(7 years, 8 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
John Penrose (Weston-super-Mare) (Con)
I beg to move,
That this House deplores the big six energy firms’ treatment of out-of-contract energy customers on default tariffs; believes immediate action is needed to protect those consumers, and that pushing customers to start switching will not fix the problem sufficiently quickly or completely on its own; and calls on the industry, regulators and the Government to consider solutions which recognise that many people lead busy lives and that switching their energy supplier may not always be a high priority.
I thank the Backbench Business Committee for finding the time for us to debate this important and topical motion today. I also thank my two co-sponsors, the right hon. Member for Don Valley (Caroline Flint) and the hon. Member for North Ayrshire and Arran (Patricia Gibson), and the 50 or so MPs from across the political spectrum who all feel that the treatment of most energy customers is sufficiently outrageous and unjust to merit raising it here, in the mother of all Parliaments.
Most industries believe that customer loyalty is hugely important; an asset to be prized. Most businesses reward their most loyal customers with special treatment to keep them coming back—whether it is a supermarket’s loyalty card, an airline’s air miles scheme or just the coffee card that gives you a free cuppa after it has been stamped 10 times. Energy is an exception. What other industry does not give its most loyal customers any discounts or special deals, but instead charges them higher prices than anyone else? Which companies believe that loyalty should be exploited, not rewarded? Which one of them treats their longest-serving customers as chumps, to be quietly and secretively switched on to expensive, unfair deals when they are not looking, and then milked—ripped off mercilessly for as long as possible? The answer is the big six energy firms. The rest of the energy industry is pretty good. There are 30 or more newish energy firms snapping at the heels of the big six, and they understand that customer loyalty matters if they want to grow.
Mr David Nuttall (Bury North) (Con)
As my hon. Friend will know, there has been a huge roll-out of smart meters, which is one way of people keeping an eye on their energy bills. Unfortunately, though, when people do switch providers, they find that their smart meter has to be replaced at the same time. Does he agree that that is one reason why perhaps some people are becoming unwilling to change providers?
John Penrose
There are many reasons why switching has not caught on to anything like the degree that we need it to if we are to transform the sector. I understand that one factor may very well be this problem with the introduction of smart meters, but there are others, too. My hon. Friend was quite right to point that issue out, and I will mention some others later on in my speech.
As I said, there are 30 or more newish energy firms snapping at the heels of the big six, and they understand that loyalty matters. Obviously, some are more impressive than others, but they all have one thing in common: they are hungry. They know they have to impress and delight their clients, because they cannot rely on exploiting a “back book” of long-term customers to stay fat and happy. The figures are stark. Roughly two thirds of all customers—at least 20 million households—are on the expensive, rip-off deals: the standard variable tariff. A minority of customers switch to a different energy supplier regularly, but most of us do not. The amount of switching has been creeping upwards, but much of the change has come from the same bargain hunters churning round and round in ever faster circles between different energy firms. The number of households that have rarely or never switched remains stubbornly high, which suits the big six just fine. So, what is the answer? How do we put energy customers in the driving seat? Do we give them the same power to choose a new supplier as easily as we switch to a different brand of toothpaste or coffee? How do we make them compete to delight us, rather than quietly exploiting us?
First, we have to make switching a lot easier. Choosing that different brand of toothpaste in a supermarket is easy: we just pick a different tube off the shelf. Too many people find switching to a different energy firm scary and stressful, and are frightened off as a result. Even the price comparison sites, which have an interest in making the process as simple and as easy as possible, say that huge numbers of customers abandon their search when they are asked a basic, essential question such as what is their current energy usage. Others think that switching is likely to go wrong, and that they might end up cold and shivering in a home without power if the move does not happen smoothly.
My hon. Friend the Member for Bury North (Mr Nuttall) has already mentioned the impact on some households of the new smart meters. Others simply have not got the time to switch. Many of us lead busy lives, juggling careers, childcare, school runs and goodness knows what else. Switching our energy supplier can easily become one of those things that we all know we should do, like washing the car or joining a gym, but we never quite get round to doing. The difference is that other products do not automatically switch us to a super-expensive brand of toothpaste or coffee unless we tell them not to. They do not expect us to be on our toes all the time to stop them changing the terms of our deal and ripping us off when we are not looking. For toothpaste, coffee and almost everything else, loyalty and inertia work in the customer’s favour; they are on our side. That does not apply to energy. If we relax, they will have us.
Fortunately, there are some simple things that make switching easier, less stressful, simpler and not so scary. The main one is making our customer data easily available to a new energy firm if we give them our permission. That way we do not have to fill in endless online pages with information that we cannot remember or that we have not got. At the moment, the information can take days to come through, and the big six throw all sorts of obstacles in the way. They have no interest in making it easy or simple.
In future, we should just be able to ask our new firm to get it from our existing supplier in a few seconds, with a click of a mouse or a tick of a box—simple, quick, easy and safe. The number of people switching will go through the roof if we do that.
Mr George Howarth (Knowsley) (Lab)
The hon. Gentleman is making a very good point, and I agree with it. Does he agree though that it is more problematic for people who live in tower blocks, where the energy supply is collectively controlled by the landlord who might not have any incentive to switch to another supplier?
John Penrose
The right hon. Gentleman is exactly right. One of the things that may be improved by the roll-out of smart meters, which we heard about earlier, is those collective bills, which would be broken down. Many energy suppliers and others in the industry are concerned that too many hopes may be being invested in smart meters and they may not necessarily produce a lasting uplift in customer engagement and interest—they will start off as an interesting new gadget in the corner of the room, but after a few weeks or months that interest may die away. We will have to wait and see, but he is right that there is an opportunity, at the very least.
In the spirit of trying to make switching simpler and less scary, firms such as Make It Cheaper, Flipper, OVO and Money Saving Expert provide end-to-end services that do the donkey work for us, handling everything from finding a better deal to organising the switch itself. They appeal to those of us who currently think that even the most convenient price comparison sites take too much of our valuable time.
Mr Charles Walker (Broxbourne) (Con)
Does my hon. Friend agree that part of the problem with the big six and other generators, such as Veolia, is that they are not straightforward and honest with their customers and stakeholders? Until they are straightforward and honest, there will be disquiet about their conduct.
John Penrose
That is one of the underlying concerns about the way that this industry operates. People are not necessarily asked at the moment they are switched to the default tariff, so when they notice that they have been—if they notice—they feel that they are being ripped off, because those default tariffs are so much higher. That leads to distrust of the suppliers, and that is one of the things corroding the underlying trust in the industry as a whole. It is incredibly dangerous. I think some forward-thinking people in the industry understand that and the brand damage that is being done, not just to individual firms but to the sector as a whole. Trust is slow to gain and easy to lose. My hon. Friend has a background in marketing and consumer business, so I am sure that he understands what I mean.
Rolling out the end-to-end services that I mentioned, which are still in their infancy, should persuade a new group of customers who currently do not switch at all to do so, extending the number of people in that stubborn two thirds of the customer base who do not switch, or do so very rarely.
These changes, taken together, are essential steps to solving the underlying fundamental problems that make the energy market such a rip-off. If the Government, the regulator—Ofgem—and perhaps even enlightened energy firms themselves are willing to take those steps, abuses and consumer detriment will start to fall and customers will finally be in the driving seat, as we already are and expect to be for everything else, from toothpaste and coffee to cornflakes and soap.
But how long will this take to fix? How quickly will the rip-off stop? Even then, will there still be stubborn pockets of problems left over here and there? Given that fully two thirds of all customers are on these rip-off tariffs and that proportion has been glacially slow to change, there is an awfully long way still to go. Even under the most optimistic scenarios, an unacceptably large number of households will still be being ripped off for too many years yet. So we need a stopgap—a temporary solution—while all those other changes to make switching easier and less scary start to take effect.
The answer is a relative price cap—a maximum mark-up between each energy firm’s best deal and its default tariff. If someone forgot to switch to a new deal when their existing one came to an end, they would not be ripped off too badly, but people would still be able to save plenty of money when they got round to switching again, so it would always still be worth their while to become engaged and take that additional action, should they be so minded.
Under these proposals, energy firms would still be able to compete on price—they could still decide whether they wanted to be the Aldi or Lidl of the industry, or the Waitrose or Marks and Spencer—and could still have as many tariffs as they wanted, so there would be plenty of customer choice. If someone wanted a green energy tariff, that would be fine. If someone did not like computers or wanted to do it the old-fashioned way with offline paper and an ink deal, that would be no problem.
I am delighted to confirm today that the idea of a relative cap is supported by three of the largest challenger brands—OVO, Utility Warehouse and Octopus Energy, which cover hundreds of thousands of customers between them—and I hope to persuade others to join the cause in due course.
Crucially, a relative cap is a lot better than a normal price cap. A relative cap would mean that each energy firm could still adjust its prices whenever the wholesale price of gas or electricity went up or down, but a normal cap would mean that Ofgem had to approve any changes, which inevitably would be slower and create work for lawyers and lobbyists. A relative cap would also mean that energy firms still had plenty of incentives to innovate and find new ways to please particular groups of customers however they wanted, without needing Ofgem’s approval first.
Lobbyists and lawyers will hate a relative cap, because there will be much less lobbying and lawyering to do. Putting customers in the driver’s seat would mean fewer fat fees and fat lunches. If customers could switch their supplier as easily as changing their brand of cornflakes or soap, we politicians, and the bureaucrats and regulators, would rightly matter a lot less in this area. Because of the extra clarity and simplicity, a relative cap would mean that we could deregulate, too, by striking out reams of regulations, red tape and guidelines that complicate the market and stop energy firms thinking about their customers first and foremost and make them focus on their regulators, lawyers and compliance directors instead. A relative cap would reduce red tape rather than add to it.
But the people who would hate a relative cap the most are the big six, because it would force them to treat us, their consumers, fairly, to reward loyalty rather than exploit it and to fight hard to keep long-standing customers rather than take us for granted. In other words, it would force the industry to be a normal industry with normal firms where the customer, not the regulator or politicians, is king.
I know that both Ministers and regulators understand this problem. They have spoken to me and many others in this House about it, and both the Secretary of State for Business, Energy and Industrial Strategy and the Prime Minister have been trenchant in criticising the sector for not delivering an economy that works for everyone, so I hope that they will accept the thrust of this motion.
The time for action has come. We simply cannot argue, as others have tried to, that even though fully two thirds of the country is being ripped off, we are not going to help or protect those victims because it is their own silly fault if they are not savvy enough to switch. Yes, we need to make switching easier and safer so that, eventually, most of us do it most of the time. That is clearly the right long-term answer. But I hope that Ministers accept that, until that glorious day, we cannot simply sit back and allow consumers to be harmed on this scale for this long and do nothing. We need to do more.
