Draft Electricity Supplier Payments (Amendment) Regulations 2018
Alan Whitehead Excerpts(6 years, 8 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to serve under your chairmanship, Mr Paisley.
The regulations, as the Minister set out in some detail, are about providing for the operational costs of the counterparty body, as far as contracts for difference are concerned, and the Electricity Settlements Company, as far as the capacity market is concerned. They are not concerned with the success of the market or of CfDs, but with the operational costs of the bodies that essentially stand between the people who are supposed to put money into the system, and the people who are supposed to take money out of it. That, at its heart, is the arrangement as to what those two bodies do.
It is worth spending a moment looking at what the operational costs are. The Minister spent a little while stating that they are good value for money and that they are a good representation of what the LCCC and ESC do. It is not easy to find out the total cost of LCCC operational activities, because the amounts presented for 2018 to 2020 are expressed per MWh for any day during that period; they do not represent the total operational cost of the body’s activities.
Claire Perry
I would be happy to share information about the gross cost; I apologise if it has not been made clear, but I will write to the hon. Gentleman—indeed, I may be able to share it with him during this debate. It may reassure him to know that the average cost per household bill of the total budget for these bodies is estimated at 30p per year in 2016 prices, but I am happy to share the gross numbers with him or any other member of the Committee.
Dr Whitehead
I thank the Minister very much for that intervention, which to some extent anticipates what I was going to say. It appears that the cost per MWh has remained reasonably stable for the LCCC since the original regulations were made, but it would be helpful to know the total cost over the period as far as CfDs are concerned. The 30p that the Minister mentions, which I assume represents the total cost of both arrangements to the consumer, is not an enormous amount, but it is not insignificant either. I am therefore slightly surprised that the explanatory note states:
“A full-impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sectors is foreseen.”
Frankly, the impact on customer bills is not insignificant, so I would have hoped for some assessment of it, particularly in comparison with the impact of other measures on bills. I appreciate that it may be a relatively small amount compared with the consequences of other levies on bills, but it is not insignificant. I think it ought to be looked at in that light.
The Electricity Capacity (Supplier Payment etc.) Regulations 2014, which are the original regulations relating to the operational costs of the ESC, give a rather different picture from that of the costs relating to the LCCC. The 2014 regulations specify a total operational cost of £1,374,000, which was subject to annual amendment, as the Minister says. By 2016, the figure had risen to £4,283,000, and by 2017 it stood at £6,241,000, which is the figure that the draft regulations seek to amend. Article 3(1) states:
“in regulation 9(2), for “£6,241,000” substitute”
£7.6 million, £7.5 million and £7.5 million for the years 2018 to 2020. The figure of £6,241,000 comes from the most recent iteration—the Electricity Supplier Payments (Amendment) Regulations 2017—not the original 2014 regulations. It is difficult to tease that out in this statutory instrument, but that appears to be what has happened.
Frankly, we are faced with an inflation of costs from £1,374,000 in 2015 to £6,241,000 in 2017, and then a further increase to £7,629,000 in 2018. That series of costs does not strike me as carefully under control and good value for money. It may be, if the ESC’s work has expanded sevenfold since it was originally given the task of carrying out the administration of capacity markets under the 2014 regulations—other things may also have taken place to increase some of those costs—but I am not entirely convinced that the ESC’s activities have increased over the period by a factor of 700%, justifying those increases in operational costs.
Can the Minister give a satisfactory explanation of why those costs have inflated so much over that period? There may be a good explanation, but perhaps we are not paying sufficient attention to the considerations that go into the operational costs of these organisations. I do not know whether there is a body to oversee how those costs are brought about and what they relate to. On the face of it, they appear to have inflated considerably over the period in which the ESC has been in post, as it were, overseeing the activities of the capacity market and their results.
I do not want to divide the Committee. Clearly, these organisations need to have a period to set out what their organisational costs will be and what the supplier companies will contribute to those costs. However, this afternoon, or by subsequent communication, I would like to hear whether the Minister shares my view about the apparent enormous inflation of the operational costs, as set out by the preceding statutory instruments. In her view, is that enormous cost inflation justified by the sort of activities she has set out?
The Minister will not necessarily have a complete and instantaneous response to all my points. It would be wonderful if she did, but I do not blame her at all if she does not. It is a fairly arcane point, but it is important to raise it as we look at the operational costs of the bodies in this statutory instrument.
Unpaid Trial Work Periods (Prohibition) Bill
Alan Whitehead ExcerptsFriday 16th March 2018
(6 years, 8 months ago)
Commons ChamberRead Full debate Unpaid Trial Work Periods (Prohibition) Bill 2017-19 View all Unpaid Trial Work Periods (Prohibition) Bill 2017-19 Debates Read Hansard Text Read Debate Ministerial Extracts
Dr Alan Whitehead (Southampton, Test) (Lab)
May I congratulate the hon. Member for Glasgow South (Stewart Malcolm McDonald) on bringing this important and well-constructed Bill to the House? We have perhaps been diverted towards the issue of people not being paid for one or two hours’ work, but essentially the Bill is about the principle of a fair day’s pay for a fair day’s work. Unpaid work trials have become a widespread practice in the hospitality, entertainment and retail sectors, and we need to place that development in a wider context.
In recent years we have witnessed an explosion of exploitative working practices associated with the so-called “gig economy”, a commonplace phrase that does not do justice to what is really occurring, namely the avoidance of employment rights, benefits and remuneration on a mass scale. Unpaid work trials must be seen in the broader context of a range of sharp practices associated with low paid, insecure employment in this country, designed to cut the burden on the employer at the expense of hundreds of thousands, if not millions, of workers.
Just in the past few weeks this place, as the hon. Gentleman has mentioned, has discussed tipping practices that take rightfully earned tips from waiting staff and recycle them to top up the pay of other workers to the level of the minimum wage. In the past two weeks we have seen how major, international companies such as Wagamama and TGI Fridays have failed to pay their staff the minimum wage.
Dr Whitehead
Yes, I share the hon. Gentleman’s shock and concern. That underlines how a number of very important institutions in this country continue to underestimate and even turn a blind eye to all such practices associated with the gig economy, one of which is unpaid work trials. There is a pattern and it has not been clearly addressed by the Taylor review, and it certainly has not been addressed by the Government’s weak response to that review.
More than £1 billion is lost in wages every year through unpaid work, and the continuing practice of unpaid work trials is a contributing factor to that.
Stewart Malcolm McDonald
I think I know the report to which the hon. Gentleman refers, but a subsequent report adumbrates that about £3 billion is lost in wages every year.
Dr Whitehead
Obviously, £2 billion has been lost since I last looked. That underlines the big picture. Unite the Union says that there has been a sixfold increase in complaints about the practice in the past three years. Indeed, the personal stories of exploitation collected by the hon. Gentleman chime with many of us, as we have heard today, through the experiences of our constituents, our own children and our local communities.
Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)
As the second youngest Labour Member in the House, I can speak from relatively recent experience. My first experience of the world of work was an unpaid trial shift against four other candidates for a job. It was a full day’s shift and unpaid. That was combined with a zero-hours contract and unfair tipping practices whereby we were never given our tips and they were used to subsidise the minimum wage. Moreover, young people are unaware of trade union rights, how to join a trade union or how to engage in that sort of security in employment. That is the root cause of the problem. It is the duty of this Parliament to legislate for and protect our young people and others who are exploited by such nefarious practices.
Dr Whitehead
My hon. Friend makes an important point. He seems to have personally experienced all the various aspects of this problem: they came together on one occasion, in one place and happened to one person.
Many people have talked about their own experiences. One example comes, in fact, from Scotland. K from Kilmarnock says:
“My son was asked to do a trial shift in our local restaurant. The manager who was on shift did not even speak to him when he was in! He was left in the bar with no direction and when he tried to help the others he was told to get back behind the bar! He wasn’t paid a penny for his time. The same restaurant had already done the same thing to a friend of mine’s son except it was for a kitchen porter and he did 4 hours, no pay and again at end of his shift he just left waited over a week with no job offered.”
The use of unpaid trial shifts is a real problem under the current legislation. The concept of “shadowing” has been used by employers to justify bringing in unpaid workers to cover staff shortages, sickness, or particularly busy periods and events. There is a need to clarify the legal position for employees and employers with legislation, and the Bill seeks to do that by closing current legislative loopholes to ensure that workers are paid for every hour they work and every shift they do.
Bob Stewart
I think that what the hon. Member for Glasgow South (Stewart Malcolm McDonald) has put together is excellent, and I congratulate him. I also congratulate my hon. Friend the Member for Croydon South (Chris Philp). “Souths” seem to be in the air today!
Can it be made absolutely clear that the Bill will not apply to someone who goes along to have a taster for a day, does not necessarily work a shift, but just gets an experience of what the work is like? That is not what the Bill is about, is it?
Dr Whitehead
My clear understanding, which I think will be borne out by the hon. Member for Glasgow South, is that that is not what the Bill is about. It is not about work experience, or any of the other factors that the hon. Gentleman has mentioned.
Andrew Griffiths
May I clarify the position? As drafted, the Bill would exclude those factors. Anything, including making the coffee, briefly, would be outlawed. The Bill sets the threshold at zero. Any moment spent working would be caught by it.
Dr Whitehead
I am not sure, if I may say so, that the Minister has correctly put across the idea of what “working” is. Various activities that do not actually constitute work, but constitute other activities not related to work, would not be covered by the Bill. When what is clearly work is being undertaken, and that work is recognised in the normal sense of the word, it will be covered.
Andrew Griffiths
May I clarify the position again for the hon. Gentleman? That kind of trial, or test, would not be covered by the national minimum wage, so the payment would not be applicable anyway.
Dr Whitehead
I think the point of the Bill is that it is intended to close gaps in legislation in order to make it clear what people are doing when they are working and what constitutes trial work, and to ensure that that is much better defined and protected.
The Bill would require employers to pay applicants undertaking trial work periods at least the national minimum wage. Equally important is the clarity that it will provide about what a “work trial” is, and what is the relationship between the employer and the worker at that point. I am sure we all agree that many unscrupulous employers have taken advantage of that grey area to use unpaid labour when there has not been a job on offer, simply to cut staff costs. There is an element of coercion as well. A widespread response to the call for evidence was that many people who had undertaken unpaid work trials had felt that they could not refuse to do so or speak up because of a fear of jeopardising their chances of getting a job.
Michelle Donelan
Does the hon. Gentleman not accept that there is a difference between exploiting people by employing them to do shifts when jobs do not exist, and trying people out for an hour or two and giving them an opportunity to prove themselves?
Dr Whitehead
Of course there is a difference, and this Bill does not fundamentally change that position: it is my understanding that it seeks to clarify what it is to actually do work and, following that definition, get paid for that work. The principle is that if someone does work—defined as serious work, which I am sure the hon. Lady agrees the arrangements she mentions would not be—they should get paid for it. It is as simple as that.
Mr Sweeney
There is a world of difference between an exploitative unpaid trial shift in a casualised context such as I experienced in my first job, and going to a controlled and time-bound assessment centre, which took a full day, as I did for my first graduate job, where it was controlled and defined. The Bill seeks to define that difference, and the Government should support it.
Dr Whitehead
If, indeed, methods are being sought not to support the Bill because of quibbles about what is work and what is not work, and what are trials, and when someone is just doing a practice, that would be a great shame. We need to make it clear that this is about a principle and an area of bad practice that needs to be shut down.
There has been widespread public anger about the practice of unpaid trials. We have heard about the two Mooboo Bubble cafés in Glasgow, which sparked this Bill and campaign, and 13,000 people signed the petition objecting to that. Indeed, the petition calling on MPs to support the Unpaid Trial Work Periods (Prohibition) Bill has 137,000 signatures. It is therefore clear that the practice of unpaid work trials goes against the sense of natural justice that most people have.
There is also widespread public support to remedy this issue as soon as possible, through the clarification of the contractual relationship between the worker and the employer, and the amendment of section 54 of the National Minimum Wage Act 1998 to require the minimum wage to be paid to those who participate in work trials.
Of course, as I stated at the beginning of my contribution, the abuses associated with work trials are part of a much broader picture. The serious, long-term remedy for this all-too-common exploitation is a raft of worker protection measures. Right at the head of Labour’s manifesto commitment at the last election to a fair deal at work is our pledge to
“give all workers equal rights from day one, whether part-time or full-time, temporary or permanent—so that working conditions are not driven down.”
After years of diminution of workers’ rights, that will be no easy task, and we will be faced with many similar loopholes to close and abuses to tackle. I am pleased to offer Labour’s full support for this Bill, to deal with this particularly unjust form of exploitation, which, as my hon. Friend the Member for Midlothian (Danielle Rowley) mentioned, affects so many young people across the country at the start of their working lives. It gives them the impression that the world is perhaps stacked against them in their working career. If only for that reason, we need to ensure that this Bill progresses today.
Andrew Griffiths
On a point of order, Madam Deputy Speaker. May I clarify something? The hon. Member for Glasgow South (Stewart Malcolm McDonald) mentioned an advert for an unpaid internship. I can confirm that that position was never filled; it was advertised, but never filled. I am, however, reminded that a paid researcher worked for me for, I think, a brief 20 days of internship with travel expenses paid before she took on the role as a full-paid researcher. It was so brief that it had slipped my mind, but I apologise if I misled the House in any way.
Domestic Gas and Electricity (Tariff Cap) Bill (Third sitting)
Alan Whitehead ExcerptsThursday 15th March 2018
(6 years, 8 months ago)
Public Bill CommitteesRead Full debate Domestic Gas and Electricity (Tariff Cap) Act 2018 View all Domestic Gas and Electricity (Tariff Cap) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 March 2018 - (15 Mar 2018)
Alan Brown
The Minister finished as she started, by talking about binding future Governments. I suggest that most legislation, in one form or another, binds future Governments. It is for future Governments to make changes to the legislation if it does not suit their policy at the time. Binding future Governments is not a reason not to table an amendment or to withdraw an amendment.
Again, the amendment is not about making the cap permanent. It acknowledges that the cap is temporary, but if, for whatever reason, we get to 2023 and we still do not think that there is effective competition in the marketplace, it puts a duty on the Secretary of State to explain what the Government will do to address that, including possibly introducing new legislation.
On what “good” looks like in the future, if the Government had accepted an amendment setting out the criteria for what effective competition will look like—such as the Labour amendment that suggested a whole list of criteria that should be considered to determine and measure that—we would know what “good” looks like in the future. That might also help to generate the effective competition that we are discussing.
That said, to go back to my original point, I am not trying to say that the cap should not be temporary. Following my comments to the Minister, I do not see any point in pressing the amendment to a vote, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Dr Alan Whitehead (Southampton, Test) (Lab)
I beg to move amendment 11, in clause 8, page 5, line 36, at end insert—
“(3A) In the case that the tariff cap is extended to have effect for the year 2023, the Secretary of State must publish a report before the end of that calendar year on further measures that can be taken to ensure that conditions are in place for effective competition for domestic supply contracts.
(3B) The report under subsection (3A) must include, but is not limited to—
(a) the merits of establishing pooled trading arrangements which matches energy sellers and buyers on the day-ahead and near-term markets; and
(b) the potential impact of such an arrangement on competition for domestic supply contracts.”
It is a pleasure to serve under your chairmanship, Sir Edward. Before I proceed, I ought to say two things. First, I congratulate the right hon. Member for Devizes on her elevation to the Privy Council. In terms of nomenclature, I am not entirely clear whether I should refer to her as the Minister or the right hon. Minister in the future.
Dr Whitehead
I think I will just continue with “the Minister”—or Claire, depending on the circumstances under which we meet.
Secondly, the hon. Member for Kilmarnock and Loudoun mentioned that he is a man of few words. I may well be a man of even fewer words today, because I am suffering somewhat, and my voice may not last for the whole proceedings. That could be a great boon for the Committee.
Caroline Flint
My hon. Friend is making an important point. To sum it up, the big six are both generators and retailers. The case is that they generate energy, sell it to themselves and then sell it on to us, without us really being clear about what the true price is. But does he agree that the advantage of a more transparent pool is for those independent generators to have a marketplace in which they can sell their energy, as well as those smaller retailers that would like to operate in a much more open and transparent way? I am glad to say that that was the policy when I was shadow Secretary of State for Energy and Climate Change. If, like other policy areas, it seems to be more popular these days, more strength to his elbow.
Dr Whitehead
I thank my right hon. Friend for that encapsulation of how the pool works and for her important point that a pool system would allow independent generators to trade on exactly the same basis as those vertically integrated generators, and, equally importantly, independent retailers bidding into the market would be able to bid in transparently, on the basis that they would know what the price was at that particular point. There would be hands on the table and the price would be clear for everybody. The whole trading process would be thoroughly transparent, to the particular advantage of how the market works in its new incarnation as a large number of independent retailers and generators operating alongside the more integrated generators and those large inheritors of customers from, essentially, the days of the Central Electricity Generating Board.
James Heappey (Wells) (Con)
I am not sure that I am that enthusiastic about this idea for further intervention, on two grounds. First, the big six are increasingly separating out their supply and generation businesses, because it makes commercial sense for them to do so, and I am therefore not sure that we are tackling a problem that will continue to exist. Secondly and more importantly, in one of the most successful green finance models that is coming through the cheapest cost of capital tends to be when generation is built with a contract directly to a supplier. I wonder if the hon. Gentleman has considered what impact this measure might have on that very cheapest cost of capital that seems to be available for quite significant amounts of generation capacity coming onstream.
Dr Whitehead
I will make two points in response. I hope that the hon. Gentleman will be enthused by the merits of the pool when he looks into it—knowing, as I do, how deeply he does look into these matters on a regular basis. Although it is true that a number of companies are dividing themselves in different ways from the model that there used to be, it is by no means clear that in the complete vertical integration of those companies those divisions all face in one direction. In some instances, such as the recent merger of SSE and Innogy, retail has been put together in one company. In other instances, companies are breaking themselves up into what might be called a good company and a bad company, in terms of the different forms of generation, without distinguishing between vertical integration and generation. Indeed, there are further moves abroad. For example, E.ON in Germany has effectively taken over elements of Innogy, which may have effects back on SSE and Innogy in the UK. A variety of things are happening in the market, some of which point towards different forms of vertical integration and some of which, as the hon. Gentleman says, point in the direction of demerger.
That is not necessarily the central point about how a pool operates. Even if there are circumstances under which there is rather less vertical integration, the fact that the pool is bringing complete transparency on all trades to the table means that everybody in the market is absolutely on the same level as far as both those trades and the retail element, whereby people are bidding in, are concerned. As the hon. Gentleman knows, a number of newer companies will largely be bidding into the day-ahead market. They may be considerably disadvantaged in not knowing what has happened with trades down the curve when bidding into that market. Having that transparency right across the piece is, in principle, a very powerful lever to ensure that the market works well regarding retail trading.
Secondly, the pool system is not a fanciful notion that some people might think is a good idea but that has never worked in practice. Probably the most successful trading arrangement in Europe at the moment is Nord Pool, which does precisely this across the whole of Scandinavia. It does not have the negative effects that the hon. Member for Wells suggests it might in terms of cost of capital and investment, but stabilises that market across the whole of Scandinavia and produces transparency across borders.
In any event, a pool system is something that this we ought to look at for this country. What this amendment does is rather less than that. It asks whether the Minister thinks that, under circumstances in which it has not been possible to frank the market for returning to competitive purposes by 2023, other instruments should be introduced to get us beyond the end of the temporary pool and out of that temporary price cap, which is what we all want. That will be on the basis that we between us will have not just done a good job of running a cap but changed how the market works, so that the cap does not have to be in place subsequently and we do not need to return to the idea of one in the future.
That is what the amendment intends to do. I think it is a relatively modest ask of the Minister. I am sure that, if she is not promoted, she will be in her post in 2023—if there is a Conservative Government. At that point, she would simply have to produce a small report setting out how the pool system might work. Then we will look to see whether we can take that forward at that point as a key measure, to ensure that competition returns to the markets after the end of the temporary price cap.
Claire Perry
I have listened with interest to the hon. Gentleman and done a bit of research.
The first part of the amendment asks that an additional report is published setting out additional measures for competition. We had a fruitful discussion of this issue on Tuesday, and talked about the fact that there will be a comprehensive report. There is a duty on the Secretary of State to make this transparent, so it will be obvious that the conditions for competition that have been recommended by Ofgem at that point are clear. We discussed at length whether we need to specify, and the will of the Committee was that that was not the case. So the first part of the amendment is not needed, because we will have a transparent report, we will be able to see what “good” looks like—a phrase many of us have used—and we should be able to satisfy ourselves of that.
The second part of the amendment relates to pooled trading. I understand that the hon. Gentleman is a bit of an expert on that, so I felt that I should go away and look at such things. His argument is that having pooled trading arrangements could be an option that should be included in the assessment of competition, and that the report should cover that. He will know that pooled trading arrangements were in place historically. Indeed, I believe it was the first Blair Government that removed those conditions.
Claire Perry
The hon. Gentleman is going to correct me on that. Good—I like a bit of correction on history.
Dr Whitehead
The Minister is absolutely right that there was a pooled system in place, but it was a one-way pool, not a two-way pool. Furthermore, there were only two generating companies at that time, so the circumstances were very different, and it was not a full pool in any event.
