Domestic Gas and Electricity (Tariff Cap) Bill

Alan Whitehead Excerpts

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

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I beg to move, That the clause be read a Second time.

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

Amendment 5, in clause 1, page 1, line 3, leave out “after this Act is” and insert

“, and within five months of this Act being”.

This amendment would require the Authority to insert the standard supply licence conditions within five months of Royal Assent.

Amendment 2, page 1, line 9, at end insert—

“(1A) A cap imposed by tariff cap conditions shall be calculated so as to require that the difference between the cheapest advertised tariff and the most expensive standard variable or default tariff offered by a holder of a supply licence is no more than a specified proportion of the cheapest advertised tariff.

(1B) The proportion under subsection (1A) shall be specified by the tariff cap conditions.”

This amendment would require the tariff cap to be calculated with reference to the difference between supplier’s cheapest tariff and most expensive variable or default rate.

Amendment 3, page 1, line 24, at end insert—

“(c) “cheapest advertised rate” means the lowest rate or amount charged for, or in relation to, the supply of gas or electricity under any contract available to the customer.”

This amendment is consequential to Amendment 2 and provides a definition of “cheapest advertised rate”.

Amendment 4, page 2, line 15, at end insert—

“(e) the ability of the Authority to accurately forecast and model wholesale energy prices, and the need to minimise the impact of inaccuracies on domestic customers and holders of supply licences in the future.

(f) the difference between the cheapest advertised rate and the most expensive standard variable or default rate offered by a holder of a supply licence.”

This amendment would extend the matters Ofgem is required to consider when setting the tariff cap to include the matters listed in the amendment.

Amendment 6, page 2, line 15, at end insert—

“(e) the need to ensure that customers on standard variable and default rates have their annual expenditure on gas and electricity reduced by no less than £100 as a result of the tariff cap conditions”

This amendment would require the Authority to ensure that the tariff cap conditions result in customers on standard variable and default rates having their annual expenditure reduced by no less than £100.

Amendment 7, page 2, line 15, at end insert—

“(e) the need to ensure that adequate protection exists for vulnerable domestic customers, including ensuring those customers who currently benefit under a cap imposed by the Authority on rates or amounts charged for, or in relation to, the supply of gas or electricity because they appear to the Authority to be vulnerable, retain those benefits.”

This amendment would require the Authority to have regard to the protection of vulnerable customers, including ensuring those who currently benefit under a safeguard tariff continue to do so.

Amendment 9, page 2, line 15, at end insert—

“(e) the need to ensure that adequate protection exists for—

(i) customers who benefit from a cap imposed by the Authority on rates or amounts charged for, or in relation to, the supply of gas or electricity on the basis that they appear to the Authority to be vulnerable;

(ii) in circumstances where a cap described in sub-paragraph (i) has been withdrawn, customers who would have benefited from such a cap had it still been in force; and

(iii) other vulnerable domestic customers.”

This amendment would ensure that when exercising its functions under this section, the Authority must have regard to protection for vulnerable customers, including those who are protected or (in circumstances where it is no longer in force) would have been protected by a safeguard tariff.

Amendment 8, 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.”

This amendment sets out additional matters that the Authority must have regard to when conducting a review of competition for domestic supply contracts.

Amendment 1, page 4, line 39, leave out from “which” to the end of line 40 and insert “—

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

(b) holders of supply licences are using available data, whether collected through smart meters or through other means, to—

(i) assess the energy consumption patterns of domestic customers; and

(ii) use such data to identify, and move domestic customers onto, the most competitive tariff.”

This amendment requires Ofgem to consider the progress made by energy companies in offering domestic customers the cheapest available rate based on their individual consumption patterns when determining whether there is an effective market.

[Dr Whitehead]

We support the Government’s aim to introduce a temporary absolute price cap as set out in the Bill. We claim some intellectual property rights in this, in that Labour proposed a temporary price cap before the 2015 election, which was famously denounced by the then Prime Minister as

“wanting to live in some sort of Marxist universe.”

It is good to see that the Government have not flinched at the possibility of the apparition of its former leader returning to denounce this price cap in the same terms, but then we live in interesting times.

