15:47 - The House divided: - Ayes: 248 / Noes: 275 - Question accordingly negatived.
Mr Speaker
I should inform the House that I have not selected the amendment.
Caroline Flint (Don Valley) (Lab)
I beg to move,
That this House welcomes the decision to refer the energy market to the Competition and Markets Authority (CMA) for investigation; believes that this confirms that the energy market is broken; notes that this investigation could take up to 18 months and will not report until late 2015; further notes the decision by Scottish and Southern Energy to freeze electricity and gas prices until 2016; further believes that all households and businesses should be protected from any more unfair price rises while the CMA investigation is ongoing; and calls on the Government to freeze electricity and gas prices whilst the energy market is reformed to improve transparency, competition and accountability.
Last week, the House had a brief opportunity to debate the decision to refer the energy market for a full market investigation by the Competition and Markets Authority. That decision was confirmation, if ever it was needed, that Britain’s energy market is broken and that radical action is required. If it helps get to the bottom of exactly what has gone wrong with the market and goes some way towards restoring consumers’ trust, it is to be welcomed.
However, Ministers should be honest with the House today that a market investigation alone offers little comfort to consumers who are struggling now, because it leaves them in the bizarre position of being told that competition in the market is not working and the prices that they pay are not fair, but that nothing will be done about it for two years. First, Ofgem has to consult on whether it should refer the energy market to the CMA. That will take two months. It will then have to consider all the responses and publish a final decision. That could take another month. Only then, which is likely to be the end of June at the very earliest, will Ofgem refer the matter formally to the CMA. The CMA investigation will then begin and that could take another 18 months.
Today, therefore, I present to the House a simple motion with a simple proposal: while the investigation is ongoing, and while the energy market is being reformed, consumers should be protected from any more unfair price rises—not a voluntary price freeze by one company that benefits only some customers, but a price freeze for all households and small businesses.
Time after time we have seen that voluntary approaches do not work. Consider the way that companies failed to pass on reductions in wholesale costs, and the way they sat on hundreds of millions of pounds of direct debit overpayments. Those companies have only ever changed their behaviour when forced to do so, and the Government should learn the lessons of those experiences and intervene to require all suppliers to freeze their prices. As we have said many times before, that would not prevent companies from cutting prices, but it would stop them from increasing them. The Government have the power to do that, and if they did so they would have our support. Although SSE’s decision to freeze its prices until 2016 may not go far enough and may exclude small businesses, it is clear evidence from within the industry that a price freeze is possible.
Stephen Mosley (City of Chester) (Con)
The right hon. Lady says that she supports a price freeze, but the Government have announced a £50 cut to energy bills. Would Labour reverse that?
Caroline Flint
I am afraid that despite the Government’s tampering, bills have gone up by an average of £60. Furthermore, as a result of the Government’s tinkering, according to their impact assessment some 400,000 homes will not receive energy insulation. That is not something to stand up and crow about.
Hon. Members may recall that there were those who said that a price freeze was unworkable and impossible to deliver. It is not normally in my nature to name and shame people when their arguments have been well and truly demolished—[Hon. Members: “Go on!”] Okay. On this occasion, in the interests of openness and transparency, I am obliged to remind the House of what the Secretary of State said. This is the man who told the House last week:
“We have never said that the big six could not have a price freeze.”,—[Official Report, 27 March 2014; Vol. 578, c. 479.]
However, on the day my right hon. Friend the Leader of the Opposition made his speech to the Labour party conference, the Secretary of State said:
“Fixing prices in this way risks blackouts, jeopardises jobs and puts investment in clean, green technology in doubt”.
Last week, he said that SSE’s decision to fix prices was “good news”. He added:
“Let’s hope”
—I emphasise hope—
“some of the other companies now follow.”
It may be in the Secretary of State’s nature to follow, but it is in mine to lead. If he wants energy companies to freeze their prices, as he told the public last week, he should not wait for them: he should do it now.
I take the security of our energy supply seriously. That is why the collapse in investment under this Government is so worrying and why there has been so much concern about the length of time it took to get contracts for difference in place, and how long it is still taking to get the capacity market up and running—policies we have supported. That is why in government we will establish a dedicated energy security board. However, a Labour Government will not be held to ransom, and neither must the Secretary of State.
Guy Opperman (Hexham) (Con)
Does the right hon. Lady accept that an externally imposed price freeze does not control overseas supply or energy prices?
Caroline Flint
The price freeze we have suggested is in recognition of the dodgy dealing that has been going on, and we have proof of the fact that when wholesale prices have gone down, they have not been passed on to the consumer. If the hon. Gentleman does not get that, he will not win at the next general election.
The Government were wrong about our price freeze, and today is their chance to atone for their error. They have been wrong about much else besides. The Secretary of State likes to claim that Labour created the big six, but who botched the privatisation of our utilities, sold off our country’s assets for much less than they were worth, and removed the restriction on vertical integration? It was not us; it was the previous Conservative Government. As this week’s revelations about Royal Mail remind us, they are the same old Tories. They might think they know how to run a business, but they are not fit to govern.
The Secretary of State for Energy and Climate Change (Mr Edward Davey)
It is not normally that I come to some colleagues’ defences, but since the right hon. Lady is talking about privatisation, which party lifted price controls on energy markets, and when?
Caroline Flint
It was a recommendation from Ofgem that we want to abolish. It was wrong and it did not work, and I will get to that point. Unlike the Secretary of State, I came to this job to look seriously at what has gone wrong in the energy market, and since privatisation over 30 years ago, mistakes have been made. Mistakes are being made now that could be put right if the Secretary of State had the gumption to do it, but he does not.
Andrew Gwynne (Denton and Reddish) (Lab)
The price freeze that my right hon. Friend is proposing is not an end in itself. Is not the fundamental problem that the big six supply energy to 97% of homes and control 70% of power generation in this country? That means that people cannot shop around and often get overcharged. Do we need the price freeze so that we can begin the process of resetting the market?
Caroline Flint
My hon. Friend is right. It is a temporary price freeze while we reform the market and restore faith and trust. That is absolutely necessary for the journey we are asking the British public to continue with us in relation to energy.
Eric Ollerenshaw (Lancaster and Fleetwood) (Con)
Will the right hon. Lady give way?
Caroline Flint
I will give way shortly but I want to make a little progress.
The Secretary of State lauds the days when there were 15 energy suppliers, as if it were some nirvana of competition where consumers had choice, customer service was great, and bills were low. He does not mention that the reason there were 15 suppliers was that there were 14 regional electricity suppliers, each with a complete monopoly in their own area, and only one gas supplier, which had a monopoly across the entire country. Consumers had no choice at all; nobody could switch, and that was that. Who gave ordinary consumers the power to choose who supplied their electricity, and who tried to open up the energy market to full retail competition? It was the previous Labour Government.
Caroline Flint
I will give way shortly but I want to make this point. The Secretary of State also boasts that on his watch 18 new entrants are challenging the dominance of the big six. He is right: 18 other suppliers are in the domestic market, but when did they enter it? When did companies such as Good Energy, First Utility, and Ovo Energy enter the market? Was it under this Government? No, it was not—it was under the previous Labour Government.
Caroline Flint
I will finish this point. Good Energy: 2003; First Utility: 2008; OVO: 2009. In total, there were not just six suppliers in 2010, as the Secretary of State likes to say, there were 14, and in recent years the growth of those companies has begun to erode the market share of the big six.
Yes, there are more suppliers out there challenging the incumbents, and the market share of the big six is down from a huge 99% to a still pretty massive 95%, but that is no thanks to the Secretary of State. If he does not even understand the problems with our energy market, why should anybody trust him to fix it? Let us not forget that the only reason we are having this debate, and the only reason the energy market has been referred to the Competition and Markets Authority, is the way in which Labour, along with others, has stood up for customers and refused to be silenced.
Eric Ollerenshaw
Clearly, the right hon. Lady has thought carefully about the implications of a price freeze. What discussions has she had with trade unions and the energy industry about the possibility, should there be a price freeze, of a demand for a wages and salary freeze in the energy industry?
Caroline Flint
The energy companies have clearly been making profits that have not been reflected in efficiencies in their organisations or a fair trade off between what they should spend on getting bills down and investment. I believe in this sector and that its potential growth is enormous. The truth, however, is that staff in those organisations are not served well by a management that refuses to faces up to its responsibilities to provide good customer service and efficient services in which everyone can gain. The only people gaining at the moment are the big six chief executives and their management boards, and those who benefit from the profits they have made—unfair profits that have not been passed on and shared with consumers and investment.
Mr Davey
I am pleased that the Labour party now supports the market investigation reference. Will the right hon. Lady confirm that that was not the case a few months ago, and that when the Leader of the Opposition was doing my job and had a chance to take such action, he did not?
Caroline Flint
In 2011, Labour, under my right hon. Friend the Member for Doncaster North (Edward Miliband), a previous Secretary of State for Energy and Climate Change, supported a full market investigation. The former Secretary of State opposed that. [Interruption.] No, I am sorry, but this is a very important point. Labour supported an investigation two and a half years ago and the Government opposed it. Labour then looked at ways of reforming the market, short of a CMA. The truth is that we welcome the CMA, but we also know that we should not allow this issue to be kicked into the long grass. We should be planning our reforms now. The Secretary of State cannot ignore that.
The Secretary of State told the House in a statement last week that the energy market has improved since 2010. Ofgem’s assessment shows precisely the opposite: things have got worse since 2010, not better. Apart from a spike in switching in a couple of months at the end of 2013—which I have to say had more to do with the Leader of the Opposition’s speech at the Labour conference than anything the Government did—the number of people switching has fallen. The latest statistics, published by the Government last week, show that 2013 was the second-worst year on record for the level of switching. The spike at the end of 2013 appears to have been completely reversed.
Small suppliers have been gaining customers and their market share has been growing, but paragraph 5.16 of Ofgem’s assessment is clear that last year, for example, half the so-called growth in market share for smaller suppliers actually resulted from npower selling Telecom Plus, which just so happens to have a 20-year contract with npower for its energy supply. In any case, as figures 28 and 29 show, the overall rate at which suppliers have been winning customers has fallen. Figure 39 of Ofgem’s assessment also clearly shows that the total amount of energy being traded has fallen in each year since the general election, as has the churn rate.
The only things that have increased on this Government’s watch are people’s bills and the profits of the big energy companies, which, paragraph 6.10 of the report notes, have increased five-fold in the last three years—up from just £200 million in 2009 to £1.2 billion in 2012. Let us not forget the increase in households in fuel poverty, and the growing queue of people who cannot get their home insulated after the Government’s tinkering with bills last autumn. The Secretary of State must be so proud.
The notion that the energy market is, as the Secretary of State puts it, “improving”, is very obviously wrong. What the report shows, and again I quote directly from section 4, is that
“things are getting worse for consumers.”
That is the conclusion of the report; and that is a verdict on this Government’s record.
Martin Horwood
The right hon. Lady mentioned Good Energy. I met Good Energy this morning and it is quite clear that Labour’s policy would cause it real problems as a small green supplier. Is not the truth that this would be bad for competition, and, as it wrote to the right hon. Lady, that it treats the symptom not the cause?
Caroline Flint
I am not surprised that energy suppliers, big or small, do not like having their prices frozen. I would be surprised if they did support it. However, when Stephen Fitzpatrick, the chief executive of Ovo, was asked whether it would affect his company model, he said:
“No I don’t think so, we set up our business to make sure that we are able to pass on the greatest amount of savings possible to energy customers.”
When asked, “Will you be affected?” he replied:
“No I think it will probably be great for our business to see any kind of pressure put on the big six.”
The same goes for Co-operative Energy. The big prize for Good Energy, Co-operative Energy, Ovo and the others is a reforming of the market to ensure that they have greater access to the products they wish to sell. There is a big prize for them that many of them support through our reforms.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I hesitate to interrupt a very good speech. Those of us who support the reference to the CMA worry that there will be another 18 months—there will be a new Government, which will obviously be a Labour Government—when we still will not have tackled the deep disaster of the mess that the Conservative party made of the privatisation of the energy sector. We need a fundamental look at energy, root and branch.
Caroline Flint
My hon. Friend is right. In the statement last week, I thought he made a very fair contribution, saying, “Look, there are real problems here that we all have to acknowledge, address and deal with.” I welcome the reference to the CMA, but we cannot allow the silence that some Government Members would now like to follow on this issue of public importance. That is why we have to draw a line in the sand and have a freeze. It is also why we should get on with some of the other ways in which we can address the reforms that are necessary in this market. I have been very open that there may be aspects of the CMA investigation into this murky world that will find other issues that Labour has yet to look at and that might be helpful to our reform programme. I very much welcome that, but we cannot allow this issue to be kicked into the long grass.
The report clearly highlights the need for reform in our energy market, as we have made clear for the last three years. It identifies five significant problems that are preventing consumers from enjoying the full benefits of competition. None of them is new.
Jim Shannon (Strangford) (DUP)
In Northern Ireland, there are just two electricity companies: Power NI and Airtricity. Last year, Power NI put up its prices by 14%. Does the right hon. Lady feel that it is time we had a more open market with more suppliers, so that the price can come down, and that the sooner that happens, the sooner we can take advantage of that?
Caroline Flint
I absolutely agree, which is why one of our proposals is to create an electricity pool or power exchange whereby all energy for that sector is put into a pool, enabling anybody to come in and compete on price to retail. Small suppliers, and, I have to say, increasingly some of the bigger players, recognise that this idea is making some headway in the discussions on what the future should offer. We look to Northern Ireland and other countries to learn from their experiences. We do not operate in a bubble; it is worth looking elsewhere for ideas.
The report identifies five significant problems. Many of them were things that Labour Members raised in the eight previous Opposition day debates on this issue and that feature in our Green Paper. The first problem is weak competition. Companies are able to increase their profit margins at will, without any obvious efficiencies or improvement in customer service. They are simply getting away with passing on cost increases, but not cost reductions.
The second problem is market segmentation: suppliers enjoying big market shares in their old monopoly areas, and companies charging some customers, particularly loyal customers, significantly more than others, even though they are providing them with an identical product. Thirdly, there is tacit co-ordination between suppliers: price announcements, normally increases of similar amounts, being announced at the same time and with growing lead-in times. Fourthly, there are barriers to entry and expansion for new players in the market. In particular, the lack of liquidity in the wholesale market makes it difficult for non-integrated players to access power at competitive prices. The fifth problem is weak customer pressure: low and declining levels of customer trust in this market.
That is the final reason a price freeze is so important. Yes, it is about compensating consumers for overcharging in the past. Yes, it is about protecting them from any more unfair price rises while the market is being reformed for the future, but it is also a line in the sand. It tells the companies that their days of overcharging are over, and it tells consumers that the rules of the game have changed for good. It tells them that the rules are no longer set by six giant companies, but by one Government acting for the many not the mighty few.
Kerry McCarthy (Bristol East) (Lab)
Did not Ofgem identify—in, I think 2008—16 things it thought was wrong with the energy market? It admitted, in 2011, that 12 of them had got worse or had stayed the same. Is it not key to have an energy watchdog that stands up for consumers, takes on the big six and rectifies the issues my right hon. Friend has identified?