Alex Salmond (Gordon) (SNP)
On a point of order, Madam Deputy Speaker. This is further to a point of order I raised a couple of hours ago with Mr Speaker about a prime ministerial statement on the Scottish constitution that he pointed out was hypothetical at that time. He said that if such a statement were made, he would entertain a statement from the Dispatch Box by the Prime Minister. That statement has now been made by the Prime Minister, and it has been interpreted as an attempt to bounce the Scottish Parliament’s vote next Tuesday on a Scottish referendum. She seems to be dictating the timing of any such referendum. These points were put to her at Prime Minister’s Question Time yesterday, and she had a full and fair opportunity to give her answer and to be questioned.
Madam Deputy Speaker, you will understand that parliamentary accountability means that if somebody such as the Prime Minister makes a statement about a change of policy, Members of Parliament are prepared to ask questions about it—questions such as, “What happens if the Scottish Parliament is not bounced and votes for a referendum next week? Why does the Prime Minister believe that the timing is not right when this House is going to be asked in 18 months’ time to take or leave a deal with Europe?” Fundamentally, there is arrogance in saying to people in Scotland that they shall not have the right to an act of self-determination or saying to this Parliament that we do not have the right to examination.
Madam Deputy Speaker, have you had a request from the Prime Minister to come to the Dispatch Box and go for parliamentary accountability, or does she feel that Scotland is some sort of county as opposed to the country that it actually is?
Madam Deputy Speaker (Natascha Engel)
I thank the right hon. Gentleman for that contribution, which was not a point of order. I was here when he made his previous point of order—the Speaker was in the Chair—and I heard the response to it. I have been in the Chamber the whole time, so I have not heard any statement made by the Prime Minister, but the right hon. Gentleman has successfully put all his questions and concerns on the record.
Mr Iain Wright (Hartlepool) (Lab)
I congratulate the hon. Member for Weston-super-Mare (John Penrose); it is an honour to follow his speech. He set out the arguments incredibly well. He is passionate and knowledgeable, and his points about the energy market were incredibly measured. I pay tribute to him, my right hon. Friend the Member for Don Valley (Caroline Flint) and the hon. Member for North Ayrshire and Arran (Patricia Gibson) for securing this important debate. The issue affects all our constituents—millions of people up and down the country—and I thank the Backbench Business Committee for agreeing to the debate.
The excellent opening address of the hon. Member for Weston-super-Mare made it very clear that the energy market is not working in the best interests of customers. That is not to say that there is any collusion whatever between the energy companies—far from it. Ofgem told us on the Select Committee on Business, Energy and Industrial Strategy that the major energy companies have quite different price strategies; there can be a difference of about £140 a year between what the major energy suppliers charge dual fuel customers. In addition, as the hon. Gentleman said, there have been welcome new entrants to the energy market, which have disrupted, in a very positive way, the energy oligopoly that has been in place for far too long. There are more innovative companies offering better choice, service, and value to the energy customer. Ten years ago, the big six companies dominated the entire market, with a 100% market share. Last year, that had moved to 85%, which is great. That is positive news. New entrants are taking market share and offering quite competitive fixed-term deals.
I said that there was no evidence of collusion between energy companies, but there are marked similarities between the major energy companies’ business models, and they do not act in the best interests of customers; in fact, as the hon. Gentleman said, they actually punish customer loyalty. Their business models are predicated on a sizeable proportion, if not the majority, of their customer base being, and continuing indefinitely, on their standard variable tariff. Looking at the big six companies, 74% of British Gas customers are on its SVT; for EDF, it is 56%; for E.ON, 73%; for npower, 59%; and for ScottishPower, 50%; and an astonishing 91% of SSE’s customer base is on the SVT.
SVTs are, in the main, the most expensive of all the energy tariffs available, yet almost half of all customers have been with the same supplier for five years or more, and 44% of customers have never changed tariff. It is almost guaranteed that those households are overpaying for their energy. The Competition and Markets Authority estimates that, due to a lack of competition in the market, collectively customers are overpaying for their energy to the tune of £1.4 billion. Despite all that, and the very clear evidence that the market is not working in the interests of customers, energy companies continue to penalise customers for their loyalty. The longer a person is with a company, the more they are likely to pay. In a modern, customer services-oriented economy, what other market could possibly say that?
When npower raised its prices by 14% last month, Ofgem stated to the Select Committee quite categorically that it did not see a case for such a significant rise. Ofgem’s chief executive told our Committee that wholesale costs had risen by about 15% in the past year. However, the overall cost of energy was marginally below what it had been three years ago.
Mr Charles Walker
I made this same point to my hon. Friend the Member for Weston-super-Mare (John Penrose): the big six and Veolia behave in this way because there is a culture of arrogance and entitlement. That is the problem, and we—or, more to the point, the companies—need to address that culture.
Mr Wright
The hon. Gentleman is absolutely right. A market has to be dynamic. Companies should be nervous about customers moving away, but customers are not doing that. As I said, these companies’ business models are entirely predicated on the fact that people will, for a variety of reasons, stay on the expensive tariff; because of that, though companies may provide loss-leading deals for new customers, they scoff at customer loyalty. This market is not working in anybody’s interests. It is not dynamic, efficient or effective, and ultimately it is not benefiting customers.
Mr Wright
This is not just about price and cost; it is about customer service, and what teeth the regulator has—and, ultimately, the Government provide—to ensure a dynamic energy market.
It is true that wholesale costs went up by about 15% last year, and obviously the wholesale cost of energy is ultimately a big part of the energy bill that goes to the customer, but the cost of energy is marginally lower than it was three years ago. Companies hedge their risks when it comes to purchasing energy, which should flatten any price spikes that they experience when buying their energy on the global market. That means that retail prices to customers might not fall as quickly and as sharply when wholesale prices fall, but conversely, it certainly should stop big price hikes when wholesale prices rise, and we have seen no evidence whatsoever of that.
Last month, in announcing its big price rise—the biggest for many years—npower stated on its website:
“over the past few years, the cost of supplying energy to your home has increased, as well as the amount we need to pay towards government schemes.”
This is slightly unusual for me, but allow me robustly to defend the Government. The phrases that npower and other companies have used about the cost of Government schemes are simply wrong. The Committee on Climate Change today published its analysis of energy prices and household costs, which showed that 9% of the average dual fuel bill for domestic customers is accounted for by the cost of moving towards a UK-based low-carbon electricity supply and support for energy efficiency home improvements. The notion that energy companies can justify price increases through Government action or policies is simply disingenuous.
Caroline Flint (Don Valley) (Lab)
My hon. Friend makes an important point. It is worth everybody reading that report from the Committee on Climate Change. Does he accept that part of that 9% of the bill goes on helping people—sometimes the poorest in our communities —to reduce their household bill by introducing energy efficiency measures? It is a worthwhile 9% investment.
Mr Wright
Absolutely, and as my right hon. Friend, who has done fantastic work on this, knows all too well, energy efficiency measures are a key plank of ensuring our competitiveness, tackling fuel poverty and addressing our decarbonisation targets. Everybody wins when energy efficiency measures are prioritised.
Mr George Howarth
My hon. Friend is making a very good case. Does he agree that the energy efficiency measures introduced in tower blocks, and sometimes in low-rise properties, can be complicated to use, and if they are not used properly, they can be more expensive to the consumer? I have had two examples in my constituency over the past few years in which people have ended up paying more for a lower standard of heating. Does he think that there is a case for the Government looking at issuing guidance to local authorities and registered social landlords about how to install these systems and inform tenants about how they are supposed to be used?
Mr Wright
My right hon. Friend makes a really powerful point. I was in the Chamber when he made an intervention about switching suppliers and noted that often people in tower blocks are not able to do that. He makes a powerful case and vividly illustrates that the market is not working in the interests of consumers, who might often be in low-waged and vulnerable households. The Government and regulator need to take steps to make sure that the market works.
Ofgem told us that energy companies have increased their prices largely because they have not been successful in controlling their own costs. Sufficient and efficient companies have been able to reduce and absorb cost increases, and have therefore passed on those benefits to the customers by eliminating any risk of price increases. Others have not done so and, due to the nature of their business model, which I explained earlier, feel that they do not have to consider customers because customers simply will not switch and will continue to stay on the most expensive tariff. Customers are literally paying the price for the failure of energy companies to manage their businesses and control their costs. I said to the hon. Member for Broxbourne (Mr Walker) that I would mention that this is about not just costs, but customer service and a lack of trust in energy companies. There is a huge number of examples. I imagine that every hon. Member has cases regarding this in their inbox.
Citizens Advice told the Committee that companies are getting the very basics wrong with late, missing and inaccurate bills. When they get things wrong, they are failing to provide customers with redress. The market is simply not working. So what is the solution? The current policy response seems to be a dual approach—to encourage companies to engage with their customers more efficiently and to communicate widely the benefits that come from switching. Switching should certainly be encouraged, as customers can make savings of hundreds of pounds if they switch. On the back of the recent price rises from energy companies, I switched the energy supplier for our house and we saved £249. There are big savings to be made. I encourage customers to switch, switch and switch again.
As the hon. Member for Weston-super-Mare said, a small proportion of domestic customers do switch, and they switch very often. They are savvy customers who know the market and want to get the best possible deal, but that remains relatively rare. The vast majority of energy customers do not switch for a wide variety of reasons. For example, people may think, “Can I switch? Aren’t I still with the local electricity board?”, “Will it be too complex? I’m frightened of the hassle factor”, or “I’m frightened that my energy supply might be disrupted.” There is a whole range of things, not least, as the hon. Gentleman said, that people lead busy lives, so they often do not consider an essential utility such as energy. It is not sufficient to state that the energy market will be fixed by encouraging more switching and better engagement. There needs to be a fair deal for all energy customers—for the two thirds who do not switch, and not just for those who do so.
The Government often talk a good game when it comes to tackling energy prices. When it was revealed in the autumn that the energy companies were making higher profits than reported, the Secretary of State hauled those companies into his Department for an explanation, but nothing materialised. When npower raises its prices last month, a spokesman for the Prime Minister said:
“We are concerned by Npower’s planned increases—we are committed to getting the best for households. Suppliers are protected from recent fluctuations in wholesale energy prices which are set two years in advance so we expect them to treat customers fairly and clearly where markets are not working we are prepared to act.”
