Domestic Gas and Electricity (Tariff Cap) Bill

Baroness Featherstone Excerpts

2nd reading (Hansard): House of Lords
Tuesday 22nd May 2018 Lords Chamber

[Baroness Featherstone (LD)]

My Lords, I thank all noble Lords for their contributions, even the noble Viscount, Lord Ridley, although I fear he and I will never agree on certain matters. A cap should never have been necessary and would not have been necessary if the big six were not greedy and if the regulator had used his teeth. It is, as the noble Lord, Lord Lennie, said, a measure of their market failure that we are in this position. The cap must be only a temporary measure, because it will not create the competition that is needed to really drive down prices. We have seen the success of offshore wind auctions not only in bringing down the price of offshore wind but in forcing other energy providers to compete. I could hardly believe it when EDF came to me to discuss nuclear and said that it would be able to compete with offshore wind. Competition works.

A cap must beware of unintended consequences, as several noble Lords have said. A cap can precipitate rises before its institution and after its departure, and we have already seen this with E.ON, I think, raising its prices. I tweeted my dissatisfaction at this event and E.ON tweeted back to say that it was because of rising costs. The next week, I saw what had risen: its profits, by 41%. So forgive me if I have no time for suppliers which wring their hands and say that a cap is not the answer. It should not be, and I wish it was not, but it is the only short-term answer to protect the loyal and the vulnerable. Competition is the answer.

As many noble Lords have mentioned, we have seen a rise in switching—this year, something like 5.5 million people have switched. However, that is nowhere near the level of competition that we need. The Bill states that it seeks to protect switching, and we must do that, particularly during the period when the cap is in place. To quote the Secretary of State:

“There should still be an advantage in shopping around, but customers should be protected from an ever-increasing differential that particularly penalises those who are vulnerable”.—[Official Report, Commons, 6/3/18; col. 207.]


As I mentioned, the big suppliers have lost our trust—definitely my trust—and they may try to find ways to stop their customers shopping around. Therefore, we on these Benches are not satisfied with the words of the Secretary of State. Ongoing benefit from switching needs active protection in the legislation.

It is not beyond the pale to imagine that, when the big six write to their customers to introduce what they are doing about the cap measures, they may fail to tell their customers that they can still switch and that the cap does not mean that their customers might not find a better deal elsewhere. For example, uSwitch wants Ofgem to make sure that suppliers cannot use misleading names for their capped tariff. If, when writing to their customers, suppliers were to use a name such as a “safeguard tariff”, that might make customers think that they are safe with that tariff. Therefore, uSwitch is suggesting that Ofgem should consider and test names for the cap—something like “temporary tariff”—to find out consumer response. We need to be sure that consumers will not be misled by their supplier’s anxiety to keep them by marketing ploys.

It also highlights a concern that, if and when the price cap is changed during the period, which might be the case, we will need to make sure that suppliers do not minimise consumers’ responses to such changes. Notification letters must make it clear that the price cap does not necessarily or automatically deliver the best deal and that customers may still find a better deal if they shop around, or not.

Lastly, the information on switching should be easy and accessible in all communications. I will probably bring forward an amendment mandating guidance as to what such correspondence must say about the cap. That must be universal to all suppliers so that it is the customer who is given straight facts and the supplier does not omit the facts for commercial purposes.

Some noble Lords have raised the point—not always in a good way—that one of the most disappointing parts of the Bill is the omission of the exemption for green energy tariffs. It is not only disappointing but unacceptable. The Government promised that they would seek an exemption for green energy tariffs and when they accepted a recommendation from the Select Committee I had some hope that they meant it. I understood the proviso they put forward that any tariffs exempted from the price cap on this basis would only be agreed to when Ofgem was satisfied as to its credentials in directly supporting the production of renewable energy. That is completely fair—but I do not see it in the Bill. The Government should stop pretending that they support the green agenda—they do not. They are happy to remove planning protections for local people fighting fracking—as mentioned by the noble Viscount, Lord Ridley—they are happy to pay squillions for nuclear, they broke their promise on carbon capture and storage, they are doing nothing to deliver green gas, they have zero hope of reaching their existing targets and they have done nothing but undermine renewables.

