Domestic Gas and Electricity (Tariff Cap) Bill

(Limited Text - Ministerial Extracts only)

2nd reading: House of Commons
Tuesday 6th March 2018 Commons Chamber

[The Secretary of State for Business, Energy and Industrial Strategy (Greg Clark)]

I beg to move, That the Bill be now read a Second time.

Virtually every household in the country depends on gas or electricity, or both. They are essential services on which we rely. On average, each household spends around £1,250 a year on energy at home—it is one of our biggest household bills—and for the poorest 10% of households, energy is 10% of their annual household expenditure.

Since the early 1980s, when the industry was privatised, consumers have benefited from a more reliable service. Power cuts are at half the level that they were before privatisation and prices have been among the lowest in Europe. Last year, household electricity prices were 13% below the EU average. In recent years, more than 60 new energy suppliers have entered the market, selling direct to consumers. One in five consumers are now with small and medium-sized suppliers and save significant sums.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

Is not the problem with the Bill the fact that it locks the stable door after the horse has bolted? Energy companies have jacked up their prices ever since whispers of an energy cap surfaced, such that there is a nice cushion that they can continue to benefit from enormously over the coming months.

[Greg Clark]

I disagree with the hon. Gentleman. As I will go on to explain, part of the problem that we are addressing is that the competition authorities have for some time identified this tendency on the part of companies, and the Bill’s proposals will give Ofgem the power to correct that. He brings me to my next point: for all the progress that has been made since privatisation, it is clear that the market is not perfect. That is indeed why the coalition Government referred the industry to the Competition and Markets Authority to assess how competitive the retail market was.

In 2016, the CMA concluded, following a two-year investigation, that

“our view is that the overarching feature of weak customer response gives suppliers a position of unilateral market power concerning their inactive customer base and that suppliers have the ability to exploit such a position through their pricing policies…by pricing their standard variable tariffs materially above a level that can be justified by cost differences from their nonstandard tariffs; and/or by pricing above a level that is justified by the costs incurred in operating an efficient domestic retail supply business.”

The CMA identified the detriment to consumers—that is, how much consumers are overpaying compared with a fully competitive market—at an average of £1.4 billion a year. This comes from the approach to pricing that is practised by the biggest six energy companies, which for the most part, inherited their customers from previous monopolies. Their approach is to charge their customers on default tariffs much more than those who engage in the competitive part of the market. Currently, the differential for the big six stands at around £300 a year. Those paying the default tariff are much more likely to be in reduced circumstances; 80% of households with an income of less than £18,000 did not switch supplier in the past three years.

From the outset, the UK’s energy market has had a regulator whose responsibility is to act in the interests of consumers. Indeed, if we look back, we can see that Britain has long been a pioneer in not only the privatisation and liberalisation of industries but the regulation of these utility industries, too. Indeed, the British model of privatising state-owned monopolies is to liberalise the market to allow new competitors in and to protect consumers against the power of incumbents—from BT to British Gas—which enjoy an advantage of inertia and loyalty. That has always been recognised in our regulatory arrangements.

[Stephen Crabb (Preseli Pembrokeshire) (Con)]

My right hon. Friend is making a very important point about regulation, but is not part of the context of the Bill the fact that the regulator, Ofgem, was far too slow to respond to the pressures on people, particularly those on low incomes and in vulnerable households?

[Greg Clark]

I agree with my right hon. Friend, and I was making the point that we have long been a pioneer in regulation, which has meant adapting regulation to the changing circumstances. We started with RPI minus X, and that evolved into different models, including looking at the regulated asset base. In my view, it is necessary to keep up with our traditions of acting boldly to protect consumers’ interests, and we should be agile in response to new behaviours, especially those brought on by new technologies.

[Albert Owen (Ynys Môn) (Lab)]

I find myself in agreement with the Secretary of State and shall support the Bill. Indeed, I am in agreement with the Prime Minister that the energy market is broken and that customers are being ripped off. The importance of this legislation will be that Governments of whatever colour and the regulator cannot blame each other when something happens in future. There will be a framework that the Government, the regulator and the energy companies understand, and that is why we need legislation.

[Greg Clark]

I agree with the hon. Gentleman, and I was saying in response to my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) that I think the regulator should be more agile in responding to the behaviour that had come about. In fact, the energy companies themselves should have recognised this, and one thing that they said to me was that none of them wanted to act individually and that they would prefer to have a consistent approach.

[Rebecca Pow (Taunton Deane) (Con)]

The Secretary of State is making a valid case for the Bill, which, after all, is all about fairness for the consumer, but will he comment on the fact that we do not want the Bill to reduce competitiveness in the industry—I am sure that it will not—and is that not key? Competitiveness has already done so much for the industry, and we want to encourage it, not reduce it.