Only this week, in answer to my question during business, energy and industrial strategy questions, the Secretary of State said that “time is up” for those energy companies. But no action has been taken. Customers will have to endure in the next days, weeks and possibly months high prices rises with no action taken whatever. The regulator says the price rises are not justified, No. 10 says that it is concerned, and the Department has had energy companies hauled in, but nothing has been done. This does not seem to reflect the urgency that should be given to the issue. The key point that I would like to be made in this debate is the Minister saying how the Government are going act—and act now—to ensure that customers get a better deal.
The hon. Member for Weston-super-Mare has an important policy response suggestion when it comes to a restricted price cap, and this could be an important means of providing customers with some respite. He mentioned a number of energy companies that have put forward the idea, and there are some quite striking quotes from the people who run those companies. Stephen Fitzpatrick, chief executive of Ovo Energy, said that the energy market was failing because companies were
“free to charge whatever they think they can get away with, at the expense of disengaged or confused customers.”
He also said:
“The time has come for the Government to step in and take bold action to protect consumers’ interests.”
Greg Jackson, chief executive of Octopus Energy, which has about 80,000 customers, said:
“Energy customers are being robbed in broad daylight, and it’s time for decisive action to end the misery for millions.”
Will the Government look favourably on the hon. Gentleman’s point about a price cap? It is very clear that, at a time of crippling price rises from companies seemingly indifferent to the plight of customers, there needs to be a fundamental change to ensure that the market works for all. In the Minister’s response to the debate, he must set out the detailed steps he will take immediately and in the longer term to act in the interests of customers, and set out the timetable. The time for strong words, for hauling the companies into the Department, and for Green Papers and future legislation is over. If the regulator says that there is no justification for price increases and the Prime Minister is saying that action needs to happen, why can we not have action now? Customers are facing price rises now. We should not have to wait for a Green Paper or legislation in the months to come. We need to act immediately. On that basis, what are the Government going to do now?
Dawn Butler (Brent Central) (Lab)
I congratulate the hon. Member for Weston-super-Mare (John Penrose) and my right hon. Friend the Member for Don Valley (Caroline Flint) on securing the debate, and I thank the Backbench Business Committee.
I will pick up where my hon. Friend the Member for Hartlepool (Mr Wright) left off regarding the Government. The Conservative party has changed its leader and, in the process, it seems to have changed some of its policies, thinking that we would not notice. To be honest, it is just not good enough. Many hon. Members have campaigned hard on energy pricing. In response to Labour’s campaigning on energy prices, the former Prime Minister, David Cameron, said that his Government would legislate to ensure that customers received the “lowest possible tariffs”. The current Prime Minister has refused to honour that pledge, and I do not understand why, especially after she stood on the steps of No. 10 promising to look after vulnerable people. That must include people who suffer from fuel poverty including older people, people who have English as a second language and those whom my hon. Friend the Member for Hartlepool says cannot switch easily. They are vulnerable people who are not being protected by the Government.
The Government are proving just to be all talk on this important issue, which is a real shame. They must act to stop the jump in energy prices, or they could adopt one of Labour’s policies—they are used to adopting our policies—and renationalise the energy companies. They could listen to the Mayor of London, who has some innovative ideas on providing energy to people in London. The price hike is a bitter blow to millions of families that will add more than £100 to their typical bill. When people are struggling to make ends meet, this is just not good enough. This is one of the largest ever increases we have seen, and it is simply unacceptable.
The recent Fuel Poverty Awareness day brought home the reality of the fuel poverty situation across the country. Families are facing the agonising decision of whether to heat or eat, and my constituency in Brent has seen a rise in food banks as a result. Last year, the first ever fuel bank opened in my constituency in order to help residents, especially those on prepayment meters, to get through the winter and difficult times. The food banks came to the conclusion that a fuel bank was necessary as people were approaching them to ask only for food in tins—food that can be eaten cold—because they did not have the money on their meter to heat up or cook food. Lots of people were just surviving on baked beans, for instance. More should and must be done.
I have been campaigning on energy prices for many years because my constituents have struggled with their energy bills, and more and more have come to my surgery with problems. The hardest hit are those on prepayment meters; the House of Commons Library produced figures showing that prepayment customers pay around 15% more on their gas bills than direct debit customers.
So I launched a prepayment meter campaign, and I am really pleased that lots of Members—on both sides of the House, I must say—participated in it. I called on the Government to ensure that fair tariffs were made available for all. Following the campaign, the Competition and Markets Authority recommended a cap on prepayment meters. That was a significant victory, and I was really pleased, but although the cap will reduce the cost for prepayment customers, it will not reduce it by enough—only by about £80. However, the price penalty on prepayment customers can be as much as £320, so a lot more still needs to be done.
One in five families is being hit by prepayment penalties, and they are often the “just about managing” families. As I say, these are the people the Prime Minister often talks about—the very people the Conservative party public relations machine goes into overdrive about, saying that the Conservative party represents them. If it does represent them, the Government would surely do something about this issue, because these people’s inability to heat their homes means they live in damp homes, and it is reckoned that cold-related ill health costs the NHS around £1.36 billion each year. If we want to help the national health service and “just about managing” families, tackling this issue is one step that can be taken very quickly—if there is the will on the Government Benches.
Fuel poverty is a massive problem. It affects over 4 million UK households. In my constituency, one in eight households is classified as fuel-poor, which is higher than the national average of one in 10. The Labour party will continue to work towards ending fuel poverty. When in government, we will put energy efficiency back on the agenda. Struggling families need more than warm words from the Government—they need warm homes.
Caroline Flint (Don Valley) (Lab)
It is a pleasure to follow my hon. Friend the Member for Brent Central (Dawn Butler). I congratulate her on the work she has done serving communities and families that are over-reliant on prepayment meters, and it is a welcome change that they will get some help in the months ahead. I would also say that I have a number of people living in the private rented sector in my constituency—I am sure the proportion is far higher in her constituency. It is a big problem for tenants when landlords do not do enough to make sure that the homes they rent out—they often get housing benefit from the state for doing that—are not decent homes with proper energy-efficiency measures. I know that my hon. Friend will carry on working on behalf of her constituents and people elsewhere.
I would like to thank the co-sponsors of the debate, the hon. Member for Weston-super-Mare (John Penrose) and the hon. Member for North Ayrshire and Arran (Patricia Gibson), who helped to secure the support of 50 other hon. and right hon. Members to obtain this important debate.
My thanks also go to the Backbench Business Committee—Parliament’s own “Dragons’ Den”—for agreeing to our application. It was only five minutes before we went in that I realised the meeting was going to be broadcast, so I had to get my act together quickly, but we were clearly successful, and we secured this debate for today.
It is well known to family and friends that I love the movies. [Hon. Members: “Hear, hear!”] Thank you. It is still on my bucket list to be an extra in one—I just put that out there. One of my favourite comedies is “Groundhog Day”, in which the character played by Bill Murray has to replay a single day until he sees the error of his ways. For me, today’s debate feels like “Groundhog Day” because we are reliving the same arguments about our uncompetitive energy market, companies’ poor customer service and ripping-off of customers on standard variable tariffs—points I have made for the past six years. The Ministers keep changing, but I am still here, and I hope that the Minister today, like Bill Murray in the film, will break this spell, because, not for the first time, the headlines have, as hon. Members have mentioned, been full of the eye-watering price increases made recently by four of the big six energy companies—price hikes that are completely unjustified.
However, in many respects, that is not the principal reason for this debate. We sought the debate to address the fact that the energy market is not working; it is failing Britain’s consumers in almost every respect. It does not promote effective competition. The regional giants created after privatisation remain the dominant players in their home regions 30 years later. We talk about the big six, but for many regions, it is the big one.
The energy market also does not promote transparency. In the period following the Thatcher privatisation of British Gas in 1986 and of the regional electricity boards in 1989, there was a succession of mergers and takeovers. That led to companies being, at one and the same time, energy retailers and power generators. Today, the generation and retail arms of these companies remain within pretty much the same corporate structures. One consequence of that is a complete lack of transparency over the price at which these companies sell energy to themselves before retailing to the public. The reforms Labour proposed in 2015 would have resolved that.
The energy market does not promote consumer confidence. The issue is not whether, superficially, one company offers a fixed-price deal for £150 less than another; it is why 88% of consumers still refuse to switch from one supplier to another. The evidence from the CMA survey of 7,000 consumers was clear: 56% had never switched supplier, or did not recall ever switching, and 72% had never switched tariff with an existing supplier. This market is suffering a long-term crisis of consumer confidence. While a minority of customers shop around, the vast majority seem to want little or nothing to do with the energy companies.
That is not a sign of contentment—of millions of satisfied customers—but quite the opposite. The CMA found that the number of recorded customer complaints rose sixfold from 2008 to 2014. Ofgem’s own research between 2014 and 2016, which was published in September 2016, found that the proportion of domestic complainants who were very dissatisfied with how their complaint was handled increased significantly over that two-year period. The most recent figures showed that 67% of npower customers and 64% of Scottish Power customers were very dissatisfied. Even the medium-sized and smaller companies were not immune—we cannot let them off the hook. First Utility performed worst, with 63% of customers very dissatisfied. The figure for Utility Warehouse was 53%, and for OVO, it was 49%.
The Government preside over a domestic energy market that is not competitive, lacks transparency and has a hell of a lot of dissatisfied consumers. Those factors alone should ring alarm bells in Whitehall and Westminster, but it is the outcome for consumers that ensures that the Government must act. The secrecy, the dominance by a few uncompetitive companies, and the disillusioned, untrusting customer base, which is largely disengaged, all lead to one certain outcome: a consistent failure of the market to offer fair prices. That should be no surprise to any of us. We have regional monopolies—secret and inefficient—low customer engagement and unresponsive pricing. That is why this debate is so important.
I said the UK energy market does not offer fair prices, so let me illustrate that central criticism. First, as my hon. Friend the Member for Hartlepool (Mr Wright) said, the big six energy giants account for 85% of the market, and they treat their long-standing loyal customers worst, as the hon. Member for Weston-super-Mare pointed out. Those customers, without exception, will pay for energy on the most expensive default tariff. The only customers treated worse are those forced to live in a home that has a prepayment meter, either because the landlord requires it or because they have a poor credit or payment history. In 20 years, this group has grown to account for 16% of all households. Even the CMA could not ignore the fact that this group pays a premium of around £80 a year, as well as paying in advance for its energy. I therefore welcome, as I said, the decision to provide some price protection by capping the amount an energy company can charge these customers, but that measure does nothing for the remaining majority of customers who are also being overcharged year after year.
