Domestic Gas and Electricity (Tariff Cap) Bill

Alex Sobel Excerpts

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

[Alex Sobel (Leeds North West) (Lab/Co-op)]

I have lived my whole adult life under the liberal energy market —an oligopoly—that was created by the Conservative party in the 1990s. I have personal experience of prepayment meters and of having to feed 50p pieces into the meter and then often having to sit in the dark when the 50ps ran out. I support the principle of the price cap but, as my hon. Friend the shadow Secretary of State said, we do not know when it will be in place, what the level will be or by how much bills will be reduced.

As all my hon. Friends have said, a price cap was Labour policy during the 2015 election, and I pay tribute to our Front-Bench team at the time, to our continued support for the policy and, latterly, to the Government. I also pay tribute to Which? for its campaigns to reform an energy market that is failing the majority of consumers. In 2014, the “Fix The Big Six” campaign called for the energy market to be referred to the Competition and Markets Authority. The subsequent CMA investigation found that weak consumer engagement and competition allowed energy suppliers with unilateral market power to exploit approximately two thirds of customers through excessive prices on default tariffs, leading to £1.4 billion consumer detriment a year, which is what the price cap will attempt to resolve.

Ofgem is now implementing a package of remedies recommended by the CMA to improve consumer engagement and encourage customers to switch to better value deals, to which the hon. Member for Wells (James Heappey) referred. However, nearly 60% of consumers remain on default standard variable tariffs. In February 2018, the difference between the average price of an SVT offered by the big six and the cheapest tariff in the market was £3,051—a huge difference for consumers. Are the Government choosing to act, or has the failure of the CMA and big six to provide customer value forced the Government to act?

The Bill only proposes a temporary price cap, and I am concerned that energy providers may use that to offset initial price reductions with increases once the cap is removed. It is also not certain that customers on a capped default tariff will benefit as market conditions change in the future. The Government are relying on future digital technology to solve the problem, but I am concerned about a long-tailed digital divide lasting decades, a point lost on many Conservative Members—as cheaper— fixed-term tariffs may be withdrawn from the market, an effect which was observed following the introduction of the prepayment meter cap in April last year.

In 2016, 4.4 million customers paid for electricity using a prepayment meter, which is 16% of all electricity customers, and 3.5 million prepaid for their gas, which is 15% of gas customers. That marked a slight reduction in the number of customers on such meters after a long-term increase. Customers on PPMs cannot easily switch to credit meters, which would give them access to a wider range of market tariffs, including the cheapest. In 2016, just 4% of PPM consumers changed to credit meters. That is an increase on previous years, but there continues to be a substantial number of cases in which the supplier refuses to let the customer switch or sets a condition, such as a credit check or security deposit, that the consumer does not meet; I have experienced that in the past. In 2016, 14% of electricity customers and 18% of gas customers who requested a change to a credit meter were prevented from doing so. Indebted PPM customers—about 10% of all PPM consumers—generally cannot switch to a credit meter, but those with a debt below £500 have the right to change supplier, which gives access to cheaper PPM tariffs. The number of successful switches by indebted PPM customers remains low at fewer than 3,000 in 2016, which is just 5% of the consumers who applied to switch supplier, but that has risen following an increase in the debt threshold for customers to be eligible. And I have to say that much of that debt has been caused by Government welfare policies.

Concerns about competition led the CMA to introduce a transitional safeguard tariff for PPM customers, which was introduced last April and is administered by Ofgem, so we have a model for the cap. As a result, the average price fell by around £60 for a typical dual-fuel PPM consumer. That is great, but it is nowhere near the level that PPM customers need to reach to be anywhere near where credit customers are. The cheapest available prepayment tariffs remain consistently more expensive than the cheapest tariffs available to those using direct debit, and that is a scandal. The growth of smart metering should increase tariff choice for prepayment meter customers by lowering the technical and structural barriers to competition. By the end of 2016, prepayment meter customers were slightly more likely than other customers to have smart meters—14% of electricity prepayment meters and 16% of gas prepayment meters were smart—but that indicates how long it will take us to move to smart technology, which many Conservative Members are ignoring.

I am concerned that standard variable tariff customers will have the same experience as people on prepayment meters, and also that the energy companies, particularly the big six, will try to force people on standard variable tariffs to go on to prepayment meters. The Government need to be mindful of that during the passage of this Bill.

My hon. Friend the Member for Harrow West (Gareth Thomas) and others have referred to municipal energy companies and co-ops. Robin Hood Energy has been mentioned, and White Rose Energy has been started by my local authority in Leeds—I declare an interest both as a customer and having been the deputy executive member for climate change and sustainability when White Rose Energy was launched.