Claire Perry
I accept that helpful piece of information. But when it was cancelled and replaced with alternative arrangements, the real issue was that prices did not fall as far as they should. The rocket and feathers effect was in full cry. I have not been able to find a pub called “The Rocket and Feathers” anywhere in the country, so we cannot go out and celebrate the successful passage of the Bill with a drink in an aptly named pub. However, the new arrangements were put in place back in 2001 and extended in 2005.
The CMA, in its very comprehensive review of market competition, compared the principle of bilateral trading relationships, which the hon. Gentleman has eloquently expounded, with a pool approach. Its view was that the evidence did not support a move to such a pooling system, primarily because there is sufficient liquidity in the market—Ofgem reviews the liquidity arrangements—and there is price transparency for all the pool participants already. The CMA’s conclusion was that if we all accept that we need to move to a more competitive market, the evidence does not suggest a move to bilateral pooled trading relationships.
I have set out that Ofgem has wide powers to say what “good” looks like, on the basis of which it will make its recommendation to the Secretary of State about whether the cap should be lifted. I think that covers the first part of the amendment. I am persuaded by the CMA’s report that, given that the arrangements are working, there is insufficient merit in examining the merits of the pooled market, and there would not be sufficient gain from introducing that system. It should not be a specific requirement, as detailed by the clause.
There may be other opportunities to debate this structural point. On the point made by the right hon. Member for Don Valley when discussing the previous amendment, I hope that there will be opportunities over the next few years to talk in depth about what other arrangements need to be made in the market to improve the efficiency of the entire supply chain. However, hopefully in this case the hon. Member for Southampton, Test will consider withdrawing his amendment, as it is not needed in the Bill at this time.
Dr Whitehead
I am not persuaded that this notion is not needed in the Bill in the eventuality of the cap going to 2023. However, I am reasonably persuaded that it would not be a good idea to press the amendment to a Division this morning, because the purpose of the amendment was essentially to allow us to debate the question of the possibility of a pool. I have not persuaded the Minister this morning that it would be a good idea for future trading arrangements. However, given the assiduous work that she has already done in looking at how a pool might work, I hope that she will continue with her studies, and will perhaps be persuaded in the fullness of time that it is actually a rather good idea for the long term, and ought to be pursued—if not by this Government, then by the next. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 8 ordered to stand part of the Bill.
Clause 9
Consequential modification of standard supply licence conditions
Question proposed, That the clause stand part of the Bill.
Claire Perry
I am not going to delay the Committee on non-controversial clauses, but I feel it is important to state briefly the purpose of each clause, so that we are all clear in supporting them. Clause 9 gives Ofgem the power to modify the standard supply licence conditions after the tariff cap ceases to have effect under clause 8. On the point made by hon. Member for Kilmarnock and Loudoun, we are giving the regulator powers, as it sees fit, beyond the extension of the price cap, to modify the licence as it has already. The effect is that Ofgem can continue to modify the standard supply licence conditions as it deems appropriate, following the removal of the tariff cap, but of course those modifications must be published and it must state their potential impacts.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10
Amendments of the Utilities Act 2000
Question proposed, That the clause stand part of the Bill.
Alan Brown
I welcome what the Minister said about ensuring that ECO is rolled out and that people who live in rural areas are prioritised. I realise that a cap in itself is not a means to an end in terms of ensuring effective competition and particularly helping people in rural areas, and that other Government policies are required to do that. Although, as the Minister said, the regulator needs to have due concern for all consumers, the new clause was intended to re-press the need for the Government and the regulator always to remember the disadvantages that people in rural areas face. It is clear that the Minister is well aware of those issues from her own constituency. For that reason, I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
New Clause 3
Assessment of extension of the tariff cap to small businesses
“(1) Within three months of the passing of this Act, the Secretary of State shall lay a report before each House of Parliament assessing the merits of extending the tariff cap to small business customers.”—(Dr Whitehead.)
Brought up, and read the First time.
Dr Whitehead
I beg to move, That the clause be read a Second time.
This is a simple and brief new clause that would require the Secretary of State, immediately after the passage of the Bill, to lay a report before both Houses assessing the merits of extending the tariff cap to small business customers. I do not think I need to emphasise that the Bill’s title gives the game away about what the tariff cap will cover: the Domestic Gas and Electricity (Tariff Cap) Bill applies to domestic customers and to no one else. That rather gainsays the idea that, in many instances, small businesses have far more similarities with domestic customers than with large companies, which may have wholly different arrangements for dealing with their electricity supply—they may engage in private wires or bilateral long-term contracts, or have their own generating plant—from small businesses, which in effect hug pretty closely to the principles for domestic customers.
It seems a little invidious that the cut-off point for the price cap is the end of the domestic customer level. I am sure no hon. Member present is in this position, but it is quite possible for a very large house with multiple activities going on in it to consume a lot more electricity than a high street retailer or a small business. A number of small businesses will find that their electricity bills are not capped even though, to all intents and purposes, they are indistinguishable from domestic customers as far as their patterns of use, means of purchase and so on are concerned.
The new clause would require the Secretary of State, shortly after the Bill’s passage, to think about whether it might be appropriate to bring small businesses under the cap as it progresses, with a proper definition of which small businesses are in and which small businesses—those at the larger end—are out, so that the cap’s benefits can be extended to that particularly hard-pressed sector of the UK economy, and so that a proper relationship can be established between who is doing what so far as their energy purchases are concerned and who should benefit from a cap as a result of doing those things.
This is a simple, straightforward amendment, which I hope the Minister will consider carefully.
Claire Perry
I am extremely interested in new clause 3. I will not delay the Committee too much, but the hon. Gentleman is absolutely right to have observed the issue faced by many small businesses. Indeed, it was observed by the last Conservative Government when they commissioned the CMA report. That report also looked at what was happening in the small business sector. It was a really important question.
As the hon. Gentleman mentioned, there is a huge variety of SMEs. They consume energy in entirely different ways and have different supply contracts. Many of them are on a domestic tariff. A question I have asked—I am not sure I know the answer—is what triggers the move from a domestic to a business tariff. If I do not have the answer by the end of this speech, I will happily write to the hon. Gentleman. It is an important question. [Interruption.] My civil servants are scribbling furiously. Of course, those businesses will be protected by the tariff.
As the hon. Gentleman mentioned, companies that are not supplied via a domestic tariff generally have fixed-term, fixed-price contracts that they negotiate through a broker, and those contracts are based on a range of different factors. In my constituency, I am aware—this has come up in the question around energy efficiency, which is a particular problem we need to try to crack with the small business sector—that many small businesses, particularly service companies, occupy premises where energy is just part of the price they pay. There are real disincentives for those landlords to shop around for a more competitive energy price, because it might reduce some of the benefit they get from selling those services as a bundle. It is an interesting question.
The CMA reviewed the small business market and found that a combination of features lead to a weak customer response. My argument on that—I have discussed this with small businesses—is that if someone is making payroll every month, looking to export to new markets and thinking about what they might have to do with the changes to our technical relationship with the EU, they do not necessarily always default to looking at energy costs, even though that might be economically rational, as electricity or power prices might be 5% of an overall cost base. According to the CMA, that weak customer response provides energy suppliers with unilateral market power over inactive customers—those words always make me feel very uncomfortable when we are talking about a supposedly competitive market.
The CMA has already recommended remedies, and those are being implemented. We have ended auto-rollover contracts with restrictions, including termination fees. That was implemented by the Energy Market Investigation (Microbusinesses) Order 2016. We are making prices more transparent, and we are having a price comparison website, which has already been implemented by the CMA through an order in June 2017. Early reports suggest that that has not been fully taken up by suppliers.
We are establishing a programme of prompts with information for consumers to engage, which is similar to the remedy for domestic customers in terms of the least engaged groups. That is ready for implementation, but no date has been set. In a similar way to what we are doing on domestic remedies, we are establishing a database of inactive customers that will be made available to rival suppliers and switching sites. Ofgem has not yet implemented that recommendation.
There has been some progress on transparency and auto-rollover contracts. The recent welcome action Ofgem announced to end back-billing beyond 12 months will also benefit small businesses and should help significantly with the cash-flow drain that a large backdated bill could cause.
Ofgem has a business consumer survey under way that we expect to get sight of this summer. It should give us more insight into the experience of business consumers. Ofgem plans to review consumer protections in the small business market.
While I invite the hon. Gentleman to withdraw the new clause on the basis that the Bill focuses on domestic customers, where we already have more information, I am extremely interested in the problem of how we might provide better customer service and pricing availability to small business customers. I am perfectly happy to commit to looking at the problem very seriously and to have a proper and open discussion, as the hon. Gentleman and I tend to do, about what more might be done. I would send a very strong signal that, if at some future point a price cap mechanism might help small businesses, that is not something I would turn away lightly.
The hon. Gentleman has re-identified an excellent problem, if you like, in the energy markets. As I said to the right hon. Member for Don Valley earlier, the Bill is part of the intention to make a competitive market work well for all consumers. I will continue to engage closely with this problem, and I hope the hon. Gentleman will be content to withdraw the new clause on that basis.
Dr Whitehead
I thank the Minister for that positive response to the overall suggestion. I appreciate that the Bill sticks fairly closely to domestic tariffs, and that is perhaps how we should leave it for present purposes, but I hope that the principle that has been raised, about that almost imperceptible gap, on occasion, between where domestic tariffs finish—
Claire Perry
I can inspire the entire Committee with the assiduousness with which my brilliant team is able to answer my questions. A company chooses the business rate. Those in commercial and retail premises have to choose a business tariff, but, of course, a home business, of which there are millions and millions, can be on a domestic tariff. In a way, there is a sort of self-selection mechanism, but if the business moves into commercial premises, it does have to default on to a business tariff. I hope that clarifies the confusion I raised.
Dr Whitehead
I thank the Minister for that clarification, but it emphasises the fact that a small business may be in circumstances where it is renting part of a building or is part of a business park, the negotiation of the energy supply is out of its hands and it is paying a set amount for that electricity, but that is not done on domestic rates, even though the extent of the business means the electricity may be well within what is normally paid for by a domestic consumer.
The Minister is absolutely right to identify the issue for small businesses, and I hope that will underline the seriousness with which she will take the issue forward. She indicated that she does want to give it further thought and to look at circumstances where the point of departure may be less abrupt in the future. On that basis, with the trust that she will assiduously pursue this, I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
New Clause 4
Ongoing relative tariff differential
“(1) The Secretary of State shall, during the term of the tariff cap conditions being in place, develop, ready for implementation, a relative tariff differential.
(2) A relative tariff differential is a requirement on supply licence holders that the difference between the cheapest advertised rate and the most expensive standard variable or default rate shall be no more than a specified proportion of the cheapest advertised rate.
(3) The Authority will be responsible for setting the proportion referred to in subsection (2).
(4) The relative tariff differential shall take effect on the termination of the tariff cap conditions.”—(Dr Whitehead.)
Brought up, and read the First time.
Dr Whitehead
I beg to move, That the clause be read a Second time.
This new clause is one that I feel particularly strongly about and that I hope the Minister can take on board, not necessarily with an immediate indication that the exact clause might be accepted but perhaps with an indication that she will look carefully at the principles it outlines and consider whether a similar amendment may be necessary and possible on Report. I say that partly because I appreciate that some of the wording is not what we would want to see in the final Bill. I particularly draw attention to the word “ongoing”. I am sorry that I have committed that word to paper, because it really should not exist as an English word; perhaps we can think of a better clause title. However, I want to talk briefly about what the new clause suggests.
Caroline Flint
It is worth exploring what might happen down the road when the temporary price cap ends. I am in favour of an absolute price cap rather than a relative price cap. I am listening very carefully to what my hon. Friend is saying and I have read the new clause, but may I say this to him in a friendly way? My concern is that there is a danger that what he is putting forward may inadvertently create a relative price cap and I am against that because a company could set its highest tariff very high so that, even if there were a 6% differential, it would be a differential between a high tariff and a really high tariff. I am totally at one with him on ensuring that another set of bad practices does not come in when the temporary price cap ends, but is there not a danger that that might be the unintended consequence of his new clause?
Dr Whitehead
I thank my right hon. Friend for that important point about trying to look at the consequences of what may happen when the price cap ends. Indeed, the new clause considers precisely what circumstances will be in place at that point. In essence, its purpose is to require the Secretary of State to produce a report on what might happen to relative tariff differentials in the period after the price cap ends. I suggest that that may be one of the pillars of a return to reasonable market conditions when the cap ends. If that pillar and other matters relating to the market working well were in place, and had been franked by Ofgem as being in place, the relative tariff range limitation device might come into place at that point.
In those circumstances, it would make no sense for an energy company to start with a very high tariff, because it would simply lose a whole pile of customers. Indeed, in circumstances where companies have done that, for various reasons, they have bled a very large number of customers. We can see that in some of Centrica’s activities, for example. It seems to me that in circumstances where the market was otherwise working reasonably well, the market itself would determine whether companies could hoick their original offer tariff really high to take advantage of a restricted tariff level. That may simply not be a viable strategy for them to adopt under those circumstances. At the same time, however, companies that had offered a competitive tariff would not have the option of transferring customers to a non-competitive tariff if they did not switch.
That is particularly important given that all the evidence we have so far shows that, whatever we do and whatever remedies or new instruments are put in place, it is unlikely that we will ever have a market in which everyone actively switches. It is extremely likely that the system will continue to operate on the basis of a majority of people one way or another not switching and a minority of people switching, sometimes very actively. Yes, perhaps that switching would keep the market in order, but the market nevertheless would still carry a large number of people who did not switch.
In the past, people not switching has led to the maintenance of SVTs and default tariffs. Even when measures are applied, such as Ofgem’s experiments with getting people to switch on the terms of the CMA’s recommendations—a number of pilots have been carried out, including letters from energy companies or from Ofgem informing people about how they might switch —a good number of people do not switch. We have a reasonable responsibility—indeed, a duty—to consider what will happen to that body of people even after we apply all the other remedies to the market. It seems to me that this particular remedy for the period after the absolute price cap ends may actually address that issue of sticky customers continuing not to switch.
Let me give hon. Members an idea of what is happening in the market today. As we might expect, among the 60-plus companies making a tariff offer in the market, there is an upwards curve in basic tariffs. The annual cost of a dual fuel tariff ranges from about £800 to £1,200 for some of the green tariffs we discussed. If we look at those companies’ tariff ranges—I will not mention names—we see that one company that starts at the lower end with an initial tariff offer of a little over £800 has a tariff range of up to £1,150, another company that offers an initial tariff of just over £900 has a tariff range of up to £1,200, and a company that starts at just under £900 has a tariff range of up to £1,150. That indicates that, at the moment, the slope of a company’s initial tariff bears no relation to its tariff range. Indeed, some companies have very good tariff ranges—Members might be surprised to hear some of their names—whereas other companies, which Members might have a rather more benign view of, actually have huge tariff ranges. So the question of tariff range and how that may affect sticky customers is a question not just of there being bad companies doing this and good companies not doing it, but of it being reasonably endemic across the range of companies offering a relatively low initial tariff but having a very high tariff range structure in their arrangements.
Claire Perry
I agree with the right hon. Member for Don Valley that it is absolutely right to think about what might happen when the cap goes off into the sunset, as we have done extensively. I am always interested to listen to the hon. Member for Southampton, Test but I slightly feel—unless I have misjudged this—that we are going over territory that we have covered extensively, in particular on Second Reading. We have heard many arguments about the absolute versus the relative tariff and, in effect, he is proposing a perpetual relative tariff—[Interruption.] Perpetual or ongoing, perhaps we are dancing on the head of a pin—
Claire Perry
Okay, but there is a relative tariff or a relative cap that is ready to go. The hon. Gentleman said on Second Reading:
“It should be clear that we want this price cap to come in. We believe it should be an absolute and not a relative price cap”.—[Official Report, 6 March 2018; Vol. 637, c. 271.]
I agree with him, as does Ofgem and as does the Select Committee, which made it very clear that it felt that a relative cap would simply be gamed.
As the right hon. Member for Don Valley mentioned, there is also the problem that companies will simply lift up their skirts and raise their whole tariff. The hon. Member for Southampton, Test may say that companies would then lose their customers, but we come back to the question of whether people will actually move. Yes, companies may lose those hyper-price-sensitive switchers who are very engaged, but they may not lose the customers we are really here to help today—those who are more vulnerable and not as savvy.
The hon. Gentleman is right to say that Centrica lost more than 800,000 customers, but 650,000 of them were due to a collective switch—one big deal. So only 150,000 of a very substantial customer base, the majority of whom are still on SVTs, actually shifted, despite the price rise. The numbers are therefore not quite as unequivocal as he suggests.
He is also right to raise the issue of ongoing protection for vulnerable consumers. We will all be pleased that, regardless of the price cap, Ofgem has already introduced a safeguarding tariff for those on prepayment meters, an additional 1 million customers. Those customers have saved about £120 to date relative to what they would have paid. The tariffs that they are paying have come down relative to the uncapped SVTs on the market. That absolute cap mechanism, therefore, is working. Even when the safeguarding tariff put in place by the CMA or the price cap in the Bill comes to an end, Ofgem will continue to have the powers to take further steps to protect vulnerable customers as it sees fit.
We are all here because we want the market to be in a competitive place on the expiration of the tariff cap under the sunset clause. The hon. Member for Southampton, Test may say that that is a triumph of optimism over practicality but, in essence, if we believe the market will be more competitive and we do not believe that the relative price cap is the way to address any remaining issues of uncompetitiveness, I find it difficult to see why we should put his new clause into the Bill, running all the risks we talked about on Second Reading—which have been explained eloquently by others—of the variable tariff cap not being an effective way to establish competition. We will have had a temporary absolute cap in place. We will have sent the very clear signal. That will have operated. I can see a situation where a relative cap could undo some of that good work and we would suddenly see prices zooming upwards because there was the opportunity to do so.
I appreciate the hon. Gentleman thinking hard, as always, about what “good” will look like, and I share his desire to continue to work together on ensuring that this cap delivers, but I hope he will withdraw the new clause on the basis that it is not necessary and could have bad unintended consequences.
Dr Whitehead
I simply do not accept what the Minister says about bad unintended consequences. I do not think that is realistic. Conversely, having something like this in place would be a positive driver of a return to not only good market conditions but proper protections for those operating tariff arrangements under those otherwise good market conditions. It is important that, in the ending of the absolute cap, we get both sides right. It is not just a question of the market working well. It is a question of people in that market who have disadvantageous circumstances being protected properly as it goes forward.
Claire Perry
Would the hon. Gentleman accept that those arguments could be made today about whether we are introducing an absolute or relative cap? We have all agreed quite strongly that an absolute cap provides those protections. If he were proposing that Ofgem has an absolute cap ready to go, we could raise some of the questions we discussed earlier about future uncertainty in the market. I felt that until today we had all considered carefully, but rejected, the structure of a relative cap as a hypothesis—as opposed to an actual absolute cap, which we have—that would not deliver the results we want: vital protections for vulnerable customers.
Dr Whitehead
Yes, indeed. That is why I have been pains to say that this is not a relative cap. It was not a relative cap when it was proposed, although it was branded as one, but can actually be a pillar of an instrument for market return. I do not want to pursue the new clause today; but, for reasons that the Minister and I perhaps need to talk about, it would be a good idea to bring something like it back on Report. I think we probably will. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Question proposed, That the Chair do report the Bill to the House.
Claire Perry
May I thank you for your wise chairmanship, Sir Edward? I also thank Ms McDonagh, who chaired the Committee on Tuesday; the Clerks of the Committee, who have kept us assiduously on the straight and the narrow; and the House staff and Hansard reporters, who always do such an amazing job.
I extend fervent thanks to all members of the Committee. We have had an extremely constructive and helpful debate and have probed many aspects of the Bill. I also thank the witnesses who gave evidence and from whose wisdom we have benefited. I think that covers it, apart from thanking my excellent civil servants for their help in drafting the Bill and their excellent answers to questions. We will continue to draw deeply from that well, but at this stage I thank everybody for taking the Bill—hopefully successfully—through Committee.
Dr Whitehead
Like the Minister, I thank everyone who has taken part in this stage of the Bill’s passage. We have had a genuinely constructive debate, in which we have all been facing in the right direction. I particularly thank the Clerks for their assiduous work and for their help with tabling Opposition amendments; unfortunately we do not have an entire civil service on our side, so we must seek other help, but we have not been failed.
I hope that the Bill will now progress to its remaining stages with consensus that the tariff will be an absolute cap, and with good support from all sides of the House for the result that we all want.
Alan Brown
Without going on for too long, may I, too, thank the Clerks and the Chair? I thank the Minister for listening—I hope—and congratulate her on her appointment to the Privy Council. Like the hon. Member for Southampton, Test, I look forward to seeing the tariff cap in place, competition in the marketplace and consumers being saved money.
Oral Answers to Questions
Alan Whitehead Excerpts(6 years, 8 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Claire Perry
We have worked very hard on the wind industry in Scotland—the hon. Gentleman and I both welcome the recent announcement about remote island wind, which is a really positive step forward—but the challenge is that the phasing out of the renewables obligations was set over four years ago. People have been fully aware of them, and we are currently not intending to extend the length of the grace periods. However, as he knows, I am always happy to try to build cross-party consensus on this vital agenda for this country.
