Domestic Gas and Electricity (Tariff Cap) Bill

Albert Owen Excerpts

2nd reading: House of Commons
Tuesday 6th March 2018 Commons Chamber

[Greg Clark]

I agree with my right hon. Friend, and I was making the point that we have long been a pioneer in regulation, which has meant adapting regulation to the changing circumstances. We started with RPI minus X, and that evolved into different models, including looking at the regulated asset base. In my view, it is necessary to keep up with our traditions of acting boldly to protect consumers’ interests, and we should be agile in response to new behaviours, especially those brought on by new technologies.

[Albert Owen (Ynys Môn) (Lab)]

I find myself in agreement with the Secretary of State and shall support the Bill. Indeed, I am in agreement with the Prime Minister that the energy market is broken and that customers are being ripped off. The importance of this legislation will be that Governments of whatever colour and the regulator cannot blame each other when something happens in future. There will be a framework that the Government, the regulator and the energy companies understand, and that is why we need legislation.

[Greg Clark]

I agree with the hon. Gentleman, and I was saying in response to my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) that I think the regulator should be more agile in responding to the behaviour that had come about. In fact, the energy companies themselves should have recognised this, and one thing that they said to me was that none of them wanted to act individually and that they would prefer to have a consistent approach.

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[Greg Clark]

My hon. Friend makes an excellent point, and my Department will work closely with Ofgem to ensure that those consumers can benefit from these provisions.

[Albert Owen]

The regulator will need time to consult before the Bill’s provisions are enacted. Is the right hon. Gentleman confident that, with the Bill being put before both Houses of Parliament today, customers will be able to benefit from it this winter?

[Greg Clark]

I am indeed confident of that, and it is one of the reasons why I am so grateful for the swift attention of the Committee on which the hon. Gentleman served in giving the Bill pre-legislative scrutiny and taking evidence from expert witnesses.

As I said earlier, the Bill has been constructed to be proportionate and to be directed at a particular problem that we expect to be temporary. On that basis, I hope it will enjoy support from across the House and we can swiftly progress it so that we can correct an intolerable situation in which consumers have been exposed to paying £1.4 billion more than they would in a competitive market. That abuse should end. This Bill will give Ofgem not only the ability to do so, but the requirement that it should do so, and I commend it to the House.

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

I agree with the right hon. Member for West Dorset (Sir Oliver Letwin) that we collectively owe praise to the hon. Member for Weston-super-Mare (John Penrose) and my right hon. Friend the Member for Don Valley (Caroline Flint) for bullying the Government into bringing the Bill before the House. Nor do I completely reject the right hon. Gentleman’s final assertion about the importance of having an effective regulator to regulate the market. What he missed, however, was the need to shake up significantly the way in which the market operates at the moment, to fundamentally challenge the power of the big six and the way in which regulation works between the transmission provider—National Grid—and the various distributor companies, given the impact that that has on bills.

As other hon. Members have said, while the Bill is good in that it will finally introduce an energy cap, it does not address the full scale of concerns across the House about how the energy market operates. E.ON put up prices last week on the coldest day of the year. Experts are increasingly concerned that the lights will go off at some point in the future. Gas capacity is another fear, and the energy ombudsman is unable or unwilling to enforce rulings in favour of consumers. Those are just some of the concerns about how the energy market works. It would have been good to have a far more comprehensive energy market reform Bill, of which the energy price cap was only part.

I fear that Ministers’ reluctant acceptance that a wider price cap is needed confirms the failure of regulation as it stands, and specifically confirms concerns about the powers and practices of Ofgem and its ability to keep the big six energy companies honest, along with National Grid and the distribution companies.

The Competition and Markets Authority, in its landmark investigation of the industry some four years ago, said that customers had essentially been ripped off to the tune of £1.4 billion—and that was since 2012. The only reason the Government referred the energy market to the CMA for investigation was the pressure from shadow Ministers and the then Leader of the Opposition. In the circumstances, and given the scale of overpayment by consumers, an energy price cap is hardly going to fundamentally change the dynamics of the energy market. Therein lies the problem with the Bill. It does not address the issues of ownership and the lack of accountability of those who currently own and distribute our energy. I therefore suspect that it will be of limited benefit to customers.