It is necessary to introduce an absolute cap, not a relative price cap, as soon as possible and for a limited period beginning no later than this winter. We have noted the continuing anomalies in the market, the continuing opportunities to game the market, and indeed, the report by the Competition and Markets Authority that customers were being overcharged by £1.2 billion over the recent period as a result of those anomalies. Therefore, a price cap and a pause in price increases, other than those agreed by Ofgem and relating to wholesale price movements, is the right thing to do now, providing, as we have always said and as we said when we introduced the idea of a price cap previously, that action is taken to correct those anomalies during the period of the cap, so that the market resumes at the end of it under circumstances that do not just result in prices running away again and our all being here a little further down the road, finding that nothing has changed and that perhaps a further cap is necessary.



We want to ensure that the Bill does just that—that the terms under which Ofgem operates the price cap give due attention to the current market problems; that the basis on which the cap is ended is clear in the legislation; and that, subsequent to the cap ending, there are measures in place to ensure that some of the more egregious problems of the present market arrangements are not repeated in the future. That is the basis on which we are judging the Bill and on which we are suggesting amendments, as we did in Committee. We do not want to overthrow or weaken the Bill, and we understand that it needs to be robust against possible challenges. Our amendments would therefore have the sole effect of strengthening the Bill and its purpose, and they would ensure that its architecture fully reflects that purpose.

--- Later in debate ---

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I draw to my hon. Friend’s attention the comments of Miss Burdett from Rayners Lane in my constituency, who notes that online rates for energy bills are often cheaper than the standard rate, potentially leaving elderly and vulnerable people who cannot go online for whatever reason at a significant disadvantage compared with the rest of us. Would my hon. Friend’s amendments help people such as Miss Burdett, in the situation that I have described?

[Dr Whitehead]

I thank my hon. Friend for that important observation about what one might describe as one of the current market anomalies. It is not just about the differentials between the different ways that one can secure a tariff; it is about the issue of prepaid metering and the differential between the bills of people who are in fuel poverty or are vulnerable in other ways and the bills of those who have more resources. Indeed, some of the amendments that we have tabled—and one in particular—would secure firmly in the Bill matters that Ofgem and the Minister would be required to take into account when considering the introduction of the price cap and the period after which it ends.

Amendment 5 would start the process of strengthening the Bill by ensuring that the cap takes effect within no more than a known period that is stated in the Bill. That is because we want the cap in place for this winter. We know that the equivocation on the cap has lost valuable time. The Government introduced it as a manifesto item before the last election, but then apparently went cool on the idea, before suggesting that it was the administrative responsibility of Ofgem. Only then, after a pause of a number of months, was it actually introduced as legislation, and we are now rushing to get the Bill on the statute books so that the cap can be in place this winter.

[James Heappey (Wells) (Con)]

The shadow Minister has brought forward his definition of winter from 30 November in Committee to something that is hopefully a bit sooner. Does he still not agree, as we discussed in Committee, that setting a date for the Bill to be implemented may mean that we rush Ofgem in a way that may not prove to be helpful? Indeed, if Ofgem exceeds our expectations and gets this done quicker, we may be giving the energy companies a target by which to raise their prices. It might be better to let Ofgem go away and prepare the cap as quickly as possible, and act as soon as possible thereafter.

[Dr Whitehead]

Indeed, the hon. Gentleman has a point, which is why now—on Report—the amendment would put a maximum number of months, not a specific date, in the Bill. One might say that hon. Members listened to each other in Committee regarding possible future amendments, which is why I tabled amendment 5 in this manner. However, the fundamental point of the amendment is still to get the Bill working, so that the cap is in place before the winter. Ofgem has said that it thinks it can have a cap up and running in five months, as we have suggested in the amendment. We therefore want the maximum timeframe of five months to be reflected in the Bill, so that the cap is guaranteed at around the time when people get their winter fuel allowance, not when winter returns, as it seems to do these days, in the middle of next spring.

Amendment 6 seeks to quantify the saving that customers might expect as a result of the cap, but we do not wish to make up a figure in so doing. We want to take the Prime Minister’s word on this, when she specified that customers would save £100 as a result of the price cap that her Government were about to introduce. To be precise, The Sun of 27 February this year had the splendid headline “Millions of Brits in line for £100 as Theresa May delivers on energy price cap promise”. This was just one of a number of sources reporting the Prime Minister’s price save promise, but The Sun went further, stating:

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

Now, I do not know whether there are any Government insiders in the Chamber—or, indeed, whether the Minister is one of those cited—but we can assure them that we will take the conservative route on this occasion and propose only that the Bill will do what the Prime Minister says it will.