Dr Alan Whitehead (Southampton, Test) (Lab)
I am sure it is absolutely not the intention of the Minister to mislead the House in any way, but her statements about our being 96% of our way towards meeting our fourth and fifth carbon budgets need to be put in the context of the fact that we are committed to reducing CO2 emissions by 225 million tonnes, but the Government proposals will reduce the amount by only 116 million tonnes, which is only just over half the requirement between the fourth and fifth carbon budgets. What are the Minister’s proposals under the clean growth plan to make sure that we reduce the amount by the outstanding 109 million tonnes?
Claire Perry
The hon. Gentleman is a clever scientific fellow, and he knows that those numbers refer to the baseline numbers of 1990. I would be very happy to sit down with him and go line by line through the carbon budgets and the policy proposals. Again, he and I both need to be absolutely clear that regardless—[Interruption.] There is an awful lot of shouting from the hon. Member for Blyth Valley (Mr Campbell), who wants to bring back coal. Regardless of what this and future Governments do, those budgets must be fit for purpose, and we have to be absolutely clear and transparent about how we are going to meet them, and that is exactly what the clean growth strategy has done.
Domestic Gas and Electricity (Tariff Cap) Bill (First sitting)
Alan Whitehead ExcerptsTuesday 13th March 2018
(6 years, 8 months ago)
Public Bill CommitteesRead Full debate Domestic Gas and Electricity (Tariff Cap) Act 2018 View all Domestic Gas and Electricity (Tariff Cap) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 13 March 2018 - (13 Mar 2018)
Alan Brown
Q
Hayden Wood: We think that the top priority is the absolute cap. As I have mentioned before, there is a risk that homes will not get relief from the cap if that is not in. The idea of a relative cap underneath the absolute cap sounds fine to us, too. I think more price competition in the energy market is a great thing.
The third point I would mention on these extraordinary powers that Ofgem would have under this new set-up to set prices is that those powers need to come with more transparency. The formula and methodology for calculating what the absolute cap would be should be published so that there are no surprises for suppliers and we can plan. We also think there should be more transparency around the contributions that Ofgem receives from suppliers and the meetings that they hold with them, in order to ensure that there is more transparency.
Dr Alan Whitehead (Southampton, Test) (Lab)
Q
Greg Jackson: You are quite right that the phrase “relative price cap” is not necessarily the most helpful name. It is a simple restriction—a simple limit—on the difference between the highest and lowest price from a single supplier. There is no reason at all why that would not operate underneath an absolute cap. In fact, there is no reason at all why it would not be defined at the same time as the pricing rules of an absolute cap.
If we did that, it would simultaneously attack the loyalty penalty, which is one of the biggest topics currently being looked at in pricing in consumer markets where you pay by direct debit. The real issue is that in consumer markets where you pay by direct debit—running an account—you do not know what you are being charged. If you do not know what you are being charged, companies essentially can have these enormous false differentials, and the opportunity, alongside this absolute cap, to bring the differential down is sitting there today. That would turbocharge competition because it would mean that, if a company wants to win new customers, it would have to bring prices down for its existing ones. But not only that: if it wanted to hang on to its existing customers, it would have to bring prices down.
We saw that British Gas provided a useful case study during the period when they were having to sit in front of Select Committees. They reduced their differential to basically zero for that period, and they lost 823,000 accounts in four months, I think, leading to a 12.5% drop in share price and a 20-year share price low. That demonstrates that companies that try not to offer good value in a world of a relative price cap will lose customers, market share and share price.
Therefore, we think that bringing that alongside the absolute cap, sitting underneath it, is the best way to use the force of competition to drive prices down for everyone. When you remove the protection of the absolute price cap, you will actually have a competitive market.
The Chair
I want to bring in Stephen Kerr here. I should say that we have only another seven minutes.
The Chair
No, no, I am sorry. I am just keen to get as many people in as possible. Alan Whitehead.
Dr Whitehead
Q
Dermot Nolan: I might ask Rob to answer that, but I may come back at the end.
Rob Salter-Church: That five-month period will start with us issuing a statutory consultation, which will run for eight weeks, or two months. That is something that we are required to do by law as part of the due process that we go through. Thereafter, we would have a period to analyse fully the responses to the consultation. As we said, that will be a transparent process; there will be lots of information that we will need to review. Thereafter, when we publish our decision and the final drafting of the cap, it is subject to a 56-day notice period, which again is a legal requirement that we have to go through before the changes can take effect. When you add those various stages together, it gets to five months. Can I guarantee you that there will not be any drift? What I can guarantee is that we will have this as our absolute No.1 priority for Ofgem to deliver.
One of the things that is important for us to consider in ensuring that this cap is in place as quickly as possible is making sure that the due process is gone through. It would be unfortunate if, in trying to do something more quickly, we created a legal risk around process, and that could be exploited by somebody challenging it and seeking to delay the introduction of the cap. So, we are confident that we have a good, robust process and we will get through it as quickly as we can.
The Minister for Energy and Clean Growth (Claire Perry)
Q
Dermot Nolan: Retrospectively, Minister, in the sense of—?
Vicky Ford
Q
Dermot Nolan: I hope we do not, frankly. We will do our very best to bring competition as quickly as possible.
Dr Whitehead
Q
Are you happy with what appears to be an almost complete lack of pillars on which your report might be based? Is that something that you can live with easily, or would you prefer or welcome further pillars in the report to ensure that your understanding of the report was in line with what was required to bring competition back into the market?
Dermot Nolan: It is a fair question. I am personally content with the drafting, but I respect the fact that it is a matter for Parliament. I think we have a reasonably clear idea, and I hope we have given some of it today, but I assure you that we will spend a lot of time preparing an analysis of whether we think competition is working effectively in the market.
If further areas are to be put in, that is a matter for Parliament. I am slightly worried that putting specific targets and measures directly into legislative language now, in a market that will change radically over the next five years, might be somewhat distortionary. All I can say is that on the current language we will do as comprehensive a job as we can and look at all possible indicators to give an overall assessment to the Secretary of State of whether we think the market is working for consumers.
The Chair
Order. I am very sorry, but that brings our session to an end. I thank the witnesses for giving their evidence and I ask the next panel to come forward.
Examination of Witnesses
Rich Hall, Pete Moorey and Peter Smith gave evidence.
Kerry McCarthy
Q
Peter Smith: You are either doubly benefited or doubly negatively impacted, because you do not receive the warm home discount scheme and therefore miss out on the safeguard cap, or you get the warm home discount scheme and the safeguard cap. We can reconcile all of that without these provisions. It was encouraging to hear Dermot Nolan say that he is minded to have due consideration of those issues when he sets the cap—because we could get into a situation where we look to preserve the extended safeguard cap at the same time as continuing with this endeavour. That would make sure that some of the issues I have spoken to are addressed. We would welcome that approach.
Dr Whitehead
Q
Pete Moorey: We supported many of the remedies of the CMA, so while we did not believe that they would take us far enough to deliver effective competition, it was absolutely right that the CMA recommended that we would be testing and trialling new ways of engaging people in the energy market. We were disappointed that the energy industry did not respond effectively enough to that. We said to the industry immediately after the CMA inquiry, “Start getting on with it. Test and trial new ways of engaging particularly the most disengaged people with the energy market.” I think that a lot of that work should continue. The good news from Dermot Nolan this morning, and from other statements Ofgem have made over time, is that they are going to continue to do work on that, which is welcome.
We are not necessarily suggesting that there are other remedies such as that that could be trialled. It is more that we should be spending time considering what transformational changes can be made to the market along the lines that Dermot Nolan was talking about, particularly in his responses to James Heappey, to ensure that we have much more innovation in the market through new suppliers who can be tapping into the benefits that smart and other changes in the energy market will make. That is likely to be the transformation that will lead to a new kind of energy market where consumers are more engaged. That is the critical element, alongside all the key factors around switching levels—particularly engagement of more vulnerable consumers, energy satisfaction, trust in the market and so on—that we should be looking at.
As I say, simply removing the cap in 2023, and the market looking effectively as it is now, will not, I think, be the kind of change that we all want to see in the energy industry, and certainly will not deliver the kind of change that consumers need.
Alan Brown
Q
Peter Smith: I will try to be a bit more concise than I was earlier. Clause 2 needs to be amended specifically to ensure that the safeguard tariff is considered when setting the SVT-wide cap, and Ofgem needs to have a duty to consider that. In clauses 7 and 8, we need to include customer engagement, particularly vulnerable customer engagement, as part of that overall assessment of competition and of whether it is working effectively.
I could give you a couple of examples, but perhaps they are best fleshed out in some further written evidence. They would include online access. For instance, we know that households that are offline do not benefit from the considerable discounts for online deals and from paperless billing discounts, and they do not get to apply to the warm home discount scheme. Cumulatively that could be up to £300. Things like that need to be considered when we make that overall assessment.
Rich Hall: From our perspective, we are broadly comfortable with the Bill in its current form. In the area of providing enhanced assurance that vulnerable customers’ circumstances are being improved, we think that is something that should be captured within the annual assessment by Ofgem and by the Secretary of State. We are reasonably comfortable that that is implicitly delivered through the Bill, but I can understand that there are arguments that there might be benefits in it being explicitly delivered on the face of the Bill.
In terms of there potentially being a relative cap underneath the absolute cap, I have some similar views to Dermot on that, in that it is an idea that has been floated only really in the last few days and weeks, possibly by people who would prefer a relative cap and who are now trying to use absolute plus relative as an alternative vehicle to reintroduce that approach.
We have some concerns about the relative cap approach. Because the large incumbents have so many sticky customers, in comparison with the relatively small number of customers they could pick up through any promotional campaign, if they were to seek to hold their line on their acquisition prices, that would make the cost of acquiring new customers punitively expensive. Because of that, we think it is more likely that the large incumbents would simply exit the acquisition market, which would neither help their SVT customers, who would continue to pay the same prices, nor improve pressure in that market. There is a risk that a relative price cap could backfire and be worse than the status quo, so we see the decision on absolute versus relative as not simply a choice between a good model and an excellent model, but as a choice between a good model and an unworkable model.
Pete Moorey: I would not add anything to what Rich said, but in terms of other changes to the Bill, there could be some changes to ensure there is more transparency and accountability of Ofgem, in terms of setting the cap. We would like to see changes so that Ofgem are required to set out clear criteria for monitoring and evaluating the success of the cap. We wanted to see a requirement to review the price cap every six months. It may well be that the evidence you have just heard from Dermot Nolan suggests that they will be reviewing it anyway every six months and that the bar could be set lower. It may well be that that is unnecessary in the Bill itself, given that it seems likely from what he said this morning that we will have a consultation on that as well. I think Ofgem should be required to publish reports on the impact of the cap on a regular basis and on how they would take any action if the cap was having any negative impacts.
Domestic Gas and Electricity (Tariff Cap) Bill (Second sitting)
Alan Whitehead ExcerptsTuesday 13th March 2018
(6 years, 8 months ago)
Public Bill CommitteesRead Full debate Domestic Gas and Electricity (Tariff Cap) Act 2018 View all Domestic Gas and Electricity (Tariff Cap) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 13 March 2018 - (13 Mar 2018)
The Chair
We now begin line-by-line consideration of the Bill. Today’s selection list, which is available in the Committee Room, shows how the amendments selected have been grouped for debate—generally because they relate to the same or similar issues. Please note that decisions on amendments will take place not in the order in which they are debated, as shown on the selection list, but in the order in which they appear on the amendment paper. Decisions on each amendment will be taken when we reach the relevant clause. I will use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules after debate on the relevant amendments.
Clause 1
Cap on standard variable and default rates
Dr Alan Whitehead (Southampton, Test) (Lab)
I beg to move amendment 3, in clause 1, page 1, line 3, leave out
“after this Act is passed”
and insert
“and no later than 30 November 2018”.
It is a pleasure to serve under your chairmanship, Ms McDonagh. Let me start us off this afternoon with what I hope will be the first of many amendments that the Minister and other Conservative Members think so reasonable and constructive that they feel impelled to accept them.
Amendment 3 relates to our consensus that an energy price cap needs to be agreed across the board and brought in as soon as possible. Without presuming to speak on behalf of all Committee members, I believe that we are all united in our support for a temporary cap to allow the market to be set right. We hope that by the time the cap comes to an end, we will be reasonably assured that the market is working much better and that the circumstances that led to the cap’s introduction will not be repeated further down the road.
The Committee is united on our endeavour this afternoon. We want to finish our deliberations, get the Bill passed as speedily as possible, and have it on the statute book by the summer—hopefully the early summer—so that Ofgem can execute it. We heard this morning from Ofgem’s chief executive, Dermot Nolan, about the processes that Ofgem will be required to undertake to ensure that the price cap is properly implemented. The Bill requires it to have regard to a number of concerns, which I am sure we will discuss in our deliberations.
Essentially, Ofgem has the task of ensuring that the provisions in the legislation for the implementation of the price cap are legally waterproof, that the measures in the Bill around Ofgem’s responsibility for having regard to those various pillars are properly carried out, and that Ofgem has the arrangements in place that it will need to look periodically at what is happening to wholesale prices and to produce reports and proposals for how those wholesale price changes can be taken into account under the umbrella of the cap. Ofgem has to get a whole range of things right before the cap is properly in place. It is proper and right that Ofgem takes a reasonable amount of time to ensure that happens.
We heard this morning that Ofgem already has some consultations and discussions under way in anticipation of the Bill shortly being on the statute books, but there are a number of statutory things that it has to do and a number of further consultations that it has to undertake. We were told this morning that all this is about five months’ work as far as Ofgem is concerned. In principle, if we assume that the Bill will be on the statute books by the end of June, the five-month timescale that Ofgem has set itself would mean that the cap could be effective by the end of November this year.
Pretty much everybody associated with this Committee and the passage of the Bill has said that they fervently want to see this legislation enacted and a proper price cap in place before winter this year. By that, I am sure they do not mean when a cold snap takes place next February and looks a bit like winter, but the onset of winter—about the time people get their winter fuel allowances. That will ensure that the price cap is in place and benefiting customers in advance of the bills they face over winter.
To get this price cap in place not just over winter but as winter comes in—absolutely on the nail, given the time that Ofgem says it will need to get this Bill into shape and to get an operational cap—we will clearly want to ensure that that timetable is adhered to as closely as possible. That is why I asked Dermot Nolan this morning whether he thought the five-month period was an exact period, a maximum period or an approximate period. What was his view? He said that they would do their best to ensure it was within that five-month period. However, I did not get the impression from that evidence this morning that Ofgem was saying to us, “We can absolutely stand by the idea that there is a maximum possible period of that amount of time for us to do our work.”
James Heappey (Wells) (Con)
My reading of Mr Nolan’s evidence this morning was somewhat different. I thought that he very much felt this could be delivered within five months. The only note of caution he sounded was over a legal challenge. I am not sure that any timeline that we prescribe in legislation would prohibit such a legal challenge from one of the current large suppliers.
Dr Whitehead
The hon. Gentleman is absolutely right. If there do turn out to be legal challenges, despite our best efforts in this Committee to ensure that the Bill is as watertight as it can be, it is conceivable that the whole timetable of a price cap could be seriously derailed—I think we have all understood that, as far as the process is concerned. Indeed, one reason there is legislation, rather than Ofgem going down the road of a price cap under its own steam, which it has been claimed at various times could have been the case, is to ensure that, as far as possible, the proposals and what Ofgem puts in place around them, are legally watertight. That comes in two parts. First, there is the question of ensuring that the legislation is as watertight as possible, but there is also a duty on Ofgem to ensure that, in translating the instruments in the legislation into a workable price cap, it takes measures that are also legally watertight, so that it does not slip up after we have done the good work in Committee of making the legislation as watertight as possible.
Vicky Ford (Chelmsford) (Con)
In the evidence session this morning, I clearly asked whether Ofgem would be ready for next winter, and Ofgem was not only clear that it would be ready for next winter, but outlined the very robust, transparent and deep process being undertaken to ensure that.
Dr Whitehead
Yes, indeed. The hon. Lady will recall that, in answer to my question, Ofgem went through the processes it is statutorily required to undertake, together with an estimate of the time that that would take. Between us, we were able to get on record a pretty clear note of intention from Ofgem that, subject to the possibility that the whole thing could come off the rails because of an unexpected legal intervention, it would bend its efforts to ensure that the process of five months was adhered to.
The amendment seeks to go a small step further and to place on the face of the Bill an indicative time by which Ofgem should have done its business, to ensure that the working price cap becomes reality under the Act. The amendment does not seek to interfere with, foreshorten or undermine what Ofgem is trying to do, quite properly, to make the Bill a reality.
Vicky Ford
I am sorry, but I read the amendment completely differently. If we have all agreed that Ofgem has made it clear that it will go through the process to come up with the right level of cap—taking the right level of evidence—by next winter, and that the only thing that could delay it would be a legal judgment, why would we even suggest, through the amendment, that it may not be ready? That throws unnecessary doubt on the process, which would still be subject to a legal challenge were the amendment there. I think it would just add confusion and doubt.
Dr Whitehead
I fully accept the hon. Lady’s reading of the amendment, but I assure her that that is not its purpose.
Caroline Flint (Don Valley) (Lab)
Does my hon. Friend agree that it is quite useful to discuss this at the start of our Bill consideration, because our constituents will want to know that, in truth and earnest, we are going to push, in whatever way we can, to ensure—let us hope we do not have as bad a winter as we have had in recent weeks—that we get this cap into place? It is worth while to have this discussion. I hope the Minister can give reassurance in her response that it is up to all our endeavours to ensure that the cap is in time for when those winter bills drop on our mats.
Dr Whitehead
I thank my right hon. Friend for that intervention underlining the thrust of what I have to say. Although we may take serious account of Ofgem’s earnest intentions, which we heard about this morning, we are not legislating for the good side of earnest intentions, but for what we want to happen in the end with the Bill. To put in the Bill what we actually want to happen clarifies matters for the future, rather than spreading confusion. We will have declared—I use that word because we cannot entirely proof ourselves against the possibility of an unexpected legal challenge, although, if I can be congratulatory to the Bill’s constructors for a moment, they have done a good job of ensuring that it is as legally unchallengeable as it can be—
Stephen Kerr (Stirling) (Con)
I perfectly understand where the hon. Gentleman is coming from, because Ofgem’s performance over the last few years has been less than inspiring. Having said that, both sides of the House have said, and we heard it again from Ofgem today, that we know what our destination is with the Bill. I cannot understand what we gain by putting a date in it, beyond what we have already amassed in terms of collective evidence and collective will that we have to see this enacted before next winter.
Dr Whitehead
I fully accept that there are different interpretations of the best way forward within the overall agreed framework of where we want to go. Perhaps hon. Members take the perfectly reasonable, honourable and thought-out view that we have got what we want to say in the Bill, we have heard what Ofgem thinks it can do and we are happy to leave it there. My view is that it would be helpful to properly encapsulate our position on the Bill by saying in it what we want to happen—by setting an out-date for the considerations that Ofgem has to undertake before the cap becomes real.
Although I do not doubt for a moment the bona fides of Ofgem, or the sincerity of what Dermot Nolan said this morning, nevertheless, if we are not as clear as we can be about what we want to put forward in the Bill, it is conceivable—no more than conceivable—that someone could say, “Actually, we said five months, but some unexpected circumstances have cropped up—not a legal challenge, but other things—so we can push that further down the line. We’ll have to say that we are a bit sorry about that, but that’s how it is.” I do not want that circumstance to be even remotely in the minds of anyone at Ofgem over the next few months.
Kerry McCarthy (Bristol East) (Lab)
Is it not also a fact that in 2012, under the last Government, the then Prime Minister promised that he would force companies to switch customers to the lowest tariff? When he was talking about the “green crap” on energy bills, he also promised to use regulatory measures to reduce energy bills for consumers. As we have already heard, if we had introduced measures after last year’s election, when there was a manifesto commitment to do it, customers would have been protected in the cold weather we have just had. So I think it is only fair that people have some concerns about whether this is actually going to happen, when there have been so many false promises in the past.
Dr Whitehead
My hon. Friend makes a powerful point. Today, thinking about the cap, we are not in such a position that we can look back with complete equanimity and say, “Actually, everything that could have been done to hasten the cap, once it was decided that there should be a cap, has been done over that period.” There has been quite a bit of equivocation since, for example, the suggestion at the time of the Conservative manifesto for the last election that there should be a cap. It made an appearance but then went through a period when there seemed to be some resiling from that particular commitment.
As hon. Members will recall, there were indeed suggestions and discussions that Ofgem, in its own right, could and should undertake a cap: a cap would need no legislation from Government, so Ofgem could go ahead and put one in place. Indeed, as I recall it, a letter to Ofgem from the Secretary of State during the summer in effect said that. At the time, as hon. Members will also recall, Ofgem came back fairly publicly to say, “We are not convinced that we have the powers to do this,” or rather, “We may technically have the power to do this, but we wouldn’t be proof against legal challenge were we to go ahead and introduce a price cap administratively without the back-up of legislation from Parliament.”
As hon. Members will again recall, it was at that point—I think it was at the Conservative party conference—that the Prime Minister reasserted the fact that she wanted a price cap. Perhaps we will come on to what she said about the consequences of that price cap in a moment, but she certainly said at Conservative party conference that she wanted a price cap and that, in effect, legislation was to be introduced to produce one. So, arguably, we could say that, had we got on with legislation from the moment that the idea that there should be a price cap was put forward, we would not be sitting here today. Instead, we would be contemplating a price cap having been introduced, probably this autumn.
