Energy Company Charges
Mr Deputy Speaker (Mr Lindsay Hoyle)
Let us see whether we can get someone to open the debate. Who wishes to move the motion?
Mr Deputy Speaker
Look at that. Albert Owen—just like a man from Wales. Let us start with you.
Albert Owen (Ynys Môn) (Lab)
I beg to move,
That this House is disappointed that 17 energy companies in the UK charge their customers more if they do not pay their bills by direct debit; acknowledges that some firms do not charge their customers any extra at all; notes that Department of Energy and Climate Change statistics show that this adds £114 to the average consumer’s bill; further notes that 45 per cent of people do not pay their energy bills by direct debit; recognises that over one million people in the UK do not have access to a bank account; believes that these charges are a stealth tax on the poor; and therefore urges Ofgem to hold an inquiry into these practices, encourages energy companies to operate with more transparency, and urges the Government to consider ways of limiting these charges, such as by introducing a cap.
I was going to start by paying tribute to the hon. Member for Harlow (Robert Halfon) on opening the debate; I am sure we will reverse that role when he arrives. I think it is an appropriate time to have such a debate. I am pleased to be among the many Members who have signed the motion. I am not sure—I seek your advice, Mr Deputy Speaker—whether I should stop my speech when the hon. Gentleman arrives, or whether I should continue.
Albert Owen
That is what I wanted to hear.
Energy prices have been a serious issue for some time, but attention has recently been concentrated on it because of the high hikes in those prices. Fuel poverty is very much on the agenda again as many people are feeling the strain of the energy price hikes, particularly in rural areas. I know that the Minister has been before the Energy and Climate Change Committee on this issue. The Department’s own figures show that twice as many people in rural areas as in urban areas are suffering from fuel poverty. It is worth putting that on the record, because people in my constituency and in many constituencies across the UK are really suffering from energy prices.
As many people are now acknowledging, the energy market is flawed in many ways. As hon. Members will know, it was set up when gas and electricity were privatised. The old structures were used and the energy market developed from that. There were price controls very early on, and the regional distributors and energy companies all came together. In the beginning we had the big three; the big five and the big six were not invented at the time of the near-monopoly under Labour.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
The hon. Gentleman is setting out the context of this debate extremely well. Does he share my concern that the people who are paying the most for their energy are often those least able to afford it under the current regime?
Albert Owen
Yes, absolutely—I am coming to that.
I want to deal with a number of groups and issues, including the two main themes—vulnerable customers and choice, which the Government talk about all the time but which some people do not have. This is about helping and protecting vulnerable people, and that is the purpose of the motion. It is good to see that the proposer of the motion, the hon. Member for Harlow, is now here. I am taking over his role for a few minutes, but I am sure, Mr Deputy Speaker, that he will catch your eye and will not be penalised for being late.
There has been some progress on energy prices. Compared with a few years ago, bills are more transparent and a number of tariffs have been simplified. I pay tribute to Ofgem, the regulator, for setting up the retail market review, which was helpful, and to the work of hon. Members, including those who serve on the Energy and Climate Committee, which has been very proactive in holding the energy companies to account on tariffs and the price mechanisms in bills.
A few weeks ago—it seems like a long time ago now—we debated a proposed price freeze. Many people’s reaction was to say that it was a con. In terms of cons by political parties, we have to look closely at what the Prime Minister has said on several occasions about people going on to the cheapest tariff. The reality is that many people are adversely affected by prices. If they are off the gas grid, for instance, they will never get the best deal offered by energy companies because they cannot have the dual fuel discount. Equally, there are people on fixed charges and various other things that are built into the system. However, there is now simplification and the situation is improving regardless of legislation.
Mr Mike Weir (Angus) (SNP)
Is not the situation even worse than the hon. Gentleman suggests? Under the legislation, people on pre-payment meters, for example, can never get anything like the lowest tariffs available.
Albert Owen
Absolutely—that was my next point. These people are in vulnerable positions—not only those in houses in multiple occupation but those in rural areas. I know small estates in my area where people have these very high payments and are unable to get the best tariffs. It is a bit of a con. Although we passed the legislation and had those debates, it is worth putting this in its proper context, and I thank the hon. Gentleman for his intervention.
Mr David Hamilton (Midlothian) (Lab)
As regards the price freeze that Labour is proposing, does my hon. Friend agree that a member of any party that does not agree with it, such as the Scottish National party, has to be asked in their constituency why that is?
Albert Owen
The purpose of the proposed price freeze, which is not the main theme of this debate, is to have a pause, take stock, get the regulator to look at the issues and think about future legislation. I believe that we are where we are because of rushed legislation to privatise both gas and electricity, which created the wrong starting point for an energy market.
Many people on prepaid meters will never be on the cheapest tariff, and that fact was never addressed by the Government when the Energy Act 2013 made its way through Parliament. I want to concentrate on those who are hardest hit by the price discrimination to which the motion refers. They are really struggling with their bills and I make no apology for highlighting that fact time and again. Many of my constituents do not have the best prices. They also have lower incomes and higher transport costs in rural areas, which all adds up to a cost of living crisis.
Caroline Dinenage (Gosport) (Con)
The inflexibility of the prepayment system means that many families end up having to go to a shop to prepay. Does the hon. Gentleman agree that, rather than have the Government compel the energy companies, those companies should use their initiative and take the profits from over-inflated prices to invest in new and more flexible ways for people to make their prepayments?
Albert Owen
The hon. Lady makes a good point. I think that the onus is on the energy companies, but it is also on the Government and the regulator. It is a heavily regulated market and the regulator has a role to play. The point I was making—I will move on from it in a moment—was about cons: it was incorrect to make bold statements to the people of this country, while legislation was making its way through Parliament, that they would be put on the lowest tariff.
David Simpson (Upper Bann) (DUP)
Does the hon. Gentleman agree that the whole issue of direct debit payment hits the most vulnerable in our society and that the threatening nature of the correspondence from these organisations puts a lot of fear into the elderly in particular?
Albert Owen
Yes, and that is why I support the motion, which deals with that very issue. A high percentage of people choose not to pay by direct debt—I will come to the question of choice later—but others have no choice, and they are the ones who feel most threatened.
Mr Jim Cunningham (Coventry South) (Lab)
Does my hon. Friend agree that it is a bit of a con to ask people to shop around for a lower tariff? It is about time we had a proper inquiry into the energy companies, particularly the way in which they operate as a cartel. Only a week or two ago, I watched a television programme in which the regulator admitted that it could only advise companies to lower prices and that it could not impose such a measure.
Albert Owen
I am grateful to my hon. Friend for his intervention. He is absolutely right to refer to the regulator’s lack of teeth and its lack of willingness to use the powers it already has. That is an important point.
Some people say, “It’s a free market. Why should we over-regulate it?” They would also oppose the motion’s suggestion that the Government should consider introducing a cap, but it is important to realise that we have been here before. There is no doubt that the price of energy rose considerably between 2006 and 2008. Ofgem undertook an energy supply probe and agreed to place a licence condition on the energy companies to ensure that different segments of the customer base did not face undue price discrimination. This motion—I am certain that the hon. Member for Harlow will make this point more accurately than me, because he has done a lot of research on the issue—does not ask for very much, only to return to the position we were in previously. The licence condition that Ofgem introduced in 2008 after its energy supply probe lasted three years. My hon. Friend the Member for Coventry South (Mr Cunningham) has hit the nail on the head. We have been here before and Ofgem has the ability to address the issue.
My party has talked about having a new body to put consumer rights at the top of the bill. The opening line of Ofgem’s website states that it is there “to protect the interest” of the customer. In this case, I believe that it is failing, and falling short of what it should do on behalf of the consumer. I am very pleased that my party now considers that off-grid customers need the same protection as those on the mains gas grid, so that everybody in the United Kingdom is treated fairly in relation to energy and can have somebody to fight on their side.
Hon. Members have intervened about those who are hurt most by direct debit payments. I confess that I pay my utility bills by a mixture of direct debits and good old quarterly payments on paper—
Albert Owen
My hon. Friend is absolutely right. That was my next point—that I use the services of my local post office to pay my energy bills, which helps the local community in many ways. We get drawn into using direct debits, because it is a little bit cheaper, but sometimes there is extra social value from using other methods.
Sheila Gilmore (Edinburgh East) (Lab)
My hon. Friend has rightly explained how we can exercise choice and use other options, but such a choice is very limited for many people. He might be interested to know that in a recent pilot for direct payments of housing benefit, my local housing association found that many people did not want to get involved in such things as direct debits, because of bad experiences of payments coming out at the wrong time.
Albert Owen
My hon. Friend is absolutely right. I am sure that that issue will be addressed again as the Consumer Rights Bill goes through Parliament. I can remember a time when cash was cool. People went in on time and paid their bill in cash, and that was considered a good method of payment. Today, people are being penalised for exercising that very choice.
The hon. Member for Harlow has singled out companies in his early-day motions, but many companies have good practices. For instance, my supplier gives an early payment bonus to people who pay early by cheque or cash, or in other forms. There are mechanisms that can be used, but they need to be adopted by the whole industry.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. A lot of Members are waiting to speak. I know that the hon. Gentleman is coming towards the end of his speech, which is heading towards 15 minutes.
Albert Owen
I was dragging out my speech, because some hon. Members had not arrived in the Chamber. That explains the slowness of my opening remarks, but I am now getting to the crux, if not the end, of my argument. The points made in interventions are important: people do not choose to be in such a position, but some are, and there should be a mix of payment methods.
Those who use buzzwords about a free, open and liberal market are missing the point. Much of the energy we consume involves fixed costs over which companies have argued in the past few months that they have no real control. I am talking about such matters as commodity prices and transmission costs. Companies should be fairer in how they bill people, and should not penalise people or discriminate against them through their payment methods.
Other hon. Members have mentioned the choice to switch. To be honest, it is very perverse that energy companies and the Government push switching. No other sector of industry says, in a competitive market, “If you don’t like what we do, go somewhere else.” Can we imagine supermarkets adopting that policy?
I want energy companies to give loyalty bonuses to people who stay with them as long-term customers, rather than tampering with their accounts and penalising them for how they pay. I am told by energy companies—I have no reason to dispute this—that the regulator does not allow it. We should look at that, and if we had the proper review called for in the motion, the regulator would have to consider such issues and help people by alleviating the effects of the high percentage increases of the past few weeks.
The motion is about Ofgem doing its job and standing up for the consumer, the Government being on the side of the consumer, and us, as a Parliament, being on the side of the people we were sent here to represent.
Robert Halfon (Harlow) (Con)
After the debate, I think that I will enter the Olympics because I do not think that I have ever walked so fast in my life as when this debate started slightly early.
