Domestic Gas and Electricity (Tariff Cap) Bill

Alan Whitehead Excerpts

Wednesday 18th July 2018 Commons Chamber

[Claire Perry]

My hon. Friend uses his great experience in this area to point to this being two halves of an equation in making sure, first, that energy is going into a property at the lowest possible price, and secondly, that consumption is as low as can be.

With ECO now at over £600 million, we are targeting that entirely at fuel poverty. The consultation has closed and we have the responses to come out. There is the whole challenge of getting energy efficiency levels up so that, overall, households are more energy-efficient. I am looking at the hon. Member for Neath (Christina Rees) on the Opposition Front Bench. I very much enjoyed a visit to her constituency to see an energy-positive home. That is an incredible innovation funded by her local excellent councillors, looking at how to design homes that return energy to the grid and are cool and lovely to live in. That is the kind of technology and innovation that we want to see.

I hope that we can all agree on this amendment, send it up to be agreed in the other place, and get on and pass the Bill before this place rises, because the regulator has told us that it will need up to five months to calculate the mechanism. It is absolutely vital, as my hon. Friend the Member for Wells (James Heappey) said, that that mechanism is absolutely watertight so that energy companies do not seek to frustrate further the introduction of this measure. We want it in place by the end of this year so that people can start saving on their energy bills this winter.

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

Labour Members are delighted that the Bill to institute an absolute price cap on energy costs is about to pass into law, mechanisms notwithstanding, this afternoon. We are delighted because of the parentage of the Bill, which emanates from the Labour Benches. If hon. Members are worried about the authenticity of the parentage, I can produce a birth certificate: the motion that was debated in this Chamber on a Wednesday afternoon, at exactly this time, on 6 November 2013. It said:

“That this House calls on the Government to freeze electricity and gas prices for 20 months whilst legislation is introduced to ring-fence the generation businesses of the vertically integrated energy companies from their supply businesses, to require all electricity generators and suppliers to trade their power via an open exchange, to establish a tough new regulator with the power to force energy suppliers to pass on price cuts when wholesale costs fall, and to put all over-75-year-olds on the cheapest tariff.”

That motion was in the name of my right hon. Friend the Member for Don Valley (Caroline Flint). When it was debated that afternoon, it did not, I have to say, receive a terribly positive response from the Government of the day.

[James Heappey]

How times have changed.

[Dr Whitehead]

Indeed.

Five and a half years later, we are almost there. I hope that the procedures on the market issues that we have discussed during the Bill’s progress ensure that while there is a price cap those issues are addressed so that we can, as the mechanism in the Bill suggests, come out of the price cap with market conditions resolved in a much better way for customers. Indeed, just as was suggested in that motion, the Bill provides for a procedure to declare the market in place, at which time the cap is ended. That could be about 20 months or perhaps three years, but nevertheless there is a mechanism for that.

What happens at the end of cap conditions is important, and that is what the amendments that have come from the other place at the end of the Bill process deal with, rather than the principle of the absolute cap—the central principle of the Bill—which, I am delighted to say, was received in the other place as warmly as in this House. On termination of the cap, the Lords amendment would put in place a relative tariff differential that would limit the price range between the highest and lowest tariff a company can charge—the so-called “tease and squeeze” problem that the Minister mentioned. That would be not within the absolute cap but part of the return to market conditions that would nevertheless shape how the market subsequently works for the benefit of customers.

I am delighted that the Government have responded positively in the shape of their amendment in lieu, which I am pleased to say the Opposition not only were given sight of but had the opportunity to work on in detail, to ensure that between us we had a resolution to the outstanding issue from the other place. We can endorse the amendment and recommend that their lordships consider it a worthy response to the message we received.

The amendment is slightly different, using an Ofgem mechanism to bring about a solution to tariff ratios, but from the amendment’s drafting I am confident that Ofgem would receive the message in no uncertain terms of how it should use its powers, should the report it is required to write before termination of the cap comes about demonstrate a continuing problem in tariff differentials.

The Bill has always had more than a tinge of Labour parentage to it and now its offspring has further elements of Labour input, which I, for one, very much welcome. It is now a Bill that all sides can agree does the right thing on energy prices and how the market works. That signal of unity from all sections of the House sends an important message to all those affected by the legislation—that this is a serious piece of work, which will work, and that we are all determined to make it happen. If the Bill can pass back to the other place for its final procedures on that basis, that will strengthen considerably the efforts that we are embarking on to ensure that prices are maintained in the interests of customers over the next period through the freeze mechanism.

