Alan Whitehead
Main Page: Alan Whitehead (Labour - Southampton, Test)(10 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text
Dr Alan Whitehead (Southampton, Test) (Lab)
The first thing that would be of interest to the House in this debate this afternoon would be to find out what the Secretary of State really thinks about this matter. I was at an interesting meeting yesterday when I was privileged to hear the Secretary of State speak. First, he effectively apologised for being a Minister in the coalition—[Interruption.] I was there; I was listening to it. To put the record entirely straight, what he said was not exactly couched in terms of an apology, rather, “Here are the limitations under which I work as Secretary of State when we are addressing the issues that are coming forward from questions.” Then the Secretary of State said, “Well, of course, I want to cut loose from this; I want to tell you what I would really do were I really a Liberal Democrat.” The Secretary of State then had some interesting things to say, a number of which I agreed with, and I would be interested to hear more about the Liberal Democrat policy on these matters.
Even in the context of what was said at that meeting yesterday, I cannot really believe that one half of the Secretary of State’s hat is entirely comfortable with the other side of his hat as he speaks this afternoon. He probably really agrees with what is being put forward this afternoon, and the circumstantial evidence for that is to be found in the meandering circumlocutions that we heard from him today as to why the present system of regulation is pretty dead good and really can do the things that the Opposition are suggesting that it ought to do in any event, even though the Secretary of State accepts that in fact there is not a power in reality to revoke the licence of a supply company or electricity distribution company, on the basis, effectively, of cumulative offences.
Huw Irranca-Davies
In fairness to the Secretary of State, does my hon. Friend suspect that one of the limitations to which he refers might be the bizarre rule on regulation that is now imposed across Whitehall? It was one in, one out, but now I understand it is one in, two out. So even if there is good, proportionate, sensible regulation, it is damn hard to get it on the statute book.
Dr Whitehead
My hon. Friend makes an interesting point. Given where the regulations stand now, it is quite possible that the introduction of the regulation that my right hon. Friend the Member for Don Valley (Caroline Flint) suggests, would lead to several other regulations being removed, so therefore would meet the golden rule of one in, two out. It is something that I can recommend right now to those on the Government Front Bench as a way of earning additional deregulation brownie points.
I mentioned the Secretary of State’s circumlocutions and made considerable play of the fact that, because the regulator can undertake a final order, that is the nuclear option. The Secretary of State will be aware—he has received legal advice to this effect, although I do wonder whether the legal advisers did this during their lunch hour to assist him—that clause 25(1) of the Electricity Act 1989, from which the final order derives, before Ofgem was introduced but the powers were incorporated into its powers, states that
“where the Director is satisfied that a licence holder is contravening, or is likely to contravene, any relevant condition or requirement, he shall by a final order make such provision as is requisite for the purpose of securing compliance with that condition or requirement.”
According to that piece of legislation, one is required to find out what any relevant condition or requirement is. In order to do that, it is necessary to refer to schedule 2 with the imposing title “Revocation”. We may want to look there to find out how nuclear that final order is. The final order not only has to relate to the relevant conditions or requirements, it has to stick to the relevant conditions or requirements. That is what it says in the legislation.
As the Secretary of State has said, there are a number of circumstances under which the licence can be revoked. Where someone has not paid their fine and it remains unpaid, a final order can be issued. If a final order is issued and the licensee fails to comply with that final order, which is something of a tautology, that licence can be revoked. But in order not to comply with the final order the licensee has not to comply with something within the revocation schedule in the first instance. If the licensee refuses to pay the financial penalty, that triggers a final order. Various orders were made under the Competition Act 1998 relating to unfair competition. If the licensee does not supply any electricity within a year or has stopped supplying electricity to a property, a final order can be levied against it. If the licensee is unable to pay its debts according to the Insolvency Act 1986 or has an administration order, or a receiver has been appointed, the licensee may have a final order levied against it. Obviously, if it is insolvent and has ceased trading, it is hardly likely to comply with the final order so its licence would be revoked.