I am hugely grateful to my hon. Friend the Member for Ynys Môn (Albert Owen)—I call him my hon. Friend on purpose—not only because he has campaigned on this issue for far longer than I have and since before I was even in this House, but because he was a huge support in tabling the motion and in going to the Backbench Business Committee. I also thank him for his speech.
I would also like to thank my hon. Friend the Member for New Forest East (Dr Lewis), the hon. Member for North Down (Lady Hermon), the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd) and all those who came with me to the Backbench Business Committee, particularly my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch), who is winding up the debate and has done an enormous amount of work on this issue. I also thank the 177 Members who have signed the motion, making it one of the best supported Back-Bench motions in the history of such motions. That reflects the fact that this is an all-party issue and not just a Conservative issue, a Labour issue or a Unionist issue.
Organisations, such as Which?, have done a huge amount of work to promote consumer rights in this field and they keep me posted on what is happening. We must remember that Which? has led a campaign on this matter for quite a long time.
Mr Mark Spencer (Sherwood) (Con)
I am sure that the House will recognise that my hon. Friend is a tremendous campaigner—an award-winning campaigner—on these matters. I think that it is worth putting that on the record at the start of his comments.
Robert Halfon
I am proud to call my hon. Friend a friend and I appreciate his remarks.
It is no secret that consumers are feeling hard pressed. The cost of utility bills has gone up exponentially in the past three years. Since 2007, the average electricity bill has gone up by 20% in real terms and gas bills have gone up by a shocking 43%, proving that they are a major burden on the cost of living. Citizens Advice has warned that energy bills are rising at up to eight times the rate of earnings. It is no surprise that polling shows that the rising cost of energy bills is a top concern for the British public.
I welcome the efforts that the Minister and the Government have made to help, including by forcing companies to put consumers on the lowest possible tariff, providing a rebate to every domestic electricity customer, reducing bills by £130 for 2 million of the poorest households and protecting pensioners’ cold weather payments. However, with price increases, companies making large profits and general dissatisfaction with energy companies across the United Kingdom, it is clear that the energy market is not working at its prime.
The payment of energy bills by direct debit is often associated with companies overestimating a household’s energy usage, resulting in overcharging and a large amount of credit being built up. Understandably, that upsets many customers and it has rightly received a lot of attention from the media.
Alok Sharma (Reading West) (Con)
My hon. Friend is a huge consumer champion, not just on this issue, but on many others. More power to his elbow. He makes a good point about the way in which direct debits work. They are not a panacea. Last week, I received an e-mail from my constituent, Mr Balfour, who told me that his 87-year-old father had built up a £1,400 credit because he was paying by direct debit. According to Ofgem, direct debits are meant to be set on a fair and reasonable basis. Does my hon. Friend share my view that we should define in more detail what “fair and reasonable” means?
Robert Halfon
My hon. Friend makes a hugely important point, and I suspect that the Minister will have more to say about it. I welcome the fact that the Government are forcing companies to compensate customers, such as his constituent, who have been mis-sold or overcharged. I know that the Department of Energy and Climate Change has asked Energy UK to set up direct debit best practice guidelines.
The problems associated with customers not paying their gas and electricity bills by direct debit have largely been ignored, even though it can end up costing consumers significantly more. Unlike the hon. Member for Ynys Môn, who has known about the problem for some time, I first became aware of it only a few weeks ago. A pensioner in my constituency told me that she had received a letter from Co-operative Energy saying that because she was not paying her bills by direct debit, she would be charged £63 a year extra. I could not believe it—I wondered how on earth such a thing could happen, given that she had gone to the post office religiously to pay on time. I thought, “That is a lot of money”, so on the Monday, I rang up Co-operative Energy and spoke to the general manager, who was very pleasant. He said, “Actually, ours is one of the lowest”. There I was thinking that £63 was a lot of money.
I decided to investigate every single energy company, and the results were shocking. Of the 26 companies that responded, five only allowed their customers to pay by direct debit and 17 charged their customers different rates depending on the method that they used to pay. Only four companies charged their consumers the same whether or not they paid by direct debit. In a euphemism extraordinaire, many of the companies that charged extra said not that they were adding a surcharge but that they were discounting the bills of people who used direct debit, because there were lower costs.
Mr Jim Cunningham
The hon. Gentleman has been a great champion of a lot of energy issues over the past two or three years, for which I pay him tribute.
It strikes me that we must have a good look at how energy companies are structured and at the powers that the regulator has. I am not convinced about the regulator. I do not want to be party political—we are trying to get a consensus tonight—but does the hon. Gentleman share my hope that the Secretary of State for Work and Pensions will examine the motion tonight? There have been strong stories in the press that the Government are going to abolish the winter fuel allowance. I do not know whether that is true or false, but we hope that the message will get through to the Minister responsible in one way or another.
Robert Halfon
I want more money to go to the poorest pensioners, including the winter fuel allowance. I do not believe that millionaires or people with earnings of more than £100,000 should get winter fuel payments, and I would rather they went to the poorest.
Charlie Elphicke (Dover) (Con)
I congratulate my hon. Friend on his speech. Does he agree that when people are in credit, interest should be paid at a proper rate? Does he believe that the reason why balances creep up is that bill models are too opaque, and that a filling station-type model might be better?
Robert Halfon
My hon. Friend makes an important point, and I am sure the Minister has heard his remarks.
Philip Davies (Shipley) (Con)
I totally understand my hon. Friend’s point, but my only concern about the thrust of his arguments is that people are being charged less for paying by direct debit rather than being charged more for not doing so. If we stop that differential payment scheme, energy companies might equalise charges upwards rather than downwards and charge everybody more for their bills, in which case nobody will benefit and some people will lose out even though everyone will be paying the same.
Robert Halfon
I thank my hon. Friend, with whom I have discussed the issue. I will come on to it later, so I hope he will bear with me for a moment.
Some companies’ levies are extraordinary. I spoke last night to the managing director of Spark Energy, which says that it has a special tariff system and that the majority of its customers are tenants. Some 10,000 of Spark’s 80,000 customers, those who do not pay by direct debit, are charged up to £390 a year extra. The managing director told me that that was purely down to costs. I will make this point later, but what is to stop another company coming along and saying, “It’s £450 or £500 and that is down to costs”? We need transparency.
Let me make three points: first, I believe that these charges effectively act as a stealth tax on the poor; secondly, I want to rebut the arguments used by energy companies to defend such practices; and thirdly, I will say what I think the Government should do about them.
The excessive charges often hit those we should protecting the most, and just like my constituent, it is often the elderly who are affected. Many pensioners do not like paying by direct debit because they want to be in control of their finances. Over the past few weeks I have been inundated with letters from pensioners. One said:
“We are from the old school—brought up to put our bills money away every week. Never to be in debt. But because we prefer not to have direct debit, we are punished.”
Another wrote that
“as members of the older generation, we are very aware that keeping a careful eye on budgets and control of finances is very important, and we have always been in favour of paying bills as and when they arise—budgeting year by year for increases and ensuring that we have money to cover such expenses. In this way we avoid becoming overdrawn and incurring bank charges.”
That is exactly the sort of fiscal responsibility we should encourage, and it is not exclusive to pensioners.
Understandably, anyone on a low income might be concerned that a direct debit could be taken at a moment when they are not able to pay for it. They might be waiting to get paid a day later, for example, and missing a direct debit payment would incur a heavy bank charge. It also does not take into account those who struggle to get access to proper banking facilities. Some 1.9 million households in the UK do not have a current account and there is no facility for them to have an overdraft. Half a million of those households do not even have access to a basic bank account that can accept direct payments. Such people are incredibly vulnerable and have very little choice over their payment methods, yet they are being penalised for that and are often those who can afford it least.
This is not just about finances because, crucially, many people, particularly the elderly—certainly in my constituent’s case—enjoy the social aspect of going to the post office to pay their bills. Many pensioners have contacted me to say that they do not trust direct debits and feel that companies discriminate against them because they cannot use computers. As one person rightly pointed out, direct debits and credits are always susceptible to human error on the part of the recipient, and mistakes take an enormous amount of time to sort out. All echelons of society should be catered for, not just computer and smartphone users, credit card holders and the technologically literate generation.
Robert Halfon
I will give way to the hon. Member for South Antrim (Dr McCrea) who represents a party that has been enormously supportive on this issue.
Dr McCrea
I congratulate the hon. Gentleman on the effort he is making on this important issue. The motion before us reminds us that more than 1 million people in the UK do not have access to a bank account. Surely that points to the fact that energy companies are penalising the weakest and most vulnerable people in society.
Robert Halfon
The hon. Gentleman is right, and even worse, those companies justify the charges by saying that they are because of the cost of pursuing non-payers. In essence, the poorest and pensioners who pay on time are paying for companies to pursue non-payers or late-payers.
Mr Marcus Jones
My hon. Friend is a true consumer champion. Does he agree that the same principle exists for many people who have not got access to the internet and are penalised for asking their supplier for a paper bill and charged a levy as a result?
Robert Halfon
My hon. Friend is right, as he will understand as I continue my remarks.
Dan Byles (North Warwickshire) (Con)
I, too, congratulate my hon. Friend on securing this important debate. Is he aware of any studies or work that looks at exactly how the burden of this problem falls on different income distribution groups? If such work is not available, does he think that Ofgem, or possibly the Department of Energy and Climate Change, should commission it so that we can see exactly where the burden of this disparity falls on different income deciles?
Robert Halfon
My hon. Friend makes an important point. I know that Which? has done an enormous amount of work, as have other organisations and the Keep Me Posted campaign. I am sure the Minister has heard my hon. Friend’s remarks.
How do some of the energy companies justify these fees? First, they claim, amazingly, that the fees they charge are proportionate. Under Ofgem’s licensing conditions to energy companies, they are required to ensure that what they charge is reflective of cost. As I have said, I have no problem with a small administrative charge to reflect the extra cost companies face in processing a cheque, but many companies offer a paperless discount of approximately £6 per annum, implying that the cost of letters is £6. Keep Me Posted, after discussions with mailshot companies, has revealed that the cost of printing letters, staff cost, postage and printing is 19p per item. I would therefore question how some companies have concluded that sending out letters can cost up to £15, and whether that is truly proportionate. It is also worth noting that some companies, such as Good Energy and Green Energy UK, do not charge their customers anything different based on their preferred type of payment, believing that customers should not be penalised for how they choose to pay.
Secondly, the companies argue that they should charge more owing to the cost of providing credit to customers. Of course, I understand that when one pays for something retrospectively there is an extra cost, but, as I have said, it is also worth pointing out that some companies that charge retrospectively do not charge anywhere near as much as the big utility companies. BT is not my favourite company. Nevertheless, it bills customers retrospectively for the calls they make, yet charges just £2 a month to customers who do not pay by direct debit. There is no extra charge for any customers who are on a low income and therefore qualify for the BT basic service. I praise BT for making a commercial decision not to rip off their customers and to charge just £2 a month. I believe that companies should be able to meet some of these extra costs themselves. Because of the nature of direct debit payments, customers often pay too much.