Claire Perry, the Minister, who was by the Throne earlier, is asking the climate change committee to look at zero carbon 2050, no doubt spurred on by my report on zero carbon 2050, A Vision for Britain: Clean, Green and Carbon Free. The Government are about sounding green, not doing green. The original draft of the Bill included an exemption from the proposed cap for green electricity tariffs with an additional environmental benefit. In the event, the Bill only puts an obligation on Ofgem to consult on an exemption for tariffs supporting the production of gas or the generation of electricity from renewable sources. However, the cap may be introduced before that consultation is complete, let alone the exemption made. Firms such as Ecotricity and others which are doing the right thing and changing our world for the better—pioneers taking us forward—need to be supported and encouraged, not undermined by a Government who talk green but act blue. We on these Benches want to see that exemption in the Bill and I will table an amendment to that effect.

On the issue of vulnerable people, which has been raised by other noble Lords, it is proven that people with disabilities face higher energy costs. It is therefore right and necessary for the Government to tackle this with a temporary cap on standard variable and default tariffs. Scope issued a briefing highlighting the concerns for the most vulnerable. There is an issue for those on an Ofgem safeguard tariff, who could see their costs rise as a result of the cap. Those on the safeguard tariff, prepayment meters and warm home discounts are exempt from the cap.

Scope is concerned that the new extended safeguard tariff planned by Ofgem, which will be replaced by the Government cap on standard variable and default tariffs, may mean in effect that some consumers with disabilities miss out on support because they may not be on a variable or default tariff. Scope believes it is vital that the Government make Ofgem identify those in receipt of the safeguard tariff and put in place measures to offset potential loss or, alternatively, not proceed with removing the safeguard tariff. The Government must ensure—no, they must guarantee—in this Bill that no one with disabilities will be made worse off by this or future changes in the cap/tariffs. I will table an amendment to establish that principle in law in due course.

Scope says that the price cap will go some way to protect disabled consumers with high energy bills but it is not sufficient to tackle the range of barriers that customers face. Its proposals are around improving support for disabled energy consumers, more effective data capture and sharing, accessible communication and digital inclusion. It asks the Government to put in place a longer term plan to address those barriers alongside the price cap. This should be a must for the Government. It is not good enough to take half measures to create equality—they have to deliver. This is an opportunity for the Government to apply the principles of the DDA and the Equality Act promptly and without equivocation.

There is a clear failure to protect in the Bill as currently drafted and I trust and hope that, following amendments that will be brought forward in Committee, the Government will move on this issue. If they do not accept the amendments brought forward in Committee or on Report, I hope they will bring forward amendments to achieve the ends I have outlined in ensuring that the most vulnerable are securely protected.

I turn briefly to appeals, a subject that has been raised by many noble Lords. A large lobby of suppliers want the Government to introduce an appeal to the CMA on how and what Ofgem sets as the cap given that currently only judicial review is available. SSE is particularly concerned that the way in which Ofgem sets the cap should reflect the cost of supplying energy. It suggests that the bottom-up cost assessment approach would be the fairest one and carry the lowest risk, and it too subscribes to the right to appeal. I tend to pay heed to the words of the noble and learned Lord, Lord Mackay, who has made a strong case on this, and I will listen to the Government’s view on an appeal process. We do not want to introduce any delay, but as other noble Lords have mentioned, apparently there is no delay as the result of an appeal. Perhaps the noble Lord, Lord Henley, can answer this question in his response. Why should the normal process of appeal to the CMA have been omitted in this case?

Lastly, one of the key issues is what is to happen next? What will happen when the cap ends? What are the conditions under which it could be lifted? Surely the Government should set those parameters, given that this is after all a temporary measure. What would have to happen for the cap to be lifted and what is in place to ensure that the big six cannot repeat the sorry situation which has necessitated the cap in the first place?

Before I conclude, I want to reiterate a point made by my noble friend Lord Teverson on energy efficiency. A great deal of consumers’ money literally goes out of the window or through the gap under the door. Given that, it would be significant if the Government could consider making energy efficiency a national priority as part of their infrastructure plans. However, as noble Lords may have gathered from what I have said, while we on these Benches support the cap, we want to see some movement on the issues that I and other speakers have raised.