James Heappey
The hon. Gentleman makes his case well, but I remain to be convinced that putting in a deadline makes a difference. The biggest pressure that Ofgem will be operating under once we clear the Bill through Parliament—surely the biggest variable in the whole process—is an enormous amount of political pressure. Given that the hon. Gentleman does not propose a sanction against Ofgem should it miss the deadline, one would imagine that the political pressure Ofgem will be under from both sides of the House to deliver the cap is more than enough to deliver it very quickly. He will remember that the last time that there was a notice of insufficient margin, with the price spike that it brought, was in the middle of November 2015, so a date of the end of November seems somewhat arbitrary. We want it done as quickly as possible.
Dr Whitehead
The hon. Gentleman’s point about the amendment not suggesting any sanctions on Ofgem is an interesting one. Were that suggestion put into operation, it would require about six more pages of amendments to secure a sanctions regime against Ofgem, but that is not how Ofgem works. In effect, Ofgem has a requirement to do things—in its charter of existence, in legislation—and it is instructed by legislation and not, by the way, in final and legal terms by what a Minister may or may not write to it on a daily basis. It is supposed to go along with what is in legislation. That was the problem that arose with the letter from the Secretary of State to Ofgem when the idea of a legislatively based price cap appeared to be up in the air.
Ofgem made the point that it would prefer, or that it thought it necessary, to have some kind of legislation on the statute book to guide and advise it—or, more than that, to be a framework for its carrying out of its responsibilities. The Bill requires Ofgem to do all sorts of things but contains no sanction. It does not set out what would happen to Ofgem—whether Dermot Nolan would be taken out, and something would be done to him—if it did not do all that is specified. The point is that there are requirements on Ofgem under its charter from Government.
The Chair
Order. May I suggest to the shadow Minister that we have an awful lot of amendments to deal with this afternoon, and sanctions are slightly off track.
Dr Whitehead
Yes, I am happy to accept your guidance, Ms McDonagh. I am being enticed down the road I have taken by hon. Friends and colleagues, and of course as far as I am able I will not give way to temptation.
The central point, on which I want to end, is that we do not need a lot of sanctions to get Ofgem to do what it is supposed to do under legislation; but if something is in legislation it is pretty sure that it will get done, because that is how it works. An out date in the Bill would be a little further help in making sure that Ofgem would do what it has said it will do to put the measure into practice. Hon. Members will have a view on how important or necessary that approach is, but I do not think it can be gainsaid that putting the date into the Bill would provide a little further assurance.
That is the basis for the amendment. I hope that Members will support it, if they decide they want that further assurance, but I am sure that the Minister will come up with persuasive reasons why another view could be taken. We will listen with interest.
The Minister for Energy and Clean Growth (Claire Perry)
It is a pleasure to serve under your chairmanship, Ms McDonagh. I thank all members of the Committee. We have a highly qualified Committee here to deliver, over the next few days, what we all want: a legally watertight price cap Bill that enables some of the more egregious pricing structures in the energy market to be addressed.
The amendment moved by the hon. Member for Southampton, Test is intended, as he said, to put a hard-stop deadline on the implementation of the Bill. I understand his reasons exactly. We have discussed the Bill and are broadly in agreement about what we are trying to achieve. I agree that it is imperative for the measure to be in place before the end of the year. People say “before next winter”, and that somehow rolls into 2019. I want it on the statute book and implemented by the end of the year—ideally well before 31 December—because we owe it to the customers whom we are trying to protect. We have all been clear about that, and it is the message delivered in multiple debates and in multiple communications with Ofgem and suppliers. I shall speak in a moment about the possible risks of accepting the amendment.
Something else that is refreshing is that all parties have committed to getting the Bill through. I do not suggest that there will not be strenuous attempts to amend it, but I intend that it should be sent up to the other place in good order, so that it can go through the Lords effectively and we can get what we want, which is for the Bill to be in place and in good shape by the summer recess.
It was helpful to have the witness sitting this morning. We heard Ofgem say that, once we have given the go-ahead on Royal Assent, it will have to take a whole series of statutory measures, including developing the cap. Of course, some of that work has already started, quite rightly. We do not need to do this sequentially; we can do it in parallel. We are then going through a fairly transparent consultation process to make sure that any possible objections or concerns about the tests we have set out in the Bill on competition, switching and maintaining investment are met. There is a statutory duty to have a consultation period. We heard this morning that that will take five months, albeit with some things starting already and processes going on in parallel.
Dr Whitehead
I would not say that I am wholly convinced but, as I mentioned in my opening remarks, to some extent it is a matter of how one views what has been said so far and the degree to which one thinks that this really is going to work as well as it could. Having been in this place for some while, I must admit that I am of a mind that one ought to legislate for things being as terrible as they possibly can be, and make sure that one moves upwards from there. Obviously, that view is not entirely shared but, on the other hand, it is also not a particularly big deal. We have heard from Ofgem that it is pretty committed to that five-month period. As I said, if all goes well with this Bill getting on the statute books when we think it will, that just about gets us to the right time. I am happy to withdraw this amendment on that basis, but I hope that I will not have to say I told you so come 31 December if it is all not in place as well as it should be. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Dr Whitehead
I beg to move amendment 4, in clause 1, 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, and
(f) the need to ensure that adequate protection exists for vulnerable and domestic customers, including those customers protected by the safeguard tariff.”
The Chair
With this it will be convenient to discuss the following:
Amendment 8, in clause 8, page 5, line 21, leave out from beginning of line to end of line 24 and insert “—
(a) the statement published by the Secretary of State in that year under section 7 is to the effect that the conditions are not yet in place for effective competition for domestic supply contracts, or
(b) effective competition does not exist for vulnerable or disabled domestic customers,
‘(none) in which case the tariff cap conditions have effect for the year 2021.”
Amendment 9, in clause 8, page 5, line 26, leave out from “unless” to end of line 29 and insert “—
(a) the statement published by the Secretary of State in that year under section 7 is to the effect that the conditions are not yet in place for effective competition for domestic supply contracts, or
(b) effective competition does not exist for vulnerable or disabled domestic customers,
‘(none) in which case the tariff cap conditions have effect for the year 2022.”
Amendment 10, in clause 8, page 5, line 31, leave out from “unless” to second “in” in line 33 and insert “—
(a) the statement published by the Secretary of State in that year under section 7 is to the effect that the conditions are not yet in place for effective competition for domestic supply contracts, or
(b) effective competition does not exist for vulnerable or disabled domestic customers,”
New clause 1—Duty to consider the needs of vulnerable and disabled domestic customers—
‘(1) When exercising its duties under section 1, the Authority must have regard to—
(a) the need to protect vulnerable and disabled domestic customers, and
(b) the needs of domestic customers protected by the Authority’s safeguard tariff at the date the cap outlined in section 1 comes into force.
(2) When exercising their duties under sections 7 and 8, the Authority and the Secretary of State must have regard to—
(a) whether effective competition exists for vulnerable and disabled customers, and
(b) additional protection in place for vulnerable and disabled customers.”
This new clause requires the Secretary of State and the Authority to have regard for vulnerable and disabled customers when exercising their powers in setting, reviewing and terminating the cap.
Dr Whitehead
The amendments and new clause 1 are grouped together because they refer to the pillars of consideration that Ofgem—the authority—must have regard to when drawing up the process of turning our legislation into a practical price cap. That is essentially the subject matter of clause 1(6), which sets out the four pillars instructing the authority about its considerations. They include incentives for holders of supply licences to improve their efficiency; setting the cap at a level that enables holders of supply licences to compete effectively; the need to maintain incentives for domestic customers; and the need to ensure that holders of supply licences who operate efficiently are able to finance activity, as authorised by the licence.
The amendments essentially agree that those pillars should be in place, and it is right that Ofgem should have clear guidance in the legislation about how to go about their business. We suggest that further pillars be added to the considerations that Ofgem should have in mind when it is doing its work after we have done ours. Amendment 4 has two further pillars: one relates to further amendments to enforce that. As stated in the amendment, it refers to
“the need to ensure that adequate protection exists for vulnerable and domestic customers, including those customers protected by the safeguard tariff.”
We know that a number of customers are protected by a safeguard tariff. Effective price caps relating to those ranges of customers are already under way and, as far as this Bill is concerned, the price cap that will be introduced will add to those protections, placing a much wider tariff cap on to SVT customers in particular, whether or not they are vulnerable. It also substantially widens the scope.
We suggest that it would be a good idea to put in the pillars relating to Ofgem’s work; the fact that they should have consideration, particularly for those vulnerable domestic customers and those protected by the safeguard tariff, should relate to this wider tariff. That seems a reasonable addition, as a reminder to Ofgem that it ought to be considering that issue during its discussions about making the price cap a reality.
The other pillar suggested in amendment 4 is that Ofgem should bear in mind what sort of saving—it cannot be exact, obviously—should be considered as being possible as a result of those tariff cap conditions. I have a view on what that figure ought to be—not because I put the figure forward, but because the Prime Minister did. I will not ask hon. Members about their reading habits, but some of them may have seen a piece in The Sun newspaper on 25 February.
Dr Whitehead
The hon. Gentleman shakes his head. I cannot possibly comment on that. I got this on the internet, by the way. The headline was “Millions of Brits in line for £100 as Theresa May delivers on energy price cap promise”. Underneath, it said:
“The price cap on 11 million gas and electricity bills is to come in by end of the year as The Sun’s Power to the People campaign pays off”.
“It was The Sun wot done it”—not us, by the way.
Claire Perry
It is worth saying that that fine newspaper The Sun has campaigned for an end to various aspects of rip-off energy tariffs, and it is great that it was celebrating the fact that we had finally launched this Bill and got the provisions in. In this case we should all say, “Power to the people!”
Dr Whitehead
Since I do not read The Sun, I am not entirely up to date with all its campaigns, but obviously the Minister does and is. We will leave it there.
Bim Afolami (Hitchin and Harpenden) (Con)
I understand the thinking behind amendment 4. At first glance, one might almost be persuaded by it—until one looks at the clause in its entirety. The first sentence of clause 1(6), which governs all its paragraphs, states that functions must be exercised
“with a view to protecting existing and future domestic customers”.
That consideration is already in the legal framework.
With respect to the hon. Gentleman’s second pillar, the reference to £100 in his proposed new paragraph (e) is very prescriptive. It would make Ofgem’s already pretty difficult job—setting the cap at a level that satisfies all the conditions—even harder.
Dr Whitehead
I appreciate the hon. Gentleman’s point. Paragraph (e) would, conceivably, make life more difficult for Ofgem with respect to what it has to consider. As he correctly points out, it is required first to take a very general view
“to protecting existing and future domestic customers who pay standard variable and default rates”,
and then
“in so doing it must have regard to the following matters”—
those listed in the following paragraphs. In other words, if my reading is correct, after Ofgem has undertaken its initial consideration, it has a number of specific further considerations to take into account. All our amendment says is, “Here are two more to add to the list.”
Vicky Ford
The way I read amendment 4, it suggests that all customers on standard variable and default rates will get a £100 reduction, whereas the Prime Minister’s statement was that the millions of consumers who are on unacceptably high default rates would get a reduction. In the statement this morning, there was a suggestion that at least two of the big six do not have unacceptably high rates. I am rather concerned about the one-size-fits-all nature of the amendment.
Dr Whitehead
The hon. Lady has a point, but if hon. Members read amendment 4 and clause 1(6) reasonably carefully, they will see that
“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”
would be a consideration—I emphasise the word “consideration”—that Ofgem needed to take into account.
James Heappey
I am afraid that I agree with my hon. Friend the Member for Chelmsford. A number of the larger supply companies have already sought to get ahead of the Bill by transferring their most loyal, or “sticky”, customers from what used to be called SVTs—standard variable tariffs—to other tariffs that are called something else but may be just as expensive. My concern is that the hon. Gentleman’s amendment is overly prescriptive and might allow the energy companies to get round what we seek to achieve.
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.
Stephen Kerr
More important than any quotation from The Sun, the number that really counts is the £1.4 billion of detriment that was identified in the CMA report. That is the number we should be going on. Confusing the issue by coming up with arbitrary numbers in the Bill means taking our eye off the ball of the £1.4 billion.
Dr Whitehead
The hon. Gentleman is right to draw attention to the CMA figure. Customers were, in effect, being overcharged by that over a considerable period. Indeed, that was a substantial precursor to the idea that there should be a price cap in legislation in the first place. A regime was in place that allowed overcharging by a variety of devices, a number of which were identified by CMA in its report. We want not only to cap the price for a certain period of time, but to ensure that the behaviour that allowed more than £1 billion to be overcharged is not repeated. We do not want to be back here in a few years’ time, saying “That is terrible—now we have to implement another price cap.”
The issue is not just about the price cap, but about what happens afterwards. We need to do what we can, both during the passage of the Bill and during the price cap, to ensure that circumstances in the market prevent such overcharging from happening again. One of the underlying aims of the Prime Minister’s statement about the savings that would arise was that the price cap should be more than just a temporary punishment for certain energy companies; it should be an attempt to reset the market so that things work differently. The proposal for the £100 saving derives from that.
In May 2017, the BBC site—I do watch the BBC—reported that the
“Prime Minister…said 17 million households would benefit by up to £100 from the cap on poor value standard variable tariffs.”
What has been in the papers recently is slightly different, but it is clear that the original plan was a £100 saving for customers paying standard variable tariffs. That is the public’s expectation, as franked by the Prime Minister, of the consequences of the price cap; committing to it in the Bill would show that our intention is in line with the results they expect. Including the £100 saving as a consideration for Ofgem would complete the circle. As I say, it was a suggestion not from any Opposition Member, but from the Prime Minister, about how the Bill should work. We merely seek to enshrine her words in the Bill.
Our other amendments serve essentially the same purpose but relate to later clauses, especially clause 8, which sets out a clear mechanism for the circumstances in which the cap can be terminated, describing subsection by subsection what will happen at the end of each year from 2020 until 2023, when the sunset clause has effect. In each year, the trigger for rolling over the tariff cap conditions for another year is that
“the statement published by the Secretary of State in that year under section 7 is to the effect that the conditions are not yet in place for effective competition for domestic supply contracts”.
Our amendments would insert an additional condition for effective competition in each year, based on whether the Secretary of State thinks that
“effective competition does not exist for vulnerable or disabled domestic customers”.
Claire Perry
The hon. Lady is quite right: the great thing about energy efficiency in the home is that it cuts both carbon emissions and bills, so it is a win-win situation, and that is why we have set an ambitious target. She is right that we have started with homes in the rented sector and the social rented sector, and our intention is to make sure that progress is delivered as soon as possible.
Dr Whitehead
I am grateful to the Minister for not exactly spilling the beans but giving us a little preview of what the Government will come up with in response to the consultation on ECO. If there is to be much more concentration on those in fuel poverty, regardless of one’s view on whether the total sum on ECO is sufficient to do what we want on energy efficiency, that is a positive step.
Will the Minister also say a word or two about the regulations that I think are still not yet with us on the responsibilities of landlords to raise the energy efficiency of their properties? I am sure the Minister will know that overwhelmingly those who are vulnerable and in fuel poverty are concentrated in that private rented sector—
Dr Whitehead
Substantially, I think we can agree. Does the Minister have any idea whether the regulations will turn up shortly? Secondly, if they do turn up, will they have within them the requisite amount of money that landlords should spend on bringing their properties up to band E, so that we can have reasonable assurance that will help vulnerable and fuel-poor customers?
Claire Perry
At the risk of being ruled out of order, I will write to the hon. Gentleman. He is quite right that we want to make sure that people are not living in private rented accommodation with poor quality safety or energy efficiency. We intend to introduce those regulations—indeed, they are already on the statute book. We intend to make sure of the maximum amount of cash that is required.
The other question on this is that the vast majority of landlords are small: they are people owning one or two properties that they rent out. As the hon. Gentleman will know, the whole scheme was based on the green deal. It was a Bill Committee that I was proud to sit on; we thought that was going to provide a financing mechanism, but it has not. That is why the work of the Green Finance Taskforce, which we will be bringing forward to assist in financing mechanisms, will be helpful. I will write to him with those details.
Turning to amendments 4, 8, 9 and 10 and new clause 1, I hope I have persuaded the Committee, first, that to put an arbitrary number for savings in the Bill would not be appropriate. It would not be an average number and is not necessary, because we can see from the safeguarding tariff that bills have fallen. Also, we would all expect that number to be greater. Secondly, I think we are all seized of the need to protect and improve services for vulnerable customers. That is part of Ofgem’s duty and is part of the tariff cap conditions and the conditions for competition. There is a lot of support already. I take the point made by my hon. Friend the Member for Wells that more needs to be done. That is why we would like to bring in ECO, to make sure that that customer group is paying the least possible for their energy and getting the best possible service.
On that basis I invite the hon. Member for Southampton, Test, to withdraw his amendments.
Dr Whitehead
As I have mentioned, our amendments are requirements on Ofgem to take these matters into account. It may be that, as a result of what we have discussed in Committee—after all, it will be on the record—that Ofgem might consider itself to be rather better instructed.
Claire Perry
I want to emphasise that this is exactly why this process is so incredibly helpful. The signalling that collectively we can give about the need to consider the conditions that might be there—albeit perhaps buried in a statute book somewhere—is vital. That is why it is a pleasure to have these conversations.
Dr Whitehead
I think the Minister for giving that additional weight to the points we made this afternoon, which will amplify our intentions for those reading our deliberations. It is clear that the intention behind the amendment—what Ofgem should have regard to in setting the tariff cap—is shared across the Committee.
I also take the point in practice that the first part of amendment 4 would give Ofgem additional work and could be a little problematic as far as getting the amount right before the price cap comes in is concerned. It might have been prudent for the Prime Minister to put those caveats in what she said a little while ago about how the Bill was to proceed, but on the basis of our discussion this afternoon, I do not wish to proceed further and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.
Clause 3
Exemptions from the cap
Dr Whitehead
I beg to move amendment 5, in clause 3, page 3, line 17, after “Authority” insert “wholly”.
Hon. Members will find the amendment rather hard to spot. It is to insert one word, “wholly”, and I want to explain why that is important and give some of the background to how the clause came about in the first place. There is no universal agreement on the need for the clause. After all, it exempts certain providers of certain tariffs from conditions that elsewhere will apply as far as the price cap is concerned. The providers exempted under subsection (2)(b) are those that appear to the authority to support the production of gas or the generation of electricity from renewal sources. There are a number of arguments about whether an exemption should be in place; my view is that there should be.
We heard in the evidence session this morning about suppliers of renewable tariffs ensuring that what they source is genuinely from renewables. They might undertake power purchase agreements from independent producers so that they can guarantee that their tariffs are sourced directly from those producers or, under certain circumstances, they might have their own supply of renewable energy because they have themselves invested in wind farms or other forms of such energy and therefore know that their renewable energy is wholly such. Under those circumstances, those companies—there are a number of them—inevitably incur rather more complicated arrangements in the delivery of their tariffs and in guaranteeing that these really are what they say they are, wholly renewable tariffs delivered to customers on that basis.
Bambos Charalambous (Enfield, Southgate) (Lab)
When I asked Octopus and Bulb this morning whether there was a need to tighten the definition of renewable energy, they both agreed that there was. They saw it as a way of the big six getting round the cap. So does my hon. Friend agree that there needs to be a tightening of the definition?
Dr Whitehead
Yes, I certainly do. If one first agrees that this particular provision should be made, the question of tightening it is quite an important aspect of the Bill.
I am sure that hon. Members will be aware that the draft Bill, when it first appeared, had a much wider and I think much less satisfactory definition of the circumstances under which an exemption could be made. The Select Committee that considered the draft Bill and produced its excellent report singled out this particular clause as one that should be strengthened, as my hon. Friend the Member for Enfield, Southgate has pointed out. It thought it should be strengthened on the basis that a number of stakeholders viewed the Bill as then drafted as allowing for
“unscrupulous suppliers to game the system and avoid the cap by moving customers on poor-value tariffs onto loosely-defined green tariffs.”
It recommended:
“The Government should work with Ofgem to strengthen the definition, standards and checks for electricity tariffs with environmental claims so the system cannot be gamed in this fashion and undermine the success of the cap.”
That concern was absolutely right. Regrettably, it is the case that throughout the present tariff offer a number of tariffs are in place that purport to be green tariffs, but when we drill down to what they consist of, they are pretty much not green tariffs. They may have a part of renewable energy in their make-up. It may be claimed that the company is advantageously purchasing renewable energy as part of its overall purchase arrangements, but of course we know in terms of today’s energy mix that it is fairly difficult to rigidly remove oneself from purchasing any renewable energy in the portfolio of purchases for tariff purposes.
James Heappey
I have huge sympathy with the point that the hon. Gentleman is making. My concern is that we risk letting the perfect be the enemy of the good. There may well be tariffs that are 95% or 99% green that really should be supported, but would not be under his amendment. The wider issue of greenwashing is a matter for the regulator more generally, rather than specifically a matter for this Bill.
Dr Whitehead
I take the hon. Gentleman’s point. I have tried to think about this point precisely on those sort of lines. It is difficult, in looking at such tariffs, to see the circumstances under which a company offering not a wholly renewable tariff is protected from a slippery slope—from going right down that slope and saying, “Well, as long as there is something in there that is renewable, we can call it a renewable tariff.”