When the energy market was privatised, the country was promised the chance to have a stake in the new market. There was the famous “Tell Sid” campaign, which offered everybody a chance to own a stake in the energy market. Many mergers and acquisitions later, all we have seen in practice is that centralised unaccountable decision making has shifted from a series of Government Departments to six privately owned companies that control pretty much the whole chain from power station to customer. At the time, we were promised that unleashing competition would bring considerable benefits: prices would be driven down alongside an increase in innovation and efficiency. It is difficult to see exactly where those benefits are. Dissatisfaction with the energy market is so great that it is ranked bottom of all UK industries by the Institute of Customer Service. Part of the reason why people do not switch from one supplier to another is that they do not think they will get much benefit from switching, given the time and hassle it takes.

Six years ago, a very impressive ten-minute rule Bill was brought forward by the hon. Member for Harrow West, which I commend to the House, proposing that customers should be given the right to own the grid in their area, and that more people should be given the right to help control who benefits from the energy market. In effect, it proposed the sort of democratic public ownership that at the time was less fashionable on the Labour Benches, but which has become a bit more fashionable of late. I very much welcome that.

[Albert Owen]

I am sure the author of the Bill would agree with me that one model is the not-for-profit Welsh Water, which runs the utility and competes against others where necessary, but has competition in its tendering process so that it meets European competition rules for utility companies. It also invests in its customers, which is what is missing from the private monopolies that run distribution and transmission.

[Gareth Thomas]

My hon. Friend makes a very good point. If I may, I commend to him and the whole House the Co-operative party report on the reform of the energy market, which contains several proposals. One suggestion is that Welsh Water and the energy distribution model of similar mutuals in New Zealand might be the model for future of energy distribution in this country.

I do not hold the dogmatic view that public ownership through nationalisation might be a sensible way forward. I can see that there might be a case for some of the transmission network to be publicly owned, and I can see the argument for some public ownership of crucial, strategically important power stations to keep the lights on while a broader transition process is taking place. Fundamentally, however, I would like to make the argument for more co-operative, community-owned not-for-profit energy companies. They would own and supply energy, help to decarbonise our existing energy supply, be properly regulated, and, crucially, help to keep in the local community some of the wealth that is generated by energy, which I gently suggest should be strongly encouraged and allowed to emerge. Robin Hood Energy in Nottingham is a great example of that, as are Bristol Energy and Westmill Solar Co-operative.

I finish by gently saying to Government Members that I understand why they are tempted, for political reasons, to attack Opposition Members for looking again at public ownership, but when so many of the energy businesses in this country are owned, or part-owned, by state-owned companies from other countries, it prompts the question why public ownership by the British Government, or by the people of this country, could not be given a bit more encouragement by Ministers.

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[Albert Owen (Ynys Môn) (Lab)]

The hon. Member for Taunton Deane (Rebecca Pow) is right to say that we have heard many good speeches, including from Members who took part in the pre-legislative scrutiny of the Bill by the Business, Energy and Industrial Strategy Committee. It produced a unanimous report, and I am pleased that the Government have taken on board the recommendations in it, because the Committee did a thorough piece of work.

I have supported and campaigned for an energy cap for many years. I am pleased that it will be introduced, and I will support the Bill tonight, but it would be wrong to say that it is a panacea: it is not. Many other pieces of work need to be done. I hope— I will work with the Government on this—that during the period of the price cap, we will look at other parts of the energy market, which the Prime Minister rightly described as “broken”. People are getting ripped off by, for example, transmission and distribution costs, because we have private monopolies running those sections of the energy market. It is right that we have the Bill, because the market has not worked.

I want to say something contrary to some of my colleagues on the Committee who have blamed the regulator. I have been on the Committee for many years, since it was the Energy and Climate Change Committee, and the regulator has done some good work. The first thing it did, as my right hon. Friend the Member for Don Valley (Caroline Flint) pointed out, was to ensure that consumers had greater transparency in their bills, so that they could see the unit prices. Before, those prices were hidden and people did not really know what they were being charged. The energy companies blamed the fact that wholesale costs had gone up, so they had to put their prices up. There is a new regime in Ofgem that is doing more impressive work in looking after the most vulnerable. When the chief executive gave evidence to the Committee he had the honesty to apologise for not doing enough, and that was the right approach.

Successive Governments have not done enough either. We have a huge responsibility to look after the most vulnerable energy users. As individual Members we must scrutinise the Government, but they must do more. When I was on the Energy and Climate Change Committee between 2010 and 2015, I was fed up of Ofgem coming to one session and saying that it did not have enough powers, and the Government would not give it more powers, and then a Minister—they changed regularly—coming to another session and saying that the regulator had enough powers. It was a missed opportunity, and we are much better placed now.

