Domestic Gas and Electricity (Tariff Cap) Bill

Antoinette Sandbach Excerpts

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

[Dr Whitehead]

Yes, there is certainly merit in that idea. It is true that some of the amendments take some of the specific actions that may be taken a little further than is suggested in amendment 7. However, whichever of the amendments one wishes to pin the first-place rosette on to, the key point is that vulnerable customers need to have proper protection as the tariff cap comes forward.

It is in the Government’s interests, I think, to clarify exactly what they intend the Bill to do regarding that protection. That can easily be done by the Minister clearly stating today, as I hope she will, that vulnerable customers will not lose the current safeguard tariff as the overall tariff cap comes in. Indeed, if the overall price cap consumes the safeguard tariff, vulnerable customers could see their prices could go up by more than £30 as a result of the difference between the safeguard and the absolute tariff. That would, as I am sure she will agree, be a perverse outcome that she would be anxious to disavow.

The Minister will have to clarify for us that the Bill means that Ofgem can bring forward the extended safeguard tariff at the same time as the standard variable tariff cap; that the extended safeguard tariff can continue after the absolute cap has ended; and that she will bring forward the necessary secondary legislation before the summer to enable the data sharing needed to extend the safeguard tariff. I am sure that she will be able to reassure us on these points. I look forward to what she has to say about all the amendments before us.

Amendment 8 seeks to introduce to the Bill the symmetry in architecture that appears to be missing from what Ofgem must consider in introducing the cap. As hon. Members can see, the Bill lists a number of matters to which Ofgem should have regard in setting the cap, which relate to

“protecting existing and future domestic customers who pay standard variable and default rates”.

However, when we cast our eyes forward in the Bill, we see that those conditions are wholly absent from the matters that Often is required to consider when it reports to Government on whether circumstances exist that allow the cap to be terminated, as it is required to do by clauses 7 and 8.

Indeed, there is no guidance in the Bill at all on what Ofgem will have to take into account, except, alarmingly, for one consideration: the extent to which progress has been made in installing smart meters, a provision that, if taken too literally, might mean that the cap will be with us until the end of 2023. Our amendment essentially seeks to place in the outbox—the point at which Ofgem reviews the expiry of the cap—the same considerations that it is required to pay attention to in its inbox when it sets the cap.

Finally, we seek in new clause 1 to start the process of introducing what needs to be in place to ensure that the market works well for customers and does not recreate the anomalies that have led us to where we are today. I have no doubt that there will be a number of such provisions, but in our view one of them should be that the arrangement of tariffs by energy companies should not continue as it is.

That is also the substance of amendment 2, tabled by the hon. Member for Weston-super-Mare (John Penrose), whom I salute for his unflagging work in bringing the idea of a price cap to this point. He introduces in his amendment the suggestion that tariffs should have a piece of elastic on them for each company, to prevent companies from introducing customers to apparently low tariffs initially, only to place them on much higher tariffs when the first offer expires and relying on their loyalty to gain a lot of profit and cause an unfair outcome for customers. That is essentially the instrument that his amendment would introduce, but it is cast as a relative price cap. We do not think it is a satisfactory mechanism for a price cap, but he will no doubt argue his corner. The relative nature of a tariff range restriction means that it can be introduced at any price and is not therefore a cap as such. It is, however, a vital means of keeping prices and fair dealings with customers on a steady trajectory.

[Antoinette Sandbach (Eddisbury) (Con)]

The Business, Energy and Industrial Strategy Committee heard an overwhelming amount of evidence opposed to a relative price cap. Can the hon. Gentleman explain why he rejects that evidence and has tabled this new clause?

[Dr Whitehead]

The hon. Lady is, I think, under the impression that the new clause seeks to introduce a relative price cap. It does not seek to do that at all, or indeed during the period when an absolute price cap is in place. When the absolute price cap has come to an end, which could happen on various dates, there should be a mechanism in place to ensure that tariff differentiation is within certain bounds—I mentioned having a piece of elastic on tariffs—so that companies cannot return to the practice that unfortunately exists today whereby they can take people on board on one particular tariff, and even introduce a discount tariff for a certain period to entice people on to it, and then place people on one of their highest tariffs when that one comes to an end. It is a long piece of elastic in that case. That disadvantages the customer and is not what they thought would happen when they first went on to that tariff, and it seems thoroughly laudable to prevent that.

We need to ensure that market mechanisms are in place to prevent us from returning to where we are at present and to the situation that got us into this position in the first place. We believe that the mechanism for a relative tariff differential has a different function entirely from the relative price cap being suggested in some quarters. I think we would all agree that a relative tariff differential is not a price cap in its own right, as the Select Committee concluded strongly, but a strong mechanism for ensuring that the market works better in future.

--- Later in debate ---

[Antoinette Sandbach]

I rise to speak in support of amendment 9, which is in the name of the Chair and some of the members of the Business, Energy and Industrial Strategy Committee; I know that the Chair of the Committee is also going to speak to the amendment. Its purpose is to ensure that there is adequate protection for vulnerable people while the cap is in force and beyond and to probe the Government and the Minister on the matter.

During the prelegislative scrutiny of this Bill in January, the Committee heard evidence from the chief executive of Ofgem. When I asked him about the need to protect vulnerable customers, he conceded that

“there is likely to always be a need to protect customers who would not be fully able to engage even in a…more competitive market.”

What is more, Mr Nolan admitted that Ofgem had

“not done as well as we could have”

when it came to its statutory duty to protect vulnerable customers. In fact, he apologised to the Committee for Ofgem’s failure to act appropriately to protect vulnerable customers.

The sheer number of people on standard variable tariffs was quite shocking to the Committee, and many of those people will be vulnerable customers. I note that the Minister agreed, saying that

“the regulator also needs to change. It also needs to use the powers it has more effectively.”

That evidence session did not fill me with confidence about Ofgem’s effectiveness at protecting vulnerable customers. I believe that the amendment will act as the necessary encouragement to the regulator to do just that. The amendment will also ensure that in the longer term, those who are least able to afford high bills get greater protection. That is because the amendment continues the requirement for due regard beyond the length of a cap.

I want to push the Minister on working with DWP colleagues and others to mitigate the impact of the general data protection regulation. Although the amendment targets the regulator, the Government are well equipped to handle this area. They need to ensure that the required data exchange can take place, so that vulnerable customers can be identified and offered the support that the Government want to make available to them. I am sure that the Government agree with the principle behind the amendment, and I hope that the Minister will address my concerns in full.

[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.