Caroline Flint
My hon. Friend is right to draw attention to recent Ofgem investigations. In fact, in the past six years I think it has had three major investigations: on supply, the retail market and the wholesale market. It has failed to get to grips with the real problem. We have seen piecemeal changes that are just not having any impact. Even when there were recommendations about the market and how it could be reformed, it did not take them on board. It is only recently that it seems to be waking up to that.
Ultimately, competition will work only if companies are constrained by the fear of losing customers if they increase their prices too much. Consumers will be prepared to engage in the market, to invest their time and effort to secure the best deal, only if they believe the market is fair and if there are proper rules in place to prevent them from being ripped-off. We should be honest, too, that switching cannot be the only metric of a healthy market. There will always be those for whom regular switching is not a reality, either because they do not have the confidence to switch, even in a simplified system, or because they may have the confidence, but are time-poor and seem to spend their whole life switching from one thing to another. A healthy market must be a managed market, and that is why the price freeze is so important.
Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)
My hon. Friend the Member for Bristol East (Kerry McCarthy) mentioned Ofgem a moment ago. In its report on energy prices, profits and fuel poverty, the Select Committee said that Ofgem was “failing consumers”, and had not been properly using the powers at its disposal. Last December, the Secretary of State said that Ofgem was “fit for purpose”. Does my hon. Friend agree?
Caroline Flint
I agree with the Select Committee, and I do not agree with the Secretary of State. I shall come to the question of why the role of Ofgem has been omitted from the market investigation, because it is a very important part of the future reform of the sector.
As my hon. Friends have pointed out, our motion makes it clear that the price freeze would be only a temporary measure during the reform of the energy market. However, the House should be in no doubt about the fact that the public have heard Labour’s case for reform, and they want change. The companies have heard our case as well. Alistair Phillips-Davies, chief executive of SSE, said last week that the Leader of the Opposition had
“changed the way people look at the energy market”.
That is why, last week, SSE announced not just a price freeze until 2016 but that it would legally separate its supply business from its generation businesses, which is what we had called for. At least two other firms claim that they already operate in that way.
What we cannot have is companies going away—perhaps in an attempt to pre-empt reforms that they know are coming—and leaving the public with six versions of what reform looks like. These reforms need to be consistent, led by the Government, and backed up by proper powers of enforcement. Our Green Paper proposes a number of significant reforms, namely a ring fence between generation and supply, an end to secret trades and self-supply, the introduction of a pool in which all generators and all suppliers can compete openly and on price, new powers to penalise anti-competitive behaviour and protect consumers, new protections for off-grid customers and small businesses—2 million rural customers and millions of businesses will be properly protected for the first time—and simpler and fairer tariffs.
Caroline Flint
No. I have already given way quite generously, and others wish to speak.
Last week’s report and the decision to initiate a full market investigation only serve to highlight how important and urgent the process of reform is. Of course the CMA will undertake its independent investigation and reach its own conclusions, but if there are measures that we could take now to improve the market and make it work better for consumers, we should take them.
There was one subject on which Ofgem’s report was—perhaps unsurprisingly— silent: the role and performance of Ofgem itself. In recent months, much attention has rightly been focused on the behaviour of the energy companies: the prices they have charged, and the way in which they have mistreated their customers. However, companies operate only within the framework set by the regulator. When we challenge these companies over their behaviour, it is only right for us to assess the responsibility of the regulator itself for allowing the very market conditions that it now laments to come to pass in the first place.
I have challenged the Secretary of State on that point many times in the past, and so far he has been a steadfast defender of Ofgem. As was mentioned earlier by my hon. Friend the Member for Washington and Sunderland West (Mrs Hodgson), on 2 December last year he told the House:
“Ofgem is fit for purpose.”—[Official Report, 2 December 2013; Vol. 571, c. 634.]
On 4 September, he said that he disagreed with my statement that Ofgem was not using its powers. However, the very fact that Ofgem has chosen to refer the market to the CMA represents a clear admission that it has not been able to regulate the market properly and protect consumers. Had it been able to do so, there would have been no need for a full market investigation.
Let me put my question to the Secretary of State again. Does he feel that Ofgem should remain as it is, or does he agree with me that we need to abolish it and establish a new, tougher regulator? Markets must have rules, and if we are undertaking a proper market investigation, surely it is necessary to consider carefully the process by which those rules are set and how they are enforced. If we win the next election, we will scrap Ofgem and create a tough new regulator, but even those who take a different view must surely now accept that the performance of Ofgem is a legitimate matter for the CMA itself to investigate.
I care about this sector. I want it to do well, to serve its customers well, and to treat its staff well. Given the transition to a smarter, lower-carbon economy, it has the potential to be a massive success story for our country, but if we are to take the country with us on that journey, people must have faith in the market and the regulation that underpins it. There are those who say that politicians should not interfere, but they are wrong. I did not come to this brief with a prepared agenda, but what I discovered about the way in which the energy market works, and the history of its botched privatisation, shocked me. Yes, the energy market is a free market, but a free market works only when there are proper rules to ensure competition and fair play, and it falls to us, as politicians, to set those rules.
Let me make a prediction. The energy market will change: it will be reformed. The public will pay a fair price for their energy, and after that painful process of reform, some of the energy companies will thank us for restoring the public’s trust in their industry. The question before the House, however, is this: will the Government help to make that happen, or will they stand on the sidelines doing nothing? Will they vacillate, play for time, and hope that the problem is kicked into the long grass before the next election, so that fixing it will become the job of another Minister? This is decision time. Will the Government act decisively in the consumer’s interest, or will they fail the test again, as they have done so many times before?
Today we can send a clear message that the days of rip-off energy bills are over. Should we freeze bills until the market is fixed for the future? That is the decision that we now face. There must be no more running away. It is time for the Government to do their job: it is time for them to govern. I urge all Members who care about the unfairness of energy bills to join us in the Lobby this afternoon, and I commend the motion to the House.
The Secretary of State for Energy and Climate Change (Mr Edward Davey)
When we debated this same topic in November last year, I said that I would welcome every opportunity to debate the best way in which to help people and improve Britain’s energy markets, so I am grateful to the right hon. Member for Don Valley (Caroline Flint) for at last returning to the topic—not least because we took another huge step forward last week with the publication of the first annual competition assessment, an assessment that we had commissioned, and Ofgem’s proposal to refer the energy market to the Competition and Markets Authority for a full market investigation.
We are supporting a step forward for the consumer that the last Government ducked time and again. We now have an independent, impartial, evidence-based, fair and just process for ensuring that the markets are working properly for consumers. I am delighted that the official Opposition have changed their minds and backed us on that, but today I want to address directly the question at hand, which is whether there should be a Government-imposed energy price freeze in the meantime. Quite simply, my answer to that question is no, because it would not work, and, in fact, would hurt the consumer.
We do not need an investment-damaging, Government-imposed, heavy-handed, blanket price freeze anyway, because the markets are already responding to the Government’s actions, sometimes by cutting prices. Following our action at the end of last year to reduce bills by an annual average of £50—a move that the right hon. Lady seemed to oppose yet again today—the rises that were announced by the companies last year have been reduced, and, as a result, all the major energy companies have said that there should be no need to raise prices this year. Some companies have gone further: npower has pledged that there will be no further price rises for customers on standard variable tariffs until at least the spring of 2015, and SSE has said that, owing to the Government’s actions, it will not raise standard variable tariffs until 2016 at the earliest. By acting properly, this Government—unlike their predecessor—have made the energy companies start bearing down on the prices that people pay.
Margot James (Stourbridge) (Con)
My right hon. Friend mentioned the Scottish and Southern Energy price freeze, which will be greatly welcomed by my constituents. In her opening remarks, the right hon. Member for Don Valley (Caroline Flint) quoted the chief executive of that company. I wonder whether she, and my right hon. Friend, are aware that the company stated clearly last week:
“An externally-imposed 20-month price freeze would not reduce the costs of supplying energy.”
There are many reasons for that, which I hope my right hon. Friend will proceed to enunciate.
Mr Davey
My hon. Friend is quite right. SSE’s press release made it clear that its price freeze had come about because of this Government’s actions.
When the energy companies next consider price rises, they will do so in the face of an imminent report by the Competition and Markets Authority, to be published in 2015. We shall then be able to consider, on the basis of proper evidence and tough action and advice from the independent competition experts, how best to reform our energy markets further to help customers. Of course, if there were a huge shift in wholesale prices or network costs between now and that point, we would expect the energy companies to respond, so let us think about what would happen in that circumstance under the Opposition’s plans put forward today. For the sake of debate, let us do a thought experiment.
Paul Flynn
The right hon. Gentleman talked about shifts in the wholesale price. What effect does he think imported and home-produced shale gas will have on prices in the United Kingdom in the next five and 10 years?
Mr Davey
I think it will have hardly any effect, if any effect at all. The case for shale gas is to do with energy security, as I have made clear many times.
Returning to my thought experiment, let us imagine what would happen if there were a legally imposed price freeze—prices frozen by the state, not by individual firms. What would happen if wholesale prices shot up? Let us say Russia invades Ukraine and gas prices in Europe shoot up. Would a Labour Government keep prices frozen then? I do not know if they are sure themselves. The right hon. Member for Don Valley might want to confirm whether they would keep prices frozen then. Their price freeze is not really a price freeze; it is a con. Let us assume, however, that whatever happened to wholesale gas markets and prices, they would freeze prices. The truth is that would hit the small players and play into the hands of the big six. As Ian McCaig, chief executive of First Utility, the largest of the new independents, said:
“Bluntly, it could put me under… How am I going to absorb those costs? I only retail, I don’t generate. The answer is, I can’t.”
Mr Sheerman
I think it was Harold Macmillan who said, “Events dear boy, events.” Of course there will be major events—ones that we could not predict at this moment—but I know the right hon. Gentleman to be an honest gentleman so he must acknowledge that the real difference—it changed the whole momentum of this debate—was the speech at the Labour party conference by the Leader of the Opposition.
Mr Davey
That is simply not true. We were reforming the markets from day one because we had inherited the big six from the Labour party.
Let us return to the small independent competitors. In its response to Labour’s Green Paper, Good Energy said:
“The proposed price freeze poses a disproportionate impact for smaller companies such as ourselves as we do not have the same level of vertical integration as the big 6 which allows us to control our costs.”
If raw energy costs rise during a freeze, vertically integrated firms with deep pockets can withstand a profits squeeze, but smaller, retail-only firms would go bankrupt. Result: reduced competitive pressure on the big six and higher overall prices when the freeze comes to an end.
Mr John Redwood (Wokingham) (Con)
Given the very high cost of wind energy, does the Secretary of State think there should now be some limit on the subsidy going to that sector to try and keep bills down?
Mr Davey
There is a limit, of course. The right hon. Gentleman ought to follow this debate more closely. Indeed, we have reduced subsidies and our policy is to reduce them still further.
The truth is that, rather than helping consumers, Labour’s price freeze is a pro-big six policy. For all the bluster about taking on the big six, the right hon. Member for Don Valley is just playing into their hands. If Labour makes the smaller competitors go bankrupt, the people who will enjoy that are the big six, and the right hon. Lady knows that.
Dr Alan Whitehead (Southampton, Test) (Lab)
As part of the right hon. Gentlemen’s thought experiment, has he considered how far down the curve the very large energy companies purchase the bulk of their forward energy supplies and the relationship between that forward purchase and small energy companies purchasing on the back of larger purchases than necessary for the obligations of the large energy companies? How does that fit in with this thought experiment about small energy companies going bust if large energy companies are buying so far ahead of the curve?
Mr Davey
It fits in exactly, and I am delighted that the hon. Gentleman has raised that point. The larger companies can buy 18 months ahead, so if there is a rise in wholesale gas prices, they are hedged—they are protected. The smaller companies find it much harder to buy ahead, so if the wholesale prices go up, they get crushed. That is the truth about Labour’s policy. It may seem popular in Labour’s focus groups, but I am afraid it has not been thought through. As The Guardian said, it is “good politics”, but it is “bad policy”.
Fiona O'Donnell (East Lothian) (Lab)
I am not sure whether the right hon. Gentleman’s thought experiment had started when he drove his Energy Act 2013 through Parliament, which he certainly took plenty of time to do. Can he point to one single measure in that Act which has increased and supported competition?
Mr Davey
I am glad that the hon. Lady has mentioned the Energy Act 2013, because she voted for it. If she looks at the detail, she will see that not only did it reform Ofgem by giving it more powers to grant compensation to consumers who were badly treated, but it supported Ofgem’s retail and wholesale market reforms by having reserved powers to make sure they went through. Those powers are in place and are making sure those reforms go through.
I was talking about Labour’s bad energy policy, and let us look at its record in government on energy markets and prices. In the retail markets, Labour allowed the big companies to choke off proper competition—the very competition that privatised markets need in order to operate in the interests of consumers. It created Labour’s big six—the big six that dominate retail and wholesale markets.
Caroline Flint
As I said in my speech, when we left government there were 18 suppliers including the big six, and also it was under Labour that we gave the first opportunity for people to switch. Is it not the case that there were more than just six suppliers when we left government? Is it not also the case, as confirmed by the House of Commons Library, that energy bills have risen three times faster under this Government than under the last Government?
Mr Davey
I will come to that point in a second because I do not believe that is true; I have got completely different figures. The right hon. Lady is right to say, however, that it was not just the big six who were competing in the retail market. There were at that time eight other independent suppliers—there are more now, as we have increased the number. However, the critical figure is not the number of energy suppliers, it is how many customers they have. Under Labour, the small suppliers were not able to grow. Very few—only one, I think—had more than 100,000 customers, and they were not able to expand. What we did very early in our time was deregulate, and because we deregulated, those independent suppliers were able to grow their customer base. So it has been the actions of this Government that have increased the competitive pressure on the big six—it is nothing to do with the last Government.
Zac Goldsmith (Richmond Park) (Con)
On the issue of competition, in 2009 Ofgem introduced licence lite, the purpose of which was to enable small community generators to use the local grid in order to access customers directly. Since then, however, no permits have been issued, and the community energy generators still have to rely on selling their product through the national grid at wholesale prices. Does my right hon. Friend agree that in order to boost competition in this sector, which is the obvious answer in terms of prices, those community energy generators should have guaranteed access to the grid at an agreed fee so that they can benefit from doing deals directly with local customers?
Mr Davey
My hon. Friend is right: the licence lite introduced under the last Government has not been working very well. However, the Greater London authority has been talking to Ofgem to see if it can get a licence lite for London in order to help community generators and act as a sort of enabler. When we were drawing up the community energy strategy—which has not been mentioned in a single question from Opposition Members—we sat around the table and looked at this issue and we realised that this needs to continue further. So if my hon. Friend looks at the community energy strategy, he will see that we are taking action. We have set up a working group to look at it—not just to take on the licence lite issue, which was so badly handled under the last Government, but to see what else we can do to help precisely the people my hon. Friend is talking about. [Interruption.] The right hon. Member for Don Valley says from a sedentary position that Ofgem is failing again. Let us remind the House who set up Ofgem: it was Labour. Let us remind Labour and the rest of the House that when the Leader of the Opposition was doing my job, he reformed Ofgem to make it function more in the interests of the consumer. That was just a few years ago, so perhaps the right hon. Lady will tell us what went wrong with Ofgem under Labour.
