Domestic Gas and Electricity (Tariff Cap) Bill

Alan Brown Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 30th April 2018 Commons Chamber

[Dr Whitehead]

The hon. Lady is, I think, under the impression that the new clause seeks to introduce a relative price cap. It does not seek to do that at all, or indeed during the period when an absolute price cap is in place. When the absolute price cap has come to an end, which could happen on various dates, there should be a mechanism in place to ensure that tariff differentiation is within certain bounds—I mentioned having a piece of elastic on tariffs—so that companies cannot return to the practice that unfortunately exists today whereby they can take people on board on one particular tariff, and even introduce a discount tariff for a certain period to entice people on to it, and then place people on one of their highest tariffs when that one comes to an end. It is a long piece of elastic in that case. That disadvantages the customer and is not what they thought would happen when they first went on to that tariff, and it seems thoroughly laudable to prevent that.

We need to ensure that market mechanisms are in place to prevent us from returning to where we are at present and to the situation that got us into this position in the first place. We believe that the mechanism for a relative tariff differential has a different function entirely from the relative price cap being suggested in some quarters. I think we would all agree that a relative tariff differential is not a price cap in its own right, as the Select Committee concluded strongly, but a strong mechanism for ensuring that the market works better in future.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

One concern about a relative cap is that there could be a bit of floor-raising, with some of the cheaper tariffs disappearing. Although there might not be a cap in future, what is to stop the same thing happening with a relative tariff system, where we lose the bottom tariffs in the market?

[Dr Whitehead]

The hon. Gentleman makes an important point about the possibility that within a relative tariff range arrangement, a company could put forward a very high tariff as a starting point and then put customers on an even higher tariff subsequently, if that tariff is within the piece of elastic keeping the tariffs within reach of each other. If an energy company were to do that outside a price cap, it would be a sure way of losing a large number of customers, because it would have put its initial tariff way above that of any competitors. If it was agreed that market circumstances were such that those sorts of arrangements should be able to return, companies would have to be kamikaze-inclined to pursue that way of doing things.

[Alan Brown]

I appreciate what the hon. Gentleman is saying, but is that not why we are introducing an energy tariff Bill in the first place—because people have been on standard variable tariffs that are too expensive, but they are not moving? It is the same with a relative tariff differential; people will not necessarily move, and that is what we really need to sort out in the market.

[Dr Whitehead]

We have to bear in mind that people will be introduced to a new tariff. Indeed, we hope that by the time the market returns, the issue of people remaining on SVTs for years and not switching will be a thing of the past and there will not be SVTs in the system, but also that there will be other tariff arrangements that effectively prevent SVTs from playing the role they have played before.

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[James Heappey]

It is a pleasure to follow the right hon. Member for Don Valley (Caroline Flint), with whom I agree on the risk to green tariffs and on making sure that we do not perpetuate the belief that green tariffs are a premium product. We want them to become the universal norm.

Generally, the Bill is a necessary evil. Interference with the market is not our first choice of action, but it is the consequence of a market that has stopped working and is exploiting customers, especially those who are least engaged in it. The Bill’s key point is its temporariness. I know that the Minister shares my strong belief that temporary should be as temporary as it absolutely can be. It therefore becomes essential that once the Bill is passed—it is good to see the Opposition’s continued support—Ofgem moves very quickly not only to come up with a mechanism for price capping, but to consider what sort of market transformation it can deliver as it changes the regulatory framework in the market, so that we end up with something that is markedly better than what we have now. The big savings come not from a cap that cuts bills by £100 or more, but from the delivery of an energy market that is digitised and cheaper because we have facilitated the disruptive powers of all the new suppliers that are coming in, which in turn will encourage the current large suppliers to change their ways to do business better.

I intervened on the shadow Minister, the hon. Member for Southampton, Test (Dr Whitehead), about his amendment 5, so I will not say anything more about that. The purpose served by amendment 6, as we discussed in Committee, is to say to the energy companies that all they need to do is save customers £100—so they will just save customers £100. I passionately believe, therefore, that we should not tell them just to save customers £100. Instead, we should deliver the biggest saving that we reasonably can through whatever device Ofgem delivers, but the moment that we put a figure on it, lo and behold, that is exactly what all the energy companies will deliver.

The hon. Gentleman has made some changes to amendment 7 since Committee stage. He knows I share his concerns about vulnerable customers and possible unintended consequences from the Bill, and I know the Minister will be keen to reassure us that the Government have got this covered, but I prefer amendment 9, tabled by the hon. Member for Leeds West (Rachel Reeves), which has the support of many on the Select Committee and is well worth considering. The Government have looked at the vulnerable customer issue since Committee stage, and I wonder, given today’s very sensible amendments, if they might run one more lap on this between now and consideration in another place.

