Oral Answers to Questions
Claire Perry Excerpts(6 years, 8 months ago)
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The Minister for Energy and Clean Growth (Claire Perry)
We should all be proud of the progress the UK has made in meeting its carbon reduction targets. The current statistics show that we have met our first budget, are on track to exceed our second and third budgets and are 97% and 95% of where we need to be to meet our fourth and fifth budgets—[Interruption.] I hear groaning, but I think those are decent numbers, given that we are 10 and 15 years away from achieving those budgets.
Anna McMorrin
The lack of commitment, focus and ambition from this Tory Government mean that we are set to miss our legally binding carbon targets. Three easy wins could be to repeal the ban on onshore wind, prioritise energy efficiency measures and zero-carbon homes and commit to the Swansea bay tidal lagoon. When are this Government going to get their act together, demonstrate their commitment to future generations and get on with it?
Claire Perry
I think the hon. Lady perhaps wrote that before hearing my answer. Let me share two facts with her. First, Britain has led the world in decarbonising our economy while growing it at the same time, not delivering carbon cuts with recessions, as other parties would like. Secondly, there are two countries in the world considered to be doing enough to meet even a 2° C target, and those are China and the UK. We have set out what has been described as the most ambitious set of policies and proposals ever seen from a Government in the clean growth strategy. We are bringing that forward, and it would be nice to feel we had a cross-party consensus on doing something that is so vital for both this country’s future and the future of the world.
Teresa Pearce
I was interested to hear the Minister say that we are on target for three carbon budgets but will miss the fourth. The Committee on Climate Change said that the fourth carbon budget will not be met unless policies are supplemented by “more challenging measures”. She spoke about ambition. Can she tell us what those challenging measures will be?
Claire Perry
As I answered before, the calculations for the fourth and fifth carbon budgets—which, I repeat, end in 10 and 15 years’ time and which we are 97% and 95% of the way to meeting—are based on an analysis of only 30% of the policies and proposals in the clean growth strategy. [Interruption.] My right hon. Friend the Secretary of State says he thinks that that is quite good; I agree.
We are bringing forward further work on those policies and proposals and also spending an unprecedented amount on research and development in this space—more than £2.5 billion over this Parliament. I am extremely confident that we will meet our budgets, with our ambitious policy, the ingenuity of British businesses and the science base, the strong campaigning and the structure of the Climate Change Act 2008—the Act that we were the first country in the world to pass.
Antoinette Sandbach (Eddisbury) (Con)
Does the Minister agree that improving home energy efficiency measures would help us to meet our carbon budgets?
Claire Perry
My hon. Friend led an excellent debate on this in Westminster Hall, where we had a very strong outbreak of cross-party consensus. I entirely agree, and that is why we have set our home efficiency targets at band C for 2035. We are keen to do that in a cost-effective way, and I will shortly be bringing forward the consultation on ECO—the energy company obligation—and how to target it at fuel-poor households. In addition, we need to create a route to market for some of our best British technology to solve that problem.
John Stevenson (Carlisle) (Con)
Nuclear power will clearly be central to us reaching our carbon targets. Is the Minister confident that enough progress is being made to see the construction of nuclear plants in Anglesey and Cumbria?
Claire Perry
As the hon. Gentleman knows, making these long-term decisions and creating costs for consumers over decades—whether in tidal lagoons or in nuclear—are matters that we have to take extremely seriously. We have to reduce the carbon emissions of our power supply, cut costs for consumers and create innovation that we can export around the world, and all of those considerations are being taken into account.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
To meet carbon reduction targets, the Government will need to support, among other technology, offshore wind projects. In Scottish waters, Dounreay Tri, Kincardine and Forthwind are working to deliver first generation projects with an immediate value of £200 million for jobs and the supply chain, yet due to factors outwith their control, they will struggle to hit the UK Government’s October deadline. Will the Minister meet me to discuss how we might support these projects in making their contribution to carbon reduction?
Claire Perry
We have worked very hard on the wind industry in Scotland—the hon. Gentleman and I both welcome the recent announcement about remote island wind, which is a really positive step forward—but the challenge is that the phasing out of the renewables obligations was set over four years ago. People have been fully aware of them, and we are currently not intending to extend the length of the grace periods. However, as he knows, I am always happy to try to build cross-party consensus on this vital agenda for this country.
Dr Alan Whitehead (Southampton, Test) (Lab)
I am sure it is absolutely not the intention of the Minister to mislead the House in any way, but her statements about our being 96% of our way towards meeting our fourth and fifth carbon budgets need to be put in the context of the fact that we are committed to reducing CO2 emissions by 225 million tonnes, but the Government proposals will reduce the amount by only 116 million tonnes, which is only just over half the requirement between the fourth and fifth carbon budgets. What are the Minister’s proposals under the clean growth plan to make sure that we reduce the amount by the outstanding 109 million tonnes?
Claire Perry
The hon. Gentleman is a clever scientific fellow, and he knows that those numbers refer to the baseline numbers of 1990. I would be very happy to sit down with him and go line by line through the carbon budgets and the policy proposals. Again, he and I both need to be absolutely clear that regardless—[Interruption.] There is an awful lot of shouting from the hon. Member for Blyth Valley (Mr Campbell), who wants to bring back coal. Regardless of what this and future Governments do, those budgets must be fit for purpose, and we have to be absolutely clear and transparent about how we are going to meet them, and that is exactly what the clean growth strategy has done.
Mark Pawsey (Rugby) (Con)
Damien Moore (Southport) (Con)
The Minister for Energy and Clean Growth (Claire Perry)
My hon. Friend is, as ever, assiduous in promoting the interests of his constituency, and I would be delighted to meet him. I should point out that the lagoon project in his constituency is currently not part of the proposal being put forward by the company promoting other tidal projects.
Jeff Smith (Manchester, Withington) (Lab)
The Government raised business rates on rooftop solar schemes by up to 800% last year, and it now appears that on-site battery storage is likely to go the same way. Given that gas combined heat and power has been exempted from business rates, should not the Government do the same for solar and battery storage to support clean energy?
Claire Perry
Our solar capacity has increased by more than 30% in the past two years, so we clearly are bringing forward such schemes. The hon. Gentleman will know that we are looking closely at ways of reducing some of the disincentives, particularly around on-site storage, but I am happy to meet him to discuss things further.
Peter Heaton-Jones (North Devon) (Con)
Chris Law (Dundee West) (SNP)
Solar power is the most popular source of clean energy and one of the cheapest, so why has it been excluded from clean power auctions for the past three years? Why oh why does it continue to be excluded, putting the industry at a clear competitive disadvantage?
Claire Perry
We continue to look at ways of bringing forward all forms of renewable energy. Indeed, up to 30% of energy generation in this country now comes from renewables. We have not yet taken decisions about future contract for difference allocation rounds, but we intend to do so.
Kevin Hollinrake (Thirsk and Malton) (Con)
Richard Graham (Gloucester) (Con)
The Secretary of State has said that his door is still open to discussions about the benefits of green energy, so will he commit today to seeing Charles Hendry—the author of the Hendry review, which is still awaiting a response from the Government 14 months on—me, as chair of the all-party group on marine energy and tidal lagoons, and representatives of Tidal Lagoon Power and TidalStream?
Claire Perry
It is always a pleasure to respond to my hon. Friend, who is an assiduous campaigner for this form of energy. We continue to commit to supporting our marine energy industry. I refer him to the answer that my right hon. Friend the Secretary of State gave at the start of questions. We continue to exchange information with the Welsh Government, and we have to understand what is on offer. We want to reach the right decision on behalf of low-carbon technologies, but also British bill payers and taxpayers.
David Hanson (Delyn) (Lab)
The county in which I live, Flintshire, has only two electric charging points. Given the earlier exchanges, can the Secretary of State set targets for charging points in rural areas as well as urban ones?
Domestic Gas and Electricity (Tariff Cap) Bill (First sitting)
Claire Perry ExcerptsTuesday 13th March 2018
(6 years, 8 months ago)
Public Bill CommitteesRead Full debate Domestic Gas and Electricity (Tariff Cap) Act 2018 View all Domestic Gas and Electricity (Tariff Cap) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 13 March 2018 - (13 Mar 2018)
Dr Whitehead
Q
Dermot Nolan: I might ask Rob to answer that, but I may come back at the end.
Rob Salter-Church: That five-month period will start with us issuing a statutory consultation, which will run for eight weeks, or two months. That is something that we are required to do by law as part of the due process that we go through. Thereafter, we would have a period to analyse fully the responses to the consultation. As we said, that will be a transparent process; there will be lots of information that we will need to review. Thereafter, when we publish our decision and the final drafting of the cap, it is subject to a 56-day notice period, which again is a legal requirement that we have to go through before the changes can take effect. When you add those various stages together, it gets to five months. Can I guarantee you that there will not be any drift? What I can guarantee is that we will have this as our absolute No.1 priority for Ofgem to deliver.
One of the things that is important for us to consider in ensuring that this cap is in place as quickly as possible is making sure that the due process is gone through. It would be unfortunate if, in trying to do something more quickly, we created a legal risk around process, and that could be exploited by somebody challenging it and seeking to delay the introduction of the cap. So, we are confident that we have a good, robust process and we will get through it as quickly as we can.
The Minister for Energy and Clean Growth (Claire Perry)
Q
Dermot Nolan: Retrospectively, Minister, in the sense of—?
Claire Perry
In other words, reimburse customers who would otherwise be overcharged if for some reason the energy companies delayed the introduction of the cap through any form of legal challenge.
Dermot Nolan: First, before coming back to that, I want to reiterate again that we want the cap in as quickly as you do. There will be no drift; we will make sure that we meet that timeline. I absolutely say that as clearly as I possibly can. So we will bring in the cap.
At that point, the cap would apply to all energy suppliers. If they were in breach of it, they would be in breach of their licence obligations and potentially they would be subject to fines, and ultimately to losing their licence. So, it is almost inconceivable to me that, if the cap was in place, a supplier was not in compliance with it. We would obviously use every single power we had at that point in time.
James Heappey
Q
Dermot Nolan: Absolutely. Two points on that. First, regarding, the events of last week, it is difficult to be precise. I would say they are more the type of once-in-five-years spikes. I will note that, if I may sound very gnomic, there are spikes and spikes. This was quite an acute spike in the gas price, and then there was a spike in the electricity price, but it was not that long-lived. Forward prices for four or five days did not change dramatically, so it was an abrupt spike but a short one.
The whole point of how to set the cap, and over what time period, is a fundamentally important one. The Bill suggests that the price cap must be updated every six months or less. There is an inherent trade-off. One of the things I particularly want to hear about from consumer bodies is over what period people want their prices to change. All the evidence we have in many ways suggests that people like smooth energy prices. They do not like spikes in their own bill. If the cap is set every six months, and a one-week spike is smoothed out over that six months, there is an appeal to that—you get relatively sure prices over a six-month period.
At the same time, you find that if there have been spikes of whatever form during a six-month period—if there has been, say, a fall in energy prices after two or three months—people say, “Why is this fall in wholesale prices not being reflected in my bill? Why do I have to wait six months for it? Why can I not have it after three months?” If we did a three-month price cap, that would ameliorate that issue, but we might be a little bit more vulnerable to spikes and changes in prices. How we balance that is not straightforward and is one of the things that we would particularly want to hear from consumer groups on during a consultation.
The Chair
We will now hear evidence from Rich Hall, Chief Economist for Energy at Citizens Advice, Pete Moorey, Director of Advocacy and Public Affairs at Which? and Peter Smith, Director of Policy and Research at National Energy Action. We have until 11.25 am.
Claire Perry
Q
One question that I think is exercising us all is support for vulnerable customers, who we strongly believe the Bill will help. We are interested in your views as to what else, as well as the Bill, would be necessary to deliver what we all want: maximum protection for the most vulnerable.
Rich Hall: I will kick off. I think we would strongly support the view that we would like to see protections in place for vulnerable consumers as a priority—for them to be the first to be protected and the last to lose protection if there were to be a circumstance in which it would be lost. We know from the CMA’s investigation and from other studies that consumers with vulnerability characteristics are less likely to switch than the norm: disabled people, the elderly, those on low incomes, renters, people in rural areas and those who left education early. Some of the most vulnerable consumers in society are likely to be on the worst rates.
The Bill should provide significant protection to those consumers for the lifespan of the legislation, but that lifespan is clearly finite in its current form. There would be annual reviews from 2020 to 2022, which we would expect to pay particular regard to the impact of the price cap on vulnerable customers and to the extent to which they are engaged in the market and benefiting from it or need further protection.
However, in its current form the Bill would fall away no later than 2023, which creates an issue around how you would ensure that those consumers continued to be protected beyond that date. Clearly, if it were possible to encourage them to engage more in the market and to switch, that would be our first line of protection in which they could help to protect themselves. However, we have to look back at the historic records here and note that over 20 years or so there has been significant disengagement in the marketplace. It might be difficult to tease vulnerable customers into the market. From our perspective, we would be looking to see price protection for vulnerable consumers extended beyond the lifespan of the legislation.
We note and welcome the comments from the Minister and the Government in their response to the Business, Energy and Industrial Strategy Committee’s pre-legislative scrutiny, that enduring protections might be needed, and also Dermot Nolan’s comments, from Ofgem, to a similar effect. I think the challenge is: if it is not going to be in the form of protection through this cap, what is it? We currently think that there might be a need for an enduring cap, and the Bill in its current form does not necessarily provide for that protection after 2023.
Claire Perry
Q
Pete Moorey: I support everything that Rich said on the potential need for ongoing support for vulnerable consumers beyond the end of the cap as set out in the Bill. It is important, though, that we do not assume that vulnerable consumers across the board do not engage in the energy market. We know that the most vulnerable are often the savviest consumers. They have to be: they are on tight budgets and, therefore, they can be the most adept at engaging with markets. I know Peter’s organisation, National Energy Action, has done an awful lot of work with very vulnerable people to get them engaged and on to some of the best deals in the market.
Our—and, I hope, your—vision is ultimately of a market that is competitive and delivering good outcomes for consumers. That should include vulnerable consumers and the ability for those consumers to be as actively engaged in the energy market, as they are in many other markets—notwithstanding the fact that, as Rich said, there will potentially be some people who will need ongoing additional support. We would support that.
Peter Smith: There are two clear priorities that sit outside the Bill. The first would be to extend the warm home discount scheme to smaller suppliers; currently, smaller suppliers, with fewer than 250,000 customers, are not required to provide the warm home discount scheme. That means a real challenge on the doorstep in terms of encouraging households, particularly vulnerable households, to switch to the smaller suppliers. Those smaller suppliers are often able, at least on a price comparison website, to provide the cheapest deal but households do not know that they might be missing out on the warm home discount scheme.
The second element is to get on and use the data-sharing powers on which there was a recent consultation, which would enable Government to better share information about households eligible for the warm home discount scheme and could, therefore, benefit from the safeguard tariff.
Those two actions can take place regardless of this Bill. As we warned in the Business, Energy and Industrial Strategy Committee’s pre-legislative scrutiny, if we do not do those things, the cost might be that 500,000 low income and vulnerable households—many working-age—will miss out on approximately £260-worth of support this winter and next. It is an urgent priority.
Two things that can be done inside the Bill, reflecting on the previous evidence and remarks from the rest of the panel, would be to clarify in clause 2 that Ofgem should have due regard to households on the safeguard tariff. We are particularly worried that there is an assumption being baked in at this stage that the SVT-wide cap will protect exactly the same households as are protected by the safeguard tariff. That is not the case. We are also making an assumption that the relative values of those two different caps are going to be broadly the same. Again, that is not the case. We would like Ofgem to consider those two issues specifically. It is right that that is reflected in clause 2, and we support the hon. Member for Southampton, Test’s amendments that seek to achieve that outcome.
The final thing from my perspective is in relation to clause 8, where the conditions by which we remove this SVT-wide price protection need to be met. The opportunities that Dermot Nolan talked about to reflect on vulnerability within that context, particularly engagement for vulnerable consumers, are the clear priority and should be listed in the Bill to make sure that that assessment on competition is also reflecting on engagement of consumers, particularly the most vulnerable households. There would be a set of things that could be done to make that clear.
Michelle Donelan
I just want to follow up and build on the topic of consumers. How do you each feel this Bill will impact on the interest groups you represent? This is particularly pertinent to Which?
Pete Moorey: We represent all consumers, and the Bill may have a number of different impacts for all consumers. Clearly, for the large number of people on standard variable tariffs, it is going to mean a cut in their energy bills, which will be very welcome for them.
However, as you are probably aware, we have some concerns about the risks presented by a price cap and the impact that could have for consumers as a whole, which may well be mitigated by the measures in the Bill regarding Ofgem, ensuring that it maintains attempts to promote competition.
Nevertheless, the things that we are concerned about with the introduction of a price cap are that we do not see any softening of competition and that we do not see prices for consumers overall going up. It is likely that for some consumers we will see some price rises, as some tariffs get removed. We do not want to see a reduction in the standard of customer service, which is often deemed as being poor among the larger suppliers; the annual satisfaction survey that we do at Which? every year shows that the larger suppliers do very poorly on a whole range of metrics.
Also, we do not want to see less innovation in the market. So we do not want to see the introduction of a cap having an impact on the smart meter roll-out, or indeed on the transformation that Dermot Nolan spoke about, which we really support, around the introduction of new suppliers in the market, who may well be able to bring a transformation to energy, which is what we want to see.
I absolutely understand why the price cap is being introduced. I think the energy industry had opportunities, time and again, to stop this from happening, and they failed to react to that and to the problems that their customers were facing in the market. However, as we now introduce the cap, we have to be very mindful of those risks: the last thing we want is a price cap to come in, be removed at the end, and for us then to be left with exactly the same kind of broken market that we have now.
Domestic Gas and Electricity (Tariff Cap) Bill (Second sitting)
Claire Perry ExcerptsTuesday 13th March 2018
(6 years, 8 months ago)
Public Bill CommitteesRead Full debate Domestic Gas and Electricity (Tariff Cap) Act 2018 View all Domestic Gas and Electricity (Tariff Cap) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 13 March 2018 - (13 Mar 2018)
Dr Whitehead
Yes, I am happy to accept your guidance, Ms McDonagh. I am being enticed down the road I have taken by hon. Friends and colleagues, and of course as far as I am able I will not give way to temptation.
The central point, on which I want to end, is that we do not need a lot of sanctions to get Ofgem to do what it is supposed to do under legislation; but if something is in legislation it is pretty sure that it will get done, because that is how it works. An out date in the Bill would be a little further help in making sure that Ofgem would do what it has said it will do to put the measure into practice. Hon. Members will have a view on how important or necessary that approach is, but I do not think it can be gainsaid that putting the date into the Bill would provide a little further assurance.
That is the basis for the amendment. I hope that Members will support it, if they decide they want that further assurance, but I am sure that the Minister will come up with persuasive reasons why another view could be taken. We will listen with interest.
The Minister for Energy and Clean Growth (Claire Perry)
It is a pleasure to serve under your chairmanship, Ms McDonagh. I thank all members of the Committee. We have a highly qualified Committee here to deliver, over the next few days, what we all want: a legally watertight price cap Bill that enables some of the more egregious pricing structures in the energy market to be addressed.
The amendment moved by the hon. Member for Southampton, Test is intended, as he said, to put a hard-stop deadline on the implementation of the Bill. I understand his reasons exactly. We have discussed the Bill and are broadly in agreement about what we are trying to achieve. I agree that it is imperative for the measure to be in place before the end of the year. People say “before next winter”, and that somehow rolls into 2019. I want it on the statute book and implemented by the end of the year—ideally well before 31 December—because we owe it to the customers whom we are trying to protect. We have all been clear about that, and it is the message delivered in multiple debates and in multiple communications with Ofgem and suppliers. I shall speak in a moment about the possible risks of accepting the amendment.
Something else that is refreshing is that all parties have committed to getting the Bill through. I do not suggest that there will not be strenuous attempts to amend it, but I intend that it should be sent up to the other place in good order, so that it can go through the Lords effectively and we can get what we want, which is for the Bill to be in place and in good shape by the summer recess.
It was helpful to have the witness sitting this morning. We heard Ofgem say that, once we have given the go-ahead on Royal Assent, it will have to take a whole series of statutory measures, including developing the cap. Of course, some of that work has already started, quite rightly. We do not need to do this sequentially; we can do it in parallel. We are then going through a fairly transparent consultation process to make sure that any possible objections or concerns about the tests we have set out in the Bill on competition, switching and maintaining investment are met. There is a statutory duty to have a consultation period. We heard this morning that that will take five months, albeit with some things starting already and processes going on in parallel.
Alan Brown
It is a pleasure to serve under your chairmanship, Ms McDonagh. I was not originally going to talk, but 25 minutes into the Bill Committee my frustrations kicked in. It felt like 25 minutes of almost agreeing with the amendment. We have got an amendment with a date and everybody agrees that it is a reasonable deadline and timeframe. We are seeming to agree that Ofgem has committed to doing this in five months. I thought that Dermot was absolutely resolute in the evidence session in saying “We will do it in five months”, but his colleague had slightly more caveats and was slightly more restrained.
I cannot see any problem in getting a deadline that puts a marker down: humans work better to a deadline. It sends a message to our constituents and the people out there that we have this clear deadline. I listened to the comments from the Minister and I understand that she is saying that she wants to minimise any risks going forward in getting the Bill implemented. What if there is a legal challenge and then the deadline becomes a possible issue? But given that we have already agreed that we think this is a robust Bill that has been well written and well crafted, I think we have got to have confidence that it is robust. Having a date on the face of the Bill will make it that bit more robust and watertight.
Claire Perry
I appreciate the hon. Gentleman’s support, and I am delighted that we have cross-party support. I think we are all agreed that this is a robust Bill. I thank the hon. Gentleman for sharing his tribute to the parliamentary team, who have done a good job drafting it.
