15:59 - The House having divided: - Ayes: 214 / Noes: 298 - Question accordingly negatived.
Mr Speaker
I remind the House that, owing to a misunderstanding, the two Opposition day debates were put on the Order Paper in the wrong sequence.
The motions will be taken in the order that the Opposition intended: the House will debate the motion relating to energy company licence revocation first, and the motion relating to infant class sizes second. We shall begin, therefore, with the Opposition day motion relating to energy company licence revocation.
Caroline Flint (Don Valley) (Lab)
I beg to move,
That this House believes that consumers have a right to be treated fairly and be confident that energy companies will meet their obligations and provide good services; further believes that where companies breach these obligations, decisive action should be taken to put things right and prevent further breaches; notes that since 2001 Ofgem has imposed at least 31 fines totalling at least £90 million; further notes that despite these financial penalties energy companies face another 11 investigations with four additional cases at informal review stage; further notes that the regulator already has the power to revoke energy companies’ licences in certain limited circumstances, but not where energy companies comply with a penalty notice and then commit further breaches of their licence; and therefore calls on the Government to provide the energy regulator for Great Britain with a new statutory power to revoke energy companies’ licences where there are repeated instances of the most serious and deliberate breaches of their licence conditions which harm the interests of consumers.
The Minister for Business and Enterprise is not in his seat, but I do want to welcome him and the Under-Secretary of State for Energy and Climate Change, the hon. Member for Hastings and Rye (Amber Rudd), who is present, to their new posts and wish them well for what I hope and expect will be their remaining eight months in office.
This summer, while those who occupy the Government Benches succumbed to infighting and some introspection, my right hon. Friend the Leader of the Opposition and my hon. Friends in the shadow Cabinet set out the choice facing the British people at the general election in 2015. We set out a picture of a Britain where public service is valued, but reform is ongoing; where fiscal discipline is matched by fairness; where aspiration is embraced, while no one is left behind; where individuals can thrive and excel, but community solidarity is not forsaken; and where new businesses and new jobs are encouraged, in markets that have fair rules, obligations and rewards. It is to that theme, and to the announcement I made in my speech on the energy market in August, that I wish to return today.
The facts speak for themselves. Under this Government, energy bills have risen by over £300—twice as fast as inflation, four times faster than wages and faster than in almost any other country in the developed world. It is faster, too, than under the previous Government; in fact, the rate of increase since the last election has been three times faster compared with the period between 1997 and 2010. Now I know the Secretary of State likes to cherry pick the dates when he compares our record with his, but even when we only look at the final five years of the last Government, in real terms energy bills have still risen by a greater amount in each year under this Government. The reason why bills have risen—and will continue to rise, unless something is done about it—is that the energy market is broken.
Mr John Redwood (Wokingham) (Con)
Will not the right hon. Lady admit that one of the main reasons why our bills are higher than those in many other parts of the world and have risen more is the policies introduced by the last Labour Government to over-green our energy and leave us short with dear energy?
Caroline Flint
No, I do not accept that. We can clearly see that where wholesale costs have fallen the public as the bill payers have not seen a reduction in their bills—this has nothing to do with other aspects asked of these companies in terms of helping to tackle fuel poverty or helping to support the renewable sector—but when wholesale costs have gone up, the energy companies, and in particular the big six, are quick to remind everyone that is because their costs have risen. We expect the reverse to happen when wholesale costs go down.
As I said, the reason bills have risen is that the energy market is broken. We have already set out a number of proposals that we will put in place if we are elected in eight months’ time: an energy price freeze until 2017, saving the average household £120; all those over the age of 75 put on the lowest tariff; a ring fence between the generation and retail arms of vertically integrated energy companies; a pool for all electricity to be traded in, and greater transparency for trades in the gas market; and a tough new regulator with new powers to police the market and protect consumers, including new powers to protect off-grid households and small businesses, and to force energy companies to cut their prices when wholesale costs fall if they do not do it first. All of these proposals have been put before the House, but Conservative and Liberal Democrat Members have voted against each and every one of them.
The Secretary of State for Energy and Climate Change (Mr Edward Davey)
If Labour were to be elected at the next election, would it make the changes the right hon. Lady mentions ahead of the reporting of the investigation by the independent Competition and Markets Authority?
Caroline Flint
Of course some of the issues the CMA is looking at are the very issues we have been raising for the last two to three years, so I have welcomed the CMA review. As I have said in public already, it is working out quite well, because the CMA review is, in terms of when the clock started ticking, scheduled to finish around December 2015; it has 18 months in which to do its inquiry. If we get elected next year, our plan is to publish a White Paper, having taken through emergency legislation on the price freeze, and we can see a very good way that our White Paper and proposals can dovetail with the discussions happening with the CMA. In fact I am very open to the fact that the CMA may come up with further proposals that need to be addressed. So I do not fear the CMA; I welcome it. But what I do believe very strongly is that whatever reviews are being undertaken by the CMA, that should not paralyse politicians and those in government from doing the right thing.
Caroline Flint
I really think the Secretary of State is clutching at straws here. We believe very strongly—this is why we set out a Green Paper for energy market reform—that we have identified and tapped into some answers as to how to reform this market. I have to caution the Secretary of State. He may be surprised, if he asks his advisers, and perhaps speaks to some of the energy companies, how in a number of areas they welcome some of our reforms. So he needs to be a little more cautious about putting down Labour’s proposals. A number of them command respect across this House—even though it might not be said publicly—and, actually, in the energy sector as well.
Henry Smith (Crawley) (Con)
Would the right hon. Lady not concede, however, that part of the problem with competition in the energy market was the creation of the big six energy suppliers, which of course took place under the last Labour Government?
Caroline Flint
The hon. Gentleman should also be aware that it was John Major as Prime Minister who took through the changes that enabled those who generate and those who supply to merge their businesses. The result was we saw a number of companies—14, I think—decide they wanted to generate and supply and the big six arose out of that. However, whatever has happened under Labour or previously under the Conservatives in terms of privatising this market, I hope we can all agree that the ambitions for how that market would work after it was privatised have not been realised in the way some of the architects of privatisation perhaps thought they would. As I have said, we cannot let the past paralyse us from changing what needs to change. That is why we have put forward a number of very practical recommendations, which, sadly, have been voted down by the coalition Government time and again.
As to today’s motion, we propose one measure on which I personally find it hard to believe we cannot agree: a new power for the regulator to revoke energy companies’ licences where there are repeated instances of the most serious and deliberate breaches of their licence conditions which harm the interests of consumers. As the motion notes, consumers rightly expect to be treated fairly and to be confident that energy companies will meet their obligations and provide good services. Where companies breach those obligations, decisive action should be taken to put things right and prevent further breaches. So where the regulator has taken action, we have supported it, and where the Government have introduced sensible new measures, such as criminal sanctions for market manipulation and consumer redress orders, we have supported them. Indeed, in the case of consumer redress orders, we urged the Government to go further, because at the moment if any malpractice that happened before 2013 comes to light, the regulator will have no legal power to impose a consumer redress order.
Albert Owen (Ynys Môn) (Lab)
Does my right hon. Friend agree that in addition—I repeat, in addition—to strengthening the powers of the regulator, we need some simple consumer protection law so we can make reference to it and do not have to have 18-month inquiries? People are getting ripped off every single winter and these often long inquiries do not help those people.
Caroline Flint
I absolutely agree. One of the problems with the lengths of these inquiries, and a reason why we need greater clarity—and, I would suggest, greater deterrent factors within the conditions under which these companies operate—is that time gets lost. By the time all the lawyers have got together and everything else—and by the time, perhaps, that the company is found guilty of the offence—we lose momentum in making the change that needs to happen.
The timing of the inquiries is important, but a culture change is also needed. We need to address whether the inquiries are hampered by the energy companies responding too quickly by setting their lawyers on to the matter and deterring effective action and preventing justice from being seen to be done.
It is in a spirit of constructiveness that we present our proposals today. We believe that they are eminently sensible, and we hope that the Government will offer the same constructive approach as we have offered on numerous occasions in the past. The best way of protecting consumers is not to provide a redress framework—much needed though that is—but to prevent companies from ripping people off in the first place. At the moment, too many energy companies operate at the margins of what the rules allow, because they know that they will often not be caught. Even if they are caught, the penalties do not present enough of a deterrent. Too often, energy companies seem to view the regulator’s fines as a cost of doing business, and not as a warning that they should get their act together.
Information provided to me in answer to a written parliamentary question shows that, since 2001, Ofgem has issued at least 31 fines totalling at least £90 million. On top of that are the informal cases that the regulator has dealt with, in which, even though no formal fine or notice was issued, action was taken and in some cases financial measures ensued. If we were to add on those cases, the total would be in excess of £100 million. For companies with annual global turnovers running into tens of billions, that is still some way from the maximum fine that the regulator could have imposed. Nevertheless, it is clearly not an insignificant amount.
Kerry McCarthy (Bristol East) (Lab)
Does my right hon. Friend agree that, no matter how large the fines might be, they are likely simply to be passed on to consumers through their bills and that they therefore do not act as a deterrent to the energy companies at all? In fact, fining companies penalises the customer, so we need to find an alternative to the fining regime.
Caroline Flint
I could not have put that better myself. There is no evidence that the shareholders or managers of the companies take a hit in terms of the benefits they receive; the cost of the fines is often absorbed back into the pot that the bill payers have to pay.
We have heard about the 31 investigations and about the fines that have been imposed. The Secretary of State might claim that this is a sign of success and evidence of a tough new regulatory environment, but that would be true only if there were evidence that companies had changed their ways and that the fines had deterred them from breaking the rules again. The evidence shows that they have not learned their lessons despite all the previous fines and penalties. Information that I have obtained under the Freedom of Information Act reveals that those firms are now facing another 15 probes into poor customer service, incorrect billing and other bad practice. No company has a God-given right to be in the market, to charge its customers and to make a profit just because it has always done so—least of all, those that inherited millions of customers from before the industry was privatised and opened to competition.
Today’s motion proposes a new power for the regulator to revoke energy companies’ licences when there have been repeated instances of the most serious and deliberate breaches of their licence conditions that harm the interests of consumers. Of course, any decision to revoke a licence would have to be subject to due process and to be consistent with the regulator’s overriding objective of protecting consumers and promoting a competitive, transparent and fair energy market.
This proposal would build on best practice from regulators overseas. In some parts of the United States, energy regulators already have the power to revoke an energy supplier’s licence. The Pennsylvania Public Utility Commission, for example, has the power to revoke a supplier’s licence if it breaks consumer protection law or transfers customers without their consent. That sends out the clearest possible message to energy companies that if they carry on mistreating their customers, their licence will be on the line. That strikes me as a pretty common-sense measure.
I hope that the Secretary of State will be able to support our motion today. I say that because when I announced this proposal in August, it was telling that the Government did not put anyone up to discuss it on television or on the radio, and that no Minister commented on the proposal. All we had were anonymous quotes from a Conservative spokesman and a Liberal Democrat source, and between them they could not muster a single good reason not to support the measure. All they seemed to suggest was that Ofgem already had this power, which is simply not true. I have discussed the issue of non-financial penalties with Ofgem and written to it about our proposal, and it has made it absolutely clear that this would be a new power. Indeed, the statement that it issued on the day of my announcement began
“Ofgem is always interested to work with government on any new powers or refinements to existing powers which would help to further protect consumers.”
As today’s motion notes, the regulator has limited powers to revoke licences in certain specific cases, but they are largely of an administrative nature—for example, if a company goes into administration, if it gets a licence but does not supply any gas or electricity in the following year, or if it does not pay a fine.
Caroline Flint
I will come to that in the next part of my speech, and I am sure that I shall be able to answer that question. That would be a matter for the regulator, given its present powers to revoke a licence. At present, it can revoke a licence only in certain conditions, and I do not believe that those conditions are sufficient to meet today’s challenge of making the market more consumer-focused and more competitive.
Crucially, at the moment companies can break the rules and get punished for it—in the form of either a fine or an order to change their behaviour in some way—and as long as they comply by paying the fine or following the order, the slate is effectively wiped clean. At no point can the regulator say, “Enough is enough; you’ve broken the rules too many times and now your licence will be revoked.”
Andrew Gwynne (Denton and Reddish) (Lab)
Is this not precisely where the Secretary of State is missing the point? My right hon. Friend will know that since 2001, 31 fines totalling around £90 million have been imposed, and that another 11 investigations are in the pipeline. Is this not precisely the reason that we need to give additional powers to the regulator—to stop this bad practice?
Caroline Flint
Absolutely. As I have said, the regulator cannot at any point say, “Enough is enough.” That is the key difference between what we are proposing and the status quo. Our proposal would deal with the problem that we have seen in the past, wherein companies are allowed to get away with repeatedly breaking the rules in slightly different ways, or breaking different rules, without fear of losing their licences.
Clearly, the intention behind this policy is to encourage companies to treat their customers better, and the best outcome would be if the power never needed to be used. But if the regulator did decide to use it, the provision would need to have a clear legal basis, almost certainly set down in legislation, in order for it to be exercised with confidence. Otherwise, the threat of legal challenge would probably prevent it from ever being used. That is why it is important that this new power should be clearly put into law, just as the existing power to fine a company up to 10% of its global turnover has a clear basis in law. This would undoubtedly represent a significant addition to the regulator’s powers, and there are important questions about how it would work and about its implications, which I want to address before I finish.
I want to make it clear from the outset that the regulator would remain operationally independent and free from any interference from Ministers. Any decision about whether to revoke a supplier’s licence would be made by the independent regulator alone, but, like all economic regulators in the UK, its functions and powers are defined in statute. What we are debating today, therefore, is not whether any particular company deserves to lose its licence, but whether the regulator should have the power to make that decision, if it thought it necessary. We think that it should have that power.
The process itself would also be very similar to the existing enforcement process, except that, at the end, the regulator would have the power to revoke a supplier’s licence. In practice, an investigation of an allegation of a breach of the rules would begin and the normal process would follow, with a period of information gathering, investigation and notification of the supplier concerned. If the regulator believed at the end of the process that there had been a breach of the rules that had been serious and deliberate and had harmed consumers, and if there had been repeated instances of such behaviour in the past, under our proposals it would have the power to revoke a supplier’s licence in the same way as it has the power to impose a financial penalty or make a consumer redress order. Within the existing enforcement framework there would be clear guidelines for energy companies and a system for appeals.
In the event that a supplier lost its licence, it would mean in practice that it was no longer able to operate as an energy supply company. Let me make it clear that at the moment, companies wishing to supply and generate energy or supply and distribute energy require separate licences for each activity. We have already proposed that vertically integrated energy companies would have legally to separate their generation business from their supply business, and that as a result any decision to revoke the licence would apply only to the licence in question and not to other licences the parent company had. There would be a notice period between the decision to revoke a licence and its coming into force that, by law, must be no less than 30 days. During that period, the company would have to arrange for a trade sale for another supplier to take on its customers.
Energy companies already market and compete to win new customers. Acquiring new customers in such a way would represent a valuable commercial opportunity and avoid the normal acquisition costs. Small suppliers might wish to expand, and if a significant number of customers were available, new entrants might enter the market. In the event that a trade sale is not arranged, the regulator has the power to appoint a supplier of last resort and the rules are in place to ensure that any consumers who are moved to another supplier are protected. Either way, the supply of energy would continue as normal.