[Lord Henley]

My Lords, I am grateful to the noble Baroness for her intervention, and for what I think is the first authoritative statement from the Liberal Democrats in the course of this Bill through both Houses. I take note of her concerns about the Bill; she has made it quite clear that the cap should never have been necessary. However, as I understood by the end of her speech, she seems to think it right to put the cap in place. No doubt we will hear more from the Liberal Democrats, as I hope we will from other noble Lords, when the Bill is considered in Committee. It is possible that we will have rather a busy Committee stage because a number of concerns have been raised. I hope to be able briefly to address just some of them in my remarks winding up the debate. It probably falls to the noble Lords, Lord Stevenson and Lord Teverson, who have in effect provided me with a template for a number of questions to address in the brief time I have. However, other noble Lords, including my noble and learned friend Lord Mackay, have made it clear that we will have to devote considerably more time to the issue of the appeals process. As I say, I hope I will be able to touch on some of those points, but obviously we will leave the detailed discussion until Committee.

That brings me to another point that needs to be raised at this stage which has been touched on by a number of noble Lords, including the noble Lord, Lord Stevenson: the very important question of timing. If we are all in favour of a cap, and I am still not quite sure what the official Liberal Democrat position is on that, we must ensure that it will be of benefit to as many consumers—

[Baroness Featherstone]

I should make it clear to the Minister that we support the cap.

[Lord Henley]

I am grateful to the noble Baroness for making clear the Liberal Democrat policy on this, but she did start by saying that the cap should never have been necessary and that she did not like it. However, she then stated that she wanted the cap introduced. I want to make sure that we have it in place, and that is why I must go back to the timing. While I cannot guarantee that we will have it in place by the time the clocks change, we hope to have it by the winter. For that reason, perhaps I may remind noble Lords that it would be helpful if we could deal with the Bill and see it returned from the Commons with all the concerns having been dealt with in one way or another by the time we take up our buckets and spades at the end of term. I do not know what it is that noble Lords do in the holiday months. We should get the Bill on to the statute book with Royal Assent so that the processes can continue and, by the end of the year, we will have a cap that offers benefit to consumers. If the Motion that I shall move at the end of the debate is agreed, I look forward to a constructive Committee stage in the Moses Room so that we can go through these matters and then sort them out on Report. I hope noble Lords will bear in mind what I said about timing at this stage.

As I said, the noble Lords, Lord Stevenson and Lord Teverson, set out a template for a number of points that I want to deal with: vulnerable consumers, the absolute versus the relative, conditions for effective competition, the cost of an energy review and green tariffs—other noble Lords covered all these points so I hope that they will not mind if I do not pause to mention every name—as well as some of the network costs, the timing of the Bill, which I just have dealt with so I can cross that out, appeals and, finally, the cost of environmental levies, as mentioned by my noble friend Lord Ridley. I will refer to some of those at the end.

For now, I will run through some of those points; it might save a little time in Committee but I doubt it. I also want to say how grateful I was to my noble friend Lady Bloomfield for reminding us that bringing forward a Bill of this sort was very unusual for a Conservative Government, as I tried to make clear at the beginning of the debate. We believe, as she cited, that there are occasions where markets are not working and it is necessary to intervene. That is what we are doing; we are intervening temporarily. These are not rent controls. This is not about bringing back a prices and incomes commission. It is a temporary measure to deal with the current problem of markets not working. In time, we hope to be able to return to what I sensed the noble Baroness, Lady Featherstone, wanted to take the Liberal party back to—a glorious, 19th-century free market approach—although she reverted to something different later on. We will get there in the end and I look forward to that joyous Committee stage.

I begin with the crucial point about appeals made by my noble and learned friend Lord Mackay, my noble friend Lord Hunt—an eminent lawyer whom I have served under—and other eminent lawyers whose tongues I have borne the sting of, such as the noble Lord, Lord Carlile, and the noble Lord, Lord Redesdale. Obviously, we will debate this issue in much greater detail in Committee; as noble Lords know, it was raised in another place and considered by the Select Committee. We should all be grateful for the work done by that committee on the Bill and for our process of sending draft Bills to Select Committees or other committees. Having considered this issue, the committee concluded that,

“judicial review is a common and satisfactory appeal route for energy decisions, even highly technical ones”.

