Domestic Gas and Electricity (Tariff Cap) Bill

Baroness Featherstone Excerpts

Report stage (Hansard): House of Lords
Wednesday 27th June 2018 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, our concern is to ensure as far as possible that the cap ends in 2020. Many people are unconvinced of the value of price caps, which are against most economic theory and can have unintended consequences. There is also a strong consensus that the cap should be temporary, as we discussed in Committee and as the Energy Minister, Claire Perry, noted in the Commons. Moreover, a price cap where the case is strongest already exists. This covers prepayment meters in 4 million house- holds and 1 million vulnerable consumers following action by Ofgem. This in turn followed recommendations by the CMA, which did not favour an overall price cap.

A number of us are also concerned that the tariff cap could have an adverse effect on competition. Its existence might prevent or deter Ofgem or the Secretary of State from finding that the conditions for effective competition are in place and so the cap would have to be extended in 2020, frustrating the purpose of the discretion in the Bill. BEIS officials have helpfully suggested that this is not a risk. They know that the cap might in practice damage competition and say that the judgment to be made is that the Secretary of State considers that the conditions are in place for effective competition for domestic supply contracts—not that effective competition is in place.

Has the Minister been able to think further about these matters and how to respond to my amendment, which I am retabling following the helpful discussion in Committee and his helpful comments about the direction of travel on the cap? Can he agree that the cap will end in 2020, all being well; and, given the concerns expressed by many distinguished industry experts, which I have sought to summarise, can he also confirm on the parliamentary record the BEIS interpretation of the conditions for any extension? I beg to move.

[Baroness Featherstone (LD)]

My Lords, I support the amendment, to which I have added my name. The first basis on which I do so is that, like the noble Baroness, Lady Neville-Rolfe, I regard the cap as an unfortunate necessity. The ambition and the emphasis must be to end the cap as soon as possible. Therefore we need to focus minds on the creation of that effective marketplace.

[Baroness Vere of Norbiton (Con)]

My Lords, the amendments in this group tabled by my noble friend Lady Neville-Rolfe would ensure that the price cap comes to an end in 2020 with no provision to extend it. The Bill allows a temporary and targeted price cap on poor value, standard variable and default tariffs. Fixed tariffs that are not default tariffs will not be affected by the cap as these are where the most competitive rates can be found. The price cap is only necessary to protect consumers on poor value tariffs until the conditions for effective competition are in place.

The Bill has a sunset clause at 2023 and the cap would fall at the end of 2020 if, at that point, the conditions for effective competition are in place; I think that my noble friend wanted a response on that issue. The Bill is constructed in this way because the Government do not want an open-ended intervention, which would not be good for competition and, therefore, consumers.

At this point, I want to address the communication received by many noble Lords about the way the Bill is drafted, potentially preventing the cap from being removed, as the cap itself may have an impact on competition. That point was not lost on the Government when the Bill was drafted, which is why the judgment on removing the price cap, as set out in Clause 7(5), depends on whether,

“the Secretary of State considers that conditions are in place for effective competition for domestic supply contracts”.

In its recent consultation, Ofgem stated:

“We interpret ‘conditions for effective competition’ as meaning that the right market framework is in place for competition to be effective for currently disengaged consumers once the cap is removed”.


In assessing whether the conditions for competition are in place, Ofgem said that it would expect to analyse both the demand side and the supply side of the market, consider whether the market structure will promote good outcomes for disengaged consumers and consider whether there are remaining barriers to engagement. It refers to market conditions, not current market outcomes, for example on the rate of switching.

Coming back to the amendment, it is clear that the Government want the cap to be in place for as short a time as necessary. Ofgem will report on the conditions for effective competition and make a recommendation. Ofgem’s recent consultation points towards a number of factors that might indicate that the conditions for effective competition are in place. On the supply side, these include more innovative business models and the rollout of smart meters. On the demand side, they include making it easier for customers to share their data securely with third parties—meaning that they do not have to look up and enter lots of data on websites when they want to switch—and promoting engagement to help customers identify the best deal. These measures will need time to be established but it is right that we ensure protections are in place until the conditions for effective competition are in place. That is why the Bill enables the price cap to be extended, one year at a time, up to the end of 2023 at the latest.

I am grateful to my noble friend for her amendments. I can confirm that, all being well, the price cap will fall away in 2020—but as we have noted, if all is not well, it will not. With that, I hope that my noble friend is assured and will withdraw her amendment.

--- Later in debate ---

[Lord Henley]

My Lords, the noble Lord, Lord Grantchester, has put forward his amendment and it is quite obvious that he is in favour of it. I have to warn him that if he is intending to press this amendment to a vote, it would possibly create further delay and uncertainty and, whatever anyone’s views on the Bill, we on these Benches and noble Lords opposite feel that it is important to get it on the statute book as quickly as possible so that those whose duty is to do so can get on with finding the appropriate cap and get it in place before the cold weather arrives. It might be that in this wonderful spell the noble Lord has forgotten what cold weather is, and I will remind him of that come November. We want Ofgem and others to be able to get on with their work, and any delay which this amendment might create would be unfortunate.

I am grateful to hear from various elements on the Liberal Democrat Back Benches. I do not know what the official view of the Liberal Party is, but I am grateful to the noble Lord, Lord Redesdale, who gave very concise and encouraging reasons why this amendment ought to be opposed and emphasised that the situation is changing and we are facing a time when wholesale prices might rise. We also had an intervention from the noble Lord, Lord Teverson. I normally find the noble Lord a breath of clarity, but if I wrote his remarks down correctly, I think he said that he disagrees with the amendment but supports it and went on to say that he agrees with it—anyway, I was confused by his lines.

[Baroness Featherstone]

For the avoidance of doubt, the party’s position is to support the amendment.

[Lord Henley]

I am grateful to the noble Baroness, Lady Featherstone, for giving that clear and concise explanation of why the Liberal Democrats will support the amendment. I am also grateful that the noble Lord, Lord Redesdale, is prepared to stand up against the might of his party whips and explain why he thinks it is not such a good idea. I am also grateful to the noble Baroness, Lady Kennedy of Cradley, for her remarks. I agree.