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Thursday, June 30, 2022

Fiddling with the energy price cap is the tip of the iceberg. More needs to be done | Nils Pratley

Great news, eh? The energy price cap will rise again in October and then there will be only another three months, rather than six, to wait until the next increase in bills. If that does not seem like an unalloyed benefit, Jonathan Brearley, the chief executive of Ofgem, would like you to remember that energy costs can fall as well as rise. The proposed shortening of the timetable for adjusting the price cap would mean “any price falls would be delivered more quickly to consumers”, he said.

That is true, of course: the cap works off wholesale prices in the preceding period, so a faster recalculation will reduce the lag effect, whatever the direction of the move. This suits the energy regulator’s purposes, one suspects, because its next worry – when wholesale energy prices do eventually fall – is being blamed for delays in lowering bills. Quicker adjustments may marginally reduce the sense that prices go up like a rocket but come down like a feather.

Does the switch make economic sense, though? Probably. But Ofgem would be wise not to overstate matters. There is a benefit to companies in the form of reducing their “volume risk”, as the jargon has it: if wholesale prices were to plunge suddenly, the worry in boardrooms is that customers, for whom energy has been bought at high prices, will desert for cheaper fixed-price deals elsewhere. But the gain for companies, which in theory should be passed on to customers, is not enormous. And a disadvantage for consumers is that new entrants could be discouraged.

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At this point in the game, we would probably settle for a market in which companies are able to cope with a bout of volatility without falling over like a pack of cards. Twenty-nine suppliers have collapsed so far, shoving about £2bn of cleanup costs on to billpayers.

Yet a fiddle with the price cap, which may not have saved a single supplier, is only a minor change. Ofgem’s more important ideas for reform are those that will erect ringfences around customers’ deposits and ensure companies’ balance sheets can withstand financial stress. Those ideas remain the main regulatory event. Ofgem needs to hurry up the hard stuff that some suppliers will not like.

Why is Unilever still operating in Putin-land?

A protester outside the Unilever headquarters in Victoria Embankment, London, holds a placard calling for a boycott of Russian products.
A protester outside the Unilever headquarters in Victoria Embankment, London, holds a placard calling for a boycott of Russian products. Photograph: Vuk Valcic/Alamy

The exit of McDonald’s from Russia turns the spotlight on those western consumer giants still continuing to operate in the country. One is Unilever, the Dove-to-Wall’s-ice-cream group. So it was intriguing to see its former chief executive Paul Polman pop on Twitter to laud the McDonald’s move as “courageous”. Polman did not join the dots to his old shop but others will. Why is Unilever still operating in Putin-land?

The short answer is that the current chief executive, Alan Jope, takes the view that ceasing imports and exports to Russia, and starving the local operation of capital expenditure and an advertising budget, is a better response. Simply closing four factories would expose employees, especially local bosses, to punishment by the Kremlin, the argument goes.

Unilever says it will not profit from its presence in Russia but “will continue to supply our everyday essential food and hygiene products made in Russia to people in the country”. Since one of the main products is a local ice-cream brand, the definition of “essential” is being stretched but you get the picture: Unilever’s defence is that it has responsibilities to its employees.

But so, of course, does McDonald’s, which said it considered the “dedication and loyalty” of local staff and suppliers but concluded that some things were more important. In other words, operating in Russia is incompatible with being a grownup western business.

Nobody should deny the complexities here but Unilever’s stance looks increasingly misguided and isolated. McDonald’s will seek to offload its Russian operations to a local buyer while retaining its trademarks. It is hard to understand why Unilever cannot do the same.

Ailing Made.com has much to prove

Made.com website on a smartphone
Since Made.com’s £775m flotation last year, its shares have fallen almost 75%. Photograph: Dado Ruvić/Reuters

For most consumers, a new sofa or kitchen table is a deferrable purchase, so one shouldn’t be surprised that the online furniture retailer Made.com is in the profits warning business. Yet the size of Monday’s alert was extraordinary.

As recently as March, the company expected revenues to improve by 25-35% this year. Now its best outcome imagines no growth, and its “lower guidance” foresees a 15% decline. In the process, the arrival of profits (at an “adjusted Ebitda” level, note) has been deferred for another year.

Since last year’s £775m flotation, the shares have fallen almost 75% in a straight line, more or less. They will find a floor eventually but the listing price was plainly an exercise in optimism. Made, then as now, has an innovative model that has much to prove.

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