Stephen Kerr
I would like to pick up on the comments made by the hon. Member for Kilmarnock and Loudoun about the robust performance that we saw from Ofgem this morning. Frankly, that could be, in part, because when Ofgem appeared before the Select Committee scrutinising the legislation, it was less than robust—the witness was less than robust. I think he has got the message: he cannot be neutral on this; he has to be robust. We saw that today and that gives me great confidence that we will see this Bill enacted in the way we envisage.
Claire Perry
I defer to my hon. Friend’s experience. He sat through this process, doing an excellent job on the Business, Energy and Industrial Strategy Committee, and has seen the evolution of this robustness.
In response to the hon. Member for Kilmarnock and Loudoun, I think the Bill is absolutely robust. We are agreed: we have a tight, well-drafted Bill that does not allow for random amendments. The challenge is that the actual job of setting the price cap has, quite rightly, been given to the independent regulator. We have to go through a process of transparency and confidence building, if you like, with participants in the market, so that the number is set at the level we want to deliver maximum benefits to consumers without the dis-benefits of driving investment out of the industry, or indeed providing a less competitive environment. That is why I have been persuaded that Ofgem gets the deadline, believes it has the right to do it, but has asked for a period in which, quite rightly, it can go through a very transparent process. The more transparency the better, because that will head off any possible legal challenge. I wish we did not have to be in the world of worrying about future legal challenges, but I think we are all convinced that we need to make the whole process as robust as possible.
In responding to the hon. Gentleman from north of the border, Kilmarnock and Loudoun, I hope I have persuaded the hon. Gentleman from a long way south of there to withdraw his amendment.
Dr Whitehead
The hon. Gentleman shakes his head. I cannot possibly comment on that. I got this on the internet, by the way. The headline was “Millions of Brits in line for £100 as Theresa May delivers on energy price cap promise”. Underneath, it said:
“The price cap on 11 million gas and electricity bills is to come in by end of the year as The Sun’s Power to the People campaign pays off”.
“It was The Sun wot done it”—not us, by the way.
Claire Perry
It is worth saying that that fine newspaper The Sun has campaigned for an end to various aspects of rip-off energy tariffs, and it is great that it was celebrating the fact that we had finally launched this Bill and got the provisions in. In this case we should all say, “Power to the people!”
Dr Whitehead
Since I do not read The Sun, I am not entirely up to date with all its campaigns, but obviously the Minister does and is. We will leave it there.
Alan Brown (Kilmarnock and Loudoun) (SNP)
I rise to speak to new clause 1, which is tabled in my name. It replicates or mirrors amendments 8, 9 and 10 in trying to provide explicit support for vulnerable and disabled consumers.
In the Minister’s opening remarks this morning—in private and in the evidence session—she expressed her concern to ensure that vulnerable customers are protected in future. Clearly, part of the Bill’s aim is to protect the vulnerable and those who have been getting ripped off. When I asked one of the panels about improving the Bill, and I specifically mentioned vulnerable and disabled people, the representative from Citizens Advice said that the protections are implicit in the Bill, but not explicit. Ofgem agreed that the protection of vulnerable people needs to be considered, although it believes that some measures are already in place. New clause 1 would explicitly ensure that vulnerable and disabled consumers have that protection and consideration in terms of effective market competition for the grouping they sit within.
New clause 1 effectively mirrors a clause proposed by Scope—a charity whose strapline claims that it exists
“to make this country a place where disabled people have the same opportunities as everyone else.”
Given that Scope are expert advocates and campaigners, I was happy to move this new clause.
As Scope rightly observes, people with disabilities are often high consumers of energy due to their impairment or condition. The hon. Member for Southampton, Test highlighted that a quarter of the households in which a disabled person resides—4.1 million households—spend more than £1,500 per year on energy, and nearly 800,000 households spend over £2,500 a year. That is a huge, significant sum and clearly has a huge impact on their expenditure. In terms of market regulation, it therefore makes absolute sense to make specific provision for vulnerable and disabled consumers.
We heard that some disabled people are protected under current schemes, but not all disabled people are automatically eligible for the warm home discount, and nor do they automatically get registered on the priority services register. That, again, reinforces why the Bill needs to make explicit provision for vulnerable and disabled people when setting, implementing and reviewing the cap, particularly in terms of whether conditions for effective competition are in place and whether the cap should be lifted.
We have already heard that, as predicted, additional protections will need to remain in place post cap. I want to conclude with an example from Scope. This is from someone called Lynley:
“Before I became disabled, I never gave heating a second thought. But now, as I’m home every day, things are very different. I find it hard to stay warm as I can’t move around to generate any heat. I need the heating on pretty much constantly. I also use an electric heat pad to help manage my pain and an electric powerchair to go outside. This equipment requires charging frequently. My energy bills are much higher than before, and—coupled with the loss of my income as a teacher—have made getting by very difficult.”
There is cross-party support for the Bill as a whole, and we all agree that it is about doing the right thing to protect consumers from getting ripped off in what has been a market failure to date. But let us do this absolutely properly and make sure that the rights of the vulnerable and the disabled are explicitly protected in the Bill as well.
Claire Perry
I would like to speak to amendments 4, 8, 9 and 10 and new clause 1. I will start with the first part of amendment 4, which requires a hard estimate on the face of the Bill as to what the saving might be. I was delighted to hear the hon. Member for Southampton, Test quoting our Prime Minister so extensively. I could quote some of the things she has said about the Labour party, but I would not like to challenge the spirit of cross-party consensus. [Interruption.] The hon. Gentleman really does not want to tempt me on that.
We can all sit and make estimates of what the savings ought to be, but all of that will depend on the level at which Ofgem chooses to set the cap.
Alex Norris (Nottingham North) (Lab/Co-op)
Does the Minister think that it is regrettable that, in the newspaper with the biggest circulation in the nation, a legitimate expectation may now be created that the saving will be at £100 or greater?
Claire Perry
I am sure the hon. Gentleman listened to the Prime Minister talking about the Labour party as being divided, divisive, tolerating anti-Semitism and supporting voices of hate. He probably does not want to trade quotes the Prime Minister has given.
However, let me move back to what we discussed in relation to the previous amendment. We talked extensively about how Ofgem needed to set the level of the cap to avoid crowding out investment, to encourage switching and, importantly, to set the cap at a level that does not facilitate strong legal challenges. That is why it is so important that we let Ofgem—which I think we all now believe does have the capability, and does share our commitment, to get this done by year end—get on and set the cap.
My hon. Friend the Member for Chelmsford made the point about setting an arbitrary figure. The problem with that is that this is not an average figure. We all know that we tend to work in averages, so just having that as the target would lead to all sorts of gaming.
The three things we all want are for the cap to come in, for it to be set at the right level and for it to be proportionate—once again, I wish we were not worrying about legal challenges, but we have to make sure. This is absolutely vital.
The hon. Member for Southampton, Test and I have discussed at length the difference between a cap and a freeze. We do want this cap to move over time. We know that prices go up as well as down. We know that the wholesale cost changes. We want to have the most efficient energy system we can, but the cost may increase. Having this number in the Bill would, in effect, bind Ofgem into setting a number that had no relation to the underlying costs.
I absolutely support the hon. Gentleman’s intentions. He and I both want to see these sorts of savings. In fact, the average spread between the cheapest tariffs in the market and the average of the standard variable tariffs is more like £300, so we would both confidently expect the savings to be greater than this. I will turn to the prepayment meter cap—the safeguarding cap—in a second in relation to the specific regard for vulnerable customers, but it is notable that the average saving after the April increase will be north of £100. Customers who are on that tariff are more than £100 better off than they would have been if that tariff had not come into place, so there is evidence that more than that amount could be achieved.
I will turn now to the second part of amendment 4, plus amendments 8 to 10 and new clause 1, which was tabled by the hon. Member for Kilmarnock and Loudoun.
Kerry McCarthy
If I heard correctly, the Minister was saying that people on the safeguarding tariff would be better off. However, in evidence this morning we heard that people will be eligible for it only if they have successfully applied for the warm home discount. Is that right? There is a waiting list and money runs out before time, so would she give consideration to the notion that it should be people who are eligible for the warm home discount and not just the people who have actually managed to get it?
Claire Perry
That is a very important point, and the hon. Lady is extremely knowledgeable in this area. She brings me to the second part, when I will hopefully address her point.
The safeguarding tariff came into force in April 2017. That perhaps gives the lie to the idea that the previous Government did nothing; this was all part of the pressure that we put in place. The tariff initially affects people who are on prepayment meters, who are often exactly as the hon. Member for Kilmarnock and Loudoun described—perhaps living in fuel poverty. That tariff is put in place by the CMA—it is nothing to do with Ofgem—and it will run until 31 December 2020. We have seen Ofgem extend that to this additional group—those who have claimed warm home discount—as the hon. Lady quite rightly said. She raises an interesting point, and we should take a look at it to ensure the maximum number of people are capable of achieving that safeguarding discount.
I asked the team to look at the impact on the bills of customers on these tariffs. Before the safeguarding tariff came in, the PPM average standard variable tariff was about 5% more expensive than the average standard variable tariff. Now, those who are on the PPM and vulnerable tariff pay on average 8% less than those on standard variable tariffs. That is absolutely working, independently of the Bill, to deliver the savings that we want to see for vulnerable and disabled customers. Those caps will continue to be in place, and it is very important that both are in place and that the Bill does nothing to remove eligibility for them.
I want to talk about some of the other duties on Ofgem, which are already covered in clauses 1(6), 7 and 8. They require Ofgem to protect all existing and future domestic customers, including vulnerable and disabled customers, and to consider whether effective competition is in place for the domestic energy supply as a whole. When effective competition is considered, it has to apply for all customer groups, including vulnerable and disabled customers.
James Heappey
Before the Minister gets too far from the issue of vulnerable customers and the cap, I thought National Energy Action’s evidence this morning was interesting. It is probably premature to react to that evidence by enacting the Opposition’s amendments. Could the Minister confirm that she will go back and look at whether the evidence provided this morning warrants some action, perhaps before the Bill comes back on Report?
Claire Perry
Again, it was a very effective evidence session this morning. I was just going to come on to some of the other support we are looking to provide, in particular through the Energy Company Obligation, where we may be looking to help a broader group of people than is currently eligible.
I want to touch on some of the other duties that Ofgem already has in relation to protection of this customer group. The original gas and electricity Acts place a duty on Ofgem to protect the interests of existing and future customers. In carrying out this duty, Ofgem should have regard to the interests of individuals who are disabled or chronically sick, individuals of pensionable age, individuals with low income and individuals residing in rural areas. So I would argue that Ofgem already has these duties in place as part of its conditions. Indeed, the Bill, in which we make it explicit that we need Ofgem to consider all customers and all competition in setting the cap, makes the amendment surplus to requirements.
Stephen Kerr
I just have a brief question. I know the Minister has acknowledged the Select Committee’s work on pre-legislative scrutiny. One of the recommendations in its report was about amending the Digital Economy Act 2017 to allow data to be shared with energy companies. That is a huge impediment right now to getting help to the most vulnerable—particularly those who are on SVTs.
Claire Perry
Yes. Again, I want to thank my hon. Friend and the Select Committee for bringing forward a series of recommendations, which we have accepted. He refers to a statutory instrument that is being started in the Cabinet Office, which I am assured will receive assent—or whatever the right word is—during the passage of this Bill, subject, of course, to cross-party support. That opens up the opportunity for much better data sharing to support vulnerable and disabled consumers.
It is extremely important that we continue to look at this group. We heard today that some of those we might consider most vulnerable are also the most assiduous switchers, because they simply do not have a penny to spare. I guess the issue I have, which is why we are here, is that we do not want people to have to invest the time in shopping around to feel that they are always getting the best deal.
Households that are receiving the warm home discount, in addition to qualifying for the safeguarding tariff, get £140 a year. Of course, we protect our pensioners, with up to £300 a year for winter fuel payments. Sadly, the cold weather payment was also triggered in the last couple of weeks, and that was another £25 during the cold snap. There is also the priority services register, which is a free service provided by suppliers for people of pensionable age who are disabled or chronically sick, have a long-term medical condition or are in a vulnerable situation. Those people go to the front of the queue should an emergency—a supply interruption—interrupt their heating or cooking facilities.
Finally, I want to mention the ECO consultation, which we will bring forward shortly. It is my intention, as far as possible, to pivot the whole of ECO to focussing on the challenge of fuel poverty and trying to make sure that those in the greatest poverty receive the greatest benefit, but also to use the programme to support more innovation and more targeting. I live in an off-grid area, and I am fed up of getting ECO leaflets through my door. It does not feel like the best targeted scheme to me, and I would like it to be targeted at those who are perhaps time-poor and need the help the most.
Kerry McCarthy
In the NEA’s evidence this morning, it said that one of the additional things needed for a package for the most vulnerable customers was energy efficiency measures. I know the Government are consulting on energy efficiency programmes, and particularly on amending the energy efficiency standards for rented homes. May I urge the Minister to make sure that that is brought forward quickly as well, because it will take a while to implement these measures in people’s homes? This is not just about lowering the bills; it is about making sure that people are not using huge amounts of electricity and gas in the first place.
Claire Perry
The hon. Lady is quite right: the great thing about energy efficiency in the home is that it cuts both carbon emissions and bills, so it is a win-win situation, and that is why we have set an ambitious target. She is right that we have started with homes in the rented sector and the social rented sector, and our intention is to make sure that progress is delivered as soon as possible.
Dr Whitehead
I am grateful to the Minister for not exactly spilling the beans but giving us a little preview of what the Government will come up with in response to the consultation on ECO. If there is to be much more concentration on those in fuel poverty, regardless of one’s view on whether the total sum on ECO is sufficient to do what we want on energy efficiency, that is a positive step.
Will the Minister also say a word or two about the regulations that I think are still not yet with us on the responsibilities of landlords to raise the energy efficiency of their properties? I am sure the Minister will know that overwhelmingly those who are vulnerable and in fuel poverty are concentrated in that private rented sector—
Dr Whitehead
Substantially, I think we can agree. Does the Minister have any idea whether the regulations will turn up shortly? Secondly, if they do turn up, will they have within them the requisite amount of money that landlords should spend on bringing their properties up to band E, so that we can have reasonable assurance that will help vulnerable and fuel-poor customers?
Claire Perry
At the risk of being ruled out of order, I will write to the hon. Gentleman. He is quite right that we want to make sure that people are not living in private rented accommodation with poor quality safety or energy efficiency. We intend to introduce those regulations—indeed, they are already on the statute book. We intend to make sure of the maximum amount of cash that is required.
The other question on this is that the vast majority of landlords are small: they are people owning one or two properties that they rent out. As the hon. Gentleman will know, the whole scheme was based on the green deal. It was a Bill Committee that I was proud to sit on; we thought that was going to provide a financing mechanism, but it has not. That is why the work of the Green Finance Taskforce, which we will be bringing forward to assist in financing mechanisms, will be helpful. I will write to him with those details.
Turning to amendments 4, 8, 9 and 10 and new clause 1, I hope I have persuaded the Committee, first, that to put an arbitrary number for savings in the Bill would not be appropriate. It would not be an average number and is not necessary, because we can see from the safeguarding tariff that bills have fallen. Also, we would all expect that number to be greater. Secondly, I think we are all seized of the need to protect and improve services for vulnerable customers. That is part of Ofgem’s duty and is part of the tariff cap conditions and the conditions for competition. There is a lot of support already. I take the point made by my hon. Friend the Member for Wells that more needs to be done. That is why we would like to bring in ECO, to make sure that that customer group is paying the least possible for their energy and getting the best possible service.
On that basis I invite the hon. Member for Southampton, Test, to withdraw his amendments.
Dr Whitehead
As I have mentioned, our amendments are requirements on Ofgem to take these matters into account. It may be that, as a result of what we have discussed in Committee—after all, it will be on the record—that Ofgem might consider itself to be rather better instructed.
Claire Perry
I want to emphasise that this is exactly why this process is so incredibly helpful. The signalling that collectively we can give about the need to consider the conditions that might be there—albeit perhaps buried in a statute book somewhere—is vital. That is why it is a pleasure to have these conversations.
Dr Whitehead
I think the Minister for giving that additional weight to the points we made this afternoon, which will amplify our intentions for those reading our deliberations. It is clear that the intention behind the amendment—what Ofgem should have regard to in setting the tariff cap—is shared across the Committee.
I also take the point in practice that the first part of amendment 4 would give Ofgem additional work and could be a little problematic as far as getting the amount right before the price cap comes in is concerned. It might have been prudent for the Prime Minister to put those caveats in what she said a little while ago about how the Bill was to proceed, but on the basis of our discussion this afternoon, I do not wish to proceed further and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.
Clause 3
Exemptions from the cap
Dr Whitehead
I hope the hon. Lady will forgive me for saying this, but she makes a rather good case for my amendment. Let us consider circumstances, such as those she mentions, in which insufficient renewable energy is generated on a particular day to “go round”. What we mean by “go round” is that renewable energy, in most instances, is variable. If we look at our little National Grid—
Dr Whitehead
The app, to see what is being generated on any particular day, we will see that it varies from 4% or 5% to 20% or more, depending on the circumstances, so it certainly is true that there will be a variable amount of renewable energy to go round.
However, that is not the point as far as renewable energy suppliers who contract to supply wholly from renewable sources are concerned because they will provide themselves with power purchase agreements or will own their own generating capacity and guarantee that, come what may, what the consumer gets as a result of their tariff is renewable. In a sense, they will have pre-empted the “not enough to go round” point by guaranteeing with their arrangements that there is. I suggest, precisely for the reasons the hon. Lady set out, that that can be problematic for those companies. Nevertheless, that is what they guarantee as part of their tariff.
As far as brown energy companies that want to do a bit of greenwashing are concerned, the hon. Lady is absolutely right that if there is not enough green energy to go round they remove the portion of renewable energy from their supply and the tariff becomes browner, even though they say it is partially green. That is precisely what the amendment seeks to avoid, by making the starting point that the exemption applies to tariffs that are clearly wholly renewable and about which it can be said without a doubt that that is what they are—no messing about. That is why they should be exempted.
Caroline Flint
It is a pleasure to serve under your careful stewardship, Ms McDonagh.
I find myself in an interesting position. I completely understand what my hon. Friend the Member for Southampton, Test is trying to do with his amendment. The sense I get from the interventions so far is of common agreement, and that is also the response of the Select Committee. I am glad to see on page 24 of the Select Committee’s report that I have a footnote—I have never been a footnote before, and I am so proud. Good Energy and I, and others, made a submission to the Select Committee about why we have to be very careful about gaming in moving forward in relation to the price cap.
My hon. Friend has clearly outlined the concerns that we have—and share with others across the House and those outside who have made representations—about the danger of people trying to use green as a way to avoid providing fair prices. Let us be clear: we are talking about the sticky customer base—those people who, year in year out, find that their energy bills go up. The CMA review and others have found how people have been overcharged for a number of years now, and there has been much discussion in this place about that. I totally understand my hon. Friend’s intent in trying to introduce “wholly” as another way to separate those who might game the system from those who are in all good faith seeking to invest in and buy 100% renewable energy.
My only problem is that I feel that we want to make this legislation as simple and straightforward as possible, given that there is also agreement that this is a temporary measure for a period, which will hopefully allow people to get a fairer Bill for their energy and not be overcharged, and in which we and the Government can look at what further reform might follow from this in the future. My hon. Friend and I have spent many hours discussing that and we think there is much that could be done—but that is not for today’s debate, Ms McDonagh.
As someone who very much supports renewable energy, not only for our electricity and power supply but for our heat supply as well, I am not sure of the evidence. I may be convinced during the passage of this Bill that a premium price for green energy stacks up. I might be wrong, but I am not sure it does stack up. I apologise to colleagues on the Committee that I was not able to be here this morning, but I have read the written submissions—in particular, those from Bulb and OVO, who outline their concerns about exempting green tariffs from the legislation. A lot has been done to contribute to today’s situation, where the sort of energy that we want, for climate change and in terms of being innovative in the sector, has seen a huge reduction in overall costs and is therefore able to compete very effectively in the market.
Claire Perry
In my mind, the right hon. Lady is not a footnote—she is a major chapter heading. I am enjoying listening to her speech, because it was largely as a result of the great cross-party consensus that we brought in the Act—and some pretty tough decisions, which she supported in her shadow Secretary of State role. That is why we are able to buy renewable energy at prices that do not require a substantial subsidy. That is why we all look forward to a situation where customers should not be charged a premium for that renewable energy source.
Caroline Flint
I thank the Minister for that intervention—I aspire to be a book. [Interruption.] A library, no less. Goodness. People will not be able to work out what the hell we are talking about in this Committee!
A lot has been done to drive investment in the renewable sector, and some of that is ongoing. My hon. Friend is quite right that the renewable obligation is coming to, if not its end, then close to it. We also have contracts for difference. We also have the renewable heat incentive for heat. A business in my constituency that produces green gas is a beneficiary of that. In lots of different ways, there continues to be support for renewable energy of one form or another. No doubt, should it get the green light, the tidal lagoon will also be receiving a contract for difference that will guarantee a price for what it produces over a number of years.
I would question my hon. Friend, and also the Minister—she has tried to tighten up the wording and, in this clause, has enabled Ofgem to step in, assess, consult and what-have-you—because I am still not convinced that there is any need for exemptions in the way they suggest. The more complicated things become, the more clarification that is required and the more points at which Ofgem is tied up finding a formula for what the price should be—we will have more discussions down the road about how often that should happen and the methodology for that—the more tasks we are giving it, which could lead to more confusion. The last thing I want, after all this, is a legal challenge that could stop the price cap being in place in time for the people we care about as they start paying their winter bills in 2018 and early 2019.
I hope we can think more about those issues. We may not resolve them today, but we should give them some more thought—I certainly will. I might be wrong about this, and I am happy to receive submissions and thoughts from others outside this place. For reasons of simplicity, and for the development of the renewable energy market and how it has been helped to get to a place where it provides cheaper energy today than our fossil fuels, it is still worth considering whether any kind of exemption is warranted in the Bill.
Alex Norris
It is a pleasure to serve under your chairship, Ms McDonagh. I will briefly follow the contributions of my hon. Friend the Member for Southampton, Test and my right hon. Friend the Member for Don Valley with one simple point.
