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.