This is what I mean by a tough new regulator overseeing a market that works for consumers, not just the companies in it.
Mr Davey
I am grateful to the right hon. Lady for giving way. She is explaining her policy and asking the House to say that this is needed because of things going wrong in the market and because energy companies keep treating their customers badly. I have some sympathy with that observation and shall make some comments about it. However, as she is asking for a new power, surely she has to give an example of where the power would have been used in the past. She is saying that the power is needed because companies are getting away with things at the moment and that the power would have been used in certain circumstances, but can she give us an example?
Caroline Flint
It is already on the statute book that the regulator has the power to fine up to 10% of the global turnover of any company. I might need to go back and check, but I believe that nobody had to prove that that had been used anywhere else before the power was put on the statute book. The Secretary of State is following a ridiculous line of argument. In recent years, a number of instances have led to investigations and fines and have shown repeated evidence of ways in which customers have been let down. We are saying that that is not good enough and that there has to be the ultimate sanction of companies losing their licence. That is the proposition. The detail needs to be discussed before it is put into law. I have been up front and honest about that, but I find it hard to believe that the Secretary of State has seriously set his face against the proposition.
Yasmin Qureshi (Bolton South East) (Lab)
Is my right hon. Friend as perplexed as I am about why the Government seem to have a problem with the ultimate sanction that we can impose against any company, which is to take away its licence? There is no point in asking what examples we can give, as the Opposition are saying that the power should be there so that if the regulator finds that the breaches are sufficient, the ultimate sanction is available to it. I am surprised, and I am sure that my hon. Friends are, too, that the Government are resisting.
Caroline Flint
I absolutely agree. I can hear the Secretary of State saying over and over that it is already available—[Interruption.] Obviously, he has his brief and has not been listening to my speech. As I have outlined clearly and as has been confirmed by Ofgem, the regulator can revoke a licence when a company is going into administration or is insolvent or when it fails to supply gas or electricity, but what is missing at the moment is the ability when there are repeated offences that act against the interests of consumers to take the ultimate sanction and revoke the licence.
Huw Irranca-Davies (Ogmore) (Lab)
I want to try to assist the Secretary of State. My right hon. Friend has rightly said that this will very much be an option of last resort—an ultimate sanction—that we hope will never be used, but the fact that the sanction is available should influence the behaviour of the companies and their investor backers. When an investor community sees that the credit rating of a company that has to gear itself appropriately in the market is jeopardised by a series of serious breaches, we can bet our bottom dollar that they will be banging on the doors of the corporate boardroom saying, “Get your act in order.” It is not a case of when the sanction will be used, as we hope that it will not be. Does my right hon. Friend agree that what is important is the deterrent effect, the cooling effect on reckless decisions in the boardroom, and the good behaviour that that will drive through the investor community into those companies?
Caroline Flint
I absolutely agree with my hon. Friend. The question we should be asking the energy companies is, “Why would you be afraid of this?” The question we have to ask the Secretary of State is, “What is his problem?” [Hon. Members: “What is he afraid of?”] What is he afraid of? It is quite ridiculous.
David Mowat (Warrington South) (Con)
I thank the shadow Secretary of State for giving way and applaud the concern for the investor community shown by the hon. Member for Ogmore (Huw Irranca-Davies). Apparently, in the past 10 years the venal behaviour of energy companies has not been sufficient for this power to have been exercised. For the purposes of clarity, will the right hon. Lady give an example of what behaviour she believes should cause a licence to be revoked? I am sure that the investor community, which we are so concerned about, will be interested, and I and others would be interested in examples of the sort of thing that would cause this power to be used.
Caroline Flint
Of course, Ofgem already has codes of conduct in which it outlines ways in which it would investigate a company. For example, let us consider some of the investigations over the past few years. We have had investigations of mis-selling, billing systems, predatory pricing and disadvantaging certain customers, such as those who have prepayment meters, and situations where people had been inhibited from changing supplier. Ofgem already has set thresholds and codes of practice that enable it to launch a formal investigation and set out clearly what areas it is considering, but the problem is that if a company is found guilty of any of the examples I have just given, that can basically result in a fine or some sort of consumer redress order. What Ofgem cannot do is revoke the licence. When there are repeated examples of companies failing to take action, when they might have been fined, and when they have put their hands up and said that they would do the right thing only for it to happen again, Ofgem cannot say, “I am sorry, the slate will not be wiped clean. You must account for your activities and that includes when you have repeatedly undermined your customers.”
As I said earlier, and I repeat this sincerely to the hon. Member for Warrington South (David Mowat), it seems to me that the problem is that when we look at the fines—£90 million over the past few years is no small amount of money to most people, but it is a pittance by comparison with the overall amount of money these companies make—it sometimes comes across as though paying the fines is just the cost of doing business. That is not good enough.
Roger Williams (Brecon and Radnorshire) (LD)
Surely the real deterrent for any company operating in the energy market is the loss of customers. We should be encouraging Ofgem to up the fines and increase the publicity, because the loss of customers will have an effect on investors.
Caroline Flint
I think there has been quite a lot of publicity about the fines, but what the hon. Gentleman says is interesting. The rules currently allow Ofgem to fine up to 10% of the company’s global turnover, which is a lot of money. I am not against Ofgem looking at whether it should be increasing the amount it fines, but I do think the ultimate sanction is about revoking a licence, because in such circumstances customers would have to be found a new supplier for their energy. Currently, that is exactly what Ofgem can do if a company goes into administration or if it fails to deliver gas and electricity to people’s homes. Is it not bizarre, however, that it cannot do this where there have been repeated offences against consumers through harmful customer practices that not only undermine trust in the energy market but, more important, make customers pay a heavy price?
Nic Dakin (Scunthorpe) (Lab)
I commend my right hon. Friend for her leadership on this issue, because that is what this is about: leadership in shaping the future, not looking back to the past, as such an approach is failing our business and domestic energy customers. I commend her for the way in which she has set out this case so clearly, and I am looking forward to the answer from the Secretary of State.
Caroline Flint
I thank my hon. Friend for his support on so many occasions when we have tried to put forward common-sense, constructive solutions to some of the problems that all in this House know exist in this energy market. Some will wrongly try to characterise our proposal as somehow anti-business—it is not. For one thing, businesses, especially small firms, have often been as much on the receiving end of the energy industry’s sharp practices as households. For another thing, if energy companies do not want to be at risk of losing their licences, all they have to do is treat their customers fairly and properly. More importantly, there is no such thing as a market without rules. It is difficult to think of a more vigorously free-market capitalist economy than the United States, but regulators there understand that a free market works only when there are proper rules to ensure competition and fair play. As Matthew D’Ancona said recently in his article in The Sunday Telegraph, capitalism must be
“tempered by the recognition that markets exist within a structure of laws and a social order.”
That is what I want for households and businesses in Britain.
Mike Kane (Wythenshawe and Sale East) (Lab)
I compliment my right hon. Friend on an excellent speech. I disagree slightly with my hon. Friend the Member for Scunthorpe (Nic Dakin), in that this is about the past. When the landed aristocracy of the Conservatives in the 1860s were controlling the bushels of wheat, it took a Mancunian MP, Richard Cobden, to form the Anti-Corn Law League, which eventually brought in free trade and a free market so that working Mancunians and working people across this country could afford bread to eat. I also remind Government Members that that eventually led to Peel falling.
Caroline Flint
I thank my hon. Friend for his contribution, and I have two points to make. First, I have found it incredibly helpful, in undertaking this brief for the Leader of the Opposition, to take a little time away from the day-to-day things and have a look back at some of the decisions made over many decades, both before and since privatisation. That is why I believe our proposals in so many areas meet the test of what we need today, learning from both what worked and what did not work in the past. That is good politics as far as I am concerned.
The second point relates to what is so exciting about the future of the energy market. There was a time when many local authorities were more involved in the delivery of energy, and the exciting thing is that as well as having new entrants from other parts of the business community, there is the opportunity to open up much more the roles for local authorities and other community organisations to supply and generate energy in the future. To get that right, we have to sort out the corporate problems that we are facing today. That is the choice today’s motion puts before the House.
We have debated energy prices and the energy market many times in this Parliament. There have been times when we have agreed across these Dispatch Boxes and others when we have disagreed, but I hope the Secretary of State will put aside the areas where we do not agree and do us the courtesy of engaging constructively with this specific proposal. If he does so, I believe he will see that it is worthy of support and would be to the benefit of consumers in this country. I commend the motion to the House.
The Secretary of State for Energy and Climate Change (Mr Edward Davey)
I thank the right hon. Member for Don Valley (Caroline Flint) for calling a debate on an important subject: how best can we protect energy consumers from unfair treatment by their suppliers? Although there are examples of good customer service—energy companies that are treating their customers properly—it is hardly controversial to say that there are far too many cases where energy firms have let their customers down badly—the mis-selling, the poor complaints handling, and the poor billing. This is not new; it has been going on for many years and can just take different forms. Right hon. and hon. Members who have served in this House for a few Parliaments will recall all the scandals of doorstep mis-selling. I recall an elderly constituent coming to my local surgery in 2003 having been appallingly treated and conned by a representative of one of today’s big six. So this is a serious matter and, despite efforts by the previous Government, this Government’s focus on this issue and the work of Ofgem, it is clear that there are still energy firms that are treating their customers unacceptably.
Yasmin Qureshi
The right hon. Gentleman gave the examples of mis-selling and the mistreatment of customers. Are they not the type of repeat offending by energy companies that should mean that their licences could be revoked?
Mr Davey
I will explain to the House that under current rules licences can be revoked, and I will deal with these issues. I am admitting that this a good debate to have, because there is a problem—nobody is suggesting otherwise. But, as always, the question is: what is the best way to deal with that problem? What is going to work? What is the best way to crack down on this to punish firms that get it wrong? In essence, we can use three tools: competition; regulation; and technology. The right hon. Member for Don Valley has focused on regulation, and I want to address her proposal in detail, for tough regulation certainly has a vital role to play in holding companies to account. However, I regret that her motion and her speech totally failed to mention competition and technology—those were not even mentioned once. That is a serious mistake, which the Opposition keep making. For many of the smaller suppliers now competing—
Caroline Flint
Does the right hon. Gentleman accept that in different ways the Opposition have put forward motions for debate in this House where we have engaged with competition? In my speech I mentioned a number of our proposals to create a pool to separate the energy generation and supply side. Today, we have tabled a motion that tries to identify a particular problem. We have done that because we think it is the right thing to do, and we find it hard to believe that we could not get the full support of the House on this one issue.
Mr Davey
I am going to deal with the right hon. Lady’s proposal, as I have said. However, she failed to deal with one of the comments made by a Government Member about the importance of competition. Competition does drive good customer service, as I hope she will recognise. I wish she had done so in her intervention on me, but she did not.
Barry Gardiner (Brent North) (Lab)
The Secretary of State has given himself the power to change the contract for difference allocation framework, which is part of his regulation on competition, and the budget notice as close as 10 days before an allocation round begins. Can he assure the House that the European Commission regards 10 days as a sufficient period to determine whether the round is state-aid compliant? If he cannot, what assurance can he give that delays will not result from this? Crucially, what impact might this likelihood of change and delay have on investor confidence to create the very competition he is talking about?
Mr Davey
I congratulate the hon. Gentleman on getting that question into this debate. I say gently to him that on CfD and state aid we have clearance, so presumably the Commission has examined that matter. I have not specifically asked it that question, but it has given us state-aid clearance. The way we have proceeded with the allocation proposals for CfD is to ensure that we get just that investor confidence, and the fact that we are seeing such interest and such investment is tantamount to showing that we have it right.
Failing to focus on competition is a serious mistake by the Opposition, because many smaller suppliers competing against Labour’s big six are doing so not just on price but on the basis of better customer service. If we talk to the independents about their business model, we hear some of them say that higher quality customer service is their main competitive edge. The growth of competition since 2010 suggests that they are right and that competition has a key role to play here. From less than 1% of the market, the small suppliers now have more than 7% and it is still growing. Customers now have more choice than ever, with 25 suppliers competing for their custom.
Small suppliers provide electricity to 2 million customers, and they have gained more than 1 million customers in the past 12 months. Clearly, customers are voting with their feet when they are not happy with the service they are getting. Yes, we need to make the competition rule work more effectively, which is why we support the independent Competition and Markets Authority in the most profound investigation of British energy markets ever seen.
It was telling to hear that the right hon. Lady does not intend to wait to hear the result of the Competition and Markets Authority investigation. She will prejudge the authority’s report. That is quite a revelation, which is worthy of more debate. We are not simply waiting for that report from the Competition and Markets Authority. We have already done so much to encourage new suppliers and to make switching easier, simpler and quicker. We believe that we must continue to sharpen the competition tool for consumers, so that when they are poorly treated, they can vote with their feet.
I am acutely aware that competition has not always worked for the most vulnerable in society, such as elderly people who might not be internet savvy. During my time as Secretary of State, I have placed a focus on new business models and new ways of helping such people—from collective switching to developing, with the voluntary sector, citizens advice bureau, Age Concern and so on, new forms of advice with the big energy saving network. Ofgem is also increasingly focused on how we can ensure that energy markets better serve the fuel poor and the less well off.
Graham Stringer (Blackley and Broughton) (Lab)
The implication of what the Secretary of State is saying is that he accepts that competition is imperfect at the present time. If we have a situation in which competition improves and there is better service all round, is he saying that when an energy company behaves in an appalling fashion they should be able, in all circumstances, to continue to supply energy to consumers and that there should not be the ultimate sanction of saying, “Your behaviour is so appalling that you no longer have the right to deliver gas and/or electricity in this country”?
Mr Davey
No, I am not saying that. If the hon. Gentleman waits for a second, I will put a lot of emphasis on tough regulation, but there needs to be a balance. There needs to be competition as well, because it can often work more quickly and more effectively, and it really hits the firms that are losing customers. Some of the big six have lost tens of thousands—in some cases, hundreds of thousands—of customers because we have enabled competition. I accept that things are not perfect yet, which is why we are working so hard.
Huw Irranca-Davies
The right hon. Gentleman is making a good point in that competition can drive improvement in a number of areas. But badly regulated competition leading to market failure is an issue not just with the big six but with potential new entrants, which could be doing well at the moment but they could fail or overstretch themselves. May I suggest to him that there is a straightforward analogy that any football or rugby supporter will understand? As rules are imposed on that game, players know that if they do something stupid, they will end up in the sin bin for 10 minutes on a rugby pitch. If they do it again, they will be off the field. If they do a spear tackle, they will be red-carded and could be banned for months. If they assault somebody on the field, they could end up in jail. We are not saying that these things should not be used. Companies will want to avoid them being used. The fact that they are there drives good behaviour.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I am sure that the hon. Gentleman intended to be brief.