Kate Hoey
I congratulate the hon. Gentleman on his articulate outlining of the case. He mentions BT. His ten-minute rule Bill next week covers a much wider area, because it is clearly not just the energy companies that do this. Does he not agree with me that a basic principle should be that if someone has a bill and they want to pay it in cash, they should not be charged a penny extra for doing so?
Madam Deputy Speaker (Dawn Primarolo)
Order. Before the hon. Gentleman replies to that intervention, may I remind him that the Backbench Business Committee recommends 10 to 15 minutes for opening speeches? He is not making an opening speech, but he is being allowed that time. That 10 to 15 minutes does not allow extra time for interventions. He has been very generous, but a lot of Members wish to speak. I would be grateful if he could now draw his remarks to a conclusion.
Robert Halfon
Thank you, Madam Deputy Speaker. I will do my best.
The third claim is that the cost differential—coming on to the point made by my hon. Friend the Member for Shipley (Philip Davies)—is due to the discount that companies offer customers who pay by direct debit. Indeed, many energy companies I spoke to told me that what they actually offered was a discount to encourage customers to use direct debit. However, if companies are using discounts to attract customers, it seems possible that they are using non-direct debit paying customers to subsidise these accounts—the point I made earlier. Differences in price should therefore be called a premium, rather than a discount, which can be misleading. Calling a difference of £390 a discount is like calling a mortuary a negative patients output. Any price savings must be proportional and must be communicated transparently to the customer.
The fourth claim is that the cost is reflective of the fact that those who do not pay by direct debit are more of a risk for non-payment. I have seen the cost breakdown of some companies that shows how much this adds on to the extra charge. Roughly, it makes up about half. Returning to some of the people I quoted at the beginning of this speech, all of them said that they pay on time without fail. Why should they pay more because of other people’s mistakes?
The fifth claim—I am nearing the end of my remarks—is that introducing a cap on what companies can charge consumers would result in everyone’s prices going up. That should not be the case, and the suggestion that it would push up prices is symptomatic of an energy market that is not as competitive as it should be. Energy companies should be fighting to keep these charges as low as possible to hold on to as many customers as they can. It tends to be the smaller companies that charge the least or do not differentiate between payment types. I am pleased that the Government are encouraging new entrants to the market, but in the short term I believe that a moderate cap on fees charged is the answer.
In conclusion, I am not against energy companies. I believe in business, but I believe in fair business, not the juggernaut of the big corporation. That is why I urge the Government, first, properly to investigate these charges and reassure customers that their bills are proportionate and that they are not being hoodwinked. Any companies whose charges are not found to be proportionate should be subject to a fine or windfall tax, with all the money being passed back to the consumer. Secondly, there should be fundamental reform of the system. As I have suggested, late fees should be for those who pay late—
Madam Deputy Speaker (Dawn Primarolo)
Order. It is now three minutes since I asked the hon. Gentleman to conclude his remarks. There is going to be a tight time limit. When I say “conclude”, I normally mean a couple of sentences. I realise he has a lot to say, but to say it within the time is always the challenge in the House. Will he please give us his last two short sentences, otherwise I will just sit him down?
Robert Halfon
Yes, Madam Deputy Speaker.
Finally, a cap should be introduced on the amount a customer can be charged. We need transparency, a cap on charges and fundamental reform.
Madam Deputy Speaker
Order. I must inform Members that there will be an eight-minute time limit on Back-Bench contributions. It might be necessary to shorten it, but let us see how we go.
Yvonne Fovargue (Makerfield) (Lab)
I, too, congratulate the hon. Member for Harlow (Robert Halfon) and all the Members who have supported this important debate.
We are all paying a lot more for our energy. As the hon. Gentleman mentioned, energy prices have increased eight times faster than earnings since 2010. It affects us all but impacts on lower-income households far more, not just because they have less to spend generally, meaning that any rise in the price of everyday goods and services hits them harder, but because they pay more than better-off households for their heating and power—many poorer households pay for their light and heating using prepayment meters. That is the area on which I want to concentrate.
People with prepayment meters have more expensive tariffs than direct debit customers. Citizens Advice calculates that meters add £100 a year to the average bill, which is a lot of money for someone on a low income already stretched by the rising prices of other household essentials. It is no wonder, then, that StepChange debt charity has recorded a 129% rise, between 2010 and 2013, in the number of clients in electricity arrears and a 114% rise in gas arrears.
We can all understand why energy companies want customers to pay their bills by direct debit—it is easier for them and cheaper—and many of us do pay that way, but 45% of households do not, according to Which?. In fact, more than 7 million people in the UK pay for their gas and electricity by prepayment meter, and that figure has been rising in recent years. It is not right that less well-off families are being penalised for using this payment method. There are many reasons households choose not to pay by direct debit: they might not have a bank account; they might be wary of falling into arrears; they might have been put on a meter by the energy company for past arrears; or they might simply have inherited the meter from a past tenant in their flat or house.
Stephen Twigg (Liverpool, West Derby) (Lab/Co-op)
My hon. Friend is making a powerful case about prepayment meters. I have been contacted by a constituent who wants to get off her prepayment meter. She has just been made redundant and is facing a big cost of living crisis in her own life, but to come off the meter will cost her £195, because Scottish Power charges £45 for a home visit by an inspector and then expects her to come up with a further £150 for a credit check. She will get that back if she passes, but she is still expected to find £195 just to come off the prepayment meter, which she wants to do to reduce her energy costs. Is that not another example of how these charges are a penalty on the poorest?
Yvonne Fovargue
I quite agree with my hon. Friend. Indeed, I was coming to that very point. The company I spoke to charges £50 for removal, or a deposit, and as my hon. Friend says, a credit check is payable by the person who wants to change their meter.
The other issue is that many people on prepayment meters are not aware of the tariff they are on, particularly if they moved into the accommodation with the meter already in place. In a recent survey by Stratford-upon-Avon citizens advice bureau, only 7% of gas users surveyed and 12% of electricity users knew the name of their supplier and the tariff they were on. This state of affairs is not helped by the fact that prepayment users receive only an annual statement. They do not receive quarterly statements. They receive an annual statement, which makes it impossible for them to monitor their expenditure, their deductions and their energy use on a regular basis. Crucially, many do not know that in addition to the energy cost, they are having a daily standing charge deducted from what they pay. Many people believe that all the money they put in goes to fuel, but if they try to economise in the warmer weather by not topping up their card, they easily build up arrears of the standing charge, and that plays havoc with the household budget.
The situation is made worse by emergency credit, which is often accessed by pressing the special button on the meter. In the Stratford-upon-Avon survey 67% of people used emergency credit in colder weather, but most did not realise that the deduction for the standing charges and arrears cease when they go on emergency credit, and are then taken off when they next top up. I have seen people at the citizens advice bureau who have topped up £10 but have had almost £5 of that go on their standing charge. That plays havoc with the household bills. If the money cannot be found, the prepayment user is left without light, heating or cooking facilities. In the Stratford-upon-Avon survey 30% of the clients who answered the survey had a long-term limiting health condition. These are the people we are leaving without heat, light or cooking facilities.
Prepayment meters are often presented as an effective budgeting tool for low-income households, and—this sounds quite benign—people self-disconnect. But they do not self-disconnect: they simply do not have the money to top up or they cannot get to the shop to do it. The reality is that the meters themselves are contributing to the increased debt problem. The highest fuel poverty rate by payment method is among households that pay for their fuel using a prepayment meter.
Energy companies need to stop discriminating against prepayment meter users and accept that there are good reasons why people are reluctant or unable to pay by direct debit. They need to ensure that prepayment meter customers have access to and knowledge of the various tariffs on offer, and that they get the best energy deals. There is a lot of talk about consumer choice, but for many on prepayment meters there is often no choice, unless the choice is between eating or heating. The energy companies need to respect their prepayment clients—they are customers, after all—and ensure that they have real control over their expenditure and energy use.
Ian Swales (Redcar) (LD)
I add my congratulations to the hon. Member for Harlow (Robert Halfon), who has led the charge, and to all the other Members who supported his motion today. The debate has already shown that there is no monopoly of concern in one part of the House—we are all concerned about this. I heard the calls for extra analysis of the issue, but there is no doubt that we are talking about an issue that largely affects the poorer part of the community. We could analyse it to death, but we all know intuitively what is going on.
I worked in the electricity industry way back in the 1970s. I was probably around at the start of the discount for direct debit schemes. We always used to do our marketing campaigns in the spring. Why? Because that allowed us to pile up credit through the summer, which helped to finance the business. There is no doubt that companies are doing that. We always used to aim to hit the exact average over the 12 months, but some companies seem to be looking to build up credit over the 12-month period by assuming extra usage. That practice ought to be stopped. Back in those days we used to give people an incentive of £2 or £3 a quarter for paying by direct debit. I am staggered by the size of the so-called incentive that is around now. It seems to be way out of line with any measure of actual costs. Of course, we have additional things now, such as discounts for online bills, which can add up to a fair amount, so there are many ways in which those without direct debit facilities or the internet are being penalised.
However, I want to follow on from the previous speaker, the hon. Member for Makerfield (Yvonne Fovargue), who made a good speech about prepayment meters. Rather like the hon. Member for Harlow, I had this issue brought to my attention just a couple of weeks ago. I was aware there was an issue, but I did not know how big it was until a constituent of mine called Frank Harrison claimed he was spending an extra 25% by having a prepayment meter. I found that staggering, but sure enough, when I did a bit of digging, I found that that was roughly the figure. I heard the figure of £100 from Citizens Advice. However, I have checked the three biggest comparison websites, which estimate the difference at between £160 and £300 extra for having a prepayment meter, and we are talking about people who largely cannot afford any extra.
I understand the history. As an accounting trainee, I remember going round with a meter collector with gigantic bags of silver coins, which he had to keep shipping to a bank. The costs of prepayment meters used to be serious when somebody had to be sent round collecting money frequently. However, we do not have that now; we have pre-payment cards. The risks of default are minimal. Prepayment meters also used to be a big target for theft, but not any more, and the energy companies are getting their money in advance, so the excuse that the costs of prepayment meters are much higher starts to fall away, given that people have to pay for the energy before they use it. Therefore, by definition the bad debts will be nil.
