Andrew Gwynne
Main Page: Andrew Gwynne (Labour - Denton and Reddish)(9 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text
Caroline Flint
I will give way one more time, then I want to make progress. I realise that we are short of time because the earlier debate went on considerably longer than expected.
Andrew Gwynne
I am grateful to my right hon. Friend. Was she as shocked as I was to see in the annual fuel poverty statistics report projections of households in fuel poverty increasing to 2.33 million? That is equivalent to the population of west Yorkshire living in fuel poverty. Is that not a damning indictment of a market that just does not work?
Caroline Flint
It is regrettable and worrying that, as I understand it, the number of families in fuel poverty is higher now than 10 years ago. All families deserve a good deal, whether they are in fuel poverty or not, but of course we need to give full attention to those who are most vulnerable.
As is to be expected, the companies have come up with all kinds of excuses, and I shall deal with each of them in turn. The first excuse is that even if wholesale costs have fallen, other costs have increased. Given that wholesale costs are by far the biggest single component of a household’s energy bill, making up about half of it, we would need evidence of quite dramatic increases in other costs for this claim to hold true. What might those other costs be? Energy bills are made up of five components: wholesale costs, network charges, environmental and social policies, and the supplier’s operating costs and profits. If we leave aside the operating costs and profits, which are within the company’s control, that leaves only two possibilities—network charges and policy costs, both of which, helpfully, are regulated by Ofgem or mandated by Government, meaning that we can test the companies’ claims.
According to Ofgem, network costs are up slightly, by about £7 on the average bill compared with last year, and are forecast to remain flat this year. So that cannot explain the gulf between wholesale costs and retail prices. What about environmental and social policies—the levies that pay for investment in clean energy, insulation and support for the most vulnerable? Given the cuts to schemes such as ECO, the energy company obligation, the fact that the warm home discount is now funded by the taxpayer and the cuts to the forecast increase in the carbon floor price, the claim does not ring true.
Undoubtedly, there are cost pressures, particularly from the small-scale feed-in tariff, but I hope the Secretary of State, who, after all, sets and monitors these costs, will agree that in no way can they account for the scale of the gap we are now seeing between the prices that companies pay for energy and what they charge their customers.
The second excuse we have heard is that the companies’ hedging strategies prevent them from passing on the reductions. What are these hedging strategies? One would be forgiven for thinking that they are a convenient device that enables the companies to complicate matters and confuse people whenever they are challenged about their prices. In fact, they are simply companies’ trading strategies, which determine how far out and in what quantity they begin to buy the energy they need for any given day. So what the energy companies are saying, in effect, is, “Sorry, we bought our energy on another day when it happened to be more expensive”—which, by the way, just happens to make their generation businesses more money, but let us not get into that for now.
It is impossible for anyone to verify the companies’ claims because they never disclose their hedging strategies, but I invite the House to be sceptical. In a properly functioning competitive market, we would expect that, given that wholesale costs are the largest single component of bills, there would be some motivation for companies to try to out-compete their competitors on that price. Adopting a different hedge might allow them to do that. Just to say that companies have different hedging strategies does not address the substantive question of whether they are adopting trading strategies that impose higher than necessary costs on consumers.
An even less persuasive version of that argument has been suggested. Some so-called analysts have suggested that the reason the companies have failed to pass on the cost reductions is the prospect of an energy price freeze. Although I welcome their confidence in a Labour victory at the next general election, I must say that of all the excuses I have heard in my time in this job, that has to be the most ludicrous. The idea that the day after my right hon. Friend the Leader of the Opposition made his speech on 24 September last year all the energy companies went out and bought up all their energy for the next four years does not stand up to the slightest scrutiny.
Let me be clear: if there is any evidence of suppliers colluding to inflate their margins, which I am sure the Competition and Markets Authority will monitor with great interest, and if this Government refuse to take action, we will. Of course, if we had greater transparency in the way energy is bought and sold in the first place, as Labour has proposed through our electricity pool and ring fence, the issue would be a lot clearer for everyone.
The final excuse we have heard is that nothing untoward could possibly be happening because the energy market is so competitive. Switching is up, we are told, and competition has never been more vigorous, but the facts speak for themselves: wholesale costs have fallen substantially, and over a sustained period; and not only has none of the major suppliers cut its prices, but none has even indicated that it has any intention of doing so. Indeed, some suppliers have actually ruled out price cuts this year. In its interim management statement, published last month, Centrica reported:
“No change expected in residential energy prices this year”.
However, as today’s motion notes, if competition was working effectively, we would expect wholesale cost reductions to be passed on as quickly and fully as wholesale cost increases, but we never see that. A report published by Ofgem in 2011 stated:
“We have found some evidence that customer energy bills respond more rapidly to rising supplier costs compared with falling costs.”
In its “State of the Market Assessment” this year, which led it to make a referral to the CMA, Ofgem again found that:
“There appears to be an asymmetry in how suppliers respond to changes in costs. We found that suppliers pass on cost increases more fully and more quickly than cost decreases.”
Furthermore, it observed that:
“The asymmetry we found was greater than when Ofgem performed a similar exercise in 2011.”
It is not just wholesale costs. It must be a bitter disappointment to the Secretary of State that four of the big six have still not passed on the full £50 saving to 3.7 million customers following the deal he struck with them on green levies in December.