[Greg Clark]

I quite agree with my hon. Friend. In fact, the Competition and Markets Authority found that, in effect, two markets were operating. There is a vigorous and highly competitive market, but among those consumers who, for whatever reason, trust the company of which they may have been customers for some time to reward them for that loyalty, there is an absence of competition. We need to change that, but, as I shall go on to say, the analysis shows that the market is not fully competitive at the moment and will take some time to get to that stage.

[Sir Desmond Swayne (New Forest West) (Con)]

As someone who has benefited significantly from changing my supplier on a number of occasions, my concern is that by placing a cap we will diminish the competition from which I have benefited in the same way that the provision of a cap on university fees has led to everyone charging the maximum. Can the Secretary of State persuade me that that will not be the case?

[Greg Clark]

My right hon. Friend personifies engagement and activity, so it does not surprise me that he has a good deal. His point is very important, and, as I shall go on to explain, the minority report from the Competition and Markets Authority recommends, and the Bill requires, that the cap should be set at a such a level that competition can take place for active consumers such as him. There should still be an advantage in shopping around, but customers should be protected from an ever-increasing differential that particularly penalises those who are vulnerable.

[Several hon. Members rose—]

[Greg Clark]

I want to make a bit of progress, but I will give way to the right hon. Member for Birkenhead (Frank Field).

[Frank Field (Birkenhead) (Lab)]

On protecting the vulnerable, we know that the most vulnerable do not move around, despite having shining examples of people doing that. Will the Secretary of State consider putting a duty on companies, running alongside capping, which is a key part of the Bill, to put their poorer consumers on the lowest tariff, so that it is not up to them to try to match the skills of the right hon. Member for New Forest West (Sir Desmond Swayne)?

[Greg Clark]

The right hon. Gentleman makes an important point. That is not within the scope of the Bill, which is meant to protect those consumers from the excesses that can be visited on them by the market. The Bill is narrow in scope and particular in its effects.

[Frank Field]

I am pushing the Secretary of State on this, but even if we cannot get an amendment because the long title is drawn so carefully, may I ask him to consider the need to introduce such a measure, so that the poorest constituents are automatically looked after by their company and put on the lowest rate for the range of consumption?

--- Later in debate ---

[Greg Clark]

There already is a cap for those on prepayment meters, and that is being extended to some of those who are identified as the most vulnerable. The reason for this more general scope is that not everyone can be identified through the receipt of particular benefits—that does not comprise the whole population of those who are vulnerable—so the Bill proposes a backstop.

[Rachel Reeves (Leeds West) (Lab)]

I thank the Secretary of State for giving way and I welcome the Bill, which will do a great deal to reduce the energy prices paid by consumers. On the point about helping the most vulnerable customers, one issue that we have is that data about who those customers are is not shared with energy companies. The Cabinet Office already has a consultation on showing this data as part of the Digital Economy Act 2017, and the Department for Business, Energy and Industrial Strategy has announced another consultation. When will the Department get on and give the powers to enable the data to be shared, so that we can protect the most vulnerable customers?

[Greg Clark]

The hon. Lady makes a very important point. The statutory instrument that will allow that data sharing will be tabled shortly, before this Bill, which we hope will make rapid progress, receives Royal Assent. She is absolutely right.

I was explaining that the original RPI minus X model, which required annual reductions in prices by incumbents, was followed around the world, but with new developments in technology and practice, it is vital to keep our regulatory system up-to-date. In recent years, it has become more and more possible for suppliers to have extensive information on the habits and behaviour of individual consumers—often more information than the consumers know about their own habits, which are studied so minutely. Incumbent suppliers can identify which of their consumers do not respond to higher prices and instead display loyalty to what they might think of as a long-standing and trusted supplier. They can then penalise those customers with ever higher prices.

The CMA identified the problem and recommended that certain consumers, those on prepayment meters, should be protected from such pricing behaviour. It also recommended measures to drive up the rates of switching. The roll-out of smart meters in particular can make information that is currently only available to the incumbent supplier available to other potential suppliers, with the customer’s permission, which is what everyone wants to be able to drive up competition.

In its report, the CMA was in two minds about whether that action was sufficient, and a minority report thought that such remedies, including smart meters, would not come soon enough to eradicate this detriment quickly enough. The minority report said:

“The harm which is presently inflicted on households…is very severe…the remedies proposed for the large majority of households will take some time to come into effect. That is why…they must be supplemented by a wider price control designed to give household customers adequate and timely protection from very high current levels of overcharging”.

[James Heappey (Wells) (Con)]

I agree with the report that the march of technology was not correcting the market quickly enough, but there is no doubt that the arrival of all this technology in the energy system is creating a market that will benefit consumers in the future. Can the Secretary of State reassure us that while the Bill provides a temporary measure to correct the current market, it will in no way impede the arrival of the digitised market that will be so greatly to consumers’ advantage in the future?