I join other Members in calling for transparency. It is inexcusable that these companies appear to be able to differentiate however they like, whenever they like and to any degree they like. The concept of a cap, which we heard about from the hon. Member for Harlow, is an extremely good start, but I would like to go further. Through policies such as the energy company obligation, the Government already require energy companies to do things—in that case to do with insulation—for the poorer sections of the community. Given the cost of energy, it is high time that companies were required to do more—to get involved not just in insulation, but in levelling the playing field between different methods of payment, particularly when it comes to prepayment meters, and to bring down the direct debit difference, if it is to exist, to a very low level. I would favour the Government saying, “Along with the ECO, we expect you to provide the lowest cost tariffs, whatever the method of payment.”
Jake Berry (Rossendale and Darwen) (Con)
I am sure that, like me, my hon. Friend would want to publicise the fact that uSwitch now offers a paper switching service. Some of the people on the most expensive tariffs can be the elderly and the vulnerable—the people least likely to want to go on the internet to change user. This excellent debate initiated by my hon. Friend the Member for Harlow (Robert Halfon) is a good opportunity to publicise uSwitch’s paper switching campaign.
Ian Swales
I would not necessarily want to support any particular commercial organisation, but I recognise the bid that the hon. Gentleman makes and I certainly support the idea of switching. He is absolutely right that anyone who wants to get the best deals these days has to have a bank account—and pay by direct debit—and has to be online to get the discounts and switch easily. They certainly do not want to have a prepayment meter. All that militates against the poorest part of our community.
David Mowat (Warrington South) (Con)
I agree with my hon. Friend that the current practice militates against the poorest people. His example of the ECO is rather a good one, because it involves the Government putting the onus on companies to do something. The only thing that bothers me a little, however, is that what is being suggested might imply a levelling of the bill upwards, as it does with the ECO, although that might be a reasonable thing to happen.
Ian Swales
What I am suggesting is really an averaging process. We expect better-off consumers effectively to pay for various measures nowadays, and I think we should ensure that they help the poorer members of the community in this instance by levelling the playing field between the different tariffs. I hope that the Minister will respond to that suggestion.
Siobhain McDonagh (Mitcham and Morden) (Lab)
I shall not detain the House for the full eight minutes. I just want to tell Members about an event that I organised in my constituency in January 2012.
I had begun to notice that more and more people were coming to my surgeries to talk about their difficulties in paying their bills. When I started to talk to people who were in debt about what their debts were, arrears of gas and electricity were appearing ever higher on the list. I started writing to charitable trusts, particularly those attached to British Gas and other large suppliers, in an attempt to help those people.
In order to draw attention to the issue, I organised a gas and electricity advice day in my constituency. It was attended by representatives of the big six, Co-operative Energy—which was very new at that point—debt advice agencies, the Royal British Legion, and other bodies that do good work out there to help people. It was also attended by representatives of uSwitch, because I thought that my constituents were, in the main, not people who would know how to go about switching. I thought that it would be anathema to them. After all, few of us who get up and go to work each day want to spend hours trying to decide on an alternative energy supplier. uSwitch was inundated on the day. People—they were mainly elderly, and mainly members of particular ethnic minorities—brought their bills, and cautiously went to talk to the uSwitch representatives. I observed that no one trusted their suppliers to stick to a better deal if they managed to secure one, or felt confident that the wool would not be pulled over their eyes.
We held eight question and answer sessions on a rolling basis with Audrey Gallacher, who at the time was director of energy at Consumer Focus. At the beginning of each session, the same two issues were raised—and 430 people were there that day. Some said, “We know that we are paying more because we do not pay by direct debit, but we do not trust our supplier. We do not want it to have access to our bank account. We would be in economic meltdown if the supplier took large sums from us, so we do not want it to have access to our account. We also know that although we will be racking up credit, because that is the sort of people we are, the supplier will still increase our direct debit.” Others asked, “How do I know that I am not being wrongly charged? How can I understand my gas bill? Do I need to be an advanced scientist to understand what the unit price is, and how the supplier charges me?” That question arose time after time, and it made me more aware of how people felt. Members of the Caribbean community in my constituency, in particular, did not want to be involved with direct debit.
Gas and electricity costs are still one of the major sources of continuing debt among those who come to my surgeries. I encountered an amazing case just a few weeks ago. My constituent Mrs Boakye cares for her elderly mother, who has had a stroke, and has four adult children. She won the jackpot when she was given a social tenancy of a four-bedroom house. All her dreams were realised: she was out of the insecurity of the private rented sector. Her only problem was that her supplier, British Gas, then attempted to take £835 from her account to meet her gas bill. I do not know about other Members, but I could not sustain a direct debit of £835. Certainly Mrs Boakye, as a nurse, could not do so. Her account was put in a spin, and all her direct debit payments began to be missed. It took some time for British Gas to agree that it had made a mistake.
Mrs Boakye is living proof that those who are on tight and limited incomes should not let gas and electricity suppliers have access to their accounts. While that fear and anxiety exist, the people who can least afford it will continue to pay most for their energy.
Ms Margaret Ritchie (South Down) (SDLP)
I thank the hon. Member for Harlow (Robert Halfon) for bringing this topic to the Chamber through the Backbench Business Committee and for his tireless work on behalf of consumers and the wider community, and I thank the hon. Member for Ynys Môn (Albert Owen), too.
In addressing today’s debate and the motion, which focuses on direct debit payments for electricity bills, we must also take into consideration the current economic situation faced by consumers. People are already paying excessive energy bills. Nearly all the major UK operators increased the cost of annual bills by about 10% last year, while Power NI delivered a staggering 17.8% increase in Northern Ireland. Although the recent jobs and GDP figures for Northern Ireland give some cause for hope, the truth is that this limited recovery is not being felt by families who are faced with higher energy bills, rising petrol costs and real-terms pay cuts. In this economy, every pound matters and that is why today’s debate is so important.
It is understandable if a company wants to give a discount to customers for paying by direct debit, and that is an entirely valid pricing structure, provided that it reflects the genuine saving to the company of the payment option. However, what is not acceptable is the vast price differential which seems to be prevalent in the current market between customers paying by direct debit and those not paying by direct debit. It would seem that those not paying by direct debit are actually paying a penalty to subsidise other customers’ lower bills. That is clearly unacceptable.
This is not a plain and simple matter of consumer choice. There are over 1 million people in society who do not hold current accounts and who therefore do not have the option of paying by direct debit. Moreover, 45% of all bill payers, including many of those with bank accounts, do not pay using direct debit for a variety of valid reasons. Such people, who are often vulnerable or elderly, should not face a penalty for that. Sadly, the people facing penalties, which can amount to hundreds of pounds a year, are often also those most likely to be facing fuel poverty or for whom such an amount of money would make the biggest difference.
Jesse Norman (Hereford and South Herefordshire) (Con)
I thank my hon. Friend the Member for Harlow (Robert Halfon) for calling this debate and I apologise for missing the early part of it. The hon. Lady is making a very valuable case. Does she agree that the additional cost to which disadvantaged people are being put by these meters and other payment systems that are not direct debit is grossly disproportionate to the amount of savings that are supposed to be generated for the power company and therefore represents an extortionate extraction of value from the poor member of the public who has to pay for it?
Ms Ritchie
I thank the hon. Gentleman for his intervention, and I fully agree with him, because I have seen that, not least in my own community in Northern Ireland.
Many people are likely to be pushed into financial difficulties by such charges and they often have the least flexibility when it comes to arranging their financial affairs. I support this motion on the simple principle that price structures and options should offer customer choice, not be determined by customer constraint.
It should also be pointed out that not every company operates in this way. In contrast to Power NI, there is Budget Energy in Northern Ireland. It does not penalise customers for non-direct debit payments. In fact, its cheapest tariff per unit is for prepayment meters. Other companies should be encouraged to consider similar pricing structures that do not penalise certain bands of customers. Again the issues of transparency and equity and fairness come into play.
Bob Stewart (Beckenham) (Con)
If someone pays their bill promptly, it is unfair that they should be penalised for not using a direct debit. Surely it should be put into law that people who pay their bills when they are asked to do so should not pay a penalty in that way.
Ms Ritchie
I agree with the hon. Gentleman; nobody should be penalised, and those who are least well-off are being penalised more than anyone else. Energy bills are at very high levels at the moment.
I am glad that the Prime Minister called last week for a probe into these excessive costs, and that the Department of Energy and Climate Change is to investigate the situation. There is clearly a role for Ofgem there, and I will encourage the utilities regulator in Northern Ireland to intervene with Power NI. Any such investigation needs to determine the real cost of the different payment options and the level that should be charged to ensure that one band of customers is not cross-subsidising another.
Ms Ritchie
I apologise, but I want to make some progress; I have already taken some interventions, and to take more would be unfair to others.
As I was saying, we need to determine the level that should be charged to ensure that one band of customers is not cross-subsidising another, particularly when a group of customers with limited financial means is found to be supporting cheaper prices for those who have the luxury of choice. The Consumer Rights Bill to which my hon. Friend the Member for Ynys Môn referred has a role to play. It offers the perfect opportunity for implementing the measures proposed today, and I would like to ask the Minister if he will now bring it forward.
We have a separate energy market in Northern Ireland, but I am aware that a similar situation exists there in relation to non-direct-debit charges. I therefore hope for an assurance from the Minister that the review will consider Northern Ireland as well. Will he tell us what discussions have taken place with the relevant Minister in Northern Ireland on the matter of energy billing?
The House knows of the wider issues facing the energy market, and there is clearly a need for sweeping reform, but today’s motion offers the opportunity to commit to a measure that would resolve at least one inequity. That would bring a degree of relief to families and individuals who are hard pressed by the ever-increasing cost of living.
Mr Mike Weir (Angus) (SNP)
I congratulate the hon. Member for Harlow (Robert Halfon) on securing the debate and on amassing such an impressive number of supporters. I also congratulate the Backbench Business Committee on securing the time for the debate.
All our constituents have suffered from rocketing energy prices over the last few years. Hard as that is for everyone, it is harder still for those who are unable to access the special deals that are offered by just about all the energy companies. In passing, however, I note that it is not all plain sailing for those who sign up to pay by direct debit, which can involve either a quarterly bill payment or paying a set amount per month. Those who take the quarterly bill payment option do not necessarily have any control over the amount being taken from their bank account, especially if they are out a lot and regularly have estimated bills. That can be a real problem. For those who opt to pay a set amount per month by direct debit, the company will regularly try to increase the amount they pay, whether or not the current amount covers their bills. Any attempt to retrieve an overpayment can result in a long tussle. At any given time, the energy companies are sitting on substantial sums that have been overpaid by customers. These are estimated to be about £2 billion, earning the companies £36 million a year in interest. It is hardly surprising that they keep trying to up the level of people’s direct debits.