Caroline Flint
As everybody knows, Ofgem was a merger of the gas and electricity regulators. The difference between the Secretary of State and me is that I am prepared to acknowledge when things are not working, and he is not. When is he going to stop defending a regulator that has not been doing its job?
Mr Davey
This is good—let us examine what the right hon. Lady wants to do. She wants to abolish a regulator quango and replace it with another one. She promises lots of tougher powers but never tells us what they are. We have legislated in the Energy Act 2013 to increase the powers. She needs to tell us why, under this Government, Ofgem has been far more proactive on competition. Why was it that under this Government, Ofgem undertook the retail market review? Why was it that under this Government, it addressed the wholesale market, and when we debated its reforms the right hon. Lady had to admit that she had not even read its paper?
Caroline Flint
Honestly, the Secretary of State is just living inside his own thought bubble. We have made very clear on countless occasions some of the changes we would expect to see under a tough new regulator, as I reiterated today. One significant power would be that if our regulator saw that reductions in wholesale costs were not being passed on to the customer, there would be a statutory power to enable it to force them to be passed on if the energy companies do not play ball. Does the right hon. Gentleman agree with that?
Mr Davey
I agree with the market investigation reference looking at all those issues. Not only is the Labour party’s policy position behind the curve, as I will explain in a second; it wants to pre-judge the outcome of the conclusion reached by the competition authorities. We have expert, independent competition authorities that will look at these issues in a considered way, but Labour wants to pre-judge them. That is not surprising, however, because its policies in this area are so hopeless.
The right hon. Lady talks about a pool. She does not know that the day-ahead market, which is very much like a pool and was trading only 5% of electricity when Labour was in power, is now trading over 50% of electricity—a massive increase in liquidity in the day-ahead market. Moreover, the Ofgem analysis, which the right hon. Lady clearly still has not read, shows that the small independent generators that would benefit from more liquidity said that the problem is not in the day-ahead market, and that the pool would not help; rather, the real problem is with the liquidity in the forward market, and that is exactly what Ofgem is dealing with. As of this month, the market maker obligation will create far greater transparency than ever existed in the markets under the last Government. Whether it is through Ofgem or this Government, we are taking action—real action—to bring in competition where Labour did nothing.
Andrew Gwynne
The Secretary of State talks the talk on competition. I know he is a Liberal Democrat, but does he not regret that the Energy Act, which took more than a year to complete its legislative passage, did not contain a single concrete measure to improve competition in the wholesale or retail energy markets?
Mr Davey
That is simply not true. I have talked about the powers to back up Ofgem on the retail market and wholesale market review, which clearly the hon. Gentleman either does not understand or did not notice. For example, there is the power of the off-taker of last resort to promote greater competition in the generating market. I do not know where Labour Members have been, but they certainly have not been focusing on the debate.
The right hon. Member for Don Valley asked me about energy prices under the last Government and this one, so let us go through them. We should not fall into the trap of simply blaming the energy markets and Labour’s big six for higher energy bills. Let us be honest: everyone in this House knows that the main driver of energy price rises in recent years has been rising wholesale costs. The average wholesale gas price in 2013 was more than double that of 2007. [Interruption.] I will say that again, because the right hon. Lady was not listening. The average wholesale gas price in 2013 was more than double that of 2007. The wholesale electricity price was up by almost two thirds. According to DECC statistics, in almost every year under Labour, energy bills rose. Under Labour in 2005, energy bills went up by 12%. In 2006 under Labour, energy bills went up by 20%. In 2008 under Labour, energy bills went up by 16%. In the last Parliament under Labour, energy bills rose by a whopping 63%. In this Parliament, yes, they have risen, but at a significantly lower rate than in the last Parliament, when the current Leader of the Opposition was Energy Secretary—8% a year in this Parliament compared with 11% a year in the last.
Caroline Flint
I asked the House of Commons Library to look into this issue on Monday, and it confirmed that energy bills are rising more than three times faster under this Government than they did under the last Government. The Office for Budget Responsibility has shown that prices are rising at twice the rate of inflation. We can bandy around figures all we like—the truth is that people want fair prices. They are prepared to pay a fair price if they think the market is not fixed, and the Secretary of State has failed to attempt to deal with that situation, which is of great concern to the British public.
Mr Davey
The problem with the right hon. Lady’s analysis is that she fails to understand that the wholesale gas market drives the vast majority of the bill. I set out that history to show that when wholesale gas and electricity prices were going up—actually, faster under the last Government than this one—we were not saying that it was all the fault of the energy companies; a lot of the fault lay with wholesale gas and raw energy costs. Frankly, the right hon. Lady’s unwillingness to recognise that demeans her, because it shows that she is not dealing with the real problem and could not really do the job.
Caroline Flint
Does the Secretary of State acknowledge that four years-worth of data show that in 2009, wholesale gas and electricity prices fell by some 46% but that reduction was never passed on to the consumer in the following years?
Mr Davey
The right hon. Lady is absolutely right in that, as the recession took place there was a period when wholesale gas prices plummeted, because the economy was in such a mess that the demand for energy was reduced. However, she ought to be careful about going too far on this issue.
Whatever the price rises are, there is a problem for consumers. We know that incomes have fallen as we have emerged from Labour’s great recession, and the fact that price rises have been slowing will be of little comfort. I can, therefore, understand why a promise of a blanket, Government-imposed energy price freeze might seem popular, but as I will demonstrate, it is not a price freeze but a con.
At no point have the Opposition explained how their proposal would actually work, so let us try to get to the bottom of their thinking with a few questions. Are they proposing to freeze all current tariffs in their existing state, in real cash terms? Would people be able to switch back from a higher but longer fixed-rate tariff to a lower, variable-rate tariff before that variable rate became fixed by law? If a cut-price deal was set to end during the freeze, would suppliers be forced to continue it until the freeze ends, penalising firms who try to help their customers?
We know the problem for smaller competitors if wholesale prices rise. They tell us that they would go bust under Labour’s energy price freeze. But what if wholesale prices fall during the freeze? Is Labour proposing to prevent firms from passing on that price fall? [Interruption.] I am delighted that the right hon. Lady said that, because it is clear that Labour will not prevent bills being cut. Instead, would Labour legislate to force companies to pass on each and every cut in wholesale prices, and how would that work? It is a reasonable question. Would Labour legislate to force price cuts during the freeze, or would companies be able to hold on? If a company has bought its gas 18 months ahead, paying a higher price on the wholesale markets, would Labour still force it to cut or freeze its prices, bankrupting it?
The Opposition want to intervene in the markets to control prices and second-guess global price changes, so they must have the answers to these questions. Would smaller suppliers be exempt from the price freeze? How would the price freeze be applied to new entrants? Alternatively, is Labour happy to see a return to the big six, with just a smaller number of suppliers?
This is a gimmick, not a policy. It is a shambles, and it is back to the 1970s. Given that it clearly will not work for consumers, might it work for businesses? Typically, large non-domestic customers have bespoke sophisticated fixed-term contracts which pass through each element of third-party costs. How would the price freeze work for them? What would happen to a contract whose term ended during the freeze? Alternatively, will comrades on the Opposition Benches decree that contracts need to be renegotiated ahead of a freeze? Will the comrades stop at energy price freezes? Are there plans to freeze rail fares or water charges? In the past six years butter and margarine prices have gone up faster than energy prices. What is the plan for butter and margarine prices?
The right hon. Lady tries very hard to paint her party out of the picture and to blame others for the problems we face, but after 13 years of Labour rule, it was not just a wrecked economy that the coalition inherited four years ago. We inherited an energy infrastructure future with a huge multibillion-pound black hole at its heart, the result of years of underinvestment, dithering and delay, and we inherited a retail energy market which, over 13 years of a Labour Government, had been stripped of proper competition and had become hugely complex and confusing for consumers, with prices rocketing and no avenue of escape from the clutches of the big six.
In both these areas—in investment in infrastructure and in reforming the markets—this coalition Government have had to clear up the mess that Labour left behind. Look at the investment figures. The Office for National Statistics figures show that from 2005 to 2009, average investment in the electricity sector was around £5 billion a year. That was far too low for the country’s needs. We had to work tirelessly to turn it around, and we have. Since 2010 investment has continued to rise. On average in this Parliament it has risen by almost £8 billion a year. In 2012 investment exceeded £10 billion—the highest figure on record—and we have a pipeline worth £187 billion, including the first nuclear power station in a generation.
There have been record levels of investment in renewables. Bloomberg estimates that average annual investment in renewables has more than doubled in this Parliament, compared with the previous one. Last year electricity generated by onshore wind rose by 36%. Offshore wind is up 45%. Solar is up by almost 70%. Low-carbon generation now makes up more than 35% of the electricity mix. Emissions are coming down, the share of clean power is going up and investment in new infrastructure is booming. Under this coalition the lights will stay on, and we will go green.
When it comes to their policy detail, we have learned nothing today about what the Opposition are proposing. It is a slogan, not a policy. This Government are getting on with the complex task of mending the markets to serve the best interests of consumers. We have transformed the retail market, increasing competition, challenging the power of the big six and putting customers more firmly in the driving seat. We have minimised the impact of Government policy on bills while protecting help to the poorest, protecting investment in low carbon and maintaining emissions reductions.
Margot James
Talking of the stimulus to competition under this Government, may I remind my right hon. Friend that, despite reducing the subsidy from 43p to the 13p tariff, this Government have seen the number of homes supplied by solar power increase from 15,000 to more than half a million? Is that not testimony to some of the excellent work of this Government?
Albert Owen (Ynys Môn) (Lab)
Is the Secretary of State comparing and contrasting the years 2009 and 2010 to 2013, and seriously telling the House of Commons that many of the billion-pound contracts for offshore wind started and finished in the period to which he refers, or will he be honest with us and say that we need continuity of policy by consent, so that we can get the policy structure we all need? Will he stop playing silly games about years and trying to blame the previous Government?
Mr Davey
I am prepared to give credit to all parties, which is something the Opposition rarely do. I am pleased that they voted for our Energy Act 2013 and now support the market investigation reference, but it was the Conservatives and Liberal Democrats, in opposition, who had to push time and again to get the Labour Government to act on things such as feed-in tariffs, so we will not take any lectures on that.
We are acting to bring far greater openness to the retail markets so that the energy suppliers can be held to account for their prices, and we are acting to increase liquidity in the wholesale markets, further boosting competition. All these actions maintain the pressure that bears down on prices. As the competition authorities take forward their work in the proper manner, we will continue to act to ensure that we have a real evidence base on how to continue to mend the markets that Labour ran into the ground. That work will take around 18 months to complete, but as I said at the start, because of Government action, the energy companies are now saying that there should be no further rises in bills over the next year unless circumstances change drastically. Some have gone further, and I welcome that.
Bob Stewart (Beckenham) (Con)
It seems that the way to bring prices down for consumers is to encourage more independents, which seem to have tripled their customer base over the past two years. Will we get more independents, as they seem to keep their prices down?
Mr Davey
My hon. Friend is right. The independents’ share of the retail market has gone from 1% in 2010 to 5% under this Government. We have seen people switching from the big six to the small independents. Just last month 40% of those switching went to the smaller independent suppliers. Their customer base has been growing, but it is because we are not complacent, unlike the previous Government, that we have asked Ofgem to make their competition assessment, and we are supporting its proposal for a market investigation reference.
Were the Government to fix prices by law, as the Opposition propose, without any idea of the consequences, we would risk undoing all the progress we have made for consumers and business, risking the investment we need to keep the lights on into the next decade for consumers, undermining the independent suppliers and forcing consumers back into the hands of the big six. Let us continue to expose Labour’s energy gimmick to the oxygen of debate between now and the next election. The Sun may well re-run the Kinnock front page from 1992.
John Robertson (Glasgow North West) (Lab)
I find the Secretary of State’s rather patronising attitude towards my right hon. Friend the Member for Don Valley (Caroline Flint) somewhat distasteful. [Interruption.] I know he is not listening, but it will be in Hansard. He can read about it later. If he wants to conduct his politics in that manner, may I suggest he goes out in the street to do so? Or he should try to conduct himself in a manner befitting of the House.
Let me explain something to the Secretary of State. He obviously does not understand what the word “freeze” means. It means that something is stopped. It is solid and it stays where it is. He seems to have missed that. I noticed that he said he had challenged the big six. I would be interested to know when and what he did to make them do anything, other than be very nice to them and help them to increase their prices, as they have done. The Energy and Climate Change Committee has done more to attack the big six and make them toe the line than his Government have done.
Mr Jim Cunningham (Coventry South) (Lab)
My hon. Friend raises an interesting point in asking what the Secretary of State has done to challenge the big six. The big six actually bought off the Secretary of State by proposing a £50 reduction on people’s bills, amounting to 97p a week. They were laughing at him.
John Robertson
I thank my hon. Friend for that; he is of course right.
Let us face it: we are where we are. It does not really matter what the Con-Dem Government have done in the past four years, or what the last Labour Government did in the previous 13 years. The problem is what is happening now. Fuel poverty is a bigger problem today than it ever was. We could say that that is a result of bad government and that it is this Government’s fault because they have been in power for four years and they should have done something. Well, they did do something. The Secretary of State talked about getting reports and asking for suggestions, and he has done that. His predecessor also did it, resulting in the Hills report.
The Hills report stated that nearly 2.4 million people were still in fuel poverty, and the gap between their bills and what they could afford was getting wider. It also found that about 3,000 people could be expected to die over the course of a winter as a result of Government policy. That was not necessarily all to do with energy, however; it referred to Government policy overall, and it applied to all Governments. This was a good report, and it was commissioned by a Liberal Secretary of State. But what have the Government done since then? How many lives have been saved since the Hills report? What action have they taken to tackle fuel poverty?
The answer, Secretary of State, is that you have done absolutely nothing. Sadly, more people are dying now than when the Hills report first came out. An energy freeze might not be the answer to everything, but if you are happy with the way Ofgem is running things, with the way the energy market is conducting itself and with the present state of affairs, then do as you are doing now: do absolutely nothing—
Mr Speaker
Order. May I very gently exhort the hon. Gentleman not to use the word “you”? I know that he is doing it for the purpose of emphasis, but it is undesirable if it is widely mimicked. He is felicitous of phrase—he can express himself in a different way.
John Robertson
I apologise, Mr Speaker. Thank you for pointing out to anyone who might have thought I was talking to you that I was actually talking to the Secretary of State.
It is up to the Secretary of State to look at this problem. He has called the proposal from my right hon. Friend the Member for Don Valley a “con”, but I do not think it is a con if we try to do something. I believe that we need to fix the industry, because the big six are not doing the job that they should be doing. It is they who are conning people. It is a bit rich for the Secretary of State to say that we are conning the public, when it is the energy companies that are doing the conning. They are the ones putting up the bills, and the public have to respond by paying them their money.
So let us have a freeze. Let us look at the energy companies and see what they are doing, and if we have to fix the situation—as I believe we will—let us try to do it in a window lasting between 18 months and two years. If we can fix it in that time, and if the energy companies end up out of pocket, it will be up to the Government to fulfil the need that has been lost, rather than the general public, because the freeze will have been imposed by the Government of the day, which I hope will be a Labour Government. The most important thing is to look after the people in this country who are living in fuel poverty. In Scotland, 1 million people classify themselves as fuel poor. When we add that to the figure for England, it takes us well above the 2.4 million figure that we had years ago. We need to do something about that.