[Greg Clark]

My hon. Friend has captured the position very succinctly. That is exactly the point. These remedies will introduce more competition based on technology, allowing consumers to have access to the data that will drive it. However, it will take a few years for that to come into effect, so the Bill is doing what my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) advocated—it is addressing the current problem with greater agility than the regulator has shown.

In 2016, the CMA’s minority report stated:

“These customers are exposed to the prospect of excessive prices on a scale which might amount of many billions of pounds of harm over the next four years”.

Experience has shown that the CMA was right. In the last few years, prices for customers on the standard variable and default tariffs have not declined; in fact, they have continued to increase, in some cases by double digits. There has certainly been no change in the behaviour of many of the companies.

[Yvonne Fovargue (Makerfield) (Lab)]

I support the Bill, but does the Secretary of State not agree that, while it may tackle the so-called loyalty penalty for certain customers, more needs to be done to tackle the loyalty penalty in other markets, which, according to Citizens Advice, costs the most vulnerable and possibly the oldest customers about £900 a year?

[Greg Clark]

The Bill focuses narrowly on a problem that the independent inquiry has exposed as being very significant. As I have said, 10% of the annual expenditure of the poorest households is on energy. I recognise that we need to be agile in our regulatory system, and I hope that the behaviour of companies in other markets will reflect the fact that it is not acceptable to use information to ratchet up the amount paid by vulnerable consumers in particular. This is a regulated market with a regulator that is there to protect the interests of consumers, and I think it right for the Bill to focus on that.

[Stephen Kerr (Stirling) (Con)]

I fully support the Bill, but I have a question about Ofgem. The Secretary of State has mentioned a change in the behaviour of the energy companies, but what about a change in the behaviour of Ofgem in increasing productivity and being more on the ball? So far it has failed consumers miserably in that respect.

[Greg Clark]

I too would like to see greater agility on the part of the regulator. It seems to me that its powers would have allowed these actions to be taken under its existing remit, and it is a matter of regret that we have to introduce a Bill to compel it to act in this way. I concede, however—this was made clear in evidence given to the Select Committee on which my hon. Friend serves—that in recent months the current management of Ofgem have displayed more understanding of the need to act to protect consumers.

[Caroline Flint (Don Valley) (Lab)]

Do the Government not already have powers, under section 26 of the Energy Act 2010, to introduce a price cap if one group of customers is treated less favourably than others by an energy supplier? Ofgem fears that if it used its powers, there would be a ruling against it and it would end up in the courts. Our purpose today, and my purpose in supporting the Bill, is to lay out once and for all the powers to introduce a price cap for people who are losing out.

[Greg Clark]

It is true that Ofgem has said that it might be challenged in the courts. I do not think we should be afraid of testing arguments in the courts, and I would have preferred to see that happen. The statute that the right hon. Lady mentions would not enable the gap to be closed in a way that would allow competition to continue in the other part of the market—other Members have raised that matter. It would require a closing of the gap, but that could take place by means of the deletion of other tariffs, which is not what we want.

[John Redwood (Wokingham) (Con)]

I fully support the effort to lower energy prices, and competitive markets should be able to do that. Last week we were very short of both gas and electricity. There seems to be a capacity problem, and we are going to close a load of coal power stations. What action is being taken to expand capacity to increase the chance of competitive prices?

[Greg Clark]

The capacity auction arrangements that have been pursued over the last few years have been very successful. We have had a higher margin this winter than last, and the prices of securing that capacity for future years have fallen in successive auctions. My right hon. Friend is right to raise the question, but the framework is actually delivering more resilience than has been delivered in the past.

[James Heappey]

My right hon. Friend the Member for Wokingham (John Redwood) made a good point, but does the Secretary of State agree that it is not just additional capacity that is required, but more flexibility in the system so that we can make existing capacity work better?

[Greg Clark]

My hon. Friend is absolutely right. We have already had the pleasure of debating that issue. The hon. Member for Southampton, Test (Dr Whitehead) has spent many hours in Committee scrutinising the Smart Meters Bill, which will contribute to making the energy system more interactive and therefore more resilient.

The Bill follows precisely the advice to set a non-renewable price cap for a short period while competition increases. Address the problem was one of the commitments made by the Prime Minister when she entered Downing Street. I recognise the important campaigning work done by my hon. Friend the Member for Weston-super-Mare (John Penrose) and, indeed, by the right hon. Member for Don Valley (Caroline Flint).

The Bill comes to us today having been scrutinised in draft by the Select Committee on Business, Energy and Industrial Strategy. I am very grateful to the Committee, and to its Chair and members, for their swift yet thorough scrutiny. The Committee took evidence from a wide range of stakeholders and produced a well-considered report. It agreed with the CMA’s minority report and with the Government’s proposed approach.

The Bill has been supported by consumer groups and, indeed, by many energy suppliers. Citizens Advice has said:

“We welcome the…Bill, which will prevent loyal customers being ripped-off”.

