Domestic Gas and Electricity (Tariff Cap) Bill (Second sitting)

Alan Brown Excerpts

Committee Debate: 2nd sitting: House of Commons
Tuesday 13th March 2018 Public Bill Committees

I think we all share the aspiration that this Bill should be passed quickly. We want to get it through both Houses of Parliament in as good a shape as possible. However, I am concerned, first, that by putting a hard stop date in the Bill, we may constrain the critical process that Ofgem has to go through to set the cap at the right level, and secondly, that we potentially increase the risk of a successful challenge to the cap once it is structured and put in place. So I was reassured to have heard from Ofgem again this morning. Ofgem wrote to the Chair of the Select Committee, who did an excellent job in pre-legislative scrutiny, setting out its strong belief that it understands the need to do this and can complete the necessary analytical processes. Although I strongly share the hon. Gentleman’s desire, I feel there is nothing to be gained by making this a statutory deadline. That potentially creates implementation risks which would mean this long-awaited price cap could not be put in place. With that explanation I hope I have persuaded the hon. Gentleman to withdraw his amendment —though I appreciate that his amendments are tabled in the spirit of trying to improve the legislation.

[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.

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[Dr Whitehead]

I do not think the amendment would allow energy companies to get round what we seek to achieve, although I accept the analysis that it may produce more work for Ofgem. I based amendment 4 on what the Prime Minister said. One could argue that she was being overly prescriptive—I do not know.

[Alan Brown]

I am glad the hon. Gentleman has explained that the £100 is not arbitrary, but a figure from the Prime Minister. Equally, I assume the Prime Minister’s £100 was arbitrary as well, so I must admit that I have concerns about stipulating a figure in the Bill. When I asked about it earlier, Ofgem said that there would be unintended consequences.

Presumably, concerns have been expressed about the big energy companies gaming in terms of exemptions and green tariffs. I am concerned that they will use this as a way to do gaming, so that they provide savings on paper by dodging and changing rates before the legislation kicks in. Could he address that?

[Dr Whitehead]

The hon. Gentleman makes an important point about what could happen prior to the cap coming in. Energy companies could be gaming ahead of the game with their prices, so what would savings look like after that? I am not sure that we can do anything about that right now. As Ofgem mentioned, if energy companies are too blatant in their price rises over the next period, they will be in breach of their obligations to Ofgem anyway.

We have seen several instances of small price rises recently. We heard about one—a comparative gas price—this morning. Bulb, one of the witnesses this morning, put up its rate by £24 just a few weeks ago. That was for particular purposes, but one could argue that it was a gaming price rise ahead of the legislation. Bulb was very clear that it was not, and that it was for other purposes, but we clearly have to be alert to that possibility.

If that does happen, what anyone has said about what savings would result from this price cap would have to be taken relative to whatever that price was at the point when the price cap was introduced. It would be possible for consumers to say at that point, “Actually, we were promised a £100 price saving. It does not look like a £100 saving to me, because it is a saving against a price rise that will end up increasing my bills.” In wishing to place this in the legislation, I am indicating that we in this Committee do not wish to let the public down regarding what might happen with this price cap.

The Prime Minister has already said that there will be a £100 saving. Indeed, I do not know whether this applies to anyone present, but interestingly The Sun article states:

“Government insiders say the cap should save at least £100, potentially rising to £300 a year with increased competition and faster switching.”

Government insiders, whoever they are, are suggesting that the £100 is a minimum and it could be considerably more.

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That is what those amendments do. They are a sensible addition to the Bill—to what Ofgem should consider in the first place and to what the Secretary of State should consider in the last place, as it were, as the price cap moves through its life up to 2023. I hope the Minister will see a way to accept some or all of the amendments. Their intention is certainly to strengthen the Bill and the Minister’s consideration of it, and not anything else.

[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.

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[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.

[Dr Whitehead]

I beg to move amendment 7, in clause 7, page 4, line 39, leave out from “must” to end of line 40 and insert

“have regard to the extent to which—

(a) progress has been made in installing smart meters for use by domestic customers,

(b) incentives for holders of energy supply licences to improve their efficiency have been created,

(c) holders of energy supply licences are able to compete effectively for domestic supply contracts,

(d) incentives for domestic customers to switch to different supply contracts are in place,

(e) the barriers which prevent the customers from switching from different supply contracts quickly and easily are addressed,

(f) holders of supply licences who operate efficiently are able to finance activities authorised by the licence,

(g) holders of supply licences have eliminated practices that are to the detriment of customers in their tariff structures,

(h) District Network Operator costs and dividends are proportionate to expectations and the impact of that on domestic supply contracts, and

(i) vulnerable and disabled customers are adequately protected.”

