. Competition is what you need to deliver. What he said next tells you all you need to know about the Government's power to reduce prices: "But we have also got to be realistic. A lot of these prices are global prices... we have to be modest about our ability to impact that. We should brace ourselves for many cold winters to come.