What about the overcharging of the majority of mainstream consumers? Even the CMA could not fully explain this overcharging. Its best estimate was that between 2012 and 2015 the average amount overcharged was some £1.5 billion per year, reaching almost £2 billion per year by 2015. The CMA also found that the revenue from standard variable tariff customers was 11% higher for electricity and 15% higher for gas compared with the average revenue for other customers—and this before any of the current price hikes came into effect. The CMA concluded that in any one year the “detriment”, as it describes it—the amount that is overcharged—was made up of about £600 million a year in excess profits, and the remainder, about £850 million, was down to “inefficiencies”, whatever they may be. This points to bad management by some very highly paid individuals.
John Penrose
The right hon. Lady is making a very compelling case, as she did with me in the dragons’ den pitch for this debate. She is absolutely right about the CMA’s figures showing such horrendous levels of customer detriment. Not only that, but the gap between the standard variable price that is being charged and the wholesale price has been getting wider over the past four years, so the situation is bad and getting worse as time goes by.
Caroline Flint
Exactly. We have the historical evidence that month by month people are still paying far too much for their energy bills.
It is absolutely astonishing that this is happening in what is meant to be a competitive market. The overcharging and the excessive profit margin made from standard variable tariff customers clearly provides no encouragement to move those customers on to a better deal. I believe that this is a bankrupt business model. If we are all admitting—even the energy companies have had to face up to this—that people are paying over the odds, then the companies have a business model based on that. If all these customers were miraculously to move to a lower tariff tomorrow, where would the companies be left? The inertia is compounded by a management approach that does not seem to want any form of effective change.
Unfortunately, the more the Government have publicly urged consumers to switch to save, the more the companies are absolved of any responsibility to move customers on to a better deal. A sticky, passive, unengaged customer base appears to suit some of these firms down to the ground. When, back in 2012, EDF automatically moved vulnerable elderly customers on to its cheapest tariff, sadly other suppliers did not follow up with this better practice.
The CMA’s final report concluded that to eliminate overcharging, prices would have to fall across the board by an average of 3% per year between now and 2020. It hoped that its measures to promote switching would create more competition in the market and have a downward effect on prices, but it was reluctant to say exactly how successful it expected that to be. The problem that the CMA faces is that the UK has an energy market with unhappy consumers, a dysfunctional pricing mechanism, and companies that are, I am afraid, largely immune to competitive pressures.
Ofgem has reported that some 3.3 million households switched supplier from January to December 2016. This is apparently the highest level of switching for six years, but it equates to less than 12% of households. I worry that we have a two-tier energy market: an active, informed class of consumer who is energy-conscious, internet-savvy, shopping around and managing their accounts online, and a far bigger, less informed, less engaged, less internet-savvy, discontented majority.
Mr Iain Wright
My right hon. Friend is second to none in her knowledge of energy policy. She may be coming on to this, but I would be interested to get her thoughts on policy fixes. Does she think that the regulator has the powers but is not using them, or that the Government need to give the regulator more powers to help fix this broken market?
Caroline Flint
The regulator already has powers in its back pocket. It can intervene if it thinks that the market is uncompetitive. It can, if necessary, take customers off a company that is failing and allow them to get a better deal elsewhere from other suppliers. However, we do need Government to take responsibility. Whether we have the relative price cap that the hon. Member for Weston-super-Mare proposes or my suggestion of a protected tariff—if not permanent, then temporary—to fix this market, it is clear that more reform is needed. I wish that the regulator would use its powers; it has been very slow to do so, although it has speeded up in recent years. There is more it could do, but there is more that Government could provide it with to do a better job.
One of the CMA’s proposals is that data on customers should be shared so that other energy suppliers can send their offers to customers. The problem is that people will be bombarded with leaflets and emails from operators in a sector in which their trust is already so low that they may not put any more in this marketing mechanism. These are the very people—immune to direct mail, annoyed by calls from would-be energy suppliers, and mistrustful of the whole industry—who are not being helped by any of the measures put forward since the CMA report.
The CMA believes that by encouraging switching and a shared database for companies to market new tariffs to each other’s customers, price competition can be made to work. However, I am afraid that this shared database seems to be a new label for an old solution. We have had six years of trying to bring a consumer benefit by switching—six years of abject failure. I must therefore ask the Minister whether it is realistic to assume that 28 million households will be able to reduce their average bills by 3% a year, as the CMA suggests, for each year between 2017 and 2020. The CMA believes that if it succeeds in its aim, this steady price fall would eliminate the overcharging—the detriment—but even if it did, it would not repay one penny of the money already unfairly taken from consumers. I see no mechanism in the CMA’s prescription that can achieve even the objective it has set. Adding customers who have remained on a standard default tariff for three years to a huge marketing database for other companies to prey on will not, in itself, make this market more competitive.
In March, Ofgem published the information that January’s cheapest available tariff was 22% cheaper than the average customer’s bill, but did not identify how long that offer lasted or how many customers benefited. However, let us follow its logic. What if that tariff was widely available? What if the 12% of switchers—3.3 million consumers—all switched to this new best value tariff, and what if those 12% of customers all got a saving of 20% on their bills? This change alone might notionally cut average bills by 2%—almost the 3% the CMA hoped to achieve through its measures—but it would not reduce the detriment by one penny for the 88% who do not switch. The penalty incurred by the vast majority would remain.
Also among the CMA’s recommendations is that price comparison websites should no longer have to display every deal on the market, so consumers may only see the deals that give the website a commission. The majority of customers who remain resistant to the lures of the marketeers will still see no gain. Those customers—some 20 million who pay the default standard variable tariffs and endure their prices going up and down as the energy provider chooses—are left at the mercy of their supplier, which the CMA has already identified as consistently overcharging them. They certainly cannot rely on wholesale prices to save them, because there is no obligation to pass on falls in wholesale prices to consumers—not even in part. Ofgem reported that wholesale gas prices fell by 44% between 2012 and 2016, yet consumers saw their energy bills rise by 7% over the same period. Such a perverse result could happen only in a dysfunctional market. Where do consumers turn to get fairness? The only avenue for the majority of consumers is the Government, who are the one agency with the powers to change the game at a stroke. How long will the public have to wait before the Government finally act as a consumers’ champion?
In 2011, when I became shadow Energy and Climate Change Secretary, I advised the Government that energy bills were soaring, but they did nothing. In October 2011, the then Prime Minister convened an energy summit and proposed to write to millions of consumers about switching, but that did not work. In November 2013, Mr Cameron tried a different approach: “get rid of all the green crap,” a senior source reported him as saying.
As has been touched on in this debate, the big six always like to divert discussion of bills on to green levies, even though investment in renewable energy and low carbon energy is exerting a downward pressure on wholesale prices. It is ironic that domestic consumption of energy, in kilowatt hours, has gone down, but we are paying more in our bills. The former Prime Minister said, “get rid of the green crap”, and he did so. The Government shortly afterwards reduced some of the environmental obligations and network charges and cut bills by between £39 and £50. Unfortunately, that year energy bills rose by an average of £120, so that did not work.
Mr Cameron always ridiculed Labour’s energy price freeze, which was a proposal to cap energy prices for 20 months while the energy market was reformed. Instead, in 2014 he announced the CMA investigation. Its initial findings the following year and its final report in June 2016 entirely vindicated Labour’s concern about unfair energy prices. We now have it on the record from one of the Government’s regulators: Britain’s consumers were ripped off year after year for a period of four years—that we know of. About that there is no dispute. It is an £8 billion scandal, and every month the financial punishment for customers grows.
So what do we want? My plea to the Government is simple. Recognise the scale of the problem. Recognise that switching campaigns, which have now become a gimmick, can only scratch the surface. They will never get to the heart of the problem. Recognise that the industry needs reform, and that until it is reformed, the Government need to introduce price protection for consumers.
I believe that that protection should take the form of a protected tariff, and I first argued for such a tariff after the general election in 2015. Consumers need nothing less than some sort of regulated maximum charge that companies can levy, which is based on wholesale prices, network costs and an acceptable level of profit. I do not believe that that can be left to the companies. Any voluntary measure is welcome, but the approach has been too piecemeal. We need the Government to act by introducing a protected tariff, which is set by Ofgem. We know that Ofgem is capable of that calculation, because it has just done a similar exercise for 3.5 million prepayment meter customers.
Am I asking for something outlandish? No. Northern Ireland still has price regulation, and a majority of countries in the European Union still have price controls of one sort or another. In the matter of price controls, we are not thwarted by the European Union. We cannot blame either the EU or Brexit for the Government’s failure to address this injustice. The problem lands on the doorsteps of No. 10 and the Department for Business, Energy and Industrial Strategy. The Government have the power and the means to end the unfairness in our energy market, or at least to offer a temporary respite, as they have done for prepayment customers, until more substantial reforms can be enacted.
In November the Secretary of State said:
“Customers who are loyal to their energy supplier should be treated well, not taken for a ride. It’s high time the big companies recognised this. I have made clear that this cannot go on and they must treat customers properly or be made to do so.”
I say to the Minister: now is the time. This problem is not going away, and I urge the Government to listen to the voices of Members of all parties who believe that the current energy market does not serve the British people well. Action is long overdue.
Kerry McCarthy (Bristol East) (Lab)
It is a pleasure to follow my right hon. Friend the Member for Don Valley (Caroline Flint), if a little daunting to speak after such a tour de force. As has been said, she is second to none in her knowledge of this issue. I congratulate the hon. Members for Weston-super-Mare (John Penrose) and for North Ayrshire and Arran (Patricia Gibson) on their support in securing this timely debate, which comes in the wake of the most recent excessive price rises by the big six energy companies. It is good to join this cross-party platform to urge the Government to do something to stop those companies ripping their customers off. The companies have been getting away with it for far too long.
My right hon. Friend has campaigned for fair energy prices for the past six years. If dogged determination were enough to secure victory, it would have paid off long before now, but very little has changed during that time, as we have heard. Despite talking big on energy reform, the Government have failed to act where the market is failing. They quietly dropped a promise made by the Prime Minister in 2012 to force companies to switch customers to their lowest tariff; and, despite the rhetoric about cutting the green crap, they failed to ensure that the reductions they made to environmental and other obligations resulted in lower energy bills.
Ofgem’s capping of prices for customers on prepayment meters on the recommendation of the Competition and Markets Authority is welcome, but I agree that we need action for all standard variable tariff customers. In recent weeks, npower and SSE have raised their electricity prices by an eye-watering 15%, and another three of the large companies have increased their bills by nearly 10% on dual fuel standard variable tariffs. That is despite Ofgem saying that it saw no reason for price increases, given that wholesale prices are only just starting to increase from a low base. It has not gone unnoticed that many of those rises have been piled on to electricity, no doubt to ensure that as people start turning their heating off, bills remain high over the summer.