The energy companies have shown their true face recently. The chief executive officer of British Gas—a company that had a monopoly on gas supply for years—has said if a price freeze were imposed, there would be blackouts. If the Secretary of State believes that that is right, it will be up to him to sort out the problem, because it is the duty of the Government to ensure that the lights do not go out. The CEO might try to blame people for proposing a freeze, but I believe that a freeze would be helpful in sorting out the energy business in the long term.
The Secretary of State has not expressed the hatred for Ofgem that some of those on my Front Bench have done. I believe that it has got worse, rather than better, over the past two years, despite the discussions that the Select Committee and others have had with it. It has never worked quickly. Some might say that that is a good thing, because if it worked quickly, it might make mistakes. They would prefer that it took its time, in order to ensure that it did the right thing. However, I believe that it takes so long to act because it is frightened to make certain decisions and because it does not think it will have the backing of the Government.
David Mowat
On the hon. Gentleman’s point about the CEO of Centrica, what Sam Laidlaw actually said was that, if there was a possibility of his business being split into two halves in a couple of years, it would affect his propensity to invest in one of those halves until the matter had been sorted out. That seems quite a reasonable statement to make. He did not say that the lights would go out.
John Robertson
I thank the hon. Gentleman for his intervention. If he is right and I am wrong, I apologise, but that is not what it said in the newspapers. That is not how the CEO was quoted. He was quoted as saying that the lights could go out. To me, that sounded like the big bully threatening people in the playground: “I’m going to put your lights out.” That is basically what he was saying to us. Well, I know how to deal with bullies, and it is not my lights that will be going out. I say to the CEO of British Gas that if he and his company cannot do their job, there are plenty of other companies that would like to take it on. If that is the case, let us sell it off to other people who are willing to do the job. We do not need to listen to bullies telling us how they want to run the country. That is a matter for the Government, after all.
We have heard a lot about the green levies, which the Government have reduced. Some of us felt that that was not the right thing to do. Having said that, if people’s bills were to be reduced by £50 as a result, that would have been great. But their bills were not reduced by £50; they have gone up by £60. The energy companies are saying to our constituents, “Hey, good news! The Government have just saved you £50”, but a lady in my constituency could not even afford the bills before the £60 increase, so no credit is due to the Government there.
I ask the Government to look into this matter, and it would be much better to do this in a cross-party manner. I believe that this Secretary of State is doing his very best to stop the multi-party arrangements in energy, but in the past we have always got on well together. We ought to work together as a team to try to get the country back together again and to put an end to this point scoring.
Mr Sheerman
My hon. Friend makes a good point about the importance of working together across the parties. Does he agree that, if the Secretary of State and the Secretary of State for Business, Innovation and Skills did not have the Minister of State, Department of Energy and Climate Change, the right hon. Member for Sevenoaks (Michael Fallon) standing guard over them to ensure that they keep to the Conservative line, we would get a much more rational response from this Liberal Democrat Secretary of State?
John Robertson
When more than one Department is involved in this place we always have a problems—it does not seem to matter what is done. If we involve a Secretary of State for Business, Innovation and Skills and a Secretary of State for Energy and Climate Change, they are going to have their own drivers, which are not always the same. A Minister put in place to cover both Departments has a hard job, because it cannot be easy dealing with the Secretary of State for Energy and Climate Change, let alone the other one. So good luck to the right hon. Member for Sevenoaks—we will see where he goes. We certainly need to look at how energy is governed, and it should not be done across Departments. One Department should be dealing with it, although it could be done by a bigger Department.
I have no objection to companies making profits, but profits have gone up by £3.3 billion since 2010. The Secretary of State talked about what happened in 2009, 2006 and 2007, but he never said anything about what happened after that. The fact of the matter is that an increase of £3.3 billion since 2010 is a touch excessive. Public affairs consultants in the big six say they make only 2% profit while bragging to their shareholders that profits have gone up 20 times as much. That deals with what the hon. Member for Warrington South (David Mowat) was saying about the splitting of wholesale and retail. Everybody knows that I have spoken about that for a number of years. I believe that they should be split, because all we ever get from energy companies is that they have an increase in profits—it could be 4%, 5% or 6%—but that it is not enough to help them invest.
Mr Mike Weir (Angus) (SNP)
Is the hon. Gentleman’s position that the companies should be split into separate companies or two separate divisions? I cite, as I have done before, the position of E.ON, which apparently has two separate divisions but has complicated loan arrangements within them that reduces the profits. We must have transparency if this is to happen.
John Robertson
The hon. Gentleman is right about that. I am not a business man. I was an engineer, so I only like to fix things—I do not particularly like to break them, although in the case of the Government that is perhaps something else I would like to do. What he describes is a problem. When we split these companies up, do we say, “You can have either wholesale or retail, but you cannot have both”? Or do we say to a large company, “You have to split, as happened with BT, where it was split into wholesale and Openreach”? Do we say, “You have a choice, you can be one or the other but you cannot cross-fertilise and give people loans”? I do not know whether that is a good idea, but we have a regulator and a Government to deal with these things. Cleverer people than me will be able to work out what the best fit for the nation will be. But what I do believe is that the people I represent are the ones nobody consults but they are the same people we want the money from at the end of the day.
Mr Tim Yeo (South Suffolk) (Con)
I draw the House’s attention to my entry in the Register of Members’ Financial Interests.
It is pleasure to follow the hon. Member for Glasgow North West (John Robertson), a valued member of my Select Committee who consistently shows a great and real passion for helping those who suffer from fuel poverty—I guess more of his constituents than mine are in that position, but it is also an issue in parts of South Suffolk.
Many colleagues are anxious to speak, so I wish to make just a few brief points about the price freeze and the Competition and Markets Authority reference. However, I want to begin with a plea for honesty in the debate about energy prices. No politician, whatever party they belong to, can control energy costs, because the biggest component in an energy bill, be it for gas or electricity, is the international wholesale price of gas, which is completely outside the control of this Government, past Governments and future Governments. It is simply dishonest—it is not playing fair with the public—to pretend that a new Government could wave a magic wand and stop prices from going up. If global demand for gas rises sharply, as the International Energy Agency points out is likely to happen because of the expansion of the Asian economies, the international price will go up and the tankers that leave Qatar full of liquefied natural gas, some of which we want to have here, will be more expensive than they are today. So please let us try at least to start the debate in an honest way, without making promises about energy bills that cannot possibly be honoured in the long term.
Fiona O'Donnell
Can the hon. Gentleman explain to me and my constituents why SSE is able to announce a price freeze, then?
Mr Yeo
I am coming on to deal with that specific point; if the hon. Lady waits for a moment, I will explain it. First, let me urge everyone to try for a bipartisan debate, as a good starting point, in the interests of helping the public to understand the issues better.
There is general agreement across all the parties that there are three principal aims of energy policy. The first is security of supply, which is fundamental. I do not think the public would tolerate the kind of cuts that occurred in the 1970s. Modern life, both domestically and in business, depends now on a continuous supply of electricity. The second aim is affordability, which is much in everyone’s minds right now. The third is reducing greenhouse gas emissions, which the latest Inter- governmental Panel on Climate Change report underlines should have equal priority to the other two.
Any proposed energy policy should be measured against those three aims, and I am sorry to say that, as my right hon. Friend the Secretary of State has eloquently pointed out, the proposed price freeze does not score terribly well on those three tests. On security, a price freeze will actively harm Britain’s interests. It will inevitably deter and discourage new investment in capacity, particularly in electricity generation capacity, just at the time when, as is universally accepted, Britain needs huge new investment—£110 billion is a commonly agreed figure for the level of new investment needed in the next few years. Of course, as we all know, we face a situation over the next two or three years where margins of spare capacity will be at historically low levels. A very severe winter in this country and in north-western Europe could mean that we face a risk—not a huge risk—of a black-out.
The danger that the price freeze will discourage new investment has already been shown by some of the reactions. My hon. Friend the Member for Warrington South (David Mowat) referred to Centrica. It is all very well for Sam Laidlaw to say that, in the event of vertical integration coming to an end, Centrica would stop investment, but the truth is that in the UK it has already stopped investing. [Laughter.] It pulled out of a nuclear consortium last year. The company is investing heavily in other countries—in markets where it can see better returns than at home. This should not be a cause for laughter by the Opposition; it is very serious, because one of our biggest energy companies is deciding that Britain is no longer a market in which it wishes to participate.
David Mowat
My hon. Friend’s observation is pertinent. Was he as concerned as I was when SSE announced its freeze two weeks ago and simultaneously pulled out of three of the four offshore wind farms in which it was involved?
Mr Yeo
My hon. Friend is right in what he says. I was going to deal with that point in response to the hon. Member for East Lothian (Fiona O'Donnell), but I will bring it forward. One of the other damaging effects of a proposed price freeze is shown exactly by SSE’s actions in its voluntary price freeze—it introduced that having raised its prices to a level it thought would be acceptable for the next two years. It actually brought forward a price increase, at the expense of consumers, in order to be able to announce this headline-grabbing freeze, and at the same time, as my hon. Friend mentioned, it announced that it was pulling out of three very substantial low-carbon investments. The freeze that SSE announced had two directly damaging effects.
Albert Owen
The hon. Gentleman is making an interesting observation. He is saying that a Government price freeze may deter investment in the future, but he slightly contradicts himself by saying that it is already being deterred—I agree with him on that. Tellingly, the chief executive officer of Centrica said he believed that a long review of energy markets would also cause disinvestment by companies. Is the hon. Gentleman concerned about that? Does he think the reference and the whole process could be speeded up so that investment is not put on hold?
Mr Yeo
The hon. Gentleman, another valued member of my Select Committee, raises a point that I was just going to come to. The consequences of the delay that will be imposed are themselves damaging in some respects.
The second aim of energy policy, which is affordability, is also harmed. As I have pointed out, if companies believe that prices will be frozen in May 2015, they will inevitably seek opportunities to raise their prices in the intervening period. Announcing a price freeze 20 months in advance has the perverse consequence of raising prices for consumers during that 20-month stretch faster than they would otherwise have risen.
The Leader of the Opposition, who certainly grabbed the headlines in his party conference speech last September, did not, I am afraid, do a great deal more than that. It is not a serious policy to announce a price freeze 20 months in advance. If this were an Opposition who were genuinely concerned about keeping consumer prices down, they would not announce the freeze until the day after they took office. There is an honourable and admirable precedent for that sort of approach, which was taken by the last Labour Prime Minister. When he was Chancellor of the Exchequer in 1997, he took the world by surprise a weekend after the election by announcing the formation of the Monetary Policy Committee at the Bank of England and transferring the power to control interest rates away from Ministers and the Treasury to an independent committee. An Opposition who were really concerned about consumer prices would have said, “We have this brilliant idea, but it can only work if we don’t say anything about it until we are in a position to implement it.”
Dr Whitehead
Is the hon. Gentleman saying that there should be a price freeze, but that we should not tell anyone about it until we introduce it? Or is he saying that we should let some people know, but not others, so that it will work, or that there should not be a price freeze?
Mr Yeo
I am saying that I am not in favour of a price freeze, but a price freeze that is signalled 18 months in advance is clearly a cynical electoral manoeuvre and has nothing to do with a responsible approach to trying to reduce consumer prices. I am not in favour of the freeze, but I am even less in favour of playing politics with energy bills in the way, I fear, that the Leader of the Opposition did by saying, “Okay, let’s have this price freeze, but obviously we can’t implement it until the middle of 2015.”
On the third test of cutting greenhouse gas emissions, a price freeze is at best neutral. I am afraid that I have to conclude that the Opposition’s proposal for a price freeze has the damaging effects of cutting investment, increasing the risk of the lights going out, and raising prices and consumer bills faster than otherwise would happen, at the same time as doing nothing to reduce emissions.
One final consequence of the proposal, which has been pointed out so I will not labour it, is the effect it has on small independent suppliers. Clearly, it is very damaging for them. If ever there was a policy designed to prop up the dominance of the big six it is the price freeze proposed by the Opposition. The ability of those smaller companies to survive the losses that a price freeze could impose on them is inevitably much less than large international companies.
Let me turn now to the Competition and Markets Authority reference. I believe that that was a belated recognition by Ofgem of the market failure in the energy industry, which is evident in a number of aspects, and of the risks that are, at the very least, inherent in vertical integration. Ofgem has been asleep on the job for the past two or three years. It has not used the powers that it already has as effectively as it should. Indeed, it commissioned BDO the accountants to make a number of recommendations, which it then proceeded to ignore once they had been announced.
Fiona O'Donnell
I am grateful to the hon. Gentleman for giving way; he is being very generous. Given that he feels that Ofgem has not been doing its job properly for some time, does he regret the fact that when his Committee asked the Secretary of State’s predecessor to hold an inquiry into the market in November 2011, the Government did not take action then?
Mr Yeo
No, I do not regret that at all. My concern about Ofgem is that it has very considerable powers that it is failing to use. If it were more effective in carrying out its functions, some of the present crisis would at least have been mitigated. The downside of the reference is that it may provide companies with a further reason to delay investment decisions for the period of the reference, which, in practice, is likely to last the better part of two years from now. If, as I strongly suspect, the CMA reference produces the conclusion that vertical integration must be addressed, that process itself will then take more time to implement, which will prolong the period of uncertainty and lower investment even further. There is now a case for ending vertical integration. Such is the loss of trust in the big six companies that only by separating generation from retail supply can that trust start to be rebuilt. I acknowledge that there will be some damaging consequences of vertical integration, as my hon. Friend the Member for Warrington South (David Mowat) has already touched on in an earlier intervention. In practice, we must grind through the CMA process.
My final point is that I very much regret that Ofgem, quite characteristically, has missed an important part of the target, which is the transmission and distribution industries. Those industries are, in the case of transmission, a monopoly, and in the case of distribution, a quasi-monopoly. In the past, they have escaped scrutiny by Ofgem to an extraordinary extent. As the public do not pay bills directly to either National Grid or its regional distribution company, very few consumers have ever heard of them. The truth is that transmission and distribution costs account for one fifth of the average bill. That is double the proportion accounted for by the green levies, which have received so much attention in the past few months.
I am glad to say that my Committee is about to examine transmission and distribution, including the charges that they make. There is little or no competition in the distribution sector. The difficulties of getting connected to the grid and the costs of doing so are a significant obstacle to many desirable, small-scale projects. Only this week, I talked to a large investor in solar power who told me that getting new projects connected to the grid is now a bigger problem than getting them through the planning system. Effective scrutiny of transmission and distribution and the introduction of real competition to the distribution sector would do far more to cut energy bills than any artificial externally imposed price freeze.
Instead of freezing prices, let us work for more competition. The CMA reference is not an ideal outcome because of the length of time it will take to complete, and its scope should be widened. Let us at least try to make it work and serve the aims of energy policy instead of obstructing them, as a Government-imposed price freeze would do.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. The House will be aware that there are more Members who wish to speak than there is time allowed in this debate if everyone takes a long time. I am therefore obliged to impose a time limit on Back-Bench speeches of six minutes.
