Energy Bill

Lord Whitty Excerpts

Tuesday 9th July 2013 Grand Committee

Moved by

[Lord Whitty]

50A: Clause 127, page 97, line 24, at end insert—
“(f) provision for requiring or allowing a licence holder to offer a particular form of tariff designed to—(i) reduce the incidence of fuel poverty;(ii) reduce total energy consumption or increase conservation;(iii) change the time profile of energy consumption.”

[Lord Whitty]

My Lords, I will also speak to the other amendments in this group. We now come to what is probably, in the outside world, the most important part of the Bill. We had a huge discussion on nuclear regulation and a very substantial discussion on issues relating to carbon targets but the millions of people out there are concerned about—I agree with the early part of the noble Earl’s remarks just now—the very rapid doubling of prices for fuel and the more than doubling, on the old measure at any rate, of the level of fuel poverty. That is what the consumer dimension and the consumer objectives of energy policy, among all the others, need to address.

The original Bill did not include Clause 127. It is a fairly hefty clause, with three clauses after that following it through, but it is nevertheless a pretty thin part of the totality of the approach to energy policy represented by the Bill. It owes its genesis almost entirely to a remark by the Prime Minister in October last year when he effectively promised that everybody would be on the lowest possible tariff. There was some consternation at the time in the noble Baroness’s department and Ofgem about what the Prime Minister actually meant by that. Ofgem rapidly engaged in some internal work, some of which was very welcome. It is now engaged in two consultations on how to put that into effect. Clause 127 gives effect to some of the issues covered and recommended in the Ofgem consultation.

However, the clause does not really deliver the Prime Minister’s objective. It probably delivers some greater transparency and certainly delivers a very welcome requirement on reducing the extraordinarily confusing number of tariffs that consumers face at the moment. But underlying it, it betrays—as my noble friend implied just now—a huge lack of trust in Ofgem to deliver this. Clause 127—probably correctly given Ofgem’s present state and record—is full of subsections allowing the Secretary of State effectively to intervene and tell Ofgem what to do.

There are delicate issues of independent regulation here. There are important issues as to where policy lies in terms of the department as against the regulator and where legislation lies as against secondary legislation and Ofgem’s own rules. It is an odd approach in many ways. However, given the deficiencies of regulation in terms of consumer benefit, it is not one I entirely reject, but if we are to go down that road we need to be clear why we are giving the Secretary of State such powers of intervention. In another context, and in relation to, for example, the statement of policy, the Government wish to step back and give the regulator, in this sector as in others, a general framework to act on for five years. This clause gives the Secretary of State the ability to intervene at all sorts of points on all sorts of issues in all sorts of ways, but does not really explain for what purpose. Subsections (5) and (6) of Clause 127 lay down the way in which the Secretary of State could intervene, but no part of Clause 127 explains for what purpose.

My amendments today are to try to establish that purpose and thereby to achieve what I think was behind the Prime Minister’s intervention, which is that every household should, as far as practicable, know the most appropriate tariff for their circumstances or that there should be an obligation on their supplier to ensure that they know it. Whether that is always the cheapest tariff depends a bit, but it is certainly not delivered by Clause 127 as it stands or by current Ofgem practice.

In a sense, I am taking the Prime Minister’s text and trying to give the Secretary of State basic objectives for intervention which would help to achieve the objectives we seek, in particular, the ability to intervene in order to ensure more economic use of energy in terms of energy conservation, energy efficiency and decarbonisation and to ensure that tariffs are more affordable, at least for domestic consumers—there are also industrial consumers who do not really feature here, even microbusinesses, which also need to be addressed—in terms of affordability in general and fuel poverty in particular.

Obviously, I have not had time to absorb the full impact of the Secretary of State’s intervention on fuel poverty strategy today. As the noble Earl said, redefining a problem does not make it go away. However you redefine fuel poverty, it is always a very big number. At the moment, it is going up seriously. While some of the changes in definition that underlie John Hill’s recommendations, which the Government seem to have adopted, are quite sensible—there is a total income gateway to being defined as fuel poor whereas on the previous formula some very rich people could have been so defined—that is a relatively minor point. The problem about the redefinition, which the Government, Ofgem and all of us who care about fuel poverty will have to address, is that whereas the previous formula was arguably far too sensitive to price movements, the present formula is very insensitive to price movements, yet price movements are what define whether you fall in or out of fuel poverty. With insensitivity to price, it is going to be quite difficult to shift that new total so the aim of reducing fuel poverty will prove more difficult.

I am trying to help the Secretary of State here, at least to have some clarity about what powers of intervention he has on fuel poverty and other issues. Clause 50A allows the Secretary of State to require Ofgem to put a requirement on a supplier licence to require tariffs aimed at reducing fuel poverty, for example, tariffs aimed at low-income households or associated with energy-efficiency measures to reduce the totality of the bill, probably funded via the ECO. My amendment also allows for tariffs aimed at low users or at low-income, high-use households. These tariffs would be options. They would not be mandatory over the whole range of tariffs and therefore they would allow Ofgem to require and the supplier to allocate people to the most appropriate tariff for their circumstances, which must be the aim of this policy.

There are all sorts of ways in which you could require a tariff which encouraged energy efficiency, in aggregate or in timing of energy use. For example, you could have a different range of tariffs where the marginal cost of the next unit of electricity was higher than the average cost. In almost all tariffs now the opposite is true. You could, as the Select Committee on which I sit heard from the Belgian authorities a few months ago, make it so that the opening tranche of initial units was free until you hit a certain minimum usage, and then there would be very high disincentive if you went beyond that level. You could have the whole structure of rising block tariffs, which is one way of doing it. All those methods would encourage behaviour and energy usage that reduced total energy usage and bills.