Octopus Energy, one of the newer and more innovative entrants to the market, has called the Bill:

“A crucial step towards a fair energy market in which energy suppliers compete to offer their customers the best value and service”.

The Bill constitutes a sensible intervention to address a specific problem in the market. The Government are not setting prices, and this is not a price freeze. Such a freeze could disadvantage consumers by leaving them stuck on high prices when underlying costs fall, or force energy suppliers to face the entire risk of international commodity markets. Subject to parliamentary approval, the Bill will require Ofgem to cap domestic standard variable and default tariffs until 2020. It will be for Ofgem to decide the methodology and the level of the cap, as appropriate. The cap will stay in place until the end of 2020. Ofgem will then be required to assess the conditions for effective competition in the market and make a report and recommendation to the Government, which I am sure the House and its Select Committees will consider as well.

The price cap can be continued for one year at a time up to the end of 2023, when a sunset clause will come into effect. The Government have no wish for the price cap to become a permanent feature of the landscape. The inclusion of the sunset clause relates directly to the point made by my hon. Friend the Member for Taunton Deane (Rebecca Pow) that we need to address the problem by increasing competition. Ofgem currently has the power to impose a cap for vulnerable consumers, and is taking steps to do that. When consumers make an active choice to opt for green standard variable or default tariffs, they will be able to continue to pay extra for such tariffs if they choose, to prevent unintended consequences. That was a very helpful recommendation from the Select Committee, and I can confirm that all of its recommendations have been accepted in full and are reflected in the Bill before the House today.

The Government want the market to thrive. We continue to promote competition as the best driver of value and services for consumers.

[Mark Pawsey (Rugby) (Con)]

The Secretary of State talks about the setting of the cap, and setting it at the right level in the Bill is incredibly important. If it is too high, it will not achieve its objectives; if it is too low, there is a danger that some of the new entrants into the market will fail. The power is with Ofgem, but we have already heard that Ofgem has not been exactly brilliant in exercising its existing powers. Is the Secretary of State confident in Ofgem’s ability to set the cap at the right level?

[Greg Clark]

I am. There has been recognition from Ofgem that this role is perhaps more important than was suggested by the attention it has been given in the past. Most observers recognise that the work on setting the cap for consumers on prepayment meters has been effective and that competition still exists in the market.

[Mark Menzies (Fylde) (Con)]

Can my right hon. Friend assure me that any changes to the price cap will also take into account those on prepayment meters, so that if, for example, the price cap changes every six months, that is taken into account for those on prepayment meters or prepayment cards and they are not disadvantaged?

[Greg Clark]

The arrangements for prepayment meters will continue separately from these provisions, not least because the costs of the prepayment meter are different from those of consumers on normal meters, and that must not be used to the disadvantage of those consumers.

The price cap must be in place as soon as possible, and our intention is that it should be by the end of the year subject to progress in this House and the other place. Ofgem is undertaking preparatory work alongside the consideration of the Bill by Parliament. The Bill will require Ofgem to put the price cap in place as soon as possible after the Bill is enacted.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The whole House wants to help those in vulnerable circumstances in particular. My right hon. Friend alluded earlier to the provisions of the Digital Economy Act 2017, which will give suppliers access to customers in difficult circumstances. At that point, if we do not take action through legislation, will my right hon. Friend work with the industry to develop best practice so that suppliers seek out their vulnerable customers and do whatever they can to get them on to the lowest tariffs?

[Greg Clark]

My hon. Friend makes an excellent point, and my Department will work closely with Ofgem to ensure that those consumers can benefit from these provisions.

[Albert Owen]

The regulator will need time to consult before the Bill’s provisions are enacted. Is the right hon. Gentleman confident that, with the Bill being put before both Houses of Parliament today, customers will be able to benefit from it this winter?

[Greg Clark]

I am indeed confident of that, and it is one of the reasons why I am so grateful for the swift attention of the Committee on which the hon. Gentleman served in giving the Bill pre-legislative scrutiny and taking evidence from expert witnesses.

As I said earlier, the Bill has been constructed to be proportionate and to be directed at a particular problem that we expect to be temporary. On that basis, I hope it will enjoy support from across the House and we can swiftly progress it so that we can correct an intolerable situation in which consumers have been exposed to paying £1.4 billion more than they would in a competitive market. That abuse should end. This Bill will give Ofgem not only the ability to do so, but the requirement that it should do so, and I commend it to the House.

--- Later in debate ---

[Mark Menzies]

My hon. Friend makes a valid point. We would not want a situation in which energy companies, especially big energy companies, seek to delay the implementation of the measure for that reason through appeals to the Competition and Markets Authority. Perhaps the Government could consider having a time-limited window of appeal lasting for a matter of weeks in which any appeal could be looked at by the CMA. I am not sure whether recourse to judicial review, with a case tied up in court and argued by incredibly expensive lawyers, is the solution to the problem. I am not sure where the transparency is in that, and I am not sure that judges are the best people to make a determination. I shall say a little more on that as I proceed.