I am afraid this may be the end of the Mr Nice Guy bit. Hon. Members must find that incredible, but it is true. This amendment is potentially very important for the integrity of the whole process of how the price cap is set up, how it works and the circumstances under which it can be brought to a close. There is no real difference between the amendment of the hon. Member for Kilmarnock and Loudoun and mine, except that his requires the Secretary of State to produce a statement to outline the criteria that shall be used by the authority in a review to assess whether conditions are in place for effective competition.

Our amendment seeks to identify what the conditions might look like. That is particularly important, because for this price cap to work clearly both ends of the cap have to be reasonably synchronised. As hon. Members will have observed when we debated an earlier clause, a number of conditions are put forward for the authority to digest when we move from the point of legislation to the point of actually putting the cap in place. There are a number of conditions in clause 1(6) to which the authority needs to have regard when it is putting the cap in place.

That is not so when the authority is considering whether to lift the cap. It is worthwhile considering for a moment what the mechanism for lifting the cap in the Bill actually is. The authority has to carry out a review—in the first instance, in 2020—to look at whether it considers that conditions are in place for effective competition for domestic supply contracts. Therefore, in principle, it can consider whether to bring the cap to an end. Once that review is carried out, roughly before halfway through 2020, the authority must produce a report on the outcome, which must include a recommendation about whether the authority considers that the tariff cap conditions should be extended and should have effect for the following year. When the report is produced, before 31 August 2020, we would expect to see a view from the authority about whether the cap should be continued. Obviously, subject to the sunset clause in the next clause, what the authority says effectively has a one-way view on what the Secretary of State should subsequently say about the cap. As laid out in clause 7(5), the Secretary of State, having received a report,

“must publish a statement setting out whether the Secretary of State considers that conditions are in place for effective competition for domestic supply contracts.”

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[James Heappey]

I rise to speak briefly. I know exactly what the shadow Minister is trying to achieve with the amendment, and I agree with him that the cap must be a temporary measure. On Second Reading, I answered an intervention by saying that this should be a raid into the market, not an occupation. It is very necessary indeed to set out clearly the terms on which the cap will come to an end.

Having said that, my concern with the amendment is that whereas the Bill as drafted refers explicitly simply to progress with smart meter deployment—it quite reasonably leaves the regulator and the Minister to work out what progress is being made on the remainder—the hon. Gentleman’s list is so lengthy as to be overly prescriptive. Some measures in his list, such as improving efficiency in suppliers’ business models, are not the business of the regulator at all. I rather think that suppliers will be driven to find efficiency by the creation of competition, rather than needing to have it required of them. That is what the market does.

The hon. Gentleman is an enthusiastic fellow traveller on the route to a decentralised, digitised, dynamic energy system, so I wonder why his list does not include half-hourly settlement or the universal application of demand-side response, why he does not require the market to be electric vehicle-ready, why he is not concerned about transmission costs as well as distribution costs, why he does not seek signals from the regulator about the readiness of the market to manage a decentralised energy system given all the price advantages that might bring, and why he is not enthusiastic about a code review or embedded benefits, or about looking at what energy-efficiency measures have been made or at whether we are ready for a data-heavy digitised market.

As well as all those things, there is the unknown scale of the renewable deployment that might come our way, alongside the flexibility that storage and demand-side response will bring with them, and what impact that might have on price variability over the course of a year. There are so many unknowns, and the pace of change in the energy system is such that being as prescriptive as the hon. Gentleman desires at this stage would risk hindering progress in the system. It would shape the way the market worked towards achieving the end of the price cap, rather than allowing it to be disrupted in the way that I know he and I genuinely hope it will be.

[Alan Brown]

Will the hon. Gentleman give way?

[James Heappey]

I was done, but I am happy to give way.

[Alan Brown]

I understand the hon. Gentleman’s point about other factors that may ultimately influence the retail energy market, but why should progress with smart meter installation be the one thing we tell Ofgem it must measure in its review? It seems to me a bit strange to specify that criterion but say that we do not want all the other important criteria that the hon. Member for Southampton, Test laid out.

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For me, this is very much a job for the expert regulator. I take comfort from the fact that the process will be very transparent; the regulator will have to set out why it considers this market to be more competitive.

[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.