Domestic Gas and Electricity (Tariff Cap) Bill

Debate between Gareth Thomas and Rebecca Long Bailey

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

[Rebecca Long Bailey]

I refer the hon. Gentleman to the Labour party’s manifesto, which clearly states that we wish to increase competition in the energy market by creating regional suppliers. We want to promote fair and transparent competition within the energy market, but unfortunately the Government do not advocate a similar position. We hope to fine-tune aspects of the Bill as it goes through the House so that competition in the energy market will be effective, fair and transparent.

[Gareth Thomas]

The hon. Member for Middlesbrough South and East Cleveland (Mr Clarke) deliberately misinterprets our policy. The shadow Chancellor has committed the Labour party to supporting a doubling of the co-operative sector. Energy co-operatives do not mean nationalisation, but they do amount to democratic public ownership. Will my hon. Friend re-endorse the commitment to see more energy co-operatives in the market?

[Rebecca Long Bailey]

I wholeheartedly support my hon. Friend’s fantastic point. I think that our manifesto commitments have been misrepresented or, in the case of the hon. Member for Middlesbrough South and East Cleveland (Mr Clarke), overstated. I again encourage him to read our manifesto, which encourages competition in the energy market while also considering some of its fundamental problems, such as in relation to grid ownership. I will address those points later in my speech.

With regard to the factors that Ofgem must consider, the problem is that although the Opposition are not averse to these principles, at present they are at best ambiguous, and there is no duty to consult on how such measures can be accurately quantified. Perhaps the Minister for Energy and Clean Growth will confirm how these measures will be quantified. Will they form part of Ofgem’s cap methodology consultation? If not, how will Ofgem determine these ambiguous proposals?

Speaking of those guidelines, Energy UK has highlighted the uncertainty in which the provisions are shrouded. Indeed, The Guardian’s financial editor recently commented of the chief executive of Ofgem:

“At best, he is being sent mixed messages by government. At worst, he is being asked to deliver contradictory goals.”

We recognise that Ofgem will consult on the cap methodology to be used, but has the Secretary of State given any indication to Ofgem of the final outcome he wants to see? The Prime Minister promised that £100 would be knocked off 17 million household bills, but nothing in the Bill will ensure that that happens.

Labour has confirmed that we would introduce an immediate emergency price cap to ensure that the average dual fuel household bill remains below £1,000 a year. Had that policy been in place since 2010, the average customer would have saved more than £1,000 on their bills by now. Will the Minister confirm whether the final cap will go anywhere near Labour’s proposals, or indeed anywhere near the Prime Minister’s promise?

Just as ambiguous is the mechanism for deciding whether to extend the cap beyond the end of 2020. The Bill merely states:

“The Authority must carry out a review into whether conditions are in place for effective competition for domestic supply contracts.”

It does stipulate that the review must include an assessment of progress made in installing smart meters, but unfortunately that is as good as it gets. The industry has expressed concern that this provision is unclear. I agree. For example, Energy UK says that there is an absence of a

“clear and realistic definition of effective competition”.

Which? says:

“the criteria for effective competition are not defined so it is not certain under what circumstances the cap will be lifted or how its success will be judged.”

Will the Secretary of State issue any further guidance on what the conditions for effective competition might be, or are we simply deferring to Ofgem to determine that without question?

--- Later in debate ---

[Rebecca Long Bailey]

I thank the hon. Gentleman for that very helpful comment. I have not opposed the Bill in any of my comments so far; I am providing helpful advice. We support the principle of a price cap and want it to be introduced in the most efficient and detailed way possible.

I think that there is consensus across the House that the energy price cap is no more than a sticking plaster, and that much deeper problems within the UK’s energy market need to be addressed. The market is fundamentally broken. Electricity bills soared by 20% between 2007 and 2013, while in the past year alone, every household in the UK paid £120 for dividends to energy company shareholders. Over the past few months, report after report and news story after news story have detailed the unfairness of the current system, but it must be noted that the final bills that consumers face are not simply a consequence of manipulation by some supply companies. As the Business, Energy and Industrial Strategy Committee has highlighted, network costs make up the second highest element of a duel fuel energy bill.

The Energy and Climate Intelligence Unit found last year that the six distribution network operators made an average profit margin after tax of 32% a year between 2010 and 2015, equating to £10 billion over six years. At the same time, shareholders received £5.1 billion in dividends. In a subsequent report, the ECIU calculated that electricity network companies’ exceptionally high profits are set to add £20 to household energy bills this year. Moreover, analysis by Citizens Advice last year calculated that network operators, including National Grid, had made £7.5 billion in unjustified profits, which it thinks should be returned to consumers. Quite frankly, that is the exploitation of a natural monopoly. It is not a market and there is no effective competition, and I want to hear how the Minister will deal with competition within this element of the energy market.

[Gareth Thomas]

I am grateful to my hon. Friend for giving way a second time. Is it not a problem—and deeply ironic—that Conservative Members should defend an energy system in which foreign nationalised companies have more control and earn more income and wealth from the distribution and supply of British energy than the British citizenry?

[Rebecca Long Bailey]

My hon. Friend makes a fantastic point. Many people across Britain find the situation absurd.

As I said, I welcome the Minister’s comments about how she will tackle network exploitation but, along with the BEIS Committee, the Opposition are closely monitoring the next phase of network regulation. We also wonder whether the Minister will shine a little more light on what that might entail, what benchmark the Government have set as their acceptable level of regulation, and what actions she will take if Ofgem’s proposals are insufficient, as was the case with the initial price cap proposals.

The Labour party has been clear that it will not allow the exploitation to continue. We will radically reform the UK’s energy system, not just tinker around the edges, and if the Government are serious about reforming the market and protecting consumers, it is about time that they keep up. Sadly, however, the Secretary of State’s opening remarks were rather thin on proposals for long-term market reform. Reform of the market is not just critical in order to instil fairness and affordability, but vital to ensure that Britain has an energy system fit for the future.

We are experiencing a pace of technological change within the energy sector that has never been seen before. Batteries, storage and smart systems are transforming demand and supply. There is a move to smarter, more decentralised forms of energy generation and supply, emulating many of the models we have seen established across Europe, along with the potential of accessing a low-carbon market that is, according to Goldman Sachs, worth over $600 billion.

Dieter Helm, who was commissioned last year by the Government to conduct a review into the cost of energy, said:

“The corporate structures and policies designed for the 20th-century world no longer work well.”

That review had two main findings: first, that the cost of energy is significantly higher than it needs to be to meet the Government’s objectives and, in particular, to be consistent with the Climate Change Act 2008 and to ensure security of supply; and, secondly, that energy policy, regulation and market design are not fit for the purposes of the emerging low-carbon energy market as it undergoes profound technical change. Dieter published his report in late October. It echoed our calls for a change in ownership of the electricity network; unsurprisingly, we heard little from the Government.

Following the report’s publication, the Government launched a call for evidence to gather the views of stakeholders. That process closed on 5 January this year. I have not heard anything from the Government about that, so in the absence of any future energy vision from the Secretary of State today, perhaps the Minister for Energy and Clean Growth will confirm when a response to that consultation will be published and if the Government agree with Dieter Helm’s proposals.