I should say, for context, that we have obviously broken out into violent agreement—that is always good—not just on the need for the legislation, but on what it is for. It is not the end state that we seek, but a key part of getting us on the journey there. We all want the market and the providers to use this time, whether the full five years or not, to change practices so that, at the other end, the consumer gets what they need. There is a lot of enthusiasm for that.
With that in mind, as we look at each and every line in the Bill, we should think about how the individual words fall and the unintended consequences that might arise from a superfluous word or a missing word, because we know—and we would expect nothing less—that there will be conversations in the big companies about the different ways to approach the next five years. The choice will be whether to genuinely change or to game the system. We have to be mindful of that and look to close down every possible opportunity to game the system, so as to be clear that this is legislation to drive proper change. It is a short-term cap, but will lead to a long-term benefit.
The amendment does that. It takes up the cudgels from what the Select Committee said. It is proportionate, simple and easy to understand. I understand that delivering what sits behind it may be complicated, but it sends a clear signal about what this Parliament values and I support it.
Claire Perry
One little word has provoked a substantial and excellent debate. There is a genuine sense in the Committee that we all want to achieve the same thing: companies not being able to game the system, and tariffs that deliver for consumers and do what they say on the tin, so that if they say they are renewable, they are actually renewable, not just a package of greenwash. That is why I genuinely feel that the crowdsourced approach to legislation can be very good. I pay tribute to the Select Committee process, once again ably represented by my hon. Friend the Member for Stirling, who helped us to focus on the issue. I was pleased to hear several hon. Members comment that we have tightened up the wording accordingly.
We are wrestling with questions around gaming and what a green tariff looks like, and this question of “wholly” or “in part”. All those will be addressed by two processes, which I will talk briefly about. First, as the right hon. Member for Don Valley said, we have quite properly tasked Ofgem with looking at the whole issue. I think I am right in saying that it has never been asked to review the whole suite of green tariffs in the market and opine on whether they are any such thing.
A co-benefit of the whole process will be understanding what is out there, whether it is wholly, partially or not at all green, and what the price premium for some of those products is. I was a very early Good Energy customer, over 10 years ago, and—
Claire Perry
I am afraid that, unlike the hon. Lady, I came off it, because it was so expensive—I apologise if she thought we were going to have a nice bonding moment over our green tariff. By the way, having heard the evidence, particularly from some of the more nimble companies coming in, I have every intention of looking very closely at changing my tariff again. However, the point is that the world has moved on. As the right hon. Member for Don Valley pointed out, prices have dropped and there is a question as to why we should be paying a premium tariff.
I would like the amendment to be withdrawn today—albeit on the basis that we do not yet have a brilliant fact base—but the offer I would make to every member of the Committee is for my team to put together a list of all the green tariffs in the market already and perhaps to ask for some evidence for to what the price premium is, so that when we look at this issue again on Report we will perhaps all feel a little bit better informed about this part of the market structure.
James Heappey
It is useful that the Minister will go away and make an analysis of the green products that are already on the market. I wonder whether she might also, with the evidence from Octopus and Bulb ringing in her ears, go away and ask the Department to go for just one more lap on whether or not this exemption is necessary all together, or whether it might do more harm than good when it comes to promoting green energy and the way that consumers regard green tariffs.
Claire Perry
I am sympathetic to my hon. Friend’s point; he is extremely knowledgeable in this area. However, as we have been through, particularly in the draft scrutiny process, we genuinely do not want tariffs that customers actively choose to be on, and which support the welcome development of creating demand for the renewable market, to be captured, as it were. The hon. Member for Nottingham North made the point about unintended consequences, and that is why word-by-word scrutiny is so important. The BEIS Committee supported that view, and I think the legislation has been substantially improved by that process. I am therefore less inclined for the proposal to be withdrawn completely, but I want to talk a little more about the point that the hon. Member for Southampton, Test made. I have talked about publication transparency. To me, transparency—having Ofgem look at these tariffs, probably for the first time—is an important part of establishing that this is a credible part of the market.
Kerry McCarthy
I should say that although I have been a Good Energy customer for some time, we now have Bristol Energy—there is that conflict between being green and giving support locally; I think it has now introduced a green tariff. Another west country electricity company, Ecotricity—which has made a submission to this Committee very late in the day—is concerned that if the cap is introduced across the board before the green exemptions are looked at, its customers might find their bills having to go down when the cap comes in, only for Ecotricity to have to turn round and say, “Actually, we’ve got this exemption now. We want to put your bills up.” At the risk of delaying the introduction of the cap, I urge the Minister to make sure that the green exemption issue is sorted out at the same time that the cap comes in.
Claire Perry
In standing up for her local enterprise, the hon. Lady pre-empts the second point I was about to make, which is that we will use transparency, but we will also use the Ofgem consultation process to do exactly that. Ofgem has to consult—it has to review the existence of these tariffs and understand what they mean—and it will have to do that as part of creating the cap, because it is a condition of introducing the cap that those exemptions are also carefully defined.
There is an interesting question. There is the transparency issue, there is the consultation issue, but the third thing is this: is it zero, 100 or somewhere in between? It will be explicit, I think, in conducting that analysis that Ofgem has chosen a level of what it thinks this level will be. I totally understand the point that the hon. Member for Southampton, Test made about us all wanting a world in which renewable energy is not intermittent. Indeed, I opened Clayhill solar farm, the country’s first subsidy-free solar farm, partly because it has managed to achieve on-site storage, providing both a better economic return and overcoming the problem of intermittency. That is all absolutely correct.
However, we are not there yet, and I was very struck by what my hon. Friends the Members for Wells and for Chelmsford and the right hon. Member for Don Valley said. They said that we want to be in a world where we are not stifling that evolution, but instead creating a demand for those tariffs in the future. It may be that, in setting out its view on what constitutes the tariff, Ofgem will say that it is 75%, or 95%, or 50%, and we will all have a chance to respond at that point. I absolutely accept the spirit in which the hon. Member for Southampton, Test tabled the amendment, but I fear, as we talked about, that it would have the unintended consequences of driving some tariffs out of the market and creating other perverse incentives.
I would like to put on record that the issue of gaming exercises us all. I have said this to the energy companies and I will say it face to face: if they think they should be spending their energies working out ways to game the tariff, as opposed to delivering better consumer value and service, we will put them on notice that that is exactly what none of us wants to see. That is a strong message that we have all delivered.
I am happy to provide more information to inform the debate. I have listened carefully to the excellent contributions, but I hope that the hon. Gentleman sees that this one tiny word creates a series of unintended consequences that perhaps weaken the cap and that he is therefore content to withdraw the amendment.
Dr Whitehead
I take the Minister’s offer to give further and better particulars about green tariffs, including what they consist of, what the relationship between part-green tariffs and wholly green tariffs is, and what the cost is, as essentially a suggestion that the matter should at least partly be placed on the Table and might be revisited on Report, depending on what we see. It is an excellent suggestion and I very much welcome it.
Claire Perry
To be clear, I am not inviting further amendments to the Bill—far from it. My hope is that during the passage of the Bill, with the joint messages we are sending out with cross-party support, the requirements for more information and transparency that will accompany the Bill’s passage—because they have to inform the tariff calculation—can only be helpful in this consumer market, even if they are not on the face of the Bill.
Dr Whitehead
I understand that the Minister is not inviting further amendments—it is her job not to—but I can envisage a circumstance in which we have gathered all the information together and some things scream out from it that we might consider on Report. In which case, we should properly do that. On the basis of that offer, and presuming that the information would effectively be in the form of a sort of late evidence submission to the Committee and would go to all its members—
Claire Perry
My intention is that we will write to all Committee members with the information.
Dr Whitehead
That is great. It is a very welcome suggestion and wholly constructive regarding what we are trying to achieve with the amendment. On that basis, I wholly agree that it should be withdrawn. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 ordered to stand part of the Bill.
Clause 4
Notice of proposed modifications
Question proposed, That the clause stand part of the Bill.
Claire Perry
I realise that, in moving swiftly through clause 2, I did not give anyone the opportunity to comment, so I feel that I should say briefly what this clause does and why it should stand part of the Bill.
The clause sets out the first part of the bespoke licence modification that must be followed by Ofgem to implement the price cap. They are the statutory steps that Ofgem will take and they will cover the final design and level of the cap. Concerns have been expressed that if organisations wanted to try to derail the implementation of the Bill, it would be by objecting to some part of that process. The process very much mirrors powers that Ofgem already has to modify the standard supply licence. The clause sets out the technical arrangements of the timing, the timings of notice of publication, and provides the steps to be taken before the Bill is passed, which I alluded to in earlier comments, so that as much of the work as possible can be done in tandem with the Bill’s passage through Parliament.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Publication and effect of modifications
Question proposed, That the clause stand part of the Bill.
Claire Perry
Again, the clause outlines the final part of the licence modification process that Ofgem must undertake to impose the tariff cap—this is the actual modification of the licence conditions and implementation. It, too, sets out the statutory steps that Ofgem must go through. Ofgem must set out how it has taken account of representations made during the consultation specified under clause 4. As we heard in the evidence session this morning, it must set a date that the modifications will take effect from, which must be after a period of 56 days beginning on the day when the notifications are published.
The clause also sets out that the appeal mechanism is via judicial review, rather than through an appeal to the Competition and Markets Authority. We have had a conversation about that—certainly during the very good Second Reading debate—which is primarily because we want nothing to get in the way of implementing the temporary price cap. The CMA’s powers are used exclusively where there is a permanent control mechanism, but we and the Select Committee have taken substantial evidence to suggest that judicial review gives all interested parties an adequate means of address. A court has sufficient expertise to hear an appeal. A court is likely to be able to hear a matter more quickly than the CMA, which reduces the possibility of the implementation route being delayed.
James Heappey
I am keen to ensure that I understand the measure correctly. There is a 56-day period ahead of any modification being published, but presumably there is also a 56-day period for the initial implementation of the cap. Are we clear that Ofgem is content about being able to publish its cap within the five months—actually, eight weeks ahead of that five months?
Claire Perry
My hon. Friend makes a good point. I believe a very good letter was written to the Select Committee in which the timetable was set out specifically. Perhaps we can arrange for the letter to be distributed to the Committee—although I am not sure whether I have such powers over a letter to the Select Committee. Ofgem set out the timetable clearly, including all the statutory periods, with the assurance that it felt very capable of bringing the cap in before year end.
To return to the clause, in Committee we are very much of the mindset that the judicial review route, should someone wish to appeal against Ofgem’s methodology, is appropriate and would not delay implementation. That was agreed in the excellent work of the Business, Energy and Industrial Strategy Committee.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Review of level at which cap is set
Dr Whitehead
I beg to move amendment 6, in clause 6, page 4, line 31, leave out “6” and insert “3”.
I must confess that I have been following the past several clauses assiduously by reference to the draft Bill instead of to the actual Bill, although the Government had not made any changes, so I do not feel too out of sorts. However, with this clause, the draft Bill and the final Bill part ways considerably. Fortunately, I managed to realise where I was in time, so we can talk about this relatively short clause, which is on a review of the level at which the cap is set.
The clause is important because it is the clause that decides this is a cap and not a freeze. The requirement on the authority is that it regularly review the level at which the cap is set, on the basis of all the circumstances to which the market has been subject, and whether the cap should be modified or changed as a result of its review. Indeed, the clause requires the authority to publish a statement when it has done that review, as to whether it proposes to change the level at which the cap is set.
Claire Perry
The hon. Gentleman again puts forward a sensible probing amendment that it is a pleasure to think about and speak to, but I will chance my luck and try to persuade him to withdraw it.
The hon. Gentleman is right that the review is a crucial part of the Bill’s effectiveness. Is the cap set at the right level? Is the ability to change the cap clear? Have we set out the conditions under which the cap must apply? We will get on to the conditions as to what success looks like. Is the cap dynamic enough to make a difference in the market?
If I read clause 6 carefully, two words precede the hon. Gentleman’s one-number intervention. In terms of reviewing the cap, the clause uses the phrase:
“The Authority must, at least once every 6 months”.
When we had this conversation on Second Reading, I said, correctly, that the opportunity is there for Ofgem to review this cap more frequently than that, should it choose to do so. It can review it on a weekly basis or a three-monthly basis, but it must review the cap every six months. That is consistent with the reviews of the prepayment meter cap, which is already delivering savings of up to £120 a year, as we talked about, and which is what the excellent Business, Energy and Industrial Strategy Committee report recommended. I think that the flexibility the hon. Gentleman is seeking is covered by the words “at least”.
Yet the hon. Gentleman raises an important point: what happens if there are suddenly wild fluctuations in the energy market, which we want consumers to benefit from, and particularly if there is a sustained price fall? I have looked at this a bit. It is a bit like the mortgage market: unless someone is on a tracker rate, changes in the wholesale prices do not always feed into the retail prices. Indeed, these companies make an art, or a science, of hedging their supplies so that they bake in what their margins look like on a future basis. Any sustained price fall would take its time to feed through to those companies’ overall cost of energy provision.
Indeed, companies change their SVTs only once or twice a year, even though those are standard variable tariffs. We had a very interesting conversation this morning in Committee about whether that was a rather benign description—maybe we should be looking to tighten up the language a bit. These variable tariffs vary only once or twice a year. There is an argument that giving Ofgem a statutory duty to review this at least every six months provides an opportunity for the market movement to be greater than it is under the SVTs. I feel that with the words “at least” we have provided in the Bill for Ofgem to react to market movements or any other structural changes that would affect consumers. That flexibility is there.
As always, the hon. Gentleman has thought about these things carefully. As he alluded to, there is a risk that by specifying every three months, given that this is a short-term cap—it will apply for a minimum of just over two years and a maximum of just over five years—we would perhaps create an unnecessary process burden. We want Ofgem to continue to regulate this market well; we want it to continue to bring forward initiatives such as the cancellation of billing backwards for more than 12 months and the work it has announced it wants to do in the wholesale energy markets to ensure that returns are proportionate. I am persuaded that by changing the period to three months, we would create a potentially unnecessary burden that does not deliver anything more than we have already allowed for with the wording of clause 6(1).
James Heappey
I got there in the nick of time. While the Minister has been speaking, I have been looking at Ofgem’s tracker for wholesale energy prices. It is clear to me that in the first quarter of each calendar year, prices are particularly volatile and disproportionately higher than in the remainder of the year. In his evidence, Dermot Nolan said that, over six months, those midwinter peaks are ridden out. That means we should defer to his judgment that six months is the right unit, not quarterly.
Claire Perry
My hon. Friend again brings assiduous online research, which is marvellous, and his knowledge of this market, to support the point that Ofgem believes that six months is a proportionate time. The Bill does allow Ofgem—should it be required to do so by market movements, and that volatility persists over a period of time—to make the necessary adjustments. I know that I am on a winning trend, which may not last, but on that basis, I hope the hon. Gentleman is persuaded once again to withdraw the amendment.
Dr Whitehead
The intervention of the hon. Member for Wells demonstrates why I should not only have been looking at the right Bill in the last 10 minutes, but have brought my iPad with me.
Claire Perry
That is an excellent point, and I was thinking of exactly the same things when the hon. Gentleman was speaking. The rocket and feathers, by the way, sounds like a marvellous pub in the Don Valley that I would love to come and visit one day. That is an excellent description for what happens and, thinking it through, the existence of the cap protects against the feathers, because there will be a hard stop in the market that might accelerate the fall of the feathers or create something a little more weighty, on the same duration, or a more accelerated duration, than the current SVTs. It would be a prod to the market, to make sure that those downward prices are reflected in the price cap. On that basis, it could be very helpful to overcoming the problem.
Dr Whitehead
Indeed. As the hon. Member for Wells points out, over the recent period, there has been a pattern of volatility in the wholesale market, but not necessarily a pattern of predictability. The market tends to be rather more volatile at the beginning of the year; the level of volatility differs, but we know it is more volatile. There is the question of looking at that effect over the entire period of intervention of the cap, and how that volatility is factored into Ofgem’s duties.
I take the point that the phrase in the Bill is
“at least once every 6 months”.
After what has been said this afternoon, I hope that Ofgem will consider fairly carefully how its interventions take place. It may well be that—after close consultation with the hon. Member for Wells—Ofgem comes along and says it will review the cap more frequently at certain parts of the year and rather less frequently at other parts of the year.
Claire Perry
I hope that the hon. Gentleman will agree that the wording of the Bill allows Ofgem to effect exactly those decisions, should it think it necessary.
Dr Whitehead
I take that point. Although I prefer to legislate with absolute certainty rather than hope, in this instance we can reasonably expect that Ofgem would look at that properly, as far as the market is concerned. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Claire Perry
We have had an excellent debate, where we have been genuinely probing and testing the Bill, and we have come to a good outcome. I commend the clause to the Committee.
Question put and agreed to.
Question 6 accordingly ordered to stand part of the Bill.
Clause 7
Review of competition for domestic supply contracts
Alan Brown
I beg to move amendment 1, in clause 7, page 4, line 38, at end insert—
“(1A) The Secretary of State shall within six months of the passing of this Act publish a statement outlining the criteria that is to be used by the Authority in the review to assess whether conditions are in place for effective competition for domestic supply contracts.”
This amendment would require the Secretary of State to outline the criteria that shall be used by Ofgem when assessing whether conditions are in place for effective competition for domestic supply contracts.
I do not know if it is my upbringing in the west of Scotland, but compared to the hon. Member for Southampton, Test, I am a man of few words, so I will be really brief.
Amendment 1 and its explanatory notes lay out the case. I have prepared a timeframe for the Secretary of State to set out the criteria by which Ofgem will assess the operation of the energy market for effective competition in the marketplace, and such effective competition clearly will allow the cap to be lifted.
The amendment is important for a couple of reasons. Clearly, if we want the suppliers to change their behaviour, it is important that they know what they will be measured on. Hopefully, that will give them further incentives to change their behaviour and to make the market much more competitive and effective for consumers.
The Government’s aim is that the cap will be only temporary—perhaps lasting only two years. Therefore, it is a limited timeframe. That makes it even more important that, as soon as we can, we understand what the companies will be measured against. If a report is laid that sets out the criteria within six months, that takes away the risk of moving targets, in terms of the suppliers changing how they are operating, but perhaps not in the way we want. Obviously, we want to manage how they operate and make that most effective for consumers. The amendment is quite simple and speaks for itself.
Claire Perry
The hon. Gentleman is a man of few words, but what a very pleasant accent, if I might say so, and what a joy it is to welcome so many colleagues from north of the border with similar burrs on our side of the House. I will now try to speak exclusively about the amendment and take his example of brevity in doing so.
The hon. Gentleman is absolutely right to raise the question of the conditions for effective competition so that we can all understand when the recommendation to remove the cap is the right one, as he said, considering how the market evolves over the next few years. We all have a hope and expectation that the market will evolve rapidly; indeed, the whole principle behind the Bill is about an intelligent intervention that will help the market to reset to a more competitive environment.
We have set out these general conditions, but I feel very strongly that with an independent regulator that we all believe has the powers and knowledge to both set the cap and confirm whether competition has been restored, it is right that we do not hold it to a specific set of weightings for what competition looks like. Again, I refer to the BEIS Committee, which said:
“We believe that Ofgem have the required expertise to set and measure indicators of effective competition and make the appropriate recommendation to the Secretary of State.”
The hon. Member for Nottingham North made the point about unintended consequences; we had conversations in pre-Bill meetings about whether we would want there to be a formula that said, “It is 20% switching times and 50% price cap reduction”. All that constrains Ofgem’s ability to review and set an opinion on competition, particularly as the market evolves. We are all expecting the energy market to evolve quickly. The amendment would constrain Ofgem’s job unnecessarily. There is nothing to be gained from seeking to pre-empt Ofgem in its work. In raising this issue, the hon. Member for Kilmarnock and Loudoun is absolutely right to say that that scrutiny of what effective competition looks like will form an extremely active test of whether we can all sit around in a couple of years’ time and say that this Bill on which we have all worked so hard has been effective.
On the basis that the amendment would constrain what Ofgem want to do, I hope that the hon. Gentleman feels content with my explanation and will consider withdrawing it.
Alan Brown
Listening to the Minister, on one level I think that constraining Ofgem might not be such a bad thing if it constrains it in a way that we are happy with, because then we can have criteria that we as politicians, and consumers and suppliers, understand. On the other hand, I understand what the Minister says, in that the regulator has its own job to do. I am conscious that some of the submissions we received as part of this process express concern about the fact that nobody knows what these effective competition criteria will look like. I still have some slight concerns, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
James Heappey
I suspect that the Minister is much better placed to answer that than I am, but I guess—I would support this wholly if it were the case—that we have done a lot of work with carrots when it comes to smart meters and we are starting to get into stick territory. If we want the new digitised market to really work—I know that almost everyone here is passionate about achieving that—smart meters are no longer optional: they are a necessity. To use that as a metric of success seems very reasonable to me.
Claire Perry
I want to try to address two of the main points that came up: what “good” looks like, the conditions for success and how far we should specify them in the Bill, and why progress with installing smart meters is the only explicit condition. Ultimately, this is the nub of the whole Bill. We are all here because we believe that the conditions for effective competition are not in place and that the Bill will assist the market towards that evolution. I suspect that we all believe in well regulated, competitive markets delivering the best value and service for consumers, and if we see a regulatory gap—a place where the regulator needs new powers to deliver that—it is only right that we fill it. That is what we are doing.
Once again, I have great sympathy with what the hon. Member for Southampton, Test set out. I feel sometimes that we are a bit like Eeyore and Tigger: he is always looking for the very worst outcome and I am always very optimistic about the future. Perhaps it is good that we often meet in the middle. The challenge, as my hon. Friend the Member for Wells set out, is that the list that the hon. Gentleman has put forward is very sensible. I am sure that we could all come up with further factors that we thought would indicate that the market was acting more competitively.
Alan Brown
Why would it be a box-ticking exercise if we as parliamentarians set out criteria that we think can be used, but not if Ofgem sets out the criteria?