Appeals on price controls are always to the Competition and Markets Authority. This is consistent with every other comparable sector, including telecoms, water, and aviation, and there are very good reasons why. Energy suppliers, just like National Grid and distribution network operators, invest huge sums into our energy infrastructure. The Treasury has estimated that approximately £250 billion of projects are in the pipeline in the coming years. All companies require certainty to deliver these projects and they only get this if Ofgem sets a fair and accurate price.

In most cases, if Ofgem gets it wrong, National Grid, DNOs and their shareholders can make their case to the economic experts at the CMA. They know that they have effective recourse against Ofgem’s decision and they have certainty that the CMA will not allow any price cap that places these billions of pounds of investments into our vital energy network at risk. Under the Bill, however, retail suppliers are being sent out on to the high wire only to find that this effective and long-standing safety net has been removed from beneath them. Should Ofgem fail, the Government believe that judicial review will adequately cushion their landing. It will not.

As I have mentioned, the CMA is designed precisely to consider such appeals. As an expert appeals body, it has specialist panels with experience of deciding whether price controls have been set properly through consideration of the economic merits of each case. In contrast, a judicial review would consider only whether Ofgem reached its decision reasonably and in accordance with the relevant procedure. A judge with legal—not economic —training and with no specialist expertise would be asked to assess whether these deeply technical price control issues were fair and accurate.

If we follow through with this and allow such uncertainty to fester, even if only in the minds of our major energy suppliers, what assessment has been done of the impact of that on investment in our energy market? What assessment has been done of the impact that the initiative will have on the prices that consumers on non-default tariffs will be asked to pay? I have asked to be furnished with that information, but the Government do not have it. They answered that this calculation will depend on the methodology employed and the ultimate decision taken by Ofgem when setting the level of the cap.

I can be persuaded to agree that the Bill should pass without considering the future supply in this country—at least for this afternoon. I can be persuaded to agree that Ofgem sets the methodology. I can be persuaded to agree that Ofgem sets the level of the energy price cap. However, I cannot be persuaded, because it defies simple logic, that Ofgem has the sole preserve of wisdom in these matters. I cannot be persuaded that there should be no possible recourse to the Competition and Markets Authority.

[Greg Clark]

My hon. Friend raises reasonable questions about whether the approach that is taken will be fair. That is why Ofgem will have to consult on the methodology. Applying it in particular cases is simply the mechanical application of something that has already had the degree of scrutiny that he is looking for.

[Mark Menzies]

I thank the Secretary of State for his intervention. Steps like that seek to reassure me. As the Bill makes progress, I will follow its course in detail, particularly on this matter. I want to ensure that the Bill is effective and does not end up disappointing where we hope that it will succeed.

--- Later in debate ---

[Antoinette Sandbach]

We are already seeing those kinds of mechanisms with MoneySuperMarket.com and other organisations. However, some are incentivised, getting payments for switching. The Government have given Citizens Advice £100,000 to provide transparency regarding the rates offered and to help those who come to it with debt problems or other problems to switch.

[The Minister for Energy and Clean Growth (Claire Perry)]

I am cautious not to make too many interventions because Members are making great speeches, but I am worried that there will be so many questions that I will not have time to respond to them all at the end. I just want to reassure the right hon. Member for Don Valley (Caroline Flint) and my hon. Friend the Member for Eddisbury (Antoinette Sandbach). The midata trial is really important, as it enables people to allow their data to be ported to a third-party website that will then automatically come up with the best deals for them. Ofgem is working on that tool and it should open the way to much more innovative third-party switching services, which we all desperately need.

[Antoinette Sandbach]

We have seen that the cap works for the vulnerable customers who have had their energy prices capped. Although some have gone on to less advantageous tariffs, most have benefited, as shown in the evidence received by the Business, Energy and Industrial Strategy Committee. I agree with others that smart meters will revolutionise how we deal with not only energy, but perhaps other services. The cap is a temporary measure and is only needed as one. I add my voice to the others who called on the Government to ensure that loopholes on green tariffs are not used to game the legislation. The Bill has expanded the exemptions to include the safeguard tariff and those explicitly chosen by consumers, and the Government have strengthened the language relating to green tariffs.

I, too, call on Ofgem to act. I am afraid that I do not take the view that we needed this legislation. I would argue that Ofgem had the right to protect consumers without it, but I welcome the fact that the Government are acting to ensure that we address the clear problems in the market, particularly predatory pricing. This is about getting access to tariffs and the switching mechanism for those who need it. We should encourage those people and reach out to them, whether through Citizens Advice or how they sign on for their benefits. We clearly need to enable data sharing, so that energy companies can quickly identify vulnerable customers.

--- Later in debate ---

[Rebecca Pow (Taunton Deane) (Con)]

I am pleased to follow so many eloquent speakers, almost all of whom agree that this is a very sensible Bill.