I was about to make a point about the circumstances under which companies trade. Normally, because of the extent of renewable penetration into the energy system, most companies will come across a renewable supply as part of their trading arrangements. As I said, it is pretty difficult to avoid that, so we can imagine how relatively easy it is in principle for someone sitting in a company boardroom to say “How can we produce a tariff that looks like a green tariff but does not give us any sort of problem in producing it? Why don’t we just set aside what we have come across by chance, as far as our energy supply is concerned, say that it is our green purchase and put it in a tariff? Then we will have a green tariff and will be fine.” No work would have been done to distinguish that tariff from anything else, and the company would have no intention of doing anything within their tariff offer but trade in the ordinary way. That is a worry.
Caroline Flint
This is an important area of the Bill. Does my hon. Friend agree that there is a requirement on energy companies to source renewable energy—quite rightly—and those costs are already spread across all bill payers? Why should there be a premium on top?
Dr Whitehead
The point that my right hon. Friend makes is, I think, taken into account by the circumstances that now apply across the board for energy sourcing. As she and I know, having talked about this for years, the process of the renewables obligation did impose a particular obligation for a proportion of energy purchased to be green. Then there was a system of trading those obligation certificates. Those people not directly purchasing green energy would have to purchase certificates, which could be traded from those who had actually traded in green energy in the first place, so that those involved had, in one way or another, carried out their obligation. The overall design of the renewables obligation system was to encourage the production of green energy, because the beneficiaries of the certificates when they were traded in cash would be the producers. That was a system that very much incorporated in it an incentive to trade in green energy in the first place.
Now, of course, the renewables obligation is no more. It continues as a ghost trade system and will continue on a declining basis, I think, until 2027, but as of March 2017 no more renewables obligation certificates are being issued. They are being replaced by the contracts for difference system, which does not impose an obligation to purchase green energy in the same way as the renewables obligation system did. The prospective system does not, as my right hon. Friend suggested, provide a universal underwriting of green energy production. She is right, of course, that the system overall encourages renewable energy production, but not in the same way as the renewables obligation.
I do not think that that particularly detracts from my right hon. Friend’s fundamental point, but it puts us in a position where we can properly consider the idea that a number of energy companies might accidentally, as it were, purchase green energy that does not, otherwise, have an obligation attached to it, and introduce it as part of a green tariff that is not really a green tariff. I suggest that companies wholly in the business of producing renewable energy, or those that produce it from their own sources or sources guaranteed through a power purchase agreement, or something similar, with the operator, are in a different category. I want to emphasise that difference with respect to the purpose of the amendment.
James Heappey
I think the point made by the right hon. Member for Don Valley was really about the existence of clause 3(2)(b) in the first place. I have a lot of sympathy with that. I think it is unhelpful to mark out green tariffs as a premium product—that is counter-intuitive to the wider effort we are making. However, if clause 3(2)(b) must remain, I am not convinced that the amendment tabled by the hon. Member for Southampton, Test is necessary. I encourage him to consider again whether where we all agree is that Ofgem might take a much more robust view on the practice of greenwashing and that that is the actual challenge that we want the regulator to close with, not necessarily an amendment to the legislation this afternoon.
Dr Whitehead
I would say that the essential point is how far up the beach and close to the walls the greenwashing actually goes. Can we conversely say that we can put greenwashing into a particular box and say “That looks like greenwashing”, but as we move up the scale of more and more renewables in the system, the greenwashing ceases and therefore can we say that this really is a renewable product and is something we can apply special exemption arrangements to? That is the nub of the debate.
Stephen Kerr
I would like to share with the hon. Gentleman the very words of Dermot Nolan in relation to this issue. In evidence to the Select Committee, he said in answer to a question about how it is decided whether energy is green or not:
“There are ways to determine the source of energy as to whether the generation of energy by that company has occurred in a sufficiently green fashion, which we have a definition for already, although not a perfect one. We would make specific requirements of companies on that. We would audit them and we would police it. If they were not compliant, we would tell them they must immediately withdraw the tariff or face enforcement action.”
That answer and the agenda that Ofgem is following make the amendment redundant.
Dr Whitehead
That is a reasonable and honestly held opinion about the extent to which it is possible easily to distinguish when greenwash is not greenwash and the point at which an energy company, even with a partially green tariff, puts in something that is honestly green and not something that they have just cooked up because they happen to have purchased something that has an element of traceable green energy in it.
Even under the circumstances that the hon. Gentleman mentions, it would be fairly difficult for Ofgem to make easy distinctions when it came to what it was doing about tariffs that could be jumbled up with a lot of brown energy but nevertheless be claimed to be at least partially green.
I have tried to think this through and consider how we might be able to make honest citizens of those companies under such circumstances. It is possible to argue that even if a company accidentally buys green energy, if it is genuine green energy, then yes, it has sourced green energy. However, the bar needs to be set rather higher.
Vicky Ford
The hon. Gentleman’s amendment uses the word “wholly”. In my view, “wholly” means that 100% of the energy would be renewable. To me, that is wholly unworkable. I want more consumers to get more choice. If they really wish to buy more renewable energy packages, they can do that. I would also like to see green tariffs that encourage smart consumption—smart appliances that switch on and off at peak times, for example. Those could also be bundled into a green tariff.
Furthermore, as more and more people want to buy renewable packages, what happens at a peak time on a very, very cold day when our renewables cannot cover the amount of consumption those consumers need? Would they have to be switched off and have no energy at all? Would they not be allowed any back-up supply? “Wholly” is not the right word.
Dr Whitehead
I hope the hon. Lady will forgive me for saying this, but she makes a rather good case for my amendment. Let us consider circumstances, such as those she mentions, in which insufficient renewable energy is generated on a particular day to “go round”. What we mean by “go round” is that renewable energy, in most instances, is variable. If we look at our little National Grid—
Dr Whitehead
The app, to see what is being generated on any particular day, we will see that it varies from 4% or 5% to 20% or more, depending on the circumstances, so it certainly is true that there will be a variable amount of renewable energy to go round.
However, that is not the point as far as renewable energy suppliers who contract to supply wholly from renewable sources are concerned because they will provide themselves with power purchase agreements or will own their own generating capacity and guarantee that, come what may, what the consumer gets as a result of their tariff is renewable. In a sense, they will have pre-empted the “not enough to go round” point by guaranteeing with their arrangements that there is. I suggest, precisely for the reasons the hon. Lady set out, that that can be problematic for those companies. Nevertheless, that is what they guarantee as part of their tariff.
As far as brown energy companies that want to do a bit of greenwashing are concerned, the hon. Lady is absolutely right that if there is not enough green energy to go round they remove the portion of renewable energy from their supply and the tariff becomes browner, even though they say it is partially green. That is precisely what the amendment seeks to avoid, by making the starting point that the exemption applies to tariffs that are clearly wholly renewable and about which it can be said without a doubt that that is what they are—no messing about. That is why they should be exempted.
Michelle Donelan (Chippenham) (Con)
Further to the point made by my hon. Friend the Member for Chelmsford, I am a little confused as to why the hon. Gentleman would add “wholly” when he admits that that is a virtually impossible state for companies to be in at present. Would the amendment not make the Bill have a null and void section, if the word “wholly” was used when that was unachievable?
Dr Whitehead
Forgive me, but I was trying to distinguish between other companies and those that guarantee to provide a green tariff come what may because they have either their own supplies or a power purchase agreement with a supplier that guarantees to supply them come what may with renewable energy.
Let us remember that not all renewable energy is variable. Not all renewable energy is reliant on a variable supply being continuously variable. I have recently been to see a number of plants, one of which was a large solar farm close to the Minister’s constituency, which had a large battery installation next to it. The power produced from that source is continuous even though the solar is variable because of the existence of the battery. If a company offering a wholly renewable tariff has a power purchase agreement with that producer, it will have a reliable source of renewable energy come what may, because that is the contract it has made. That is essentially the contract that those companies are undertaking on their renewable tariffs.
Michelle Donelan
Is that not disincentivising the green company from growing? It knows that if it takes on more consumers, it cannot 100% guarantee to fulfil their needs on a cold day or in a cold snap. That would cap the green market, which is contrary to what we want to do—we want to encourage it to grow.
Dr Whitehead
I was about to reply to the hon. Member for Chippenham, who suggested that the amendment might be superfluous because, as she put it, if companies cannot supply from renewable energy in any event, putting forward an amendment to require an exemption only where a supplier wholly supplies renewable energy might be a step too far for the energy market.
The amendment sets the bar fairly high, but not impossibly high. Companies that genuinely supply renewable tariffs have effectively pre-empted the variability of the market by securing reliable renewable supplies one way or another in advance, because of their power purchase agreements or their individual ownership, so that they can reliably offer a renewable tariff.
On a wider basis, it is true that what we want is to have as much renewable energy on offer as possible, as a general policy good thing, but that amount on offer will necessarily vary, although as I think hon. Members can see—the Minister has mentioned the nice app that we both watch regularly—those numbers have come up enormously in recent years.
Claire Perry
In standing up for her local enterprise, the hon. Lady pre-empts the second point I was about to make, which is that we will use transparency, but we will also use the Ofgem consultation process to do exactly that. Ofgem has to consult—it has to review the existence of these tariffs and understand what they mean—and it will have to do that as part of creating the cap, because it is a condition of introducing the cap that those exemptions are also carefully defined.
There is an interesting question. There is the transparency issue, there is the consultation issue, but the third thing is this: is it zero, 100 or somewhere in between? It will be explicit, I think, in conducting that analysis that Ofgem has chosen a level of what it thinks this level will be. I totally understand the point that the hon. Member for Southampton, Test made about us all wanting a world in which renewable energy is not intermittent. Indeed, I opened Clayhill solar farm, the country’s first subsidy-free solar farm, partly because it has managed to achieve on-site storage, providing both a better economic return and overcoming the problem of intermittency. That is all absolutely correct.
However, we are not there yet, and I was very struck by what my hon. Friends the Members for Wells and for Chelmsford and the right hon. Member for Don Valley said. They said that we want to be in a world where we are not stifling that evolution, but instead creating a demand for those tariffs in the future. It may be that, in setting out its view on what constitutes the tariff, Ofgem will say that it is 75%, or 95%, or 50%, and we will all have a chance to respond at that point. I absolutely accept the spirit in which the hon. Member for Southampton, Test tabled the amendment, but I fear, as we talked about, that it would have the unintended consequences of driving some tariffs out of the market and creating other perverse incentives.
I would like to put on record that the issue of gaming exercises us all. I have said this to the energy companies and I will say it face to face: if they think they should be spending their energies working out ways to game the tariff, as opposed to delivering better consumer value and service, we will put them on notice that that is exactly what none of us wants to see. That is a strong message that we have all delivered.
I am happy to provide more information to inform the debate. I have listened carefully to the excellent contributions, but I hope that the hon. Gentleman sees that this one tiny word creates a series of unintended consequences that perhaps weaken the cap and that he is therefore content to withdraw the amendment.
Dr Whitehead
I take the Minister’s offer to give further and better particulars about green tariffs, including what they consist of, what the relationship between part-green tariffs and wholly green tariffs is, and what the cost is, as essentially a suggestion that the matter should at least partly be placed on the Table and might be revisited on Report, depending on what we see. It is an excellent suggestion and I very much welcome it.
Claire Perry
To be clear, I am not inviting further amendments to the Bill—far from it. My hope is that during the passage of the Bill, with the joint messages we are sending out with cross-party support, the requirements for more information and transparency that will accompany the Bill’s passage—because they have to inform the tariff calculation—can only be helpful in this consumer market, even if they are not on the face of the Bill.
Dr Whitehead
I understand that the Minister is not inviting further amendments—it is her job not to—but I can envisage a circumstance in which we have gathered all the information together and some things scream out from it that we might consider on Report. In which case, we should properly do that. On the basis of that offer, and presuming that the information would effectively be in the form of a sort of late evidence submission to the Committee and would go to all its members—
Claire Perry
My intention is that we will write to all Committee members with the information.
Dr Whitehead
That is great. It is a very welcome suggestion and wholly constructive regarding what we are trying to achieve with the amendment. On that basis, I wholly agree that it should be withdrawn. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 ordered to stand part of the Bill.
Clause 4
Notice of proposed modifications
Question proposed, That the clause stand part of the Bill.
Claire Perry
I realise that, in moving swiftly through clause 2, I did not give anyone the opportunity to comment, so I feel that I should say briefly what this clause does and why it should stand part of the Bill.
The clause sets out the first part of the bespoke licence modification that must be followed by Ofgem to implement the price cap. They are the statutory steps that Ofgem will take and they will cover the final design and level of the cap. Concerns have been expressed that if organisations wanted to try to derail the implementation of the Bill, it would be by objecting to some part of that process. The process very much mirrors powers that Ofgem already has to modify the standard supply licence. The clause sets out the technical arrangements of the timing, the timings of notice of publication, and provides the steps to be taken before the Bill is passed, which I alluded to in earlier comments, so that as much of the work as possible can be done in tandem with the Bill’s passage through Parliament.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Publication and effect of modifications
Question proposed, That the clause stand part of the Bill.
Claire Perry
My hon. Friend makes a good point. I believe a very good letter was written to the Select Committee in which the timetable was set out specifically. Perhaps we can arrange for the letter to be distributed to the Committee—although I am not sure whether I have such powers over a letter to the Select Committee. Ofgem set out the timetable clearly, including all the statutory periods, with the assurance that it felt very capable of bringing the cap in before year end.
To return to the clause, in Committee we are very much of the mindset that the judicial review route, should someone wish to appeal against Ofgem’s methodology, is appropriate and would not delay implementation. That was agreed in the excellent work of the Business, Energy and Industrial Strategy Committee.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Review of level at which cap is set
Dr Whitehead
I beg to move amendment 6, in clause 6, page 4, line 31, leave out “6” and insert “3”.
I must confess that I have been following the past several clauses assiduously by reference to the draft Bill instead of to the actual Bill, although the Government had not made any changes, so I do not feel too out of sorts. However, with this clause, the draft Bill and the final Bill part ways considerably. Fortunately, I managed to realise where I was in time, so we can talk about this relatively short clause, which is on a review of the level at which the cap is set.
The clause is important because it is the clause that decides this is a cap and not a freeze. The requirement on the authority is that it regularly review the level at which the cap is set, on the basis of all the circumstances to which the market has been subject, and whether the cap should be modified or changed as a result of its review. Indeed, the clause requires the authority to publish a statement when it has done that review, as to whether it proposes to change the level at which the cap is set.
Claire Perry
My hon. Friend again brings assiduous online research, which is marvellous, and his knowledge of this market, to support the point that Ofgem believes that six months is a proportionate time. The Bill does allow Ofgem—should it be required to do so by market movements, and that volatility persists over a period of time—to make the necessary adjustments. I know that I am on a winning trend, which may not last, but on that basis, I hope the hon. Gentleman is persuaded once again to withdraw the amendment.
Dr Whitehead
The intervention of the hon. Member for Wells demonstrates why I should not only have been looking at the right Bill in the last 10 minutes, but have brought my iPad with me.
Dr Whitehead
There you are—I am on my own now.
At the heart of this proposal is the rocket and feathers issue that my right hon. Friend the Member for Don Valley is famed for in her past interventions in this area, which is about the extent to which, when wholesale prices go up, energy companies put prices up pretty assiduously to compensate for the additional costs, but when wholesale prices come down, the same picture is not quite so much in evidence. For various reasons—buying along the curve, hedging in the medium term and various other things—the energy companies all say, “Oh no, we can’t possibly put our prices down, because of the positions we have taken.” It seems to work one way rather than the other.
Claire Perry
That is an excellent point, and I was thinking of exactly the same things when the hon. Gentleman was speaking. The rocket and feathers, by the way, sounds like a marvellous pub in the Don Valley that I would love to come and visit one day. That is an excellent description for what happens and, thinking it through, the existence of the cap protects against the feathers, because there will be a hard stop in the market that might accelerate the fall of the feathers or create something a little more weighty, on the same duration, or a more accelerated duration, than the current SVTs. It would be a prod to the market, to make sure that those downward prices are reflected in the price cap. On that basis, it could be very helpful to overcoming the problem.
Dr Whitehead
Indeed. As the hon. Member for Wells points out, over the recent period, there has been a pattern of volatility in the wholesale market, but not necessarily a pattern of predictability. The market tends to be rather more volatile at the beginning of the year; the level of volatility differs, but we know it is more volatile. There is the question of looking at that effect over the entire period of intervention of the cap, and how that volatility is factored into Ofgem’s duties.
I take the point that the phrase in the Bill is
“at least once every 6 months”.
After what has been said this afternoon, I hope that Ofgem will consider fairly carefully how its interventions take place. It may well be that—after close consultation with the hon. Member for Wells—Ofgem comes along and says it will review the cap more frequently at certain parts of the year and rather less frequently at other parts of the year.
Claire Perry
I hope that the hon. Gentleman will agree that the wording of the Bill allows Ofgem to effect exactly those decisions, should it think it necessary.
Dr Whitehead
I take that point. Although I prefer to legislate with absolute certainty rather than hope, in this instance we can reasonably expect that Ofgem would look at that properly, as far as the market is concerned. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
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
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.”
Dr Whitehead
May I say something first about Tigger and Eeyore? I can see the analogy, but we have to remember that Tigger got Pooh and Piglet completely lost in their quest for the North Pole, and also consumed all Roo’s medicine in a very unhealthy way.
Claire Perry
But surely the hon. Gentleman would accept that that was a fine and wonderful adventure, and Tigger did it with great gusto?
Dr Whitehead
I was just going to say briefly that Eeyore stopped people standing on each other and falling over while trying to get Piglet out of a tree. He was very wise in certain circumstances. What I am trying to say, I hope without any further reference at all to Pooh and Piglet, is that under these circumstances we need to be a little more—I will refer to it again—Eeyoreish than Tiggerish. It is essential that we are careful about the going out of the cap, just as we are careful about its going in.
I heard what the hon. Member for Wells had to say—indeed, it would have been possible to put out a list as long as your arm of possible concerns. He is quite right. I heartily endorse a number of the concerns he raised. I am grateful to him for describing me as a fellow traveller; as he will know, in our party, being described as a fellow traveller is not always meant in the most complimentary of ways. He has set the record straight as far as that is concerned.
What I have tried to do with this particular amendment—by the way, I am not particularly precious about every last line of it—is to craft a number of considerations that should reasonably pass by the eyes of Ofgem when it is thinking about whether conditions have returned to the market or not, so that it is shaped. Indeed, if the Minister were to say, “Yes, jolly good idea, but we’re not quite sure that all the conditions are absolutely right. We’ll take it away and come back with something on Report that will set that out in a rather better way,” I would be overjoyed. It is an attempt to try to make things work, rather than to get everything right first time.
What I do know, however, is that among the flakier conditions is ensuring that Ofgem has due consideration for the roll-out of smart meters. I could see circumstances where the smart meter roll-out has gone completely down the Swanee, yet market conditions are effectively there for the removal of the cap. Indeed, from what I know about the circumstances around the smart meter roll-out, partly as a result of my involvement in the Smart Meters Bill recently, it is quite possible that the smart meter roll-out will go seriously down the Swanee.
Claire Perry
I now feel a T-shirt coming on saying, “What would Eeyore do?” I wanted to try to give the hon. Gentleman some comfort on this matter. Clause 7(1) refers back to something set out in clause 1(6)(b):
“whether conditions are in place for effective competition for domestic supply contracts.”
That means that in consulting on the cap structure, what Ofgem believes to be important will have to be explicit upfront. Also on smart meters, it says that the review “must, among other things”, so it is not the exclusive thing. In fact, I have just reassured myself, because clause 7(5) states that the Secretary of State will have to publish the statement about whether they consider the conditions to be in place. It will be very explicit about which conditions have been taken into account in establishing whether the market competitive conditions have been restored.
Dr Whitehead
I thank the Minister for her concordance-like examination of the Bill to look at those conditions, but I stand by the point that there is, with the anomalous imposition of smart meter roll-out, nothing there effectively. I would have hoped that the Minister would be able to say, “Yes, you are quite right. There is nothing there effectively and we can put something there—perhaps not exactly this—on Report”. That would have caused my worries about the out as well as the in of the price cap to recede, but apparently that is not going to happen.
I, of course, wish the Minister the best of luck with her Tiggerish wish to get smart meters absolutely right. I am sure she will give that her full attention and ensure that it works as well as it possibly can, but I am afraid that under the circumstances I will have to press the amendment to a vote on the principle of what it is about.
Question put, That the amendment be made.
Energy Efficiency and the Clean Growth Strategy
Alan Whitehead Excerpts(6 years, 8 months ago)
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Luke Graham
I thank the Minister for her intervention. Fortuitously, Clackmannanshire is up for a city deal, so there would never be a better time for her to come and get involved in these energy projects. I will definitely be following up with her on that as soon as we leave Westminster Hall.
Dr Alan Whitehead (Southampton, Test) (Lab)
As we are all getting on this afternoon, I should like to invite the hon. Gentleman to come and see me in Southampton, to look at its geothermal energy scheme, which has been going since 1984. Unfortunately, it is still the only one in the country, but I trust that, with the Minister’s good offices, the geothermal schemes that the hon. Gentleman has mentioned could shortly get under way to join Southampton in its geothermal pioneering position. I really do commend what he is thinking about for geothermal. I think a lot of development is possible in terms of both mines and aquifers. I hope he will continue on his path of supporting that.