[Stephen Kerr (Stirling) (Con)]

I am slightly perturbed that the hon. Gentleman is quoting The Sun as the authority by which we make legislation in this House.

[Dr Whitehead]

On reflection, I can join the hon. Gentleman in being slightly perturbed that I am quoting The Sun in this context. I assure him that although I quoted The Sun, a range of authorities from the Daily Mail —getting better?—up to the BBC’s website suggested that the Prime Minister did actually say that people would save £100. If the hon. Gentleman thinks that quoting The Sun was not entirely appropriate under all the other circumstances, I can do nothing other than agree with him.

Amendment 7 would ensure that vulnerable customers, including those already protected by a tariff cap, do not lose that protection as a result of the overall cap being introduced.

[Sir Oliver Letwin (West Dorset) (Con)]

If we put together the hon. Gentleman’s remarks about amendments 5 and 6—the general gist of which I have no quarrel with—and if Ofgem were subject to legal challenge as a result of trying to impose a cap of this size on that timetable, what does he suggest would be the effect of his amendments if they had entered law? How would Ofgem deal with the conflict between the courts and an Act of Parliament?

[Dr Whitehead]

My understanding is that the question of a timeframe for implementation of the cap would be strengthened considerably regarding a potential legal challenge by providing for a maximum period for the introduction of the cap, rather than a specified date. I think that we accept the principle that there should be some indication in the Bill of when the cap is to arise; certainly, in previous discussions of the Bill, there has been a real concern about the body responsible for implementing a cap after the legislation has been passed through the House taking any or no specified period to prepare the cap for its actual execution. The preparation of the cap will also be part of the process by which it is strengthened against legal challenge. That therefore needs to be done carefully and properly so that it is implemented it in a way that is proofed against such legal challenges. Ofgem indicated in its evidence to the Committee the period that it thought reasonable for it to be required to take forward the implementation of the cap. Placing that period in the Bill therefore seems, at least to the Opposition, to be adding to the proof against legal action rather than detracting from it.

[Sir Oliver Letwin]

I completely accept that it is advantageous to give Ofgem a push to do this on the timescale that the hon. Gentleman is describing. However, clause 1(1) says that

“the Authority…must modify the standard supply licence conditions”,

and under his amendments, it would have to have done that by a given date, yet the court may be preventing it from doing so. I still do not understand how he deals with that legal conflict.

[Dr Whitehead]

The Bill says that what needs to be done to modify licences to bring the cap about, among other things, has to be done by Ofgem as part of its implementation process. The question of legal challenge to Ofgem concerns, at its heart, what Ofgem does over whatever period may be specified to ensure that the implementation of the cap does not deviate from what is set out in legislation. That is the clear basis on which the cap should be undertaken, and that is the responsibility of Ofgem.

The second issue is the time within which Ofgem considers that it can introduce that cap in the way that the right hon. Gentleman has described, given its workload and capacity to do so. Indeed, Ofgem is on the public record, through the evidence that it gave to the Committee—he will know that that has some weight through being a public statement in Hansard—as saying that it felt that it could do it within five months. The amendment merely tries to tidy up the process by putting that timeframe into the Bill, while not in any way detracting from the strength or otherwise of what Ofgem is required to do in acting to implement the cap in a way that is both effective and legally watertight.

I am not sure that I can go too much further with the right hon. Gentleman’s point. I am happy to take it up with him separately if he wishes. However, I have explained where we are in seeking a combination of watertightness in the Bill and clarity that the wishes of this House can be undertaken in through the price cap coming in during the period when it is supposed to come in.

Amendment 7 relates to the point made by my hon. Friend the Member for Harrow West (Gareth Thomas) about vulnerable customers and people who are not in a position to take advantage of all the devices that other, less vulnerable customers would be able to take advantage of—that is, customers protected by the existing tariff cap in particular. In our view, it is important that those who are protected by the tariff cap do not lose that protection as a result of the overall cap being introduced. It would be helpful if the Minister, even if she is not minded to accept the amendment, put it beyond doubt that that is the Government’s intention and that they will not seek to lose the current safeguard tariff as the overall tariff cap comes in.

[James Heappey]

Clearly amendments 7 and 9 both have real merit in getting the protection of vulnerable customers right, which is important, but why does the hon. Gentleman feel that his amendment is better than amendment 9?