I would like to begin with a question: can it be right that customers purchasing energy from the big six for some of the most basic things in life—simply keeping warm, making a cuppa, cooking the supper or running the washing machine—collectively paid some £1.4 billion more than they ought to have done between 2012 and 2015? In 2016, that figure escalated to almost £2 billion. As we have heard, that was the conclusion of the Competition and Markets Authority’s energy investigation. I am pleased to say that the Bill is intended to rectify that, which I am sure you will agree, Mr Deputy Speaker, is eminently sensible. Why? Because it is in the interests of fairness, of delivering for the customer and of giving better value to many people who quite frankly have been taken for a ride and have been paying over the odds for the self-same energy supply that others have got cheaper. In reality, they have been taken advantage of, as the hon. Member for Ynys Môn (Albert Owen) said.

We would not think that it was possible, but how has it happened? What we might call “active customers” are on the ball and save money by switching continuously, according to the prices on offer. Those people can save up to £300 a year by hunting out the cheapest deals. However, as we have heard, not everybody does that. Indeed, five out of every six households did not switch energy supplier in nearly a year between October 2016 and September 2017. That adds up to a cool 11 million households, although I am pleased that 4 million vulnerable households have been helped with an absolute price cap on prepayment meter tariffs.

The people in these 11 million households are on standard variable tariffs. They do not chop and change, but stick with the initial supplier. How are they rewarded for their faithfulness? By paying over the odds by up to £300 in a six-month period. That is itself a far from fair state of affairs, but it is even more scandalous that many of those staying on standard variable tariffs are those who can ill afford to do so. A high proportion of them are elderly. That is especially pertinent in a county such as mine, Somerset, where there is an ageing population. Between 1984 and 2014, the number of people aged 85 or more in Somerset increased by an incredible 170%, which is more than 18,000 people. The number of people aged 75 or more is projected to double in the next two decades, and the fastest-growing group is men aged 80 and over.

Those people should not be targeted and taken advantage of because they are not au fait with modern technologies such as surfing the internet to find cheaper energy deals. I am standing up for the elderly in particular—I run an older generation fair in Somerset, where I talk about these and many other things—and I believe that the Bill will definitely benefit elderly people in rural areas. We have a very high proportion of elderly people: two thirds of people in Somerset are over 65, and I believe that many of them will benefit from the Bill. Picking up the phone or checking on the internet is just not on many people’s agenda. A lot of them are already struggling to make ends meet, so we need to do everything we can to help them.

At the other end of the scale, the many young people who are renting accommodation also fall into the category of those on standard variable tariffs—they are often restricted from swapping energy suppliers by their landlord. I believe that the Bill will benefit them as well.

There is another category of people who are affected, whom I call the “mid-rangers”—my hon. Friend the Member for Weston-super-Mare (John Penrose) mentioned them—and I put myself and my family in that category. These people are really busy: they are working all day, and when they get home they are caring for their kids and they have to cook the dinner, take the dog for a walk and do all those other things. Are they really going to say, “I know what I’ll do tonight—I’ll pick up the phone or go on the internet to see whether I can get a better energy deal”? Truly, they do not do that, and they are the ones on SVTs.

I really believe that setting an absolute cap is a very sensible way of helping people in all those categories. It is not a price freeze, but a cap, as has been well pointed out. Ofgem will be given the task of making it work effectively, with a formula, and it will be responsible for setting the cap. I urge it to be transparent in doing so, because there must be no loopholes for big companies to game the system. It is absolutely imperative that companies do not take advantage of the cap and then raise all their bills to the top level; we have also heard much about that.

Ofgem will have a duty to report regularly on whether the whole system is to be expanded. The system is meant to be temporary, which is absolutely right. It is an artificial lever to control the market for a short while, and it is being applied in the interests of the consumer. I believe that this is the right way to go, as it will still enable competitiveness in the market, which is absolutely essential. We want the market to work better for everybody by continuing all the advances that are under way, such as smart meter technology and data-driven technology. If the market is made to work more efficiently, there will be more money for all companies to invest in renewables and to achieve our clean growth strategy.

On that note, I want to say that if we are talking about fairness in energy and better deals for customers, new technologies will play a very important part in the future direction of travel. Focus needs to be placed not just on energy efficiency, but on cutting the energy that is wasted, because a real concentration on such things could save consumers half their winter energy bills. I will give a couple of quick examples of gadgets that could be used. There is a small device—1.5 square inches in size—called Margo, which I saw only yesterday at the sustainable energy event in Parliament.

[Claire Perry]

Yes—very good.