Luke Graham
I thank the hon. Gentleman for his intervention and will gladly take up his invitation.
Dr Alan Whitehead (Southampton, Test) (Lab)
We have had an excellent debate. I congratulate the hon. Member for Eddisbury (Antoinette Sandbach) on securing it and on her excellent contribution, which was a superb setting-out of the imperatives of securing energy efficiency in homes and what flows from that.
What happens to fuel poverty, if we systematically insulate our homes to an acceptable standard? What happens to bills in the future, and what happens, as the hon. Member for Eddisbury pointed out, to the amount of fuel that we are consuming in our homes? She estimated that a 25% or so reduction in gas as a result of insulating our homes to an acceptable standard has all sorts of knock-on effects for the wider climate change debate. As she also said, that is reflected in the clean growth strategy ambition and targets that ideally we should be aiming for as far as insulation in all homes is concerned, and in the earlier target of insulation up to band C for homes in fuel poverty.
I very much commend the target in the clean growth plan, but how do we get to that target? That was also a part of the hon. Lady’s and other hon. Members’ contributions this afternoon. We ought to dwell on that as something that we can all sign up to and aspire to. There is a long gap between that aspiration, where we are now and what has happened in recent times with energy efficiency and what we now have to do to close that gap. Among other things, we must make sure that we fulfil our climate budget obligations and make sure that what comes into those climate budgets from the energy efficiency contribution is as good as it can be.
Having congratulated the hon. Member for Eddisbury on her contribution, I want to add a slight note of sadness. Perhaps we should have all sat on one side of the Chamber this afternoon and addressed our comments to all the rest out there who did not turn up to the debate and who quite often do not engage with this issue. We might have collectively addressed the importance of energy efficiency not only in domestic buildings but in commercial and industrial buildings. It is important to work together to address climate change, fuel poverty and all those other targets to make sure we sort them out. Today’s debate has reflected the collective and consensual activity that we ought to organise among all of us, provided all those other people along the road support the Minister in what she is doing for energy efficiency. The Opposition party must have the very best policies so that when our turn comes to govern, we have a clear understanding of where we need to get to, what we have to do and how we support and fund it. That is a job of work for all of us in this Chamber to get ourselves involved in.
The elision of energy efficiency and the clean growth plan in this debate highlights one of the central issues that will make or break our approach to making sure that our obligations under the fourth and fifth carbon budget can be met. I have said on various occasions that the really good news about the clean growth strategy is that it encompasses all of those things. The bad news is that the clean growth plan itself does not get us to where we need to go in terms of our obligations under the fifth carbon budget. I think the Minister accepts and understands that and has, I hope, substantial plans to add to the measures in the clean growth plan to get us to the fifth carbon budget target. However, I do not think we need to come up with a lot of brand new ideas to do that. We need to make sure that what is in the clean growth plan is funded and sorted out at the earliest possible stage and on the widest possible canvas so that when we come to put the sums together we will see that they add up as we go down the line.
I cannot emphasise strongly enough, along with other hon. Members this afternoon, what we need to do to meet the target for energy efficiency in homes. The hon. Members for Eddisbury and for Wells (James Heappey) and my hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) all emphasised the components of the action that we need to undertake with regard to energy efficiency. The hon. Member for Eddisbury emphasised how clear-eyed we need to be about what it will cost us and how it will be financed, but, once that cost has been met, there will be benefits in the end. We need to understand that that is a pretty good cost-benefit analysis over the long term.
My hon. Friend the Member for Birmingham, Selly Oak reminded us not only about how the cost will be borne, but by what parts of Government it will be borne. He drew attention to how matters stand under the clean growth plan of action. I believe that there is shortly to be a Government publication on the plan for the next phase of ECO and how that will have its impact on energy efficiency. We have to be clear that even if ECO is extended out to 2028, at its present level of funding that will get us nowhere near to the numbers that we need to be energy efficient. There are still 7 million homes out there—the non-cavity wall and hard-to-treat homes—that have a far higher unit cost of treatment than what we might call the lower-hanging fruit of loft and wall insulations, a lot of which have already been done around the country.
Since some of the measures taken by the previous Labour Government on area-based schemes, including the enveloping of some hard-to-treat homes, there has been a 58% drop in treatments related to energy efficiency. I do not blame the present Minister for that drop. I know that she is committed to turning that around and getting a far greater number of treatments undertaken, but we have to face the fact that that is what has happened in recent years. We are starting our road back towards energy efficiency from a fairly low and, in some senses, rather dispiriting base.
My hon. Friend the Member for Birmingham, Selly Oak reminded us that when it comes to funding the changes it is extremely unlikely that we will be able to do it by heaping obligation on obligation in customers’ energy bills. I want to go further and remind hon. Members that we are assuming at the moment that action will be taken in a range of areas by means of obligations on companies, which will be passed on to customers in their bills. As my hon. Friend mentioned, we assume that the cost of the smart meter roll-out will go on customers’ bills, because the obligation on energy companies to fund them will be passed on. The capacity market for procuring standby energy supply and new forms of conventional energy supply is, effectively, an obligation that is passed on to customers in their bills. The contracts for difference that we have already are also based on such an obligation—the renewables obligation—and the additional £557 million that is in the budget for further offshore wind. The warm home discount is in the same boat. If, as I understand the present plan to be, the energy company obligation is extended to 2028, that will also be based on a continuing obligation—it is in the name—that will go on to customers’ bills. Recently what was effectively a grant from Government to energy-intensive industries was converted to an exemption, which is to be funded by a levy on customer bills. There is a raft of such levies, and the number is increasing.
The hon. Member for Eddisbury set out some recent figures from, I think, Frontier Economics, and said that they were the likely real annual cost of getting us to an acceptable level, close to the target in the clean growth strategy. Her figure was £1.1 billion. From recollection, although I do not have the Frontier Economics report before me, that figure is a net one, arrived at after taking into account other contributions, including local authority and, as other hon. Members have mentioned, landlord contributions. The hon. Member for Wells—perhaps in future we can refer to him as the hon. Member for HEEPS—mentioned, and my hon. Friend the Member for Birmingham, Selly Oak emphasised, the fact that landlords may make a contribution, but if they say they cannot afford it or get into ECO, they will effectively be given a free pass.
There should be a minimum merchantable standard for property for rent. Although it is true in theory that at the moment the landlord should not be able to let property below that standard, which would be band E in this instance, the remedy is enforcement at local authority level. We know what the situation is as to enforcement at the moment, given local authority resources.
Landlords do not necessarily have to stick at band E if they have spent, I think, £2,500. If they cannot get on ECO, they get a free pass. I do not think that that should be regarded as acceptable in the next 10 to 20 years. The landlord contribution should be doubled—and, indeed, the Frontier Economics report suggests a landlord contribution of £5,000 being factored in to the figures mentioned by the hon. Member for Eddisbury.
However, the issue is not only about that. If someone said, “I am letting out this hotel room, which has no glass in the windows, has cockroaches all over the place and has no sheets on the bed, but is quite cheap,” trading standards and various other people would be all over it. We need to get into the idea that a house being let in the rented sector with poor energy efficiency is a non-merchantable product and should be seen as such. A key part of a drive to make firm progress on energy efficiency is making sure that rentals in that sector are made on the basis of merchantable properties with good energy efficiency.
The figure that the hon. Member for Eddisbury mentioned can be upped a little in view of all the contributions. It comes to a round total of, I think, £1.8 billion. That is certainly what our party would commit to as the sort of expenditure needed to get to the level in question. I cannot see that that can be found by increasing obligations on bill payers over the next period. It must come from central taxation.
Claire Perry
The hon. Gentleman is a sensible, intelligent man, but what he is saying presupposes that the prices never change. However, the reason we no longer have to invest so much of the £557 million in offshore wind is that prices tumbled precipitously, giving us more bang for our buck and enabling us perhaps to buy technologies that are further in the market.
Part of the clean growth strategy is trying to take that investment spend—the innovation spend that the Government are setting out—so that we can drop the prices of technologies significantly, and so that they no longer require a burden on the bill payer or the taxpayer, because they are sufficiently cheap. The benefits in reduced energy costs that my hon. Friends described mean they pay for themselves. Please would the hon. Gentleman get out of the world of equating the amount of money that the Government spend with the result that we need? It is actually a matter of how we deliver the most homes, well insulated and cheap to run, most affordably.
Dr Whitehead
The Minister is right, in that, obviously, area-based efficiency measures that uprate an entire area lead to economies of scale. Far more houses can be treated in that way than by cherry-picking individual houses in different places and dealing with them one by one.
Claire Perry
That is true, but surely the hon. Gentleman agrees that other people’s money will be better used if the underlying price per installation has fallen because of a completely different approach to cavity wall insulation or investment in solar-reflective paint, which is a technology being rolled out in other parts of the world—in other words, if we are looking at more cost-effective and innovative ways of doing things, so that the same amount of money buys far more installations on a per-unit basis.
Dr Whitehead
I surely do. On the basis of what the Committee on Climate Change says, the current ECO commitment falls way short of the levels of treatment we need if we are to get anywhere near our 2035 targets. Even the £1.8 billion figure that has been cited will not cover a complete series of treatments for houses in the UK. I suggest that making our treatments much more efficient—by doing them on an area basis, for example—would allow us to get much closer to our target for the same money. We can probably agree that £1.8 billion will be the sort of money that will get us there, but an efficient approach could get us so much further, which I would completely support.
As the hon. Members for Eddisbury and for Wells and my hon. Friend the Member for Birmingham, Selly Oak emphasised, enveloping energy-efficient homes area by area needs to be funded from the infrastructure budget. It may not look like big boys’ toys, but it is absolutely an infrastructure project and ought to be treated as such by the Government. That would have a number of advantages for costs of capital, borrowing and all the rest of it; as the Minister says, we could make even more houses efficient for the same investment.
I appreciate that I have gone on rather longer than I intended, but let me briefly say a few words about the speeches of my hon. Friend the Member for Redcar (Anna Turley) and the hon. Member for Ochil and South Perthshire (Luke Graham). They both drew attention to the role that CCS can play, as did the hon. Member for Wells—or rather for HEEPS. I thoroughly endorse that line of thinking on CCS, but I must point out that as far as the clean growth strategy is concerned, £100 million will not get us anywhere near our CCS target, just as our ECO commitment will not get us anywhere near our energy efficiency target.
I congratulate Teesside on its comprehensive approach, in which my hon. Friend the Member for Redcar has been centrally involved. Teesside could be an absolute exemplar for the rest of the country in its combination of intensive industry with CCS and its by-products. That is very important for realisation of the clean growth strategy and we need to incorporate it in all our future clean growth plans.
I congratulate all hon. Members on their contributions to the debate. They all faced in exactly the same direction, acknowledging the importance of energy efficiency in homes, for a variety of reasons including climate change and fuel poverty, and the prominence that we need to give it in our policy debates. If this afternoon’s debate has hastened that process, we will have done a very good job between us.
Mr Charles Walker (in the Chair)
I have let speeches go on longer than is conventional because we have had plenty of time. We have had two mammoth speeches from the SNP and Labour Front Benches. I know the Minister could speak for 55 minutes if she wanted to, but if she felt that she could just match them at 25 minutes, I am sure we would all appreciate it.
The Minister for Energy and Clean Growth (Claire Perry)
It is a pleasure to serve under your chairmanship, Mr Walker. You tempt me, but I will say what I had planned to about this excellent debate.
May I wish everyone a happy International Women’s Day? [Hon. Members: “Hear, hear!”] I am so proud to represent my constituents on this marvellous day—a great day for discussing boys’ and girls’ infrastructure investment preferences. It is a bit like blue and pink jobs, but we all need better roads, railways and power generation as well as warm and well-insulated homes. That is certainly my focus.
I congratulate my hon. Friend the Member for Eddisbury (Antoinette Sandbach) on securing this fantastically important debate and on her characteristically thoughtful, knowledgeable, well-balanced and well-researched speech. She is an extremely important member of the Business, Energy and Industrial Strategy Committee, which has done such good work on the matter. It is striking that this is our second debate this week—after the Second Reading of the Domestic Gas and Electricity (Tariff Cap) Bill on Monday—in which there has been an outbreak of consensus. Long may it last.
Hon. Members across parties understand the vital need for action and the potential difficulties. A lot of sensible suggestions have been made about prioritisation, but ultimately we all share the ambition to secure clean growth for the UK at the right level and the right cost; maximise productivity under our clean growth strategy and our industrial strategy; and create a secure, diverse energy supply at low cost for our consumers. This has been a really thoughtful debate and many good ideas have been suggested.
Let me recap where we are. Based on 2017 data, the last time emissions in the UK were this low was in the year the Forth bridge was opened and “The Picture of Dorian Gray” was published, which was the year before penalties were introduced in football. I hope hon. Members from north of the border will already have got it, but in case not, it was the year 1890. When we consider the scale of the challenge, we should take a moment to think about just how far we have come: in a couple of decades, we have dropped our emissions to a level last seen in Victorian times. That has been achieved through cross-Government support for the Climate Change Act 2008, impressive work done by successive Governments on decarbonising parts of the economy, sustained investment and getting the costs of intervention to a market level, as we have seen so recently in offshore wind.
To be slightly partisan for a moment, I am very struck that it was Margaret Thatcher who made the first speech to the United Nations on the impact of human activity on the climate. She referred to sulphur emissions and acid rain, but since then we have realised the impact of chlorofluorocarbons, started talking about carbon and methane, and become far more informed. Only two countries in the world are considered to be doing enough to meet a 2° target: China and the United Kingdom. I would be the first to acknowledge the scale of the challenge ahead, but we should feel reasonably good about getting there and about speaking to colleagues and constituents about what we have done.
Before I plunge into my attempt to answer the many questions asked in the debate, let me refer to a couple of speeches. My hon. Friend the Member for Eddisbury opened the debate and the next speech was made by the hon. Member for Redcar (Anna Turley). It has always been a pleasure to work with her and it is so wonderful to see her back in her place, standing up very ably for the concerns of her constituents. The opportunity to create a new industrial cluster on the SSI site that sequesters rather than emits carbon is incredibly exciting. Unfortunately, the hon. Lady was not there when I visited, but I was pleased to go up to see the site, work with some of her colleagues and celebrate a really good interaction between national Government and local government—having a Mayor for the combined authority is making a huge difference—and some incredibly effective cross-party working. That is a really important model for how we should be going forward.
Let me briefly address carbon capture, utilisation and storage, which is not the topic of this debate but is important none the less. We have a triple test for spending taxpayers’ money on technology. First, can we get the carbon down? Secondly, can we get the cost down? Thirdly, can we create a competitive innovation that we can then export around the world to improve productivity? I was not in my current post when the decision was taken on the council. I can say that the money that was not spent was recycled into the research and development budget, which has allowed us to have £2.6 billion to spend on energy innovation that is bearing fruit all over the place.
By the way, there are only 21 at-scale CCS plants working in the world today, 16 of which rely on capturing the carbon and using it for enhanced oil recovery. This is not a cost-effective technology that other countries are embracing with gusto. Even our friends in Norway, who are a little further along than us in building up the infrastructure, are struggling with precisely this point, which is, how much do we burden taxpayers or consumers to fund these projects? That is a real challenge. However, we are not going to bow down before it; we are going to embrace it.
That is why I have set up the carbon capture, usage and storage council—literally the best minds on this problem in the UK, and indeed around the world—to consider how we build strategically the case to carry out CCS in a more cost-effective way. We have also set up the CCUS cost reduction taskforce, emulating what was done in offshore wind, to drive prices down, not only in terms of the technology, but in terms of the financing, risk analysis and risk-sharing, which was one of the problems we had in the last project structure.
As the hon. Member for Redcar mentioned, I have set aside £100 million for CCUS innovation. That is not a subsidy and it is not putting money into a contract for difference; it is trying to create the innovation that we need. There are enormous opportunities to work with the hydrogen economy and with heating systems, to try to bring this work together. I accept that that news was a disappointment, but I would like colleagues to be reassured that we understand completely the need to decarbonise these industrial pools and to decarbonise further our heating system. Without CCS and CCUS, I do not believe that we can do that, which is why they are such vital technologies.
My hon. Friend the Member for Wells (James Heappey) displayed his characteristic vision and knowledge of this sector. He said that we have been too focused on inputs, not outputs, when we talk about energy and efficiency. He also talked about the distributed energy future, which is absolutely what is happening both in our minds and the minds of the commercial world.
Of course, we already have solar. We do not often see a lot of solar generation on the very helpful national grid app, because it tends to sit behind the distributors and make its contribution there. However, we also know that we need to keep investing in this industry, which is why the smart systems plan has tried to set out the framework for doing that.
My hon. Friend also alluded to Birmingham combined heat and power, demonstrating that there are some fantastic examples out there, whereby not-for-profit or community-owned entities have already been set up. Robin Hood Energy in Nottingham also comes to mind, as does the White Rose Energy project. In those projects, there is real innovation and local leadership, which we welcome. We have been supporting those things. I have just put another £7 million into working with UK100 to try to build capacity at a local level.
For me, most of this activity works when it is delivered in a particular place. It is very easy to sit in Whitehall and push out suggestions, but if they can be pulled through by a local authority, a local council or a local company, we can start to think about transport. How does transport plug in? And how do we deal with heat? That was an excellent set of suggestions.
The hon. Member for Birmingham, Selly Oak (Steve McCabe) also spoke. I will try to reassure him that these things are not just warm words; they are actions. I think we are all apprised of the need to deliver and to continue to maintain the UK’s leadership position in this area, which is genuine. Now, when we go around the world and talk to other countries about what we are doing, people listen. There were 70 people at the event on this issue in Germany yesterday, according to my officials, who said people are really hungry to learn. That is because the strategy is not just a piece of lovely paper; it is trying to set out a cross-Government set of actions that we have to take. They are not optional, if we want to meet our targets, which we must do by 2032 and beyond to decarbonise.
The hon. Gentleman and I share the aspiration around energy company obligation and fuel poverty. As the hon. Member for Southampton, Test (Dr Whitehead) mentioned, shortly I will publish some of the ECO consultation and consider how we pivot ECO to focus on fuel poverty, while also making it a conduit for more innovation, so that we can reduce the costs and target it better. That is because I get invitations to join ECO through my front door. Why? Because I live off the gas grid, so I clearly fall into some category that says there will be some fruitful mining out there. I do not want to respond to those invitations; I want ECO to be targeted at the people who need it most. They may not be the ones who are currently in the frame; they may not be known. We know that local authorities know where they are, so we want to target the ECO system much more at those who need it. I will return to mortgages when I wind up.
My hon. Friend the Member for Ochil and South Perthshire (Luke Graham) again made a powerful case for CCS and its importance. I think he also referred to the “win-win” of clean growth. We are not looking forward, as some campaigners might want to look forward, to a kind of deep green “lights off” future, because we all know that recessions are the greatest thing for cutting carbon emissions. We want the economy to grow. As he said, we already have 400,000 people working in this sector, which is delivering jobs from Aberdeen to Aberystwyth to Cornwall, and to many places in between. People have only to go to the Humber area to see what is happening with the support and the manufacturing of the offshore wind turbines for the wind industry, which is hugely transformational.
Of course, I also enjoyed receiving my hon. Friend’s invitation to all; we have had many invitations. Perhaps a Select Committee would like to produce a report on this subject, because its members could then travel around and take advantage of all these great opportunities.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry)—I normally never get a chance to say the full name of his constituency—gave a typically well-informed speech. We exchanged views on off-gas grid. I think that in both his constituency and mine, 15% of households live off the centralised grid, and we have to find cost-effective ways to provide them with more heating solutions in particular. Of course, all those people will benefit from the Domestic Gas and Electricity (Tariff Cap) Bill. Again, we exchanged views on CCS.
The hon. Gentleman also made a strong point about the Scottish Government’s plan. We should all be willing to learn from each other. There are so many good people out there who are coming up with good ideas, whether that is at a local level or a national level, and we will be stronger if we pool all those ideas. Then we would not replicate what we are trying to do and spend.
The hon. Member for Southampton, Test again talked about clean growth being a strategy, which is important. It is not a plan; it is a longer-term strategy, deliberately for that reason. He also emphasised that there is strong cross-party support for these measures and, frankly, we will need that support. If we are asking for this issue to be a spending priority or a national priority, we will need as many voices as possible from all parties to make these points on behalf of our constituents.
Have I covered everyone? I think I have.
I now turn briefly, Mr Walker, to some of the plans that we have to implement this agenda. I was very interested—indeed, excited—to hear the conversation about whether this issue should be a national infrastructure priority. I know that the National Infrastructure Commission will report shortly. I will follow that closely and I undertake to meet the commission, because the case that was made for demand-side as well as supply-side infrastructure investments is powerful. However, I caution colleagues that that does not automatically turn on a new funding tap. There is no packet of money under the Chancellor’s desk marked “Infrastructure”, so this all has to be put through a similar hopper.
Nevertheless, the point about energy efficiency is excellent; energy efficiency is not only a strategic imperative, but an economic imperative. If we improve energy efficiency, we reduce people’s bills, create value, and create opportunities and investment for new forms of technology. We lead the world in many of these spaces, but we have never provided a really good route to market. I am interested, for example, in the Government’s commitment to new home building, which is absolutely vital. We should try to make those homes as affordable to run as they are to buy, using that as a route to market for so much of this technology.