Matters are not helped by the fact that energy companies are often not transparent about the charges that will actually be applied. The hon. Member for Makerfield (Yvonne Fovargue) mentioned the fact that many people on prepayment meters did not know what tariff they were on. In recent price rises we were told the average, but that hides a multitude of sins. A constituent, a low energy user, contacted me yesterday regarding the charges levied on his flat. He told me that the unit charge had risen from 7.242p to 10.89p—a rise of some 50%. That is outrageous.
The crux of the debate is not so much energy prices as social exclusion. Gratifying as it is to give the big six energy companies a well deserved kick, we also need to examine the actions taken by many of our major financial institutions and how they work against people accessing cheaper energy deals. The Minister may be able to do something about energy companies and Ofgem, but we need a cross-governmental effort to look also at how people access finance and bank accounts. The major energy companies all offer better deals if people can pay for their energy by direct debit; Citizens Advice reckons that the average saving is £100 on that paid by people who pay by other methods, although it can be as high as £140. That is great for people who are able to pay by direct debit, but many of those most in need of cheaper energy are the very people unable to pay by direct debit. There can be many reasons for that. Banking exclusion is one such reason, because about 1 million people do not have a bank account. We have all seen in recent years the flight of the banks from rural areas and areas of deprivation, and just the other week many branch closures were announced.
Sheila Gilmore
I am sure the hon. Gentleman is aware of this, but I would like him to comment on it. Many big banks have retreated from things such as basic bank accounts—Barclays is the only one of the major banks still to offer that—so in the past few years things have gone backwards on banking inclusion.
Mr Weir
The hon. Lady is right about that, and I will deal with the matter in a moment.
Another reason is digital exclusion, because many people do not or cannot access the internet, perhaps because they cannot afford it or they are unable to work a computer because of illness or age. Other people are simply disengaged from any competitive initiatives. Some may lead chaotic lives, whereas others may simply live in privately rented accommodation and move frequently to seek employment, and, thus, cannot enter into the longer-term agreements demanded by many of the direct debit arrangements.
Today’s debate pack contains an interesting table detailing the percentage of people who pay by direct debit. The figure for the south-east is 63% and the one for my area of north Scotland is 56%. Surprisingly, London’s figure, 41%, is one of the lowest, but that is because of the transient nature of London’s population and the fact that it contains a huge number of houses in multiple occupation and young people living in them. Those things push the figure down.
Some people are simply wary of getting into debt, especially if they have previously had problems, and they do not want to get into the position where they cannot control exactly when money comes out of their accounts and have to juggle their income to ensure that all bills are met. The availability of direct debit arrangements further discriminates against such consumers.
Let me directly address the point made by the hon. Member for Edinburgh East (Sheila Gilmore). Anyone who cares to look at banking comparison sites such as MoneySuperMarket.com or money.co.uk will find that data on best buy basic bank accounts show that some managed accounts with niche suppliers, which are supposedly specifically designed to help people with poor credit histories budget, have substantial monthly fees of about £12 to £14; those come up first if people google “basic bank accounts”. By contrast, some of us still, at least for the moment, enjoy free banking, as well as being able to get direct debit payments on our energy. It is also illuminating to look at the discussion forums on some of these sites and at the threads on basic bank accounts. It is apparent that the big banks, some of which still offer basic bank accounts without a fee, try to place people who inquire about basic bank accounts on their basic current accounts, which allow the very overdrafts that many of those seeking basic bank accounts seek to avoid. Such accounts can also sometimes come with swingeing penalties should the limit be exceeded.
In addition, people may find that the payment card for their basic bank account works only in certain automated teller machines. That makes things difficult, particularly in rural areas, where there may be only one ATM; if it does not happen to be the right one, people cannot access their money. Many people who have had difficulties with banks in the past are also wary of opening basic bank accounts with the same banking group, as they have real concerns that the money that goes into them might be swiped by the banks to clear pre-existing debts. All of that works against taking advantage of direct debit deals.
The situation is even worse for people who are on prepayment meters. As I have said before, this is one of the rare examples where people are actually penalised for paying in cash up front. Not only can they not access special deals, but the tariff is often higher. Many people who rent privately have no option, as private landlords have often installed prepayment meters. Worse still, when meters are calibrated to recover existing debt, much of the money is taken before energy is provided.
Those are just a few of the many issues around energy prices. For many people, the advice from successive Governments to switch suppliers or to pay by direct debit simply does not work. I accept that there are additional costs in different types of payments, but the huge disparity in charges shows that the current system is not working. We need real action on the matter and a fairer and transparent charging system. The motion calls for a cap on charges, which is very reasonable. I appreciate that the problem is not all down to the Department of Energy and Climate Change. As I said earlier, I hope that there will be a cross-governmental effort to deal with the problem.
Caroline Nokes (Romsey and Southampton North) (Con)
I add my congratulations to my hon. Friend the Member for Harlow (Robert Halfon) on securing this important debate. I intend to keep my comments brief, as other Members have covered some of the subjects in such depth. However, there is an issue that I wish to raise, pertaining as it does to the south-east. We have just heard from the hon. Member for Angus (Mr Weir) that people in the south-east are more likely to pay their bills by direct debit. However, even in Hampshire, which is a relatively well-developed county, there is a significant problem with broadband access in rural areas, making it hard for people to manage either their banking or energy payments online. As we have heard, it is those who can manage an online account who often get the most preferential rates for their energy bills.
It is simply too much of a generalisation to say that it is the elderly who are least likely to use the internet to manage their energy bill. There are many silver surfers in my constituency who are happy to use the internet to manage their energy bills and their banking, but they cannot manage them in areas where the broadband speeds are simply not adequate to do so. I speak from some experience; I can manage my own energy account online, but that is because I have relatively rapid broadband speeds at home and can upload the regular requirements of the meter readings that have to be taken. There are plenty of people in my constituency who are still on dial-up, and simply could not dream of uploading anything to the internet via those means. It is important that those who cannot manage their energy bills online should not be discriminated against.
I want briefly to comment on the issue of refunds. We have repeatedly heard from Members about how their constituents have seen their accounts getting into very high rates of credit. Of course, if someone knows that their account is in credit, it should not be particularly complicated to make contact with the energy company and ask for a refund. However, in the case of direct debits, we can all cite examples of how they are increased year after year. Consumers can find themselves paying more and more without ever being in a position to compare the bill, how much they are paying and how much is in their account. They are often confused by the sheet on the back of their bill, which does not make things transparent.
In conclusion, I commend my hon. Friend the Member for Harlow for his efforts in this area. He is absolutely correct when he says that transparency is the key to the matter.
Sammy Wilson (East Antrim) (DUP)
I congratulate the hon. Member for Harlow (Robert Halfon) on securing this debate through the Backbench Business Committee and on the work that he has done on this issue. When we consider the impact of rising energy bills on people across the United Kingdom, every aspect of those increases should be closely examined.
Northern Ireland has one of the highest levels of energy bills, and we have certainly had the highest increases in recent years. That is the result of a range of issues, including the green energy policies of central Government that add £100 a year to energy bills. On top of that, perverse incentives lead to direct debit increases for consumers.
That all hits Northern Ireland in a number of ways. First, we have the lowest percentage of people in the United Kingdom paying by direct debit—38% as opposed to 55% across the rest of the UK. There are many reasons for that, including a more conservative approach to such things. Fewer people have access to bank accounts and the remoteness of many rural areas means many people cannot pay online. In my constituency, a huge programme is trying to connect people to broadband because of the low level of coverage for thousands of households. Those in remote areas, especially those in the Antrim plateau, do not even have broadband as an option. As a result, 42% of people in Northern Ireland live in fuel poverty. That is exacerbated by perverse incentives that affect how energy bills are structured.
Ian Swales
The hon. Gentleman is talking about perverse incentives. Does he agree that people who have access to the internet and pay by direct debit are those who are most likely to switch, which means that the energy companies have a perverse incentive to give them the lowest tariffs to try to keep them?
Sammy Wilson
They do. The hon. Gentleman makes a very important point, and in most cases those people have the greatest ability to pay for electricity. In Northern Ireland, for example, those who cannot pay by direct debit or online will pay £55 more a year for their energy bill. That is about half the increase they pay as a result of the green subsidies consumers must pay to the energy companies.
Bob Stewart
It seems to me that, from the point of view of an energy company, if people can be put on to direct debit payments, all too often those who can afford it will not challenge their bill—they will just say that it is done and dusted. That is a big advantage for the energy companies.
Sammy Wilson
It is a huge incentive. The figure has already been quoted. People do not query their direct debits and as a result huge surpluses worth £2 billion across the United Kingdom have built up, meaning that people are in effect lending the energy companies money for nothing and those companies reap the interest. Meanwhile, those who cannot afford to or choose for whatever reason not to pay by direct debit must pay extra.
The companies’ defence is that they have additional costs in dealing with people who do not pay by direct debit. I approached Power NI about that and it identified two additional costs. First, if people pay by cheque, the company pays additional transaction costs. Secondly, if people pay by cheque, even if they pay on time—I did not understand this—the company says that that affects its cash flow. But as long as people pay promptly, whether by direct debit at the end of the month or by cheque at the end of the month, the company’s cash flow is not affected. I do not know what transaction costs the power companies are paying if they have to charge 6% to 8% more when a member of the public pays by cash or cheque. They are certainly not the kinds of transaction costs one would expect in those circumstances.
What action can be taken? First—a number of Members have mentioned this—the power companies must be more transparent. They cannot simply throw the matter aside and glibly say, “We charge people who do not pay by direct debit extra because we have increased costs.” Those costs must be quantified. As I have said, I do not accept that the costs are 6% to 8% higher just because someone chooses to pay at a post office or by sending the power company a cheque.
Secondly, I believe that there is a role for the regulator, whether Ofgem or, in Northern Ireland, the Utility Regulator. The regulator should be on the side of the consumer. In fact, that is one of its objectives and part of its remit. However, when I contacted the Utility Regulator about the cost disparity, I received a letter that might as well have been written by the power company. Indeed, the power company probably would have given a better explanation, rather than the few lines I received from the Utility Regulator. There was no challenge function, no querying of the differences in costs, and no seeking of additional information. It simply stated the differences, which I already knew, and the reasons for them, but there was no indication of whether that would be challenged.
I also believe that there is a role for the Government in this, whether through the Consumer Rights Bill, which is currently going through the House; by encouraging the regulator to act by digging more deeply into the reasons given by the power companies; or indeed, as has been suggested, by finding find ways of increasing competition, which of course would give consumers more options.
It is striking that some of the smaller companies, which are hungry for customers, do not face those additional costs. In fact, some of them do not impose additional charges at all. That is why I cannot believe that there are such huge cost differences for the larger power companies. Perhaps that is the good impact of competition. Why do some companies find that there are huge costs resulting from people paying in a particular way and other companies do not? Or is it that the smaller companies are hungry for customers and wish to compete? If that is the case, I think there is a lesson for the Government: the more competition we have in the power industry, the more chance we have of addressing these issues.