Both White Rose Energy and Robin Hood Energy have worked to take people off prepayment meters and to ensure that customers are on the best possible tariff—I looked at my bill this morning, and it told me that I am on the best possible tariff for both electricity and gas. That is a model of great practice implemented by a great local authority in Leeds.

I am concerned that the Bill does not provide an effective and holistic solution to the problems facing people on standard variable tariffs. Utilising technology to ensure faster switching, and utilising mechanisms to ensure more people move off prepayment and to ensure greater market choice should all be central to the Bill, rather than just the sticking plaster of a temporary cap that may penalise some customers. Before Third Reading, I hope the Minister will investigate the effect of the unintended and potentially perverse consequences of the Bill as it stands.

Domestic Gas and Electricity (Tariff Cap) Bill

Alex Sobel Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 30th April 2018 Commons Chamber

[Rachel Reeves (Leeds West) (Lab)]

It is a privilege to follow the hon. Member for Eddisbury (Antoinette Sandbach) in this debate. I want to speak to amendment 9, which is in my name and those of hon. Members from across the House who are members of the Business, Energy and Industrial Strategy Committee. As the Minister knows, the Committee did a large amount of work on the prelegislative scrutiny of the Bill, and we are all pleased that it has reached Report and Third Reading in time to ensure that the energy price cap is in place for next winter.

During prelegislative scrutiny, the Select Committee proposed several changes, all of which were either accepted by means of amendments to the Bill or accepted in principle. We welcome the collaborative approach of the Minister and her team. Amendment 9 addresses an outstanding concern relating to vulnerable customers that I know the Minister shares. As she knows, 83% of people in social housing, 75% of people on low incomes and 74% of disabled customers are on standard variable tariffs. The aim of the Bill is to ensure not only that everybody has a price cap, but that it will help the most vulnerable, who are predominantly on the standard variable tariffs.

One million vulnerable customers are already on Ofgem’s safeguarding tariff. The Select Committee’s first recommendation, as part of its prelegislative scrutiny, was for the Government to provide details on plans to protect vulnerable customers from overcharging when Ofgem’s safeguarding tariff and the Government’s price cap are lifted. My concern, and the concern of other members of the Committee, is what happens when the whole-of-market price cap comes in for standard variable tariffs. Will Ofgem continue with the safeguarding tariff at the same time?

In response to that recommendation, the Government gave a long list of laudable policies that are today in place for vulnerable customers. We of course welcome that list of policies, but concerns linger. Ofgem has been clear, including in a decision letter on 7 December last year, that it plans to do away with the safeguarding tariff when the whole-of-market price cap on standard variable and default tariffs comes in. Ofgem has said that the warm home discount safeguarding tariff will end in December 2019 if it has not already been replaced by other price protection—that is, the price cap we are debating and voting on this evening.

Some might say that that is fine, because the new price cap will replace the safeguarding tariff for customers on the warm home discount. That will only be the case, however, if the new price cap is at the same level or lower than the safeguarding tariff already in existence today. If it is not, then energy bills will rise for the 1 million most vulnerable customers when the price cap comes in. That would mean that the very legislation to protect consumers may hurt those who most need protection, and I know that the Minister, along with Members across the House, does not want that to happen.

[Alex Sobel (Leeds North West) (Lab/Co-op)]

My hon. Friend knows very well that in Leeds we have set up White Rose Energy, a municipal energy company. Its main mission is to protect those vulnerable consumers. When consumers move away from the cheapest tariff, it informs them repeatedly to ensure that vulnerable consumers are protected. Is that not a model of good practice for all energy companies?

[Rachel Reeves]

I am pleased that my hon. Friend and fellow Leeds MP mentions White Rose Energy, which is doing fantastic work. It ensures that customers in Yorkshire have a greater choice of energy companies and genuinely puts customers first. During prelegislative scrutiny, we heard from other small companies, including Bulb and Bristol Energy who are also trying to support their customers.

No one in this House wants a situation where the most vulnerable customers see their prices rise because of the price cap. Perhaps Ofgem could operate the safeguarding tariff and the price cap we are debating today simultaneously. That seems entirely possible and desirable to try to avoid the issues that National Energy Action and others have raised from coming into effect.

I hope we will receive assurances from the Minister this evening that these risks will not be allowed to materialise. In that case, I will not press this amendment to a Division. Let me urge the Minister, however, to ensure that the Bill does its job of protecting customers and that energy companies are not able to use any loopholes that would mean prices rising for the most vulnerable customers: those we have the greatest duty to protect.