Cost of Living

Baroness Bray of Coln Excerpts

Wednesday 16th May 2012 Commons Chamber

[Caroline Flint]

We saw what was happening and put a cap on those fares. This Government have decided to remove the cap and to let fares rise way above inflation, but we have said that when they do rise above inflation they should do so by no more than 1%, so we are not going to take any lectures about supporting families from the Tories and Liberal Democrats in this Government.

The truth is that in every corner of the country families have huge worries when they look at depressed and frozen wages, more part-time work and more people who are long-term unemployed; and every week families worry about energy bills.

Energy bills have now risen up the agenda for families and are one of the biggest worries that they face. The latest figures from Ofgem put the typical annual energy bill at £1,310, so what is the Government’s answer? At their energy summit last year, they told people:

“Check, switch and insulate to save.”

But, in an answer on 18 April to one of my parliamentary questions, we found out that fewer people switched energy supplier in the final month of 2011 than ever before. I do not remember seeing that in one of the departmental press releases.

The Government said that energy efficiency was a no-brainer, but the Warm Front scheme has collapsed, the energy companies are not delivering the measures that they were meant to and the green deal is in chaos. In last week’s Queen’s Speech the Government promised

“reform of the electricity market to deliver secure, clean and affordable electricity and ensure prices are fair,”

but the irony of the Government’s electricity market reforms is that one thing they do not do is reform the electricity market. There is no change to the way in which energy is bought and sold, nothing to open the books of the energy giants and nothing even to improve competition in the energy market and break the stranglehold of the big six: no change, no hope and, I am afraid, not a clue how to help families affected by those pressures on the cost of living.

Our energy market is not working in the public interest. Confidence in the energy companies is at a near-record low, complaints have soared and today five of the big six energy companies are under investigation by Ofgem. Yet they see fit to award themselves huge bonuses totalling millions of pounds and even discounts on their own energy bills, while leaving their customers to struggle.

Last winter, more than 6.6 million families and pensioners across the UK could not afford to heat their homes properly. The number of pensioners dying from hypothermia has doubled in the past five years. Yet four out of five people are paying more for their energy than they need to. Energy prices are already at near record levels, and last year, when wholesale prices rose, every energy company put up its gas and electricity prices, in some cases by as much as nearly 20%. Yet when wholesale prices fell this year, none of the companies cut both their gas and electricity prices. British Gas, for example, cut only its electricity prices, even though it has twice as many gas customers. On the other hand, EDF, which has significantly more electricity customers, cut only its gas prices. Now, with increases in wholesale prices on the horizon again, British Gas, Britain’s biggest energy supplier, is threatening yet another round of price hikes.

These are not the signs of a healthy, functioning competitive market; they are the symptoms of a market that works in the interests of the energy companies, not of the public. There is a reason the market works like that. We have companies that both produce and retail power. They generate the power and sell it to themselves, and then on to the public. When wholesale prices are high, the generation side of the business makes big profits; when wholesale prices are low, the retail side of the business makes big profits. Either way, the energy companies always make big profits and customers always foot the bill.

That was exactly what the respected Institute for Public Policy Research think-tank found a few weeks ago. Its research shows that if the market were truly competitive, efficiency savings alone would knock £70 a year off the average bill. It reckons that over 5 million households in the UK are currently being overcharged and that if something were done about it they could see savings of at least £300 a year. That is why we have said that all energy suppliers should have to sell the power that they generate into an open pool from which anyone could bid to retail to the public. That would allow new firms to enter the market, increase competition and help to drive down bills. Of course it would not be popular with the big energy companies, but unlike the Government, Labour Members are putting the interests of the public ahead of those in the energy industry.

[Angie Bray (Ealing Central and Acton) (Con)]

It is all very well for the right hon. Lady to recite a catalogue of problems, but I am scratching my head about the record of her party in government, when prices were going up and we all had problems. I was not aware that the Government of the time were stepping in to look after consumers as prices rose. It is worth pointing out, of course, that Labour’s own leader was Energy Secretary at the time.

[Caroline Flint]

This Government have now been in office for nearly two years. The truth is that—

--- Later in debate ---

[Mr Davey]

I was just about to come to that measure. My hon. Friend will know that our right hon. Friend the Deputy Prime Minister announced that package, which will be a big help, last month.

On our agenda for helping consumers in a practical way, I should like to highlight three things—they are part of our short-term approach to ensure that we help consumers and get more competition in our markets so we can make it easier for people to take advantage of good deals.

[Angie Bray]

Will my right hon. Friend give way?

[Mr Davey]

I will in a second.

First, the consumer deal was agreed with the big six last month and announced by my right hon. Friend the Deputy Prime Minister. Secondly, I have pushed collective switching since becoming Secretary of State for Energy and Climate Change, following on from the work I did as Minister with responsibility for consumer affairs. Thirdly, Ofgem is working on tariff simplification. I will describe the detail of the practical measures that we are taking and that the previous Government never took after I have given way to my hon. Friend.

[Angie Bray]

Talking about energy is important, but I would like to draw my right hon. Friend’s attention briefly to another important utility in people’s lives—water. Water rates are a big cost of living and are particularly frustrating in London, given that we are under serious drought orders, despite the rain tumbling down almost every day. Particularly galling is the discovery that the very slow pace of plugging water leaks is apparently well within the target range set by the water regulator. If the water regulator is not on the side of consumers, who is?

--- Later in debate ---

[Gavin Shuker (Luton South) (Lab/Co-op)]

I am extremely grateful to you, Mr Speaker, for calling me towards the end of the debate. I promised a little variety if I were called. I know that many issues to do with the cost of living have been raised in the course of the debate. In a sense it is hard to narrow them down to one or two, but I wish to refer to a few problems with regard to utility bills, particularly water bills.

We know that we in this country are facing not just some of the toughest global economic times but, as we have highlighted, a very tight fiscal contraction—I nearly said “contradiction”, which might actually be the right term—in the UK economy. Against that backdrop, there is a cost of living crisis. We have heard from many Members of all parties about the rising cost of energy and fuel and the inflation-busting rises in transport fares.

Back in February, I had the opportunity to go to the university of Leeds, where there is a brilliant research centre on water policy. While I was there, I gave a speech in which I talked about the consensus that there has been about the privatised water industry for the past 20 or 25 years. That consensus has stretched across both major parties, customers and companies. It involves a relatively low-risk settlement for investors, with reasonable levels of investment in water infrastructure and rising standards of water quality. Crucially, customer buy-in has also taken hold over the past 20 years or so.

In that speech, I laid out my concern that we risked walking into a perfect storm this year. We have drought conditions, and sadly, there was very little in the Gracious Speech about concrete action on the rising cost of water. While that concern exists there is every chance that, just as the Government and Opposition have rightly targeted energy bills in recent months and years, we will have to take similar action on water as people’s dissatisfaction with the service that they are receiving continues to grow.

[Angie Bray]

One problem I raised earlier in the debate is that the regulator sets soft targets on plugging leaks. One of the most frustrating things for my constituents is finding themselves paying water bills in a drought while the rain is plummeting down. Does the hon. Gentleman agree that it is because the leaks are not being plugged that we are still in a drought, and that we need tougher targets?

[Gavin Shuker]

The hon. Lady makes an excellent point. Ofwat, the industry regulator, lays out tough targets on water companies reducing leakage in some places, but not so tough targets in others. The fundamental problem is that if the cost of water being lost is less than the cost of making the repair, it is not economically viable for water companies to make the repair. That is why we need comprehensive action and a comprehensive water Bill, rather than a draft Bill, in this Session.