[Rebecca Pow]

I believe the Minister opened the event. This gadget listens to the amount of gas in one’s meter and can hear how much gas is being used, and it has shown that customers are being overcharged by £40 to £50 a year because they are not being metered correctly. That is £1 million for all the people in Taunton Deane. The other gadget is a stored passive flue device, which uses waste heat from the boiler to heat water before it goes into the boiler so that it does a lot less work. It can provide a whole tank of hot water that can be used for other things. Overall, it will save the consumer money. [Interruption.] People are coughing to get me to wind up, but those new technologies are incredibly important and will play a part in the good work the Government are already doing on their clean growth strategy, cutting our emissions, reducing fuel bills and giving consumers a better and fairer deal. At the heart of that is the Bill, which I fully support.

--- Later in debate ---

[The Minister for Energy and Clean Growth (Claire Perry)]

I thank my opposite number, the hon. Member for Southampton, Test (Dr Whitehead), for his characteristically calm and sensible remarks. Indeed, it has been fantastic to listen to the calm and intelligent debate we have had today, with so many very well-considered views.

There is really strong consensus across the House both on the need for the Bill and, broadly, on the scope and structure of the proposed legislation. For that, I want to thank several groups of people. I thank my civil servants, who have done a good job in producing the current draft. I also very much thank the BEIS Committee, which is ably chaired by the hon. Member for Leeds West (Rachel Reeves) and has several extremely committed members from both sides of the House. Giving evidence to the Committee was a terrifying experience, but their scrutiny and suggestions, which we have fully incorporated into the Bill, prove the excellence of such a method of pre-legislative scrutiny.

I thank colleagues on the Conservative Benches and, indeed, on the other side of the House, who have helped us to improve the legislation prior to this point with their very considered suggestions. I thank in advance those Members who will serve on the Public Bill Committee and will contribute to our further debates, because we all want the cap to be in place well before the year-end, and it must have a smooth passage through the House of Commons to achieve that aim.

I need to single out two Members. The first is my hon. Friend the Member for Weston-super-Mare (John Penrose), whose campaigning championship in this regard has really electrified the parties on both sides of the House about the need to act. As we heard today, the right hon. Member for Don Valley (Caroline Flint) has brought the best of her wisdom and experience to this debate. It was a pleasure to listen to both Members’ speeches.

I want very quickly to recap the purpose of the Bill and to refute the growing idea that we have in any way dragged our feet. I was struck by what my hon. Friend the Member for Eddisbury (Antoinette Sandbach) said about how the best form of legislation is evidence-based. We have had the CMA review, and we have taken the time to consider the fact that freezes do not work terribly well, and to have the regulator bring forward reasonable and welcome improvements. For example, we saw only this week the ending of the back-billing problem whereby people could be back-billed over many months, ending up owing thousands of pounds. The regulator has got the message strongly.

The Bill is a time-limited, intelligent intervention that will help to accelerate the transition to a more competitive market. It will give more powers to the regulator, which is right. The market has changed significantly since the original days of liberalisation. We have some extremely empowered customers, and we also have a large pool of customers who are less engaged and have ended up on poor-value tariffs. The cap has to be set to maximise investment, competition, innovation, switching and improved efficiency, and it will be accompanied by a whole package of other measures—the so-called carapace that the hon. Member for Southampton, Test mentioned—such as smart meter roll-outs, same-day switching and so on.

The Bill will also be a doughty defence of consumer rights. Indeed, my hon. Friend the Member for Stirling (Stephen Kerr), my right hon. Friend the Member for Harlow (Robert Halfon), my hon. Friends the Members for Chippenham (Michelle Donelan), for Mansfield (Ben Bradley) and for Stoke-on-Trent South (Jack Brereton), and the right hon. Member for Don Valley really stood up for their constituents and what the Bill will mean for them.

The Bill is not an attempt to extend political control over the industry. I champion the fact that since privatisation we have seen more than £80 billion invested in the industry, with power cuts halved and network costs down 17%. As my hon. Friend the Member for Wells (James Heappey) said, we need billions of pounds more of investment to drive forward an exciting low-carbon, distributed energy future. The last thing we would want to do is to scare off that level of investment.

I will say something gently to the Opposition, because they could not resist a poke, about the idea that their policy is for a cosy array of mutual companies. The shadow Chancellor has said, “We want to take these industries back.” We know what that means: borrowing billions of pounds, raising taxes for millions, and none of the further investment that we need. It would be entirely the wrong thing for the industry. The Bill is a clear signal that we believe in well-regulated competitive markets as the best way to deliver service and value for all customers, and that we will act on market failures to give regulators more power to improve market conditions.

[Mark Menzies]

I thank the Minister for the way in which she has engaged with me and other colleagues who had concerns about the Bill. She has made time to meet us, with her officials, and addressed many of the concerns that we have raised with her in private. I want to put my thanks on record.

[Claire Perry]

I thank my hon. Friend. I would also like to put on record my thanks to the hon. Member for North Ayrshire and Arran (Patricia Gibson), whom I omitted to thank as one of the original campaigners north of the border.