Claire Perry
That is a valid point. I guess that by setting the criteria in the Bill we would effectively constrain the opportunities that Ofgem has. Ofgem, as a regulator, should be able to sit closer to the market and observe its evolution, and amend its processes accordingly. All of us know how even the most tortuous, tiny change to a Bill, even if it is done through a statutory instrument, can chew up an awful lot of time and reopen a debate that did not actually need to be reopened.
The hon. Member for Southampton, Test is right that we absolutely have legal powers to protect our constituents, and that is what we are doing, but what we are also doing is empowering the regulator to be perhaps more nimble and agile than politicians and even my fine civil servants might be.
I turn to the Smart Meters Bill, because it is right to say, “Why is that the only thing in the Bill?” Frankly, the reason is that we are rolling out this massive Government programme. We are talking about £11 billion of investment and £17 billion of benefit to consumers. It is now a licence condition for Ofgem. We have had the first roll-out and we are working hard on the data integration, so that the upgrades to a SMETS2 meter happen seamlessly and remotely. I fully intend to work with industry very closely this summer to start to turbocharge that process. There is huge benefit there; the conditions are in place and we want to accelerate.
We want to make sure that the obligations to be part of the evolution of a competitive market and to roll out smart meters are inextricably linked in the minds of industry. On that basis, although we have an important role to play in talking about the terms of effective competition, we expect the market to continue to evolve. It would not be helpful to constrain Ofgem’s definition now by setting out what could be perfectly sensible ideas.
Of course, there will be an opportunity to review Ofgem’s report and say what the conditions are. We have not yet talked about what the transparency of publication is for that report, but that is certainly something we can address when we discuss that part of the Bill. There is a question as to how transparent that report is made and how widely it should be circulated. As the Committee knows, I am open to ideas of transparency, because it is the way to drive the best forms of competitive behaviour. I fear I may be chancing my luck this late in the day, but I invite the hon. Member for Southampton, Test to withdraw his amendment.
Dr Whitehead
May I say something first about Tigger and Eeyore? I can see the analogy, but we have to remember that Tigger got Pooh and Piglet completely lost in their quest for the North Pole, and also consumed all Roo’s medicine in a very unhealthy way.
Claire Perry
But surely the hon. Gentleman would accept that that was a fine and wonderful adventure, and Tigger did it with great gusto?
Dr Whitehead
I was just going to say briefly that Eeyore stopped people standing on each other and falling over while trying to get Piglet out of a tree. He was very wise in certain circumstances. What I am trying to say, I hope without any further reference at all to Pooh and Piglet, is that under these circumstances we need to be a little more—I will refer to it again—Eeyoreish than Tiggerish. It is essential that we are careful about the going out of the cap, just as we are careful about its going in.
I heard what the hon. Member for Wells had to say—indeed, it would have been possible to put out a list as long as your arm of possible concerns. He is quite right. I heartily endorse a number of the concerns he raised. I am grateful to him for describing me as a fellow traveller; as he will know, in our party, being described as a fellow traveller is not always meant in the most complimentary of ways. He has set the record straight as far as that is concerned.
What I have tried to do with this particular amendment—by the way, I am not particularly precious about every last line of it—is to craft a number of considerations that should reasonably pass by the eyes of Ofgem when it is thinking about whether conditions have returned to the market or not, so that it is shaped. Indeed, if the Minister were to say, “Yes, jolly good idea, but we’re not quite sure that all the conditions are absolutely right. We’ll take it away and come back with something on Report that will set that out in a rather better way,” I would be overjoyed. It is an attempt to try to make things work, rather than to get everything right first time.
What I do know, however, is that among the flakier conditions is ensuring that Ofgem has due consideration for the roll-out of smart meters. I could see circumstances where the smart meter roll-out has gone completely down the Swanee, yet market conditions are effectively there for the removal of the cap. Indeed, from what I know about the circumstances around the smart meter roll-out, partly as a result of my involvement in the Smart Meters Bill recently, it is quite possible that the smart meter roll-out will go seriously down the Swanee.
Claire Perry
I now feel a T-shirt coming on saying, “What would Eeyore do?” I wanted to try to give the hon. Gentleman some comfort on this matter. Clause 7(1) refers back to something set out in clause 1(6)(b):
“whether conditions are in place for effective competition for domestic supply contracts.”
That means that in consulting on the cap structure, what Ofgem believes to be important will have to be explicit upfront. Also on smart meters, it says that the review “must, among other things”, so it is not the exclusive thing. In fact, I have just reassured myself, because clause 7(5) states that the Secretary of State will have to publish the statement about whether they consider the conditions to be in place. It will be very explicit about which conditions have been taken into account in establishing whether the market competitive conditions have been restored.
Dr Whitehead
I thank the Minister for her concordance-like examination of the Bill to look at those conditions, but I stand by the point that there is, with the anomalous imposition of smart meter roll-out, nothing there effectively. I would have hoped that the Minister would be able to say, “Yes, you are quite right. There is nothing there effectively and we can put something there—perhaps not exactly this—on Report”. That would have caused my worries about the out as well as the in of the price cap to recede, but apparently that is not going to happen.
I, of course, wish the Minister the best of luck with her Tiggerish wish to get smart meters absolutely right. I am sure she will give that her full attention and ensure that it works as well as it possibly can, but I am afraid that under the circumstances I will have to press the amendment to a vote on the principle of what it is about.
Question put, That the amendment be made.
Claire Perry
I rise simply to say that I think that was a useful conversation about what competition looks like. We have made excellent progress today, and I propose that clause 7 stand part of the Bill.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Rebecca Harris.)
Energy Efficiency and the Clean Growth Strategy
Claire Perry Excerpts(6 years, 8 months ago)
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James Heappey (Wells) (Con)
It is a pleasure to serve under your chairmanship, Mr Walker. I congratulate my hon. Friend the Member for Eddisbury (Antoinette Sandbach), who has become the leading champion in this place for energy efficiency. She is at risk of being overtaken by the Minister, who is celebrated in all quarters of the energy industry. That is very welcome indeed.
This is a very important debate. I chuckled to myself at my hon. Friend’s reference to infrastructure projects being like boys with their toys. It is tempting when talking about energy policy to start with the wind turbines the size of the Eiffel tower in the North sea, the big nuclear power plants we are building or the transmission system. It is much less glamorous but no less important to talk about the other end of the system, where we can make huge differences in the amount of energy we use.
I happen to believe that six networks drive productivity in this country: road, rail, air, broadband, mobile and the energy system. The first five are discussed all the time in this place, but the energy system is talked about very rarely indeed. Energy got a rare outing this week, but in a consumer-focused debate about capping bills rather than in a debate about the wider energy system and potential productivity advantages.
A more energy-efficient system is important to our energy security. It was grimly predictable that, when National Grid released its warning about a squeeze on the gas supply last week, the headlines would scream stuff like, “Blackout Britain!”, and that the proposed solution would be more thermal generation from coal and gas. I argue that the solution is actually a more efficient energy system that allows demand to be shifted when those sorts of times come.
The Minister for Energy and Clean Growth (Claire Perry)
Let me clarify for the record what happened last week. I was extremely concerned that consumers might be alarmed and worry about whether to cook their tea or turn their heating on. What happened was an entirely normal signalling: “Can anyone who is consuming lots of gas sell it back? We’ve got a spike, because we’ve got the coldest weather for a decade.” That system worked. Sufficient gas was provided. That is a tribute to our very flexible energy system.
At no point was domestic supply under threat. I have worked closely with National Grid to ensure that, should that ever happen again, those messages are put out much more quickly, because I do not want people to be worried about making those choices in their homes.
James Heappey
My right hon. Friend is absolutely right, and she knows that she has my full, enthusiastic support on that point. The answer to what happened last week is not that we need more gas: actually, the system worked and demonstrated that there is flexibility. That more efficient, more flexible system brings with it energy security, and we should make that point robustly.
We should also be clear that a more efficient energy system brings with it reduced costs for consumers. Transmission and distribution costs are a not insignificant part of energy bills, so designing a more efficient system should be a priority. I will come back to that point shortly. It is not just price capping that can bring down bills for consumers: we could also find pretty significant savings in the costs of operating the energy system.
The other reason why we need a more efficient system is that, over the next 15 years or so, we will increase by an order of magnitude the demand we place on our electricity system. As we decarbonise heat and electricity, we will find ourselves significantly increasing the load, and the answer to that increased load cannot exclusively be more generation. We must seize the opportunity to create a more efficient energy system to meet that increased demand. For that, we must recognise that all of the clean tech coming along that allows for decentralised generation allows us to generate locally and use locally.
Rather than conceiving the national energy system as we see it at the National Grid control room in Wokingham, with its big map of the UK and its worrying about getting power from Hinkley Point to someone’s toaster, we should start to see it in terms of: what the net energy use is in someone’s home and whether they are putting energy back into the system or drawing down; and whether a community can service its energy needs and whether it is drawing from or exporting to the system.
The system would constantly balance upwards and, crucially, the distribution network operators would become distribution system operators, balancing the flows within their region. The national grid—if we need one in the future—would be left simply to balance the net flows of energy between the regions. If energy is generated and consumed locally, that must bring a significant reduction in distribution and transmission costs.
Of course, I recognise there will always be a requirement to socialise among all consumers the underpinning energy security that comes from a system that backs up when local systems fail. Such a system would bring huge reductions in bills and huge reductions in carbon—and frankly it would be an embracing of progress, given that all of this clean technology is coming down the tracks.
There is another area in which we could make the energy system more efficient: we should recognise that we waste a huge amount of energy in the form of heat. Remarkably few organisations that produce huge amounts of heat as a waste by-product yet understand their ability to monetise that heat. There are some brilliant pilot schemes that should inspire. London Underground has huge amounts of heat moving around its tunnel system underneath our capital city, and there are examples of it trying to get that heat out of the system and into heat networks on the surface. That is great, but such examples are relatively few and far between.
There are examples from heavy industry, where waste heat is being put into a heat network. Also, and this is a shameless plug: the shadow Minister and I—I will also demonstrate the non-partisan nature of the debate by referring to him as my hon. Friend—are both vice-presidents of the Association for Decentralised Energy, which told me the other week about a sugar factory in East Anglia, where waste heat and carbon is taken from the factory to greenhouses, where a prodigious amount of tomatoes are grown. That understanding of the value of the waste product and making energy usage more efficient should be an inspiration to companies all over the place.
There is also the electricity system itself. I understand from some of the distribution networks that the waste heat from the transformers when energy comes from the national grid into a distribution system is huge, and at the moment it goes out into the ether. Surely there is an opportunity to look at how that could be connected into heat systems.
At the Conservative party conference in Birmingham last year, a number of us were invited to go down to a combined heat and power plant beneath the library in Birmingham city centre. What is amazing in Birmingham is there is a network of CHPs—one underneath the library, one under New Street station and a couple of others in the city centre—that generate heat that is sold commercially to the hotels concentrated around the city centre at a cheaper rate than the hotels could get for themselves. The hotels therefore get a good deal and Birmingham business gets a good deal. However, Birmingham City Council, which put the network in place, also gets to sell cheap heat into the social housing immediately beyond the city centre. What I love is that the system is not just more efficient and therefore bringing down costs for business, but allowing for social justice by delivering far cheaper heating into the homes of those who can least afford to heat themselves.
That brings me to the domestic energy efficiency market, and first to those who are fuel-poor and unable to pay. Clearly, when it comes to our intervention, we must look at two types of energy efficiency to support those who are fuel-poor: barrier technology to avoid waste, putting stuff into windows, walls and roofs so that less electricity is required; and putting clean tech into homes, so that they have more efficient boilers and smart appliances, which also use less power. This is a completely non-partisan debate, but I adore the scheme in Scotland—and not just because it is called HEEPS, which was my school nickname. All power to the Scottish Government, who have one of the world’s leading domestic energy efficiency mechanisms—the home energy efficiency programmes for Scotland—in place. I hope we can be inspired by learning about what has been done north of the border.
There are opportunities to intervene. Yes, we can make the point that it is socially just to do so, but I hope the Treasury realises that it is financially sound, too. In the eight weeks of 2018 thus far, the Treasury has shelled out £56,282,500—roughly—in cold weather payments to those who live in fuel poverty. If we were to intervene aggressively to make those in fuel poverty live in better insulated, more energy-efficient homes, arguably that 56 million quid could have been reduced significantly. As my hon. Friend the Member for Eddisbury said, there are huge savings to be passed across to the NHS system and adult social care by ensuring that those who are fuel-poor, those most vulnerable and those living on the lowest incomes are in homes that are comfortable.
There are productivity gains to be had, too. If people live somewhere they can heat and they do not have to choose between heating and eating, they will be much more able to go out and get work, be motivated to be productive and get promotion, which will stop them being in a position where they are fuel-poor.
I have three more suggestions. The first is about the winter fuel allowance. I am aware that it is probably a bad idea to talk in the House of Commons about a universal benefit to pensioners, especially when as a result of this suggestion there is a chance that some will not get a payment any more. However, we might start to look at whether to set aside those who we class as being fuel-poor—those who have qualified for cold weather payments in the past couple of weeks, for example—and make sure they still get a winter fuel payment.
For the remainder, however, instead of giving cash to be used against an energy bill, could we start to give vouchers for that value with which they can improve their homes with energy efficiency measures? They would get the same amount, and I would argue passionately that over time they would be delivered a saving from their energy bills far in excess of what they currently get with the extra cash of the winter fuel allowance. More importantly still, whereas that allowance is given, spent and gone, with vouchers we would upgrade the housing stock of all the houses currently lived in by pensioners that, at some point in the future, will be lived in by people who are not pensioners. We would make an intervention using the existing universal benefit in an ever-so-slightly different way, which would stimulate economic activity—all these people would move into the supply chain to deliver those energy efficiency measures—and upgrade our housing stock permanently. We should consider that.
We also need to look at how we do EPCs and the standards we set for new homes. In hindsight, I think we on the Government side made a mistake in reducing the carbon standards for new built homes. However, even if we leave the standards as they are for the moment, please let us ensure that developers are building houses at the EPC level they say they are. There is too much discussion in this place of charities worrying about energy efficiency—they say that developers can say, “Everything we build that is ‘The James’ is an EPC band C. Therefore, wherever we build it, it is an EPC band C, even if we cannot guarantee those properties were built to the exact same standards as the type tested.”
We need to ensure that all of the hundreds of thousands of homes that the Government are commendably committed to building are built to the very highest standards—at the very least, to the standard it says they are built to in the brochure the developer provides at the point of sale.
Instead of EPCs simply being a mechanism for judging how efficient a property is in terms of its barrier technologies, or how well insulated the walls, windows, doors and roofs are, I wonder whether the Government might also consider how we might start to value the clean tech that might also have been put into the home. Clearly, some clean tech is removable; smart appliances may well be moved with the owner when they move house. But we have asked the energy companies to commit to having offered every consumer in the UK a smart meter by the early part of next decade, and by 2025, I think, we want all properties to be at band C. I wonder whether a requirement for reaching band C by 2025 should be that a band C house has a smart meter within it. That would catalyse the uptake of smart meters quite quickly.
My hon. Friend the Member for Eddisbury has already mentioned the importance of getting energy efficiency, and therefore operation costs, factored into the affordability studies done by mortgage companies. Nothing will bring the value of energy efficiency to the attention of homeowners more. I declare an interest here, insomuch as I am on the phone to my mortgage broker quite often at the moment and spend a lot of time scouring Rightmove, but nothing motivates homeowners more than when they are going through the affordability study and the mortgage company or broker is asking about the bills.
There is a hugely frustrating moment when the mortgage broker asks, “And what do you spend on your household utilities at the moment?” and the homeowner says, “Probably about £200 a month, but within the house I am building there are solar panels on the roof, or solar PV on the roof, or I want to put those things on to the roof or to put in a heat pump,” and the mortgage broker just moves on to the next question and shows no interest whatever in what they have just been told.
Steve McCabe
I certainly agree. A lot of the low-hanging fruit has been picked and we are moving to a different level of problem, which I think gives us all the more reason to come up with practical, realistic incentives for that purpose.
As I say, it is good that ECO will continue until 2028. However, it is estimated that, to meet the 2030 fuel poverty target, the scheme requires funding of about £1.2 billion per year, as opposed to the current proposal to keep funding at about £640 million per year. I am curious to know how the Minister thinks she can meet that target with a projected funding shortfall of roughly 50%.
A further concern about ECO is that it is essentially a regressive funding mechanism. It pays for installing efficiency measures in fuel-poor homes by increasing energy bills across the board, which negatively impacts low-income customers who do not themselves benefit from the scheme. It seems analogous to the arguments about the cost of the smart meter programme, in that the cost of that is spread across all bills but without all people gaining the same benefits. That is something I have been looking at with some interest for a while now.
The hon. Member for Wells was looking for a way to vary the funding, and he talked about what might be done with the winter fuel allowance. I agree with the UK Energy Research Centre, whose recent report recommended that the environmental and social levies, including ECO, should be funded through general taxation rather than increased energy bills, which they claim would save the poorest 10% of households £102 per year while the vast majority of people would see no change to the amount they pay for environmental and social levies.
Claire Perry
This is a very interesting question, and I intervene to address things that I am not sure I will have time to come to at the end. This point has come up a couple of times, and I say two things to the hon. Gentleman. First, bill payers and taxpayers are generally the same people; we pay out of our pockets for both. Secondly, the problem we all have, as he will know, is that, regardless of which party is in power, it is difficult to hypothecate taxes for particular measures.
Some might argue—I mean no disrespect to our wonderful civil servants—that the Government are not the most efficient deliverer of such schemes. I will talk in closing about the reforms to ECO that we want to bring forward. However, getting energy companies, which know who the customers are, to target that money effectively and to commission and deliver what are often very valuable energy-saving measures for our poorest and most fuel-poor people seems to me a far more efficient way of delivering what we all want, which is people not living in fuel poverty.
Steve McCabe
I will certainly not argue with the Minister that the Government might not be the most efficient deliverer of schemes. I obviously concur with her on that.
My point to the Minister is that general taxation is usually graduated to some extent, whereas a figure applied to bills across the board is effectively a flat-rate tax. In that way, it has a regressive impact, which is the point I was making. I am certainly open to other ways of looking at this, and I hope we will hear from the Minister—I hope there will be plenty of time to hear it—that there are other ways that this can be looked at, and that the Government are open to them.
In its response to the clean growth strategy, the UK’s Committee on Climate Change said that an ambitious energy efficiency action plan for able-to-pay households is urgently needed, as well as a robust policy framework including incentives and firm commitments. It also recommend that we need some concrete proposals in place by 2019 if we are going to make real progress. I will be interested to hear the Minister’s response to those points.
I want to mention a couple of other things. The committee also says that action is needed in the private rented sector and that stronger regulations are needed. As the hon. Member for Eddisbury says, we need to find ways to incentivise homeowners to improve the energy efficiency of their homes. Fiscal incentives could include council tax rebates, cutting VAT on energy efficiency measures or a stamp duty rebate. As early as 2005, the Energy Saving Trust published research on the use of fiscal incentives involving council tax and stamp duty, and since then many other organisations have developed thinking on how fiscal incentives for energy efficiency could work, so there is not exactly a shortage of potential levers. I agree with the Minister that the process is not straightforward, but quite a lot of things could be considered and it would be good to hear where the thinking is going.
I would recommend that, alongside the fiscal incentives, the Government start to encourage other schemes. We should look again at the idea of zero or certainly reduced-rate loans, taxpayer-funded grants and mortgage-linked cashback schemes, to which I think the hon. Member for Eddisbury referred.
Something in which I am interested and that requires exploration is equity release schemes. They might be a promising vehicle for energy efficiency, because they would allow homeowners to withdraw some capital from their home for improvements that they would need to pay for only when or if they sold their home. Those schemes are considered suitable in particular for older, equity-rich homeowners—perhaps the kind of people the hon. Lady had in mind when talking about the scale of work that would be done.
Those people own quite a significant proportion of the country’s housing stock. Of course, they do not necessarily have money readily available for improvements, but they do have considerable equity. The Government should build on the work being done in Scotland. I would like to see an attempt at least to pilot an equity release scheme in England, and I would be interested to know whether the Minster is thinking about that.
The private rented sector has some of the worst properties for energy efficiency in the UK. Despite targets being introduced seven years ago to bring all rented properties up to EPC band E by 2020, 6% of private rented homes are estimated still to be in bands F or G. That equates to about 280,000 residences, which are often occupied by the poorest families—people who are forced into choosing between eating and heating. Shockingly, cold homes were found to be a bigger killer across the UK in 2015 than road accidents, alcohol or drugs.
The Department for Business, Energy and Industrial Strategy is introducing new minimum standards—from April, I think—stating that no home can be rented out if it is below EPC band E. However, the regulation includes a “no cost to the landlord” principle, meaning that if the landlord says that they cannot afford to make improvements or that they cannot get access to the energy company obligation scheme, they do not have to do that. I do not understand the rationale for that loophole. I ask the Minister to reconsider the matter, especially in the light of the questions about the availability of the ECO scheme.
As well as setting targets, the Government need to provide effective legislation and regulation, ensure that the financial frameworks are in place to incentivise able-to-pay households and ensure that private landlords are obliged to invest in their properties. It seems to me that there is a degree of agreement across the House on these matters. If we saw some progress on them, we could have much greater confidence that the Government would achieve their ambitions, and the twin aims of decarbonisation and energy efficiency, with the knock-on effect on the fuel-poor, would be things on which we could realistically expect to see significant progress.
Luke Graham (Ochil and South Perthshire) (Con)
It is a pleasure to speak under your chairmanship, Mr Walker. I, too, commend my hon. Friend the Member for Eddisbury (Antoinette Sandbach) for securing the debate. Many contributions have focused on domestic energy efficiency, and I will touch on that, but I also want to broaden the debate and talk about energy efficiency in the commercial and industrial market, which is crucial if we are to meet our emissions targets.