The Government hope that energy suppliers will focus on engaging with the regulator’s consultations on the design of the price cap, rather than the scope for appeals and legal challenges. I appreciate that noble Lords who spoke on this think otherwise. They think that an appeal to the CMA would be less burdensome than using judicial review. We can reflect on that and we will consider it, but I note what Members have to say at this stage. I think we will have considerable discussion on it in Committee.

Concerns about vulnerable consumers were raised by the noble Lord, Lord Carlile, the noble Baroness, Lady Featherstone, and others such as the noble Lord, Lord Whitty. Again, additional protections for vulnerable customers and the interaction of the cap with Ofgem’s existing safeguard tariff will be a matter for the regulator. The Bill provides for Ofgem to maintain a cap for vulnerable consumers that is separate from the prepayment meter cap imposed by the CMA. In addition to the duty imposed on Ofgem by Clause 1(6) to protect all existing and future domestic customers on standard variable tariffs, the Gas and Electricity Acts impose duties to protect the interests of customers. In carrying out this duty, Ofgem should have regard to all the points that noble Lords have raised. The noble Baroness mentioned the document produced by Scope, which I have seen. Obviously, Ofgem should take into account the interests of individuals who are disabled, chronically sick, of pensionable age—as the noble Baroness, Lady Featherstone, pointed out, there are many of that last group in this House—with low incomes or residing in rural areas and others. Again, these are matters that we can consider later.

The subject of the absolute versus the relative cap was raised by the noble Lords, Lord Stevenson and Lord Teverson. This matter was discussed at considerable length in another place; quite often, one needs a cold towel wrapped around one’s head to understand some of the technicalities. Again, it is a process that we will consider in great detail. The Government, Ofgem, the Select Committee and another place all believe that what we are doing is the right way to proceed. A relative cap might simply prompt the withdrawal of more competitive rates by larger companies while offering no protection to those on poorer-value tariffs. We will look again at this in greater detail but, on some occasions, I think noble Lords will find these matters difficult.

The noble Lord, Lord Stevenson, talked about the conditions we need for effective competition—it was the third point he raised. The legislation is framed so that consumers’ incentives to switch, which is what we want, and suppliers’ incentives to compete are maintained. I appreciate that the noble Lord, Lord Carlile, in his usual amusing way, pointed out how difficult it can sometimes be when we sit down with our computers and have all these messages appearing. We want to make it easier; we will try to do that. That is one reason why we hope that the cap will be just a temporary measure which is removed when the conditions for effective competition are in place. We have not provided in the Bill for what those conditions will be, as in a changing market we do not want to impose conditions that may not be met or tie the removal of the cap to measures that will not be in place by the time that the wider market has become competitive. It will be for Ofgem to report on whether those conditions are met, and the Secretary of State will then make that decision on removal or extension. Clause 8 makes provision for that to happen repeatedly over the years if we seek an extension.

The fourth point raised by the noble Lord was the Cost of Energy Review. We are aware of Dieter Helm’s comprehensive and fully independent review of the cost of energy: I think it arrived very soon after I became a Minister and it was probably the noble Lord who put down a question very soon after that, which I had to respond to despite the fact that the review was some 158 pages. I had to assure him, or someone, that I had not read the entire review in the time available, which was about four days. I have had more time. I cannot claim to have read it absolutely from beginning to end, but we are still considering those findings and we will in due course set out our next steps in light of the responses we have had from others to it.

The Government have already taken action that has helped reduce costs and helped consumers to manage their bills. The cost of offshore wind, as noble Lords will know, has halved over the last two years. We have paid compensation to eligible businesses in energy-intensive industries across the UK for the indirect costs of energy policies: that has totalled well over £500 million since August 2013. We are also seeking to do more by upgrading something like a million homes to meet our obligations to make them more efficient. The costs of those policies to deliver clean growth on bills are more than offset by savings from improvements in energy efficiency, saving on average in 2016 something of the order of £14 on household bills.

The noble Lord, Lord Stevenson, and others raised green tariffs. The Bill places a duty on Ofgem to consult on exemptions to the cap for green tariffs. I note in passing that while the noble Lord, Lord Redesdale, is perfectly happy to pay more, that will not be the case for everyone; but we leave that to him. Green tariffs are tariffs that support the production of gas or the generation of electricity from renewable sources.