As has been said, it is grotesquely unfair that the current structure penalises the most long-standing and loyal customers, as well as the most vulnerable. The difference between a company’s cheapest tariffs and its SVTs is almost £200, and customers on SVTs pay 11% more for their electricity and 15% more for their gas than customers on other tariffs. In 2015, consumers overpaid by a staggering £2 billion; The Observer estimated that that was the equivalent of a halfpenny rise on income tax. With 70% of big six customers on SVTs, these tariffs are clearly helping to support record profits; the profits of the big six increased tenfold between 2007 and 2013.
As we have heard, rising energy prices are putting a real strain on household budgets and hitting the poorest households, which are far less likely than others to switch, particularly hard. Energy bills now account for 10% of spending in the poorest households, compared with just 5.5% in 2004. Citizens Advice estimates that 2 million low-income families pay £141 extra every year.
I want to talk for a moment about my own constituency and the city of Bristol, which I am proud to represent. We have some of the worst incidence of fuel poverty in England. People always think of Bristol as an affluent place, but, as I am sure the hon. Member for Weston-super-Mare will confirm, the fact that parts of a city or town are thriving does not mean that people in other parts of it are not living in poverty. More than 25,000 people in Bristol—13% of the city—are living in fuel poverty, against a national average of just under 10%. Variations within the city are particularly stark. In some neighbourhoods, nearly a quarter—more than 23%—of households are in fuel poverty. Those areas are within a mile of neighbourhoods in which the figure is only 5%. Local food banks increasingly have to help people who self-disconnect or who ration their energy use, as well as their food consumption, to save money. People too often have to choose between heating and eating—fuel or food—as we have heard.
For those who suffer from long-term health conditions, living in a cold home can cause considerable suffering and even early death. Last year in my constituency there were 30 excess winter deaths, of which around a third are estimated to have been caused simply by cold homes. Over the years, I have heard some shocking stories from constituents. I was contacted a while ago by one woman whose husband was extremely ill. Their cold home was not only making her husband’s health condition worse, but denying them the most basic of comforts. In her email to me, she said,
“all we would like is to be warm in our home”.
I do not think that that is too much for anyone to ask in this day and age.
Other MPs will have in their localities the new breed of municipal energy providers, which provide a very different offer from that of the big six, with fairer rates and cleaner energy. Bristol Energy was set up fairly recently by Bristol City Council. Bristol Energy is a national company, so anyone can switch to it, but there is a special tariff for people with a Bristol postcode. It was set up to help local people, as well as people from outside the city who want to join in, to pay less for their energy and to provide a new way to raise funds for the city, as all the profits will be reinvested back into Bristol. Its standard variable tariff is significantly cheaper than that of the big six—on average, £105 cheaper—and it keeps its fixed deals fair, too. It is currently trialling a warm homes plus tariff, to bring households in Bristol out of fuel poverty. This non-profit-making tariff is only available by referral, and Bristol Energy is working with the citizens advice bureau, the council and Bristol’s Centre for Sustainable Energy on those referrals. It is looking for 1,000 people to put on this tariff to start with, limited to a year, to help lift them out of fuel poverty. As I have said, the profits will be invested back into the city. In the longer term, we want to be really ambitious in tying energy in with the waste sector. I was told on one visit to a waste plant on the outskirts of the city that it is reckoned that Bristol’s waste alone could generate enough energy to heat 250,000 homes. That has absolutely to be the way forward: a local solution to a local problem.
However welcome new entrants such as Bristol Energy are to the energy market, they seem to have had little impact so far in putting pressure on the big six to reduce their prices. Despite better practices by some companies, pushing people to switch or telling them that that option is available is clearly not enough. Ann Robinson, an independent energy expert, said in The Observer at the weekend:
“Although I believe in competition—because when it works it can result in fairer prices—we have to face the fact that not everyone can and will engage in the market.”
A spokesman for the Department for Business, Energy and Industrial Strategy has said that Ministers are ready to act when the market is failing. Those words are encouraging, but it is absolutely clear that the market is failing for the majority of people. I am not sure when the Department will decide that it is time to act, but if it had not been made before this debate, the case has certainly been made very powerfully on both sides of the Chamber today that the market is failing and it is now time for the Government to act.
Just 15% of households are regular switchers, and 66% of the remainder are customers who have never switched supplier—the so-called sticky 66%. As proposed in the motion, we need an approach that keeps open the option of full switching, but ensures the sticky customer does not become disadvantaged by remaining on an uncompetitive tariff. I very much support the proposals from Labour’s Front-Bench team and my right hon. Friend the Member for Don Valley for tariff reform, which is fairer and much more transparent.
Much greater transparency—as a first step, the inclusion of a breakdown of costs behind each of the tariffs, as well as the wholesale energy and transmission costs, and add-ons, including green energy—with an improved annual renewal notice along the lines of motor insurance, would encourage more switching, but I believe we need to go further still. We also need some kind of price controls for those on standard variable tariffs, and I urge the Government to pick up my right hon. Friend’s proposals for capping these tariffs.
My concern is that if we wait for the completion of the consultation on the Green Paper on when the Government should intervene in markets—it is due in the spring—it will be too late to affect energy prices next winter, and people will again suffer from having to pay above the odds with extortionate energy bills. The Observer said in an editorial:
“The government must reinstate price regulation until there is convincing evidence that market forces will provide value for consumers rather than unfairly enriching corporate profits.”
Consumers have been exploited for too long, and it is now time for the Government to act.
Patricia Gibson (North Ayrshire and Arran) (SNP)
I am delighted to be a co-sponsor of this debate, and I am grateful to the hon. Member for Weston-super-Mare (John Penrose), the right hon. Member for Don Valley (Caroline Flint) and, indeed, the Backbench Business Committee, for enabling it to take place. As has been pointed out—this is one of the disadvantages of speaking so far down the list—this debate is long overdue. Ultimately, it is a debate about how we can empower consumers, as they too often face injustice in relation to energy prices.
We know that average annual domestic gas and electricity bills in Scotland increased by up to 114% and 50% respectively between 2004 and 2015, but the price that consumers pay varies, depending on their method of payment, and the consumer does not always have control over their method of payment. On average, electricity and gas consumers across Scotland using standard credit and prepayment meters face bills that are approximately 10% higher than for those able to use direct debit. The cost of a unit of gas is similar across Scotland and the rest of the British energy market for domestic consumers, but the unit price of electricity differs considerably within Scotland. Consumers in the north of Scotland pay on average between 8% and 9% more per kilowatt-hour of electricity, depending on payment type, than in the rest of Britain.
The big six energy companies supply gas and electricity to over 50 million homes, with a market share of 85% of UK domestic customers. Last year, the Competition and Markets Authority completed a two-year inquiry into the energy market, and the hope is that costs can be driven down by increasing competition between suppliers and helping more customers to switch to better deals. However, as we have heard, there is a problem. The Competition and Markets Authority has found that the
“vast majority of people don’t switch providers”,
and, even worse, that 70% of all big six customers are on the default standard variable tariff, which means that 16 million homes are paying more for their energy than they should. As the hon. Member for Weston-super-Mare pointed out, loyalty is treated as something to be exploited, rather than rewarded. The premium that standard variable tariff consumers pay over those who switch has tended to increase over time. In 2008, it was less than £100 each year, but by mid-2015 it stood at £330, and it currently stands at about £230. In all that time, rates of switching are no higher, so clearly, as the motion sets out, the way to protect consumers cannot be done simply by encouraging them to switch suppliers; much more is required.
Consumers on standard variable tariffs are much more likely to be older, disabled, on low incomes, living in rented accommodation and without internet access. Those on standard variable tariffs did not see their bills fall by much when the cost of providing energy dropped in 2014-15. Such savings as were available were passed on only to consumers who were active switchers. Not all consumers can engage in the switching process, so clearly suppliers need to do more to ensure that these customers are not trapped in poor deals.
The existing market provides scope for households to save money on their energy bills by switching, but a low level of consumer engagement in the market still persists. Indeed, the Competition and Markets Authority found in its investigations that one of the main issues is
“a lack of engagement in the markets on the part of many customers which suppliers are able to exploit by charging high prices.”
Some 34% of domestic energy customers had never considered switching supplier, with 56% saying they did not know if it was possible or did not know if they had done so in the past. In the context of this debate, I want to draw attention to one issue of concern. Switching can take up to 21 days, which is a considerable period. A consumer thinking about switching may be concerned or fear that something will go wrong during that extended period, for which I do not believe there is sufficient justification.
One result is that energy is becoming increasingly unaffordable for consumers. Between 2004 and 2014, average annual domestic gas prices rose by about 125% in real terms. Significantly, consumers who are engaged in the market are typically higher income earners who have access to both a mains gas supply and the internet, so they can carry out comparison shopping much more easily, and they can of course pay by direct debit. This is yet more evidence that the way to protect consumers is not simply to encourage them to switch suppliers.
Energy efficiency measures are important, as we have heard. The Scottish Government have done a lot of work on that, and they are driving down fuel poverty, although it still remains stubbornly high. Ultimately and fundamentally, however, we need effective regulation of the retail energy market, and we need to work collaboratively with energy suppliers to explore ways of helping low-income households with their energy bills. We need a market that works equally well for all energy consumers, regardless of where they are on the income scale.
It will be important to monitor closely the widespread review that Ofgem is currently undertaking of its consumer regulation framework. Given what we have heard today, there must be a case for the safeguard tariff—the limit on the amount prepayment customers are charged—to be expanded to include consumers on the standard variable tariff who are eligible for the warm home discount on a credit meter. It is also important for the Government to set targets for suppliers to reduce significantly by 2020 the number of customers on standard variable tariffs. If suppliers cannot or do not meet these targets, consideration must be given to broadening the safeguard tariff to protect other standard variable tariff customers. I would very much like the Minister to address these issues today.
Just because consumers, who very often are vulnerable, are not able to negotiate the process of switching does not mean they should be left at the mercy of a market that punishes them for it. Energy is an essential utility and much more must be done to protect those who are currently very poorly served and overcharged. I think we all agree that doing nothing is not an option. I hope the Minister addresses the concerns that I and others have raised today, and reassures the House that he is protecting consumers and putting energy companies on notice that things cannot and must not continue in the same way as they have been.
Judith Cummins (Bradford South) (Lab)
It is a pleasure to follow the hon. Member for North Ayrshire and Arran (Patricia Gibson).
Bradford is a proud city, but it faces its share of challenges. Many in Bradford endure poverty despite being in paid work. In-work poverty is rife. Despite working long hours week-in, week-out, pay-packets simply do not meet the basic necessities. One such basic necessity is how to pay gas and electricity bills when they drop on to the doormat. To my mind, that is what today’s debate is all about.