I thank the Minister very much for the constructive and open way in which she has conducted discussions on the Bill hitherto, and I at least note in distinguished messages the input of the hon. Member for Weston-super-Mare (John Penrose), and of course my right hon. Friend the Member for Don Valley, who I mentioned at the beginning of my comments, whose role in the Bill’s parentage should be not underestimated at all; indeed, it should be written up in dispatches.

[John Penrose (Weston-super-Mare) (Con)]

We are nearly there. With fingers firmly crossed, it looks as though this is the last, or last but one, trot around the track for the Bill before it goes off for Royal Assent. I echo the thanks that have come from all sides for the combined and cross-party efforts to get us here. The fact that everyone is rushing to claim a degree of authorship shows the truth of the old saying that success has many parents, whereas failure is an orphan. Thankfully, this is not a failure.

I was extremely concerned by the Lords amendment as it came to us before the amendment in lieu was tabled. That was not because I disagreed with the principle of a relative cap—in fact, I spoke strongly in favour of relative caps at earlier stages—but because, in trying to install a relative cap, their lordships had made it an open-ended intervention in this market. For people like me—perhaps more on the Conservative side of the House—who are avowed free marketeers, a temporary intervention is very important. An open-ended commitment would create a great deal of unease among many of us, on the grounds that the opportunity for regulatory meddling would be extremely strong, and that the temptation would prove too hard to resist over time.

I am therefore delighted to see the proposed amendment in lieu. Not only does it not add any fresh powers—it asks Ofgem to use its existing powers, giving it a firm and direct mandate from this House that those powers should be used—but it refocuses the Bill. I for one—I do not think I am alone in this—had become a little bit concerned that the Bill had gone a little off track or off topic in its passage through Parliament.

The Bill was proposed in the first place in response to an underlying mischief or immorality—that of “tease and squeeze” behaviour. People could start off on a razor-keen introductory tariff and then, without taking any firm decisions, they might find that when the tariff came to an end after one or two years, they had in a surreptitious way become liable for a sky-high default tariff. That would happen without their saying yes to anything, because of the tease and squeeze tactics, particularly of the big six. The central behaviour, which is deeply embedded in this market, of taking advantage of people’s loyalty and inertia—their stickiness, as my right hon. Friend the Minister said—was griping everybody and making them feel that customers were being taken advantage of. That was why the Bill was first conceived, and why it rightly garnered so much support throughout the House.

The amendment in lieu brings us back to that central point. It reminds us why we are here and, most importantly, it means that Ofgem will no longer have an excuse to look the other way. We all want this temporary price cap, when it comes to an end, not to be needed any more because the market—the big six in particular, but also the market as a whole—will have learned the error of its ways and will stop behaving in the way that has griped everybody, so that there is no need for further interventions. However, I do not think I am alone in being a little bit cynical and saying that that might not happen, even with all the other interventions and reforms that Ofgem is rightly introducing to try to sharpen competition, improve consumer choice, and both improve the behaviour of suppliers and help us as customers to use our freedoms more actively.

It is just possible that, even after all the changes introduced by Ofgem during the period of the cap, the market is not yet properly reformed. We are all here because Ofgem has in the past refused to use the powers it has. I have had conversations with senior people in Ofgem, as I am sure have many others in the Chamber, asking, “Why don’t you get on with it? Why don’t you use these powers? You’re being weak-willed, and you are pathetically—like wet lettuces—not doing what you are there for. What’s the point of having an economic regulator if you aren’t going to stick up for people who are vulnerable and people who are being taken advantage of?” We all got fed up with arguing that it should do so, and it would not do so, and that was why the Bill came into being. The amendment in lieu should solve that because, for future reference, it should ensure that Ofgem has a backbone statutorily inserted into it.

We all hope that those powers are not needed, and that the reforms designed to sharpen competition mean that they will never be needed, but the amendment in lieu means that they can be used in the future. With any luck, as with a good nuclear deterrent, no one will ever have to press the button, but my goodness me, they will know that they are there. That is the crucial point. With that, I welcome the amendment in lieu. I hope that the message goes out loud and clear to Ofgem that we will not put up with its being weak-willed in the future. It is up to Ofgem to ensure that this market functions properly, not just during the temporary period of the cap, but on an ongoing basis in the future. With any luck, after that none of us will ever have to worry about the energy market’s mispricing again.