The revocation schedule, upon which the Secretary of State’s magnificent argument about the final order rests, simply states, as has already been rehearsed, that various things could lead to revocation if they are not put right. That seems to be the central point that is being addressed this afternoon. These are all things that might be levied against a company and could be put right, and if they are not put right a nuclear option of revocation can be undertaken. But if those things are put right, case by case by case, section by section by section, that final order cannot be used. So the entire basis of the Secretary of State’s argument, that that really exists to enable Ofgem to revoke a licence for the sort of cumulative issues that we have been discussing this afternoon, simply falls down. We must accept that there simply is no such power in reality, by implication, in legislation or by regulation.
That makes the case fairly simple. Yes, it is true that with regard to competition, the problem of losing a number of customers may cause an energy company to think again about certain of its actions. The possibility of losing all of one’s customers might make one think rather more seriously about the problems being faced and how to deal with them, in addition to the fact that some customers may be lost through competition.
There we have it, in terms of the difference between the present position and a significant change in what Ofgem would be required to do under the proposals set out this afternoon. They require Ofgem to take account of cumulative bad behaviour—of a company getting away with it, not putting right things required under legislation, and living to fight another day and do it again.
David Mowat
I am listening carefully to the hon. Gentleman and I think he is right about this being an additional power. The question that therefore arises is: what problem are we trying to solve with the additional power? In the 20 or 30 years since privatisation, when companies have apparently been running amok, in which instances would he have liked the power to be deployed? In particular, would it be appropriate for npower no longer to have a licence?
Dr Whitehead
The existence of a power in legislation, and of a regulation attached to it, provides a framework that companies subject to it must address. It is academic for the hon. Gentleman to ask whether a company would have had its licence removed when it was not subject to the conditions and when the framework did not exist—it is just a debating point and not a real challenge at all.
David Mowat
There is a logical error in what the hon. Gentleman says. In the absence of the power, when all the energy companies have apparently been running amok, surely we would have expected them to exhibit the egregious behaviour that would cause the power to be used. Can he give me an example of that?
Dr Whitehead
The hon. Gentleman will understand that saying “enough is enough” when there is not enough in the first place is a logical impossibility. The power provided under the proposal would enable Ofgem to say “enough is enough”. I cannot look into a crystal ball to say what enough might consist of, but a power to deal with repeated abuses of licence arrangements and repeated failures to learn from transgressions that had been put right but had not led to a sanction being levied would in the long term have more effect on energy companies’ operations.
David Mowat
Let us be clear: these are repeated abuses—which, as the hon. Gentleman rightly says, the power takes into account—of a type that we have not seen in the past 30 years. Otherwise, he would be able to give examples of when the power should have been deployed.
Dr Whitehead
The hon. Gentleman misses my central point—that it is difficult to say there has been cumulative abuse of a licence when the licence contains no means of judging that. Without such means, it is difficult to make those judgments. Members across the Chamber will agree that if a company that flagrantly and repeatedly abused its licence conditions faced the ultimate sanction of having its licence removed, it would think long and hard before sailing too close to that circumstance.
I questioned whether the Secretary of State’s heart is in the debate. I do not know whether his brief for the debate was one of specificity or one of principle. Did it say, “In the circumstances where it appears we might have the power, you can walk around the issue by talking about a final notice”, or, “Under no circumstances should the regulatory system for utilities or associated bodies enable the removal of licences, so defend the fact that the licence cannot be removed under existing regulations”?
I wish to draw attention to another note on compliance and ultimate sanctions, which states that
“licence holders must also, at all times, satisfy the four authorisation criteria. . . insurance, financial fitness, good repute and professional competence. If we have serious doubts about whether you comply with any of these criteria, we may make further enquiries.”
It concludes:
“If you do not comply with your licensing obligations we will consider enforcement action. This may ultimately result in the suspension or revocation of your authorisation.”
That guidance is issued not by Ofgem but by the Office of the Rail Regulator, so there is a regulatory arrangement—presumably agreed and authorised by the Government—that enables the ultimate sanction of a licence being revoked. Did the Secretary of State defend the lack of such an ultimate sanction on the grounds that it is a bad thing? If so, such a sanction already exists. However badly the railways are regulated, at least regulations are in place that allow for that ultimate sanction.
Graham Stringer
My hon. Friend is, as ever, making a profound speech, enabling the House to benefit from his considerable knowledge. Does he believe that the people of Warrington South, Southampton, Test and Manchester would dance in the streets at the prospect of Centrica, British Gas or npower being threatened with the removal of their licences because of their appalling behaviour over the past 20 years or so?