I thank the House for listening to my arguments and the hon. Member for Harlow for securing the debate. I trust that some good will eventually come from this to help those who are on the bottom rung when it comes to their ability to pay their power bills each month.
Mr Brooks Newmark (Braintree) (Con)
I had not intended to speak, but I have been moved to make a couple of points and did not want to take up hon. Members’ time by intervening. I would first like to congratulate my hon. Friend the Member for Harlow (Robert Halfon) on bringing this important matter to the House’s attention and ensuring that we have time to debate it. I also congratulate the Government on at least beginning to tackle it by starting the process of simplifying tariffs, rather than continuing with the confusing situation we had before. That is important, because Opposition Members failed to tackle the problem during their 13 years in government.
Many elderly people in my constituency are suffering from the cold. The problem is exacerbated by two issues: fairness, which is the point of this debate, and transparency. On fairness, as many Members have said, it is extremely unfair that those who have the ability or capability to pay by direct debit should be favoured in one way or another over those who may not have that ability or capability and pay by more traditional means by simply getting their bill, writing a cheque, and putting it in the post. As my hon. Friend the Member for Beckenham (Bob Stewart) said, someone who pays their bills on time in that way should be rewarded in the same way as any other person who pays their bills on time.
The point about transparency is more subtle. When people, particularly the elderly, look at their paperwork, the writing is almost microscopic when it comes to the detail of the terms of reference and, more importantly, the penalties. Moreover, the language used is extremely complicated, often involving jargon. It would be good if a working group, perhaps through the regulator or even internally in this House, could address the simple issue of trying to use simple language to communicate with consumers. Many consumers get baffled by the language used about the terms they are being told they must sign up to. If they understood the language, perhaps they would not suffer so many penalties.
Jim Shannon (Strangford) (DUP)
I congratulate the hon. Member for Harlow (Robert Halfon) on his crusading efforts on many issues in this House. He has talked about fuel costs in the past, and now he has turned to energy bills and tariffs. I commend him for his energetic investigation across the whole of the United Kingdom of Great Britain and Northern Ireland to ascertain the charges and costs that are involved.
This is a very pertinent issue. I am sure that many hon. Members’ constituents are facing the same difficulties as mine. In July, Northern Ireland’s biggest energy company, Power NI, increased its household electricity bills by 17.8%, which meant that the average household supplied by the company paid an extra £90 per year. There was a lot of disquiet across the whole of Northern Ireland about that increase. While it might be an inconvenience to many people, and to many others it might mean the sacrifice of a luxury to cover the difference, for some of the elderly in my constituency it will mean that they have to make the choice between a bit of heat or something to eat. This debate could have been entitled, “Heat or Eat?” For some of the people I represent, and some of those we all represent in this House, it is as specific and dire as that.
Bob Stewart
Why does the hon. Gentleman think that the charges in Northern Ireland, a part of the United Kingdom, seem to go up proportionately more than in the rest of the United Kingdom?
Jim Shannon
I wish I had the answer to that question, but I do not. My hon. Friend the Member for East Antrim (Sammy Wilson) and the hon. Member for South Down (Ms Ritchie) both said how much more expensive the charges are in Northern Ireland than anywhere else in the United Kingdom. As my hon. Friend outlined, the Utility Regulator in Northern Ireland does not seem to have the teeth that are needed to ensure that companies reduce their prices. We need to address these issues. I thank the hon. Gentleman for his intervention, but unfortunately I do not have the answer that we would very much wish to have.
Jim Shannon
I thank my hon. Friend for that helpful intervention, which clearly highlights the issue that we are all trying to bring to the Minister’s attention.
I want to speak particularly for the elderly people in my constituency and across the whole of the United Kingdom. At the Belfast pensioners parliament, Age Sector Platform gave a horrifying statistic: the number of winter excess deaths in Northern Ireland in 2012 was 486. Almost 500 people died because of their exposure to the winter weather. All of them were aged over 65, so we clearly need to address that age category. It is clear that older people are being hit hardest by the rising cost of energy and their reduced incomes. The energy providers must ensure that the elderly are on the cheapest tariffs possible. That is not happening. Even when they are told of the advantages, the language is so complicated they cannot understand it. We would do well to be able to understand it ourselves.
A good starting point would be to remove the charge for those who do not pay by direct debit. The simple fact is that many elderly people prefer to pay by cash or cheque, not by direct debit. Although it is simple for you, Madam Deputy Speaker, and sometimes even for me, to use online banking, it is clear that it is not as simple for elderly people, who should not be penalised to the tune of £114 a year just because they like to collect their pension from the post office. I underline the point made by the hon. Member for Harlow about the social contact that elderly people enjoy in the post office when they pay their bills by cash, rather than by direct debit. Many do not have regular visitors, so that social contact means much to them and its importance cannot be underlined enough.
I am a former business owner and I much preferred it when customers paid cash, for no other reason than that it meant I would get my money! Indeed, at times I would offer a small discount—or even a big one—as an incentive for that payment method. Now another option applies and the people who are hit hardest are those least able to afford it.
Northern Ireland—this point has not been made yet—does not have access to all of the alternative sources of energy. My hon. Friend the Member for South Antrim (Dr McCrea) and I have discussed the fact that parts of Northern Ireland and my constituency do not have access to gas. I wish they did. Many of my constituents on the Ards peninsula and in Ballygowan, Saintfield and Ballynahinch would love gas to be introduced to the area, and perhaps that will happen one day.
Our food bank in Newtownards is also involved in running the Christians Against Poverty scheme to help people who have debts to get on top of their issues and live on a budget. More and more people are deciding to get help to control their finances.
Mr Gregory Campbell (East Londonderry) (DUP)
Does my hon. Friend agree that Christians Against Poverty has had to involve itself with more and more people, particularly elderly and vulnerable people, in Northern Ireland and across the UK precisely because of the impersonal way in which many of the power companies deal with those who get into financial difficulties?
Jim Shannon
I thank my hon. Friend for that intervention. How true that is in my constituency and others across the whole of the United Kingdom.
Two months ago a new Christians Against Poverty scheme was set up in Ballynahinch in my constituency and there was great demand for it as a result of the impersonal attitude of some Departments and the complexity of financial matters. People have come together with Christians Against Poverty on the back of the food banks. I am one of the many Members who welcome food banks. I see them as a plus point for many parts of the community. They bring people together who energise themselves to help others who are less well-off, which is a trait we have not seen too much of in society in the past. It is good to see it.
Time is flying by, so I will move on quickly. Even a 5% reduction to a household budget will make a big difference, and that is why I welcome food banks and the good work of Christians Against Poverty. People are struggling, but the industry is not, and although I am firmly in favour of the free market, I am most certainly not in favour of profiteering, which is what seems to be happening.
I was horrified to read that the profits of the big six energy companies have shot up by 74% since 2009, dwarfing the 13% rise in inflation. British Gas, E.ON, EDF, npower, Scottish Power and SSE have enjoyed a £3.3 billion surge in profits, while households have been hit by a 29% rise in bills. My goodness, how obscene it is that on one side they are raking it in, and on the other side they are losing out. The word “perverse” was used earlier, and I could not describe it better.
For many people whose pay has been frozen and for many of those in small businesses whose hours have been cut to allow the owner to stay open, such a situation is a gross injustice. A profit must be made—let me make it quite clear that we are not against profit—but there comes a stage at which we must ask whether enough is enough. Profits from the groups that provide energy to 98% of homes rose from £2.15 billion in 2009 to £2.22 billion in 2010, £3.87 billion in 2011 and £3.74 billion in 2012, while the typical domestic dual fuel bill now stands at £1,420 a year compared with £1,100 in May 2010, according to the regulator, Ofgem. Surely it is time that the energy companies did the right thing by the most vulnerable—the elderly—and used some of their profit margins to provide affordable heating or, at the very least, not to penalise those people who use cash and cheques and do not feel comfortable paying by direct debit. The companies are clearly getting paid, and that, not the method of payment, is what is important.
As other hon. Members have done, I am putting forward a case on behalf of my constituents that enough is enough and that something must change soon. The question whether to heat or to eat is not one that anyone in the United Kingdom of Great Britain and Northern Ireland should have to ask or answer. Although we will do all in our power to help, the many businesses that are seen to be taking advantage must take their place, do their part and help our elderly people.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
It is a pleasure to follow the hon. Member for Strangford (Jim Shannon), who made a very powerful speech. I join other hon. Members in congratulating the hon. Member for Harlow (Robert Halfon) and his colleagues on tabling the motion. It has support from all parts of the House, and I am alarmed not to see my name on it. I must have missed the motion for some reason, but I certainly support it fully. I hope that my speech will make up for my name not being on the list of its supporters on the Order Paper.
The issue of people who do not pay by direct debit sometimes having to pay substantially more is one example of how low energy users—mostly people who are poor and vulnerable, but not always, because people sometimes choose a lifestyle involving low energy use or are fortunate enough not to use a lot of energy—by and large end up paying more than high energy users. That starts from tariffs: we all know that, with some exceptions, tariffs for people who consume more energy are cheaper, while those who use less have higher ones.
The extra cost for those not paying by direct debit is such an example, and hon. Members have spoken at length about the issues that that raises. Like them, I certainly find it hard to believe that in the vast majority of cases the extra charge levelled on those not paying by direct debit accurately reflects the extra costs to the companies. I rather doubt that it does, but there might be a case if the direct debit discount was a fair reflection of the extra cost that would otherwise fall on companies from people not paying by direct debit. However, the amount and variety of charges indicate that they are certainly more than can in any sense be justified.
As hon. Members have mentioned, it is wonderful for suppliers to get people on to direct debits because, as we all know, the likelihood that they will move or even think about switching is much less than that of those who are forced into thinking about how much they pay every quarter.
Colleagues have commented on prepayment meters. The hon. Member for Redcar (Ian Swales), who is not in his place, pointed out that we are not talking about the past situation in which, given the way cash was kept and all the rest of it, prepayment meters involved a major operation. It is now in no sense justifiable for prepayment meter customers to have to pay so much more than other customers, as we all know they do.
I want to mention the higher standing charges that have come about as a result of the Government’s policies on simplifying tariffs. The hon. Member for Braintree (Mr Newmark), who is not in his place, said that the Government have started the process of addressing the issue by simplifying tariffs, but the fact is that Ofgem’s recommendation that companies should effectively have higher standing charges is a result of its attempt to put into practice the Prime Minister’s hastily thought-out policies. In the vast majority of cases, the standing charge is higher than it used to be and the price per unit of energy is lower. I am sure that all Members have had cases of customers who are on low incomes and are low energy users experiencing massive increases in their energy bills. Ofgem says that companies can offer zero standing charges if they want to, but not many have done so. There is clearly something very wrong with the way that the market is operating and in how the market changes have operated.