Mr Davey
When a Welsh MP gives a rugby analogy, one should be careful. However, I will address that point, because I have a lot of sympathy with what the hon. Gentleman is saying. I am grateful that he at least recognises that competition has a role to play. Technology also has a key role to play. The smart meter roll-out, for example, will be crucial in tackling some of the issues that consumers complain most about, especially inaccurate bills. Smart metering will help us to address even more problems faced by prepayment meter customers and it will enable 24-hour switching. So technology and competition are important in addressing these matters, and we need to have them on the table.
Despite those differences, there is no disagreement between parties over the importance of the regulation tool. Strong regulation has a vital role to play in protecting consumers. The previous Labour Government recognised that, and set up Ofgem. Indeed the Leader of the Opposition, when he was doing my job, reformed Ofgem to give it more powers to protect the consumer. He chose not to give it the power that the right hon. Lady wants, but we will leave that aside for the moment. This Government recognise the role regulation has to play for customers, which is why we have strengthened it. We have ensured that when an energy firm is fined and punished, the money does not just go to the Treasury. Customers who have been wronged are now properly compensated; we have put money in their pockets. We are even introducing criminal sanctions into the regulatory armoury. In the future, if an individual is found guilty of manipulating the energy market, they could go to prison.
Caroline Flint
Will the Secretary of State admit that even when fines are imposed, the money does not always go back to the victims? In some cases, it has gone to other groups of customers. Will he now correct himself and say that it does not always go to the victims of the problem under investigation?
Mr Davey
Before the implementation of the powers in the Energy Act 2013, some redress schemes were on a voluntary basis and the money did not always go to the individual customers who were wronged. The real intention of the new powers is that money will go to the customers. There will be proper consumer redress. That did not happen before. Under us, it is now happening. I repeat what I was saying before the right hon. Lady intervened. This Government are passing rules that stipulate that people who manipulate energy markets could go to prison. No one can accuse this Government of being unwilling to use the regulatory tool in the toughest way possible on behalf of consumers.
The right hon. Lady’s motion is focused not on regulation in general, where there is agreement, but on one new regulation. No, that is not quite true. I apologise, Madam Deputy Speaker. Her motion states quite clearly that it is focused on reforming an existing regulation—changing an existing power. Currently, Ofgem can remove a company’s licence. In other words, the regulator can now shut down a company. The regulator already has the power effectively to say to a company—its employees, customers, suppliers and shareholders—“What you have done is so bad that you can no longer trade.” It is a tough power, and rightly so. It is what we might call the “nuclear” option, because the consequences are severe for the customer as well as for the company.
Let us imagine that the nuclear option is taken by the regulator. It does not matter whether we use the current carefully designed system, which I will describe later, or the more arbitrary system being proposed by the right hon. Lady. The time spent preparing to use this nuclear option will be critical. Under the current situation, because of the ratcheting up, contingency arrangements could be put in place. If things are done more quickly and directly, as the right hon. Lady wants, there could be chaos. It would be bad for the staff, as there would be a significant loss of jobs. It would be bad for consumers, as they would have to be switched to another company or companies very quickly. That is not easy, not even in 30 days, without real difficulties and challenges. If it were a large firm that was being closed down, it is likely that only other large firms would be able to absorb that number of customers quickly. The result is that Labour's big six would become Labour's big five—genius!
Caroline Flint
Does the Secretary of State agree that the grounds on which Ofgem may revoke a licence do not contain any mention of consumers, or even the word “consumer”, or tackle the issue of repeated offences of harmful, abusive behaviour in customer practice?
Caroline Flint
Does the Secretary of State remember that I said that of course Ofgem can revoke a licence if there is a failure to pay a fine? The problem is that, once the fine is paid, there is nothing in the revocation terms to enable Ofgem to find against the company if there are repeated offences. That is the clarity that we need in law—not to wipe the slate clean.
Mr Davey
The right hon. Lady should allow me to explain the current system, because I think she will find that a failure to comply with a final order can result, in extreme circumstances, in revocation. It is the process leading up to the issuing of the final order that she does not seem to understand, so let me deal with it.
Under the right hon. Lady’s proposals, the nuclear option has considerable—potentially large—negative consequences for competition. Just think how the customers would feel. Would the confusion and hassle of a forced move make them feel any better? Other companies would need to take on those customers, and that means changing tariffs, with consumers possibly paying more. All those issues would need to be worked through at a chaotic moment. It is quite right that the current rules limit the circumstances in which the nuclear option can be used, and the process that Ofgem would effectively have to go through before it can be invoked. Indeed, Parliament, under the previous Government, set the bar for the nuclear option quite high. The list of circumstances in which the power can be used includes a variety of things, from the failure of a company to comply with a final order from the regulator, to a company’s making false statements when applying for a licence, to a firm’s not paying a financial penalty.
The right hon. Lady is proposing to lower the bar for the nuclear option. Labour now wants to amend the existing power, so that the regulator can close down a company for—I quote from the motion—
“repeated instances of the most serious and deliberate breaches of their licence conditions”.
How does that differ from the existing situation? Well, at the moment Ofgem cannot explicitly close down a firm for persistent behaviour; that is true. It cannot go quickly or directly to the nuclear option, as the right hon. Lady wants. Ofgem would instead have to ratchet up its sanctions: first, higher fines, and regulatory orders requiring specific improvements in performance by specific dates—ever-tougher, and increasingly damaging for the firm.
Ian Lavery (Wansbeck) (Lab)
Is it not financially attractive to these energy companies to rip the customers off, as they have been, and take the rap on the fingers from Ofgem, pay the fines that Ofgem imposes on them, wipe the slate clean and start all over again?
Mr Davey
That may have been the case in the past, but increasingly it is not because the companies are losing customers, the fines are getting heavier and Ofgem is getting tougher. I wish it had been tougher in the past. Just look at the fines that have been levied and can be levied. We have seen fines of £3 million, £4 million, £10 million, £15 million. Indeed, under the coalition we have seen Ofgem fine more companies than ever before, and by higher amounts. In the nine years after Ofgem was established, it took enforcement action in just 10 cases. Since 2010, in four years, we have seen 27 cases, with fines totalling nearly £51 million. Moreover, because the current Government wanted to ensure that it was not just the Treasury that benefited from enforcement action against energy firms that misbehaved, there is now money for consumer redress as well—since 2010, nearly £60 million has already been paid out directly to consumers, the people who have suffered. Nothing like that happened under Labour. So under us, as the fines on a persistently poorly performing firm went up and up, so could consumer redress; so could the consumer compensation.
What is the maximum that could be levied? Well, if a firm continually failed to comply, the fines and redress could be increased up to 10% of a firm’s turnover, as the right hon. Lady said. For a huge energy company such as British Gas, that could equate to a whopping £1 billion —not a figure that any company, however large, can take lightly. That is what the law currently allows for, and these fines are being used, under this Government, far more than they were under the softies opposite.
Caroline Flint
Does the Secretary of State agree that if Ofgem investigates a company and the company pays the fine, and later the company breaches again the rules relating to fairness to customers in the way that I have outlined, what Ofgem cannot do is revoke the licence? It has to do another investigation, which may result in a fine, but what it cannot do is take into account past history on these issues and revoke the licence where there is persistent abusive behaviour to the customers. Does he support the recommendation that we are making or not?
Mr Davey
When Ofgem has another breach put to it, it has to look at that breach; it has to look at what has happened in that breach. It does not, as I am about to say, only have the fine/penalty option; it may issue improvement orders, as we are seeing. Let me come to the process, because I think the right hon. Lady’s policy will not stand up, and she will see that we have lots of powers to help consumers.
Mr Davey
I am going to make some progress.
In fact, the current law allows the regulator to do more than just fine a company. Let us take an example. Ofgem can issue provisional orders that require a range of things, including banning a company from taking on new customers and setting specific behaviour that it must meet so that it is no longer in breach of licence conditions, including the standards of conduct. A final order can be issued when Ofgem believes that the same licence contravention is likely to continue, and in doing so Ofgem can look at the pattern of behaviour of previous breaches. Breaching a final order could then trigger a licence revocation, even if that remains an extreme circumstance. The powers that the right hon. Lady is talking about already exist in the form that I have described, where orders happen and improvement orders are required and they are not complied with.
This looks like a regime that is working today and it was not working under Labour. If the Opposition are proposing to lower the bar for a nuclear option, it is incumbent on them to explain exactly when that would be used, because consumers and businesses need to know exactly where the line is drawn. Perhaps the right hon. Lady wants to clarify her position now; she failed to do so, despite being intervened on by myself and my hon. Friend the Member for Warrington South (David Mowat).
Let me give the right hon. Lady an example. Would she have expected Ofgem to have closed npower down by now? More complaints have been made about npower than any other energy company. It is under investigation. Does she think her new power should have been used to revoke npower’s licence? A simple yes or no would suffice, if she is willing to give us an example. She is not, and the House will have noted that.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. The right hon. Gentleman is not giving way.
Mr Davey
The right hon. Lady really must tell the House, would she have pressed the nuclear button yet? Is there one example of energy company bad behaviour that she thinks would have merited her policy?
Ofgem could close an energy company down, but it would have to give that firm the chance to improve. If a company ignored improvement orders, Ofgem could then issue a final order, and if that was ignored, it could then close the company down under current law. But the right hon. Lady seems to want the regulator to be able to intervene before an improvement process has been gone through—before a final order.
Mr Davey
Well, if the right hon. Lady does not want that—if she is still expecting a process of orders and final orders—the House should be clear: she is proposing absolutely nothing new of substance. This whole debate is a fabrication. But if she does want Ofgem to be able to close a company down earlier—if she does not want Ofgem to go through an improvement process with a firm that has behaved badly, as now—she really has to tell us how her proposal will work, and how it will be different in substance to the current system, and she has failed to do so.
I do not question the right hon. Lady’s motives or commitment in initiating this debate; I agree that there is a problem, and we both want the same thing. We want a consumer-focused market in which bills are kept as low as possible and the energy companies provide a high-quality service. The question before us is, what is the right way to achieve that? The Government favour a balanced approach of competition, technology and regulation, giving people the choice to move to new suppliers with better service and better deals. Under this Government, the new independent suppliers that we have encouraged regularly top the best-buy tables and the tables for best customer service. People are voting with their feet thanks to our increasing competition and punishing bad service. The new independents are growing rapidly, with more than 2 million customers, and the big six are losing market share every day.
We can improve services for customers with technology, bringing the digital revolution to the energy market so that information is more accurate and easier to understand. Smart meters could do for energy what the smartphone has done for mobile communications. Regulation is vital, and we are making sure that we have an active and engaged regulator with the right balance of powers to effect change. There is a basket of powers that we have strengthened, such as criminal sanctions where appropriate, powers to fine companies and compensate customers directly, and the ability to work with companies with poor customer service and help them to improve. As a very last resort, with the bar set high, we have the power to revoke a licence where there has been a serious breach of conduct. That is the picture under this Government.
David T. C. Davies (Monmouth) (Con)
Will the right hon. Gentleman give way?
David T. C. Davies
I appreciate that, and the right hon. Gentleman is making some very good points, but I have to pick him up on one thing. If smart meters are such a good idea, can he explain why the Government are having to sell them to the public using Bob Geldof and two cartoon characters? If smart meters are as good as smartphones, why are the public not willing to go out and buy them?
Mr Davey
Obviously, I am grateful to my hon. Friend for his helpful comments. Smart meters have been well tested, and there is a lot of enthusiasm for them. One million have been rolled out, and consumers have embraced them. I was asked to quote Sir Bob Geldof at the launch of Smart Energy GB, but I do not think I will. I promised to give way to other hon. Members.
Huw Irranca-Davies
The right hon. Gentleman has been very courteous in giving way. I suggest to him that he does not close his mind entirely to our proposal because what he has described in some detail is, in effect, a series of yellow cards, following which there is no red card—there is nothing more serious. It is like saying to a player each time, “You have committed a misdemeanour, and now we will wipe the record clean.” The result of that would be appalling behaviour, and that is what we are seeing in some parts of the energy sector. I ask the right hon. Gentleman to keep an open mind because we want an escalation that is clear to energy companies, to consumers and to the investor community.
Mr Davey
I am grateful to the hon. Gentleman for his measured comments. The process in the law that I have described does end in a red card, and I hope that when he and the right hon. Member for Don Valley look at it in more detail, they will see that it can result in a red card. I said that I would give way to the hon. Member for Bolton South East (Yasmin Qureshi).
Yasmin Qureshi
I thank my hon. Friend for that. There seems to be a difference of opinion. We say that the grounds on which a licence can be revoked are very limited and technical. If I understand the Secretary of State correctly, he is saying that there are much wider grounds for revocation. Perhaps the way to resolve the dispute would be to take advice from expert legal counsel as to whether, legally speaking, our position or that of the Government is correct, because that way—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I appreciate that the hon. Lady waited a long time to make an intervention, but it is not a speech.
Mr Davey
I reassure the hon. Lady that we have legal advisers in the Department, as does Ofgem.
Looked at together, the Labour party’s proposals—not just the one before the House today—are clearly designed to upset the current balance between competition and regulation. Labour seems to want to rely on more heavy-handed regulation and even price controls to try to micro-manage energy costs and customer service standards from the desk of the Energy Secretary in Whitehall. We know what the consequences of that approach are because we have seen them before: distorted markets, reduced competition, poorer service and lower investment.
Let me gently remind the right hon. Member for Don Valley of her party’s record in government and, indeed, in opposition. The Labour Government set up Ofgem and decided what powers it would have, and when they realised they had got it wrong they reformed Ofgem. In opposition Labour decided it would scrap Ofgem. Now it seems to have U-turned and is looking at Ofgem’s powers instead. First, Labour proposed making Ofgem force companies to track wholesale prices in their retail prices, something which would destroy forward markets and force energy companies to purchase energy in the short-term markets. That is bad news for their customers, as I demonstrated the last time we debated energy policy. It is a recipe for chaos and yo-yo bills, with prices as volatile as the wholesale markets themselves, and on average higher than now.
Now the right hon. Lady proposes to lower the bar on the most extreme sanction the regulator has—revoking a licence, putting companies out of business, reducing competition and causing chaos for their customers. One has to think very carefully before changing the existing power to revoke a licence.
Caroline Flint
A final order could include a company being told to change the telephone script that it uses in its sales work, and it could comply with that order. Does the Secretary of State accept, however, that if the same company slightly breaks the rules again or undermines its service to its customers in a different way, the present guidance to Ofgem does not enable it to show that company the red card and deal with repetitive abusive behaviour that is slightly different from investigations that have led to sanctions in the past? Does he accept that that is a loophole in the current system?
Mr Davey
No, I do not because if a situation gets to the point of a final order, the regulator will look at other behaviours, but it will judge that particular breach. The right hon. Lady gives one example, but we could give many more. For example, we have heard from npower and Ofgem today that npower has made the improvements that were required of it. Presumably, if it had not done so, there would have been another improvement order and, potentially, a final order. Of course, it does not automatically follow that after a final order we go to revocation of a licence, but it is a process that could result in revocation after the matter has been properly investigated. I am glad that I have had a chance to explain that to her.
So far today the right hon. Lady has not been able to come up with one circumstance in which her proposal would be used. She has not given us one example of a case in which Ofgem has fined a company and she thinks that, under her power, Ofgem should have closed it down. She has simply failed to make the case for reforming the existing power. She has failed to make the case for lowering the bar. I have shown that this power exists but it is a nuclear option, and rightly so because the consequences of its use are so severe.
