UK Energy Market

Andrea Leadsom Excerpts

Wednesday 9th March 2016 Westminster Hall

[The Minister of State, Department of Energy and Climate Change (Andrea Leadsom)]

I congratulate my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) on securing this debate within such a short time of the CMA report coming out.

I want to reiterate that my Department puts consumers at the heart of everything we do. We are determined to be genuine consumer champions. Hon. Members will know that our priorities are to ensure that we have secure supply of energy and that we decarbonise at the very lowest cost to consumers. I remind hon. Members that we are determined to focus available support on the fuel-poor.

My hon. Friend was right to mention the appalling story of E.ON and Age UK selling poor deals to pensioners and it is right that Ofgem is looking carefully at that. He also mentioned the scandal during the last Parliament of price comparison websites not giving the best prices. That has been addressed in amendments to the voluntary code, but he was right to highlight that some of these issues are extremely serious and that we must always take steps to prevent them. I want to use this opportunity to reiterate to any energy companies listening to the debate that when wholesale prices go down, the Government expect them to pass those reductions directly to their customers.

The CMA, as hon. Members know, published its provisional findings last July. It is very clear that it found that retail competition is not working. It found that a lack of competition means that about 70% of households remain on their supplier’s most expensive energy tariff, despite the savings that they could make by moving to someone else. In fact, by switching from a standard tariff to the best fixed direct debit deal on the market, many people could save about £200 and some could save more, so again I will take this opportunity to say to anyone listening out there: please do shop around; it is really worth doing.

However, there is some good news to report. We have been working hard with Ofgem to improve competition, and the work is beginning to bear fruit. We now have 31 independent suppliers competing with the big six in the domestic retail market. That is up from just seven small suppliers in 2010. The independent suppliers are making inroads into the market share of the big six. They now have almost 15% of the dual fuel market; that is up from less than 1% in 2010. The Government have worked with the industry and Ofgem to halve the time that switching supplier takes from five weeks to 17 days. An increasing number of households are switching supplier. Ofgem recently reported a four-year high in the number of energy account switches; 6.1 million energy account switches took place last year. That is increasing competitive pressure on the big six, and prices are falling. We saw the price of the cheapest one-year fixed tariffs fall by more than £100 during 2015, and prices are continuing to fall. That is good news for consumers who shop around and switch tariffs and supplier.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

Will the Minister give way?

[Andrea Leadsom]

I will not give way at the moment. I want to get through part of my speech, as it has already been severely curtailed.

It is a massive challenge to inject the sort of competition that we are seeing for fixed tariffs into the standard variable tariff segment of the market. That is the default tariff that most people are on. Despite the good news that all of the big six have announced price cuts to their standard variable tariffs this year, we want to see much more effort.

The Government, too, must do more, so we are working with Ofgem and the industry to move to 24-hour switching and we are continuing with our Power to Switch campaign. In just one month of the Government-funded Power to Switch campaign last year, more than £38 million was saved by 130,000 households switching energy supplier. Of course, we have already committed to acting urgently on the CMA recommendations that we expect to see tomorrow.

[Matthew Pennycook]

Does the Minister think that there is any merit in looking at what more Ofgem can do to help new entrants better to understand the regulatory environment, as Ofcom does, I think, with the telecommunications sector?

[Andrea Leadsom]

Yes, the hon. Gentleman makes a good point. It is something that Ofgem is very aware of, but I will certainly take that point away and look at it again.

I want to address the point made by the hon. Member for Glasgow South West (Chris Stephens). He is absolutely right to say that prepayment meter customers are particularly ill served by competition. That has been picked up by the CMA. It is true to say that those customers have far less choice of tariffs. We had a very good debate about that quite recently in the main Chamber. However, we are beginning to see some improvement in competition, with some suppliers offering smart prepay tariffs. We are working with Ofgem to remove the barriers that those customers face in switching supplier. For example, Ofgem is working with suppliers to help customers who are on prepayment meters and in debt to switch supplier for a better tariff. The hon. Gentleman raised a very important point.

We are also starting to see some improvement in customer service. The latest Ofgem data showed that the six major suppliers received 1.5 million fewer customer complaints in 2015 compared with 2014, but with a total of just under 5 million complaints, they still have a long way to go. We are therefore working with Ofgem and the energy ombudsman to identify and then fix systemic issues to stamp out poor customer service. Ofgem carried out a review of the role of the ombudsman last year and recommended that it should carefully analyse the specific complaints and use that information to reduce the underlying causes of complaints. That work is ongoing and will be very important.

As well as working to improve competition, the Government have a range of programmes to help vulnerable and low-income consumers with their energy bills. We are supporting 2 million customers a year with the warm home discount. We have increased the level of the discount, and in 2014-15 more than 1.4 million of the poorest pensioners received £140 off their electricity bill, with more than 1.3 million of them receiving the discount automatically. We have confirmed that the warm home discount will be extended until 2020-21 at the current level of £320 million a year, and we will be consulting on proposals for 2016-17 shortly. It is the case that 600,000 low-income and vulnerable households, including families, also benefit from £140 off their bill. Altogether, a total of £1.1 billion of direct assistance has been provided to low-income and fuel-poor households since the scheme began.

The winter fuel payment, which went to about 12.5 million older people in 9 million households last winter, is a significant amount of help towards higher fuel bills in the winter, with households getting between £200 and £300.

Also, and vitally, the cold weather payment, which is paid to vulnerable people during periods of very cold weather, has been permanently increased to £25. Last winter, more than 400,000 payments were made, during the very coldest weeks of the year, at an estimated cost of £10.6 million.

A reformed domestic supplier obligation from April 2017 will improve the energy efficiency of well over 200,000 homes a year to deliver on our commitment to help 1 million more homes in this Parliament.

In response to the hon. Member for Coatbridge, Chryston and Bellshill (Philip Boswell) on fuel-poor households in Scotland, he will know that fuel poverty is a devolved issue. However, some of our schemes to help tackle fuel poverty are GB-wide. That includes the energy company obligation. The hon. Gentleman will be aware that with 35.3 households per 1,000 homes treated, Scotland receives the greatest share of ECO, followed by England, with 25.4 households per 1,000 homes and Wales with 21.9.

As well as supporting low-income and vulnerable consumers directly with their energy bills, we fund the big energy saving network. Again, I think that this addresses the point made by the hon. Member for Glasgow South West about the need particularly to help the extra vulnerable and the fuel-poor. Face-to-face help and advice through trusted organisations is one of the most effective ways to help vulnerable consumers to engage with the energy market. The big energy saving network reached more than 90,000 people in 2013-14 and about 130,000 in 2014-15, and we are well on track to reach a further 100,000 this winter. The programme has helped some of the hardest consumers to reach, with above average percentages of those with a disability, off the gas grid or without internet access—issues that a number of hon. Members pointed out—and about half of participants, 51%, have reported that they now spend less on heating their home as a direct result of being helped through the network.

My hon. Friend the Member for Central Suffolk and North Ipswich has made very good points, as have other hon. Members. This has been a lively and thoughtful debate, and we have covered a lot of ground. We already have work in train: rolling out smart meters, moving to next-day switching and continuing to help vulnerable and low-income households with their energy bills. We are committed to acting on the CMA’s recommendations. I therefore hope that my hon. Friend and others will leave the debate reassured that the Government are determined to make the energy market work in the interests of all consumers.