Theresa May is shaping up to be like Margaret Thatcher, but in reverse. In the 1980s, Britain’s first female Prime Minister launched a swathe of market-friendly reforms that increased the country’s appeal for inward investment but made her unpopular with sections of the population. News that May’s Conservative Party will pledge to cap fuel prices in its forthcoming election manifesto suggests a fundamentally different set of priorities.
The problem with the UK energy market, as outlined in a Competition and Markets Authority report last June, is that customers often pay a fifth more than necessary because they don’t switch suppliers. Placing limits on gas and electricity bills would be a blunt tool, though. The conventional free-market analysis is that restricting market prices deters future investment in new supply, which can lead to higher rates in the long run.
May has two domestic factors working in her favour. While the CMA has rejected a broad price cap, there is broad political support for action that goes beyond giving consumers an incentive to switch. The opposition Labour Party proposed a cap during the previous election two years ago.
The other is that May has already signalled a more interventionist approach. The vision outlined in her party conference speech last October was much less starry-eyed about the benefits of free markets than Thatcher's.
The wider problem is that acts of even justified populism might conflict with May’s post-Brexit vision of a “Global Britain”. Thatcher’s approach – shutting down unproductive industries and privatising previously State-owned companies — helped Britain's economy recover and attract foreign investment.
May’s stance makes less sense. Subsidies, public intervention and even an increase in state ownership won’t automatically mean foreign capital stops flowing into Britain. But the UK’s persistent current account deficit makes it more vulnerable to a snapback if global investors take fright at a more interventionist state. If May’s tinkering with energy prices is indicative of her broader approach, she could find this out the hard way.