I say to the House that we have the right balance. We are making progress and have achieved more competition, tougher regulation, more choice and higher fines. People are able to punish firms themselves, without having to wait for the Government to do something. But when the regulator does punish a firm, under this Government, there is real financial redress. I thank the right hon. Lady for giving me this chance to show that not only do we take this issue seriously, but we have acted. I say to her and the House that the nuclear option of revoking a licence should remain, but it should remain one of last resort because that is in the consumer interest.
Dr Alan Whitehead (Southampton, Test) (Lab)
The first thing that would be of interest to the House in this debate this afternoon would be to find out what the Secretary of State really thinks about this matter. I was at an interesting meeting yesterday when I was privileged to hear the Secretary of State speak. First, he effectively apologised for being a Minister in the coalition—[Interruption.] I was there; I was listening to it. To put the record entirely straight, what he said was not exactly couched in terms of an apology, rather, “Here are the limitations under which I work as Secretary of State when we are addressing the issues that are coming forward from questions.” Then the Secretary of State said, “Well, of course, I want to cut loose from this; I want to tell you what I would really do were I really a Liberal Democrat.” The Secretary of State then had some interesting things to say, a number of which I agreed with, and I would be interested to hear more about the Liberal Democrat policy on these matters.
Even in the context of what was said at that meeting yesterday, I cannot really believe that one half of the Secretary of State’s hat is entirely comfortable with the other side of his hat as he speaks this afternoon. He probably really agrees with what is being put forward this afternoon, and the circumstantial evidence for that is to be found in the meandering circumlocutions that we heard from him today as to why the present system of regulation is pretty dead good and really can do the things that the Opposition are suggesting that it ought to do in any event, even though the Secretary of State accepts that in fact there is not a power in reality to revoke the licence of a supply company or electricity distribution company, on the basis, effectively, of cumulative offences.
Huw Irranca-Davies
In fairness to the Secretary of State, does my hon. Friend suspect that one of the limitations to which he refers might be the bizarre rule on regulation that is now imposed across Whitehall? It was one in, one out, but now I understand it is one in, two out. So even if there is good, proportionate, sensible regulation, it is damn hard to get it on the statute book.
Dr Whitehead
My hon. Friend makes an interesting point. Given where the regulations stand now, it is quite possible that the introduction of the regulation that my right hon. Friend the Member for Don Valley (Caroline Flint) suggests, would lead to several other regulations being removed, so therefore would meet the golden rule of one in, two out. It is something that I can recommend right now to those on the Government Front Bench as a way of earning additional deregulation brownie points.
I mentioned the Secretary of State’s circumlocutions and made considerable play of the fact that, because the regulator can undertake a final order, that is the nuclear option. The Secretary of State will be aware—he has received legal advice to this effect, although I do wonder whether the legal advisers did this during their lunch hour to assist him—that clause 25(1) of the Electricity Act 1989, from which the final order derives, before Ofgem was introduced but the powers were incorporated into its powers, states that
“where the Director is satisfied that a licence holder is contravening, or is likely to contravene, any relevant condition or requirement, he shall by a final order make such provision as is requisite for the purpose of securing compliance with that condition or requirement.”
According to that piece of legislation, one is required to find out what any relevant condition or requirement is. In order to do that, it is necessary to refer to schedule 2 with the imposing title “Revocation”. We may want to look there to find out how nuclear that final order is. The final order not only has to relate to the relevant conditions or requirements, it has to stick to the relevant conditions or requirements. That is what it says in the legislation.
As the Secretary of State has said, there are a number of circumstances under which the licence can be revoked. Where someone has not paid their fine and it remains unpaid, a final order can be issued. If a final order is issued and the licensee fails to comply with that final order, which is something of a tautology, that licence can be revoked. But in order not to comply with the final order the licensee has not to comply with something within the revocation schedule in the first instance. If the licensee refuses to pay the financial penalty, that triggers a final order. Various orders were made under the Competition Act 1998 relating to unfair competition. If the licensee does not supply any electricity within a year or has stopped supplying electricity to a property, a final order can be levied against it. If the licensee is unable to pay its debts according to the Insolvency Act 1986 or has an administration order, or a receiver has been appointed, the licensee may have a final order levied against it. Obviously, if it is insolvent and has ceased trading, it is hardly likely to comply with the final order so its licence would be revoked.
The revocation schedule, upon which the Secretary of State’s magnificent argument about the final order rests, simply states, as has already been rehearsed, that various things could lead to revocation if they are not put right. That seems to be the central point that is being addressed this afternoon. These are all things that might be levied against a company and could be put right, and if they are not put right a nuclear option of revocation can be undertaken. But if those things are put right, case by case by case, section by section by section, that final order cannot be used. So the entire basis of the Secretary of State’s argument, that that really exists to enable Ofgem to revoke a licence for the sort of cumulative issues that we have been discussing this afternoon, simply falls down. We must accept that there simply is no such power in reality, by implication, in legislation or by regulation.
That makes the case fairly simple. Yes, it is true that with regard to competition, the problem of losing a number of customers may cause an energy company to think again about certain of its actions. The possibility of losing all of one’s customers might make one think rather more seriously about the problems being faced and how to deal with them, in addition to the fact that some customers may be lost through competition.
There we have it, in terms of the difference between the present position and a significant change in what Ofgem would be required to do under the proposals set out this afternoon. They require Ofgem to take account of cumulative bad behaviour—of a company getting away with it, not putting right things required under legislation, and living to fight another day and do it again.
David Mowat
I am listening carefully to the hon. Gentleman and I think he is right about this being an additional power. The question that therefore arises is: what problem are we trying to solve with the additional power? In the 20 or 30 years since privatisation, when companies have apparently been running amok, in which instances would he have liked the power to be deployed? In particular, would it be appropriate for npower no longer to have a licence?
Dr Whitehead
The existence of a power in legislation, and of a regulation attached to it, provides a framework that companies subject to it must address. It is academic for the hon. Gentleman to ask whether a company would have had its licence removed when it was not subject to the conditions and when the framework did not exist—it is just a debating point and not a real challenge at all.
David Mowat
There is a logical error in what the hon. Gentleman says. In the absence of the power, when all the energy companies have apparently been running amok, surely we would have expected them to exhibit the egregious behaviour that would cause the power to be used. Can he give me an example of that?
Dr Whitehead
The hon. Gentleman will understand that saying “enough is enough” when there is not enough in the first place is a logical impossibility. The power provided under the proposal would enable Ofgem to say “enough is enough”. I cannot look into a crystal ball to say what enough might consist of, but a power to deal with repeated abuses of licence arrangements and repeated failures to learn from transgressions that had been put right but had not led to a sanction being levied would in the long term have more effect on energy companies’ operations.
David Mowat
Let us be clear: these are repeated abuses—which, as the hon. Gentleman rightly says, the power takes into account—of a type that we have not seen in the past 30 years. Otherwise, he would be able to give examples of when the power should have been deployed.
Dr Whitehead
The hon. Gentleman misses my central point—that it is difficult to say there has been cumulative abuse of a licence when the licence contains no means of judging that. Without such means, it is difficult to make those judgments. Members across the Chamber will agree that if a company that flagrantly and repeatedly abused its licence conditions faced the ultimate sanction of having its licence removed, it would think long and hard before sailing too close to that circumstance.
I questioned whether the Secretary of State’s heart is in the debate. I do not know whether his brief for the debate was one of specificity or one of principle. Did it say, “In the circumstances where it appears we might have the power, you can walk around the issue by talking about a final notice”, or, “Under no circumstances should the regulatory system for utilities or associated bodies enable the removal of licences, so defend the fact that the licence cannot be removed under existing regulations”?
I wish to draw attention to another note on compliance and ultimate sanctions, which states that
“licence holders must also, at all times, satisfy the four authorisation criteria. . . insurance, financial fitness, good repute and professional competence. If we have serious doubts about whether you comply with any of these criteria, we may make further enquiries.”
It concludes:
“If you do not comply with your licensing obligations we will consider enforcement action. This may ultimately result in the suspension or revocation of your authorisation.”
That guidance is issued not by Ofgem but by the Office of the Rail Regulator, so there is a regulatory arrangement—presumably agreed and authorised by the Government—that enables the ultimate sanction of a licence being revoked. Did the Secretary of State defend the lack of such an ultimate sanction on the grounds that it is a bad thing? If so, such a sanction already exists. However badly the railways are regulated, at least regulations are in place that allow for that ultimate sanction.
Graham Stringer
My hon. Friend is, as ever, making a profound speech, enabling the House to benefit from his considerable knowledge. Does he believe that the people of Warrington South, Southampton, Test and Manchester would dance in the streets at the prospect of Centrica, British Gas or npower being threatened with the removal of their licences because of their appalling behaviour over the past 20 years or so?
Dr Whitehead
My hon. Friend is absolutely right. Were I to knock on doors in Southampton, Test and refer people to the rail regulator’s compliance arrangements and relate them to Ofgem and ultimate sanctions I might get a fairly dusty response. If I were to say to them, “Energy companies appear to have been ripping you off over many years in many different ways and the huge fines levied on them don’t appear to have made any great difference, whereas now it is being proposed that they may simply be told to leave by the back door with their possessions and not supply you with energy any more”, then they would indeed be dancing in the streets. I can only say in my defence that I am not a dancing in the streets kind of politician, but others might wish to do that on my behalf.
We are aware that regulatory arrangements exist for other industries and that they should therefore exist for this industry. That is the nub of the issue, and I hope that Members will support that simple, central point on the regulation of electricity and gas in the future.
David T. C. Davies (Monmouth) (Con)
I begin with an apology to the House because, as I mentioned to Madam Deputy Speaker earlier, I am meeting a representative of the National Association of Probation Officers trade union in a few minutes. I am sure that Labour Members would not wish that meeting not to take place. It will shorten my speech considerably, but I hope that Members will forgive me because it was arranged before I knew about the change in timings.
Let me make another apology for being one of the Members of Parliament who voted for the Climate Change Act 2008, which underpins some of the issues alluded to by Members in all parts of the House. As the Secretary of State said in his closing remarks, what we want now is cheap energy prices for people. Of course, we have to take the energy companies to task over bad behaviour. There has apparently been some confusion as to whether Ofgem does or does not ultimately have the power to remove their licences. He says that it can. He challenged, unsuccessfully, the right hon. Member for Don Valley (Caroline Flint) to say under what circumstances she thought that it should have further powers. She did not wish to reply, so I am inclined to agree with him on this occasion. It does have the power, in the most extreme circumstances, to remove licences, and it is absolutely right that it should. It is not a power, though, that should be used lightly.
The real concern is that energy prices are too high. The reason is that all of us—or most of us—voted for the Climate Change Act, which has forced the Government to bring in all sorts of green taxes and subsidies that have pushed prices up. The Government now have a policy of rolling back some of the green taxes which Labour Members enthusiastically supported and which have pushed up prices. There is no getting away from that. Labour Members will not be able to do anything about the wholesale price of fossil fuels or of any other energy source, but they could do something about taxes. Any sustainable cut in prices to the consumer and to businesses will have to be underpinned by cutting back on green taxes.
I welcome the fact that the Leader of the Opposition and the shadow climate change Minister are trumpeting these issues. That is absolutely fantastic. It plays straight into the hands of people such as me—climate change sceptics—that Labour Members are making a huge issue out of energy prices. They are no longer worried about trying to outbid the Government on who has the greenest policies but trying to show who is going to deliver the cheapest energy prices. I say, “Great”, because I know that whoever is in government at the next election will be able to do that only by cutting back on green taxes.
Graham Stringer
I did not vote for the Climate Change Act, knowingly. Whatever one’s position on green levies, it is a bit rich for the hon. Gentleman to support a Government who have fixed energy prices for the next decades when nobody can predict the price of energy. That guarantees that people will pay higher prices or greater subsidies because of the strike price. The latest predictions of Aurora, a well-known consulting company, suggest that prices are likely to be half what the Government say, and that will mean larger subsidies. Does he still support the Government on those policies?
David T. C. Davies
No, I do not. I have a great deal of respect for what the hon. Gentleman says. I do not support the Government at all on this particular policy. I think it was a huge mistake—
David T. C. Davies
Yes, please do take note. People should not think I am saying anything now that I have not said before. Indeed, I more or less said it a few months ago at a meeting with the Global Warming Policy Foundation at which the hon. Member for Blackley and Broughton (Graham Stringer) was present. I am absolutely not going to hide my views on this.
Most Members are completely wrong on energy policy because they have all bought into the idea that we are going to suffer runaway global warming, and the reality is that that is not happening. We are being told to look at the evidence. The evidence is clear: there has been no increase in temperature since 1997. We are told that in the 1800s we started putting carbon dioxide into the atmosphere, which is of course true, that carbon dioxide is a global warming gas, which is true, and that therefore CO2 has been responsible for the very small increase in temperature that has taken place since then. However, if one looks at the evidence, one can see that there has not been a straightforward rise in temperatures; they fell between 1940 and 1970. That proves that something else was affecting them. As we started to industrialise, we were coming out of a particularly cool period that climatologists call the little ice age, so there had to be some increase in warming anyway.
Since 1997, as I said, there has not been any increase in temperature. That proves beyond all doubt that something other than carbon dioxide is affecting the climate, and nobody can say what that is. Nobody has been able to tell me what it is, and I have had meetings with people at the Met Office and all sorts of other people. It is therefore foolish of us to levy on our industries all sorts of taxes and subsidies that are affecting manufacturing and pushing up prices for home owners, and then to try to put all the blame on to the big six energy companies, as we are doing now, using them as a kind of whipping boy for the sins of those of us who have bought into the big green theories.
Julie Hilling (Bolton West) (Lab)
Does the hon. Gentleman agree that it is equally foolish to say, “It doesn’t matter then. We’re not quite sure why the climate is changing, so we’ll carry on pumping out CO2 and pollutants into the atmosphere without any concern about what we’re doing to the world, because maybe, just maybe, it’s not having an effect”? Maybe it is having an effect? Is it not equally foolish to do nothing?
David T. C. Davies
Maybe it is and maybe it is not. Maybe, as the Prime Minister has suggested, we should be looking at dealing with antibiotics and the rise in diseases that are resistant to them. Maybe we should be doing something about a comet strike, which may or may not happen. Maybe we should be worried about a complete economic collapse—which, incidentally, is made far more likely by the policies of spending money that we do not have that are propagated by Labour Members. That is far more likely to keep me awake at night. Of course, we should also be very concerned about terrorism.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
On the first point, I remind the hon. Gentleman that this Government have doubled the national debt. On the second point, in relation to industry, although the level of energy prices is a major issue, it is actually Government policy that has put energy-intensive industries in a bit of hole. The carbon floor pricing scheme that this Government unilaterally introduced has a compensation programme that does not come in until 2016. An even bigger issue is the explosion in non-EU imports into the UK market in the past year.
David T. C. Davies
The hon. Gentleman is certainly right about the strike price, but may I remind him that his party has supported all sorts of environmental measures? It is no good attacking me for something that I do not actually agree with. I am quite up-front about this. I think that most of us have made a big mistake in bringing in taxes that have affected home owners and businesses, particularly large-scale manufacturing companies—cement manufacturers, steel manufacturers, and others.