This issue does not affect just people on low incomes. I saw one example of somebody who spent quite a bit of money on introducing renewable energy and energy efficiency measures. They reduced their energy usage drastically, only to find that their energy bill went up by almost 600% because such a heavy standing charge was levied on a daily basis. That is another example of how those who are low energy users for various reasons suffer because of the way in which the system operates.
Many of the issues that Members have raised today are not new. The hon. Member for Harlow has performed a valuable service to the House by highlighting the surcharge for non-direct debit payers. However, many of the issues that have been raised today have been brought to the attention of the Government and the regulators time and again. I have raised the issue of standing charges for months. There has been some movement, but not a great deal.
In the past few weeks, the Government have seen motions passed in Back-Bench business debates, but have then ignored them. Given that today’s motion has support from across the House, I hope that the Government will give a positive indication of the action that they will take on the issues that have been raised. Over the past few winter months, some of the lowest earners and some of the most vulnerable people in our country have yet again suffered because of the bias against them in the energy pricing system. We want to see action for those people and, at the very least, we want to see action before next winter.
Julie Elliott (Sunderland Central) (Lab)
I congratulate the hon. Member for Harlow (Robert Halfon) and others on securing this important debate. I thank the hon. Member for Chatham and Aylesford (Tracey Crouch) for offering to move the motion and my hon. Friend the Member for Ynys Môn (Albert Owen) for starting the debate in rather unusual circumstances. I also thank the Backbench Business Committee for allowing us to discuss these issues.
Ever since my right hon. Friends the Members for Doncaster North (Edward Miliband) and for Don Valley (Caroline Flint) made their announcements on energy at the Labour party conference last year, the way in which the market works or, more accurately, does not work has rightly come under greater scrutiny. Today’s debate is another symptom of that.
This debate has highlighted one of the essential facts about the energy market: we have not one energy market, but two, with companies targeting the lowest prices at a small section of the market, while charging everyone else whatever they think they can get away with. That is evident when one looks at the difference in prices between customers who pay by direct debit and those who pay by other means. It is also evident when one compares the prices that are paid by loyal customers, by which I mean customers who have never switched, which is the majority of people, with the prices paid by those who have switched. Tariffs should be cost-reflective: any difference for a different type of customer, payment or account—for example, dual fuel versus single fuel—must reflect only the costs that are associated with serving those customers and must be justified by the savings that suppliers enjoy.
Ofgem is responsible for ensuring that that happens. Following its energy supply probe in 2008, it introduced new rules that were designed specifically to prevent such anti-competitive behaviour. There will of course be marginal differences in costs between different payment methods and it is reasonable that there should be a small discount for customers who use cheaper payment methods, such as direct debit. However, what we are seeing is not a small difference but, in some cases, discounts of as much as £100—far and away above what could be reasonably justified. Ofgem has the power to act, but it does not. The Government should be intervening, but they are not.
The discounts for those on direct debit are not free. They must be paid for by someone. They are therefore being subsidised by those not paying by direct debit. In effect, energy companies are overcharging loyal and, in some cases, vulnerable customers, such as those who do not have access to bank accounts, to pay for deep discounts for the active segment of the market.
Julie Elliott
No, I do not have much time now.
The rules on tariffs being cost-reflective are clear, and Ofgem has the power to intervene and stop loyal customers being ripped off, so why has it taken no action, and why have the Government failed to act? My right hon. Friend the Member for Don Valley has repeatedly raised the question of Ofgem’s inaction, yet the Secretary of State has strongly disagreed with her when she has said that Ofgem is not using its powers. Will the Minister of State, the right hon. Member for Bexhill and Battle (Gregory Barker), enlighten the House on whether he is one of the Ministers cited in The Independent last week who have told Ofgem that it is in the last chance saloon and must take immediate action to improve competition? Given that the Secretary of State referred to our plans to replace Ofgem with a regulator that actually stands up for the consumer as “silly”, perhaps it was the Minister of State.
I say gently to the hon. Member for Harlow, who presented his case with conviction today, that capping the level of discount available to customers who pay by direct debit is probably not the answer on its own. In all likelihood, companies would just reduce the discount, and customers paying by standard credit or prepayment meter would carry on paying exactly as much as they are now. In fact, he alluded to that point when he called for fundamental reform, which is what we propose.
The practice of overcharging people who do not pay by direct debit, in order to target the lowest prices at the most active end of the market, is part of a broader problem in the energy market. In a vibrant and competitive market, suppliers would compete to give their customers the best deals and the best customer service would reward loyal customers. In our broken energy market, the big companies are overcharging and punishing their most loyal customers. That is why we need Labour’s plans to reform the energy market.
The plans that we have set out will reintroduce competition, restore transparency and create a tough new energy watchdog that will actually stand up for consumers. We will inject competition by separating energy generation from supply and requiring all energy companies to trade their energy in an open market by selling into a pool. We will reintroduce transparency by establishing a new, simpler tariff structure so that people can compare prices, just as they could before they were made artificially complicated.
As my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) clearly outlined, the Secretary of State may be intensely relaxed about Ofgem’s performance, but the Opposition are not. We will create a tough new regulator with new powers and new leadership, to stand up for consumers. It will have the power to force energy companies to cut their prices when there is evidence that reductions in wholesale costs have not been passed on to consumers, as would happen if the market were functioning in a properly competitive manner, and powers of collective redress.
Implementing those crucial reforms will take time, which is why, with immediate action upon entering office, we will freeze prices until January 2017, when our reforms will start kicking in. That will save the typical household £120 and the average business £1,800.
I am pleased that the Minister has come around to the fact that the energy market is broken. He said in an interview last week that he was unaware that three of the big six energy firms were not passing cuts on to fixed-price customers, and that that was unacceptable. He should pay closer attention to detail, because I raised the issue in the House just a few weeks ago, when he was in his place. I welcome his change of heart, but I do not understand how it could have taken him this long to come to that conclusion.
The Labour party has been clear: we will fix the market and put an end to secret deals and unfair pricing, our new regulator will stand up for consumers, and we will put all over-75s on the lowest tariff. Massive charges for non-direct-debit households are indicative of a broken market, and our reforms will ensure that all consumers get a fair deal under a Labour Government.
The Minister of State, Department of Energy and Climate Change (Gregory Barker)
This has been an excellent debate and there have been thoughtful speeches from Members across the House. I pay tribute to my hon. Friend the Member for Harlow (Robert Halfon) for bringing this matter before the House and for framing this very real question in his powerful introduction to the debate. I also pay tribute to my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch) who will speak after me. She has joined my hon. Friend the Member for Harlow to bring into close focus an issue that rightly warrants the scrutiny of Members across the House.
Let me be clear: the coalition Government are doing more than any Government before them to help hard-pressed consumers with the cost of energy bills, and we are fairly, squarely and rightly on the side of British consumers. My hon. Friend has raised legitimate questions about the way that consumers pay for energy by different methods, and the Government want to address that. We share the concern that my hon. Friend has put into sharp relief, but it is not a new issue. I am glad to use this debate to tell the House that Ofgem will be looking into the issue as part of the new competition test announced by the Prime Minister, to ensure that energy companies are living up to their obligations and licence requirements, and that the interests of the British consumer are at the heart of the modern energy market.
Dr McCrea
During the Minister’s remarks, can we get away from having those on the Front Benches make a political broadcast, and deal with the cross-party motion before the House? Will the Minister tell the House—I certainly did not hear this from the Opposition Front Bench—what is happening to the concerns that we as elected representatives have on behalf of our constituents, and which are summarised in the motion?
Gregory Barker
I certainly intend to do that, but I think the hon. Gentleman is being a little unfair. I have already mentioned the most important point of the speech, which is that we have asked Ofgem to consider the matter raised by my hon. Friends the Members for Harlow and for Chatham and Aylesford, and Members across the House, as part of the new competition test that was brought forward by the Prime Minister towards the end of last year. That will have real teeth and will report within a matter of months, if not weeks. We expect that in the near future, and Ofgem will be tasked to do it.
Mr Robin Walker (Worcester) (Con)
I am grateful to my hon. Friend the Member for Harlow (Robert Halfon) for securing this debate. I agree with the Minister that it is welcome that Ofgem will look into this matter and at competition, but Government policy is clearly to encourage switching. Will he address the point raised by the hon. Member for Liverpool, West Derby (Stephen Twigg) about energy companies charging people who want to move from a prepayment meter to a more ordinary tariff, and the outrageous variation in costs that can involve? One of my constituents was quoted between zero and £200 to have a prepayment meter removed. Does that not show that the system is not functioning properly as a competitive market, which is something Ofgem ought to investigate?
Gregory Barker
My hon. Friend is right and it is to his credit that he raises an issue that invariably afflicts the poorest and most vulnerable customers. In most cases, however, those on a prepayment meter can switch to a supplier that will not charge them for coming off it. Even if they are on a prepayment meter, they can still switch supplier.
It is important that we do not become carried away with the idea that the only response to getting a better deal for consumers is for Government to intervene with a one-size-fits-all solution. We saw what the result of over-regulation was under 13 years of Labour. Ham-fisted over-regulation does not actually benefit the consumer—it created the big six. We saw real choice for the consumer collapse under the previous Government through ham-fisted inappropriate regulation. The real interests of consumers will be served by a renaissance in competition. Relighting the fires of competition under this market will create real competition between energy companies.
I am glad to tell the House that since the coalition came to power we have seen movement back the other way, correcting the downward slide towards an oligopoly that we saw under the previous Labour Government. We are seeing new entrants to the market and unprecedented switching. In the last two months of 2013, an unprecedented number of customers switched their suppliers, hitting the companies that penalise customers where it hurts. People voted with their wallets and moved to get a better deal. This Government stand for empowered consumers—not just a lucky few, but everyone. We do not want a return to a nationalised industry; we want fair regulation for a fair energy sector.
Caroline Flint (Don Valley) (Lab)
There were plenty of examples in the debate that made it clear that regulations are not being followed on prepayment meters, and that Ofgem is not even using the powers it has. Rather than kicking everything off to the competition review, the Minister should ask Ofgem why on earth it is not enforcing the powers it has. It should stop letting this happen.
Gregory Barker
The right hon. Lady suggests that the competition test, which is new, will be a distant solution and that action is needed in the meantime. The competition test is alive now and we expect the first results shortly. This is not something we are kicking into the long grass; this is live. She raises a legitimate point on prepayment meters, as other Members have from across the House. Do not misconstrue me: this is a serious point and she is right to raise it. The Government take it very seriously.