The clean growth strategy was introduced last year by the Department for Business, Energy and Industrial Strategy with the express intention of accelerating the pace of clean growth, allowing the UK to meet its greenhouse gas emissions targets while ensuring that we maintain the strong economic growth that has been a key success of the Conservative Government during the past eight years. It is worth noting that the clean growth strategy has been introduced not to address an issue, but to improve, accelerate and maximise an already successful set of Government policies.
Since 1990, the UK’s GDP has increased by 67%, while emissions have gone down by 42%. In comparison, the G7’s GDP has increased by 61%, but its emissions have gone down by only 3%. That shows that the UK has led the way in growing the economy without jeopardising the environment. To put that another way, protecting our environment need not undermine our economy.
The argument that environmental protection is incompatible with a thriving economy holds little water. Our success in creating more jobs while reducing emissions shows that we need not choose between economic growth and environmental measures. The UK is therefore clearly right to seek to maximise the economic benefits of our transition to a low-carbon economy.
With regard to Scotland, energy efficiency was of course devolved in 2016, but energy policy is still a reserved matter. Particularly important for Scotland is the recognition of the importance of carbon capture and storage to decarbonising UK heat, industry and power. That has been mentioned by Opposition Members. For Scotland, CCS is a vital tool to reduce emissions, and the Minister should be commended for putting it firmly back on the Government’s agenda.
In the UK, we have world-leading oil and gas skills and infrastructure—predominantly based in the north-east of Scotland—which could be perfectly suited to CCS. However, the opportunity to repurpose many of those assets before decommissioning is diminishing. That is why putting the clean growth strategy into action now is vital for the UK as a whole. The economic benefits of CCS to Scotland and the east coast of England combined have recently been estimated at more than £163 billion during the next 60 years, making it imperative that we maximise this opportunity.
It is therefore worth considering the Caledonia Clean Energy Project, which could be well placed to kick-start the UK CCS industry. The Caledonia Clean Energy Project would see the development in Scotland of crucial low-carbon infrastructure that not only provided clean, reliable power to up to 1.3 million homes, but facilitated the decarbonisation of Scotland’s major industrial hub, Grangemouth. If that were not enough, the project could also produce enough clean hydrogen every day to power about 500 hydrogen-fuelled buses.
There is not a strict definition of energy efficiency at industrial level, but surely a helpful one would be the sort of energy efficiency that not only helped the UK to lower its emissions and meet emissions targets, but put the UK at the forefront of economic innovation in the energy market.
It is clear that Scotland specifically has the exciting potential to be a major part of the clean growth strategy, but if there is one criticism that can be levelled at the strategy, it is that it does not provide the sufficiently clear policy signal that investors in CCS need to justify what could be multiple billions of pounds of inward investment in the UK and Scotland. It is important to remember that although energy efficiency is devolved—we have heard here today examples of best practice in England and in Scotland—energy policy is still a reserved matter. That is why having a joined-up strategy that goes across the UK is so important—to ensure that we can pool our resources.
Where we have large energy assets such as nuclear, wind—we have world-leading wind farms in the North sea—and oil and gas, we can pool our resources, but we can also leverage some of the research and innovation that the UK is so famous for to promote micro energy efficiency and energy generation schemes and decentralised projects across the UK. The clean growth strategy seeks to promote that and it is a UK-wide strategy, which I very much welcome.
I would like the Minister to comment on how the clean growth strategy could deliver commercial-scale carbon capture to Scotland and other parts of the UK, before the oil and gas infrastructure is decommissioned and our best offshore engineers move abroad to work in other markets. Will she meet me and other Scottish Conservative colleagues to discuss the matter further?
As was mentioned by my hon. Friend the Member for Wells (James Heappey), we should be looking at a number of different energy measures. As a strategy, it is right that we look at both the top level and the micro level. I will not repeat some of the points so articulately put by my hon. Friend when talking about decentralised energy schemes and micro energy schemes, but I will just add some of the geothermal schemes. Certainly in my constituency, in Clackmannanshire, we have been looking at former mines and whether it is possible to use them as sources of geothermal heat.
Claire Perry
As a matter of principle, it would be a pleasure to meet with anybody. As everyone knows, my door is open. Secondly, the hon. Member for Southampton, Test (Dr Whitehead) and I had that conversation only this week. I suspect that many people know about this whole geothermal mine water thing. I am really interested in this technology. If there are groups out there that are interested in promoting this and suggesting what can be done in a cost-effective way, bring it on. Let us look at what we have actually done—we have already dug the holes—and see whether we can get some more benefit for those communities.
Luke Graham
I thank the Minister for her intervention. Fortuitously, Clackmannanshire is up for a city deal, so there would never be a better time for her to come and get involved in these energy projects. I will definitely be following up with her on that as soon as we leave Westminster Hall.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
It is a pleasure to serve under your chairmanship, Mr Walker. We should all be friends in this Chamber today. I warmly welcome the fact that the hon. Member for Eddisbury (Antoinette Sandbach) has initiated this important and overdue debate. It is something of a scandal that the subject has not been debated for so many years. In this warm debate, I will give the Minister only a couple of bits of heat, which have actually been generated by the contributions of others, while I try to go through the constructive discussion we have had.
First, the hon. Member for Eddisbury rightly raised the issue of fuel poverty. She talked about the fact that this is an issue for many people, particularly in rural areas where lower incomes are more common and costs are higher. The weather is often less favourable and less warm. That is especially true for off-grid customers. In the highlands and islands, distribution charges mean 4p per unit more for customers than other parts of the UK, which is a particular additional problem. I call on the UK Government, as we have called on Ofgem and energy companies, to end this inequality without—importantly—increasing the cost for others: it can and should be done.
The hon. Lady also mentioned energy efficiency and the massive strides that need to be taken towards climate change goals. I was interested in her proposition about mortgage providers providing an incentive. That merits investigation, but I would insert a word of caution there. The measures used would have to be carefully thought out, because we do not want to see the unintended consequence that people who are trying to get on the housing ladder and get their first home are effectively priced out of the market by measures that may not be appropriate for their area and its housing stock. It is worth investigating, but I urge some caution.
The hon. Lady was quite right in saying that the onus should be on new developments to provide more efficient properties. Developers should take that up. I was caught by her comment that she was shivering in her home in London. I think it is quite unusual for people in London to find themselves shivering in their houses. When I was down in my flat last week, although we benefit from a district heating scheme, the insulation is so bad that it was actually very cold in the flat, because the heat was flying out of the windows. That is a good example of what happens. Is it not also the case, however, that that gives us an insight into what people in fuel poverty have to put up with throughout pretty much the whole of the winter? It is a good lesson for us to take away: we should be aware of the genuine suffering that people face through cold.
The hon. Lady, in her very good speech, said that energy efficiency measures should be thought of as infrastructure. I think that is a good idea, which is overdue for consideration. The Minister should take that into account, particularly in the light of the great heat challenge that we will have in the coming decades. It is an important suggestion, which should be taken forward. Of course, investment in energy efficiency creates jobs. That is a great thing to do not only socially and morally but for the economy. I think that is an important point to make.
The hon. Member for Redcar (Anna Turley) talked about not being able to meet emissions targets without taking on the industrial effects, and she was absolutely correct. Industrial decarbonisation has to be accelerated. The whole strategy needs to be given a lot more—if Members will pardon the pun—energy, and the attention that it needs.
The hon. Lady quite rightly talked about carbon capture and storage, and about the Teesside Collective and the investment that is required. She should be commended for fighting for her constituency in that way, particularly given the issues over steel. Happily, in Scotland we were able to save the steel industry, with the Scottish Government working with Liberty Steel to take over the plants in Lanarkshire. It dramatically affects the wellbeing of industrial neighbourhoods if they lose that significant number of jobs, and they should be prioritised for reinvestment. However, we should be wary—this is one of the points of contention with the Minister—of promises of investment in carbon capture, because in Peterhead the Chancellor said that we would invest £1 billion in carbon capture and storage, but the rug was pulled away from underneath that project and it was left without that funding. It will be interesting to see the Minister not only make those commitments but follow through on commitments for the different projects. I will return to that point when I respond to the comments made by the hon. Member for Ochil and South Perthshire (Luke Graham).
The hon. Member for Redcar talked about district heating, which has to come through far more importantly and strongly to support communities. There are great benefits to district heating schemes if they are got right. She and the hon. Member for Wells (James Heappey) also talked about renewable energy, which is very important in both industrial and domestic energy in taking the challenge forward.
Another bone of contention that I have with the Minister —perhaps she will tell us what she will do about it—is the shabby treatment of the solar industry. Energy efficiency in commercial and industrial properties could have been greatly enhanced by supporting the solar industry, yet Government policy has withdrawn that support. Investments in new solar projects have dramatically declined—they have fallen off the scale—so I hope that the Minister will have an answer on how it can be supported.
Heeps—sorry, the hon. Member for Wells—said that big infrastructure was “toys for boys”. On International Women’s Day, it is worth pausing to reflect on that and say to the Minister, as I and others have before, that we need to encourage more girls and young women into the energy industry so that, large, small or however the infrastructure is designed, it is no longer “toys for boys” but “toys for boys and girls”. It is important we continue to challenge the language that we use, although I know that was meant in the best possible way.
The hon. Gentleman also discussed whether the domestic supply was near to crisis. I know the Minister answered that point; but I will pose the slight warning that, owing to capacity, people in off-grid areas came perilously close to running out. Some in my constituency of Inverness, Nairn, Badenoch and Strathspey actually did run out of liquefied petroleum gas during that period. It was not job done. I appreciate what the Minister said, but there needs to be more focus on off-grid gas customers to ensure that we support them. I would welcome a comment on that either now or later.
Claire Perry
The hon. Gentleman and I, and I suspect others in the Chamber, share exactly the same off-grid problem. It is a problem of effective supply. At the moment, heating oil is relatively cheap, but a couple of years ago the price was going through the roof, so we end up with unmanageable spikes in demand, although we have many collective buying schemes. He knows that one of the ambitions of the clean growth strategy is to phase out fossil fuel heating for new build in off-grid areas—it is simply ridiculous that we continue to put oil boilers in—and to look at how we create a cost-effective technological pathway. My hon. Friend the Member for Eddisbury (Antoinette Sandbach) has installed a heat pump, which, as she mentioned, can require a lot of reworking of a home, which may not be cost-effective. We are all collectively determined to solve this problem. To me, the answer lies in investment, innovation and creating some good routes to market.
Drew Hendry
I thank the Minister for that intervention. I understand that she wants to create solutions, but the proof will be in the pudding. I look forward to seeing what tangible measures come forward.
The hon. Member for Wells also talked about comfortable homes improving productivity. It is absolutely true. Studies have shown that in cold homes, children’s educational attainment is held back. He is right to point out that people are more productive when they have reasonable places to live in, and we give our children the best possible start in life when we give them warm homes to live in and have their education in.
The hon. Gentleman made very salient points, which I was delighted to hear. The voucher scheme for fuel-poor households is a really good thing to follow up—it is another idea that has merit and deserves further investigation. If something could be produced on that level, it could help a number of people and, as he said, improve housing stock. A measure that could improve things right away is the rapid acceleration of the programme to put the latest generation of smart meters into homes. A lot more needs to be put in to ensure that that happens much more quickly.
Drew Hendry
The hon. Gentleman makes a good point, and I share his hope that people are listening to the need to adjust those things. To achieve the outcome of improving homes, making them ready for the future through energy efficiency and tackling the clean growth challenge, it is important to take a holistic view.
I agree with the hon. Member for Birmingham, Selly Oak about introducing grants, loans and measures to help people to gain energy efficiency but, again, it is always good to look at those kinds of ideas with real caution. His talk about an equity release scheme should give us pause for thought about its unintended consequences. It is a good idea that merits investigation, but we need to reflect on whether it is a position that only people with assets could access and whether we would be forcing people to release those assets, instead of promoting it as a core policy across the board.
I hoped that I would not have any heat from the hon. Member for Ochil and South Perthshire, as is usual in exchanges between near-neighbours in Scotland, but he bravely brought up the carbon capture and storage challenge. I will not repeat my words to the Minister earlier, but in a positive sense, I ask her whether she will support the Scottish Government’s commitment to developing carbon capture in St Fergus. What will she do to put real weight behind that Acorn project?
My cheeky word of caution, which is in fact not cheeky but factual, is that in the vast majority of city deals in Scotland, the UK Government have failed to match the Scottish Government’s funding. If a city deal comes forward, I hope the hon. Gentleman’s constituency gets its fair share, unlike Aberdeen and Inverness.
Claire Perry
The hon. Gentleman and I debate Acorn and St Fergus frequently. I will double-check the numbers, but my understanding is that the UK Government have put in £1.6 million and the Scottish Government have committed a welcome £100,000. We are absolutely keen to support those projects and we continue to be a major investor in all sorts of levels of carbon capture and storage; I will address CCS and its future in my closing remarks. I will double-check those numbers and write to him, but I am confident that we have already committed several multiples of what the Scottish Government have to that project—and quite rightly.
Mr Charles Walker (in the Chair)
We are all looking forward to the Minister’s closing remarks.
Dr Alan Whitehead (Southampton, Test) (Lab)
We have had an excellent debate. I congratulate the hon. Member for Eddisbury (Antoinette Sandbach) on securing it and on her excellent contribution, which was a superb setting-out of the imperatives of securing energy efficiency in homes and what flows from that.
What happens to fuel poverty, if we systematically insulate our homes to an acceptable standard? What happens to bills in the future, and what happens, as the hon. Member for Eddisbury pointed out, to the amount of fuel that we are consuming in our homes? She estimated that a 25% or so reduction in gas as a result of insulating our homes to an acceptable standard has all sorts of knock-on effects for the wider climate change debate. As she also said, that is reflected in the clean growth strategy ambition and targets that ideally we should be aiming for as far as insulation in all homes is concerned, and in the earlier target of insulation up to band C for homes in fuel poverty.
I very much commend the target in the clean growth plan, but how do we get to that target? That was also a part of the hon. Lady’s and other hon. Members’ contributions this afternoon. We ought to dwell on that as something that we can all sign up to and aspire to. There is a long gap between that aspiration, where we are now and what has happened in recent times with energy efficiency and what we now have to do to close that gap. Among other things, we must make sure that we fulfil our climate budget obligations and make sure that what comes into those climate budgets from the energy efficiency contribution is as good as it can be.
Having congratulated the hon. Member for Eddisbury on her contribution, I want to add a slight note of sadness. Perhaps we should have all sat on one side of the Chamber this afternoon and addressed our comments to all the rest out there who did not turn up to the debate and who quite often do not engage with this issue. We might have collectively addressed the importance of energy efficiency not only in domestic buildings but in commercial and industrial buildings. It is important to work together to address climate change, fuel poverty and all those other targets to make sure we sort them out. Today’s debate has reflected the collective and consensual activity that we ought to organise among all of us, provided all those other people along the road support the Minister in what she is doing for energy efficiency. The Opposition party must have the very best policies so that when our turn comes to govern, we have a clear understanding of where we need to get to, what we have to do and how we support and fund it. That is a job of work for all of us in this Chamber to get ourselves involved in.
The elision of energy efficiency and the clean growth plan in this debate highlights one of the central issues that will make or break our approach to making sure that our obligations under the fourth and fifth carbon budget can be met. I have said on various occasions that the really good news about the clean growth strategy is that it encompasses all of those things. The bad news is that the clean growth plan itself does not get us to where we need to go in terms of our obligations under the fifth carbon budget. I think the Minister accepts and understands that and has, I hope, substantial plans to add to the measures in the clean growth plan to get us to the fifth carbon budget target. However, I do not think we need to come up with a lot of brand new ideas to do that. We need to make sure that what is in the clean growth plan is funded and sorted out at the earliest possible stage and on the widest possible canvas so that when we come to put the sums together we will see that they add up as we go down the line.
I cannot emphasise strongly enough, along with other hon. Members this afternoon, what we need to do to meet the target for energy efficiency in homes. The hon. Members for Eddisbury and for Wells (James Heappey) and my hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) all emphasised the components of the action that we need to undertake with regard to energy efficiency. The hon. Member for Eddisbury emphasised how clear-eyed we need to be about what it will cost us and how it will be financed, but, once that cost has been met, there will be benefits in the end. We need to understand that that is a pretty good cost-benefit analysis over the long term.
My hon. Friend the Member for Birmingham, Selly Oak reminded us not only about how the cost will be borne, but by what parts of Government it will be borne. He drew attention to how matters stand under the clean growth plan of action. I believe that there is shortly to be a Government publication on the plan for the next phase of ECO and how that will have its impact on energy efficiency. We have to be clear that even if ECO is extended out to 2028, at its present level of funding that will get us nowhere near to the numbers that we need to be energy efficient. There are still 7 million homes out there—the non-cavity wall and hard-to-treat homes—that have a far higher unit cost of treatment than what we might call the lower-hanging fruit of loft and wall insulations, a lot of which have already been done around the country.
Since some of the measures taken by the previous Labour Government on area-based schemes, including the enveloping of some hard-to-treat homes, there has been a 58% drop in treatments related to energy efficiency. I do not blame the present Minister for that drop. I know that she is committed to turning that around and getting a far greater number of treatments undertaken, but we have to face the fact that that is what has happened in recent years. We are starting our road back towards energy efficiency from a fairly low and, in some senses, rather dispiriting base.
My hon. Friend the Member for Birmingham, Selly Oak reminded us that when it comes to funding the changes it is extremely unlikely that we will be able to do it by heaping obligation on obligation in customers’ energy bills. I want to go further and remind hon. Members that we are assuming at the moment that action will be taken in a range of areas by means of obligations on companies, which will be passed on to customers in their bills. As my hon. Friend mentioned, we assume that the cost of the smart meter roll-out will go on customers’ bills, because the obligation on energy companies to fund them will be passed on. The capacity market for procuring standby energy supply and new forms of conventional energy supply is, effectively, an obligation that is passed on to customers in their bills. The contracts for difference that we have already are also based on such an obligation—the renewables obligation—and the additional £557 million that is in the budget for further offshore wind. The warm home discount is in the same boat. If, as I understand the present plan to be, the energy company obligation is extended to 2028, that will also be based on a continuing obligation—it is in the name—that will go on to customers’ bills. Recently what was effectively a grant from Government to energy-intensive industries was converted to an exemption, which is to be funded by a levy on customer bills. There is a raft of such levies, and the number is increasing.
The hon. Member for Eddisbury set out some recent figures from, I think, Frontier Economics, and said that they were the likely real annual cost of getting us to an acceptable level, close to the target in the clean growth strategy. Her figure was £1.1 billion. From recollection, although I do not have the Frontier Economics report before me, that figure is a net one, arrived at after taking into account other contributions, including local authority and, as other hon. Members have mentioned, landlord contributions. The hon. Member for Wells—perhaps in future we can refer to him as the hon. Member for HEEPS—mentioned, and my hon. Friend the Member for Birmingham, Selly Oak emphasised, the fact that landlords may make a contribution, but if they say they cannot afford it or get into ECO, they will effectively be given a free pass.
There should be a minimum merchantable standard for property for rent. Although it is true in theory that at the moment the landlord should not be able to let property below that standard, which would be band E in this instance, the remedy is enforcement at local authority level. We know what the situation is as to enforcement at the moment, given local authority resources.
Landlords do not necessarily have to stick at band E if they have spent, I think, £2,500. If they cannot get on ECO, they get a free pass. I do not think that that should be regarded as acceptable in the next 10 to 20 years. The landlord contribution should be doubled—and, indeed, the Frontier Economics report suggests a landlord contribution of £5,000 being factored in to the figures mentioned by the hon. Member for Eddisbury.
However, the issue is not only about that. If someone said, “I am letting out this hotel room, which has no glass in the windows, has cockroaches all over the place and has no sheets on the bed, but is quite cheap,” trading standards and various other people would be all over it. We need to get into the idea that a house being let in the rented sector with poor energy efficiency is a non-merchantable product and should be seen as such. A key part of a drive to make firm progress on energy efficiency is making sure that rentals in that sector are made on the basis of merchantable properties with good energy efficiency.
The figure that the hon. Member for Eddisbury mentioned can be upped a little in view of all the contributions. It comes to a round total of, I think, £1.8 billion. That is certainly what our party would commit to as the sort of expenditure needed to get to the level in question. I cannot see that that can be found by increasing obligations on bill payers over the next period. It must come from central taxation.
Claire Perry
The hon. Gentleman is a sensible, intelligent man, but what he is saying presupposes that the prices never change. However, the reason we no longer have to invest so much of the £557 million in offshore wind is that prices tumbled precipitously, giving us more bang for our buck and enabling us perhaps to buy technologies that are further in the market.
Part of the clean growth strategy is trying to take that investment spend—the innovation spend that the Government are setting out—so that we can drop the prices of technologies significantly, and so that they no longer require a burden on the bill payer or the taxpayer, because they are sufficiently cheap. The benefits in reduced energy costs that my hon. Friends described mean they pay for themselves. Please would the hon. Gentleman get out of the world of equating the amount of money that the Government spend with the result that we need? It is actually a matter of how we deliver the most homes, well insulated and cheap to run, most affordably.
Dr Whitehead
The Minister is right, in that, obviously, area-based efficiency measures that uprate an entire area lead to economies of scale. Far more houses can be treated in that way than by cherry-picking individual houses in different places and dealing with them one by one.
Claire Perry
That is true, but surely the hon. Gentleman agrees that other people’s money will be better used if the underlying price per installation has fallen because of a completely different approach to cavity wall insulation or investment in solar-reflective paint, which is a technology being rolled out in other parts of the world—in other words, if we are looking at more cost-effective and innovative ways of doing things, so that the same amount of money buys far more installations on a per-unit basis.
Dr Whitehead
I surely do. On the basis of what the Committee on Climate Change says, the current ECO commitment falls way short of the levels of treatment we need if we are to get anywhere near our 2035 targets. Even the £1.8 billion figure that has been cited will not cover a complete series of treatments for houses in the UK. I suggest that making our treatments much more efficient—by doing them on an area basis, for example—would allow us to get much closer to our target for the same money. We can probably agree that £1.8 billion will be the sort of money that will get us there, but an efficient approach could get us so much further, which I would completely support.