David T. C. Davies
Broadly speaking, I am agreeing with the hon. Gentleman, so I do not know why he is trying to pick a fight with me over this. The point is that we should not be doing these things because we do not have a problem. There has been no increase in temperatures since 1997, so our whole discussion is based on a false premise.
Tom Blenkinsop
The point of having a carbon price across the EU market is to ensure that countries do not isolate themselves or make themselves less competitive in the EU. We had the EU emissions trading scheme and then added our own tax, which other EU nations did not do. That happened under this Government and was one of the first measures that the Chancellor set out.
David T. C. Davies
I am not going to defend that. I think there is—shall we say?—a change in mindset going on at the moment. It is obviously happening in the hon. Gentleman’s party as well, and that is why we are having this debate. Front Benchers on both sides of the House seem to agree that we should be making energy as cheap as possible. Everyone is absolutely right about that. However, we are not going to do that by attacking the big six energy companies. The only way we will be able to bring about a sustained decrease in energy prices is by reducing the taxes and other regulations that the hon. Gentleman mentioned.
Graham Stringer
Does the hon. Gentleman agree that the most significant point about green taxes, whether my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) is right or wrong, is that they are not working? This country and the European Union are now responsible for more carbon dioxide going into the atmosphere than they were before. Emissions have gone down, but because of imports we are importing embodied carbon dioxide. These policies therefore have a perverse effect, whether or not one agrees with the global warming theories.
David T. C. Davies
That is absolutely right. I do not wish to stray too far from the debate, but it is interesting what has happened in Germany, where people decided to get rid of nuclear power stations in order to follow a more environmental policy and ended up burning large quantities of lignite, which has increased their carbon dioxide emissions. That proves that these green policies do not even end up having the consequences that those calling for them want.
It is also very interesting that the people who are shouting loudest for such policies are the quickest to distance themselves from the consequences. With all due respect to Members on both Front Benches, who are pandering to Friends of the Earth and Greenpeace, the reality is that Friends of the Earth are very quick to attack the Government—they will attack the Opposition as well—for anything that increases energy prices to consumers: they ran a campaign against increased energy prices. The Secretary of State is trying to placate these people, but they are never, ever going to support him, whatever he does, so there is no point in even trying, in my opinion.
The Secretary of State mentioned smart meters earlier, but the energy companies have said they may not work. The Government are spending a vast amount of money trying to persuade every home owner in the country to accept smart meters. I am always very suspicious when Governments start trying to persuade me to do anything, particularly if it involves Bob Geldof, a quango and two cartoon characters. The Government have said that smart meters will cost £11 billion. I assume that those costs are relatively easy to predict, because they involve the cost of the meters. Incidentally, I am sure that somebody has done very well out of that. I saw in, I think, The Times yesterday that one of the smart meter companies had posted huge profits. I would be interested to know who bought shares in such companies before the EU introduced the regulation that brought all of this about, but I digress slightly.
The Government have said it will cost £11 billion to introduce smart meters by 2020—I assume that that estimate is reasonably accurate—and that the benefits will be about £17 billion. I have managed to get hold of the National Audit Office report, and lo, it is not quite as straightforward as it seems, because the benefits will not be seen until 2030, so we are putting in £11 billion for a possible £17 billion at least a decade later.
When one looks at how the benefits break down, one sees that 48% of the benefits are due to cheaper costs for the energy companies, which I suppose is fairly accurate: there will be fewer visits—and fewer jobs probably, but there we are—and a cut in bureaucracy. That accounts for about half the cost, but that is still only about £8 billion-worth of benefits. The rest all seem nebulous: 33% of the benefit will be due to people using less energy because it will cost more. In fact, therefore, it is being counted as a benefit that people will use less gas and electricity partly because the price of the smart meter will have been added to their bills. A further 8% of the benefits will be due to the fact that somebody somewhere along the line will pay lower carbon taxes on energy that will not have been used. If that is a benefit, the solution is very simple, isn’t it? Don’t bother with Bob, Leccy, Gaz and the quango—just cut the taxes in the first place and leave it all out.
I find this very difficult to accept. It is not simply due to the European Union coming up with a grand plan. I am worried that one of the so-called advantages of smart meters is that they will allow the big six energy companies to turn off people’s gas and electric remotely. Of course, there may be a good reason for doing so if they have not paid their bills, but it may also be convenient for the companies to do it if they decide that they do not have enough electricity at a particular moment to feed the grid and therefore cut off people they think are using too much gas or electricity.
Caroline Flint
The hon. Gentleman is making a very interesting speech. If an energy company is found guilty of persistent and repeated offences against the consumer interest—for example, mis-selling, predatory pricing or giving the wrong advice—and has had fines and possibly a final order but still carries on in a slightly different way, does he think that the ultimate sanction should be for it to lose its licence as a supplier?
David T. C. Davies
According to the Secretary of State, that is the ultimate sanction.
David T. C. Davies
That is what the Secretary of State said. Who am I to question him on that particular issue?
Caroline Flint
The hon. Gentleman’s response is helpful, because it shows that he does believe there should be an ultimate sanction. If we can prove that it is not available, does he agree that there should be a change to the revocation regime under which Ofgem works, to make sure that it is made available?
David T. C. Davies
The right hon. Lady was asked twice by the Secretary of State whether she agreed that that ultimate sanction exists but cannot be used lightly, but she did not respond. I am left wondering why she is suddenly picking on me. I am not the Energy and Climate Change Secretary. I wish I were—we would have some very different polices if that came about, I can tell you. I see that the Whip sitting in front of me is writing loads of notes as I speak. I hope he will feed back the suggestion that I am open to offers as far as the climate change role is concerned. In the meantime, I suggest that the right hon. Lady deals directly with the Secretary of State.
To return briefly to smart meters, according to the NAO report the net benefits may not be as high as £17 billion anyway; they may be only £12 billion, which means that over a period of 10 to 15 years we will save ourselves £1 billion, most of which—or a lot of it—will come from the fact that people will not be able to afford their energy bills, partly because we will have installed smart meters everywhere.
I did not get a mobile phone until about 1997. I got one because other people had one and I thought, “That’s a good idea: I want one.” If smart meters are a good idea, my neighbours will get one, I will have a look at it and if everyone down the pub says it is a good idea I will get one. What I am suspicious about is the fact that vast amounts of money are being spent on telling me and every member of the public that we all have to have one by 2020.
It is not rising temperatures that are causing people angst at the moment; it is rising energy bills. There seems to be widespread recognition of that. I am only a Back Bencher and I am sure I will stay one for many years to come, if the Whips have their way. I have to say that we all, including me, got it wrong on climate change. I have looked at the evidence and the evidence is not there to support the policies we have all put in place. Although others might not be able to come out and say, “We got it wrong: the temperatures aren’t rising,” the fact that we are now talking about energy bills and increases in costs rather than increases in temperature suggests that we are heading slowly in the right direction with this particular argument, so I would welcome many more debates such as this one.
Nia Griffith (Llanelli) (Lab)
I rise to speak in this very important debate because people are telling me time and again just how worried they are about this coming winter. We were very lucky last year because it was a mild winter, but obviously that does not happen every year and people are really worried that, yet again, prices will go up this autumn by 8% or 9%.
Over the past four years, there have been horrific price rises in this country. Of the world’s major industrial countries, our electricity price rises of 23.5% are second only to Ireland’s. We are also in the top few for gas, with horrific rises of nearly 34%. That is coming out of the budgets of people who are not earning more, because wages have scarcely risen. This is a very serious issue for many households, and anything we can do to stop the energy companies ripping people off has to be welcome.
I would like to see a cross-party consensus whereby when a good idea is suggested by one side of the House, the other side can adopt it. There is no shame in doing so. Good ideas can push forward and strengthen legislation so that these companies, which have been getting away with things for far too long, can be brought to book.
The problem is that competition is not working effectively, because it is so very difficult to switch. I come from an area—south Wales—where it is particularly difficult to do so. The options are very limited and a significantly smaller number of people are switching. There are huge difficulties, not only in terms of accessing information, particularly for the large numbers of people, especially older customers who do not have access to the internet, but in terms of which tariffs are actually available and their confusing nature.
It says something when Which? magazine tells us that 75% of consumers are actually on the most expensive tariff. What does that say about how the energy companies are working? It tells us that they are working very well for their shareholders and for making profits, but it is the consumer who is missing out. That 75% of consumers are paying the highest tariffs does not seem in any way to be a fair deal for consumers.
We must tackle these absolutely greedy energy companies. Let us be honest about it. What happens when they are fined? They have apparently been fined on 31 occasions, with fines amounting to some £90 million, but who has paid that £90 million? It just comes back to the consumer. We do not notice that energy companies’ profits are going down; in fact, their excessive profits are announced in the press year on year.
Consumers are feeling extremely hard done by, particularly when they are trying very hard to cut down their energy consumption. It seems that the energy companies want to take the same amount of money off them year after year, even if they cut back their consumption, and that particularly affects low energy users.
Energy companies try all sorts of ways of imposing costs on people. For example, there is a move to a higher standing charge. That is the charge we have to pay, regardless of whether we use any energy, simply for our home to be supplied. Astonishingly, SSE does not give any discount for taking both gas and electricity from it, whereas some companies do.
My reading of the increase in the standing charge is that the energy companies fear our getting into government and imposing an energy price freeze. The increase is a way of trying to get out of having to lower prices, because the standing charge will remain. We need to be aware that whenever we try to regulate companies, they look for every loophole—every possible way of mis-selling, using misrepresentation, hiking prices and inventing charges—to try to circumvent the rules.
We need a really tough regulator with a really tough ultimate sanction. As my hon. Friend the Member for Ogmore (Huw Irranca-Davies) said, if we have only yellow cards and no red cards, with energy companies going back to a clean slate every time they behave badly, there is absolutely no motivation for them to stop doing so. All they will do is to try everything they can to bend the rules every time, because that is in the interests of their making profits. Doing so will not affect their shareholders, because any fines they are given are simply put back into hiked prices. It is therefore essential to have a way to strike off such companies, as would happen in any other profession that a company was continually bringing into disrepute.
Far too many things have happened, such as the whole issue of incorrect billing. Companies have taken lots of money from people through direct debits without advising them that because their consumption has gone down, they could pay less. We have seen energy companies raking it in and banking huge amounts of cash, but only when a very savvy consumer challenges them about their direct debit do they do anything about it. We have seen all sorts of inappropriate ways of billing—making it very difficult for people to read bills and to understand exactly what is being charged for—and of mis-selling. Disadvantaged groups, such as those on prepayment meters, have very often not been able to benefit.
It is quite extraordinary that we were told that £50 would be taken off the bill of every consumer, with costs falling on general taxation rather than a green levy on the energy companies, only for us to find out that the energy companies have absolutely got away with it. Four of them have not even attempted to pass the £50 to their fixed tariff consumers—in fact, they refused to do so—and the Government have never chased that up. Wonderful statements were made by the former Minister, the right hon. Member for Bexhill and Battle (Gregory Barker), and the Prime Minister about this not being acceptable, but nothing has actually been done about it.
Many people have not had the £50 back, but all of them who are taxpayers have contributed to general taxation, from which the shortfall is supposed to be made up. The energy companies are therefore laughing all the way to the bank. Unless we have the ultimate sanction of the power to revoke a licence—saying, “You can no longer have that customer base or business”—I suspect that energy companies will continue, as they have done over the past few years, to make the consumer pay in this, that or the other way.
The energy companies often tell us that they need to charge lots of money because they are investing in new ways of generating electricity. However, we have not seen them rushing to build power stations, so that is all a bit of a smokescreen. Another important reform we are proposing is the separation of supply businesses and generating businesses, which will make such matters much more transparent. It will make it much more difficult for companies supplying the consumer to pretend that they are somehow raking in vast profits in order to invest when such investments are not taking place.
That is why we want to give the regulator real teeth—the extra power to revoke licences. Then if companies break the rules, they will not just be able to pay the fines and carry on, but may be struck off and not allowed to supply consumers.
We need much greater transparency in the whole market so that people are much clearer about where their money is going. We are proposing that if we win the general election next year, we will freeze energy prices until January 2017 for both ordinary households and businesses. It will save households perhaps £120, and save businesses an average of perhaps £5,000. During the energy freeze, it will be very important to reform the energy market. We want to break up the energy companies to increase transparency and to separate supply businesses from generation businesses, with a company having separate licences for each task.
We will build a structure that allows the regulator to revoke licences for specific tasks. The obvious case, which is referred to in our motion, is the power to revoke an energy company’s licence to supply consumers if it repeatedly breaches the courtesies and standards we expect them to offer those consumers. We also require a much simpler tariff structure. That is another way of saying, “This is what we anticipate or expect consumers to be able to enjoy”, and if supply companies do not comply with a simple tariff structure, the regulator will have the power to revoke their licence.
It is extremely important to implement the series of measures that will protect the consumer. We have said it is important for the regulator to force companies to lower prices when wholesale costs fall. Time and again, people see something on television about wholesale costs falling, and they are very angry that their bill does not fall. They feel very strongly about it.
The Prime Minister said he would make sure that companies reduced prices when costs fell, but he has never done so. He said that in opposition, but once in government he never made it happen. It is pretty clear to us that we therefore need greater powers than those that exist. One way in which we can strengthen the regulator is by allowing it to revoke licences. If a company decided not to pass on any falls in wholesale prices that we were lucky enough to have, the regulator could then revoke its licence.
The other important area that we want a strong new regulator to deal with concerns off-grid issues, which are prevalent in rural areas, particularly where new estates have been built and a supplier has a monopoly over a group of houses. It is difficult to break out of such contracts. It is important that the regulator has the power not just to tackle off-grid issues, but to revoke the licences of off-grid suppliers.
We want to be absolutely certain that the regulator has every single tool in the toolbox that it needs to deal with the abuses that energy companies impose on consumers. Of course, that has to be managed properly. As my right hon. Friend the shadow Secretary of State said, there has to be a proper procedure. There would be an appeals procedure, a notice period and protection for consumers to make certain that everybody was transferred to an adequate supplier before a company ceased to supply their energy. Those things really do matter. There are models, to which other hon. Members have referred, such as those in the United States where such powers work.
This is an additional power that we think is very important. It is clear that without it, energy companies have got away with hiking prices, mis-selling, misrepresentation and ripping off the consumer. We want to see an end to that. We want the regulator to have a proper footing that enables it to say, in no uncertain terms, “I have the ultimate power. I can simply stop you trading. You are warned that any further breaches that damage the consumer in any way will not be acceptable.” That, we hope, would have the effect of bringing the companies to heel and getting a much better deal for consumers.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. Before we proceed, I should point out that, although there is plenty of time for this debate and a relatively small number of colleagues have indicated that they wish to speak, the speeches so far from the Front and Back Benchers have been so extraordinarily long that I have to ask Back Benchers to please keep their speeches to around 10 or 11 minutes. If they show that courtesy to other Members, everyone who wishes to speak will have a chance to do so.
