Energy Prices

Albert Owen Excerpts

Wednesday 14th January 2015 Commons Chamber

[Caroline Flint]

As I have said in the House before, we will give the regulator a power and a duty to ensure that when wholesale costs fall, it will make the decision—as is only right—to ensure that those reductions are passed on to consumers. I should have thought that the Secretary of State would welcome that. As was pointed out by my hon. Friend the Member for Denton and Reddish (Andrew Gwynne), Ofgem—which I understand the Secretary of State supports—has a duty and a responsibility to protect consumers, and one way of protecting consumers is to ensure that they are paying a fair price for their energy. I see absolute clarity in our policy, but no clarity on the Government Benches.

That brings me to the third question. This is where things really begin to get interesting. Why have suppliers failed to pass on these savings? A number of different explanations—although they might more accurately be called excuses—have been provided, both by energy companies themselves and by their friends in the Government.

The first excuse that we have been given is that, because there is a gap between the point at which an energy company buys its energy and the point at which that energy is actually delivered, a company might be buying energy 18 months or a year ahead of time. That is true, but wholesale energy costs have been falling for over a year, so even if companies bought their energy a year or more in advance, bills should still be coming down by now. That explanation simply does not hold.

[Albert Owen (Ynys Môn) (Lab)]

I was very disappointed by what the Secretary of State said a moment ago. Whenever I raise this issue in interventions with him, he hides behind the regulator and says, “We need a strong, independent regulator to ensure that consumers’ interests are protected.” I suggest that a review in the hands of a strong regulator is the way to protect their interests. I am sure that the Secretary of State agrees with that. He should not try to score silly party political points.

[Caroline Flint]

Labour Members certainly agree with that, as do others, including the CBI. Energy should be a managed market. It is different from other things that we may buy, because it is essential to life. It keeps our homes warm, it keeps the lights on, and it keeps our hospitals and our businesses going. In this area it is absolutely clear, and I would have thought there would be some agreement from those on the Government Benches about this, because they have welcomed the CMA review. Why would they welcome a review if they thought everything was hunky-dory? Clearly there is something wrong in the way this market has been working, and that is why we have risen to the challenge to do something about it.

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[Sir Alan Duncan (Rutland and Melton) (Con)]

Populist posturing is a sick and cheap form of politics, and the motion pretends that if only Labour were elected, there is a quick and easy way of reducing energy prices. The Opposition are promising something that will not be delivered and they know it, and they are promising something which simply cannot be delivered in the way they say.

The policy of the Opposition is the worst conceivable combination of ignorance and deceit, and it labels them as ill equipped to look after the economy. Their ignorance of markets and their Canute-like pretence that they can control prices in the way they propose is pitiful in its fantasy and it is irresponsible. The Labour party is saying that the tide can go out, but that it has the power to stop it coming in.

Energy markets are complicated and multifaceted. None of them enjoys the direct, simple, linear relationship described in the Labour party’s policy and motion. Any such correlation is not the way of the real world. I have been involved on and off in the energy markets, principally in oil, for 35 years. Oil, gas and coal in their pricing are interrelated. They tend to move similarly. The only sector that enjoys a modicum of economic independence and segregation is nuclear, to which one might add, to a lesser extent, wind. But the dominant marker for these major providers of the source of energy, and hence utility bills, is oil. It determines in broad terms the cost of energy for power generation, heating and transport.

I started in the business over 30 years ago, and we now have the free market in oil that we did not use to have. When that changed, the nature of pricing also changed. Our own North sea oil Brent became a marker crude for contract pricing, so instead of fixed prices—30 bucks for everybody, going from one company all the way through that company to the end—we got a free market. That market means that here we are in January, but Brent crude is priced for March and April, and if it is a barrel of oil it has to be shipped and refined, so it takes time—perhaps four months—for prices to work their way through from the wellhead to the pump.

[Albert Owen]

My first job was as a galley boy on an oil tanker in the middle east, so I know a little bit about oil from a different perspective from the right hon. Gentleman’s. He says people are ignorant of the facts. Does he agree with the Prime Minister, who said that the best way to deal with the issue is to

“give the regulator the teeth to order that those reductions are made”?