[Dr Whitehead]

I am afraid that I cannot give the hon. Gentleman that assessment, because I think that both have equal merit in dealing with very similar issues.

[James Heappey]

In a slightly different way.

[Dr Whitehead]

Indeed, but both have equal merit, and I would not want to distinguish between them in what they would add to the Bill. They both have the central concern that vulnerable customers should not be treated adversely as a result of the overall tariff cap coming in. That is the point that I wish to pay attention to. I am sure that my hon. Friend the Member for Leeds West (Rachel Reeves) will also want to do so when she speaks to amendment 9.

[Frank Field (Birkenhead) (Lab)]

Without wanting to enter into a beauty contest regarding whose amendment is best, will not my amendment 1 be quite consistent with what the Government wish to achieve, which is to require Ofsted—I mean Ofcom—[Hon. Members: “Ofgem.”] Yes, Ofgem—or Ofcap, perhaps. The Government wish to require Ofgem to write to companies to ensure that those who are poorest and least likely to change have been offered the best deal by their provider. I promise that by the time I speak to my amendment, Madam Deputy Speaker, I will know which regulatory body it is.

[Dr Whitehead]

Yes, there is certainly merit in that idea. It is true that some of the amendments take some of the specific actions that may be taken a little further than is suggested in amendment 7. However, whichever of the amendments one wishes to pin the first-place rosette on to, the key point is that vulnerable customers need to have proper protection as the tariff cap comes forward.

It is in the Government’s interests, I think, to clarify exactly what they intend the Bill to do regarding that protection. That can easily be done by the Minister clearly stating today, as I hope she will, that vulnerable customers will not lose the current safeguard tariff as the overall tariff cap comes in. Indeed, if the overall price cap consumes the safeguard tariff, vulnerable customers could see their prices could go up by more than £30 as a result of the difference between the safeguard and the absolute tariff. That would, as I am sure she will agree, be a perverse outcome that she would be anxious to disavow.

The Minister will have to clarify for us that the Bill means that Ofgem can bring forward the extended safeguard tariff at the same time as the standard variable tariff cap; that the extended safeguard tariff can continue after the absolute cap has ended; and that she will bring forward the necessary secondary legislation before the summer to enable the data sharing needed to extend the safeguard tariff. I am sure that she will be able to reassure us on these points. I look forward to what she has to say about all the amendments before us.

Amendment 8 seeks to introduce to the Bill the symmetry in architecture that appears to be missing from what Ofgem must consider in introducing the cap. As hon. Members can see, the Bill lists a number of matters to which Ofgem should have regard in setting the cap, which relate to

“protecting existing and future domestic customers who pay standard variable and default rates”.

However, when we cast our eyes forward in the Bill, we see that those conditions are wholly absent from the matters that Often is required to consider when it reports to Government on whether circumstances exist that allow the cap to be terminated, as it is required to do by clauses 7 and 8.

Indeed, there is no guidance in the Bill at all on what Ofgem will have to take into account, except, alarmingly, for one consideration: the extent to which progress has been made in installing smart meters, a provision that, if taken too literally, might mean that the cap will be with us until the end of 2023. Our amendment essentially seeks to place in the outbox—the point at which Ofgem reviews the expiry of the cap—the same considerations that it is required to pay attention to in its inbox when it sets the cap.

Finally, we seek in new clause 1 to start the process of introducing what needs to be in place to ensure that the market works well for customers and does not recreate the anomalies that have led us to where we are today. I have no doubt that there will be a number of such provisions, but in our view one of them should be that the arrangement of tariffs by energy companies should not continue as it is.

That is also the substance of amendment 2, tabled by the hon. Member for Weston-super-Mare (John Penrose), whom I salute for his unflagging work in bringing the idea of a price cap to this point. He introduces in his amendment the suggestion that tariffs should have a piece of elastic on them for each company, to prevent companies from introducing customers to apparently low tariffs initially, only to place them on much higher tariffs when the first offer expires and relying on their loyalty to gain a lot of profit and cause an unfair outcome for customers. That is essentially the instrument that his amendment would introduce, but it is cast as a relative price cap. We do not think it is a satisfactory mechanism for a price cap, but he will no doubt argue his corner. The relative nature of a tariff range restriction means that it can be introduced at any price and is not therefore a cap as such. It is, however, a vital means of keeping prices and fair dealings with customers on a steady trajectory.