Dr Whitehead
My hon. Friend is absolutely right. Were I to knock on doors in Southampton, Test and refer people to the rail regulator’s compliance arrangements and relate them to Ofgem and ultimate sanctions I might get a fairly dusty response. If I were to say to them, “Energy companies appear to have been ripping you off over many years in many different ways and the huge fines levied on them don’t appear to have made any great difference, whereas now it is being proposed that they may simply be told to leave by the back door with their possessions and not supply you with energy any more”, then they would indeed be dancing in the streets. I can only say in my defence that I am not a dancing in the streets kind of politician, but others might wish to do that on my behalf.
We are aware that regulatory arrangements exist for other industries and that they should therefore exist for this industry. That is the nub of the issue, and I hope that Members will support that simple, central point on the regulation of electricity and gas in the future.
David T. C. Davies
According to the Secretary of State, that is the ultimate sanction.
David T. C. Davies
That is what the Secretary of State said. Who am I to question him on that particular issue?
Amber Rudd
I am going to proceed with my speech. [Interruption.] Unlike the right hon. Lady, I have only 10 minutes in which to conclude my speech, and I am going to continue.
An alternative would be to split the portfolio between suppliers, but deciding who would get which segment of the portfolio would be a time-consuming process and, again, would raise significant competition issues. And what about the impact on individual consumers? Leaving them on their same tariff is not likely to be workable under the limited tariff rule—and we should remember that we now have just four, not the 400 we had under Labour. Putting them on a deemed contract, however, could lead to an increase in their bills; and allowing businesses to keep their same contracts may not be compatible with their new suppliers’ business model. Our concern, therefore, is that the overall result of a licence revocation—the so-called nuclear option—is, at least in the short term, likely to be reduced competition and higher bills for consumers. That is why Ofgem only has the powers to take such a step in the most serious cases. What we do not want is Labour’s knee-jerk simplistic solutions. This Government are instead focused on taking real actions that will make a difference.
Dr Whitehead
Will the hon. Lady reflect on the fact that earlier this afternoon the Secretary of State said this could be done, that there was a nuclear option and that it could be undertaken? The hon. Lady is now saying that if what the Secretary of State said could be done was done, it would have terrible harmful effects and therefore should not be done. Does she not see some contradiction in that position?
Amber Rudd
I am happy to clarify that for the hon. Gentleman. The current set-up is that there is an option for the licence to be revoked, but it happens over a much longer period and is likely to take longer. The concern I have over this proposal is that it is a nuclear option that would be so dramatic that it would impact deleteriously on consumers. [Interruption.] The right hon. Member for Don Valley asks how I know that, but she has not made the case to the contrary; that is the concern I have.
We have strengthened the powers of the regulator. I have already mentioned the Energy Act 2013 powers that enable Ofgem to require suppliers to compensate directly consumers harmed by their actions. We shall also be giving Ofgem the power to send to jail people found guilty of energy market abuse or manipulation, in the same way as those who manipulate the financial markets face criminal sanctions, but the effective markets we need to deliver for consumers are not just achieved through enhancing the powers of the regulator. The Government believe that vigorous competition in the energy markets is the best way to sustain downward pressure on prices and deliver a better deal for consumers. I say that this is the Government’s view and I want to reassure the hon. Member for Southampton, Test (Dr Whitehead) that we cannot get a cigarette paper between me and my colleague the Secretary of State. We are agreed on the need to oppose this motion. We know what we are doing, and I am sorry to hear that the hon. Gentleman felt the Secretary of State was putting an argument he did not believe in, but I want to reassure the hon. Gentleman that we are agreed on this.
The hon. Gentleman endeavoured to clarify the circumstances in which the nuclear option could be required by referring to the legal document, but he decided to take issue with the Secretary of State’s interpretation—an interpretation he will not be surprised to hear that I support. As with his colleagues, however, we did not hear an example of when this nuclear option would be required, and I feel this was the weakest part of what we heard from the Opposition in general.
My hon. Friend the Member for Monmouth (David T. C. Davies) made some important and interesting comments about energy prices. I would like to reassure him about smart meters. I say to him, “Have no fear” because our smart meter programme is part of helping consumers reduce their usage and be in control of their spending and, ultimately, of bringing lower prices.