As the hon. Members for Eddisbury and for Wells and my hon. Friend the Member for Birmingham, Selly Oak emphasised, enveloping energy-efficient homes area by area needs to be funded from the infrastructure budget. It may not look like big boys’ toys, but it is absolutely an infrastructure project and ought to be treated as such by the Government. That would have a number of advantages for costs of capital, borrowing and all the rest of it; as the Minister says, we could make even more houses efficient for the same investment.
I appreciate that I have gone on rather longer than I intended, but let me briefly say a few words about the speeches of my hon. Friend the Member for Redcar (Anna Turley) and the hon. Member for Ochil and South Perthshire (Luke Graham). They both drew attention to the role that CCS can play, as did the hon. Member for Wells—or rather for HEEPS. I thoroughly endorse that line of thinking on CCS, but I must point out that as far as the clean growth strategy is concerned, £100 million will not get us anywhere near our CCS target, just as our ECO commitment will not get us anywhere near our energy efficiency target.
I congratulate Teesside on its comprehensive approach, in which my hon. Friend the Member for Redcar has been centrally involved. Teesside could be an absolute exemplar for the rest of the country in its combination of intensive industry with CCS and its by-products. That is very important for realisation of the clean growth strategy and we need to incorporate it in all our future clean growth plans.
I congratulate all hon. Members on their contributions to the debate. They all faced in exactly the same direction, acknowledging the importance of energy efficiency in homes, for a variety of reasons including climate change and fuel poverty, and the prominence that we need to give it in our policy debates. If this afternoon’s debate has hastened that process, we will have done a very good job between us.
The Minister for Energy and Clean Growth (Claire Perry)
It is a pleasure to serve under your chairmanship, Mr Walker. You tempt me, but I will say what I had planned to about this excellent debate.
May I wish everyone a happy International Women’s Day? [Hon. Members: “Hear, hear!”] I am so proud to represent my constituents on this marvellous day—a great day for discussing boys’ and girls’ infrastructure investment preferences. It is a bit like blue and pink jobs, but we all need better roads, railways and power generation as well as warm and well-insulated homes. That is certainly my focus.
I congratulate my hon. Friend the Member for Eddisbury (Antoinette Sandbach) on securing this fantastically important debate and on her characteristically thoughtful, knowledgeable, well-balanced and well-researched speech. She is an extremely important member of the Business, Energy and Industrial Strategy Committee, which has done such good work on the matter. It is striking that this is our second debate this week—after the Second Reading of the Domestic Gas and Electricity (Tariff Cap) Bill on Monday—in which there has been an outbreak of consensus. Long may it last.
Hon. Members across parties understand the vital need for action and the potential difficulties. A lot of sensible suggestions have been made about prioritisation, but ultimately we all share the ambition to secure clean growth for the UK at the right level and the right cost; maximise productivity under our clean growth strategy and our industrial strategy; and create a secure, diverse energy supply at low cost for our consumers. This has been a really thoughtful debate and many good ideas have been suggested.
Let me recap where we are. Based on 2017 data, the last time emissions in the UK were this low was in the year the Forth bridge was opened and “The Picture of Dorian Gray” was published, which was the year before penalties were introduced in football. I hope hon. Members from north of the border will already have got it, but in case not, it was the year 1890. When we consider the scale of the challenge, we should take a moment to think about just how far we have come: in a couple of decades, we have dropped our emissions to a level last seen in Victorian times. That has been achieved through cross-Government support for the Climate Change Act 2008, impressive work done by successive Governments on decarbonising parts of the economy, sustained investment and getting the costs of intervention to a market level, as we have seen so recently in offshore wind.
To be slightly partisan for a moment, I am very struck that it was Margaret Thatcher who made the first speech to the United Nations on the impact of human activity on the climate. She referred to sulphur emissions and acid rain, but since then we have realised the impact of chlorofluorocarbons, started talking about carbon and methane, and become far more informed. Only two countries in the world are considered to be doing enough to meet a 2° target: China and the United Kingdom. I would be the first to acknowledge the scale of the challenge ahead, but we should feel reasonably good about getting there and about speaking to colleagues and constituents about what we have done.
Before I plunge into my attempt to answer the many questions asked in the debate, let me refer to a couple of speeches. My hon. Friend the Member for Eddisbury opened the debate and the next speech was made by the hon. Member for Redcar (Anna Turley). It has always been a pleasure to work with her and it is so wonderful to see her back in her place, standing up very ably for the concerns of her constituents. The opportunity to create a new industrial cluster on the SSI site that sequesters rather than emits carbon is incredibly exciting. Unfortunately, the hon. Lady was not there when I visited, but I was pleased to go up to see the site, work with some of her colleagues and celebrate a really good interaction between national Government and local government—having a Mayor for the combined authority is making a huge difference—and some incredibly effective cross-party working. That is a really important model for how we should be going forward.
Let me briefly address carbon capture, utilisation and storage, which is not the topic of this debate but is important none the less. We have a triple test for spending taxpayers’ money on technology. First, can we get the carbon down? Secondly, can we get the cost down? Thirdly, can we create a competitive innovation that we can then export around the world to improve productivity? I was not in my current post when the decision was taken on the council. I can say that the money that was not spent was recycled into the research and development budget, which has allowed us to have £2.6 billion to spend on energy innovation that is bearing fruit all over the place.
By the way, there are only 21 at-scale CCS plants working in the world today, 16 of which rely on capturing the carbon and using it for enhanced oil recovery. This is not a cost-effective technology that other countries are embracing with gusto. Even our friends in Norway, who are a little further along than us in building up the infrastructure, are struggling with precisely this point, which is, how much do we burden taxpayers or consumers to fund these projects? That is a real challenge. However, we are not going to bow down before it; we are going to embrace it.
That is why I have set up the carbon capture, usage and storage council—literally the best minds on this problem in the UK, and indeed around the world—to consider how we build strategically the case to carry out CCS in a more cost-effective way. We have also set up the CCUS cost reduction taskforce, emulating what was done in offshore wind, to drive prices down, not only in terms of the technology, but in terms of the financing, risk analysis and risk-sharing, which was one of the problems we had in the last project structure.
As the hon. Member for Redcar mentioned, I have set aside £100 million for CCUS innovation. That is not a subsidy and it is not putting money into a contract for difference; it is trying to create the innovation that we need. There are enormous opportunities to work with the hydrogen economy and with heating systems, to try to bring this work together. I accept that that news was a disappointment, but I would like colleagues to be reassured that we understand completely the need to decarbonise these industrial pools and to decarbonise further our heating system. Without CCS and CCUS, I do not believe that we can do that, which is why they are such vital technologies.
My hon. Friend the Member for Wells (James Heappey) displayed his characteristic vision and knowledge of this sector. He said that we have been too focused on inputs, not outputs, when we talk about energy and efficiency. He also talked about the distributed energy future, which is absolutely what is happening both in our minds and the minds of the commercial world.
Of course, we already have solar. We do not often see a lot of solar generation on the very helpful national grid app, because it tends to sit behind the distributors and make its contribution there. However, we also know that we need to keep investing in this industry, which is why the smart systems plan has tried to set out the framework for doing that.
My hon. Friend also alluded to Birmingham combined heat and power, demonstrating that there are some fantastic examples out there, whereby not-for-profit or community-owned entities have already been set up. Robin Hood Energy in Nottingham also comes to mind, as does the White Rose Energy project. In those projects, there is real innovation and local leadership, which we welcome. We have been supporting those things. I have just put another £7 million into working with UK100 to try to build capacity at a local level.
For me, most of this activity works when it is delivered in a particular place. It is very easy to sit in Whitehall and push out suggestions, but if they can be pulled through by a local authority, a local council or a local company, we can start to think about transport. How does transport plug in? And how do we deal with heat? That was an excellent set of suggestions.
The hon. Member for Birmingham, Selly Oak (Steve McCabe) also spoke. I will try to reassure him that these things are not just warm words; they are actions. I think we are all apprised of the need to deliver and to continue to maintain the UK’s leadership position in this area, which is genuine. Now, when we go around the world and talk to other countries about what we are doing, people listen. There were 70 people at the event on this issue in Germany yesterday, according to my officials, who said people are really hungry to learn. That is because the strategy is not just a piece of lovely paper; it is trying to set out a cross-Government set of actions that we have to take. They are not optional, if we want to meet our targets, which we must do by 2032 and beyond to decarbonise.
The hon. Gentleman and I share the aspiration around energy company obligation and fuel poverty. As the hon. Member for Southampton, Test (Dr Whitehead) mentioned, shortly I will publish some of the ECO consultation and consider how we pivot ECO to focus on fuel poverty, while also making it a conduit for more innovation, so that we can reduce the costs and target it better. That is because I get invitations to join ECO through my front door. Why? Because I live off the gas grid, so I clearly fall into some category that says there will be some fruitful mining out there. I do not want to respond to those invitations; I want ECO to be targeted at the people who need it most. They may not be the ones who are currently in the frame; they may not be known. We know that local authorities know where they are, so we want to target the ECO system much more at those who need it. I will return to mortgages when I wind up.
My hon. Friend the Member for Ochil and South Perthshire (Luke Graham) again made a powerful case for CCS and its importance. I think he also referred to the “win-win” of clean growth. We are not looking forward, as some campaigners might want to look forward, to a kind of deep green “lights off” future, because we all know that recessions are the greatest thing for cutting carbon emissions. We want the economy to grow. As he said, we already have 400,000 people working in this sector, which is delivering jobs from Aberdeen to Aberystwyth to Cornwall, and to many places in between. People have only to go to the Humber area to see what is happening with the support and the manufacturing of the offshore wind turbines for the wind industry, which is hugely transformational.
Of course, I also enjoyed receiving my hon. Friend’s invitation to all; we have had many invitations. Perhaps a Select Committee would like to produce a report on this subject, because its members could then travel around and take advantage of all these great opportunities.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry)—I normally never get a chance to say the full name of his constituency—gave a typically well-informed speech. We exchanged views on off-gas grid. I think that in both his constituency and mine, 15% of households live off the centralised grid, and we have to find cost-effective ways to provide them with more heating solutions in particular. Of course, all those people will benefit from the Domestic Gas and Electricity (Tariff Cap) Bill. Again, we exchanged views on CCS.
The hon. Gentleman also made a strong point about the Scottish Government’s plan. We should all be willing to learn from each other. There are so many good people out there who are coming up with good ideas, whether that is at a local level or a national level, and we will be stronger if we pool all those ideas. Then we would not replicate what we are trying to do and spend.
The hon. Member for Southampton, Test again talked about clean growth being a strategy, which is important. It is not a plan; it is a longer-term strategy, deliberately for that reason. He also emphasised that there is strong cross-party support for these measures and, frankly, we will need that support. If we are asking for this issue to be a spending priority or a national priority, we will need as many voices as possible from all parties to make these points on behalf of our constituents.
Have I covered everyone? I think I have.
I now turn briefly, Mr Walker, to some of the plans that we have to implement this agenda. I was very interested—indeed, excited—to hear the conversation about whether this issue should be a national infrastructure priority. I know that the National Infrastructure Commission will report shortly. I will follow that closely and I undertake to meet the commission, because the case that was made for demand-side as well as supply-side infrastructure investments is powerful. However, I caution colleagues that that does not automatically turn on a new funding tap. There is no packet of money under the Chancellor’s desk marked “Infrastructure”, so this all has to be put through a similar hopper.
Nevertheless, the point about energy efficiency is excellent; energy efficiency is not only a strategic imperative, but an economic imperative. If we improve energy efficiency, we reduce people’s bills, create value, and create opportunities and investment for new forms of technology. We lead the world in many of these spaces, but we have never provided a really good route to market. I am interested, for example, in the Government’s commitment to new home building, which is absolutely vital. We should try to make those homes as affordable to run as they are to buy, using that as a route to market for so much of this technology.
I have talked a bit about what we have done, and of course we have seen household energy consumption fall by 17% since 1990 and the energy efficiency of non-domestic buildings has also improved substantially. Actually, the Government’s minimum energy standards, which we have put in place for appliances and for boilers, have had a measurable effect.
I would like to reassure right hon. and hon. Members in the Chamber on one point. People have asked, “Does coming out of the EU mean any weakening of these efficiency targets?” Absolutely not. Of course these targets have a meaningful impact on energy efficiency and they reduce bills. As a result of more energy-efficient products being used, the average annual bill for dual fuel households in 2020 will be £100 lower than it might otherwise have been, and the Domestic Gas and Electricity (Tariff Cap) Bill, which we introduced this week—I was pleased that it received cross-party support—will also help to cut bills, as will the record low capacity cost of the energy that we are now buying in the market, as indeed will Ofgem’s announcement yesterday of further investigations into network company returns. We have to find a way to reduce the cost of energy right across the board.
This work does not just stop in the home or in the business environment. In the public sector, enormous efforts have been made, using the Salix programme, which has been highly successful in lending money for these energy efficiency measures. We anticipate a saving of about £1.5 billion for us all—for taxpayers—between 2018 and 2020.
So, we are moving in the right direction, but we have to go a lot further and faster. I completely accept that, which is why I set out the band C objective for 2035. That is the first time we have done that, saying, “That’s what we think ‘good’ looks like in housing stock.”
There will always be homes that are cost-inefficient to treat. There will also be homeowners who do not want that and will deny access. We cannot forcibly upgrade someone’s home if they do not want it.
Dr Whitehead
Can I tempt the Minister to have a look at a particular private Member’s Bill that is going through the House at the moment promoted by one of her colleagues, the hon. Member for Basildon and Billericay (Mr Baron)? The Bill suggests that the 2025 aspiration should be made a statutory target. Does she have any thoughts on that?
Claire Perry
Indeed. I have met my hon. Friend the Member for Basildon and Billericay (Mr Baron) and some of those who support the Bill. I think it is an extremely interesting suggestion. I was able to reassure my hon. Friend that, given the work we are doing on ECO—I will come to that—and other measures, we will get there without legislation. That is always the preferred route, although having the overarching legislation of the Climate Change Act 2008 has meant that we have to deliver on these promises right across the economy.
I started to have the conversation with my hon. Friend the Member for Ochil and South Perthshire about it ultimately being a win-win to upgrade people’s homes or buildings because it saves money. Someone upgrades their home and they save money on their bill. There is a commercial proposition there. I served on the Energy Bill Committee—the Bill provided for the green deal—and I had great hopes for it, but it did not deliver. There is an economic value to doing those upgrades, however. Some of it may flow straight to the homeowner. Some may flow to a landlord, in which case there is the opportunity to rent the flat at a higher rate or to have a different sort of tenant who has a bit more money. There are opportunities there.
We talked a little about the co-benefits of better health for the country from warmer homes. We do not cost those things, and we cannot necessarily capture the money in the silo of BEIS, but we all know that they intrinsically make sense. As well as supporting what is already happening through spending, which I will talk about, we are focused on trying to build a better market for long-term delivery of much better solutions. That is absolutely where we want to go.
James Heappey
I know that my right hon. Friend the Minister will certainly not make such a commitment immediately today, but may I check whether she will take away the suggestion I made about smart meters becoming a requirement for band C and above EPC ratings? Perhaps she and I and colleagues might discuss that as an option at a later date.
Claire Perry
It was an excellent suggestion, and I have already clocked it as one to take away. Indeed, I will be attempting to turbocharge the smart meters roll-out later this year, because we have done some excellent work that needs to be continued.
I reassure colleagues that the money we are spending on ECO, where we aim to improve more than 1 million homes, the money we are spending on the warm home discount and the money that we are already putting into the problem of fuel poverty will be spent in a way that tries to drive more effective solutions. One of the things I want to do with the ECO project is targeted at fuel poverty, which is a hugely important aspiration for all of us. I also want to try to have much more of it targeted at research and development and innovation. Technologies qualify in a very formulaic way, and I think we could do a lot more on that.
To reassure colleagues who have said the clean growth strategy is just warm words—I know they have far better things to do—on pages 132 and 133 of the document I have clearly set out the next series of things that we will do. People say that just bringing consultation forward is not action. I want to make decisions that stick over the long term because they have been widely thought through and bottomed out analytically. On pages 132 and 133 is a long list of things we have already done, are doing or are planning to do this year—so I am not getting away with a long target—to drive forward the ambitions on the band C rating.
We are also working hard with business and industry. While we have a real challenge in our homes, the biggest pool of emissions in the UK come from—it fluctuates a little bit between them—industry and transport. We have always found it difficult to decarbonise businesses. Part of that is process decarbonisation—as the hon. Member for Redcar knows, that is difficult to do without fundamentally changing the feedstock or heat source for a particular manufacturing sector—but a lot is just business premises. All the same issues we have in the homes sector absolutely apply to business premises.
Antoinette Sandbach
If energy efficiency measures have been rolled out in the home, surely common sense dictates that those people who have experienced them go into work and see how similar measures could affect their work environment. Does my right hon. Friend the Minister agree that tackling the home energy efficiency market would inevitably assist with the business market?
Claire Perry
My hon. Friend is absolutely on the money, but I would like to do both. I do not want it to be sequential. I cannot remember which of my hon. Friends talked about energy as a service. I thought it was my hon. Friend the Member for Ochil and South Perthshire, but as I say that, I think it might have been HEEPS—my hon. Friend the Member for Wells. He is never going to live that down.
If someone running a small business is trying to do payroll and deal with potential changes in the regulatory structure for export, are they really going to sit down and think about energy efficiency? They might—I agree with my hon. Friend the Member for Eddisbury that if someone has installed an energy efficiency measure in their home and has seen a material change, they might do that—but they might not. What incentives can we create and what market structures are already there that can help those businesses to focus on their energy efficiency? Many of the challenges in the rented sector that apply in the homes market also apply in an even greater way in the energy market. It is a real challenge that many firms occupy premises where energy is just part of the service bundle they receive, so it is not within their control to install such measures.
We are consulting later this year on a package of measures to help businesses improve how productively they use energy. We are focused on trying to do things that work, and that work locally.
Many Members referenced green mortgages and finding a way to finance such initiatives. There has been some excellent work, such as the “Levering economics for new drivers to energy reduction and sustainability” project. My hon. Friend the Member for Wells talked about being asked about utility bills. Actually, the way the market works now is that, whether someone is in a home rated A or G, they input the same number, which is crazy.
Work is already under way on mortgage lenders who might pick up on the fact that someone could save £700 on their energy bills by having a better energy performance certificate. The green finance taskforce that I set up with the Treasury last year will be reporting shortly. One of its strands of work is how we get green mortgages to be a proper retail offering. Some lenders have taken steps to support energy efficiency improvements. Last November, Barclays launched the first green bond from a UK bank, on the back of the work that the taskforce was doing. That is being used to fund domestic assets, which it plans to use to refinance mortgages for the most energy-efficient properties. That is a testament to the data available and the bank’s desire. It is common sense to reward that sort of behaviour.
I have talked a little about the savings and what we are doing. Now I will mention briefly the most vulnerable households, which have come up often, especially given the recent cold snap. As my hon. Friend the Member for Eddisbury said, it was really cold in many homes. Turning up the heating was an option for many of us, but we might not have realised that others who do so feel extremely worried about what their bills will look like.
I want to reassure colleagues that the warm home discount programme—£140 a household—continues to operate. Winter fuel payments are being paid, and the cold weather payment was triggered by the cold snap. It is absolutely right for the Government to continue to support the most vulnerable and to help them make improvements to their homes. Such people do not necessarily have financial choice. I was therefore pleased that we committed £3.6 billion to ECO. Going forward, that will upgrade more than 1 million homes. We will extend that out to 2028 with funding at least at current ECO levels.
I take the point about the landlord challenge. The problem, frankly, is that 95% of landlords have four properties or fewer—they are us. We asked them to sign up to something that at the time we had underpinned with a green finance offer, but now they are potentially required to raise capital to do it. We have to do things that are fair and proportionate if we want the country to come with us. The measure is still incredibly important. We do not want people living in the least fuel-efficient homes and we are determined to do something about that. In fact, compared with 2010, there are 835,000 fewer homes rated E, F or G in the UK, so we are making progress at the least efficient end of the market.
I hope that I am not trying your patience, Mr Walker, but I have two more quick points to make. The first is on smart meters. I think we are on the cusp of something really exciting with smart meters. We are absolutely in the world’s vanguard by offering every household a smart meter by 2020. I accept the concerns about technology. People say, “Why would I install one of these when I’m going to get a better one?” The point is that if someone installs one now, they get all the benefits immediately of understanding what their energy consumption looks like, and can work out ways to cut their bills. Furthermore, they will automatically be upgraded through the technology that we are putting in place to the next generation, so when they switch suppliers they will not lose any of that functionality. That is a vital step forward.
More needs to be done to work on the consumer proposition. I am desperate to put in a smart meter, but not to take a morning off work to do so. It is really difficult to find the time, which is a problem that many people face. We will be working with industry and the organisation rolling the meters out to see how we can make them more consumer flexible, and how we provide incentives, because plenty of money is being spent on advertising them. We are on the cusp of something very exciting.
I also wanted to mention fundamentally changing the way in which we build and think about homes in the construction process. It is astonishing that the way in which we build homes has not changed much since the 1890s: we build the foundations, and then get the trades in. We can build really high-quality modular homes—homes that are built off-site and installed—in a far more effective and resource-efficient way. We are working closely with the construction sector to see what we can do to turbocharge that.
We can also do retrofits in a modular way. Nottingham City Council and Melius Homes are taking a prefabricated approach to retrofit homes to 2050 standards, and improve their energy performance. A lot of innovation is happening in this area that I am extremely keen to support. That is how we create a new market for what needs to happen, while rightly focusing on building regulations. All colleagues will be aware of the challenge in the post-Grenfell world of ensuring that there are no unintended consequences to what we do with building regulations. We are working very closely with our colleagues in the relevant Department, and have reconstituted the inter-ministerial clean growth group, because so many of these challenges span across Government.