David Mowat (Warrington South) (Con)
Thank you, Madam Deputy Speaker. Ten minutes should be fine.
The hon. Member for Blackley and Broughton (Graham Stringer) told me in an earlier intervention that the constituents of Warrington South are interested in energy companies being struck off. What they are interested in is lower energy prices and better customer service. They are not interested in posturing, which has made up much of what has been said today.
When I first read the motion this morning, I thought, “I wonder whether we will oppose this,” because, on the face of it, it is reasonable. I read it quite carefully. Even when I came into the debate, it was not clear to me what we were opposing. However, what the Opposition have failed to do in the motion is to articulate what the problem is that they are trying to solve that cannot be solved in other ways. Apparently, in the past 30 years—in which time, the power did not exist—there have been no instances of behaviour that would have required it to be used. It is fair to say that I am looking at the past and that we should legislate for the future. However, the shadow Secretary of State was twice asked to give examples of the sort of behaviour that would cause the power to be used, over and above the behaviour for which fines of 10% are allowed. Many of the arguments that I have heard today seem to be arguments for increasing the fines. If customer service is poor and behaviour is inadequate, that should happen. However, to take a company out of the market and to reduce choice and competition is the nuclear option, and we should be very clear about why we are using it. The least the industry could have expected the Opposition to do was to give an example of the sort of behaviour that would require this power. We have not heard that.
The analogy of yellow and red cards is an interesting one, but it is not right. Broadly, we understand what a yellow card offence or a red card offence is. There is a progression. If anything, the analogy gives power to the Secretary of State’s point that there is already such progression in the regulation of offences.
The example of Pennsylvania has been given and a couple of Members have talked about the United States. I would be interested to hear, in his response to the debate, whether the shadow Minister can say whether the Pennsylvanians have invoked these powers. I genuinely do not know the answer to that, but my guess is that they have not. The Opposition should understand that the market in Pennsylvania consists of one or two suppliers. In such a market, where the problem of losing customers does not exist to the same extent, it is appropriate for such powers to exist. It is certainly more appropriate than it would be in our market.
The Secretary of State is right to say that when energy companies perform badly, as they have done in many instances—I will not defend that and neither will any other Government Member—they must be held to account. They should be fined more and, if necessary, should pay fines of up to 10%. However, posturing and coming up with things that sound attractive on the doorstep but that do not work is not the way to deal with the problem.
I will talk a little about the need to reduce energy prices. We do need to keep a cap on energy prices. However, the one thing that we never discuss is the fact that over the next decade, we will have to replace about 20% of our generating capacity. That seems to be of little concern to the Opposition because they never raise it in these Opposition debates. We have many, many Opposition debates on energy. It is Wednesday afternoon and I feel quite comfortable being here discussing energy. However, we never discuss our generating capacity, even though £110 billion of expenditure is needed.
By 2017, our capacity margin will be lower than 2%. Nothing is being built at scale at the moment, other than some nuclear stations that will not fill that gap. Demand-side measures have been brought in by the Government, but they will not be enough. Certain nuclear stations were closed over the summer because of safety concerns. Had that happened in the middle of a hard winter, it would have had a profound effect. I would be interested to hear anybody’s comments on that.
Graham Stringer
The hon. Gentleman is making interesting points, as always. Does he agree that the Government should look for a derogation from the EU’s large energy plant directive, which will close down some of our fossil fuel plants unnecessarily and exacerbate the situation that he is describing so accurately?
David Mowat
I am sympathetic to that view. Countries are acting increasingly unilaterally in the area of climate policy. The fact that the Germans, the Dutch and other countries are building unabated coal power stations at scale raises that question. My honest answer is that we should look at how things develop. Later, I will discuss a vote that took place on 4 December, in which the Opposition went through the Lobby—I do not know whether the hon. Gentleman did—in support of a Lords amendment that would have accelerated the closure of our power stations by bringing in the emissions performance standard for existing stations, rather than just for old stations. That was an extraordinary thing to have happened. The Opposition’s position on coal has, in many respects, been extraordinary.
I want to respond to the remarks of the hon. Member for Llanelli (Nia Griffith) on energy costs. There is a difference between gas and electricity prices. This morning, table 10.2.1 on the website of the Department of Energy and Climate Change, showed that our gas prices for 2013 were lower than median prices in the EU. That is not the case for electricity, and I am pleased that the Secretary of State has asked the Competition Commission about that. However, if we are to debate these matters incessantly on Wednesday afternoons, I think it is worth having a debate based on the facts. I will say this again—hon. Members can intervene on me if they believe it not to be the case—this country has among the lowest gas prices in the EU. If that is the case and if a cartel is in operation, as I have said before, it implies that it is a pretty bad cartel. Nevertheless, let us investigate the industry and have a look.
As I have said about my constituents in Warrington South, what matters are lower prices. The Government have addressed that, just as the Opposition have made suggestions. We want to simplify tariffs and encourage new entrants. We have acted on green levies, and I think the point made earlier about it all being switched to general taxation was wrong. We want better and faster switching.
It is true that the market has been sticky—I am not defending that and it needs to work better. We must make it easier to switch, and some of the things introduced in the Energy Act 2013 regarding compensation to consumers are to be welcomed. In my view, the Opposition policy has three prongs. One is the price freeze, which has been mentioned. The second is what I would generally describe as name calling—describing energy companies as cartels and referring to price fixing and secret deals. All those things are illegal, and if evidence for them exists, it should be brought before the courts. These are public companies, and directors should go to prison if such things are happening. I repeat that if they are happening in the gas market, it is a pretty ineffective cartel, but let us have a look.
The third strand of the Opposition’s policy is that they vote for higher prices whenever there is a vote in this place on how we can influence energy prices. Let me give some examples of that. In 2011, the then Minister was trying to reduce the subsidy for solar panels—solar PV tariffs—from six times grid parity to something like three or four times grid parity. Solar electricity would no longer be six times as expensive as everything else, but four times as expensive. We had a vitriolic response from the Opposition who said that that would see the end of the solar industry and that such subsidies were absolutely necessary. Labour Members trooped through the Lobby to vote against that policy, which was an attempt to minimise the amount of subsidy being given and to reduce energy prices. Well, so be it. That is what happened.
Similarly, we had a debate on the 2030 carbon target. Earlier, the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) intervened on the carbon price floor. I will not defend that; my view is that it is wrong, but it is also wrong for us to impose unilateral carbon targets. These are not EU laws; the EU is not doing this. Again, however, when the issue was debated on the Floor of the House, Labour Members trooped through the Lobby to oppose it. I can only imagine that there are two Labour parties, and I really believe this to be the case. There is the Labour party up in Hampstead—let us call it the north London set of the Labour party—which thinks all this stuff is great, and the other part of the Labour party that represents constituencies where there is energy-intensive industry, and where 700,000 people have jobs that depend on energy prices. If I were one of those people in the Labour party, I would be a little more sanguine.
Tom Blenkinsop
Let us return to the hon. Gentleman’s point on solar panels. By removing the subsidies from solar panels, the Government decimated the solar panel construction industry that supplied panels to UK homes. We now have massive imports of Chinese products, which mirrors what is happening in the rebar steel industry where there has been an explosion of more than 20% in the number of steel products coming from China. That did not exist two years ago.
David Mowat
That is not the intervention I had expected or hoped for. The hon. Gentleman mentioned solar PV, but that policy is not directed at Chinese manufacturing, or anybody else. We do not subsidise British versus Chinese manufacturing, or whatever.
Tom Blenkinsop
I am chair of the all-party group for the steel and metal related industry, which met yesterday. We met an industry leader who works at Celsa Steel in south Wales. He commented that what the industry wants is consistency in prices that is long-term and set out, irrespective of whether prices are lower or higher. What we have are fluctuations and the market lacks confidence because it does not know what Government policy is.
David Mowat
I thank the hon. Gentleman for that intervention, and ask him to reflect on the fact that I am also chair of an all-party group—the all-party group for the UK aluminium industry. Industry wants lower prices and not higher prices regardless of whether those prices are static or not. Perhaps if he were to reflect on that, he would see that I am right.
The third instance of Labour Members voting, whenever they get the chance, for higher energy prices occurred on 4 December 2013, and this is perhaps the most interesting example. We heard earlier about the closure of coal stations in this country because of the large combustion plant directive. On that day Labour Members went through the Lobbies to support a Lords amendment on the emissions performance standard that would have required all existing stations to stop burning coal within a short period. That would have accelerated the rapid closure of our coal stations, and apparently for green reasons. That was an extraordinary thing to do, and the cost to generation would have been extremely high. As I said, I do not know which part of the Labour party did that, but it is an odd thing to have done.
Before I conclude, I ask Opposition Members to reflect on the three policies they are suggesting: the price freeze, the name calling about persistent cartels, and the fixing of prices and all that goes with that. More importantly, whenever we get a vote in this place, they should think about the impact of that vote on their constituents, and stop supporting unilateral action. I do not agree with my hon. Friend the Member for Monmouth (David T. C. Davies) because we need to take our climate change obligations seriously and follow the EU on that. However, we do not need to continue acting unilaterally in the way that we are doing.
Tom Blenkinsop
That is one point on which I agree with the hon. Gentleman. The carbon price floor scheme was unilaterally introduced and no conversation was held with industry. That was introduced by this Government. Labour policy, along with our EU colleagues and within a market, was to maintain a framework whereby we would not make ourselves less competitive than our closest EU competitors.
David Mowat
If you will indulge me, Madam Deputy Speaker, I will answer the hon. Gentleman’s point. I have a lot of sympathy with that, but all I would say about that policy, which has now been capped, is that at least it resulted in revenue for the Treasury, which I know is generally regarded as a bad thing by Opposition Members. That is part of what we had to do to pay off the debts we inherited. The other green levies that were voted for and that I mentioned are straight subsidies and they do not result in that and are unnecessary in terms of our carbon commitments. Finally, our carbon per capita and carbon per unit of GDP is lower than the EU average, and a third lower than that of Germany.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I remind the House of what I said a few moments ago. Let us aim for 10 minutes please.
Julie Hilling (Bolton West) (Lab)
I do not intend to detain the House for long because I am not an expert on energy regulation. However, I want to support the motion because of my constituents’ great concern about the way they have been treated by energy companies and the rise in energy prices.
This goes back in time, because I was one of those who agreed to change their supplier after a doorstop seller convinced me not only that I would be better off getting both my gas and electricity from one supplier, but that the new supplier—unlike my supplier at the time—would not raise its prices. I therefore swapped, and guess what? A few weeks later my new supplier put up its prices as well.
I accept that when shoddy practice has been exposed, changes have been made, either by legislation or by fining the companies concerned. Clearly the current powers to fine companies are not working. If they were, companies would not be repeating their offences, and we would not have to continue to fine them time and again for exhibiting the same behaviour.
I was confused by the Secretary of State’s speech. He said the regulator had the powers we were asking for, but then said what we were asking for was wrong. Both cannot be true. I can only assume, therefore, either that he is protecting energy companies and their abusive behaviour, rather than getting a grip, or that he has been misled about what is in place and what we are asking for. It seems the Government think it okay for energy companies to break the rules again and again and for the supplier to pay the fine and wipe the slate clean. Why will he not agree that a company that persistently breaks the rules should know that its licence is on the line? The Pennsylvania Public Utility Commission has the power to revoke a supplier’s licence when it breaks consumer protection law. In April, its chairman, Robert Powelson, warned that as many as seven suppliers could lose their licence as a result of unscrupulous or fraudulent business practices. Why will the Government not agree that that is exactly the sort of tough regulatory approach that my constituents and every other consumer in Britain would benefit from?
As others have said, over the past 13 years, the regulator has imposed at least 31 fines worth at least £90 million, and more than a dozen investigations are still on the stocks. If fines alone are not enough of a deterrent to make energy companies treat their customers fairly, we need to take further action. Why should energy companies be able to behave in the same way time and again and only face the same fines? If the Secretary of State is correct that such a company could have its licence revoked, why does he oppose our motion explicitly stating that a company treating its consumers poorly could have its revoked? I do not understand his opposition. If he says the power exists, why does he oppose an explicit reference to it? I can only conclude that a company continuing to abuse its customers would not have its licence revoked under the current system.
The Government hide behind the power of the consumer to swap supplier. First, not all consumers can swap. If they are in debt, they cannot switch unless they pay off their debt, but if they could pay off their debt, they would not be in debt, so that seems to be nonsense. Perhaps more importantly, if we do not have robust policies to stop such behaviour, how can a consumer ensure they will not face exactly the same problems with their new supplier? Already, some people cannot afford to heat their homes. A constituent visited me a few weeks ago in my surgery to talk about her situation. She was recovering from cancer and had chronic obstructive pulmonary disease, but she was terrified of turning on her heating because of the exorbitant energy cost. This woman, who was recovering from a serious operation and had a serious, long-term condition, was sitting in a cold, damp house out of fear of getting into debt.
Since the last election, energy bills have risen twice as fast as inflation, four times faster than wages and faster than in almost any other developed country in the world, which is why we need the price freeze and market reform that Conservative Members reject. Funnily enough, the energy companies do not like the notion of a price freeze either—of course, they want to continue driving up their profits and exploiting energy consumers. It is time the House did something about it, and that is our commitment. I look forward to a Labour Government next May saying, “We will freeze energy prices. You cannot continue to abuse consumers like this.”
I and my colleagues in the Labour party are not against energy companies, but we are on the side of consumers. Fines are not stopping the abuses by companies and simply get passed on to the consumer anyway. Surely, it makes sense to provide the regulator with a power to revoke the licence of energy companies responsible for deliberate and repeated breaches of licence conditions that harm the interests of consumers. Good companies have nothing to fear; bad ones will have to change their practices or face the ultimate sanction. I believe the motion should be supported by both sides of the House.
Heather Wheeler (South Derbyshire) (Con)
I rise to speak because South Derbyshire is one of the fastest growing districts in the whole of the east midlands, and probably in the midlands and the whole country. One thing driving that growth in our economy is the massive manufacturing in our patch, and that is reflected in our need for more energy provision. We have given planning permission for two new power stations, and lots of conversations are being had with the people who are going to build them—some of the companies have been mentioned already, but others are new.
Why put at risk that growth and new build, those jobs, that fantastically efficiently produced new energy, that amazing amount of new income and regeneration, this amazing opportunity for new jobs and greater investment and confidence in an area with a superb history of coal production—not to mention the industries that went with it, such as clay, potteries and so on? Now we have car and other manufacturing industries, food and engineering industries—Rolls-Royce, JCB, Futaba; I could name so many, but I do not need to. Why risk all that by dangling this carrot of super new regulation? Why put at risk this incredible opportunity for new investment in South Derbyshire? “Nothing happened in 13 years. We didn’t get it right then. You’ve had four years and you haven’t got it right either”—that is the sort of tit-for-tat gesture politics that business people do not understand and which makes them so angry.
Julie Hilling
I do not understand the hon. Lady’s argument. Is she saying that new companies will not come into the market for fear of losing their licence if they abuse their consumers? Presumably, no company wants to enter the market believing it will abuse its consumers.