[Antoinette Sandbach (Eddisbury) (Con)]

The Business, Energy and Industrial Strategy Committee heard an overwhelming amount of evidence opposed to a relative price cap. Can the hon. Gentleman explain why he rejects that evidence and has tabled this new clause?

[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.

[John Redwood (Wokingham) (Con)]

In amendment 6, the hon. Gentleman is trying to ensure that people get money off, which we would all like to see, but would it not be necessary to include some kind of rider so that it applies only if people are burning the same amount of energy year after year? If we went from a warm winter to a very cold one, presumably he would not think we could guarantee the same amount.

[Dr Whitehead]

Amendment 6, as I recall, would simply place the Prime Minister’s words into legislation. It was estimated that a saving of at least £100 would result from the measures, and one aim of the legislation was to bring that saving about. It does not mean that the amount would be exactly £100—indeed, had the Prime Minister not reported that to The Sun, we might have got a rather more complex version of that price promise. We are merely reflecting what was heard on that occasion, and I hope the right hon. Gentleman will take the amendment in the spirit in which it is intended.

[Sir Oliver Letwin]

I just want to be clear, because I have got very confused about these propositions on a relative cap. On the face of it, the words of new clause 1 are strikingly similar to those of amendment 2. Is the hon. Gentleman proposing that after the absolute cap, there should be a relative cap?

[Dr Whitehead]

It can be interpreted in that way. We are fully in accord with the Government’s idea of an absolute cap, as opposed to the relative cap proposed in the amendments. We suggest that what has been characterised as a relative price cap plays an entirely different function, which is to narrow the gap between tariffs after an absolute price cap has been in place so that companies cannot game the market by switching tariffs in the way I have described. That is nothing to do, at that point, with a price cap; it is about tariff stability over a period and, indeed, an assurance for customers that they are not going to be ripped off as a result of entering on a particular tariff and subsequently being placed on a very high tariff once that initial tariff has come to an end.

--- Later in debate ---

[Claire Perry]

There has been a huge amount of scrutiny, and I am hoping that we can get the legislation through to the other place, but my door is open. We want a well-functioning energy market that works for everybody and provides competitively priced energy.

I was asked an important question about the statutory instrument, which is also going through the House, that enables data sharing between the DWP and others. It has completed its pre-legislative scrutiny and will be introduced during the passage of this Bill. It is a vital and necessary part of ensuring that the powers in the Bill work.

[Dr Whitehead]

Will the Minister be clear with us tonight that the safeguard tariff and the absolute cap do not contradict each other and that they can be introduced together, so that the protections can continue? Is she convinced that that is the way forward?

[Claire Perry]

There is nothing in the Bill that interferes with Ofgem’s ability to extend the safeguard tariff, which is part of an existing separate set of powers. By having this discussion, we are sending a clear message that we expect Ofgem to retain adequate protections for the most vulnerable consumers once the Bill is passed. I thank colleagues for putting that matter forward for debate today, because it is an absolutely vital point that we must get across. However, on the basis of my responses, I hope that the hon. Member for Leeds West will not feel the need to press amendment 9.

Amendment 8 essentially sets out the conditions that would determine success when we consider whether the price cap should be removed. As we discussed in Committee, it is not the job of Ministers to prejudge the regulator’s work on what a good market will look like in two years’ time. This country has seen some of the most rapid evolution in energy innovation, and in the future there may well be factors that are no longer considered relevant in establishing competition or factors that do not best address consumers’ needs. I do not want to put anything into the Bill that would give energy companies something to target. The Bill is supposed to be about giving the regulator broad powers to ensure that companies deliver a better price for consumers, not try to engineer a particular outcome. I hope that the hon. Member for Southampton, Test considers that a sufficient explanation and will not press amendment 8.

It has been great to have so much cross-party conversation and discussion on this important piece of legislation. I forgot to mention the vital point made by the right hon. Member for Don Valley (Caroline Flint) about green tariffs, but the process of setting such tariffs will be scrutinised as never before and we will have better, more transparent tariffs as a result. I hope that all Members are satisfied with the explanations I have provided and that we will not need to trouble the Lobby Clerks this evening.

[Dr Whitehead]

On the basis of the explanations that have been put forward, we will be happy not to press our amendments, but we will wish to press new clause 1, which has not been properly understood or responded to this evening.

Question put, That the clause be read a Second time.