There is a huge amount more to do. We have heard lots of sensible ideas today, many of which are extremely attractive and that we want to take away. All of us want to get the costs and consumption of energy down, reduce carbon emissions, make our homes warmer, and make the transition to low-carbon energy less risky. This is not an either/or question; in order to meet our carbon targets, and to create a housing stock that is fit for the future, we absolutely need to do this. That is why the clean growth strategy is so important, and why the industrial strategy has clean growth as one of its four major pillars: things that we know that we can lead the world in, and that have to be done.
It has been a pleasure in today’s debate, as in so many others in this area, to work with colleagues across the House who are so committed to this agenda, and have so much knowledge and interest in it. It will really help us to accelerate the work going forward, so I thank hon. Members for the opportunity to respond this afternoon.
Mr Charles Walker (in the Chair)
I think colleagues were almost heading for the door, but we have up to two minutes for the proposer of this great debate to wind up.
Domestic Gas and Electricity (Tariff Cap) Bill
Claire Perry ExcerptsTuesday 6th March 2018
(6 years, 8 months ago)
Commons ChamberRead Full debate Domestic Gas and Electricity (Tariff Cap) Act 2018 View all Domestic Gas and Electricity (Tariff Cap) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts
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.
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.
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.
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.
Draft Works Detrimental To Navigation (Powers and Duties of Inspectors) Regulations 2018
Claire Perry Excerpts(6 years, 8 months ago)
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The Minister for Energy and Clean Growth (Claire Perry)
I beg to move,
That the Committee has considered the draft Works Detrimental to Navigation (Powers and Duties of Inspectors) Regulations 2018.
May I say what a pleasure it is to serve for the first time under your chairmanship, Mr Sharma? May I also put on the record that colleagues complaining about the temperature will know that we are doing our bit for climate emissions and demonstrating how difficult it is for occupiers of listed buildings to improve the energy efficiency of those properties? I would very much like to address that, but not today.
The draft regulations will provide inspectors in the Department for Business, Energy and Industrial Strategy’s Offshore Petroleum Regulator for Environment and Decommissioning with powers to conduct inspections to assess compliance by operators of offshore hydrocarbon installations with the conditions of consents to locate granted under part 4A of the Energy Act 2008. I would like to put on the record my thanks to the fine team at OPRED, which I visited on my first trip to Aberdeen on 26 January. I was very impressed with what it does and its strong record of safety activity on behalf of those it represents.
OPRED inspectors travel to offshore installations to monitor compliance with our offshore environmental regulatory framework, but they do not have powers to conduct inspections to assess operator compliance with the conditions of consents to locate. Pursuant to part 4A of the Energy Act 2008, the draft regulations will close that gap in enforcement capabilities by giving inspectors powers to board offshore installations to ensure that operators are complying with the consents to locate regime, to inspect and investigate any breaches of the legislation and to take enforcement action where required.
Consents to locate are required before activities that are likely to cause danger to navigation are carried out offshore by oil and gas operators. A key condition of consents to locate is the need for operators to maintain functioning navigational aids such as lighting, foghorns and other signage to warn shipping of the presence of offshore installations in fog or other low-visibility conditions. Part 4A of the 2008 Act gives my Secretary of State powers to appoint inspectors to check operator compliance, to make regulations on the powers of inspectors and to create criminal offences. The draft regulations were created using the second of those powers.
Regulation 3 of the draft regulations gives inspectors powers to undertake examinations and investigations, require equipment to be tested for functionality, inspect documents and ask relevant questions—all powers they need to carry out their duties. Regulation 6 sets out the offences and penalties that will apply in the case of a failure to co-operate with inspectors.
Inspectors will conduct checks on the consents to locate regime when undertaking routine visits to offshore installations to determine operator compliance with other legislation under our offshore environmental regulatory framework. However, as with other legislation, the draft regulations will also allow inspectors to access offshore installations at any time—in response to incidents requiring investigation, for example. I say to anyone who thinks that is a trivial task that I was not permitted to visit an offshore installation because I had not undergone the mandatory dunk test training, where someone is dunked upside down in a tank by a helicopter to ensure that they can cope with the survival processes they may be required to undertake. Our inspectors take fairly hefty steps to get out there to conduct these important inspections. I do intend to take the dunk test and go and see the rigs.
The draft regulations are needed due to an increasing trend since 2015 whereby non-compliance by operators with the conditions of consents to locate—primarily the obligation to maintain functioning navigational aids, which are clearly critical for vessels—have not been remedied in a timely fashion, despite OPRED’s efforts. Although most operators initially responded to incidents that were reported by deploying temporary collision avoidance measures—notably guard vessels in the vicinity of installations—and eventually resolved breaches after protracted investigations, that is not an ideal situation and it is not the way to reassure users of those waters that installations are correctly signposted.
Notwithstanding the instigation by operators of temporary solutions, the risk to shipping of a collision with an offshore oil and gas rig at night or in fog remains until functioning navigational systems are reinstated. We can all imagine how difficult and dangerous such a collision would be. Without powers to access offshore installations and conduct inspections, we have to rely on operator good will or evidence from third parties such as lighthouse agencies or the Maritime and Coastguard Agency to encourage operators to revert to compliance, which is unacceptable. Therefore, OPRED’s lack of inspection powers reduces the ability to take enforcement action, when required, against non-compliant operators.
The draft regulations will provide inspectors with the necessary powers to investigate and to enforce a return to compliance, thus reducing the risk of offshore collisions. I reassure right hon. and hon. Members that the risk of collision remains low. To date, there have been no incidences of shipping colliding with UK offshore installations as a consequence of failed navigational aids. Clearly, we want to avoid that, and to ensure that any breaches of the consents to locate regime are dealt with quickly, which is why I am laying the draft regulations before the Committee. In relation to navigational aids, there are currently lengthy time lags before resolution. In one case, it took four months for compliance to be restored, which is unacceptable.
We are proud of the fact that our offshore hydrocarbon activities are conducted in one of the safest, most environmentally sound and best regulated regimes in the world. In April 2017, OPRED conducted a four-week consultation with the offshore sector on the draft regulations and only two responses were received, seeking simple clarification. We have replied to those consultees addressing their comments and have agreed to publish updated guidance on the consents to locate regime once the regulations enter into force. A substantive issue arose regarding provisions in regulation 3 that would allow inspectors to take original documents as evidence in an investigation. For the purposes of enforcing consent, it was our opinion that the ability to obtain original documents would be required in order to comply with our legal obligation to gather the best evidence available, should it be necessary to pursue criminal proceedings. We decided, therefore, to retain the power to seize original documents but took account of industry concerns by caveating that with sensible limitations on the use of that power.
In summary, the objective of the draft regulations is to achieve a high level of operator compliance with the consents to locate regime through offshore inspections, the investigation of breaches, the use of enforcement notices already permitted under part 4A of the 2008 Act to instruct operators to take actions, and the imposition of penalties as appropriate. Given the need for the regulations, it would be extremely useful if they could enter into force on the day after they are made. I recommend the draft regulations to the Committee.
Claire Perry
I thank the hon. Gentleman for a typically thoughtful and well researched speech, which raised many important and interesting questions. I will start with a couple that I can answer. He asks an interesting question about the compliance regime for offshore wind turbines. Like offshore rigs, wind turbines appear on ships’ charts, and they have navigational aids. I will write to him on whether specific questions have been raised. These regulations are required because of the catastrophic implications of what might happen if a vessel—particularly one at high speed—collided with a hydrocarbon extraction rig. Indeed, there was an incident at Mumbai High North in 2005 where that happened: there was a slow vessel collision, with 11 deaths, 11 missing, and possible environmental damage. Many of us have long memories and will think of what we saw in the Piper Alpha disaster. The last thing we want is for that to happen again. I will take his points and write to him.
As the hon. Gentleman knows, we continue to lead the world in offshore wind installations. We have the largest capacity now. Pricing has dropped substantially, and we would like to do more offshore wind, but we need to ensure that it is safe, and safe for vessels.
The hon. Gentleman reasonably asked why the regulations are necessary now. Until the end of 2014 there were incidences of non-compliance, but such breaches were resolved within reasonable timescales—no more than a few days at a time. There was a sense of co-operation, so there was no need to tighten up the regulation. However, since 2015 there has been a trend among certain operators not to respond on serious non-compliances—as I mentioned, for up to four months. As we want to maintain this extremely safe and well-regulated extraction regime, we feel it is right to bring in the regulations.
I cannot answer why the situation with some operators has become more difficult. It could be because the oil price dropped so sharply, perhaps forcing them to reprioritise how they do maintenance and routine checks. Given that the Oil and Gas Authority is now established and doing a great job to promote cost-effective and safe extraction in the North sea, and given the recovery in the oil price, if that were the case we would expect incidences of non-compliance to fall without the regulations. However, I think we will all accept that it would be unsatisfactory for the situation to continue.
What we propose to do is of a safety-critical nature, so I am pleased to hear that the hon. Gentleman and the Opposition are happy to support the regulations, which are important and close an important loophole. I will take away the hon. Gentleman’s valid point about whether down the line we are potentially looking at something we would need to tighten for offshore wind installations. On that basis, I commend the regulations to the Committee.
Question put and agreed to.
Energy
Claire Perry Excerpts(6 years, 8 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Minister for Energy and Clean Growth (Claire Perry)
We will today introduce the Domestic Gas and Electricity (Tariff Cap) Bill to this House.
We are taking this action because the energy market is not working for all customers. The Competition and Markets Authority 2016 investigation into the energy market highlighted that domestic customers of the Big 6 energy companies pay on average £1.4 billion a year more than they would in a truly competitive market.
We believe that competition is the best way to drive value and service for customers. Where this is not happening, the Government have a duty to act by ensuring regulation is effective and companies have the right incentives to provide value.
The energy market is not working for all consumers.
There is, in effect, a two-tier market in operation whereby active customers save money by switching suppliers, but those who cannot or do not switch remain on poor value tariffs. It is of particular concern that customers who do not switch typically tend to be more vulnerable than those who are getting the best deals. The difference between the cheapest available tariff and the average standard variable tariff (SVT) of a Big 6 supplier is around £300.
Earlier this month, 1 million more vulnerable consumers who receive the Warm Home Discount were protected from higher bills with the extension of Ofgem’s safeguard tariff cap. There are now 5 million households protected by this cap which was introduced in 2017.
The Domestic Gas and Electricity (Tariff Cap) Bill will, subject to parliamentary approval, put in place a requirement on the independent regulator, Ofgem, to cap domestic energy tariffs until at least 2020. Currently, some consumers are paying up to £300 more than they need to—this cap will help bring this overcharging under control. It will require Ofgem to set an absolute cap on standard variable and default tariffs, protecting the 11 million households in England, Wales and Scotland who currently buy their energy on this basis and who are not protected by existing price caps.
The Bill is part of a package of measures being introduced by the Government to increase competition in the retail energy market and lower prices for consumers. These include support for more and faster switching, initiatives to improve engagement and the roll-out of smart meters. We believe all of these measures will help create the conditions for more effective competition.
In setting the cap, Ofgem must protect existing and future domestic customers, but must do so in a way that creates incentives for suppliers to improve efficiency, sets the cap at a level that enables suppliers to compete effectively for supply contracts, maintains incentives for customers to switch and ensures that efficient suppliers are able to finance their businesses. The Government intend Ofgem to be able to set the temporary price cap by the end of this year so that it is in place by next winter.
The cap will apply until the end of 2020 when Ofgem will recommend to Government whether it should be extended on an annual basis up to 2023.
The introduction of the Domestic Gas and Electricity (Tariff Cap) Bill comes after the Business, Energy and Industrial Strategy Committee scrutinised the draft Bill as part of the Government’s work to ensure the Bill would be effective and would meet its objectives. This pre-legislative scrutiny took written and oral evidence from a wide range of stakeholders. The Committee made a number of recommendations about the Bill, which the Government have accepted in full, including the Committee’s recommendation that Ofgem reviews the level at which the cap is set at least every six months, and the recommendation to add in safeguards so that where consumers make an active choice to opt for green SVT or default tariffs, Ofgem is able to protect these customers but not stifle investment in green energy. Ofgem will also be required to consult on a potential exemption for green tariffs.
This Bill will give the regulator the powers to protect those consumers who are overpaying for energy, while ensuring that other initiatives such as switching, smart meter roll-out and consumer education continue to contribute to a more competitive market.
[HCWS484]
Oral Answers to Questions
Claire Perry Excerpts(6 years, 9 months ago)
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Helen Hayes (Dulwich and West Norwood) (Lab)
The Minister for Energy and Clean Growth (Claire Perry)
If you will indulge me, Mr Speaker, I would like to pay tribute to the hon. Lady’s predecessor, who made an amazing and powerful speech in the other place. It was quite astonishing.
We should all be proud of the excellent progress the UK has made in meeting its carbon reduction targets. The current numbers show that we have met out first budget, are on track to exceed our second and third budgets and are 97% and 95% of the way to meeting our fourth and fifth budgets. The clean growth strategy that I brought forward last year sets out an ambitious set of 50 policies and proposals that will help us to meet those targets.
Helen Hayes
I thank the Minister for her tribute to my predecessor, Baroness Jowell, who is much loved in Dulwich and West Norwood.
Southwark Council confirmed last week that it has invested its £150 million pension fund in a low-carbon investment, concluding that continuing to hold significant investments in fossil fuels in the context of climate change would present a long-term financial risk to the fund. Will the Minister tell me what conversations she is having with private firms with large pension funds to encourage and facilitate divestment from fossil fuels, which is now clearly the most responsible decision for pension fund members and the future of our planet?
Claire Perry
The hon. Lady points out the very powerful fact that the Government can set policy and bring forward achievable targets, such as our renewables ambition, but we also need the private sector and private capital to be involved in financing this transition. I have numerous conversations with companies about what they are doing with their own investments and, equally, about what they will be doing to help other companies to invest in a more sustainable future. I refer her to the Powering Past Coal Alliance, which I launched with my Canadian counterpart last year and which is helping the world to get off the dirtiest form of fossil fuel heating.
Stephen Crabb (Preseli Pembrokeshire) (Con)
Given that more than a year has now passed since the Hendry review reported on the potential contribution of tidal lagoon technology, when does my right hon. Friend think that Ministers will be able to respond positively to that report and give a green light to this important environmental technology?
Claire Perry
I am left in no doubt by my right hon. Friend and others about how anxious people are to see this review go forward. We want to get our future investment in renewable energies right. We continue to look very closely at this, and I hope that we will be able to inform the House shortly.
Dr Alan Whitehead (Southampton, Test) (Lab)
The Minister will have seen the recent report by the Committee on Climate Change about the Government’s clean growth strategy in relation to the fifth carbon budget. Indeed, I know that she has seen it, because she wrote the committee a nice letter thanking it for its report. What plans does she have in place to rectify the shortcomings and omissions in that strategy, as identified by the Committee on Climate Change in its report?
Claire Perry
As the hon. Gentleman and I both know, the report basically said there had been a sea change in our ambition for future climate reduction actions. I was extremely grateful to the committee, as I always am, for its scrutiny and information. We were the first country in the world both to pass a climate change Act and to set up an independent scrutineer. As we all know, we have to do more, particularly on business energy efficiency and new homes standards. I am looking forward to working in a consensual way, cross-party, to bring forward those measures.
Mary Creagh (Wakefield) (Lab)
The Minister for Energy and Clean Growth (Claire Perry)
The development of renewable energy is a tremendous UK success story. Thanks to our significant investment and the support of all of us, renewable capacity has quadrupled since 2010. Last year, 30% of our electricity generation came from renewable sources.
Stuart C. McDonald
Yesterday, 10 UK trade associations wrote to the Secretary of State to express serious concern about delays to the long-awaited feed-in tariff consultation. Will he or Ministers agree to meet them to address both those concerns and the uncertainty facing small-scale low-carbon energy projects?
Claire Perry
I am always happy to engage with anyone who would like to further the cause of renewable energy in the UK, so I would be happy to do so.
Paul Masterton (East Renfrewshire) (Con)
More than half of Scottish energy consumption is met by renewable sources, including the Whitelee wind farm, based near Eaglesham in East Renfrewshire, which is the largest onshore wind farm in the UK, but can the Minister confirm that less-established renewable energy projects in Scotland will be able to compete for the £557 million of funding that is available as part of the clean growth strategies?
Claire Perry
As my hon. Friend knows, because we have discussed it several times, we are looking hard at how we use that committed £557 million of support for renewable energy in a way that brings forward projects when there is significant local support. I look forward to continuing the discussion with him.
Ronnie Cowan (Inverclyde) (SNP)
Claire Perry
Scotland benefits from some fantastic geographical advantages that mean that it is a world leader in many of these things, but it is, of course, UK bill payers across the nation who are investing in the introduction of renewable energy, whether that is in England, Scotland, Wales or Northern Ireland.
Mark Pawsey (Rugby) (Con)
Rachel Reeves (Leeds West) (Lab)
The Minister for Energy and Clean Growth (Claire Perry)
Having just taken over the diversity portfolio in the Department, I share the hon. Lady’s extreme disappointment at companies failing to report. I will take this matter forward and perhaps work with her as a matter of urgency.
Bim Afolami (Hitchin and Harpenden) (Con)
Wera Hobhouse (Bath) (LD)
Claire Perry
I am sure that the hon. Lady will be delighted to know that I opened Britain’s first subsidy-free solar farm last year. The great success of the policy framework and the investments that we have all made through our bills means that we are able to bring forward renewable energy without substantial subsidies. I would have thought that she would welcome the idea of getting more renewable energy for less investment.
Mr George Howarth (Knowsley) (Lab)
Given that the Keep Me Posted campaign has pointed out that those who cannot or do not use the internet pay £440 a year more in household bills, will the Minister consider extending the provisions that already exist in banking to energy and telecommunications bills?
Neil Parish (Tiverton and Honiton) (Con)
Consumers in the south-west are paying extra on their bills because energy network companies are charging too much. We need greater competition and more teeth in the watchdog to do something about it.
Claire Perry
I think that my hon. Friend is inviting me, as a fellow south-west MP, to agree with him. Network costs vary regionally because of different costs in serving customers. Ofgem took more than £15 billion out of network costs in its last price control framework, and I look forward to introducing various measures such as the price cap Bill, which I shall be introducing shortly, that I hope will be supported by all Members of the House. We want to ensure that we have energy bills that consumers can afford and that we protect the most vulnerable in the process.
Mr Speaker
Short, single-sentence questions are now the order of the day, as will be brilliantly exemplified by the hon. Member for Westmorland and Lonsdale (Tim Farron).
Sector Deal for Steel
Claire Perry Excerpts(6 years, 10 months ago)
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Stephen Kinnock
I absolutely agree with the hon. Gentleman. As I will come on to explain, the sector proposal is the litmus test for the Government. We have had years and years of warm words, but this really is the moment to see whether the Government are serious about providing the support they say they want to provide.
Steel enables transport, construction, manufacturing, energy and consumer goods—you name it, Sir Henry, and if steel is not in it, it was almost certainly used to make, process or transport it. Steel is truly a foundation industry, and demand is growing. The report published last week, “Future Capacities and Capabilities of the UK Steel Industry”, showed that, by 2030, domestic demand for finished steel products will have grown by almost 2 million tonnes. That leaves almost 7 million tonnes of domestic demand to be met by the UK steel industry, which equates to a £3.8 billion opportunity per year.
That value is even greater if we consider all that steel goes into. Almost half the content of all cars built in the UK is British steel. In researching the “Steel 2020” report by the all-party parliamentary group on steel and metal related industries last year—I have a copy with me; I am sure the Minister has already read it, but I would be happy to hand it over—we heard from leading figures in the car industry that the presence of a successful domestic steel industry is a key determinant of where steel is sourced.
Steel is vital to the future of UK car manufacturing and innovation. Take the much-vaunted electric and self-driving cars, which were championed by the Chancellor in last month’s Budget. Along with the normal steel content of any car, what do hon. Members think their batteries are cased in? Steel. If we are to invest billions in that new technology, why on earth would we not invest in the capacity to monetise those innovations? If we do not have the capacity to manufacture, or the capacity to produce the steel for the batteries and the machines that manufacture them, we will lose out. The steel will be Chinese. The manufacturing and machinery will be German, and we will have spent billions on an idea that sees profit not in Port Talbot, Sheffield or Redcar, but in IJmuiden, Tangshan or Duisburg.
Despite investment in R and D falling by 90% over the past 25 years, the UK steel industry is still at the cutting edge. More than two thirds of steel produced in the UK today did not even exist a decade ago, so we should not let anybody tell us that steel is a sunset industry. It is an industry that is building a Britain for the future, which is why a go-ahead for the sector deal is vital. It is also important because steel is the ultimate economic and social multiplier. For every £1 of public investment in steel R and D, the return averages between £6 and £16. That means the £60 million transformation fund in the sector deal could add up to £960 million for the UK economy. I do not know about you, Sir Henry, but investing £60 million for almost a £1 billion return feels like a pretty good investment to me.
On average, steel jobs pay 40% higher than the average in the steel heartlands of Wales and Yorkshire and the Humber. Every steel job supports at least three further jobs in the local community and the national economy. Losing the steel industry would devastate towns such as Port Talbot, but the knock-on effects would be equally catastrophic. If the Port Talbot steelworks were to close, it would cost 40,000 jobs across Wales and the UK, costing the Government a total of £4.6 billion in benefits and lost tax revenue and reducing household spending in the economy by £3 billion over 10 years.
If we were to reshape the energy market, as the steel sector deal calls for, the most it would cost would be the equivalent of 57p per household per year. That is 57p a year against almost £8 billion in lost spending, tax and benefit payments if things were to go wrong. Once again, Sir Henry, that looks like a pretty good return on investment to me. There is a golden opportunity, with huge potential for growth. We should all applaud the Government for crossing the Rubicon and accepting the need for an industrial strategy, but the fact of the matter is that, if the Government fail to support the sector deal, that strategy will not be worth the paper it is written on.