Those were the words of the Prime Minister. Is he criticising us for repeating what the Prime Minister said? Does he agree with the leader of his party?

[Sir Alan Duncan]

I totally agree with the Prime Minister. What we want is a competitive market—I agree with him—not the control of prices by a regulator, whom the right hon. Member for Don Valley (Caroline Flint) seems to want to be able to write every commercial contract throughout the industry.

Let me say to the right hon. Lady that in the case of gas, the stupidity of the motion is that there is no such thing as a straightforward wholesale price. When I put my question to her, she lamentably failed to answer it. There is no such thing as a straightforward wholesale price whose movement should be fully and simply reflected like that in retail prices. That is the fantasy and the ignorance of this proposal, because life is more complicated.

Let us take gas contracts. Some gas contracts have pricing formulae which do not simply follow the headline daily market price. They may be based on various averages or regional weightings. They may have locked themselves into a one-year or a six-month fixed price. They may face maximum and minimum parameters. Their costs may have been hedged to eliminate the risk of massive fluctuations and guard against another idiotic policy from the Labour party. This is a complicated business, within which suppliers and generators may be locked into various different pricing structures, so the idea that a regulator can suddenly say, “Oh, there’s the wholesale price, therefore there is the retail price,” is total lunacy and ignorance, of which the right hon. Lady should be ashamed.

Even if there were some sort of unshackled easy link to daily prices, the Opposition do not understand the distinction between price and volume. The price might fall in a so-called wholesale market, but if there is no business of any volume in the market, how can that price, as a tiny example of one day’s price, then be used as the determinant of retail prices under the right hon. Lady’s policy? This is folly of such total lunacy and ignorance that I am ashamed that anyone in this Chamber should want to stand up and pretend that it makes any logical, decent sense.

Labour Members started by proposing a freeze—it then became a cap, although they have got very muddled, but the leader of the Labour party called it a freeze—after which all the companies’ share prices fell and their pricing policies had to change to guard against this idiocy. Labour’s policy announcement hit share prices and utilities and was detrimental to the consumer, and its cost of living campaign is in shreds.

The clear point in this debate is that we have a regulator to oversee and police the dangers of collusion and uncompetitive conduct. That is where we should all agree, and that is where the influence of Government should lie. It is foolhardy for the right hon. Lady to pretend like King Canute, or rather Queen Canute, that she can stop the natural movement of prices. It is deceit and delusion of which Labour Members should consider themselves ashamed.

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[Albert Owen (Ynys Môn) (Lab)]

It is a pleasure to the follow the hon. Member for Tamworth (Christopher Pincher), but I think he misrepresents the words of the chief executive of E.ON in the Select Committee. I certainly never heard him saying those words about the Leader of the Opposition and his energy policy. I can understand energy companies feeling uncomfortable when we have a reset proposal for the energy market and closer scrutiny, but I make no apologies. If it is in the interests of the consumer, we should move forward as soon as possible.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

The important thing is to be concerned about current consumers and their energy bills being as low as possible. However, we must also think about future consumers and ensuring investment in supply and in networks. The lesson from when Labour was in Government and we faced high gas prices is that it did not intervene in the market, but allowed the market to bring forward new investment that brought new supply and prices down.

[Albert Owen]

I thank the hon. Gentleman for his intervention. I think he was complimenting the previous Labour Government on their handling of energy matters. If we get a new Labour Government, we will do exactly the same thing: create the stability that has not been there. [Interruption.] I am pleased that the right hon. Member for Rutland and Melton (Sir Alan Duncan) has returned to the Chamber. When gas and oil prices rise, the suppliers rush to pass on the costs to us, yet when we read in the papers that the oil price has collapsed and gas prices are falling, we have to wait a long time before it comes through on our bills.

The first thing we need to do is

“give the regulator the teeth to order that those reductions are made”—

not my word, but the words of the Prime Minister before the election. I cannot accuse him of being consistent in what he said before the election and what he has said since taking office, but he should be in the Lobby with Labour today, supporting our proposals.