Heather Wheeler
I wish the hon. Lady was speaking from the Opposition Front Bench. The difficulty is we have not been told in what circumstances the Opposition Front Bench team would impose this regulation. They have not given us any examples—[Hon. Members: “Yes, we have!”] No, no, we have not had a direct example. They have been asked two or three times. Will the shadow Secretary of State give us some examples?
Heather Wheeler
Apparently not. There we have it again. For the fourth time—
Caroline Flint
It is not the job of politicians to pick companies in any area of regulation. It is up to the regulators. As the hon. Lady will be aware, the regulator currently has a power to impose a fine that is 10% of a company’s global turnover. It is not for politicians to decide which companies the regulator should fine or investigate. We are saying that the regulator should have a sanction to remove a licence to supply where there is evidence of repeated behaviour contrary to customers’ interests. They already have a code and a threshold setting out what constitutes abuse.
Heather Wheeler
The right hon. Lady still has not got to the nub of today’s debate. I agree with my hon. Friend the Member for Warrington South (David Mowat): regretfully, this is gesture politics at its worst. I have had the pleasure of sitting in the Chamber since just before 2 o’clock—and that is absolutely fine; it is what we are paid to do—but I have heard the most vacuous debate I think I have heard in my four years here.
Heather Wheeler
I thoroughly enjoy the right hon. Lady’s company outside the Chamber, but this was the most vacuous debate I have heard in the four years I have had the pleasure of being a Member. What I want to hear from Members is new ideas. Who knows what might be in manifestos next May, but businesses need to know that if they are to make major investments—whether it is American, German, French or Chinese companies building these power stations in South Derbyshire—they are not going to get hoicked out over some peccadillo. It might be the Charity Commission going off on one and having to be reined in—giving power to quangos is a frightening thing. I think she is genuinely missing the point about what our constituents want in life. They want good jobs, steady incomes and good, solid power stations coming online, so that they know what they are doing. They do not want threats hanging over them that mean that investments will not be made. I am afraid the right hon. Lady has made a mistake with today’s debate.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
Following the excellent speech by our shadow Secretary of State, this debate wandered into the metaphysical question of whether a power of revocation exists or not, and, if it does exist, in what way it is demonstrated. The point that those of us on the Labour Benches have made very clearly—and which will resonate outside this place—is that such a power needs to exist and that a system of escalation needs to be put in place so that certain companies, whether in the energy industry or any other sector of the economy, can be held to account for their actions and behave within the regulations. It is the old philosophical debate between those of us on the Labour Benches and those on the other side of the House. We want regulation; they consistently argue against it—in particular, prior to the 2007-08 financial crash, when they were asking for less regulation in financial services. [Interruption.] I thought I would just throw that one in to provoke debate.
If we are talking about vacuous or tokenistic politics, as the hon. Member for South Derbyshire (Heather Wheeler) was, I would like to read out a few things that the Prime Minister has recently said on this question. For example, at Prime Minister’s questions in October 2012, he announced that he would be legislating to require energy companies to put all their customers on the lowest tariff, saying:
“We have encouraged people to switch, which is one of the best ways to get energy bills down. I can announce, which I am sure the hon. Gentleman will welcome, that we will be legislating so that energy companies have to give the lowest tariff to their customers”.—[Official Report, 17 October 2012; Vol. 551, c. 316.]
The Prime Minister has since repeated that promise 12 times. However, the Government’s own Energy Act 2013 gives the Secretary of State the power to require a supplier to change a customer’s tariff only when a customer is on a closed tariff. As a result, only people who are on dead tariffs—which are the most expensive and more expensive than the standard evergreen tariffs—will be moved to a cheaper tariff. Based on figures provided by the big energy companies, that is estimated to affect less than 10% of people. If we are talking about meaningless gestures or tokenism, I would highlight that as a prime example, but there is more.
Julie Hilling
Before my hon. Friend moves on, will he acknowledge that if everybody had to be on the lowest tariff, there would only ever be one tariff, which would always be the lowest, even though it could be much higher than the current low tariffs?
Tom Blenkinsop
Yes. I totally agree with my hon. Friend.
In December 2013, the Government announced changes to green levies on energy bills. The Prime Minister repeatedly claimed that that would save all consumers £50 on their energy bills. He told the House:
“It is on this side of the House that we have delivered the £50 off bills by rolling back the cost of the green levies.”—[Official Report, 12 February 2014; Vol. 575, c. 846.]
On another occasion he said:
“we have also cut energy bills by £50 by rolling back the cost of some of the green measures”.—[Official Report, 22 January 2014; Vol. 574, c. 300.]
However, much to the Prime Minister’s consternation, four of the big six energy companies—npower, Scottish Power, E.ON and EDF—refused to pass on the full £50 reduction to customers on fixed-price deals. In January 2014, the Government said that if the energy companies failed to pass on the savings of the changes to the green levies, that would not be acceptable. Indeed, the right hon. Member for Bexhill and Battle (Gregory Barker) told the BBC’s “You and Yours” programme that he was unaware that some suppliers were not passing on the reduction and that this “would not be acceptable”.
Despite that, the Government have taken no action to force energy companies to pass on those savings to customers on fixed-price deals, with an estimated 3.8 million households missing out on the Prime Minister’s promised £50 saving as a result. Furthermore, the Government’s own figures show that the energy companies should be cutting their prices even further, after the big six saved more money than first thought from the reductions in green levies. In their response to the consultation on the future of the energy company obligation, the Government admitted that the changes to the scheme were likely to mean that the energy companies would make more money. In fact, their document, “The Future of the Energy Company Obligation: Government response to the 5 March 2014 consultation”, says:
“ECO companies are likely now to be in a position to make greater savings than they had originally projected in December.”
However, rather than setting out concrete plans for how they would recoup those savings, the Government merely invited the energy companies to let them know.
Let us look at another area. Under this Government, fuel poverty is most definitely getting worse. The latest annual poverty statistics report shows that the number of households in fuel poverty is projected to increase to 2.33 million in 2014, while the average fuel poverty gap—the difference between people’s bills and what they can afford—has grown to £480 in 2014.
There are a number of areas, which I have highlighted, that show where the Government could now be taking action far more stridently. The argument being made by Labour Members is about having a power of revocation as a final threat or market check. As I have always said—and as I am sure many of my Labour colleagues believe too—the market makes a fantastic servant, but a terrible master. At the moment, the market, in whatever dimension and by whatever name—I would probably hazard the description “oligopolistic”, rather than “free market”—is behaving in an oligopolistic manner and needs to be held to account far more appropriately.
I remind hon. Members that Labour is making that argument, while those on the Government Benches are arguing for the status quo. Indeed, I would be interested to know whether any Government Members would be prepared to engage in a similar debate—not just in this House, but on the doorsteps in their constituencies—because I imagine that if their average constituent was told about the content of the argument they have been making, they would look at them far more sceptically at the next general election.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
Three-hundred and forty-five days. That is not the current average time it takes a new Tory MP to decide that they want to stand down from Parliament; it is how long since the Leader of the Opposition first announced Labour’s radical plans to reform the energy market and freeze energy prices while we do it. Yet 345 days on, this Conservative-led Government still cannot offer a credible response to our plans.
The Government started by telling us that switching was the answer. They have flirted with the idea of taking stronger action. They told us they were against the calls to refer the energy market to the Competition and Markets Authority, before they eventually changed their minds. All the while, the British public have felt the relentless squeeze of higher energy prices, with no apparent end in sight, so here we are again.
It is true that this is one of many debates we have had on the subject of energy prices on the Floor of the House. I for one make no apology for that. Any of us who visits a pub, café or working men’s club or goes to a football match or anywhere else will find that the public out there are more than happy to talk about energy prices too. Quite frankly, when people find out we are MPs, it is actually quite hard to avoid a conversation about energy prices. People will tell us that they are sick and tired of their bills always seeming to go up when wholesale prices rise, but never down again when they fall. They will tell us some awful stories about poor customer service, and they tell us that, when wrongdoing is discovered and bad practice identified, the punishment never seems to deter the offending companies from doing it again. That is what we are here to discuss today.
Alongside our other reforms—the ring-fencing of the generation and retail arms of energy companies, the open pool for electricity trading and the new regulator with real powers to take action—we also believe there must be powers to ensure that regulatory fines are not simply seen as the cost of doing business. Instead, intervention from the regulator should ensure problems are put right and should act as a real deterrent. The figures revealed by my right hon. Friend the Member for Don Valley (Caroline Flint) are damning. Despite at least 31 fines being issued by Ofgem since 2001, totalling at least £90 million, energy firms are facing a further 15 probes into mis-selling, poor customer service and other bad practice. By giving real powers to the regulator, and borrowing from the best practice we can see in other jurisdictions, we can prevent such poor behaviour being repeated. Making clear that we will not tolerate persistent bad practice, by giving the regulator the ultimate power to revoke licences, will be a substantial step towards providing customers with the protection they desperately need and the energy market they deserve.
We have heard some fantastic contributions in today’s debate. Let me start by responding to some of the Secretary of State’s claims. He started out by saying it was all about competition. The Opposition of course recognise the importance of the role of competition, but let me respectfully tell him that his job cannot be simply to make it easier to switch; it should be to ensure that there is someone worth switching to. People do not feel that that is happening at the moment.
The Secretary of State mentioned smart meters, the smart meter roll-out and the role of technology. We have offered bipartisan support for that programme, as we can see the benefits, too. He mentioned the need to improve and compete on customer service. Of course we agree with that, and I hope that he will recognise the benefits of our proposed performance score card for energy companies, so that people can easily see how those companies are performing.
Apart from that, it seemed from the Secretary of State’s speech that the Government were trying to fabricate some excuses to oppose our policy. At the moment, we agree that the regulator can impose a fine or a final order to change specific behaviour—it could be to change the telephone script or billing method. However, providing the energy company pays the fine off and complies with the order, the regulator has no power to revoke its licence. The obvious problem is that, if companies break different rules, or the same rules in a different way, providing they comply with any penalty given, the regulator can never revoke their licence. By contrast, under our proposals, even if a company complied with a fine or a final order, if it carried on breaching the terms of its licence, that licence would be on the line—a significant and welcome difference from what applies at the moment.
A number of Members tried to intervene to raise specific questions about the scope and application of that new power. Of course revoking a licence would apply only in cases of serious malpractice and the utilisation of the power would, of course, be for the regulator to decide. However, it would clearly be a back-stop power, much like the current ability to levy fines at 10% of global revenues. This is about providing a deterrent, which clearly and unfortunately does not exist at present.
Today, we have heard many of the Government’s classic lines in response to Opposition-led energy debates. The Secretary of State and the hon. Member for Crawley (Henry Smith) claimed that the big six were created under Labour, but Government Members should look at the facts a little more closely. It is true that, before the big six, there were once 14 electricity supply companies, but those 14 were regional monopolies—there was no market and no competition taking place. It was, of course, John Major’s Government who first allowed vertical integration to occur. Significantly, consumers could not even switch electricity supplier until after the Labour Government were elected in 1997.
My hon. Friend the Member for Southampton, Test (Dr Whitehead) asked us to consider who the Secretary of State really is. I have never considered him to be an international man of mystery until now, but that thought will linger. My hon. Friend was forensic in taking apart the Secretary of State’s case.
I am not quite sure where to begin when it comes to the hon. Member for Monmouth (David T. C. Davies). Let me respectfully say to him on the issues of climate change—without going too far away from the motion—that the 10 warmest years on record are clearly those of recent times. People who express climate scepticism—I am sure the hon. Gentleman would not mind me saying this—are likely to be those who are relatively sceptical about the powers of big government. The hon. Gentleman probably does not believe that making direct state interventions is the way to solve the world’s problems. He mentioned the smart meter roll-out in that context. If we look at the countries involved in the UN Intergovernmental Panel on Climate Change—countries as diverse as Switzerland, China, Australia, Japan, the USA, India, Germany, Russia and Norway—is it possible or conceivable that the scientists from all those countries have got together and decided to hoax us in this grand fashion? I cannot believe that anyone with the hon. Gentleman’s scepticism would accept that position so readily.
On smart meters, any big Government programme risks some problems, but if the hon. Gentleman were to look at the number of complaints to energy companies that result from inaccurate billing, which smart meters will resolve, at the voluntary consumption that the evidence shows comes about when people are more visually aware of their energy use, or at the improvements in social justice, particularly for people who use prepayment as a method, he will find considerable benefits to us all in ensuring that smart meter roll-out goes nationwide in the proposed fashion.
My hon. Friend the Member for Llanelli (Nia Griffith) talked about company behaviour, its consistent tendency not to get better and the need for a strong regulator to clamp down on companies’ actions. I absolutely agree with her.
The hon. Member for Warrington South (David Mowat) raised a number of issues, to some of which I shall return. He specifically mentioned the large combustion plant directive, which, as he knows, regulates emissions of sulphur dioxide, nitrogen dioxide, diesel as well as carbon emissions. The directive was intended to ensure that pollution abatement equipment was fitted; otherwise, the running hours of the large stations would be limited. I know that the hon. Gentleman has one in his constituency, which I imagine is where his interest lies. He will surely recognise that there was a major loophole in the Lords amendments in that certain refurbishments were not covered. It seems to me entirely reasonable to try to provide a consistent level playing field, which is what we tried to do in the debate on the Lords amendments.
I thought my hon. Friend the Member for Bolton West (Julie Hilling) had one of the best lines of the debate when she asked how the Secretary of State could simultaneously say that the proposed power is wrong while admitting that it already exists. I am sure that the hon. Member for South Derbyshire (Heather Wheeler) could have enjoyed the debate. There was considerable merit in the debate and she could have enjoyed it. She specifically mentioned investment risk and the consequences for South Derbyshire. I do not follow her line of argument that stronger regulation of the supply side of businesses will affect investment in the generation side. Surely she would recognise that investment risk as it is normally understood relates to factors that are outside a business’s control. How energy companies perform and treat their customers is surely completely within their control, and they would be at risk of losing their licences only if they repeatedly and deliberately broke the rules in ways that caused serious harm to their customers. If they do not do that, I cannot see that they have anything to fear.
My hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) wonderfully highlighted some of the inconsistencies behind Government policy on quite a few issues. The right hon. Member for Wokingham (Mr Redwood) and, indeed, the hon. Members for Monmouth and for Warrington South repeated what has become the siren call from the Tory right—perhaps soon to become the UKIP left—arguing that the pressure on energy prices is somehow related to the conversion to renewable energy. I am afraid that those claims do not add up. The Government’s figures on policies such as the renewable obligation cannot possibly explain the rise in energy bills that we have seen in recent years. Through such policies, we get safety in energy and obtain much greater energy security. What is more, renewable energy sources have nothing of the price volatility we see in international gas markets. As Dale Vince, the chief executive of Ecotricity, recently remarked,
“the cost of wind energy simply does not go up.”
The so-called green taxes that so many Government Members seem so keen to mention are in the main energy efficiency measures that reduce consumption across the system, which clearly benefit us all in respect of the burden put on generation and safeguard, if they work, some of our most vulnerable people. I think that should be a feature of our energy system.