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to follow the hon. Member for South Suffolk (Mr Yeo), the Chair of the Energy and Climate Change Committee. He made a number of points in his contribution, not all of which support what the Secretary of State was saying this afternoon.
This debate is about ensuring that competition works better across the board—for those who generate and supply power, for those who retail power and for what happens in between. I found curious it that the Secretary of State had the air of a querulous member of the Opposition trying to pick holes in Government policy, using some fairly obscure devices yet apparently forgetting he is the Government.
The Government are presiding over a situation, of which we are all aware, in which competition does not work well at all. We all understand that that is related to the vertical integration of companies that have dealings across the board—in both generation and retail—and the extent to which opportunities to put that right over time have conspicuously been missed. The debate this afternoon over what we do about an energy price freeze and how that brings in other arrangements, which secure much better competition and a much better functioning market, does not solve the problem of world energy prices but goes an enormously long way to ensuring that those arrangements can deliver the best possible outcome, particularly for customers, in the context of varying world prices. The question of whether a price freeze creates a problem for investment seems to be rather misplaced, inasmuch as one argument for a better framework for investment in the future is that if the market works better in the first place people will invest in supply and the workings of the market.
It is not just Centrica that has stopped investing in gas power plants. No one is investing in gas power plants in the UK at the moment; 14 planning permissions are available but only one has been taken up, by an Irish energy company that has a long-term view of how the market will work rather than a short-term view of how it is working. Other plants are being mothballed as we speak. It is not that the market is working well at the moment in attracting investment and future arrangements might harm it; the question is how to maintain the long-term arrangement to secure proper investment.
In some of his rather more obscure defences of the fact that the Government have done only minor things to secure better competition in the market, the Secretary of State mentioned the Ofgem report on wholesale power market liquidity produced a little while ago. The report does not support the Secretary of State’s claims. All it says on the market making obligation is that if the market has
“robust price information…available…along the curve, the market will be functioning sufficiently well to support competition.”
It does not say that along the curve most of the trading is between energy companies, not on the market, and that reforming the day-ahead market does not make any difference. Claims that a pool is only about the day-ahead market are also rather misplaced, in that a functioning pool also deals with issues along the curve. The problem of independent companies having access to the markets is therefore substantially ameliorated by the existence of the pool, because it gives them access to the market that they do not have at the moment.
The Secretary of State says that the Government made some competition changes in the Energy Act 2013: they made only one, which he mentioned and which was a result of an amendment that I tabled, by creating an offtaker of last resort. That was it—that was the one thing in the Energy Act that concerned competition—and now, as a result of going for an auction contract for difference market for established players rather than an administrative market, they have destroyed the effect of that.
The aim is to get competition working better across the board. Things are better for investment in the long term as a result, and that is the way in which we should consider this issue for the future. I suggest therefore that the motion, which says exactly that, is one that the House should embrace, because that is what the markets need to work better for customers and investors—
David Mowat (Warrington South) (Con)
Everybody in this House is concerned about fuel poverty on behalf of our constituents. It is a big issue and it matters. We are also concerned about the 900,000 people in our country who work in energy-intensive industries, many of them in the north-west and the north-east. We need to get our bills lower.
There is a second issue that we should talk about, which was touched on by the Chairman of the Select Committee, my hon. Friend the Member for South Suffolk (Mr Yeo). Uniquely in our country we have to replace 25% of our generating capacity by the end of this decade and I contend that the way in which we address the first question will influence how effective we are in addressing the second. If we do not address the second properly, there will be blackouts—they might not happen in this decade, but they will happen.
I, like everybody, welcome the referral. Let me make a couple of points for completeness. The DECC website today gives an analysis of gas prices across Europe in table 5.9.1. The UK is the fourth cheapest out of the 15 that use the gas balancing hub in Europe. If that is a manifestation of a cartel in action, it is not a very good cartel. To be clear, that excludes taxes rather than including them. We are the fourth cheapest out of the 15 according to the DECC website and the EU energy portal, so that suggests a pretty mediocre cartel.
We have heard a lot about the concentration of the industry in this country, with the big six representing 95% or 96% of it. Arguably that is concentrated, but it is much less concentrated than any other gas or electricity market in Europe with the possible exception of that in Austria. I will just say, as the competition authorities are considering the matter, that Germany has two gas and three electricity companies and France and Italy have similar numbers.
We are going ahead with the process and that is right, as anything we can do to bring prices down is right. Parties on both sides of the House have a three-part plan to achieve that. The Government believe in competition working as well as it can, and there are examples of it not working brilliantly. We need to make switching easier and tariffs simpler. The industry has been slow on that and perhaps Ofgem has, too. We need to go further.
The second part of the Government’s plan is that we must be careful about how we apply green charges and green levies to bills. We need to be circumspect. Occasionally, that means doing what we did recently with the renewables obligation certificates and what we did two or three years ago with solar power levies. We will come back to that point.
The third element of what we are trying to achieve concerns the need for more new entrants. Everybody knows that new entrants give competition. We have heard that about nine or so are coming in now and we need to encourage them.
How does that plan contrast with the Opposition’s policies? As we have heard, the centrepiece is the price freeze. I thought that the Chairman of the Select Committee made a good point about how the freeze will impact on the various components of decarbonisation and security. I also thought that the Secretary of State made some good points about how the freeze would work in action as regards tariff levels as well as to which tariffs it would apply and for how long.
Secondly, the Opposition do something every time we vote on how quickly to apply green levies and on what is appropriate. For example, two or three years ago we reduced the tariffs on solar from about six times grid parity to three or four times grid parity—subsequent to that reduction the solar industry has continued to expand at a huge rate—and Labour voted against that. Even three months ago, Labour voted for a Lords amendment to the Energy Bill to accelerate the rate at which coal power stations would be switched off. Today is an epiphanic day for that policy; some Labour Members might want to reflect on that. Those are extraordinary actions of unilateral damage to what we are doing in this country, a country that has lower carbon emissions than the EU average. To act in that way while talking about fuel poverty in the way the Opposition do is not consistent.
The final point about the Opposition’s energy policy concerns their tendency, which, in fairness, we have not heard today, to refer to the directors of the big six using phrases such as “operating a cartel”, “price fixing” and “dodgy deals”. Those are criminal activities and if evidence of such things exists it should be laid before the competition authorities and people should go to prison. In fairness, we did not hear that today from the shadow Secretary of State or Labour Back Benchers, but we have in the past. If the Labour party wishes to be the custodian of the £110 billion process by which we replace energy in this country over the next decade, its members must ask whether such language is appropriate.
I think we have a significant problem with the energy gap in this country. Arguably, we have a significant problem under the Government’s policies and the price freeze will make it worse. In the last two years we have closed or mothballed Oldbury, Wylfa I, Kingsnorth, Grain, Cockenzie, Didcot, Fawley, Teesside and Keadby, but we have not seen the investment to replace them. We have the SSE announcement and we are building very little. As a consequence there is a predicted 2% energy margin three years from now. That means that we will be mothballing—
Mr Mike Weir (Angus) (SNP)
Things are certainly beginning to move fast in the energy market with this week’s reference to the Competition and Markets Authority and the announcement of Scottish and Southern Energy’s price freeze. The price freeze is welcome, but it is worth noting that it is not quite what it seems as it applies only to the standard tariff charged by the company, and anyone who looks at the website will see that the company still has many different tariffs.
However, the two events do, I suppose, allow both sides to claim some success. This afternoon the Government have claimed that competition works, while the Labour party points to its idea of a price freeze, and of course the two-year investigation has the added benefit of kicking difficult decisions to the other side of the general election. What it does not do is take action to deal with the huge contradiction that sits at the heart of energy policy. We all agree that we want our constituents to get relief from high energy bills, but we also want the massive investment that is required to meet our future energy needs, and to decarbonise the electricity supply.
In the very week when the IPCC issued a very alarming new report on the current impact and probable future impact of climate change, these are issues that cannot simply be swept aside as we struggle over how we get relief from higher energy bills for our constituents. The argument about how we got to the position of the big six energy companies will not take us very far. It is undoubtedly true that the privatised companies, at least initially, did not take adequate action to deal with future energy security, but like all newly privatised concerns set about making sure that they were attractive to investors and maintained a high share price. This offers one explanation for why most were quickly swallowed up by multinational energy companies and the big six came into being, with only SSE and Centrica still being independent UK-based companies.
I have looked at the Labour party document "Powering Britain: One Nation Labour's plans to reset the energy market". It is long on analysis, but I have some queries about how it will work. A price freeze is a headline idea, but so far there have been no real ideas about what will happen thereafter, and whether it would actually do much good. The price freeze would be temporary. It would do nothing to deal with the huge inequalities that currently exist within the energy system; it would simply freeze these in place. For example, those who are on an expensive tariff or on higher tariff pre-payment meters would still continue to pay more than those on direct debit payments. Surely some action should be taken on these issues, which we have debated several times in this place.
SSE, in its response to Labour's consultation, said:
“the proposals would not significantly reduce energy prices or provide energy investors with the long- term certainty they require to invest in the energy infrastructure consumers depend upon".
It further makes a point that I have often asked: what happens at the end of the freeze? The executive summary of the document talks about creating a tough new regulator to replace Ofgem, but what will be the powers of that regulator? If it is the intention to keep down prices, will it have the power to impose price caps or profit caps? Or as SSE put it in its more gentle terms
“Notwithstanding the proposal for a 20-month price freeze, the consultation does not appear to have a clear commitment or a sustainable solution to reduce costs of electricity and gas”.
The document talks about tackling the vertical integration of the companies. We all seem to assume that the CMA will tackle vertical integration, but hon. Members should look at what it says about that on page 14. It also talks about some of the benefits of vertical integration. Given the history of the Office of Fair Trading investigation into companies and what it says itself, we cannot take it for granted that it will tackle vertical integration. In an intervention on the hon. Member for Glasgow North West (John Robertson) I asked exactly what the terms of the ring-fencing will be. That will be important.
Other items in the document are old favourites, such as simplifying tariffs to encourage switching. But the elephant in the room is how we continue to encourage the much-needed investment in our energy infrastructure. When SSE announced its price freeze, it also announced that there would be 500 job losses and that it was pulling out of several renewable developments, which seems fairly clear evidence that those of us who did question whether a price freeze would come at the cost—
Pete Wishart (Perth and North Perthshire) (SNP)
My hon. Friend will know that SSE is based in my constituency and there is great concern among the Perth staff about exactly what will happen. With the advantages that we see from the press release there are also consequences. I am sure that my hon. Friend will address those.
Mr Weir
My h F is correct. As I was just saying, the price freeze does come at the cost of much-needed future investment and the jobs that it could create. It does seem to me that the CMA investigation will mean that there will be a slow-down in investment over at least the next two years while companies wait to see what will happen and how they will be affected by its conclusions.
Mark Tami (Alyn and Deeside) (Lab)
I would accept the hon. Gentleman's point if we had seen investment anyway, but we have not. For years and years, we have not seen the level of investment that we need. To say that it is the price freeze that is stopping it is ludicrous.
Mr Weir
The hon. Gentleman clearly is not listening. I said it would make the situation worse. I fully appreciate that we need this investment. It is not happening sufficiently now, but it will get worse under this. The hon. Gentleman should perhaps listen a little more closely. Effectively there will be a slow down in investment whatever happens now, and that could be disastrous since it is only by investment in new renewable energy that we can break away from the dependence on carbon-emitting generation and bring down bills permanently in the long run.
But if we are to have an investigation, it should look at the whole of the energy industry and in particular the very costly subsidies that are being provided for new nuclear. The deal announced for Hinkley C is almost double the current wholesale energy price, and incidentally, I understand, very much higher than prices agreed by EDF for similar stations overseas. It will cost the taxpayer an eye-watering sum of money and be guaranteed for at least 35 years. Indeed, the cost of that station alone will be more than four times the total amount paid out in renewable obligations for the first 10 years of its existence. If more stations are built, we can assume that developers will be seeking the same sort of deal, and Hinkley will become the benchmark of how nuclear developers can soak the taxpayer. Perhaps this is an area that could be improved by more ‘transparency’ and ‘accountability’ as sought in the motion. All this, despite the fact that the similar stations being built in Finland and France are many years behind target and vastly over budget. Surely in any investigation into the market this should have been a major factor, yet there is simply no mention of it in the documents issued with the announcement of the review.
We believe that if we are to reduce and retain lower energy bills, we need to move to a renewable future and make that investment now. We believe that we need to remove the cost of the energy company obligation and warm home discount from energy bills and put it into general taxation, but maintain the level of spend. It is interesting to note that although the UK Government have removed those to some extent, that is a temporary measure for a couple of years, not a long-term measure. Doing this would be much fairer and allow a much more targeted approach to dealing with these issues. It is undeniably true that there is now so much distrust of the energy companies that even a good deal from them is now looked at with suspicion and rejected out of hand by many consumers.
The investigation by the CMA may well finally get some agreement on what is happening in the energy market and allow us a way forward. I could agree with most of the Opposition motion, but I do have difficulty with the last part which seems to have come to a conclusion about the investigation before it has taken place. Given that previous investigations by the OFT have decided that the market was working, I am not entirely sure that we can rely on this current one coming to the conclusion that the market is broken, as the motion puts it, although most of us would agree that there are indeed serious problems with it. It will be interesting to see the conclusions that it comes to. Clearly there must be changes in our energy industry, and the sooner the better.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. With all due respect to the hon. Member who has just delivered his speech, I should point out to the House that three hon. Members in a row have spoken past the point at which they should have stopped. There are clocks in the Chamber, and when they show zero, it means it is time to stop speaking.
Damian Hinds (East Hampshire) (Con)
This is an extremely serious issue that goes to the heart of the competitiveness of British businesses, large and small, and the costs borne by hard-pressed households, especially the most vulnerable in our society. It therefore deserves proper, sober treatment, not naked populism. The Opposition try to frame the debate as one in which the big six’s defenders and apologists are against the public interest. In fact, we must all be on the side of the consumer against whatever stands in the way. The motion pits supporters of a rational, transparent competition policy framework against those who advocate arbitrary intervention that is politically motivated.
In this country we do not, or should not, mix competition policy and politics. That is a dangerous road that leads inexorably to political preferment for other sectors, with all the inequity and inefficiency that would bring, and indeed the explosion of lobbying we would all look forward to. Our competition policy system mixes rules-based and discretionary approaches, but with a bias correctly towards the rules-based approach. We set up a system and then set experts on the problem to work out what needs to be done. To say that a referral proves that the system is broken, as the right hon. Member for Don Valley (Caroline Flint) has done, is to fly directly in the face of the principles that underpin the system and give investors confidence. For politicians to decide to impose a price freeze without a transparent investigation would undermine much of the British economy, and the effects would be felt far beyond the energy sector.
There are big concerns about competition in the sector, and they are legitimate. We know from the annual assessment of competition, which shows the situation in sharp relief, that there is a largely settled geographical pattern, low shares of new entrants, relatively low consumer engagement, in part because of the complexity of the market, and increased profits that appear not to be directly reflected in increases in efficiency. There is the question of entry barriers and the extent to which vertical integration makes that situation worse. It has been suggested that there might be some tacit co-ordination in the market. In this country, running a cartel is somewhere between extremely difficult and impossible. However, as Galbraith once said, there are a number of habitable halfway houses in which oligopoly situations can pertain, and it is very important to guard against those.