I have long felt that our constituents’ concerns have not been put forward. However, I praise the Energy and Climate Change Committee for producing a number of reports on this subject, including one on prices, profits and poverty in the 2012-13 session. The big issue then—and rightly so—was the confusion and complexity of bills, to which many Members have referred. The outcome was good. We recommended that the Government give extra powers and responsibilities to the regulator to act in the interests of consumers, and the Government enacted just that. We are asking for the same today, and if the Government could do it then, they can do it now. At the time, consumer groups highlighted how, when the price of oil and gas fell, it did not follow through to bills, and Ofgem cited evidence that

“bills respond more rapidly to rising supplier costs compared with falling costs.”

As has been said, the regulator’s remit is to protect consumers. It could intervene sensibly, conduct reviews in its own time—it does not have to wait—and ensure that the consumer gets a better deal. That is what it is there for.

I am pleased with Labour’s policy on energy prices and strengthening the regulator. Like other Members, I have concerns about those off the gas grid. As part of its market reset, Labour will be looking to regulate that area. My constituents who are not on the gas grid are paying considerably more in their unregulated areas—they do not have dual fuel, and their prices have been rising steadily—so I am pleased about the reset and the price freeze, or cap. Whatever hon. Members want to call it, the point is we are going to look at the energy market. It is fractured, and a fracture takes an awfully long time to heal, unless immediate action is taken.

We should be taking that immediate action. Government Members have the opportunity today to stop standing up for the big companies and the industry and instead stand up for their constituents. If they are knocking on doors, they will be hearing how consumers are being hurt by rising energy prices. I have seen the bills of my constituents, very recently, which show not a fall but an increase in the cost of energy since last year—and in that period we had a relatively hot summer and a relatively mild autumn and winter. What is coming will be even harder for people. Yes, there will be a slight drop in prices, and I do welcome E.ON taking the lead, but why has it done it just for gas? When gas prices were rising, the big six told us it had an immediate effect on electricity prices, yet they are not now reducing their electricity prices.

In the last year, the wholesale price of gas has dropped by 20%, but the consumer has seen just a 3.5% drop—from one energy company. We need to rebalance the energy market. We need to stand up, and be proud to stand up, for our constituents. The motion gives us the opportunity to follow the Prime Minister’s wise words. Instead of playing King Canute, instead of being ridiculous—he has been ridiculed by Members of his own party—the Prime Minister, as well as all Government Members, should stand up for our constituents, join us in the Lobby to support our constituents, who send us here to protect their interests, and get the regulator to do its job.

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[Albert Owen]

I am sorry to interrupt the Minister’s party political speech—[Laughter.] Conservative Members may laugh, but they are on the wrong side of the argument when it comes to consumers. On the 3.5% reduction in the price of E.ON’s gas, is she as confused as I am about why there has been no throughput to the company’s electricity price, which is not being reduced? When gas prices go up, it is the companies, not the Secretary of State, that tell us they have to follow suit and increase electricity prices.

[Amber Rudd]

Electricity prices have not fallen at that rate. I must gently tell the hon. Gentleman off for suggesting that I might be trying to “weaponise” this important subject. That is something we should never do.

We know that the cheapest tariff currently on the market is £100 cheaper than the cheapest tariff a year ago, and that if Labour had been able to freeze prices in October 2013, customers would already be £100 a year worse off. Labour’s price freeze proposal is preventing bills from falling further. I know that the right hon. Member for Don Valley (Caroline Flint) likes to take comments such as these as confirmation of an expectation of another Labour Government, but the frisson of fear from the market at the prospect of the chaos that would ensue under a Labour Government is resulting in suppliers being unsure about making price reductions.

Labour does not understand that we need to fix the market for good, not freeze it. That means taking policy costs off bills, forcing suppliers to be transparent about their costs and profits, and getting behind the independent inquiry, which reports in June and has the power to break up Labour’s big six. Unfortunately, the Labour party appears to think that it can make up for its total failure to reform the energy market during its 13 years in office by advocating short-term gimmicks. This goes to the heart of the debate on the future of the energy market and the debate that we have heard today.