Speed is of the essence. Steel companies only have so much capital to invest. That capital is spread across their global businesses, and if they cannot invest it here and now, it will go elsewhere. That is the nature of the beast. We have already seen Liberty spend almost £1 billion in Australia, and there are reports that British Steel—formerly Tata Long Products—is looking at an Italian plant. The clock is ticking and time is running out.
With the uncertainties of Brexit, the Government should be biting the hand off of anyone willing to invest at this time. Instead, steel companies have been fobbed off with all sorts of excuses. They submitted the sector deal on 7 September, but were only granted a meeting with the Minister at the very end of November—hardly the behaviour of a Government serious about supporting this foundational domestic industry. The fact is that the Government’s failure to engage on the steel asks set the tone. The sad reality is that trust between the Government and the steel industry has been shot to pieces. Warm words are no good to anyone if they are matched only by frozen actions.
The Minister for Climate Change and Industry (Claire Perry)
I must correct the hon. Gentleman on a factual point: one of my very first acts as Minister was to visit the steelworks in his constituency and close by. I met the council formally to discuss the shape of the sector deal and subsequently three times after the presentation of the sector deal, and I have met and spoken to the companies on numerous occasions. He really must correct the record, because it is simply not true to say I only engaged with the sector after the sector deal was submitted.
Stephen Kinnock
I thank the Minister for her intervention. Conversations, visits and meetings are excellent, but the fact remains that the sector deal was submitted on 7 September, and a meeting was not granted with the steel industry until the very end of November. As the clock is ticking, the decisions about investment next year are drying up. It would be great to see rhetoric matched with reality.
An industrial strategy is not built on good will. A business cannot be built on Whitehall bluster, and communities cannot be sustained on platitudes. We all understand that an industrial strategy cannot do everything for everyone, but if the Government are serious about rebalancing our dangerously skewed economy, they must surely start by investing in the steel industry. With the steel sector deal, all that is being asked for is a small amount of help to unlock tremendous potential, create thousands of jobs and add hundreds of millions of value to the economy. Instead, the Government seem to be more interested in investing in robotics, medicine, life sciences and driverless vehicles. I am sure that those emerging industries are vital, but they are all concentrated in the south-east of England. Is that really going to support the broad-based manufacturing renaissance that our country so desperately needs?
Steel workers the length and breadth of Britain have shown that they will make every sacrifice, and the industry has dug deep too. It is the Government who have been found sorely wanting. Steel communities are a hardy bunch, forged in the white heat of our industry and from parts of the country that are well used to being forgotten, neglected and ignored by successive Tory Governments. They know how to take bad news on the chin, and they certainly prefer to be treated like adults, with honesty and clarity as opposed to the obfuscation that has become the hallmark of this Government.
I urge the Minister to stop taking us for a ride. All the indications are that the Government really could not care less about the future of the British steel industry. If that is the case, they should just say so. Please stop stringing us along, and stop promising to do something about energy prices, dumping, procurement and business rates while in reality having no intention whatsoever to act. Please level with us today on the sector deal. Just tell us here and now whether or not the Government are minded to support it. If they are not, it is clearly better to know that now, so that no more of our time and energy is wasted. We know that the previous Prime Minister and Business Secretary only got involved when they realised they had a brewing PR disaster on their hands. We hoped that this Prime Minister and this Business Secretary would be different, but the sad reality is that the Government lost interest once the media circus moved on, so we are back to square one.
The toxic combination of complacency, indifference and incompetence is back with a vengeance. Eleven months ago, the steel APPG produced “Steel 2020”, which provides a road map for the industry’s future. Eleven months on, we are still waiting for the Secretary of State to give us a date for a meeting to discuss it. Over recent weeks, we have seen unscrupulous financial advisers swooping in like vultures to exploit steelworkers while the Government stand by and do nothing. Now we see a comprehensive, exciting offer from the steel industry, backed by the trade unions, sitting on the shelf and ignored for three months. I would say that that is shameful, but I wonder whether the Government are capable of feeling that emotion.
I implore the Minister again to level with us. If she will not help, she should just say so, and the Government should stop wasting our time and giving us false hope. Let us get on and fix what we can ourselves, because right now, the Government are only holding us back. I desperately hope that the Minister will stand up and prove all my suspicions wrong. In fact, I am praying for it, because it is my constituents’ lives and livelihoods that are at stake. I will finish by saying to the Government that they have a choice: they can either be part of the solution, or they can continue being part of the problem. Now is the time to choose, and this sector deal is the litmus test.
The Minister for Climate Change and Industry (Claire Perry)
As always, Sir Henry, it is a pleasure to serve under your chairmanship.
I congratulate the hon. Members who are present today on securing an absolutely crucial and timely debate. I also echo the good wishes that have been expressed about the hon. Member for Redcar (Anna Turley), who is an amazing champion for activity in this sector, and we all wish her extremely well.
Listening to the speech by the hon. Member for Sheffield, Brightside and Hillsborough (Gill Furniss), I was reminded of the many debates that I had with her late husband, who, like her, was a doughty champion of the activities of the constituency. I am sure that her constituents are very proud of her and I like to think that her son will get a council seat soon, because it is clear that he has also done an amazing job in representing the communities in that area. Evidently, they are a great political family.
I welcome the comments that have been made today. Everyone here is standing up for a foundation industry, a vital industry and an industry about which we should be incredibly proud, not only for developing the technologies that underpin it but for continuing what has been a highly productive trajectory. Given that we are discussing such an important industry, I hope we might get beyond some of the party polemics and the Nye Bevan rhetoric that we have heard today. I will just point out a couple of facts and then I hope that we can park the politics of this debate.
In 1998, 68,000 people were employed in this vital industry. During the next 16 years, largely under a Labour Government, that number dropped to around 30,000. Since then, we have seen an increase in employment, despite going through some very tough economic times—[Interruption.] These are the facts, I am afraid.
I will also point out that it was a Conservative Prime Minister who called the first steel summit, who set up the steel council, who has paid for the report on the “Future Capacities and Capabilities of the UK Steel Industry” with taxpayers’ money, because we think it is a vital investment, and who has Ministers who are absolutely committed to working with this industry, domestically and internationally. I hope that we can get beyond the party politics, for the sake of the people depending on this industry and for the sake of the thousands of incredibly highly productive jobs in the industry. I think it is time to get to a different place, where we focus on the long-term potential. So can we have a little less politicking and a little more focus on the future of the industry, please?
On my visit this summer to the constituency of the hon. Member for Aberavon (Stephen Kinnock), as I went round the steel plants and talked to the workforce, who have been there for generations, I was struck by the level of skill and pride of the workforce, as well as the impact that those plants have on the constituency and the innovation that they bring. I remember talking to a shift manager in the electric arc furnace nearby, who said, “My dad would never have thought I could do this job, but he’d be really proud of me today”, as he tapped out molten steel.
However, I was also shocked to see the conditions that we still expect people to work in. This is a very tough industry, and I know that people in the steel plants are incredibly proud of what they have done. I join all Members in paying tribute to the steel workforce, who have shown amazing foresight over the last few years. We are very keen to continue to engage with the unions, as we do with the managers and the investors, to drive this sector forward.
Let me just reiterate very quickly what the Government have done, because it is clear that in such a vital strategic industry Government involvement, both in the sector itself and in the other aspects of the demand and supply chain, is very important. Procurement has come up many times today. We are working very hard to ensure that, where possible, British steel is the steel of choice in public procurement. We have new procurement guidelines; we have published the steel pipeline, which looks out over the next five years; and we are setting out how we want to use more than 3 million tonnes of steel on infrastructure projects such as High Speed 2, Hinkley and on the upgrade of the motorway network. That is a pipeline that has been widely welcomed by the sector.
Claire Perry
I will happily take away the hon. Gentleman’s point. Although we do not want to mandate supply, because we want the sectors to buy the best quality at the best price, we must ensure that, where we can, we pull forward and give certainty to the steel industry. As the hon. Member for Sheffield, Brightside and Hillsborough said, the work we do with other vital sectors, such as auto and construction, has a really important knock-on effect on supply for the steel sector. In the auto sector deal—I will talk about sector deals in more detail—we have set an ambition and the industry has committed to increase the share of UK content in the automotive supply chain to up to 50% by 2022—it has already gone up from 36% a few years ago to 41% now. That has to be important, given the reliance of the sector on our superb British steel industry. Also, through the construction sector deal, we see big improvements in productivity and in demand for British steel.
The point has also rightly been made about trade. We all know what global trading conditions are like. The Prime Minister has called on the G20 forum on steel excess capacity to agree concrete policy principles, and my Secretary of State was in Berlin just a few days ago pushing for agreement on them. The director of UK Steel said:
“The outcome of today’s meeting is enormously welcome, representing a significant step towards delivering concrete action”.
He also felt obliged to congratulate my Secretary of State on his personal efforts, which show that we are committed to solving the underlying challenges the industry faces. It is only a first step, and we must continue to engage, but it is an extremely important one.
On the post-Brexit trade arrangement, we are extremely focused on what that test looks like in a post-Brexit world and on how we can have a suitable trade protection system that enables us to respond based on the geographic impact of certain trading regimes in the UK. That is something on which we are working closely.
Energy prices have, of course, come up. I will say a little more about that, but I want to thank those hon. Members who have acknowledged that we have managed to head off any negative impacts of the so-called Brexit amendment. I laid the legislation before the House last week and I look forward to introducing it. We want there to be absolutely no negative impact. We have reimbursed the steel sector more than £200 million for its energy costs, and from 1 April 2018 we will introduce exemptions rather than compensation mechanisms, so that companies can have their bill reduced by up to 85% of their relevant costs rather than have to muck about submitting a claim. That is very important for cash flow.
The capacity and capabilities report, which the Government asked for and have paid for, with our taxpayers’ money, has really helped the sector, for the first time, to come together to understand what its challenges are. I chair the steel council, and a conversation we always have is about how we have never sat down as a sector and talked about our collective challenges. We have always competed; it has been a zero-sum game. But it is not a zero-sum game. If we want industries and Government to invest in research and development and think about how they might support other vital industries, collective activity is needed. The report has been warmly welcomed by, among others, Roy Rickhuss, who said:
“This will help us all better understand the opportunities and challenges facing the UK steel industries”.
The report points out the skill shortage. The average age of a steel worker is 45, and most of them are gentlemen. The sector has not invested in the skills of the future. Despite the employment losses, it is highly productive; we have asked workers to do more on a daily basis. The sector has invested, but we know we have to get the skills and the investment up.
There are challenges for the sector. The study sets out a welcome point, which is that there is a market opportunity of up to £4 billion by 2030 for our UK steel companies if they and the Government can align themselves for it. To capture that opportunity, the sector requires the kind of transformative investment that some of the companies have made in other parts of their European portfolio. On customer demand, the capability and capacities study shows that only 18% of that opportunity will be available if there is no investment, particularly investment in higher-grade and more speciality products, upgrades and additional facilities, and increases in research and investment. In fact, the industry itself acknowledges that it has not focused on customers. Many steel consumers in the UK continue to import because different product sources exist and sometimes, frankly, customer service is better. That is a problem that the Government and the sector must work on together.
Some countries such as Germany choose to up consumers’ energy bills and subsidise those of heavy industry. In this country, we have tried to hold down energy costs across the board, as we invest in the transition to cleaner energy, so we have some of the lowest consumer energy bills in Europe. However, as hon. Members have pointed out, although our gas bills are competitive for industry our electricity bills are among the highest in Europe. We have clearly set out the ambition to have the lowest electricity costs in Europe. We commissioned the review by Dieter Helm, which pulled no punches, the recommendations of which we are considering carefully. It is a welcome backdrop that renewables are getting to the point of subsidy-free generation, so the long-term investments we have made in that transition are starting to bear fruit. I am, however, very aware of the asks on energy costs and will continue to review them.
I want to turn finally to the sector deal. I reassure Members that the first draft of the industrial strategy had four sector deals in it, out of the 52 or so that had been submitted. That does not mean that they were the superior, priority or target ones. They were the deals that were closest to the line because they represented a joint industry and Government focus on driving up productivity in the industries in which we know we have to be successful to compete in the future. The steel sector deal, on which we have worked very closely with the sector, is one of the other deals we are actively engaging with and working on.
Claire Perry
I will just try to get through this point and then I will be happy to take an intervention.
I have every intention and every expectation of bringing forward an attractive sector deal. We have held many meetings, and when the deal is in a good enough place and we have commitments on both sides to drive the transformation, we will do that. The deals are not, “Give us some money”, they are, “What can we do together, Government and industry, unions, apprenticeships, education institutions and our brilliant academic institutions, to create the industry of the future, to capture those opportunities and drive them forward?”
Kirstene Hair (Angus) (Con)
What the Minister is detailing about the sector deals is incredibly positive. Can she confirm how the UK Government will work with the Scottish Government on the deals?
Claire Perry
We are working very closely with the devolved Administrations. In fact, the Administrations of Scotland and Wales have signed up to the industrial strategy and we are working cross-border with them because the industry is a vital national one.
To conclude, it is time to reject some of the tired political arguments we have had on the issue. There are hon. Members on both sides of the House who represent steel-producing areas and many more who represent areas where the steel supply chain is absolutely vital. We will continue to work on the sector deal. We understand the ask of the industry and the strategic challenges it faces. If I could have one Christmas wish, it would be for an end to the outdated party politics around this vital foundation industry for the UK, that we build a cross-party partnership and that we work with the industry, which is being transformed, to protect and grow it, not for the next 12 months or two years but for the generations to come.
Financial Assistance to Industry
Claire Perry Excerpts(6 years, 10 months ago)
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The Minister for Climate Change and Industry (Claire Perry)
I beg to move,
That the Committee has considered the motion, that this House authorises the Secretary of State (Greg Clark) to undertake to pay, and to pay by way of financial assistance under section 8 of the Industrial Development Act 1982, compensation to eligible energy intensive industries in respect of a proportion of the indirect costs of funding the renewable obligation (RO) and smallscale feed in tariffs (FIT) totalling more than £30 million and up to a cumulative total of £565 million maximum.
It is a pleasure to serve under your chairmanship, Ms Buck. I hope not to detain the Committee too long, but it is extremely important that we consider this substantial and necessary motion.
The motion was laid before the House on 6 December and is being made under the Industrial Development Act 1982. I draw the Committee’s attention to the very helpful explanatory memorandum that my officials circulated ahead of time to enlighten Members about the more technical aspects.
Claire Perry
Well, it was unusual to have it, and it was rather a helpful process.
In order to meet our climate targets, we have implemented a number of policies designed to incentivise generation of energy from renewable sources. As we know, the costs of such policies are recovered through obligations and levies on suppliers, who pass those costs to end users, usually in their electricity bills. Such costs can put the most energy intensive industries at a competitive disadvantage. Indeed, as set out in the clean growth strategy, our industrial electricity prices for large consumers in 2016 were the second highest in the EU15, after Italy. That can place some of our most important strategic and productive electricity-intensive manufacturing industries at a competitive disadvantage and increases the risk of businesses relocating due to the costs associated with meeting our climate targets, which no one wants to see.
We have taken steps to reduce the cumulative impact of these policies on industrial energy prices for sectors such as steel, paper, plastics, cement and chemicals. At the Budget in 2014, the coalition Government committed to compensate energy intensive industries for the indirect costs of the renewables obligation and feed-in tariffs. The compensation scheme was launched in January 2016. It provides for eligible energy intensive industries to receive compensation for up to 85% of the costs of funding the RO and FIT. We have now paid more than £352 million under the scheme to 147 companies. That has been estimated to have reduced industrial electricity prices by £17 per megawatt-hour in 2016, or around 15% of an eligible company’s electricity bill. The scheme has played a significant role in supporting the competitiveness of these vital industries.
We have tried to focus our resources on sectors that are most exposed to electricity price rises—those that are both electricity-intensive and exposed to international competition. Committee members will agree that those are incredibly important strategic industries that offer highly productive jobs right across the UK.
Under section 8 of the Industrial Development Act, Parliament must authorise the amount of compensation we can pay to these companies for the indirect costs of funding the RO and FIT as the amount exceeds £30 million. In March 2016, we authorised spend up to a cumulative total of £371 million. The motion seeks authorisation to pay up to a cumulative total of £565 million. That is a maximum number—it is not a target—and is intended to enable Government to continue to pay RO and FIT compensation to eligible EIIs until replacement exemption schemes are introduced. I know that many Committee members served on the various Committees in which we introduced those pieces of legislation.
The spending review and autumn statement 2015 set out our intention to provide an exemption from the policy cost, to ensure that EIIs have long-term certainty and remain competitive. Those exemptions are intended to replace the current compensation schemes. I will not go back through the arguments for why exemptions are better than the compensation method; suffice it to say that they are quicker, provide much more certainty of cash flow and are welcomed by the companies.
Sadly, it has taken longer than originally expected to secure state aid approval from the European Commission for the move from compensation to an exemption. We have received approval for the renewables obligation scheme, which we will implement from 1 April 2018. State aid considerations for the FIT scheme are more complex and will take longer to resolve, which is why we need approval to maintain the current compensation system while we deliver on the state aid requirement. The compensation scheme will continue for a little longer, until we have state aid approval, and costs will therefore arise in excess of the £371 million that was originally authorised. However, as I said, they will be capped at £565 million as a result of the motion, which I hope the Committee approves.
It is crucial that we continue to provide compensation until an exemption comes in. The sectors that are eligible for the relief employ around 230,000 workers and have gross value added of more than £30 billion—2% of the UK economy—and turnover of around £115 billion. About 60% of the businesses have exported products in the past 12 months. Crucially, many of the companies that are eligible for the compensation are located in areas of relative economic disadvantage and are a vital and strategic part of our industrial base. As Members will know, we want to work with these industries through the industrial strategy to boost workers’ earning power, improve living standards and create jobs so that everyone across the country can share the benefits of our economic success.
Energy intensive industries need to play their part in reducing emissions. Eight sectors, including steel, chemicals, glass and cement, are responsible for around two thirds of industrial energy use and two thirds of industry’s greenhouse gas emissions. They have worked effectively with the Government to produce industrial decarbonisation and energy efficiency action plans, which we look forward to bringing forward with the various players in those sectors.
I am content that the financial assistance outlined in the motion will benefit the UK’s energy intensive industries, and that section 8 of the Industrial Development Act is the appropriate means by which to make such payments. I therefore commend the motion to the Committee.
Claire Perry
I am grateful to the hon. Members for Southampton, Test and for Kilmarnock and Loudoun for their typically thoughtful comments about what we are trying to do.
I will try to answer all the points that were raised. I know that if I do not, the hon. Member for Southampton, Test will write to me. I want to pick up his point about his parliamentary question, rather than asking him to resubmit it. It is not a new levy. These exemptions are adjustments to the existing scheme, so I do not think they are classified as a new levy, but if he wants to put that question to me again, I am happy to ask the Department to respond.
We are not debating the idea of a switch from compensation to a levy. Businesses absolutely appreciate the fact that this is much more cash-flow positive for them and much less hassle. It reduces the risk of potential overpayments, which the hon. Gentleman raised. It is about smoothing cash flow for them and giving them certainty. As we know, whether the money is coming out of consumers’ pockets as taxes or in energy bills, ultimately we are all investing in this renewable transition together.
I want to pick up the point about the maximum amount of burden being put on businesses and slightly correct the hon. Gentleman’s statement about medium-sized businesses. It is actually medium energy-using businesses. All sizes of business, from small and medium-sized enterprises to large businesses, are eligible to bid into the scheme. The test is whether the energy cost is 20% of their profits plus something—I should know that. Essentially, any size of business can bid into this scheme. That is important. In the round, this is a cost increase of less than 1% of energy bills.
Dr Whitehead
If I did not put my point carefully enough, I apologise. I was seeking to suggest that the effect of non-exempt industries and companies being liable for the costs of green and social levies and this new levy would add £6,700 a year to the bill of a medium-sized non-exempt company.
Claire Perry
To clarify, a medium-energy user could be any size company. It might be a very large company with a very small energy footprint. As I said, on average, because we do not know by what revenue the £6,700 is divisible, it is about 1% of the total cost for consumer bills.
The point is about who we get to pay for the investment in the renewables of the future, for which we have pretty much cross-party support; we know that we need to make that transition. The good news is that thanks to the policy frameworks put in place by the coalition and Conservative Governments, we are reaching a point where renewable energy is being delivered subsidy-free. I opened the country’s first subsidy-free solar farm a few months ago, and we purchased offshore wind at £57 per MWh in the latest auction. Renewable companies, having been subsidised to get to this point, do not now require subsidy going forward.
It is important that we communicate why we are doing this. To address the point about overpayments made by the hon. Member for Southampton, Test, it is obviously right and indeed required under state aid laws that we recover any overpayments, which are infrequent. That process is continuing. Of course, if there is an exemption scheme, it is far less likely that the Government will effectively overpay on that basis.
I also want to point out that given the critical nature of many energy-intensive industries, there is an extremely long supply chain of different-sized businesses that depend on the health and wellbeing of those industries. The key test for the sector deals that we are putting together with those industries is by how much they can drive up the UK content in their supply chain. By making them more cost-competitive, we are boosting the whole UK supply chain, which is extremely important.
It was asked how we had got to the numbers. Effectively, the increase that we are debating in the motion covers renewables obligation compensation for the final two quarters of 2017-18 and FIT compensation for the final two quarters of this year and all of 2018-19. That is how those numbers stack up. I was asked how the measures relate to the CfD point. Because that is an exemption scheme of its own, this will not combine the two. They are completely separate schemes.
I wanted to pick up the point about research and development, which is crucial. In both the clean growth strategy and the industrial strategy, we have committed to the biggest spending increase on R and D that any Government have ever made, with £2.6 billion going into innovation in the clean space. The hon. Member for Kilmarnock and Loudoun and I have had many conversations about carbon capture and storage technology in which we agreed that it was vital to bring it forward. I look forward to getting those projects moving.
In conclusion, we know that businesses want us to do this, and it is extremely relevant now. It appears that we have consensus on making the changes. On that basis, I commend the motion to the Committee.
Question put and agreed to.