The market appears to be somewhat mired, and it certainly lacks public confidence, so it is right that the CMA should investigate, but it would be wrong to accompany that investigation with a Government-imposed price freeze. Why? First, there is of course the theoretical possibility that costs will come down. It is wishful thinking for the Opposition to say that a freeze will stop prices going up but whenever costs come down there will be more players in the market. Of course there will not be. What incentive would they have? Secondly, in the event of cost pressures, a freeze would hurt small firms most, partly because they have the smallest reserves for absorbing cost increases, less ability to forward-buy and higher percentage marketing costs as they try to attract more customers.
Thirdly, firms inevitably find ways around price freezes. We do not know what they will be, but companies are smart and usually find a way to do it. They can nip in with a price increase before a freeze is imposed, they can cut investment, as has been mentioned a number of times, and—this has not yet been discussed—they can discriminate against less profitable customers. If a ceiling is put on the price, there will still be plenty of customers who are profitable at that price, but there will be others who are not, and companies might decide to reject those customers.
Albert Owen
I am sure that the hon. Gentleman is very genuine, but his Government introduced legislation—the Energy Act 2013—to hold back prices and interfere in the price mechanism. If what he describes would happen under a freeze, why would it not happen under the legislation that was introduced to hold prices down?
Damian Hinds
The key thing that underpins British competition policy, and indeed the approach in this market, is encouraging competition without setting prices. It is a system that tends to work, and when it does not we have competition policy authorities to investigate and determine how the system needs to be put right. That is the correct way to do it.
Of course, there is another side to the story. The margin enjoyed by the big six on domestic energy in 2012 was 4.3%. The big question is whether supernormal profit is being generated elsewhere in those companies, particularly on the generation side. My hon. Friend the Member for Warrington South (David Mowat) mentioned the international comparisons, which I think are worth bearing in mind. It is also worth remembering that high prices have not just happened in this country. Prices did not just start rising after May 2010. According to the Office for National Statistics, in 2002, 2003 and 2004 the average household energy bill was £70 a month, but by 2009 it had risen to £108 a month, a rise of more than 50%. They then went down slightly after 2009-10. The biggest factor in those price increases, including when the Labour party was in government, was wholesale energy prices, including the world oil price and declining domestic gas supplies.
Does that mean all is well and we should not worry? Of course it does not. We want markets to operate well and competitively, and there are signs that this market might not be doing so. It is perfectly possible to have markets with high levels of concentration that still operate competitively, so long as they are contestable. Confectionery, detergents and grocery retail are all markets with very high C5 ratios, but the market can still work if it is contestable, if products are clearly comparable and if switching between them is easy. It is when those last two points do not pertain, as with banks and the energy sector, that worries arise.
It is right to try to bring in more competitors, and I think that what the Government have done in that regard has been encouraging. I encourage them to do more. We also need more trusted brand names to enter the market, rather than just companies that nobody has heard of. We need to learn from companies such as Sainsbury’s and Marks & Spencer what they believe has held them back. We can go further on tariff simplification, as we are only part of the way through that process. The complexity had become comic. It will now be under much greater control, but we could go further. We need to ensure that annual energy statements are clear, consistent and prominent and that they are machine readable so that comparison sites can read them.
Overall, we know that there are problems with the market. Given the low levels of public confidence, it is right that the CMA will have a full-blown investigation. That is the way we do things in this country to get to the bottom of it. It would be quite wrong to second-guess the outcome of that with a populist price freeze.
Paul Flynn (Newport West) (Lab)
The elephant in the room in this debate is the future of shale gas. The Secretary of State told me that it would make no difference. However, the likelihood is that we will repeat the experience of America when it starts exporting vast quantities of shale gas. We will not see a price freeze; we will see a price collapse. America has been jerked out of its economic crisis by abundant cheap energy becoming available for industry, which has brought prices down and made it far more competitive. That will happen here. There is no purpose in closing our minds and pretending that it will not, because it will affect the whole market.
The Chair of the Select Committee talked about the reluctance of British investors to invest in Hinkley Point, but what is British about Hinkley Point? Did Members read the French newspapers when the deal was announced? They regarded it as the deal of the century. It will create 10,000 jobs—not at Hinckley Point, but in France. It is an extraordinary deal. For Britain, it is the rip-off of the century. We have agreed to buy energy—this is hard to believe—at £92 per megawatt-hour, which is twice the going rate at present, and that is the minimum rate. We have indexed linked that price and guaranteed it for 35 years. We do not know what energy prices will be in 35 months.
The chief executive of Ineos, a man who is a great importer of energy and will be importing shale gas into Grangemouth, said that British companies would not go anywhere near that price. At present he is buying energy from the same company, EDF in France, at £37 per megawatt-hour. That is the going rate. For reasons that are beyond us—inertia, or because they are tied to a nuclear future—we have gone into this terrible deal. People will look back, possibly when you and I are still in the House, Madam Deputy Speaker, at this terrible deal that has been struck. It is irrational.
We are buying a European pressurised water reactor. They have been around for a little while, but they have not yet produced enough electricity to power a bicycle lamp. The first one was in Finland. According to the deal, it was going to start generating electricity in 2009. The original cost was €3 billion—it is now reckoned to be €8.5 billion—and it is not expected to be generating until 2019, 10 years late. The other one is Flamanville. It had a very similar original cost and is now also expected to cost nearly three times that—€8.5 billion. It is not expected to be completed for four years after the year when it was supposed to be generating electricity, which was last year. The right hon. Member for Bermondsey and Old Southwark (Simon Hughes) used to start his speeches by announcing that no nuclear power station in the world has ever been built on time or on budget. Of course, the Liberal Democrats are now singing from a different hymn sheet because they have a Lib Dem Secretary of State.
We are waltzing into a future that is not well informed by science but based on forecasts. In 2007, the Labour Government’s policy was that nuclear power was an economically unattractive proposition. David King went along to Downing street, showed his slide show, and said that there would be a gap in energy in a few years’ time. The Labour Government changed their policy. Then we heard that the lives of the AGRs—advanced gas-cooled reactors—were to be extended, and the fuel gap did not occur.
I suggest to the Government that we do not build on a system that has always proved expensive and has never delivered on its promised targets, but go into the areas of marine power whereby we can have an abundance of electricity from the great cliffs of water that flow around our shores 24 hours a day. An example of that is La Rance in France. It has been there for nearly 50 years, it paid for all its capital costs decades ago, and it is producing the cheapest electricity in the world. Around our coast, particularly in the Severn estuary but also in other places, there is huge potential for using this great, wasted resource that is natural, immensely powerful, freely available to us, and benign to the environment. Sadly, however, we go on thinking along tram lines. I believe we will find that the EU decides that the £17.5 billion subsidy we intend to pay for Hinkley Point—for one power station—is against European rules because such subsidies are not allowed. My nightmare is that if we have a true—
David Mowat
Is the hon. Gentleman aware that under the energy market reforms the contract for difference price for tidal power is four times that paid for nuclear?
Paul Flynn
I am aware of the high costs that are put in for all renewables, but at least renewables provide a power source for the future that is free, and has other benefits. The site at Hinkley Point is based on an estuary where there was a tsunami a while ago.
Tessa Munt (Wells) (LD)
I am sure the hon. Gentleman is aware that the intention is that the price of tidal power will be far lower than nuclear after we have perhaps five or six tidal lagoons in place.
Paul Flynn
As I say, rather than looking into the crystal ball, we can look back at what has happened at La Rance, which produces the cheapest power in the world. It was opened in 1966 but the turbines are still in pristine condition. The dredging on the River Parrett, which the hon. Lady will know about, often increases flooding, but if we created a system whereby we used that water by allowing whatever is fitted there to generate energy, we would have a great improvement in flood defences, as at La Rance.
The Government’s mind seems to be closed to the possibilities of marine power. There are other ways of using it; it is not necessary to build a brick wall across an estuary. Movable turbines can be put in or wave power can be used—there is a whole range of possibilities. Yet there is no kind of push towards that. There is no vested interest saying, “This is what our future should be.” Marine power is the great neglected source that we continue to neglect at our peril. It provides energy that is benign, does not threaten the environment, and will be there eternally.
Dr Phillip Lee (Bracknell) (Con)
In this debate about an energy price freeze we have heard some interesting contributions from colleagues on both sides of the House. I understand that the Opposition’s position, in effect, is to assume that the price freeze is in place and then think about what they are going to do next in the process. I have not heard about the sorts of things they would like to see in future. If the House will allow me, I would rather discuss the future than the present.
It is often said that the energy market involves a trilemma, but I tend to disagree with that principle because it implies that all the elements are equally important. For me, the cost of energy is key. Of course, security and decarbonisation matter, but ultimately energy is directly linked to GDP growth; we need only to look across the Atlantic to see evidence of that. We must concentrate on cost as our primary target. There is also an argument, which I will make, about the limits of markets. The privatisation of the Central Electricity Generating Board in the 1980s was welcome, and it brought about an increase in efficiency, but I wonder whether we are all missing a trick in not realising that there comes a point when the market can deliver no further gain and we might want to consider a different model, particularly in the supply and distribution of electricity and gas.
As I say, the primary concern must be the cost of energy. When I stood for election to the DECC Committee in 2010, more than one colleague came up to me somewhat surprised that I was going for such a “lowly” Select Committee and asking why was I not going for something interesting like health or education. I pointed out to each and every one of them that I thought energy was a key challenge for this Government, and indeed Governments to come, alongside ageing. As a doctor, I could talk all day about the ramifications of an ageing population, but I did not know that much about energy and the energy market. We are now approaching the fourth anniversary of our joining these Select Committees, and in those four years I have concluded that the complexities of the energy market in this country are quite remarkable. Although I think it is going too far to call it a cartel, certainly the public’s view is one of a sense of things acting in concert. An investigation into this market is long overdue.
The motion mentions an increase in competition, but I wonder where that would take us. An analysis of the economic profits of the energy companies shows that they are actually making losses. Centrica made an economic loss of £345 million in 2013. Yet we are expecting these companies to invest and bring private investors into the market. We must reflect on that. Although it makes very easy headlines to say that these companies are making massive profits, in fact they are not. Any profits that they make tend to be in their generation arms, not in their retail arms.
Mel Stride (Central Devon) (Con)
On the increased competition in the market that we would all like to see, does my hon. Friend agree that the suggestion that Government arbitrarily step into a marketplace and apply a blanket freeze is likely to scare off investors and be a significant brake on the very competition that we want to promote?
Dr Lee
Of course. If my hon. Friend will forgive me, many people have already made the case for how simplistic and foolish an energy price freeze would be, and I did not want to add to that, because I thought it would be presumed that I would agree. My hon. Friend smiles. We are about to carry out an investigation into the market, and perhaps we need to start to think about how we might restructure our energy sector in a more profound way.
Before I come to that, I want to mention security. Currently, about 70% of our oil and gas comes from Norway; that relationship is key. Centrica has a long-term contract with the Qataris, worth in excess of £4 billion, which is important. Contrary to the hon. Member for Newport West (Paul Flynn), I am a strong supporter of the nuclear industry, but I have some issues—I have gone on public record about this—because a strategy on the nuclear industry is required.
I am somewhat concerned that we have had to go abroad for the technology. We have had to do so because the Opposition sold all the technology during the previous Parliament. Westinghouse was sold, as was British Energy—we could have made hay about that, but never mind. I am concerned that we have to go abroad for technology that arguably is not the cheapest and that, as the hon. Member for Newport West said, has not been delivered on time anywhere on the face of the earth. We need a strategy as a country. For example, why not have small reactors across the country, built by Rolls-Royce? That is just a suggestion.
Paul Flynn
Does the hon. Gentleman agree that Centrica made a considered and serious decision when it abandoned the £200 million it had already invested in Hinkley Point? That meant that the serious investors had deserted, and so we now have to rely on cheap Chinese money, of which is there is an abundance. What has Hinkley Point got to do with Britain?
Dr Thérèse Coffey (Suffolk Coastal) (Con)
They did not have control of the asset.
Dr Lee
As my hon. Friend says, Centrica did not have control of the asset, because it was not allowed to buy British Energy in 2008—a decision made by the previous Government, and one which I guess the hon. Gentleman supported.
It is time for the Government to concentrate on one thing rather than on a myriad. Whenever the Department of Energy and Climate Change comes before the Select Committee it gives evidence of its lack of fitness for purpose in this area. The Select Committee has been, I think, deeply frustrated by the Department’s performances on many occasions. We should concentrate on one thing, which is energy efficiency. Fatih Birol was in front of the Select Committee the other day—he edits the “World Energy Outlook”. The conclusion of that weighty tome is that this country should concentrate on energy efficiency. We should stop subsidising energy generation and let the market deal with that.
We should concentrate on energy efficiency because the reality is that that is all we can do. Our stocks of gas are declining—they may be mitigated somewhat by shale, but let us not hold our breath or think it will be a significant bounty. This country needs to be able to deliver economic growth in the future with less energy. California has done it so I do not see why we cannot. It requires concentration purely on that one issue. We need to get away from the rather daft level of subsidy for offshore wind, for example. There is some argument for state expenditure on energy security in baseload generation, and we perhaps need to be more transparent about how we fund nuclear energy, and indeed—to refer to the contribution of the hon. Member for Newport West—marine energy projects such as that on the Severn.
My main point is that the solution is not to have yet further energy companies in the market. I believe that the retail and distribution networks should be owned by co-operatives. We only have to look at New York and Pennsylvania to see the benefits, in terms of the lower costs to the consumer and the ability to take a longer-term view about investment in infrastructure so that if there is poor weather, the distribution network does not go down. It might be counterintuitive for a Government Member to talk about co-operatives—that may be politically attractive—but ultimately there are limits to markets and I think we are approaching the limit in the energy sector.
Madam Deputy Speaker (Dawn Primarolo)
Order. In order to accommodate the remaining Members who wish to speak before the wind-ups commence, I am reducing the time limit to five minutes, with immediate effect.
Fiona O'Donnell (East Lothian) (Lab)
It is a pleasure to follow the hon. Member for Bracknell (Dr Lee), who I thought made an illuminating speech. It was illuminating because at no point during his speech did I hear him talk about fuel poverty or about people struggling to pay their fuel bills. My constituents will be disappointed by that and I suspect that his will, too.
Fiona O'Donnell
No—I am on a limit of five minutes. I have not made any interventions in time-limited speeches and I am not going to take any, as I have only five minutes.
It has also been illuminating to see the political tomfoolery of the SNP today. As the hon. Member for Angus (Mr Weir) stood to speak, suddenly two other SNP Members came scurrying into the Chamber to give the right impression of SNP support for action on fuel poverty, and then scurried out, having made one intervention.
Dr Phillip Lee
On a point of order, Madam Deputy Speaker. The hon. Lady has misrepresented my speech. I talked about cost as the primary target of any energy policy, which refers to the fact that I recognise that customers are paying increased bills.