As energy prices soar and wages continue to stagnate, hard-pressed families and those on low incomes are faced with desperate choices. What should they pay first: their rent or their electricity bill? What is more important: their weekly food shop or their gas bill? What is better for their family: a warm home or food on their kitchen table? Without doubt, soaring energy prices touch every single person in this country, but the poorest suffer disproportionately.
What is clear is that the wider energy market is in chaos. For how many hours have coal-fired power stations provided electricity to the grid this winter? Previously, coal provided 12 terawatt hours a year. How many terawatts has coal produced in the last year? Is it not the case that coal stations produce more emissions on lower loads? How will the current capacity market mechanism guarantee new power stations? Is the bid price not too low? The market is failing consumers and failing to secure the nation’s energy future.
It is also clear that the energy sector is no longer operating in the interests of our constituents. All the big six energy companies—except British Gas, to its credit—have recently announced price hikes. Competition is supposed to be there to drive down costs and lower prices. The big six enjoy a near monopoly position—a huge 85% market share. When prices are hiked within days of each other, that is strong evidence the market is broken. The Government cannot continue to argue that competition in the energy sector is the key to lower bills. The big six are failing to get ordinary families and hard-pressed individuals on to their cheapest tariff. For 20 million households to be stranded on default tariffs is a scandal. The mantra about helping customers—my constituents—on to the cheapest tariffs is little more than spin. Customers could be paying an additional £230 each year. That is a huge sum when family budgets are under such pressure.
In Bradford, I am fortunate that my local council is working to tackle fuel poverty, but it cannot control the big six energy companies. That is solely within the gift of the Government. In 2015, Bradford Council adopted a fuel poverty framework for action. This, devised in partnership with the respected National Energy Action, undertook a detailed analysis of the scale of fuel poverty in Bradford. The study discovered that although in recent years homes in Bradford have benefited from some 50,000 energy efficiency measures—from loft insulation to new boilers—one in eight households continue to suffer fuel poverty. That remains the case today.
Bradford is a city blessed with a long and rich history, but its historical and industrial past means that a substantial proportion of its housing is very old. Nearly 40% of the city’s housing stock was built before 1919, which is considerably above the national average of nearly 25%. A further 21% of the city’s housing stock was built between 1919 and 1944. These homes are classified as hard to treat, as they are stone-built or feature irregular constructions. In many other towns and cities throughout the country, a family faced with soaring energy prices might consider improving the energy efficiency of their home—if, of course, they could afford it. In Bradford, however, the prevalence of hard-to-treat homes means energy efficiency schemes are neither quick nor affordable. Measures are complex and expensive. The prospect of a hard-pressed family meeting the expense of a complex scheme is ever more unlikely in light of the Government’s policies.
The plight of families is especially desperate in the private rented sector in Bradford. As families have been priced out of the housing market, many have found themselves in rented accommodation that has seen little investment for many years. The number of households in the private rented sector in Bradford has rocketed from 17,500 households in 2001 to nearly 40,000 in 2015. It now accounts for over 18% of the total housing stock.
I recognise that the Government are taking steps to tackle fuel poverty in the private rented sector. Regrettably, the measures announced by the Government lack ambition. The legal minimum requirement in the private rented sector has been set at “E”. This represents the average rating for the country’s housing stock. An ambitious Government would have set the legal minimum much higher. If the Government had done so, an average family in private rented accommodation could have looked forward to a warmer home and saved hundreds of pounds every year.
The damage wreaked by fuel poverty is not limited to people’s finances. A cold home severely damages the health and wellbeing of my constituents. Evidence proves that living in a cold home aggravates a range of health problems, including circulatory conditions, cardiovascular disease and mental health. In extreme circumstances, living in a cold home leads to premature death during the winter months. To my shock, the rate of premature death in Bradford for the period 2010 to 2013 was over 22%. That is 5% higher than for the Yorkshire and Humber region, and for England as a whole. People are literally paying for fuel poverty with their lives.
This situation must not go on. The Government must take action to tackle fuel poverty. The double whammy of soaring energy costs and cuts to energy efficiency schemes is pushing hard-pressed families in Bradford close to the edge. For many families, the desperate choice is between a warm home and food on the table. That is unacceptable in this day and age.
Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP)
I would like to thank every single hon. Member for their contribution today. In particular, I thank the hon. Member for Weston-super-Mare (John Penrose) for bringing the issue of energy prices and the treatment of consumers to the House, via the Backbench Business Committee.
The big six have a lot to answer for. Rewarding long-term and loyal customers with the highest tariffs is simply appalling. Many of these individuals are elderly, vulnerable or disabled, have learning disabilities or mental health problems and can least afford them. When my own grandmother was transferred to hospital in her 90s, we examined the tariff she was paying for. It was about two times higher than what we were paying. Pensioners have a tight budget and may be frail and very elderly. They rely on heating to prevent pneumonia. How can these companies sleep at night?
There has been a great deal of talk about switching, and why we do not do it more. I hope I am not the only person who has been bamboozled by energy tariffs. I have a doctorate, but I find the system absolutely incomprehensible and the tariffs incomparable. I have tried on a number of occasions to compare day rates, night rates and standard daily charges, but without a PhD in mathematics, it is all but impossible. On two occasions I switched rates to save money, and then found that my bill had increased. I cannot help thinking that the system has been made over-complex for people on purpose.
The hon. Member for Weston-super-Mare has suggested a relative energy cap to help those who are currently being mercilessly ripped off. That proposal is apparently supported by a number of competitor brands, and I urge the Minister to consider it. It may be an interim solution, as has been said, but it will save customers—our constituents—money. Our focus should, indeed must, be on them. The hon. Member for Hartlepool (Mr Wright) mentioned the exorbitant price differential if consumers make the wrong decision, pointing out that the big six often do not act in the interests of customers.
Mr Jim Cunningham (Coventry South) (Lab)
Over the years the House has had many debates about the big six, but is it not time for a proper inquiry into how they actually operate? It seems to me that they are a cartel that fixes prices most of the time, and at the end of the day the hon. Lady’s constituents and mine suffer as a result.
Dr Cameron
That is an important point. It has been made clear repeatedly today that many Members feel that there is a monopoly, and that consumers must be put at the heart of energy pricing. The hon. Member for Hartlepool described the difficulties that people have experienced in switching suppliers, and pointed out that, while energy costs have fallen, prices have been hiked. That in itself is an absolute disgrace.
Mention has been made of smart meters, which, although they help individuals to monitor energy usage, appear to place responsibility on consumers, as though they were using too much, when in fact they are paying too much. Smart meters are not the sole answer, and companies must step up and take responsibility.
My hon. Friend the Member for Na h-Eileanan an Iar (Mr MacNeil) has asked me to point out that fuel poverty rates in the Western Isles are higher than those in any other local authority area in Scotland. The announcement from SSE that it will increase energy prices by 14.9% is a huge blow to his constituents. What measures will the Government take to address the issues that are being faced exponentially by those in island and rural communities?
The hon. Member for Brent Central (Dawn Butler) said that “just about managing” families were being most affected, and that the Government were not standing up for their rights. She also rightly drew attention to the impact of fuel poverty. In an excellent speech, the right hon. Member for Don Valley (Caroline Flint) discussed the levels of dissatisfaction among customers throughout the United Kingdom, which she said should ring alarm bells for the Government. She emphasised that those who were struggling to pay were paying the most, and that, meanwhile, company profits were increasing. The hon. Member for Bristol East (Kerry McCarthy) spoke of Bristol Energy’s contribution to fair pricing locally, and the level of local fuel poverty. She was right to highlight her constituency concerns.
My hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) described the situation in Scotland, particularly in rural and northern areas. She said that it could take 21 days to change supplier, which in itself was putting people off—the process is inflated. She called for an extension of the safeguard tariff, and said that the Government should consider the need for reductions in the percentage of consumers on the standard tariff within a set time frame. There are rural areas in my constituency that are still off the grid. Much more needs to be done to support rural communities that have little choice when it comes to costs and types of energy. I urge the Minister to address that, because those communities are among the worst affected by price changes. The hon. Member for Bradford South (Judith Cummins) spoke of soaring energy prices, and said that the poorest suffered disproportionately.
As for Scottish Government policy, a draft Scottish energy strategy is now open for consultation, and I encourage those who are interested to give their opinions. The Scottish Government remain committed to putting consumers at the heart of their policy, and to their renewables targets. I urge the Minister to act, because we do not need a postcode lottery. Everything that we have heard today makes clear that the energy sector needs reform and needs it now, and that that reform must be made to serve customers rather than itself.
Dr Alan Whitehead (Southampton, Test) (Lab)
We have had an excellent and powerful debate, and I thank the hon. Member for Weston-super-Mare (John Penrose), my right hon. Friend the Member for Don Valley (Caroline Flint) and the hon. Member for North Ayrshire and Arran (Patricia Gibson) for securing it. I know there were a number of problems with the televising of the pitch for it, but as it turned out the pitch was successful, and the wisdom of the Backbench Business Committee has been borne out by the powerful contributions made today by my hon. Friends the Members for Hartlepool (Mr Wright), for Brent Central (Dawn Butler) and for Bristol East (Kerry McCarthy), the hon. Member for North Ayrshire and Arran (Patricia Gibson), and my hon. Friend the Member for Bradford South (Judith Cummins).
I intend to comment specifically on what Members have said today, but I think we can agree that they all emphasised that the present energy market is broken and no longer doing its best for customers, who, after all, are at the heart of energy generation and supply. We have found ourselves in rather an odd position, in that we have not been discussing—as we frequently do in the Chamber—the plight of a persecuted minority and what we might do about it; instead, we have been discussing the plight of a persecuted majority and what we might do about it. If that does not emphasise the point that Members have been making about the brokenness of the market, I do not know what does.
We have seen eye-watering price increases lately. A number of companies have raised the price of dual fuel by 10%, and there have been double-figure increases in electricity bills from others. The companies justify their increases on the basis of a combination of wholesale prices and the Government’s environmental measures, and even—as we have heard recently—the impact of smart meters. The problem is that we have no easy way of assessing the extent to which those claims are justified. However, as was emphasised by my right hon. Friend the Member for Don Valley, we need to lay one canard to rest, and that is the suggestion that price rises are a result of low-carbon levies. They are not. As we heard from my hon. Friend the Member for Hartlepool, the recent report from the Committee on Climate Change indicated that, overall, only 9% of bills result from Government energy measures. Indeed, not only are those energy measures not a huge part of the overall bill, but they will contribute to decreasing bills in the future by decreasing demand, by increasing energy efficiency, and, in terms of renewable energy, by changing the merit order of energy supply so that eventually the wholesale price of energy can be driven down over a period.