We also take seriously the crux of today’s debate: are customers who elect to pay by cash or cheque, by standard payment through the post or at the post office, being unfairly penalised for doing so? That is not the same as saying that everybody should pay the same. I am afraid that there may be a genuine difference of opinion on that point. It is not our view that all customers should pay the same. There should be healthy competition, but—and it is a very important but—the differential between paying by direct debit and paying by cash or cheque should be cost-reflective and cost-reflective only. That is a key element of the licence condition under which energy suppliers operate. It is vital that Ofgem looks at that forensically and in detail, and answers to Ministers who have asked whether that is really happening.
Gregory Barker
In just a moment. I want to make some progress and I have to give my hon. Friend the Member for Chatham and Aylesford time to wrap up.
My hon. Friend the Member for Harlow drilled to the centre of the issue when he raised the fact that Spark Energy is charging a premium of £300-plus. That is staggering. Scottish Power, one of the big six created by the Labour party, is offering a premium—or a discount, depending on which way we look at it—of £99. The right hon. Member for Don Valley (Caroline Flint) asked why we were not doing anything. We are doing something: there is already a specific ongoing investigation into Scottish Power. This is not just about Scottish Power, however: for npower, that figure is £95. As part of the competition test, we have asked Ofgem to look at all the energy suppliers to ensure genuine cost reflection. We want to know why these costs are so much more than those charged by other utilities providers, such as water and telephone companies.
Robert Halfon
My right hon. Friend is right about the costs, but do we not need to look at the criteria by which they are measured?
Gregory Barker
Absolutely, and of course we look at the criteria. I have listened carefully today and in our discussions with my hon. Friend about the criteria, and we are asking Ofgem not to make a cursory comparison, but to establish forensically whether these charges are genuinely cost-reflective.
Julie Elliott
Ofgem’s investigation into Scottish Power has been going on since March 2011. Why does the Minister have faith that Ofgem is looking into this properly and will come up with a real answer?
Gregory Barker
Ofgem will be reporting in the near future as part of the competition test. It has the necessary powers, and we have made it clear that we expect a forensic analysis of the cost differentials and criteria.
This is not a new phenomenon, however. The Labour party had 13 years to crack it, but it took no action. Moreover, the Leader of the Opposition spent two years as Secretary of State for Energy and Climate Change, so the question is not “Why has it taken since 2011?”, but “Why did Labour do nothing, between 1997 and 2010, when it had the time, the power, the majority and the authority?” What did Labour do? Zero, zip, nothing. So before they ask, in high dudgeon, why we are not acting faster, would they please explain why they did nothing to help consumers for 13 years? When we get a credible answer, we will give their criticisms more credit.
I do not want to go off on a completely partisan rant, however, because some good questions have been raised, and I do not want to diminish their seriousness. We take the issue of prepayment meters and standard payments seriously, but we are also looking at direct debits. Some 55% of people pay by direct debit and 45% pay by standard payment.
Albert Owen
Did I understand the Minister correctly? On cost reflection, he said that Ofgem still had the power to intervene over the licence. I understood that in 2012 it gave up that power and introduced the retail market review. Is he now saying that Ofgem can still exercise that power? If so, why does he not tell it to do so? Then this debate would be null and void.
Gregory Barker
We have done it already. The hon. Gentleman was not listening. We have spoken to Ofgem, and it has confirmed publicly what we have discussed privately—that this will form a key part of the competition assessment. That is a new development, and a sign that the Government take this seriously and are on the side of consumers. We will not wait 13 years to do something about it.
We are not just acting for people on prepayment meters or trying to get a better deal for people who pay by a standard payment method; we are taking action to get a better deal for people on direct debits as well, because they do not always get a fantastic deal. We know that many people do not realise they are inadvertently building up stores of credit with the energy companies, as has been highlighted by Members on both sides of the House, including the hon. Member for Sunderland Central (Julie Elliott), I believe. We will soon be announcing proposals that will give consumers a much better deal. That is just one of the measures we are taking to get a better deal for British consumers, particularly the most vulnerable, and comes on top of the £135 warm home discount, guaranteed winter fuel payments for pensioners and energy efficiency support for the most vulnerable through the ECO.
This has been a good debate. I am pleased that we were able to benefit from expertise from across the House and that the concerns shared across the House on this issue were properly aired. I pay tribute to my hon. Friends the Members for Harlow and for Chatham and Aylesford for bringing it to the Floor of the House and allowing us to demonstrate that this coalition is taking action for British consumers.
Tracey Crouch (Chatham and Aylesford) (Con)
When my hon. Friend the Member for Harlow (Robert Halfon) asked me if I would wind up this debate, I thought it would be a great privilege. Now as I stand here, with my intelligent and beautiful Whip—my hon. Friend the Member for Guildford (Anne Milton)—sitting on the Front Bench with her pen poised, I am beginning to wonder whether this will determine whether I shall be a Minister in the future. The Minister was kind enough to offer me some advice, which was: “You’ll do a good job, but please try not to do a great job.” I shall therefore do my best to satisfy both the Whip and the Minister, but also to reflect the important aspects raised in this afternoon’s debate.
I thank the Backbench Business Committee for allowing this important debate and congratulate my hon. Friend the Member for Harlow on securing it. He is a tireless campaigner who always puts his case so expertly, as he has today. His speech was very clear in setting out the scale of the problem. He recognised that the Government have done much on the need to protect consumers, especially when experiencing additional charges. He outlined the case incredibly well, as did many others.
It is important to note that until the shadow Minister’s speech and the Minister’s speech, there was a great deal of consensus across the House on helping the most vulnerable consumers. The motion focuses on the 17 energy companies that are subjecting customers who do not want to pay by direct debits to charges. It is a great honour that 179 colleagues signed the motion, which shows how important this issue is to us in representing our constituents.
Those who spoke did so with passion. The hon. Member for Ynys Môn (Albert Owen) did a great job of standing in at the start. He spoke on energy prices in general and praised the work of the Select Committee on Energy and Climate Change. Like him, I was reluctant to switch to direct debit initially, preferring, like millions of other people across the country, to have control over when I pay my bills, based on the energy I use. That was reflected in many contributions this afternoon.
The hon. Member for Makerfield (Yvonne Fovargue) is a consumer champion on many issues. Her emphasis today on prepayment meters demonstrated characteristic concern for our poorest in society. I listened carefully to what she had to say. The hon. Member for Redcar (Ian Swales) spoke of one of his constituents and raised similar concerns about prepayment meters. The Minister heard those concerns loud and clear, as I am sure did those listening to the debate. I hope that the energy companies also took on board some of the issues that were raised.
The hon. Member for Mitcham and Morden (Siobhain McDonagh) used constituency casework as the basis of her contribution to today’s debate. I was fascinated by the excellent project she highlighted, an advice day surgery involving the big six. With her permission, I might steal it for my constituency, which has areas of deprivation and where we see concerns among particular pockets of energy consumers about paying their bills. I will be in touch with her office to find out precisely how she did that.
The hon. Member for South Down (Ms Ritchie) said that the charges should be seen in a wider economic context. She also said that many people felt that they were being penalised for not paying by direct debit, a view that was reflected throughout the debate. I agree with the hon. Member for Angus (Mr Weir) that this is as much about social exclusion as it is about unfair charges for those who cannot pay for utilities by direct debit because, for example, they do not have bank accounts. He made that case extremely well.
As a fellow south-east Member, I agree with what was said by my hon. Friend the Member for Romsey and Southampton North (Caroline Nokes) about rural broadband. However, I think it important to note that those who pay online are not immune to stealth charges. The problem does not just affect those who post cheques or take them to the post office.
The hon. Member for East Antrim (Sammy Wilson) made an incredibly important contribution on behalf of his constituents. He pointed out that 38% of people in Northern Ireland pay bills by direct debit, as against 55% in the United Kingdom overall. I thought that that was a very interesting statistic, and I hope that work will be done to establish the reason for it.
My hon. Friend the Member for Braintree (Mr Newmark) spoke of the need for fairness and transparency for our constituents, especially, but not exclusively, the elderly. He said that those who paid bills on time should not be penalised. He also made the very fair point that Labour Members, who had been very critical of some of the Government’s measures, had had 13 years in which to sort the problem out, and had not done so.
The hon. Member for Strangford (Jim Shannon) praised the good work of Christians Against Poverty, and spoke of the importance of social contact to those who pay their bills at the post office. As a Member of Parliament who highlights the problem of isolation, particularly among the elderly, he was absolutely right to raise that issue.
The hon. Member for Edinburgh North and Leith (Mark Lazarowicz) certainly made amends for not signing the motion by speaking so knowledgeably about the issue. That was hardly surprising, given his long-term advocacy of consumer protection. He did a good job in, as it were, providing the 180th signature.
I have a great deal of time and respect for the hon. Member for Sunderland Central (Julie Elliott), whom I call a friend outside the Chamber, but I have to say that, given the tone of the debate, I was rather disappointed by her response. Opposition Members should remember that the ripping off of consumers by energy companies did not begin in May 2010, and that the Labour party had 13 years in which to stand up for vulnerable consumers and did not do so. The Minister made that point as well, but I was very sad that the debate ended on a party political note.
I was thrilled to become involved in the campaign initiated by my hon. Friend the Member for Harlow. Like many others, I did so because I was contacted by a constituent. Mr Steele, who lives in Lordswood, contacted me because he wanted to pay a number of utility bills online, but felt that he was being penalised for doing so. He said that British Gas had had the cheek to remind him that he would have been £67 better off if he had paid his gas bill by direct debit, and £33 better off if he had paid his electricity bill by that method.
It has been made very clear that Members want more transparency for their constituents when it comes to energy charges. We know that the charges are high and that they are often hard to justify in view of price increases and the large profits made by the industry, but it is unacceptable that customers are being penalised for choosing to manage their payments in a way that is convenient for them. The motion notes that 45% of people do not pay their energy bills by direct debit, and are being charged for not doing so. I hope that the energy companies will note what has been said here today, and will rectify the position immediately.
Question put and agreed to.
Resolved,
That this House is disappointed that 17 energy companies in the UK charge their customers more if they do not pay their bills by direct debit; acknowledges that some firms do not charge their customers any extra at all; notes that Department of Energy and Climate Change statistics show that this adds £114 to the average consumer’s bill; further notes that 45 per cent of people do not pay their energy bills by direct debit; recognises that over one million people in the UK do not have access to a bank account; believes that these charges are a stealth tax on the poor; and therefore urges Ofgem to hold an inquiry into these practices, encourages energy companies to operate with more transparency, and urges the Government to consider ways of limiting these charges, such as by introducing a cap.