I have talked a bit about what we have done, and of course we have seen household energy consumption fall by 17% since 1990 and the energy efficiency of non-domestic buildings has also improved substantially. Actually, the Government’s minimum energy standards, which we have put in place for appliances and for boilers, have had a measurable effect.
I would like to reassure right hon. and hon. Members in the Chamber on one point. People have asked, “Does coming out of the EU mean any weakening of these efficiency targets?” Absolutely not. Of course these targets have a meaningful impact on energy efficiency and they reduce bills. As a result of more energy-efficient products being used, the average annual bill for dual fuel households in 2020 will be £100 lower than it might otherwise have been, and the Domestic Gas and Electricity (Tariff Cap) Bill, which we introduced this week—I was pleased that it received cross-party support—will also help to cut bills, as will the record low capacity cost of the energy that we are now buying in the market, as indeed will Ofgem’s announcement yesterday of further investigations into network company returns. We have to find a way to reduce the cost of energy right across the board.
This work does not just stop in the home or in the business environment. In the public sector, enormous efforts have been made, using the Salix programme, which has been highly successful in lending money for these energy efficiency measures. We anticipate a saving of about £1.5 billion for us all—for taxpayers—between 2018 and 2020.
So, we are moving in the right direction, but we have to go a lot further and faster. I completely accept that, which is why I set out the band C objective for 2035. That is the first time we have done that, saying, “That’s what we think ‘good’ looks like in housing stock.”
There will always be homes that are cost-inefficient to treat. There will also be homeowners who do not want that and will deny access. We cannot forcibly upgrade someone’s home if they do not want it.
Dr Whitehead
Can I tempt the Minister to have a look at a particular private Member’s Bill that is going through the House at the moment promoted by one of her colleagues, the hon. Member for Basildon and Billericay (Mr Baron)? The Bill suggests that the 2025 aspiration should be made a statutory target. Does she have any thoughts on that?
Claire Perry
Indeed. I have met my hon. Friend the Member for Basildon and Billericay (Mr Baron) and some of those who support the Bill. I think it is an extremely interesting suggestion. I was able to reassure my hon. Friend that, given the work we are doing on ECO—I will come to that—and other measures, we will get there without legislation. That is always the preferred route, although having the overarching legislation of the Climate Change Act 2008 has meant that we have to deliver on these promises right across the economy.
I started to have the conversation with my hon. Friend the Member for Ochil and South Perthshire about it ultimately being a win-win to upgrade people’s homes or buildings because it saves money. Someone upgrades their home and they save money on their bill. There is a commercial proposition there. I served on the Energy Bill Committee—the Bill provided for the green deal—and I had great hopes for it, but it did not deliver. There is an economic value to doing those upgrades, however. Some of it may flow straight to the homeowner. Some may flow to a landlord, in which case there is the opportunity to rent the flat at a higher rate or to have a different sort of tenant who has a bit more money. There are opportunities there.
We talked a little about the co-benefits of better health for the country from warmer homes. We do not cost those things, and we cannot necessarily capture the money in the silo of BEIS, but we all know that they intrinsically make sense. As well as supporting what is already happening through spending, which I will talk about, we are focused on trying to build a better market for long-term delivery of much better solutions. That is absolutely where we want to go.
Domestic Gas and Electricity (Tariff Cap) Bill
Alan Whitehead ExcerptsTuesday 6th March 2018
(6 years, 8 months ago)
Commons ChamberRead Full debate Domestic Gas and Electricity (Tariff Cap) Act 2018 View all Domestic Gas and Electricity (Tariff Cap) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts
Dr Alan Whitehead (Southampton, Test) (Lab)
This afternoon we have witnessed the House at its best. I think it is fair to say that we have had not a single stupid contribution to this debate. [Hon. Members: “Yet!”] We are getting there. On the contrary, we have had a series of informed and thoughtful speeches, which, as the hon. Member for Gloucester (Richard Graham) said, have been overwhelmingly supportive of the Bill.
I particularly emphasise the contribution of my hon. Friend the Member for Leeds West (Rachel Reeves), who informed us that loyal customers are not rewarded but punished with high-price tariffs, and that energy companies have effectively brought this event on themselves with their discriminatory pricing—a theme that a number of hon. Members echoed. We heard a number of first-rate speeches by members of the BEIS Committee, which my hon. Friend chairs and of which the hon. Member for Eddisbury (Antoinette Sandbach), the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), my hon. Friend the Member for Ynys Môn (Albert Owen) and the hon. Member for Stirling (Stephen Kerr) are all members. The quality of the Committee’s report is underlined by the quality of its members, who have so informed our debate. I congratulate the Committee on its report, which was really illuminating in the context of the Bill and what Committee members have said about their work.
My hon. Friend the Member for Harrow West (Gareth Thomas) pointed out that the price cap itself is not going to change the nature of the market, that other forms of ownership are available, and that a lot more has to be done on changing how the market works in the longer term. I salute my right hon. Friend the Member for Don Valley (Caroline Flint) for her long campaigning on and intense interest in the price cap. In her view, we are at the end, not the beginning, of a long campaign to get action taken. My hon. Friend the Member for Leeds North West (Alex Sobel) reminded us particularly of the transition that we are making towards a locally disseminated energy economy and the importance of fair pricing to the longer-term issues. If I have missed out other hon. Members’ contributions, it is merely for the sake of time rather than a lack of estimation for what they have said. Overall, we have had a high-quality debate.
Because the contributions were as supportive of the Bill as they were, it would be particularly churlish of me to spoil the atmosphere by saying anything other than that we will not oppose the Second Reading of this Bill. We agree with the important points that have been made about the reasons for the cap, the consideration that has gone into it and what we need to reflect on with regard to its future.
Indeed, why should we oppose the Bill’s Second Reading? After all, if we look closely at the Labour party’s 2013 proposal for a price cap, we see an almost identical proposal: a temporary cap lasting a specified period and then removable based on an understanding of how the market was working. I am afraid to say that, as my right hon. Friend the Member for Don Valley pointed out, when that cap was put forward in 2013, it was roundly condemned by the Conservative party in trenchant terms. In that light, it is not surprising that the Government did nothing about a price cap for an extended period, during which action could have been taken to sort out energy market prices and create a fairer deal for customers—which, in the end, this is all about.
We have now had the Government’s conversion to the idea of a price cap. As Adam Smith famously said, I think in “The Wealth of Nations”:
“On the road from the City of Skepticism, I had to pass through the Valley of Ambiguity.”
I cannot give you a page reference for that, Mr Speaker, but that is what Adam Smith had to say about his route, and I think it rather sums up what the Government have gone through to get to this point.
A price cap was suggested in the last Conservative manifesto, then apparently reneged upon by the incoming Government, then rather weakly pushed away by the Department as the responsibility of Ofgem, then once again affirmed as a target idea at the last Conservative party conference, and then finally introduced as draft legislation. It is now being pursued in a hurry, in order to get the necessary legislation through in time for a cap to come into force by next winter.
That is quite a daunting timetable, but it is one for which we can have only limited sympathy, bearing in mind the time that the Government have wasted by opposition, then vacillation, then confusion and finally some degree of determination to introduce a price cap, which I applaud, and to do so in a way that is reasonably proofed against judicial review and other devices that displeased energy companies might decide to throw against it.
We have limited sympathy for the Government in the difficulty they have got themselves into with the timetable ahead, but I give a clear understanding that we will not oppose the Bill on Second Reading or be party to any slowing of the legislative timetable if it means a price cap is not in place before winter 2018. Indeed, as my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey) confirmed, we want to see that cap in place well before the winter, if possible, and are minded to seek to place an absolute start date on the face of the Bill.
It should be clear that we want this price cap to come in. We believe it should be an absolute and not a relative price cap, and we broadly support the cap’s mechanisms, particularly the reference arrangements relating to changes in wholesale prices. However, there are a number of points in the Bill that we want to see amended, and we will pursue those amendments in Committee with a central purpose of strengthening the Bill and not weakening or disabling it.
We want to see a clearer definition of the circumstances in which Ofgem might lay a report indicating that market circumstances suggest that the cap can be lifted. We want to see a better definition of which tariffs can be exempted from the cap—for example, those for supplying green electricity to customers.
We believe that a price cap is necessary now, rather than, say, an intensification of switching as a remedy for unfair price treatment by suppliers, because as hon. Members have said, we know that 65% of customers simply do not and probably will not switch. They deserve better protection for their tariffs—particularly the large number who are on standard variable tariffs—than being told that they are somehow bad customers if they do not switch and that they have to put up with whatever comes their way if they stick with their energy companies.
We want to see better arrangements in the Bill for what comes next, after the cap has ended, when people will continue not to switch and will need continued protection for their position as customers. We were clear in 2015 and are clear today that a price cap should not just be introduced for, as it were, punishment purposes, and then when it is lifted business as usual carries on until someone else suggests that the market distortions and failures require another temporary cap.
Instead, the cap needs to function as a carapace under which work is undertaken to put in place checks and systems to ensure that these circumstances do not recur, that we subsequently have a supply market that is fair to the customer and the supplier at the same time and works well to ensure fair competition, and that customers of energy companies have reasonable and firm expectations of how their energy supply company should deal with them over and above the recourse of switching. We remain to be convinced that the Government really have a set of measures, prepared and ready for implementation as the cap progresses, to produce such a long-lasting result for energy markets, and we certainly intend to seek amendments to the Bill that will allow the process to happen better.
It is in that context that we want to cast the proposals we have heard about today from, among other Members, the hon. Member for Weston-super-Mare (John Penrose). I commend him for his long battle to make sure that we now have a Bill before us. He has proposed a relative price cap, rather than the absolute price cap set out in the Bill. We do not support the introduction of a relative tariff range limiter as the instrument of a relative price cap. Among other reasons, it would not necessarily be a price cap at all.
However, such a cap would or could be an important device to ensure that customers who we hope will come off SVTs are not subject to equally disadvantageous practices in the long term through being placed initially on a low tariff, only to find themselves subsequently hoisted on to a very disadvantageous tariff, perhaps at levels similar to those of SVT customers, as soon as their initial contract has ended. Placing a piece of elastic between the best tariff and the highest tariff would substantially address such a practice, which is, as we know and have heard today, an area of bad behaviour by some energy companies now, and may well be in the future if we do not act to ensure that it does not happen.
At the beginning of my remarks, I gave the game away about whether we would support or oppose the Bill to provide some clarity of purpose about where the Bill should go not just tonight, but in its whole passage through the House. We already feel that we own the legislation, albeit in a form that has taken a mightily long time in arriving. We hope the Government will think carefully about our proposals to strengthen the Bill as it goes through Committee. If they want to introduce amendments that further reflect both those proposals and the commendable work of the BEIS Committee in carrying out pre-legislative scrutiny, I will not be precious about whose idea they were.
I want a legally watertight, effective price cap arrangement on our statute book as early as possible, with an equally effective regime in place to ensure that we will not be here doing exactly the same thing in a few years’ time. If between all of us in this Chamber we can achieve such an outcome, I will be well satisfied with our endeavours as we start out on that road today.
Draft Works Detrimental To Navigation (Powers and Duties of Inspectors) Regulations 2018
Alan Whitehead Excerpts(6 years, 9 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to serve for the first time under your chairmanship, Mr Sharma.
The draft regulations are very much needed and the Opposition support their introduction. I have, however, some questions about what they apply to. I would like to hear some clarification and thoughts from the Minister before we conclude our business this afternoon.
The draft regulations are on hydrocarbon industries in the North sea, but ships do not distinguish between installations that get hydrocarbons from the sea and those that get wind out of the air. They collide with both. As far as I can see, the regulations relating to navigational safety regarding offshore wind are guided by different legislation: the Energy Act 2004. However, that Act itself requires some pretty similar sorts of arrangements as far as offshore wind establishments are concerned, relating to assurances that they will be safe from collision etc. As far as offshore hydrocarbon establishments are concerned, an automatic 500-yard safety zone is declared to be in place once the permissioning for that particular site has been agreed. However, as far as offshore wind is concerned, such establishments effectively have to apply for a safety zone to be placed around the installation, or the area in which the offshore wind farm is sited.
In the 2004 Act, there are also mostly equivalent arrangements concerning the responsibilities of offshore wind establishments to make sure that they do not get collided with. So they need to have provision of aids to navigation, the stationing of guard ships in the vicinity and other measures in connection with the control and movement of vessels. So they are nearly identical to what the Minister has set out for the provisions in respect of hydrocarbon-based installations.
Yet we are providing an additional level of inspection only for hydrocarbon facilities this afternoon. That may be because of the way the legislation falls and indeed I cannot see whether there is a parallel inspection body to that of the Offshore Petroleum Regulator for Environment and Decommissioning that applies to offshore wind installations. It appears to be the case that offshore wind installations are fairly well behaved. Of course, once a wind farm is in a place, people know where it is, whereas oil installations, while not exactly popping up, tend to be located in less easily established areas.
Nevertheless, it seems that the parallels are so exact that putting in place an inspection regime that applied to all installations operating in the North sea might be a wise move. I wonder whether the Minister can shed any light on whether such a move was considered, or will it be considered in the future, or does she consider that it is not necessary to have that sort of regime in respect of installations in the North sea that are not hydrocarbon-based?
The second issue that I would like some light shed on is the question of how it came about that these powers were considered to be needed. I ask that because in the explanatory memorandum that we have all received alongside the regulations themselves, it states:
“The need for the instrument has arisen due to a number of incidents from 2015 onwards whereby some operators failed to resolve within a reasonable timeframe (e.g. no more than a few days at most)”—
the Minister said that in one case it took four or five months—
“serious non-compliances with the conditions of Consents to Locate (primarily the obligation to maintain functional navigational aids) - despite continued pressure being exerted by OPRED.”
Under the 2008 Act, the Secretary of State already has considerable powers to investigate failure to comply with consents to locate. The Minister, under the 2008 Act, can indeed provide directions as far as non-complying installations with regard to consents to locate are concerned, and indeed can introduce enforcement on the back of those directions. Indeed, not only can she introduce enforcement but she can, in extremis, levy fines of—I believe—up to £50,000, or a persistent offender can be sentenced to two years in prison.
So there are already powers on the statute book that enable substantial direction and enforcement to take place, yet the explanatory memorandum states that the incidents occurred from 2015 onward. Given that the legislation was passed in 2009—the Marine and Coastal Access Act 2009 amended the Energy Act 2008—I assume that between 2009 and 2015 people with consents to locate did not flout their responsibility to supply navigational aids and other means of preventing collisions, or perhaps the Secretary of State did issue directions and enforcement measures before 2015.
I do not know whether the Minister has with her any record of what notices the Secretary of State has issued in respect of his powers under the 2008 Act, whether any enforcement has been undertaken, and, if so, what the outcome was. The Committee should be able to see whether action was taken before 2015, when it was pointed out that a number of operators appeared not to have resolved issues within a reasonable timeframe.
The other issue that arises is that, if nothing much happened between 2009 and 2015, why did lots of things suddenly happen after 2015 requiring this change to the inspectors’ powers to enable them, as the Minister reasonably said, to board structures and ensure there are navigational aids and so on? Are the operators behaving differently? Is it that the previous operators were rather well behaved but that a new set of operators who are determined to flout the regulations has turned up in the North sea, or is it that the situation was identical during that period but that we did not realise it until 2015 so are only now introducing these regulations? I rather suspect that the former is the case—there are a higher number of incidents that inspectors consider have not been resolved properly. That is effectively what the Minister is saying, but it would be useful to know whether that is the case and whether the operators are much less compliant than they used to be. If so, we should think more widely about the question of compliance, which is very important given the disastrous consequences if a navigational problem causes a collision with an oil rig or an exploratory rig. If such disasters are being countenanced by operators in the North sea, who are not complying as they previously did, should not the Department look at whether a culture of not taking compliance seriously has developed? Should we take wider action, in addition to giving inspectors further powers of entry, to ensure that a culture is in place that regards compliance with the requirement to provide navigational aids and other means of ensuring ships do not collide with offshore institutions to be a matter of course for operators, and not as something that they may eventually be dragged into complying with after much to-ing and fro-ing and threatening from the Government?
I would appreciate it if the Minister would address those thoughts, to ensure that safety in the North sea is as good as it can be. It is paramount, across all aspects of installations. If she can shed a little light on that, I am sure the Opposition will not oppose the regulations, because at their heart is making sure that safety in the North sea is as good as it can be, which is the right and proper thing to do.
Smart Meters Bill
Alan Whitehead ExcerptsMonday 5th February 2018
(6 years, 9 months ago)
Commons ChamberRead Full debate Smart Meters Act 2018 View all Smart Meters Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 5 February 2018 - (5 Feb 2018)
Dr Alan Whitehead (Southampton, Test) (Lab)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Mrs Eleanor Laing)
With this it will be convenient to discuss the following:
New clause 2—Review: Use of powers to support technical development—
“(1) Within 12 months of this Act coming into force, the Secretary of State shall commission a review which shall consider how the extended use of powers provided for in section 1 will support the technical development of smart meters, with reference to—
(a) alternative solutions for Home Area Network connections where premises are not able to access the HAN using existing connection arrangements,
(b) hard to reach premises.
(2) The Secretary shall lay the report of the review in subsection (1) before each House of Parliament.”
This new clause would require the Secretary of State to review how the extension of powers will support technical development of smart meters.
New clause 3—Review: Use of powers to support rollout of smart meters—
“(1) Within 12 months of this Act coming into force, the Secretary of State shall commission a review which shall consider how the extended use of powers provided for in section 1 will support the rollout of smart meters, with reference to—
(a) providing for efficient removal and disposal of old meters,
(b) reviewing the exemptions for smaller suppliers from a legally binding requirement to roll out smart meters.
(2) The Secretary of State shall lay the report of the review in subsection (1) before each House of Parliament.”
This new clause would require the Secretary of State to review how the extension of powers supports the rollout of smart meters.
New clause 4—Review of smart meter rollout targets—
“(1) Within 3 months of this Act coming into force, the Secretary of State must prepare and publish a report and a cost benefit analysis relating to the Smart Meter Implementation programme and lay a copy of the report before Parliament.
(2) The report under subsection (1) shall consider—
(a) progress towards the 2020 completion target;
(b) smart meter installation cost;
(c) the number of meters operating in dummy mode;
(d) the overall cost to date of the DCC;
(e) the projected cost of the DCC; and
(f) such other matters as the Secretary of State considers appropriate.”
This new clause would require the Secretary of State to publish details about the cost and progress of the smart meter rollout with reference to the 2020 deadline.
New clause 5—Requirement on suppliers to provide information on cost of smart meter programme to consumers—
“(1) The Energy Act 2008 is amended as follows.
(2) At the end of section 88(3) (power to amend licence conditions etc: smart meters), insert—
‘(m) provision requiring the holder of a supply licence to include information with consumer bills on the cost to consumers of the Smart Meter Implementation Programme.’”
This new clause would allow the Secretary of State by order to amend licence conditions so that energy suppliers are required to include the cost to the customer of the Smart Meter Programme in all customer energy bills for the period covered by the energy bill.
New clause 6—Smart Meter Implementation Programme: review of cost to consumers—
“(1) Within 3 months of this Act coming into force, the Secretary of State shall commission an independent review of the cost to the consumer of the Smart Meter Implementation Programme.
(2) The review under subsection (1) shall include—
(a) a breakdown of the costs to consumers of component parts of the Smart Meters Implementation Programme including the cost of the DCC;
(b) the potential benefits to consumers of information on the cost of the Smart Meter Implementation Programme being included on energy bills and statements;
(c) a longitudinal estimate of the cost to consumers to date and the projected future cost of the Programme; and
(d) such other matters as the Secretary of State considers appropriate.
(3) The Secretary of State must lay a report of this review before both Houses of Parliament as soon as practicable after its completion.”
This new clause would require the Secretary of State to commission an independent review of the cost to the consumer of the Smart Meter Implementation Programme that must consider the potential benefits to consumers of including a summary of the cost on their energy bills and statements.
Amendment 2, in clause 1, page 1, line 12, at end insert—
“(c) in section 56FA(3) after “including” insert “the supply of such meters to energy companies and”
This amendment would allow the Secretary of State by order to add “the supplying of smart meters to energy companies” to the list of licensable activities.
Amendment 3, page 1, line 19, at end insert—
“(c) in section 41HA(3) after “including” insert “the supply of such meters to energy companies and”
This amendment would allow the Secretary of State by order to add “the supplying of smart meters to energy companies” to the list of licensable activities.
Amendment 1, in clause 6, page 6, line 27, at end insert—
“(15) Prior to making modifications under this section the Secretary of State shall commission an independent evaluation on the potential impact the modifications available to the Secretary of State to secure funding of smcl administration could have on consumer energy prices and shall lay the report of the evaluation before each House of Parliament.”
This amendment would require that, before considering modifications to ensure funding of smcl administration, the Secretary of State must seek independent evaluation of the impact such modifications would have on consumer energy prices.
Dr Whitehead
As all the new clauses and amendments are grouped together, I intend to address them in turn. I promise that I will not say anything after this speech, but will instead make all my points in one go.