Mr Iain Wright
What does my hon. Friend think about the fact that E.ON UK last week justified its dual fuel price increase by saying:
“It is due mainly”—
we should think about that word—
“to the rise in non-energy parts of the bill such as social and environmental schemes which support renewable energy and help customers use less energy”?
Yet today it has announced big rises in profits, primarily owing to lower costs in conjunction with Government-mandated energy efficiency measures. They want to have their cake and eat it.
Dr Whitehead
My hon. Friend makes a powerful point; they do want to have their cake and eat it. The problem is that we are not sure where the cake is and how we can work out which bits of the cake come from which source, because the whole energy market as it stands is non-transparent. Transparency is central to being able to judge whether such price rises are justified. The transactions that the energy companies undertake in order to trade, to hedge their trading, and to bring the costs of wholesale into the retail market are almost wholly opaque, and they continue to be so.
In addition, as we have heard this afternoon, the persecuted majority get hit all ways; they are hit by the price rises and hit by paying for the most expensive tariffs in the company roster—and in some cases, up to 90% of the customers of those companies are paying for the most expensive tariffs. So not only should we not speak about standard variable tariff customers as if they are an endangered minority, because they are in fact an endangered majority, but we must stop suggesting that it is somehow their fault that they have not switched and as if they are responsible for not switching. If we look at the history that my right hon. Friend the Member for Don Valley pointed out, we see a correlation between the areas from which modern energy companies originated and their sticky customer base. In fact, in a number of instances, a large proportion of those sticky customers were inherited when the companies were privatised and have stayed with them ever since. One might think that that shows admirable loyalty to those companies, and that to treat those customers in the way we have heard about this afternoon is absolutely the wrong thing to do.
Such behaviour produces a huge base of customers that is advantageous to energy companies, not to put too fine a point on it. As the hon. Member for Weston-super-Mare said, those customers will pay more for less year after year, they will not desert the company as a result, and they can be relied on to be milked to the benefit of the company’s finances. That points to the problem with the solution to this issue that the Government and the Competition and Markets Authority have been pursuing, which is sort of to blame those sticky customers for the plight they find themselves in and say, “Well, if only you’d switched, everything would be okay.” Indeed, that idea is at the heart of the recent CMA report on the energy market: “Why don’t all these sticky customers switch? If they don’t, how can we poke and prod them until they do? If we keep prodding and poking them and they still do not switch, we can get other companies in to poke and prod them a bit more and then they might switch.” That is not a satisfactory final remedy, given the scale, the nature and the brokenness of the market.
However, we should not therefore be surprised to read in the principles attached to the provisional remedies that the CMA put forward—the principles on which it operated the recent inquiry—the following statement:
“It is through customers shopping around and making choices between the offerings of rival suppliers that the benefits of competition emerge.”
That is what it thought it was doing through the inquiry.
The CMA has come up with the idea of putting a cap on tariffs for customers on prepaid meters, and I pay tribute to my hon. Friend the Member for Brent Central, who has been instrumental in securing that through her campaigning on the status of those on prepaid meters and the excess sums they were paying. However, although that cap idea is welcome, it does not do very much for the overall issue. We know that those sticky customers are not going to switch in a hurry and that the energy companies know that; we know that there is no evidence that companies are trembling at the thought of their customers switching and are trimming their rises accordingly. As we have heard this afternoon, the evidence from reports is that switching is a substantial occupation for some, but not for most. Switching figures in total often conceal a churn of switching between companies, often ending back in the same place, and multiple switching by a proactive few, but none by most.
So we have almost a perfect storm in our markets. Prices are spiralling. Ofgem said about recent price rises that it did not
“see any case for significant price increases where suppliers have bought energy well in advance.”
Customers were stuck in the middle of that spiral, however, and in most instances were paying out on disadvantageous tariffs, to boot. So, in the customers’ interest, we need to get a grip on that problem urgently.
We have heard this afternoon that getting that grip has been promised on a number of occasions. We heard that the Prime Minister suggested that everyone should be put on the lowest tariff. That has disappeared. We heard more recently Ministers saying that companies are in the last-chance saloon and something has to happen, but very little has actually taken place. That is despite the fact that, as Members have mentioned, it is plain that customers have been overcharged for a long period by energy companies, with the CMA itself estimating a sum of almost £2 billion by 2015.
So a regulated price cap within which competition could take place is a good idea. I recognise, however, that a price cap has to be considered within the context of the fact that there will be real pressures on costs. It is true that, on occasions, wholesale markets go up, and the energy companies will have to absorb that through price increases. So a cap that allows that arrangement to take place, but within which work can be done to ensure that competition remains, is a good starting idea, as is the idea that sticky customers should, after a certain period, be taken into protected tariffs, as my right hon. Friend the Member for Don Valley suggested, or on to the lowest tariff that a company offers. That is one way of starting to take action in relation to sticky customers.
I believe that there is rather more to the present dysfunction of the energy market than just the question of sticky customers, however. Ofgem said recently that there was not a case for significant price rises when suppliers had bought energy well in advance. Perhaps we need to deconstruct that sentence. It is not clear whether Ofgem was referring to companies buying wisely in advance or a long time in advance. Either way, the injunction is sound. Long-term buying strategies and smart hedging mean that price rises should not be spiking in the way that they all too often do, but we do not know what companies are actually up to when they are buying.
We do not know what is happening as far as energy company trades are concerned. For example, 95% of trades by wholesale energy companies are over the counter and we cannot see what they consist of. We do not know the extent to which energy companies that are vertically integrated effectively trade with themselves, or the extent to which this reflects fair trade in the market in forward trading. Surely we need to open up the market to full transparency, not just day-ahead but right along the curve, so that we know what is going on and we can act to prevent the abuses of trading positions that take place to the advantage of companies’ resources but to the disadvantage of customers.
John Penrose
I am sure that transparency is a sensible and worthwhile thing to aim for, but does the hon. Gentleman agree that it does not matter terribly much from a consumer’s point of view, because consumers do not care whether their supplier has a good hedging strategy or a bad one? That is up to the supplier to deal with and to manage. Some will get it right and some will get it wrong, but if they get it wrong, it should hit their managers’ bonuses and their shareholders’ returns rather than the price that the consumer eventually pays. We might want to understand this, but we should not seek to use it as a justification for high or low prices. Ultimately we should be tougher on the suppliers than that.
Dr Whitehead
Indeed. The hon. Gentleman makes an important point about the relationship of the customer to those transactions. However, with vertical integration, those transactions could cause money that should go to the customer to be siphoned off into different areas as a result of those opaque trades, and that is important to the customer in the long term. That is why we need full transparency in all those market trade arrangements.
Caroline Flint
My hon. Friend makes an important point about the vertically integrated nature of these companies. In this dark, dark world of electricity generation and supply, is it not the case that the big six generate energy, sell it to themselves and then sell it on to us? That not only impacts on the fairness of pricing but excludes others, including independent generators and retailers, from coming into the market to put downward pressure on prices.
Dr Whitehead
My right hon. Friend’s point is spot on. It demonstrates the need to understand a lot more about how those trades work, who is doing what to whom and, sometimes, who is doing what to themselves. This is a complicated picture, involving trading right up to closure and trading in times of scarcity. There has been a suggestion that traders can pull back on their generation in order to trade when the generation becomes more scarce in order to get more money. The lack of accountability in those companies and the opacity of the system mean that we are badly served in regard to knowing what money goes where and who is benefiting from it, and what is happening to the customer in the end.
We need to open up the market to full transparency but we need to go still further and introduce a pool system of trading, so that all trades into the pool and all trades out of it are conducted transparently and, most importantly, on a level playing field for all suppliers. This works in other European countries—Scandinavia has the Nord Pool, for example—so why can it not work here? That does not mean that companies cannot make money. As Ofgem says, if companies have a good purchasing and hedging strategy, they can make money. What they will not be able to do is pass benefits on to themselves that otherwise ought to go to the customer.
We need urgent action, which is perhaps a little ironic. My right hon. Friend the Member for Don Valley will recall that we have between us been through several Bills, now Acts, and reforms that have passed through the House under the heading of energy market reform. We have seen a great deal of reform, but we certainly have not seen reform of the energy market in all that time. It is time that we got serious about reform of how the energy market works, of its opacity, and of how it does not serve sticky customers properly, victimising and demonising the majority of them. We need urgent action on that. Otherwise, we will be condemned to the same old cycle of price rises, muttering, remedies being tossed around, commissions being engaged, remedies gathering dust on shelves, and then another round of price rises. I commend the motion, but it should herald the start of a serious look at how the whole market works and how the customer can finally be brought into its centre. It is a fine start, but we need to follow it through to the end.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Jesse Norman)
This is the second debate in which I have had the pleasure of speaking this week, Mr Deputy Speaker, and, as the fellow said, truly you’re getting to be a habit with me, and I thoroughly welcome that.
Jesse Norman
Let that be noted in the record. Thank you, Mr Deputy Speaker.
I congratulate my hon. Friend the Member for Weston-super-Mare (John Penrose) on fighting his way through the dragons of dragons’ den and, with his colleagues, securing the booty of this debate, which I greatly welcome. Whatever else its effect might be, it sends a powerful signal about the feelings of not only the Members who have spoken so well today but Members up and down the country on the issues that have been described. I will talk about those issues and the policy and will try to weave in my responses to the speeches during the course of my comments.
The Government are firmly focused on getting the best deal for energy consumers and on ensuring that the market works for everyone. We absolutely expect energy companies to treat all their customers fairly. We therefore continue to be concerned about price rises that will hit millions of people already paying more than they need to. It is not acceptable that five of the largest suppliers are increasing their standard variable prices, hitting customers hard in the pocket when they are already paying more than necessary. It must be noted that wholesale prices, which account for about half of an average bill, are still lower than in 2014. This is a moment not for crisis, but for sober reflection.
Prices are not the same as bills. The recent report from the House of Lords Economic Affairs Committee reminded us that electricity bills have risen little over the past 25 years, which is due to insulation, appliance improvement and other things. Prices are not the same as bills, but that is not to say that prices are not important and that price rises are not a matter for concern.
Caroline Flint
It is important that we have a candid, open and honest discussion. The Minister makes a good point about prices versus bills, because the amount of energy that we use has gone down significantly over the past 10 years. Is he as concerned as I am that the big six might be keeping their tariffs unwelcomely high because they are having to compensate for the fact that we are using less energy?
Jesse Norman
It is an interesting suggestion that the changes may have cushioned the effect of price rises in the way the right hon. Lady describes. I thank her for that thought, and I would certainly like to give it some reflection.