We put too much emphasis on switching as a panacea. As other hon. Members have said, a low number of people switch. It is not an easy thing to do. People are very busy, and vulnerable people may have two or three jobs. The last thing that they want to do is spend hours and hours on the line to a call centre to switch. That approach did not work, for many good reasons. I remember the Secretary of State in the coalition Government—the right hon. Member for Kingston and Surbiton (Sir Edward Davey)—saying that switching was the great answer. David Cameron, as Prime Minister, accepted that, and the issue was kicked into the long grass. I am glad that the CMA produced its report, but its predecessor, the Office of Fair Trading, held many inquiries and did not do a good enough job of helping people. I am pleased that we are better placed now. The role of the regulator is important, and it is now more proactive and helpful.

My hon. Friend the Member for Southampton, Test (Dr Whitehead) was a member of the Committee that pushed for measures on prepaid meters, which were affecting the most vulnerable. The energy price cap for prepaid meters has worked in helping to reduce their energy costs. There was a fear that the energy companies and suppliers would go up to the highest rate, but that has not really happened. I am therefore pleased to support the cap in the Bill, and I am pleased that there is a sunset clause.

Changing the behaviour of energy companies is essential. In the past, they have been playing the system while blaming others. They have always said that transmission costs are too high and fixed, and that they are vulnerable to wholesale costs. We had a situation, particularly from 2008 to 2014, described as “rocket and feathers”: prices rocketed, but when the price of crude came down there was only a trickling down or “feathering” in the cost of people’s bills. That situation has been exposed through tariffs, which has been important.

Transmission and distribution costs account for as much as 25% of people’s bills. The distribution companies are private monopolies, as is National Grid for transmission. There is no competition in that part of the sector. When we talk about a broken sector and free markets, we must remember that in many areas the market is actually restricted to one company. The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) rightly talked about the peripheral areas of the United Kingdom, many of which are off-grid, paying more for their energy. People who are off-grid do not have the option of dual fuel payments, so they are paying a lot for either off-mains gas or oil.

[Stephen Crabb]

The hon. Gentleman is making an important point about rural consumers who rely on off-grid gas and liquefied petroleum gas supplies. There have been inquiries into how that market functions. Is he satisfied that it is working fairly for rural consumers in Wales and the rest of the UK?

[Albert Owen]

No. I think more has to be done. I hope that the energy cap sunset clause will enable us, working with the Government and the regulator, to consider greater reform of the energy market so that we can prioritise helping isolated communities. I want to highlight the excellent work of Citizens Advice and many other groups. In my constituency and, I am sure, in the right hon. Gentleman’s, energy costs are a big issue in the citizens advice bureau’s casework, because of the price of oil in rural constituencies.

There is an answer to the monopoly status of the transmission and distribution companies: greater competition from not-for-profit organisations that reinvest in infrastructure. Welsh Water is a not-for-profit organisation. It has competition within it, because it puts its contracts out to tender. It is not a monolithic public monopoly, but a not-for-profit organisation that values its customers first and foremost. I know that the Minister will refer to the Government review of transmission costs. We have not had a response to that yet. I will support the Bill, because I have been campaigning for it for years. I do not think it is a panacea in itself, but together we can help vulnerable and non-vulnerable customers who have been ripped off for too many years.

[Several hon. Members rose—]

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[Claire Perry]

I thank my hon. Friend. I would also like to put on record my thanks to the hon. Member for North Ayrshire and Arran (Patricia Gibson), whom I omitted to thank as one of the original campaigners north of the border.

Eight main issues were raised that I want to address. The first, which was raised by many hon. Members, including the hon. Members for Leeds North West (Alex Sobel) and for Ynys Môn (Albert Owen), and my hon. Friends the Members for Mansfield and for Eddisbury, was what will happen to vulnerable customers once all this has taken place. Of course, we have the safeguarding tariff that is now protecting 5 million people, saving them on average £120 compared with what they would have paid. That has been brought forward. We expect a whole package of additional improvements—smart metering, next-day switching, the midata project, the CMA policies about engagement with those disengaged customers, and an expectation that Ofgem will continue to scrutinise and actively monitor tariffs to make sure that any gaming creeping into the system is knocked on the head.