We have had another good debate on the energy market today, but once again only Opposition Members seem to be offering any solutions. We believe that the Government must take stronger action to restore trust and help mend our broken energy market. That would help to tip the balance back in favour of the consumer, which is exactly where it should be. Energy suppliers, with the tacit support of the Government, are the ones in the driving seat at the moment. They are the ones doing well out of the status quo, while their customers are not. Judging by their number and the ones likely to come, it is clear that financial penalties are simply not currently enough of a deterrent to bad practice. We have to start putting that right. Inaction and bluster are not enough.
This is a serious and considered proposal—one that already exists in other parts of the world—and it is not enough for the Government to reject it just because Labour is proposing it. Every time there is regulatory action and every time a fine is levied or Ofgem makes an intervention, we all get asked to respond on the media programmes, and we all get asked why this keeps happening. If the Government vote against this proposal to create a real deterrent today, we will point out on those programmes, on every occasion where that happens again, that this Government failed to provide the measures properly to hold those companies to account.
David Mowat
The hon. Gentleman has mentioned me twice, and I have been reflecting on whether I actually said what he said that I said. At no point did I say that the green levies constituted a big part of energy bills. I merely said that whenever the House had an opportunity to vote on whether to increase energy prices, the Opposition wanted to go further—for example, in the case of the accelerated removal of solar subsidies, or on the occasion of that terrible vote on 4 December on a Lords amendment proposing the accelerated closure of coal-fired power stations.
Perhaps the hon. Gentleman will respond to a specific point that I made in my speech. We have lower than median gas prices in the European Union. If the market is so “broken”, how has that happened?
Jonathan Reynolds
There is not a tension between the pursuit of affordability and the pursuit of decarbonised energy supplies—or, at least, there is not a problem that we cannot resolve. Yes, renewable energy is more expensive than, for instance, coal, on which the hon. Gentleman may be particularly keen, but surely that makes the transparency of our energy market more rather than less important. The need for us to ensure that there is a downward pressure on energy prices becomes more of an imperative when we are making that transition.
I am sorry that I did not respond to the hon. Gentleman’s point about solar tariffs. No one opposes the digression in tariffs and subsidy structures, but surely he recognises—
Jonathan Reynolds
I will give way to the right hon. Gentleman in a moment.
Surely the hon. Gentleman recognises that the way in which Governments do that is important—and this Government have been notorious for chopping and changing policy on so many occasions. A business that is trying to invest and to provide jobs in this sector simply cannot continue unless the Government make the position clear.
Jonathan Reynolds
I am afraid that I must now give way to the right hon. Member for Bexhill and Battle (Gregory Barker), who is, I believe, the longest-serving energy Minister for a decade. I certainly cannot allow the debate to end without allowing him to intervene from the Back Benches.
Gregory Barker
I am grateful to the hon. Gentleman for giving way. He says that no one would oppose the digression in solar tariffs. May I point out that the entire Opposition Front Bench opposed it, and that their opposition would have forced up energy bills? He may not have been on the Front Bench at that time—it was some time ago—but I am sure that he would have been among the serried ranks of Labour Members who voted to keep bills higher.
Jonathan Reynolds
I was there on that day, and I am sorry that the former Minister cannot remember that moment. Let me simply say to him, again, that the way in which the Government have gone about policy changes of that kind has caused terrible damage to important low-carbon parts of our economy. Let us look at what has happened quite recently. Let us look at the green deal for home improvement. There have been quick changes in policy which businesses cannot survive and with which they cannot contend. The same thing happened in the case of the energy companies obligation.
Jonathan Reynolds
I will give the right hon. Gentleman one more go, although he has not been present during the debate.
Gregory Barker
May I make one last point? The hon. Gentleman says that the digression that we imposed caused terrible damage. May I point out that since we reformed that feed-in tariff, more than 3 GW of solar have been added? Ours has been among the fastest-growing solar markets in Europe, and it is a legacy of which I am incredibly proud.
Jonathan Reynolds
The right hon. Gentleman and I have had this discussion before, and he knows that I am always keen to give credit to the Government for the increase in solar. By that, I mean the Chinese Government. They have done fantastic things to bring prices down, and we in this country have been able to benefit from that.
I will end my speech soon, Madam Deputy Speaker. Let me end by saying that if the Government vote against our proposal to create a real deterrent, we will point out— every time further action is taken—that they did not use the opportunity to give the regulator real power to hold companies to account. Labour candidates for constituencies up and down the country will make clear that they support the measures that we propose. We will also tell people not just how long we have been discussing these issues, but how long it will be until the next general election, because then, and only then, will we have a chance to change the energy market, secure a good deal for customers, and make a switch that will truly count—the switch to a Labour Government, a Government who, for once, will be serious about taking on the issues.
The Parliamentary Under-Secretary of State for Energy and Climate Change (Amber Rudd)
As usual, we have had a wide-ranging debate on energy issues. In the short time available to me, I shall deal with as many as possible of the points that have been raised.
First, let me refer to the motion itself, starting with the facts. Ofgem has issued fines or obtained redress in 39 cases; £55 million-worth of fines have been imposed, and nearly £60 million-worth of redress has been obtained. That amounts to a total of £115 million. Under the last Administration, in the eight years following the establishment of Ofgem in 2001, the regulator took enforcement action in just 10 cases. Since 2010, Ofgem has taken action in 29 cases, levying fines amounting to £50.9 million and forcing suppliers to provide nearly £60 million in redress for consumers who have been harmed. Only today, it announced that EDF would pay £3 million to benefit consumers following complaints of mishandling.
The right hon. Member for Don Valley (Caroline Flint) and her colleagues may suggest that that is evidence of increasingly poorly behaved energy companies. I believe it demonstrates that we now have a regulator which, in the last few years, has been increasingly prepared to take action when action is required. It is noticeable that nearly 80% of the total amount of money being paid by suppliers directly to consumers who have been harmed by their actions has arisen from cases settled since 2013. It is no coincidence that it was in the Energy Act 2013 that we gave Ofgem powers to require energy suppliers to make such payments. For the first time, payments are being made directly to consumers. That contrasts with Labour’s failed voluntary approach, which did not support consumers in the same way.
Ofgem now has the ability to prevent suppliers from taking on more customers until they have cleaned up their act, an approach that it used most recently to force npower to improve its billing performance. Following the action that we have taken, we have a tough independent regulator which is willing to act to protect consumers against badly behaved energy companies.
The Opposition ask, “Why not give Ofgem powers to revoke licences when companies repeatedly breach the terms of those licences?” It would be right to give such additional revocation powers only if we would be prepared to back their use by the regulator in the circumstances set out in the motion. Nothing that has been said today has convinced me that the right hon. Lady and her team fully understand the consequences of a licence revocation. Someone would need to take responsibility for the suppliers’ consumers. That could be one of Labour’s big six, taking them on as a whole, but whichever we chose, we would be handing it a huge increase in its customer base without its having to compete.
Caroline Flint
Is the Minister aware that the regulator can currently revoke a licence if, for example, a fine is not paid, if a final order is not complied with, or if a company goes into administration? There are already procedures allowing a trade sale to take place and other suppliers to be found. Why can revocations not be applied when there is repeated evidence of harmful and abusive behaviour towards customers?
Amber Rudd
That is an interesting point and one that, in a sense, we have explored earlier, in relation to the terms on which a revocation would take place. However, what worries me about the right hon. Lady’s proposal—which my right hon. Friend the Secretary of State has called the “nuclear option”—is that it is sudden and dramatic, and would have a very bad effect on consumers. What worries me is that she is being cavalier with consumers. She will be handing one of the big six an increase in its customer base without its having to compete, and with very little notice. That is the problem. If she has answers to some of those questions, it is disappointing that she has not set them out.
Amber Rudd
I am going to proceed with my speech. [Interruption.] Unlike the right hon. Lady, I have only 10 minutes in which to conclude my speech, and I am going to continue.
An alternative would be to split the portfolio between suppliers, but deciding who would get which segment of the portfolio would be a time-consuming process and, again, would raise significant competition issues. And what about the impact on individual consumers? Leaving them on their same tariff is not likely to be workable under the limited tariff rule—and we should remember that we now have just four, not the 400 we had under Labour. Putting them on a deemed contract, however, could lead to an increase in their bills; and allowing businesses to keep their same contracts may not be compatible with their new suppliers’ business model. Our concern, therefore, is that the overall result of a licence revocation—the so-called nuclear option—is, at least in the short term, likely to be reduced competition and higher bills for consumers. That is why Ofgem only has the powers to take such a step in the most serious cases. What we do not want is Labour’s knee-jerk simplistic solutions. This Government are instead focused on taking real actions that will make a difference.
Dr Whitehead
Will the hon. Lady reflect on the fact that earlier this afternoon the Secretary of State said this could be done, that there was a nuclear option and that it could be undertaken? The hon. Lady is now saying that if what the Secretary of State said could be done was done, it would have terrible harmful effects and therefore should not be done. Does she not see some contradiction in that position?
Amber Rudd
I am happy to clarify that for the hon. Gentleman. The current set-up is that there is an option for the licence to be revoked, but it happens over a much longer period and is likely to take longer. The concern I have over this proposal is that it is a nuclear option that would be so dramatic that it would impact deleteriously on consumers. [Interruption.] The right hon. Member for Don Valley asks how I know that, but she has not made the case to the contrary; that is the concern I have.
We have strengthened the powers of the regulator. I have already mentioned the Energy Act 2013 powers that enable Ofgem to require suppliers to compensate directly consumers harmed by their actions. We shall also be giving Ofgem the power to send to jail people found guilty of energy market abuse or manipulation, in the same way as those who manipulate the financial markets face criminal sanctions, but the effective markets we need to deliver for consumers are not just achieved through enhancing the powers of the regulator. The Government believe that vigorous competition in the energy markets is the best way to sustain downward pressure on prices and deliver a better deal for consumers. I say that this is the Government’s view and I want to reassure the hon. Member for Southampton, Test (Dr Whitehead) that we cannot get a cigarette paper between me and my colleague the Secretary of State. We are agreed on the need to oppose this motion. We know what we are doing, and I am sorry to hear that the hon. Gentleman felt the Secretary of State was putting an argument he did not believe in, but I want to reassure the hon. Gentleman that we are agreed on this.
The hon. Gentleman endeavoured to clarify the circumstances in which the nuclear option could be required by referring to the legal document, but he decided to take issue with the Secretary of State’s interpretation—an interpretation he will not be surprised to hear that I support. As with his colleagues, however, we did not hear an example of when this nuclear option would be required, and I feel this was the weakest part of what we heard from the Opposition in general.
My hon. Friend the Member for Monmouth (David T. C. Davies) made some important and interesting comments about energy prices. I would like to reassure him about smart meters. I say to him, “Have no fear” because our smart meter programme is part of helping consumers reduce their usage and be in control of their spending and, ultimately, of bringing lower prices.
David T. C. Davies
If that is the case, why are the Government having to sell this? They do not have to sell other services to consumers, so if smart meters are a good idea, why not let the consumer decide whether they want them?
Amber Rudd
It is always partly carrot and stick, is it not? We have to make clear to consumers what the opportunity is; otherwise, they are going to be reluctant to change. However, I am sure that we can, and I hope to win over my hon. Friend’s support in due course.
The hon. Member for Llanelli (Nia Griffith) spoke about her concerns for consumers, and she has done so on many occasions. I am just concerned that she feels so strongly about this one motion and feels that the proposal would be a silver bullet to sort out the problems for consumers. I cannot share her view.
It was a pleasure to hear from my hon. Friend the Member for Warrington South (David Mowat), who is very experienced in the market in general. He made the point that the Opposition’s proposal, although worthy of consideration, completely fails to convince because it has no example and therefore no factual base. In his focus on lower prices for consumers, he pointed out we have the lowest gas costs in Europe. He demolished Labour’s energy policy with particular focus on how it lets consumers down.
The hon. Member for Bolton West (Julie Hilling) again focused her rationale on the Labour proposal as though it were some sort of silver bullet to rectify the entire market. We are taking action to rectify that market and we are making progress. She insists that this power is needed while failing—as did her fellow Labour Members—to give an example of which company would be liable to this nuclear option and why.
I was delighted to hear from my hon. Friend the Member for South Derbyshire (Heather Wheeler) who made a powerful speech, as always, about the importance of investment in energy in her constituency, and expressed her concern that this Opposition proposal is gesture politics and would undermine crucial investment that we are securing from international investors.
The hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) chose to comment on the difference between our parties regarding regulation. I cannot let that pass. He had the temerity to refer to the regulation of the banks in 2007. The banks were regulated by the Bank of England for decades until Labour’s tripartite arrangement, which was an unmitigated disaster. If the House needs evidence of the results of Labour’s regulation, it need look no further than the banking crisis. The hon. Gentleman was also wrong on fuel poverty, which is falling, and wrong on the support that we are rightly giving to consumers.
Gregory Barker
First, may I congratulate my hon. Friend on a fantastic debut at the Dispatch Box? She is going to make a great Minister. She is also absolutely right to draw the House’s attention to Labour’s knee-jerk reaching for regulation. We on this side of the House are committed to helping the consumer by creating dynamic competition and crowding in disruptive new entrants, whereas Labour will always reach for the red tape and regulation that are anathema to the real interests of the consumer.
Amber Rudd
I thank my right hon. Friend for his remarks. I am delighted to be following on from the good work that he has done.
It is good news that our work to break down barriers to entry in the retail energy market in order to create greater competition has resulted in an unprecedented number of suppliers operating in that market. Since May 2010, 12 new companies have entered the market, challenging the status quo, competing hard with the large established players and offering choice to consumers. During this period, more than 2 million electricity customers have switched to independent suppliers. The big six bequeathed by Labour are being replaced by the new challenger companies. We are driving competition in the market, and delivering more choice and a better deal for consumers. In 2010, there were just seven independent suppliers, all of which had fewer than 50,000 customers. Now, there are four independent suppliers with more than 250,000 customer accounts each, compared with zero in 2010. In that year, the share of the market held by the independents was around 1%, but it now approaching more than 7%.
We know that competition is not working as effectively as it should be, which is why we commissioned the first ever assessment of competition in energy markets from the competition authorities. It is also why we support the subsequent decision of Ofgem, based on a thorough, evidence-based assessment, to refer the energy markets to the Competition and Markets Authority. Tackling concerns about competition through a formal reference process undertaken by the expert authority will provide consumers, companies and investors with confidence that the process will be evidence-based, fair, transparent and free from political interference.
This Government are taking real action to make a real difference to hard-working households and businesses. We will continue our work to identify and address barriers to entry and growth, and to provide the right environment for the investment needed for the future. We will continue to build on the reforms that are already giving people a better deal on their energy bills. These include taking about £50 off average household bills, and introducing faster, easier switching and simpler tariffs and bills. We will allow the expert competition authorities to undertake their forensic examination of the energy markets. We must insist that reform of the market is driven by facts. We will not resort to the knee-jerk responses that we so often see from an Opposition seeking a headline. This motion epitomises such a response, but it would fail consumers, fail the market and fail in what it sets out to do. The Opposition have failed to make any sort of case in support of the motion, and I urge the House to resist it.
Question put.
The House proceeded to a Division.
Madam Deputy Speaker (Dame Dawn Primarolo)
I ask the Serjeant at Arms to investigate the delay in the No Lobby.