Madam Deputy Speaker (Dawn Primarolo)
With respect, that is not a point of order but a matter of debate. However, the hon. Gentleman has now got his point on the record.
Fiona O'Donnell
Thank you, Madam Deputy Speaker; as you said, the hon. Member for Bracknell has his point on the record. It certainly did not seem to me—it will not to his constituents, either, I think—that fuel poverty was the main driver of his contribution, but it is the main driver of the motion before the House.
To return to the SNP, however, I thought that Government Members must have learned to throw their voices, because when the hon. Member for Angus spoke it was like hearing a Tory speak. That is more and more what we are hearing from the SNP these days—there was more time spent bashing Labour’s attempts to do something about fuel poverty than there was spent looking at the inaction of the Government. All he seemed to have to say to the people of Scotland was that the SNP would take less money from the energy companies in the hope that they in turn would take less from the consumer. There was not much hope for the fuel-poor in Scotland from him today.
We also heard from the hon. Member for Warrington South (David Mowat), who I know has taken an interest in Scotland in the past, and has served on the Scottish Affairs Committee. He took an interest in my constituency today, referring to the closure of Cockenzie power station. The hon. Member for South Suffolk (Mr Yeo) also spoke about the problem of lack of investment. I would like both of those hon. Members—at least one of them is in the Chamber—to know that Cockenzie power station had not been converted to gas because of the Government’s dithering and delay on connection charges, which means that Iberdrola is holding back its investment. That is hurting my constituency and hurting consumers, and responsibility lies firmly with the Government.
Today’s debate has to be seen in the broader context of a cost of living crisis. I know that the Secretary of State asked questions of the Opposition Front Benchers today, and I congratulate my right hon. Friend the shadow Secretary of State on giving the House the opportunity to debate this matter today and so allowing me to stand up for my constituents. I hope that when the debate is wound up will we get a response as to whether Ofgem will be required to look at the situation of many of my constituents, who are trapped in fuel poverty because they do not have access to the gas grid, and so do not benefit from dual-fuel discounts and have only a limited number of places from which to buy their supply. There is also the issue of prepayment meters, which hits some of the most vulnerable energy consumers, particularly those on fixed incomes.
One sign that this Government’s policies are not working is the rise in the number of people using food banks. We are also seeing people having to return food to food banks because they cannot afford to pay for the energy to heat food that requires cooking. I have been away for a couple of weeks with the International Development Committee, and coming back this week I have had a sharp reminder of how the Government are in absolute denial on so many levels. There was denial from the Prime Minister today about the fiasco of the sell-off of Royal Mail. We heard denial yesterday from the Treasury Front Benchers, who would not acknowledge that people will be worse off at the end of this Government. Today we have heard denial from the Secretary of State for Energy and Climate Change, who on his own website is seen supporting the “Mind the Gap” campaign. How ironic—the gap is between the Government’s rhetoric on fuel poverty and their action on it.
We need leadership, not people sitting around tables and talking, or taking too long to put Bills through Parliament or to act on Ofgem. The energy consumers in my constituency want action and leadership from the Government now. They will get that from Labour in 2015. I commend the motion to the House.
Mr Robert Syms (Poole) (Con)
I was going to give a comprehensive solution to the energy problems but, given that the time limit has gone down from six to five minutes, I hope the House will forgive me if I do not say anything about how we can sort out those problems.
This is, of course, an important debate, because the issue impacts on so many people: energy bills are among the largest things they have to pay. I would point out, however, that since the industry was privatised, energy bills have generally been lower than in most other countries in Europe. However, privatisation did not work well in that it inherited quite a lot of capacity to generate and we did not get the sort of investment we should have. That should have been addressed by former Governments.
If I have a worry, it is more about supply than price. The reason fuel poverty is mentioned is that people cannot afford to have their heating on, but if it is not possible to generate heat such that people will not be able to have it on anyway, that will have the same impact on many of the most vulnerable people, such as the elderly, because they will not be able to heat their homes. We really have to sort out the question of supply.
I am a little frustrated because the Budget mentioned reducing tax to incentivise companies to invest and increase productivity, but now we are having a debate about energy policy and what seems to be a stalled investment programme. In his sensible speech, my hon. Friend the Member for Warrington South (David Mowat) mentioned some of the plants we are closing but, although there are planning permissions on the books, people are not investing. That means that we have a real problem, because capacity is reducing and, as we all know, there is likely to be 4% surplus capacity in 2015. That is very close to having black-outs. Some say that high-energy producers could send their workers home and we could turn off the energy to those plants, but the reality is that if we want the British economy to grow and if we want jobs and exports, it would be bonkers not to invest in energy supply, because otherwise we will not be able to generate the energy we need to generate the economic wealth we want as a nation.
We need to provide more incentives for people to invest. There seem to be a lot of things preventing them from investing. Perhaps there is a strong argument for referring the issue to Ofgem to conduct a big review of the market, but it will slow down investment. I am worried about that, because there is going to be a gap for the next three or four years, and that means that there is a very real risk that the lights will go out. If Members think that the politics of high prices are difficult, they should be aware that the politics of cuts in energy are severe for any Government who do not keep the lights on. That is my main concern. I want Government Front Benchers to keep an eye on the issue and push investment. We need it, because even if nuclear power, which I welcome, follows on from the European Commission review, it will be some years before that 7% of valuable additional generating capacity will become available.
Of course, we are trying to stretch the life of existing Magnox nuclear stations and the last debate we had on energy was about trying to keep some of the coal-fired stations open. I think it is silly to allow stations to close when there is no guarantee that we can generate the electricity through new investment. That is my principal message.
There are other subsidiary issues. Transmitting power is very important. All the transmission engineers say that we are painfully short of people to provide transmission cables, and we will need many such cables if we invest in new nuclear power. There is a lot more to be done. I am sorry I have made only a brief contribution, but I emphasise that the supply of energy is very important and could very quickly, if we get this wrong, rise to the top of the political agenda.
Albert Owen (Ynys Môn) (Lab)
It is always a pleasure to follow the hon. Member for Poole (Mr Syms), who spoke a lot of sense. He was absolutely right to say—I will not go over everything he said—that when the energy markets were privatised, the splitting up of energy policy was not done in a healthy way. It was done rashly, and many issues such as nuclear waste liability could not be sold off, so the state ended up holding on to them.
The motion is about not just an energy freeze, but a reset of a market that has failed. Each and every contributor has said that there have been failures in the market, so it is right that the Government should look at the issue and take strong action. They are already intervening: the Energy Act 2013 was the Prime Minister’s way of saying that he wanted to fix prices. That is exactly what Members voted for, so intervention is happening, but it is not helping consumers in the way it should.
I am certain that every Member wants more transparent and fair energy prices, efficient regulations and the right conditions for investment. The energy market is not working well and we need to improve it. I am the first to admit that, in 13 years, the previous Government should have done more about it.
I listened with interest to the hon. Member for East Hampshire (Damian Hinds), who provided a good theory of how markets should work, but the practice is very different. He talked about energy prices in 2003-04, but they must be placed alongside today’s context, in which people’s wages are frozen and many household incomes are going down, not up, because of food and energy prices.
There are price hikes. The hon. Member for City of Chester (Stephen Mosley), who is no longer in his place, made an intervention earlier on behalf of the Whips and said that his constituents were paying £50 less on his energy bills. If that is the case, Chester is the only place in the United Kingdom with such a reduction. My constituents, who have shown me how their energy bills this year compare with last year, are paying between £70 and £90 more. That is the reality and that is why in the House of Commons we should be standing up for consumers.
I have issues with the argument that Government intervention would affect potential, much-needed investment. Contrary to what the Secretary of State said, there has not been much new investment; nor have there been many final investment decisions, in the past few years. Many previous decisions have continued after receiving consent and they are coming on stream now, or will be in the near future. Investment has been put off by uncertainty, but that uncertainty has not been caused by the Leader of the Opposition pledging an energy freeze. It happened long before that. Those companies complaining that an energy freeze will hit them have been pulling investment and decisions out of the United Kingdom. Centrica is a particularly bad example.
The Chairman of the Energy and Climate Change Committee, the hon. Member for South Suffolk (Mr Yeo) was right to say that we need to be honest, and we need to be honest that this did not start with a pledge for an energy freeze. Rising prices have become such an issue for our constituents. They are hurting so many households that we need to do something. That is why the Leader of the Opposition made his pledge and that is why the Opposition are suggesting policies. We are talking not just about a freeze, but about fixing the regulator, which has some powers it does not use and needs more powers to intervene.
The Government say that they are instructing Ofgem to do things, but that is just a reaction to what is happening. When the Select Committee conducted inquiries, the Government said that everything was hunky-dory and that switching would resolve the problems. That is wrong, which is why a responsible Government are needed to stand up for consumers and create credibility and certainty for energy companies to invest. The market is not perfect and it needs to change. We need stronger regulations.
Finally, transmission and distribution make up a quarter of our bills. There is no competition in those areas. We need some competition or, indeed, a not-for-profit organisation to enable bills to come down so that our consumers can have a fair deal in the future. If this Government will not do it, we can at least send a message today by voting for this motion, and a future Labour Government will do it.
Christopher Pincher (Tamworth) (Con)
It is always a pleasure to follow the hon. Member for Ynys Môn (Albert Owen), who is a fellow member of the Select Committee on Energy and Climate Change. One of the disadvantages of speaking at the fag end of any debate is that everything that can be said has been said, but, of course, not everybody who can say it has said it, and I am no exception to that rule. Although I will try not to repeat other contributions overmuch, some points will be worth repeating.
During the last debate on energy in November, I said that the right hon. Member for Don Valley (Caroline Flint), the shadow Secretary of State, made a characteristically ebullient speech. She conducted herself today with no less chutzpah, but I have to say to her that I think her arguments would have greater resonance across the House and the country if she were prepared to recognise that the failures of the past have contributed in no small measure to the challenges we face now. She talked about the need to increase competition in the energy market, but she refused to acknowledge—indeed, she danced around the fact—that the energy market was consolidated under Labour, going from 14 major energy providers down to just six. She talked about the need for greater energy security, so why have we not invested in more nuclear stations or in home-grown shale gas so that we do not rely so much on international hydrocarbon prices and imported gas, which is increasing energy prices for so many of our customers? It is therefore no small surprise that we are greeting her current argument for an energy price freeze with a degree of scepticism. [Interruption.] I notice that she is chuntering away from the safety of the Opposition Front Bench. That is probably the best place for her, because she can do less damage to our economy and to her country sitting there than on the Government Front Bench.
Christopher Pincher
I will not give way because I know that the hon. Member for Huddersfield (Mr Sheerman) wants to speak.
If we have a price freeze, these will be the facts. It would encourage providers to hike their prices in anticipation of a blanket freeze, which means that our constituents would pay artificially high prices. It would drive smaller players out of the marketplace and consolidate it even further. That has been said by Dieter Helm, First Utility—the Leader of the Opposition’s provider of choice—Adam Scorer of Consumer Futures and Steve Fitzpatrick of Ovo. It would also drive investment out of the energy sector, as many hon. Members have said during the debate. The chief executive of E.ON said at a meeting of the Select Committee that the cost of capital goes up every time the Leader of the Opposition opens his mouth and talks about a price freeze.
We all accept that about £110 billion has to be spent on our energy infrastructure—including our pipes and pylons—over the next 10 years to keep the lights on and the kettles boiling. Such investment has largely come from the big six over the past five years. E.ON has invested £7 billion, and Centrica has invested £6 billion. If that spend is extrapolated across the big six over 10 years, they will invest about £70 billion. If we are to find the £40 billion extra, we will have to rely on investment by small independent players, as well as bigger companies. Otherwise we will have to fall back on the poor benighted taxpayer to add cash to consumer’s bills or—heaven forfend—to borrow more money, which the shadow Chancellor seems to like to do, in order to pay for the infrastructure.
We need to get in the investment, and a price freeze will only discourage investment, but we really need to reduce bills. That is what our customers want. Encouraging 24-hour switching may cut bills by £140; reducing the number of tariffs from 340 to just four can cut bills by £200; and rolling back the green levies can cut bills by £50. That will help our hard-pressed constituents—the hard-pressed consumers—not the gimmick proposed by Labour.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
It is always very fortunate to be called last before the closing speeches, because it concentrates one’s mind wonderfully. I am not an energy specialist, but I am very interested in how we make policy in our country. Having listened to this debate, I know that it is about the supply, price and security of energy. I remember hearing a wonderful group from the Royal Society of Arts, Tomorrow’s Company, talk about the best kinds of companies being those that really set examples in looking after the balance between their employees, shareholders, consumers and suppliers, as well as after the community in which they sit. Today’s debate has been about companies falling short, particularly in terms of consumers and the communities in which they sit.
As politicians, we have been pretty cowardly on energy for a long time. The fact is that when privatisation was introduced not enough Conservative Members said strongly that it was a mix, a muddle and a botch. It was, and we are all paying for that terrible privatisation. In parallel, we are paying for rail privatisation in my region. In both cases, there is absolutely fragmented ownership and a lack of “joined-upness”—somebody owning one bit does not talk to somebody in another bit. It is a mess. If we look seriously at privatisation, we can see that it has been a disaster for this country.
Mr Sheerman
With only four minutes left, I will not give way, as the right hon. Gentleman knows is the case.
So often, politicians from all sides have been very reluctant to take on the big, hard issues. We only have to look at nuclear power. I have always thought that it was an option that we should have taken seriously and for which we should have been building long ago. Even with the six large energy companies, we have ended up without the ability to come forward with either the finance or the technology to build a nuclear power station, and instead have to look to Chinese money and French technology. What a dreadful situation in an energy sector that has been driven down to such a weak status and such low capacity by its botched privatisation.
Of course we need to make big changes. To be really old-fashioned, I would say that we should have a royal commission on such a matter. I am in favour of the motion, and of the Government’s good decision to refer the energy market to the Competition and Markets Authority. Will it, however, be only a sticking plaster on a real and deeply structural problem in our deeply dysfunctional energy sector? I am afraid that it will be. I want there to be a royal commission, which could encompass the whole of the problem, rather than one bit of it.
We all want efficient regulation. From looking at the present regulator—its strength and teeth, and its capacity to act and to be bold—I have to say that it has been woefully lacking in protecting my constituents and people up and down this country. To be truly political, that is part of my deep unease about how this Government in all their decisions—this is one of them—are moving us to a country in which there is a disparity between the really rich and ordinary people. I do not mean poor people, but those mentioned in that wonderful book, “The Spirit Level”, which argues that healthy societies and healthy democracies do not have an enormous gap between the rich or super-rich and ordinary people.
Such a gap is developing in this country, and when we look back at this Liberal Democrat/Tory Administration, it is one reason why we will say that that was the time when our country became deeply divided, with the rich people being favoured by this privatisation and the Royal Mail privatisation. “Rest in peace” will be the epitaph of the Administration that has made this country more divided and more unhappy.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)
Not least in the last speech, we have had an interesting, illuminating and at times passionate debate on the issue—more accurately, the set of issues—that is high on the agenda of many right hon. and hon. Members from across the House. As ever, and we are becoming used to this, the debate has been characterised by some very considered contributions, as well as by what are frankly rather desperate attempts to divert the debate away from fundamental concerns about how this market works or—more accurately—does not work.