On amendment 8, which we also discussed in Committee and which the hon. Gentleman has also come back with, my concern is that the list could be much longer. If we are to specify all the circumstances, why not designate another dozen or two dozen things that we could legislate for, if we absolutely had to? I am not convinced it is necessary.

I also have a problem with new clause 1, because the Bill needs to be temporary. As I said either on Second Reading or in a Westminster Hall debate, it needs to be a raid into the energy market, not an occupation. New clause 1 is a raid with a few troops left behind thereafter, which I am not sure I like very much. We want to ensure that Mr Nolan and his team at Ofgem can, in delivering the price cap, facilitate a transformation in the market that makes such legislative provisions redundant. The consumer-friendly, disrupted, digitised market that awaits will be so much cheaper that we will be glad to have made this slightly un-Conservative, temporary raid into the market, to deliver something on the other side that is much better for consumers.

[Alan Brown]

The Bill is designed to intervene in the energy market and correct market failure, which is why it has cross-party support, but not surprisingly, because it is a reaction to market failure, there are nuanced differences in how people think that can best be dealt with. One good thing is that everybody seems keen to protect the most vulnerable customers. The question is: what do effective competition and a fairer market look like?

One fundamental still being debated is whether the cap should be a relative or an absolute cap. The hon. Member for Weston-super-Mare (John Penrose), who has been absolutely consistent in his belief that it should be a relative cap, should be commended for sticking by that, although obviously that does not mean I agree with him. As I mentioned in an intervention, one concern about a relative cap is that, because of the bunching effect, we might lose the competitive tariffs at the bottom end. We heard evidence of that in Committee. Some of the newer energy companies argue that they could deliver the lower tariffs even if there were a relative cap, but these companies appeal to those who switch regularly. He says the switching market works really well. Well, it does for those who switch regularly, but we are trying to protect those who do not switch and are stuck on these rip-off tariffs, which is why I agree with an absolute cap.

That brings me to new clause 1, tabled by the Labour Front Benchers. I am struggling to get my head around this. Labour says it does not believe in a relative cap but it believes in a relative tariff, and it would not be a cap but somehow it would work better being relative. It is too big a contradiction for me. I am not sure new clause 1 would work in the way suggested, and for that reason, if it goes to a Division, I will not support it, although I appreciate what the hon. Member for Southampton, Test (Dr Whitehead) is trying to achieve.

Let us look at who supports a relative cap versus an absolute cap. Ofgem, the regulator that will have to implement it and Citizens Advice are in favour of an absolute cap. Citizens Advice is a third sector organisation that works for the most vulnerable in society on a daily basis and often has to deal with those bearing the brunt of the Government’s austerity agenda, and if it says it is in favour of an absolute cap, I think we should listen. Now let us look at the company the hon. Member for Weston-super-Mare keeps. Signatories to his amendments include the hon. Member for North East Somerset (Mr Rees-Mogg) and the right hon. Member for Wokingham (John Redwood)—two of the most right-wing, free-market capitalists in this place. That helps me to make up my mind.

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[Alan Brown]

I will be really brief. Clearly, we all support the Bill, so there is no point in over-debating it and delaying things much further. As the Secretary of State said, an overpayment of £1.4 billion was collected from customers in 2016. Some £650 million of that was effectively excess profits that customers were paying to the energy companies. That proves the need for the Bill. We can argue that it should have been introduced before, but at least it is here now, so let us get on with it.

I welcome the Secretary of State’s comments about ensuring that there are safeguards for vulnerable customers. That is really important; it is the whole ethos of the Bill. I hope that vulnerable customers get the protection that they need. I know that the Conservative party and the Government really hope that the provision will be temporary and that there will be no further state interventions in the market. It would be fantastic if that were the case, but I am not sure whether that will happen—we will wait and see. That is the whole point of Ofgem having the correct measures and of ensuring that we understand how the markets and the companies work. It was interesting that the mere threat of the Bill was enough to make companies change their behaviour and start reviewing their standard variable tariffs. At the very least, we need to be willing to threaten further state intervention if the market is not working as it should.

If we really want customers’ bills to come down, we will need further state intervention, including home energy efficiency schemes. I will finish with my usual plea about getting onshore renewables back on to the market because they are the cheapest form of energy at the moment. We know how successful the bidding process has been for offshore renewables, so let us get the cheapest form of energy back to market and help to bring down customers’ bills. I commend the Bill and look forward to its implementation.

Question put and agreed to.

Bill accordingly read the Third time and passed.