Many good comments were made about ensuring that the Bill will not disincentivise competition, including by my hon. Friends the Members for Wells, for Rugby (Mark Pawsey) and for Middlesbrough South and East Cleveland (Mr Clarke). We know the level of investment that we have to maintain, which is why the Bill will introduce a time-limited, intelligent cap. The powers given to Ofgem have to ensure that we do not disincentivise competition, while ensuring that companies have an incentive to improve the efficiency of their operations. Too many companies are still stuck in the operational methods of the past and customers are paying the price for that.

Interesting points were raised by my hon. Friends the Members for Fylde (Mark Menzies) and for Waveney (Peter Aldous), and the hon. Member for Kilmarnock and Loudoun (Alan Brown), about an appeal to the CMA, which is something for which the big six are lobbying. I firmly believe that given the level of transparency and scrutiny that will happen when setting the cap, there will be opportunities to ensure that that is robust. Ofgem’s decision on the cap can be judicially reviewed. Courts can consider these issues more quickly than the CMA, and a whole range of evidence can be taken in such a case, whereas with CMA decisions, the range of those who can comment is very restricted. I do not want anything that slows the introduction of the cap.

[Albert Owen]

I pay tribute to the Minister and the Secretary of State for honouring their commitment to take this measure through as speedily as possible. Will she look at other reviews? We await a Government response to the Dieter Helm review, which, by looking at transmission and distribution, could complement the price cap.

[Claire Perry]

The hon. Gentleman anticipates a point I was going to make about many contributions about the calls for additional market reviews. The call for evidence on the excellent Helm review, which was commissioned by my right hon. Friend the Secretary of State, has only just closed, and I think we need to take the time to consider it. I was struck by the speech made by my right hon. Friend the Member for West Dorset (Sir Oliver Letwin). What we want is a rational, functioning economic regulator in a market that is so vital in keeping the lights on, keeping investment going and keeping people warm in their homes, not a political rush to do things.

The right hon. Member for Don Valley raised the issue of green tariffs and gaming the system. Ofgem has never been required to scrutinise existing green tariffs. It will have to scrutinise carefully and consult during the process of the design of the cap to ensure that it is fit for purpose. As we heard from many Members, the expectation will be that customers should not have to overpay to be on a green tariff. We are now buying subsidy-free offshore wind and I opened the first subsidy-free solar farm only last year.

There were many questions about the structure of the cap, including whether it should be variable or fixed. My hon. Friend the Member for Weston-super-Mare has campaigned on this matter very strongly. I was again struck by what my right hon. Friend the Member for West Dorset said. The structure of the cap should be able to take into account changes in the wholesale system. Clause 6(1) states that the period of consideration has to be no greater than six months, but it is entirely within Ofgem’s powers to change the cap more frequently. Of course, as we know, standard variable tariffs are currently updated only one or two times a year. Companies buy forward and hedge their energy prices, so it is not usual for very strong changes in wholesale prices to be incorporated. We will get to see the structure of the cap and its sensitivity to those prices going forward.

There were concerns about ensuring we allow co-operative energy providers to be in the market. My right hon. Friend the Member for Harlow, who is such a doughty consumer champion, made that point, as did the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), the hon. Member for Harrow West (Gareth Thomas) and others. We already have co-operative energy structures—White Rose Energy, Robin Hood Energy and so on—and there is no barrier to those companies coming forward and delivering.

My right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) and my hon. Friend the Member for Rugby asked about the removal of the cap. We will have a series of tests, and we have set out clearly in the Bill what those tests will be. Ultimately, we want loyal customers to be treated as well as, if not better than, new customers who are being attracted by cheaper deals. That will be the absolute test.

In conclusion, we know the Bill is necessary. We know we need to get it through Parliament. I have been really encouraged by the tone of the debate, with so many Members having really scrutinised the Bill and being absolutely determined to see it through. I am confident that we can pass this vital Bill and our constituents expect us to do so, as they do not want to be overpaying on their bills. I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Domestic Gas and Electricity (Tariff Cap) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Domestic Gas and Electricity (Tariff Cap) Bill:

Committal

1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 15 March 2018.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and up to and including Third Reading

4. Proceedings on Consideration and proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.

Other proceedings

7. Any other proceedings on the Bill may be programmed.—(Rebecca Harris.)

Question agreed to.