When the Bill went into Committee, it did two things. However, as the Minister himself agrees, an opportunity was taken in Committee to add to it what is effectively another small Bill, so it now does three things. First, it extends to 2023 the period during which the Secretary of State has powers over the roll-out to organise and command licensable activities. It does so in part because the end date for such control was set out in previous legislation as 2018. It is now apparent that the roll-out will go on until at least 2020 and, depending on progress, perhaps even later. It is therefore not only prudent to change the date but important, because as things stand the power over the roll-out will be lost halfway through its implementation.
Secondly, the Bill provides for the circumstances under which the functioning of the Data Communications Company, which has been set up to manage and co-ordinate all the communications necessary to make smart maters work—the data they are collecting and sending; and the communications within and around the home, and on a wider network—can be maintained in the event that that company goes into administration. That is important because the functioning of the DCC is central to the whole operation of the roll-out and what happens afterwards, and a hiatus in that function while any administration was being processed would be disastrous—so much so that we might question, as we did in Committee, why such a provision was not in the original legislation that set up the procedures for smart meter roll-out, and why it has taken several years of the DCC’s operation, albeit not live, to get around to implementing such a crucial measure.
Thirdly, the Bill now provides for arrangements to bring about the half-hourly settlement of domestic bills, which was hitherto not possible, but has been facilitated by the smart meter roll-out. We welcome this potentially enormous benefit of smart meters, in that it eliminates estimated bills and allows for accurate billing on the basis of what has been supplied each half hour, thereby allowing households to pitch their use at times of best value. The provisions inserted by the Government allow such a system to be organised and regulated.
Altogether, we have a set of proposals relating to the existing smart meter roll-out, which has been under way since 2016, that are uncontentious in the main and, indeed, strengthen the fabric of the roll-out. The Opposition support the objectives of the smart meter roll-out and believe that smart meters will lead to considerable benefits, not only for billing and the use of energy by householders, but for the future operation of the whole system. We share the aim of ensuring that as many as possible of Britain’s 30 million households have a smart meter installed by the end of the roll-out target date, albeit on the clear understanding that this is a voluntary programme and that no one will have a smart meter forced on them if they do not want one to be installed.
Why, then, have we tabled the new clauses and amendments? I assure the House that it is not because we want to derail the roll-out process or to place obstacles in its path. Some real questions are emerging from the roll-out process, and our prime aim is to ensure that those questions are addressed, and that the roll-out takes account of them and their potential solutions.
I have identified six major questions that have appeared as the roll-out has progressed. First, what is the actual progress of the smart meter roll-out, and is it realistically on target to ensure that everyone who wants a smart meter can have one installed by the end of 2020?
Secondly, bearing in mind that the huge cost of installing smart meters now falls on the consumer, what assurances can we have that the cost-benefit ratio of the whole programme remains positive? How can the costs of the programme be properly managed so that it remains positive for consumers in the end?
Thirdly, why have millions of first generation SMETS—smart metering equipment technical specifications—meters been installed to date and virtually no SMETS 2 meters? SMETS 1 meters were supposed to be a small proving mode and SMETS 2 meters were supposed to be the backbone of the roll-out, originally from 2014 onwards.
Fourthly, why has the DCC taken so long to get up and running, and how much of an impediment to the full roll-out of smart meters will that prove to be? If the DCC does go into administration, for whatever reason, what guarantees are there that it will be subsequently owned by a body that has the security and integrity of the programme at its heart?
Fifthly, will everyone be covered by the communications network that is being put in place? Will people who live in blocks of flats, for example, have home-area networks that are fully able to reach them? Will those who live in remote areas enjoy the wide-area coverage that will enable their meters to work reliably?
Finally, what will happen to all the old meters, and indeed to a considerable number of SMETS 1 meters that will be replaced by SMETS 2 meters? Will they be recycled or reused in a suitable way?
Dr David Drew (Stroud) (Lab/Co-op)
I refer to my declaration in the Register of Members’ Financial Interests.
Does my hon. Friend accept that another problem—I have just had a response to a written question on this issue—is that when some people, particularly in rural areas, have a smart meter installed, their boilers are condemned because they are not compatible? There is no scheme or funding to help those people to put heating back into their houses. Does he agree that that is a significant problem?
Dr Whitehead
I agree that when that occurs, it is a problem, but I am not sure that it is just related to smart meters, so a combination of issues needs to be addressed. We need to ensure that such occurrences happen as little as possible and can be overcome.
Our new clauses and amendments seek to address the six questions that I have identified in the context of the Bill. By doing so, they would considerably strengthen the Bill. After all, as I am sure that all hon. Members will agree, it is important in such a large project that requires public confidence that questions are properly anticipated and addressed, and that assurances are given, otherwise we will have a roll-out that eventually rolls out to not many people, and that fails to achieve the aggregate coverage that will enable the sort of benefits that we would want from the roll-out as a whole.
Stephen Kerr (Stirling) (Con)
The hon. Gentleman raises an important point about public confidence. Is there not a danger that when people with SMETS 1 meters switch energy supplier and lose their smart meter’s smartness, they will lose their confidence in the whole programme?
Dr Whitehead
Like me, the hon. Gentleman sat through many of the evidence sessions during the Committee stage, so he will know that an advanced programme is in place to ensure that SMETS 1 meters are compatible and interoperable, and indeed can work online, to ensure that that problem does not occur. That is a recent development. I agree that if it turns out that many SMETS 1 meters become completely dumb, that might be a problem for the overall roll-out. Perhaps the Minister will have something to say about that later, because it is important that we get this right.
Jim Shannon (Strangford) (DUP)
Following on from the previous intervention, does the hon. Gentleman believe that consumers’ concerns about their ability to switch energy suppliers smoothly to keep costs down, and about keeping the system going and keeping providers “on their toes”, are adequately addressed in the Bill, because some people say that they are not?
Dr Whitehead
I will come on to talk about how far more SMETS 1 meters have been installed than was ever intended, which was due to various reasons. The hon. Gentleman is certainly right that if a substantial number of installations eventually give rise to non-smooth transfers when people want to switch, that will be deleterious to the roll-out as a whole. Indeed, that is something that needs to be very carefully and urgently addressed so that we ensure that such switchovers can be as smooth as possible.
When we think about the roll-out, we do not need to look very far into the timescale to conclude that, whatever might be said about the numbers already installed, it is not going well. We are more than halfway through the period originally specified for the mass installation of smart meters, but we are far below halfway towards the target of installing smart meters in 30 million homes. In fact, the latest quarterly installation figures show that only 8.6 million domestic and non-domestic meters have been installed to date. That issue has been exacerbated by the transition from SMETS 1 to SMETS 2 meters. SMETS 1 meters were supposed to be essentially proving meters that would have very little role to play in the overall process. However, the DCC—the body required to set up and implement all the communications systems to allow meters to talk to the system—is now two and a half years behind in going live, and is still not really functioning as intended. Millions of SMETS 1 meters have therefore been installed to make up the gap before SMETS 2 meters can come on stream, and we are still in a precarious position with regard to the new meters, because end-to-end testing of them is still not really available. A programme that should by now have seen the installation of a few SMETS 1 meters and millions of SMETS 2 meters now has the opposite position. To be precise, when I asked the head of the DCC how many SMETS 2 meters had been installed, the figure he gave was 250.
Steve McCabe (Birmingham, Selly Oak) (Lab)
As I recall, that figure of 250 was given to the Committee by the DCC’s chief executive. My hon. Friend will be aware that the Department initially announced last week that it did not know the figure, but then admitted that it was 80, and that most of those meters actually belonged to company officers, not members of the public. Does that not suggest that this programme is woefully off track compared with what was planned?
Dr Whitehead
My hon. Friend gives a very important qualification to that figure of 250. I must admit that when I heard that figure from the head of the DCC, it struck me as being pretty shocking in its own right. It is interesting, to say the least, to hear that the 250 figure is on the optimistic side, and that the number that are actually on the wall and working—in the homes of friends and family, as my hon. Friend says—is only about a third of that figure.
The slippage is reflected in the latest cost-benefit analysis, which is from last year. It shows the cost-benefit gap narrowing, at least in part because of the SMETS 1 and 2 hiatus. The analysis indicated a high spike in proposed installations at the end of 2019, with some 15 million meters needing to be installed at that point. That is a substantial shift in the predicted curve of installations, and an enormous increase in the rate of installations since the time of the 2014 cost-benefit analysis. Sticking by the timetable under these circumstances becomes fairly heroic. Perhaps it can be done, but it is clearly a daunting task.
That is the context in which the change in the date for Government oversight is important—the process of changing the date by which licensable activities will have ceased from 2018 to 2023. Whether or not it was a wholly wise idea, the 2004 and 2008 Energy Acts and subsequent regulations specified a date for licensable activities to end, which means that as things stand at the moment, the Government will have no control over what goes on after 2018. Everybody knows that we will still be at a relatively early stage of the roll-out in 2018, so it is impossible to conceive that it would be wise to continue with the original timetable. We therefore support the idea of specifying a more satisfactory date in the statute book.
The Bill specifies a date of 2023, but that does not appear to coincide with the Government’s publicly stated ambition for the end of the roll-out. I say that with caution, because while their statements about the roll-out have changed over time, they have always revolved around the idea of ending it in 2020, and there has been a lot of talk from the Government about the installation of 53 million smart meters by then. Indeed, the frequently asked questions page of the Smart Energy GB website states:
“By the end of 2020, around 53 million smart meters will be fitted in over 30 million premises (households and businesses) across Wales, Scotland and England.”
That is also the basis on which Ofgem is working in terms of its licence enforcement. However, the Government have changed their position, as they now saying that, by the end of 2020, 53 million customers
“will have been offered a smart meter”.
That is a very different proposition. We could interpret that as 53 million people being offered a smart meter by 2020, but only 10 million having them installed, although I assume that that is not what the Government mean. The statement might be meaningless or meaningful, depending on what happens before the end of 2020 and a variety of issues that will appear along the road. I hope that the Minister will be able to clarify those matters today. We surely cannot mean that the whole obligation for the roll-out would be discharged by doors being knocked on and someone saying something. If the smart meter installation programme is pursued on the basis of just making a desultory offer, the result will be way below the critical mass necessary for the overall aggregate data to work properly and lead to decent decisions. At that point, £11 billion or some such amount would have been wasted on nothing much.
The smart meter installation programme is voluntary. But, at the same time, we need a proportion—not 100%, but getting close to it—of smart meters installed in order to make the programme work by having worthwhile aggregated data. Some people have said that we need 70% of smart meters installed and others have said 80%; we need something to make the overall aggregated data significant. We clearly need to put a lot of effort into ensuring that the benefits of the programme are explained to the public.
The evidence suggests that the public overwhelmingly like smart meters when they are introduced and they want to have them in their homes. We therefore need to make a lot of effort over the given period to ensure that the two ends—the voluntary nature of the programme and the need for substantial roll-out—can be reconciled. What do we need to do that has perhaps not yet been done to ensure that the roll-out programme gets its output properly organised and smart meters installed? That is the purpose of new clause 4, which would require the Secretary of State to publish a report to keep us firmly on track. But, of course, much of the progress towards the target at the end of 2020 now depends on how SMETS 2 meters can be rolled out and how the DCC performs.
It was always necessary for the DCC to start its roll-out to enable smart meters that have been installed and those that will be installed to connect with it, and therefore to go live at the earliest possible date. However, the DCC systematically failed to go live when it should have done. It repeatedly announced delays and eventually went live in autumn last year under circumstances in which eyebrows were raised substantially by most of the industry. That was because it went live just before the point at which it would have faced penalties for not going live. It also only went live in part of the country and did not go live with some of its peripheral activities. Indeed, it is still having problems as far as its liveness is concerned. However, the DCC is not a stand-alone company. It was set up in order to run all these things and was then successfully auctioned out to a company that could drive it. And that successful bidder was Capita plc. As far as running the system is concerned, the DCC is effectively a subsidiary of Capita plc. The rest of the smart meter programme now crucially depends on this company. If we look at the timeline of what was supposed to have happened, we see that it presents a really sorry picture.
According to the joint industry level 1 plan, the start of the mass installation of SMETS 2 meters was supposed to be in October 2014, and the DCC was supposed to go live in December 2015. The then Secretary of State approved the DCC re-plan to go live on 1 April 2016, but received a contingency request from the DCC to delay going live until July 2016, and even then to split into core functionality and remaining functionality, which was not supposed to go live on the new date. A further contingency request was made by the DCC for a delay until August 2016, and there were even further contingency requests for delays. The DCC finally went live, in the way I have described, in October 2016. But it was actually only live for central and south England in November 2016 and went live for the north of the country later that month. The remaining functionality eventually went live, but not until 20 July 2017.
I looked at the plans that were put forward when the DCC went live, and they were accompanied by pages and pages of so-called workarounds—that is, things that did not really work. That is still a problem today. A lot of the industry is saying that the DCC is not really live to the extent that it had anticipated, which remains a considerable problem for the end-to-end testing of SMETS 2 meters. That is why, among other reasons, there are currently only 250 or 80 on the wall, depending on whose figures are right.
Stephen Kerr
Is it the hon. Gentleman’s understanding that the DCC is operating—not fully live—for only 80 SMETS 2 meter customers? The SMETS 1 meters do not connect to the DCC.
Dr Whitehead
That is the unfortunate truth, yes. The total number of SMETS 2 meters to which the DCC is connected is 80—or 250, for those who are a little more optimistic. That means that there is rather a long way to go to connect up the rest of the SMETS 2 meters, assuming that they can be end-to-end tested in order to get the right circumstances in the different parts of the country to allow the testing to take place.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I hesitate to interrupt the hon. Gentleman, and I appreciate that he is dealing with some complex issues that require explanation, but it may have escaped his notice that he has been at the Dispatch Box for almost half an hour. He might not be aware, but I am, that there are other people who wish to take part in this debate, so he might like to consider bringing his remarks on this particular part of the Bill to a conclusion quite soon.
Dr Whitehead
Thank you, Madam Deputy Speaker. I accept that we are dealing with difficult and rather technical issues, and so I thought it was necessary to try to set out for the benefit of the House how these matters might work, but I will of course be very mindful of your guidance to try to make sure, within the restraints of not getting too over-simplified, that I do indeed bring my remarks to a close.
New clause 2, in essence, asks the Minister to consider a specific review to get these arrangements properly under way.
My final question concerns the meters that have been removed as a result of smart meter installation or will be removed because they are SMETS 1 meters replaced by fully interoperable SMETS 2 meters. This problem is not just theoretical; it is happening now. It has several aspects. What about malfunctioning and existing smart meters that are no longer installed and are now redundant? What about the huge number of existing meters that will be removed and need to be disposed of as smart meters are installed? Those meters are not owned by installers but by meter asset providers that finance and ultimately own the meters that are put in. It has been a long-standing arrangement in the industry that meters are not owned by the suppliers but merely read by the suppliers. That means that when a programme is pursued of removing old meters, whether dumb meters or previous generation smart meters, there is a problem in identifying whose meters they are.
The difficulty that we are facing right now—it is not a problem for the future—is that we might see meter mountains arising in this country because the people who are removing the meters do not know who their owners are or who is going to take them away and recycle and dispose of them. I do not want to see, as a result of this roll-out programme, meter mountains, or alps, appearing across the country. We need to be clear about what method of disposal is going to be the most appropriate and workable. If we are not careful, the issue will overwhelm the roll-out, or at least have a significant negative effect on its overall atmosphere. In Committee, the Minister, encouragingly, agreed to set up a roundtable to consider this issue further. New clause 3 now addresses the issue, and I hope that it will be a way of taking it forward.
I have dealt with a number of important questions that have arisen as the smart meter roll-out has progressed. I hope that the roll-out can proceed to a successful and timely conclusion, because that will be important for the future of our energy systems as well as for the future sustainability of people’s electricity and gas supplies, and their ownership of what their bills will look like in future. However, we should not shirk from addressing the real problems that stand in the way of realising that. It is not sufficient to state that all is for the best in the best of possible worlds, and proceed on that assumption. I know that the Minister is working hard to get this right, as are his team in BEIS. The addition of these amendments would give them greater authority and support in making the roll-out work.
Stephen Kerr
I compliment the Minister and the Opposition Front Benchers for the way in which I have witnessed, as a relatively new Member of Parliament, how a public Bill is progressed through the legislative process. I have learned from observing the Bill Committee that for legislation to have durability and solidity, it is vital that there is strong collaboration between those on both sides of the House. It is in all our interests to make sure that legislation is well constructed and well meaning.
I support the Bill on the basis of a considered view that the roll-out of smart meters is a vital national infrastructure project that will bring benefits to consumers and businesses and to the whole country. I am not entirely convinced that we have done a good enough job so far in selling the proposition to the whole country, and I have concerns about our readiness to meet the Government’s objective. In fact, in the evidence that we heard in Committee, very few of the people we spoke to seem to believe that at the current rate of progress it is possible to complete the roll-out of smart meters by the perceived target of 2020. I want to come back to the target in relation to new clause 4.
None of this sort of work is ever going to be easy, as was highlighted in the evidence that we heard in Committee, but the trick is not to make it harder for ourselves than it would be otherwise. How do we get the job done—the deployment of these smart meters into nearly 60 million premises—in the most cost-effective way? There are still questions that should be asked and considered. We should not lose sight of the total cost of the programme—northwards of at least £10 billion. I think that £1.3 billion has been spent, or is earmarked to be spent, on the DCC alone. We are talking about 50 million-plus—nearly 60 million—separate installations of smart meters.
I have a lot of sympathy for the amendments tabled by the Opposition, because they do tackle issues that are pertinent and relevant to the purposes of the Bill. However, I will not support them if they are pressed to a vote, because I very much hope that the Minister will be able to provide such reassurance that the issues raised will be covered off in some other way than by making changes to the Bill, so there will be no purpose in calling a vote. I am very confident that that will be the case, because that has been the spirit of the process so far.
Richard Harrington
I totally give that undertaking to the hon. Gentleman, and I apologise for saying that I would take his intervention and then forgetting to do so. I hope he will forgive me.
I said during previous debates that we would update our analysis if there were new and substantive evidence or changes in policy design. As a result of the representations that have been made in Committee and today, I am prepared to go further by committing to publishing an update of the programme cost-benefit analysis in 2019. As hon. Members know, 2018 marks a significant programme transition, with the shift from first to second-generation smart meters, so I think that 2019 really is the time to assess this.
As for new clauses 5 and 6, I do not believe that it is sensible to establish powers that enable the Government to require the provision of information on the costs of the programme in consumers’ energy bills, because I do not understand what benefit such a move would have for consumers. However, it is important that consumers understand the information that smart meters and in-house displays give them, because in that way, they understand the cost of their energy usage in pounds and pence—or as my hon. Friend the Member for Erewash (Maggie Throup) would say, pounds, shillings and pence, and probably farthings. She is a lady after my own heart. That will empower them either to change how they use energy, or to get a better tariff.
The hon. Member for Birmingham, Selly Oak has raised concerns, as he did in Committee, about the MAPs—not pictures of the world, but meter asset providers—because he believes that the provider market is not working to deliver the programme objectives. I remain of the view, however, as I have clearly stated to him before—we will have to agree to disagree, I think—that the market is operating competitively and that there is no need for regulatory intervention. There are currently two typical rental arrangements available: churn contracts and deemed contracts, which he mentioned. Churn contracts are often similar to the original rental agreements, including with the presence of an early-repayment charge in the event that a supplier chooses to remove the meter from the wall early. Deemed contracts do not include that charge, but carry the added risk for a MAP that they can involve higher rental charges. The important point is that the DCC has published its detailed plan for the enrolment of SMETS meters from late 2018, and as progress is made, I fully expect energy suppliers’ confidence in choosing churn contracts over deemed rentals to increase. Initial indications support that expectation.
I turn briefly to the amendment on the draft licence modifications envisaged under a power in the Bill to allow the costs of smart meter communication administration to be recouped from the industry, in so far as there is a shortfall. The potential scale of the costs will depend on a number of factors, including the timing and reason for the DCC licensee entering special administration, and costs arising from any legal and technical expertise appointed by the administrator in support of the execution of its duties. As I committed to doing in Committee, we have formally agreed to consult on these licence modifications. We will consider and set out an assessment of the estimated potential costs that need to be recouped from the industry.
I would like to reflect on the points made about the DCC’s parent company, Capita, and to emphasise that Smart DCC Ltd is required to operate at arm’s length from Capita. Provisions in the licence prevent Capita from taking working capital out of Smart DCC Ltd. Furthermore, the DCC’s financial arrangements are constructed so as to make the risk of insolvency low. Putting in place a special administration regime is entirely precautionary and, I believe, the prudent thing to do.
The smart metering programme will secure an overall net benefit to the nation of £5.7 billion. The Bill is important to ensuring that this vital platform for our smart energy future is rolled out effectively, allowing the Government to respond to developments as the roll-out continues. I hope that these arguments will persuade Opposition Members not to press their new clauses and amendments.
Dr Whitehead
I am disappointed that the Minister did not give us a better explanation and understanding of what “offer” means as far as smart meter roll-out is concerned. Indeed, that question was raised from the Conservative Benches. It might be that the Secretary of State can better illuminate us on Third Reading. Strictly speaking, however, that does not relate to the new clauses and amendments, on which we have had a good debate. If necessary, there will be further such debate in another place. This evening, however, it would not be wise to divide the House, so I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Third Reading