As my right hon. Friend the Member for Don Valley (Caroline Flint) mentioned, this is the ninth Opposition day debate on aspects of energy policy. During that time, we have seen a remarkable shift from the Government, with the Secretary of State, who is not in his place, finally seeming to catch up with reality. For the record, I remind the House that his position has shifted from there not being an issue to address, through the answer being switching on its own, to a cack-handed attempt to jump on the back of concerns about the level of profitability in gas via his special adviser in the press a few weeks ago. Last week, he eventually accepted that the market over which he and his predecessor have presided for the past four years is not fit for purpose, does not work for consumers and does not work for the industry, in which there is a crisis of confidence and a deficit of trust. Today, we have heard the considered, final evaluation of the Secretary of State: a thought experiment. If the vacuous, empty, floundering response that we heard from him today does not make him realise that he is completely out of touch, nothing will.
My hon. Friend the Member for Glasgow North West (John Robertson), who has been a constant, dogged presence on the Energy and Climate Change Committee, like many Members in the Chamber today, made a persuasive case, as he often does, about the impact of policies and market failures on his constituents and those across the UK who struggle to pay their energy bills.
The Chairman of the Select Committee, the hon. Member for South Suffolk (Mr Yeo), referred to investment opportunities. He was right to point out that the investment record of Centrica has not been good for a number of years. However, he was wrong to link SSE’s decision last week to freeze its prices to its pulling back from investment in offshore wind. I am sure that he will have the opportunity, if he has not had it already, to speak to SSE. It has been very clear that its decisions are related to continued difficulties, including the lack of clarity on the detail of the contracts for difference, and technical and cost challenges with the round 3 offshore projects, in which it is limiting its involvement.
The hon. Member for South Suffolk will know that SSE’s decision does not necessarily mean that those projects will not go ahead, because investment is coming from outside the big six. A number of state-owned utilities from other countries, including Norway and DONG in Denmark, are filling the investment gap with a number of projects. That helps to deal with the suggestion that is sometimes made by commentators—in fairness, it has not been made in this debate—that the big companies are a prerequisite for the investment that is required. As he knows, a number of utility companies are over-exposed in their home markets, which is leading to a pulling back of investment that has nothing to do with the price freeze proposals.
The hon. Member for South Suffolk made two other important points. The first was about the failures of the current regulator and the second was about the ring-fencing and legal separation of the generation and supply arms of the big companies. He is concerned about the impact of that. I am sure that he will be aware that when SSE announced its decision to separate last week, it referred to it as a tool to “improve transparency” and a
“reform that is in the clear interests of customers”
that would have only marginal cost implications. I believe that others will reach a similar position in the weeks and months ahead.
My hon. Friend the Member for Southampton, Test (Dr Whitehead), whom I served alongside on the Public Bill Committee that considered the Energy Act 2013, rightly pointed out that reform to make the market clear, fair and transparent was almost entirely absent from that legislation. He will recall that he, I and others tried several times during the course of the Committee to move amendments to insert those issues into the Bill. I am sure that the Government, on reflection, will regret turning their face against those issues. My hon. Friend also made a point about mandatory open trading, which is the best possible way to increase liquidity and to have an impact on the forward market.
The hon. Member for Warrington South (David Mowat) referred to the number of power plants that have closed and been mothballed. I am sure that he is aware that some of the mothballing seems to have been done in anticipation of the capacity market. That makes the case for the auctions to happen as soon as possible.
The hon. Member for Angus (Mr Weir), either intentionally or out of genuine ignorance, failed to understand the proposals in our Green Paper on market reform. If he had read properly the document that he claims to have read, he would have seen that it makes a number of proposals to increase transparency in the market, which is required for investment and for consumer confidence.
The hon. Member for East Hampshire (Damian Hinds) suggested that the solution may lie in trusted brands. I am sure that he is aware that a number of trusted brands have been reluctant to enter the market, not least because the lack of transparency in the market would damage their reputation. The key is to ensure that we have transparency for the long term, as we have proposed.
My hon. Friend the Member for Newport West (Paul Flynn) referred to marine energy and to the nascent technologies that could have an impact in the 2020s and beyond. We need a long-term commitment to decarbonisation and a 2030 decarbonisation target to maximise those opportunities.
The hon. Member for Bracknell (Dr Lee), in a wide-ranging contribution, highlighted the potential role of co-operatives in the mix and the crisis of confidence in the current market, which underlines the case for change.
My hon. Friend the Member for East Lothian (Fiona O'Donnell) referred to her constituents and, in particular, to those who are off the gas grid. I confirm for her again that the new regulator that we propose would regulate the off-grid market, as well as the on-grid market, because a number of her constituents and many other people have been the victims of poor practice in that part of the market.
The hon. Member for Poole (Mr Syms) said that he was concerned that the CMA reference would slow down investment. As he has heard today, investment has already slowed down. There is not a huge amount more that it can slow down. What he said made the case for getting on with the reforms now, rather than being an excuse to kick the issues into the long grass.
My hon. Friend the Member for Ynys Môn (Albert Owen) put the issues with the functioning of the market and the failures in regulation into context very cogently. There is no reason why they should not be addressed now, rather than waiting until the end of the CMA investigation.
Finally, my hon. Friend the Member for Huddersfield (Mr Sheerman) made clear the concerns that are held across this House about the functioning of our energy market.
The contributions of many Members this afternoon have reflected the reality that in recent years it has become increasingly obvious that there is a dysfunctional market and alarmingly urgent that it be reset so that it is clear, fair and transparent. The reality is that the mark-up for domestic electricity increased from an average of 7p between 2001 and 2009 to 9.2p between 2010 and 2013. The reality is that bills have gone up by £300 in three years. The reality is that the investment in lower-carbon technologies has fallen from £7.2 billion in 2010 to less than £3 billion last year. The reality was exposed by the qualitative research by YouGov, which appeared in The Times, in which leading figures in the energy industry at CEO level said:
“Customers were taken for granted, service was poor, and no one bothered to explain the situation to them”.
That is a damning indictment of the reality that is known by the public, that is seen in the figures and that has been acknowledged, belatedly, by the industry itself.
The response from the Government cannot be to say, “We will just sit tight and hope it gets better. Put it into the long grass.” The Government must not use the market referral as an excuse for inaction. As the SSE changes showed last week, there are reforms that can and should be made now. Ring-fencing between supply and generation, scrapping Ofgem and introducing the open trading of energy are policies for which we already have the evidence. There are some who worry that market referral is simply an attempt to kick the can down the road. I urge the Minister, who called for cross-party consensus in the Chamber last week, to demonstrate his interest in that by showing today that he has the stomach for reforms that can happen ahead of the CMA outcome. If the Government want to demonstrate that they are serious about reforming the market and improving the situation for customers and for the industry, including small suppliers and generators, they will vote for the motion. We can then get on with making the market clear, fair and transparent.
The Minister of State, Department of Energy and Climate Change (Gregory Barker)
This has been a lively debate with excellent speeches from across the House on this critical issue. I apologise for leaving the Front Bench for a short while. I had to go upstairs and pass the last piece of the legislative jigsaw for the renewable heat incentive—a ground-breaking piece of legislation of which the coalition is proud.
The fact that the referral of the energy market to the Competition and Markets Authority commands cross-party support is to be welcomed, as is cross-party support for our reforms to the electricity market to support clean energy generation, and the cross-party consensus on meeting our climate change objectives. Consensus on energy policy is not a product of the soggy centre, but something to which a responsible politician in government, or opposition, should aspire.
In practical terms, I am glad that behind the bravado, if we listened carefully we could just about make out the muffled echo of the Labour party sounding a retreat, and we may be inching back towards greater consensus on the strategic direction of policy. The Labour party is being offered an elegant way out of its discredited, disastrous, made-for-a-soundbite energy policy. As attractive and tempting as it might be in the age of social media to offer electorally attractive but fundamentally undeliverable policies, the fact remains that investment certainty and a better deal for consumers that moves to a clear energy system is a complex proposition. Effective energy policy in government requires well thought through proposals that command the respect and support of consumers and investors alike.
A clear demonstration of policy grip was shown by the Chair of the Energy and Climate Change Committee, my hon. Friend the Member for South Suffolk (Mr Yeo), whose speech I thought was a tour de force. In his characteristically elegant way he made the key and most important point—which was completely lost on the Opposition—that the Government cannot control the global wholesale price of gas, and that that is the key price maker for UK electricity. The Government can no more control the price of gas than King Canute could command the waves, and to pretend otherwise is to con the British public. My hon. Friend’s second point, which is that an attempt by any Government to freeze prices with such a draconian arbitrary intervention in the energy market would have a terrifying chill on investment across the sector, was heard loud and clear across the Chamber. As my hon. Friend said, we know the price freeze is a cynical political manoeuvre, designed to prop up the dominance of Labour’s big six.
We heard many other excellent interventions. My hon. Friend the Member for Warrington South (David Mowat) spoke powerfully about how a price freeze will damage investment in new capacity, and my hon. Friend the Member for East Hampshire (Damian Hinds) was right to focus on putting consumers first and foremost in energy policy. We do not often hear from Labour about putting the consumer at the heart of energy policy, but the coalition is determined to do that.
My hon. Friend the Member for Bracknell (Dr Lee) pointed out the complexity of the energy markets and said we should focus more on energy efficiency, and I absolutely agree. We heard contributions from other Members, including the hon. Member for Southampton, Test (Dr Whitehead), who I thought was uncharacteristically ponderous and rather tiptoed around the illogicality of the Labour price freeze. We also heard contributions from the hon. Members for Angus (Mr Weir) and for Newport West (Paul Flynn). The hon. Member for Glasgow North West (John Robertson) said, in reference to the price freeze, that it is not a con to try something. I know he is sincere, but it is a con to try to sell something to the public when we know in our heart of hearts that it cannot work, and when every major commentator and expert in the field has said that it cannot work. That is trying to perpetrate a con.
The bottom line is that Labour’s hit-and-run soundbite energy policy is not credible to consumers or investors. When it comes to UK energy policy, Labour has a hashtag, but we have a long-term economic plan. Labour talks of a bill freeze; we act to cut bills. Labour’s big answer is a new quango; we are delivering real action. Labour’s answer to our problems is more red tape; we want more competition. Labour put its trust in its new super-bureaucrats; we believe that the answer lies not with more bureaucrats and their super quango, but with entrepreneurs and dynamic new entrants—those are the keys to competition. Labour wants to go back to the 1970s and put Whitehall at the heart of energy markets; we, as my hon. Friends have pointed out, want to empower consumers. Labour wants the best tariffs for the over-75s; we have acted to put everyone on the best tariffs.
Let us not just critique Labour’s record in opposition because we should not forget its record in government. Labour created the big six—[Interruption.] Yes, Labour Members may squeal; they hate to be reminded of it, but that is the fact. Labour created the big six. It had the opportunity to refer the issue to a competition inquiry, and not just Labour but the Leader of the Opposition failed to do so. Labour was responsible for the investment desert that characterised 13 years of under-investment in energy capacity. We saw contraction of competition under Labour, but the coalition is unleashing a new era of competition. Labour Members know that wholesale prices cannot be controlled. We would not know that from listening to them, but why else did gas prices double when they were in government and why else did electricity bills go up by more than 50% on their watch?
We know that we cannot control the world price, but that does not mean we stand aside from the market. We are rolling up our sleeves and making real reforms. Since day one, we have worked to make the energy market more affordable, and to increase competition and unlock much-needed investment. We have made the energy market easier to navigate by forcing energy companies to put people on to the lowest tariffs. We have slashed the number of tariffs we inherited from Labour from 400 to just four per supplier, and forced suppliers to put consumers on the cheapest variable tariff. This month we confirmed that we will halve the time it takes to switch providers to just two weeks. We plan to make that even faster: we have made a commitment to 24-hour switching and we will deliver on it. As The Sun says today, switching is the best hope for consumers.
We are making the energy market more affordable by forcing energy companies to compensate customers for mis-selling and overcharging. Labour did not do that; we have legislated for it. We have given Ofgem new powers to force energy companies to compensate consumers for mis-selling and overcharging. We have also provided discounts and financial support to help people to pay their bills, including £130 off energy bills for 2 million households this winter. We have protected 12.7 million pensioners’ winter fuel payments, made cold weather payments to more than 4 million people, and cut taxes that add £50 to energy bills.
Last week, SSE announced a price freeze. This is not a Labour-style, 1970s legislatively imposed price freeze that would kill investment and scare away investors, but a price freeze borne of competition and an increasingly competitive market. SSE said that decisions taken to reduce delivery costs of the energy company obligation, and decisions announced by the Chancellor in the autumn statement, were the principal factors in it being able to make this price commitment.
We are making the energy market more competitive by deregulating the energy market to encourage vital new entrants. Nine new entrants have entered the market in the past two years alone, and the number of customers with independent suppliers has trebled under the coalition. We are forcing the big six to play fair with small suppliers.
Mr Alan Campbell (Tynemouth) (Lab)
claimed to move the closure (Standing Order No. 36).
Question put forthwith, That the Question be now put.
Question agreed to.
Main Question accordingly put.
Mr David Winnick (Walsall North) (Lab)
On a point of order, Madam Deputy Speaker. My hon. Friend the Member for Leicester South (Jonathan Ashworth) raised with Mr Speaker after Prime Minister’s Question Time the Prime Minister’s saying earlier that it was in Labour’s manifesto to sell off Royal Mail. My hon. Friend quoted the Labour manifesto policy, which was that
“continuing modernisation and investment will be needed by the Royal Mail in the public sector.”
I wonder whether you can help, Madam Deputy Speaker. If the Prime Minister has misled the House, inadvertently, does he not have a responsibility to come to the House at the first opportunity to explain and to apologise to the House for what he has said?
Madam Deputy Speaker (Dawn Primarolo)
Thank you, Mr Winnick. I get the drift of your point of order, which, as an experienced Member of this House, you will appreciate is not a point of order for me in the Chair; it is a matter of debate and interpretation, and each Member of this House is responsible for their contributions during Question Times and debates. It is not a responsibility of the Chair.
Madam Deputy Speaker
I have ruled on your point of order, Mr Winnick, so with respect, you cannot come back a second time and put the same one to me.
Keith Vaz (Leicester East) (Lab)
On a point of order, Madam Deputy Speaker. I have just been contacted by the hon. Member for Enfield, Southgate (Mr Burrowes) about a constituent of his who is being removed by the Home Office today. She is on her way to Heathrow airport, her mother having given evidence to the Select Committee on Home Affairs yesterday.
I am seeking your guidance because I do not know whether it is in order, given that the hon. Gentleman has made this request to me—I understand he has spoken to other members of the Select Committee—for a potential witness to a Select Committee to be removed from the United Kingdom before they have had an opportunity to give evidence, if indeed she is called to give evidence. May I seek your guidance on the rules, so that the Select Committee does not do anything out of order?
Madam Deputy Speaker
The right hon. Gentleman raises an extremely interesting point of order, which poses a number of complicated procedural questions. I hope he will forgive me if I do not rule directly now on his point of order. I need to confer with the Speaker. I will make sure that the right hon. Gentleman gets a reply as quickly as possible, and that the House is informed as well.