Eight main issues were raised that I want to address. The first, which was raised by many hon. Members, including the hon. Members for Leeds North West (Alex Sobel) and for Ynys Môn (Albert Owen), and my hon. Friends the Members for Mansfield and for Eddisbury, was what will happen to vulnerable customers once all this has taken place. Of course, we have the safeguarding tariff that is now protecting 5 million people, saving them on average £120 compared with what they would have paid. That has been brought forward. We expect a whole package of additional improvements—smart metering, next-day switching, the midata project, the CMA policies about engagement with those disengaged customers, and an expectation that Ofgem will continue to scrutinise and actively monitor tariffs to make sure that any gaming creeping into the system is knocked on the head.

Many good comments were made about ensuring that the Bill will not disincentivise competition, including by my hon. Friends the Members for Wells, for Rugby (Mark Pawsey) and for Middlesbrough South and East Cleveland (Mr Clarke). We know the level of investment that we have to maintain, which is why the Bill will introduce a time-limited, intelligent cap. The powers given to Ofgem have to ensure that we do not disincentivise competition, while ensuring that companies have an incentive to improve the efficiency of their operations. Too many companies are still stuck in the operational methods of the past and customers are paying the price for that.

Interesting points were raised by my hon. Friends the Members for Fylde (Mark Menzies) and for Waveney (Peter Aldous), and the hon. Member for Kilmarnock and Loudoun (Alan Brown), about an appeal to the CMA, which is something for which the big six are lobbying. I firmly believe that given the level of transparency and scrutiny that will happen when setting the cap, there will be opportunities to ensure that that is robust. Ofgem’s decision on the cap can be judicially reviewed. Courts can consider these issues more quickly than the CMA, and a whole range of evidence can be taken in such a case, whereas with CMA decisions, the range of those who can comment is very restricted. I do not want anything that slows the introduction of the cap.

[Albert Owen]

I pay tribute to the Minister and the Secretary of State for honouring their commitment to take this measure through as speedily as possible. Will she look at other reviews? We await a Government response to the Dieter Helm review, which, by looking at transmission and distribution, could complement the price cap.

[Claire Perry]

The hon. Gentleman anticipates a point I was going to make about many contributions about the calls for additional market reviews. The call for evidence on the excellent Helm review, which was commissioned by my right hon. Friend the Secretary of State, has only just closed, and I think we need to take the time to consider it. I was struck by the speech made by my right hon. Friend the Member for West Dorset (Sir Oliver Letwin). What we want is a rational, functioning economic regulator in a market that is so vital in keeping the lights on, keeping investment going and keeping people warm in their homes, not a political rush to do things.

The right hon. Member for Don Valley raised the issue of green tariffs and gaming the system. Ofgem has never been required to scrutinise existing green tariffs. It will have to scrutinise carefully and consult during the process of the design of the cap to ensure that it is fit for purpose. As we heard from many Members, the expectation will be that customers should not have to overpay to be on a green tariff. We are now buying subsidy-free offshore wind and I opened the first subsidy-free solar farm only last year.

There were many questions about the structure of the cap, including whether it should be variable or fixed. My hon. Friend the Member for Weston-super-Mare has campaigned on this matter very strongly. I was again struck by what my right hon. Friend the Member for West Dorset said. The structure of the cap should be able to take into account changes in the wholesale system. Clause 6(1) states that the period of consideration has to be no greater than six months, but it is entirely within Ofgem’s powers to change the cap more frequently. Of course, as we know, standard variable tariffs are currently updated only one or two times a year. Companies buy forward and hedge their energy prices, so it is not usual for very strong changes in wholesale prices to be incorporated. We will get to see the structure of the cap and its sensitivity to those prices going forward.

There were concerns about ensuring we allow co-operative energy providers to be in the market. My right hon. Friend the Member for Harlow, who is such a doughty consumer champion, made that point, as did the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), the hon. Member for Harrow West (Gareth Thomas) and others. We already have co-operative energy structures—White Rose Energy, Robin Hood Energy and so on—and there is no barrier to those companies coming forward and delivering.

My right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) and my hon. Friend the Member for Rugby asked about the removal of the cap. We will have a series of tests, and we have set out clearly in the Bill what those tests will be. Ultimately, we want loyal customers to be treated as well as, if not better than, new customers who are being attracted by cheaper deals. That will be the absolute test.

In conclusion, we know the Bill is necessary. We know we need to get it through Parliament. I have been really encouraged by the tone of the debate, with so many Members having really scrutinised the Bill and being absolutely determined to see it through. I am confident that we can pass this vital Bill and our constituents expect us to do so, as they do not want to be overpaying on their bills. I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Domestic Gas and Electricity (Tariff Cap) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Domestic Gas and Electricity (Tariff Cap) Bill:

Committal

1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 15 March 2018.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and up to and including Third Reading

4. Proceedings on Consideration and proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.

Other proceedings

7. Any other proceedings on the Bill may be programmed.—(Rebecca Harris.)

Question agreed to.