Let us consider for a moment what regulating to require that suppliers pass on reductions in wholesale costs would mean in practice. For a start, it is likely to mean more volatile prices for customers. Gas wholesale prices can change significantly and unexpectedly. If companies have to put prices down immediately following a reduction in wholesale prices, they will have to put them up immediately after a rise, so I think we can see from the contributions we have heard and from the comments from people in the market that that would not work.

Let me address some of the comments made in this afternoon’s enthusiastic debate. The right hon. Member for Neath (Mr Hain) told us about the Severn barrage project and his view about the opportunities for cheap electricity from it. We all listened carefully and I thank him for his contribution. My hon. Friend the Member for South Suffolk (Mr Yeo), the chair of the Energy and Climate Change Committee, highlighted other areas where we could bear down on costs and the action that Ofgem needed to take. The hon. Members for Glasgow North West (John Robertson), for Ynys Môn (Albert Owen) and for Rutherglen and Hamilton West (Tom Greatrex) spoke about fuel poverty. I wish to remind the House of this Government’s absolute commitment to reducing fuel poverty. We have made that central to our policies since we came to office. We recognise that vulnerable consumers need more action to help them take action to save money.

One point made by the hon. Members for Ynys Môn and for Inverclyde (Mr McKenzie) is that not everybody is able to take action to switch, and they questioned the value of switching. That is why we have committed nearly £2 million over two years to fund community and voluntary organisations through the big energy saving network; our network provides specially trained volunteers to help consumers in communities across the country to get better deals from energy suppliers and reduce their energy bills—this helped more than 90,000 people last winter. We know that there are people out there who need our help and we are determined to make sure that they get it, so that the most vulnerable are never left behind.

My right hon. Friend the Member for Rutland and Melton (Sir Alan Duncan) gave us an excellent talk on Labour party policy, saying that the tide can go out but the Opposition think, extraordinarily and Canute-like, that they can bring it back. I was grateful for the contribution from the hon. Member for Wansbeck (Ian Lavery), who chose to characterise this debate as being about big business versus people. He is quite wrong. This is not an example of that; it is an example of an energy market that needs to be regulated well. I urge Opposition Members not always to think of businesses, which provide investment and employment, and which are vital to our economy, as somehow being wicked.

My hon. Friend the Member for Elmet and Rothwell (Alec Shelbrooke) made his usual excellent contribution, commenting on behalf of his constituents. He stressed that not only is Labour’s proposal wrong, but it could cost constituents money. May I say what a pleasure it was to visit him in Kippax in his constituency to see the excellent work being done for home efficiencies in his area? The hon. Member for Inverclyde raised issues on behalf of consumers, specifically referring to direct debits. May I point out to him that this Government have regulated for money accumulated by energy companies under direct debit always to be returned by the end of the year? I was interested to hear of the project he mentioned, whereby there was local working with his vulnerable constituents.

My hon. Friend the Member for Monmouth (David T. C. Davies) pointed out that shareholders of these energy companies play an important part in our community, too. It was good to hear of his enthusiasm for shale, although less so for smart meters—let me reassure him that they will not be compulsory. The hon. Member for Angus (Mr Weir) spoke about fuel poverty and he should be in no doubt of our efforts to help people out of fuel poverty—we will continue to do that. I should point out to him that switching is an important part of not only delivering lower bills on a one-off basis, as he described, but stimulating other independent companies to join the market. Competition is the way to reduce the costs. My hon. Friend the Member for Tamworth (Christopher Pincher) highlighted the chaos of the Labour party and the need for energy companies to generate funds to invest—he is quite right.

My hon. Friend the Member for Dover (Charlie Elphicke) contrasted the chaos of Labour’s policies, both in this area and more generally, with the competence and careful planning, which is needed for a stable economy, under this Government. The hon. Member for Southampton, Test (Dr Whitehead) made the case for the regulator to regulate hedging policies, which is, I think, a little ambitious.

We have had an excellent debate, which, as always, has raised a lot of interest from fellow Members. But let me make the point that it is only by providing the right competitive framework that we will help to ensure that investment in our energy markets continues to flow, that industry can grow and that the markets deliver for consumers. Only through fixing the market for good—not interesting, temporary, short-term gimmicks—can we truly help consumers to stay warmer for less. I urge the House to reject the motion.

Question put.