--- Later in debate ---

[Lord Whitty]

My Lords, I am grateful to noble Lords who have taken part in this debate, and particularly for the interventions by the noble Baroness, Lady Maddock, my noble friend Lord O’Neill and the noble Earl, Lord Cathcart. I think we all recognise that this is a difficult area. The proposals today, which I have not yet read and which we will no doubt be able to look at on Thursday when we come to the Government’s fuel poverty amendments, have a significant bearing on this area.

This is not just about fuel poverty, although that is an important dimension. It is about consumer confidence and understanding and making what ought to be a competitive market, even though it is run by oligopolies, actually work for consumers—for the average bill as well as the bill of the poorest families. The fact is that neither actually gets the best deal at the moment. The objective of trying to ensure that every household, whatever its income, status or pattern of energy use, can relatively easily understand what the best tariff is for it and that there is an obligation on the supplier to ensure that they do so is an objective that we all share, but it is not an objective that is operating in the market at the moment. That is not an outcome of years of regulation, nor of the I do not know how many energy Bills I have sat through from various Governments, nor of how the supplier companies are actually behaving.

This is a very important clause. It must be a very important part of the Government’s armoury in explaining energy policy to consumers, and we have to get it right. The Minister explained that we do not need the three-year limitation on Secretary of State interventions because this is all going to finish by 2018, by which time we will somehow reach Nirvana whereby the regulator is working and the outcomes that we all wish to see are being delivered. I have to be a bit sceptical and go back to what my noble friend said on an earlier amendment: the record of Ofgem in this area and the relationship between Ofgem and the successive departments has not been good. A radical change is probably needed here that goes beyond this clause, but this clause, if properly interpreted and amended, could take it a little further in the course of this Bill. I do not think we are quite at that point yet.

We need to be clear that some of the interventions that the Secretary of State is going to have to take, at least in the short term, are along the lines of the amendments that I have proposed—for example, an intervention on grounds of encouraging energy efficiency. It is true that there are other measures in the Government’s armoury to deal with energy efficiency. I know that the Minister and I do not entirely agree, but as yet the ECO and Green Deal are not effective. They may be in three year’s time, but they are not effective now. The warm home discount, although highly helpful to lots of fuel-poor families, is effectively an override on bills and tariff structures that are not appropriate for fuel-poor families. That is not necessary in the long term. I hope we keep it for the next two or three years, but in the long term, it is not the most appropriate way of dealing with fuel-poor families. You need different overrides.

On transparency and unit costs, I would have thought that the noble Earl, Lord Caithness, was a fairly canny consumer, but the fact that he finds himself totally incapable of understanding even page 1 of his five-page bill indicates the kinds of problems that most consumers have, middling consumers as well as fuel-poor ones. Something closer to the unit price requirement is important. The Minister needs to look at what the consumer is saying here and to come up with a scheme that is useable by the bulk of consumers, including not only the noble Earl but also those who suffer seriously from fuel poverty but who have the nous to try to make some choices of their own.

It is also important that a bill is accurate. Although there have been some improvements, at the moment most bills are estimated, which means that they are wrong. If you complain about them, it is very difficult to get satisfaction. In the long run, smart meters and everything else may solve this problem, but at the moment, there is serious consumer detriment as a result of the way in which bills are presented and enforced. It is very difficult to argue with the company supplying your electricity. It is therefore important that we can intervene to make everything a lot clearer.

I am not suggesting that the Minister should accept every word of my amendments, but she and the Government should accept that there is a need for more sharpness in the interventions that we are now proposing in order to deliver the objectives of energy policy which, by and large, we all broadly agree. Consumer affordability and tackling fuel poverty are part of that, but so are energy efficiency, energy security and ensuring that all energy users are treated fairly without discrimination. All those things need to be part of a proper regulator’s normal method of operation. They have not been. The market has not delivered them and the regulator has not delivered them. A new start for the regulator and a new context in which it is working perhaps might. Clause 127 needs at least to be strengthened in order to increase the possibility and the probably of that outcome. In the mean time, I commend my amendments to the Minister and beg leave to withdraw Amendment 50A.

Amendment 50A withdrawn.

--- Later in debate ---

[Baroness Verma]

My Lords, I would like to start—

[Lord Whitty]

My Lords, I have two issues. First, I support the clarity referred to by the noble Lord, Lord Teverson, that is promoted by the amendment proposed by the noble Baroness, Lady Maddock. Secondly, there are issues relating to the cost of carbon, and so forth, which need to be reflected in energy bills, but I am not sure that I would agree with what the right reverend Prelate says in how we present that. There is a cost to all of us of carbon and to isolate it separately in a crude way would not necessarily improve understanding. The Government would have difficulties in that respect.

On the consumer issue, I would just mention the survey about unit pricing that I referred to under the earlier group of amendments. On the question of percentages, the public do not understand APRs when they take out loans, so they will not understand TCRs in relation to this operation. The Which? survey shows that three out of 10 people using the tariff comparison rate found the cheapest rate whereas more than 80% found the best comparison when they were demonstrated by unit prices. So the use of clear figures but not necessarily percentages will help in that regard, and I support the noble Baroness, Lady Maddock.

[The Lord Bishop of Chester]

Can I just come back on this point? What I wanted was for the government obligations to be listed. One justification for these green taxes is that it saves money in the long run because of this, that or other theory. However, when the Government themselves impose a financial tax or precept, or whatever you want to call it, we should all surely want a degree of transparency about it. Then there is an argument about whether it is justified because of other long-term savings. The danger is that if you hide these things away you cause the lack of confidence in consumers that the amendments that we have discussed are precisely about.