John Penrose
Further to the intervention of my co-sponsor, the right hon. Member for Don Valley (Caroline Flint), the point about prices versus bills is an important one. Does the Minister agree that if prices stay unfairly or unnecessarily high, one of the Government’s other main goals of improving overall productivity across the economy—energy bills are a vital and central part of the cost base for most businesses—will be much harder to achieve? We can do more with less if we are more efficient in our energy sector.
Jesse Norman
This is really a debate about retail energy prices. The problems are less marked in many areas of the business market, but it is undoubtedly true that business bills must be kept as low as possible to encourage productivity. As my hon. Friend knows, the Government have undertaken several steps precisely to achieve that.
Colleagues on both sides of the House have noted that, with suppliers buying their energy up to two years in advance, suppliers should be protected from recent fluctuations in the wholesale energy price. Some suppliers have chosen to act differently by freezing standard variable prices through winter and beyond, which alone shows that price rises are not inevitable. It is a fact that the majority of customers—around 66%—are on standard variable tariffs and continue to pay considerably more than customers on fixed-term deals.
The Competition and Markets Authority highlighted that such customers have been losing out by an estimated £1.4 billion a year—that figure is disputed—over the past few years. There have been persistently high differentials between the cheapest fixed deals and standard variable tariffs. The latest published Ofgem data show the differential to be some £200. There has been good focus today on fuel poverty, as there was the other night, and it is those who can least afford it who are most likely to lose out. Households with low incomes, people with low qualifications, those in the rented sector and those over 65 are more likely to lose out than others. The recent price rises serve only to underline the fact that the majority of consumers are paying more than they need to pay.
What can be done about it? The House widely recognises that, in many markets, effective competition drives down prices, promotes innovation and assists improvement in customer services. The Government have worked hard with Ofgem to try to improve competition. The right hon. Member for Don Valley (Caroline Flint) mentioned “Groundhog Day,” possibly inadvertently casting herself in the role of Andie MacDowell, which is certainly how I see her. It is not fair to say that we are in “Groundhog Day” because there has been some progress. Members rightly point to the fact that there are now more than 50 energy suppliers in the domestic market, up from 13 in 2010, and of course there are potential new entrants, including local authorities, waiting in the wings—we welcome them to the market. Independent suppliers now have more than 18% of the dual-fuel market, up from less than 1% seven years ago.
I was pleased to hear from the hon. Member for Bristol East (Kerry McCarthy), who mentioned Bristol Energy and the social conscience it brings to energy supply, which is typical of a tier of new and wider-ranging suppliers, including not-for-profit suppliers, that have entered the market—there are housing providers, too. Smaller suppliers are leading the way in using smart, pre-pay and other technologies to support customers in finding the best deal using their mobile phone.
We had a good discussion on switching, and it has been rightly noted that an increasing number of households are switching their energy supplier. There were some 7.8 million energy account switches last year, an increase of 28% on the previous year. Switching is putting increasing competitive pressure on the big six—although, as my hon. Friend the Member for Weston-super-Mare noted, there is a great deal of churn—but it is still only 15.8% of gas and electricity customers, so we are a long way from a position where anyone should feel that a large number of people are actively availing themselves of the opportunity to switch, as one might expect in a more competitive market.
For too long, too many customers have been left on poor-value deals. At the end of last year, the Government announced new measures to increase transparency for consumers. I welcome the point the hon. Member for Southampton, Test (Dr Whitehead) made about transparency, and he is right: several studies have found that the markets are less transparent here in many different ways than one might like. An effort was made to begin to crack that and increase transparency for consumers, including through the publication of an energy supplier league table by Ofgem, which was designed to shine a light on the most expensive standard variable tariffs.
We know that some consumers worry that switching supplier may be difficult and time-consuming. This is not just an economic matter; it is also a cultural matter. We must recognise that and not allow purely economic analysis to take over. We are also taking forward proposals to mandate Midata in the energy sector, which should also have an effect. Midata will allow consumers to get hold of their energy data electronically and use them to find the best deal. It will make the switching process quicker, easier and more accurate, and, with luck, it will allow people to switch using tablets and smartphone applications more easily. We are very keen that the benefits of this are not restricted, in any sense, to the tech savvy, but are available to anyone who owns a mobile phone at the very least. We will therefore work with industry, switching companies and consumer groups to ensure that all consumers can access and use their data to switch.
The hon. Member for North Ayrshire and Arran (Patricia Gibson) rightly mentioned the time it takes to switch supplier. All I would say is that it used to take five weeks and the Government are working with Ofgem to get it down now to 21 days. Once we have done that, we will work to push it down to where it should be, which is at 24 hours. That will be a major improvement to our system.
There was some discussion about customer service, where some improvement has been made. The latest Ofgem data show that suppliers received more than 3 million fewer customer complaints in 2016 than in 2014, but as there were still 3.5 million complaints that is not saying much and they still have a long way to go. We are working with Ofgem and the ombudsman to identify and fix systemic issues, which damage customer service. As the House will know, an Ofgem review last year resulted in increased communication between Ofgem, the ombudsman and Citizens Advice, an organisation I greatly esteem, as I know many colleagues do. It is working on developing a rating system that will help customers to see at a glance how their energy suppliers are performing.
As Members noted, the CMA had some positive things to report after concluding its two-year energy market investigation. It found that wholesale energy markets and the retail market for larger businesses are working well, but for domestic energy suppliers the report is a wake-up call. It is important to note that the CMA’s report was not unequivocal in every sense, and it has been contested; I note a letter from some senior energy regulators who raised the question of whether it is true to see detriment in the way the CMA has. It is important to acknowledge that fact. However, the CMA’s position was clear: consumers should be able to trust energy companies and to know that they are getting a good deal. The CMA found that a lack of competition meant that about 70% of big six customers remained on their supplier’s most expensive tariff despite the savings they could make by moving to another tariff. We have encouraged, and Ofgem is introducing, a prepayment meter cap, which will protect 4 million households across Britain from the beginning of next month.
We are determined to go further and, as the House will know, we have a consumer Green Paper in prospect, which will examine specific sectors. We will respond sooner rather than later, and separately, to the CMA energy market report. Our Green Paper will examine markets that are not working fairly for consumers. In general, consumers in this country enjoy strong protections and an effective regime which help them get the best deal, but where those markets are not doing their job—where competition is not effective—the Government will look to intervene to improve competition and to strengthen outcomes.
The Green Paper will complement and sit within the Government’s industrial strategy to build on the work to deliver an economy that, as I have described, works for everyone. We announced some proposals in the Budget, including the ending of the cycle of subscription traps, the shortening and simplification of small print, and the introduction of new powers to impose fines on companies that mistreat customers. The Green Paper will provide more detail on those proposals.
Let me round up my speech with a couple of reflections on some of the helpful comments that were made in Members’ speeches. I was intrigued to notice that, according to the hon. Member for Brent Central (Dawn Butler), it is now Labour policy to renationalise the big six companies. I would welcome further clarification on that, together with an explanation of how much it would cost and how it would be funded. That was an interesting contribution.
I very much congratulate and thank my shadow, the hon. Member for Southampton, Test, for recognising the complexity of the problem we face. He is certainly right to focus on transparency. In recognition of that, I assure him and my hon. Friend the Member for Weston-super-Mare that the Government will reflect on such contributions. The Government’s record on intervening in electricity and energy markets is not absolutely unblemished. On several occasions, changes have been made, only for them to have to be unwound because it turned out that they were contrary to competitive pricing or innovation. That is worth recognising.
Caroline Flint
I listened positively to what the Minister said about the Government being prepared to intervene when a market is not working. I remind him that the Confederation of British Industry refers to the energy market as a managed market, because energy is an essential-to-life product; it really is set apart from the products that we discussed earlier, such as toothpaste, that we buy every day. I urge the Minister to stand up for what Governments should do, which is set the framework in which markets operate.
Jesse Norman
The right hon. Lady’s point is well taken. One does not need to have read far into “The Wealth of Nations” to know that markets are most effective not only when they are as deep as possible—when the benefits of specialisation and the division of labour, and therefore value generation, can be realised—but when they are supported by a strong state and a strong system of justice and enforcement. That is absolutely the tone of our approach to the market in this case.
I thank right hon. and hon. Members for a thoughtful and interesting debate that has covered a great deal of ground in a limited time. As the House will know, the Government are acting to make switching easier and quicker. We are rolling out smart meters and we are continuing to help the vulnerable and those in low-income households with their energy bills. The CMA did important work to highlight how much consumers are currently losing out, and we recognise that the recent price rises underline the fact that the majority of consumers are paying more, it appears, than they need to. We believe that current practice is not acceptable, and we will set out proposals to address the issues shortly.
John Penrose
I repeat my thanks, not only to my co-sponsors, the right hon. Member for Don Valley (Caroline Flint) and the hon. Member for North Ayrshire and Arran (Patricia Gibson), but to everybody else who took part in the debate, which has been full of passion and determination. This issue has been around for far too long and, in spite of the best efforts of successive Governments, it has not got better sufficiently quickly, so there is clearly further to travel.
I am very reassured by the direction of travel that the Minister has just laid out. I particularly welcome his comments about rolling out Midata, as it should solve many of the problems with data access, which are obstacles to switching. However, it has been around for six years, and we are still waiting for its roll out—it is rather like waiting for Godot. We anticipate and we hope that it will arrive very shortly. It is good to hear that there is fresh impetus and fresh energy behind that move.
Equally, 24-hour switching will help to drive up competition. Right the way across the political spectrum and throughout this debate, there has been recognition that progress towards a properly competitive market in which the big six suppliers feel under pressure to look after their customers has been too slow and needs to move faster. I am very reassured to hear my hon. Friend making that commitment from the Government Benches, and saying that it is not moving fast enough. The clear implication of all the speeches we have heard today is that, politically, his way is clear. When people such as me, a bone dry free marketer, and others from across the political spectrum are willing to look at a relative price cap or other measures—I am talking about the Chairman of the Select Committee and the two Opposition Front-Bench speakers, the hon. Members for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) and for Southampton, Test—we can say quite categorically that this is an idea whose time has come. There is a thirst for action and for movement. Therefore, the Government should be bold and willing to move soon.
Question put and agreed to.
Resolved,
That this House deplores the big six energy firms’ treatment of out-of-contract energy customers on default tariffs; believes immediate action is needed to protect those consumers, and that pushing customers to start switching will not fix the problem sufficiently quickly or completely on its own; and calls on the industry, regulators and the Government to consider solutions which recognise that many people lead busy lives and that switching their energy supplier may not always be a high priority.