This is not some passing trend that will correct itself in the fullness of time; it is a systemic problem in our energy market that is a result of deep-seated and fundamental flaws in its structure and regulation. Waiting for the CMA to report is not an option. Wholesale prices have been falling for the past six months, with no signs that consumers will benefit, and the CMA investigation, which has not even begun, will take a further 18 months to complete.
That being the case, the question raised is this: what should we do about it? In theory, there are two things that can protect consumers: competition, where companies compete on pricing and customer service to win and retain customers; and regulation, where consumers enjoy certain defined protections. But in the energy market competition is at best immature and regulation, at least on pricing, is non-existent.
Andrew Gwynne (Denton and Reddish) (Lab)
I am grateful to be able to contribute to this debate. I commend the tenacity of my right hon. Friend the Member for Don Valley (Caroline Flint). She is absolutely right to push this issue time and again. Only last week, it was revealed that gas prices for next-day delivery had reached their lowest level since September 2010. Likewise, electricity prices are at their lowest level since April 2010. Of course, none of that benefit has been passed on to consumers, which is precisely the issue under discussion.
The Secretary of State admits that rocket and feather is happening and chuntered in passing that it should have been looked at a long time ago. If he was in the Chamber, I would politely remind him that the Government have been in office for more than four years. I am not interested in what happened in the past—they have had four years not only to look at this issue, but, more importantly, to act on it. The fact is that they have failed, which is why my right hon. Friend is right to keep coming back to the House to highlight the issue of the broken market, which is not working in the interest of consumers. Profit margins have been increasing, yet fuel poverty is on the rise, so much so that many of my constituents and those of hon. and right hon. Members throughout the Chamber are living in fear of putting on their heating as energy costs rise.
Ministers laughed during an intervention by my hon. Friend the Member for Swansea West (Geraint Davies), but he raised a serious issue. The annual fuel poverty statistics report, which was published last week, projects that the number of those living in fuel poverty is likely to increase to 2.33 million. That is greater than the population of Northern Ireland and about the same as that of west Yorkshire. It leaves a stain on our country, whichever part we live in, that so many people are affected.
The Minister of State, Department of Energy and Climate Change (Gregory Barker)
May I just point out, for the record, that under this coalition fuel poverty has fallen in real terms in each of the past three years? That did not happen during the last Parliament, when it went up year on year. The figure the hon. Gentleman refers to is a projection. There was a projected rise last year, but we actually delivered a cut. There is much more to do on fuel poverty, but using misleading figures will not help his case.
Andrew Gwynne
The Minister can change definitions, but he cannot change the fact that more people are living in fuel poverty on his watch.
I commend the work of Labour in local government. We have heard about some of the issues involved in switching and I commend the work of Greater Manchester’s energy switching scheme, led by a consortium of the 10 councils across the city region. A couple of other local authorities that are not in Greater Manchester have also joined in. Not only is the consortium using its buying power for the benefit of the public purse of the local authorities, it is also allowing the citizens to register. The registration take-up in Manchester has been about 10% and the average savings to my constituents have been about £108, or £124 for dual fuel. That is positive action for the people involved in the scheme, but it is not an answer in itself. We need something far more fundamental.
The case for change has been put so well by my right hon. Friends the Member for Don Valley and the Leader of the Opposition. We are right to keep pushing the Government to move on these issues. My constituents are not in a position to wait for action. That is why the price freeze, attractive though it is, is not an end in itself. Government Members do not seem to understand that. This is absolutely the time to reset the market. The energy market does not work—you don’t need to be Einstein to work that out. It lacks competition and transparency.
We have already spoken about the big six. I am not bothered about how we got to the big six, but the fact is that 97% of the supply to homes and 70% of the supply from UK power stations comes from the big six. We cannot shop around. That is why companies generating and selling energy to themselves rigs the market and puts up prices even when generation costs fall. That is why it is right to separate generation and supply—as my hon. Friend the Member for Llanelli (Nia Griffith) mentioned, SSE is already in the process of doing that —because only then can transparency prevail. We need to sell energy into a pool because that changes the dynamic of the market and allows access to new suppliers at their costs.
We also need a simpler tariff structure. I was taken by an issue raised by Mr Walker who lives in Denton. He came to my surgery in Dane Bank concerned about his bill from ScottishPower—it certainly bamboozled me—and accused the company of overcharging. He worked in the energy industry and could work out the price per kilowatt, and he was being massively overcharged. He knew how to read his bill because he had worked all his life in that industry and knew it was wrong, but how many of my constituents would be able to make head or tail of such a bill?
We need a stronger watchdog, and I support the proposals of my right hon. Friend the Member for Don Valley. In the short term we need to freeze bills, certainly to January 2017, which provides my right hon. Friend and her Front-Bench colleagues with time to legislate and introduce the changes we need. That will be a welcome respite for my constituents, who on average will save £120, and businesses in my constituency, which will save £1,800 on average. I urge her to keep on with that because the industry is shifting. That is not because of action by this Government—there has not really been any—but because of pressure from her and the Leader of the Opposition.
These changes cannot come quickly enough. We need to tackle the endemic and growing scourge of fuel poverty, and we need an energy policy that works for consumers and businesses. We need the changes that were set out so eloquently by my right hon. Friend the Member for Don Valley, but sadly I fear we will have to wait another 11 months before we get them.