Domestic Gas and Electricity (Tariff Cap) Bill

Baroness Featherstone Excerpts

Committee: 1st sitting (Hansard): House of Lords
Monday 11th June 2018 Grand Committee

[Baroness Featherstone (LD)]

Is it all right if I speak to Amendment 7 now?

[Lord Henley]

My Lords, these amendments are grouped and it is open to any noble Lord to speak to any of them as they wish. I would suggest that the noble Baroness speaks to her amendment.

[Baroness Featherstone]

I thank the noble Lord. This amendment is about the duty on energy companies to communicate properly with their customers. I raised concerns at Second Reading that there is a possibility that energy companies might not be totally up front and honest with customers about the circumstances surrounding the introduction and execution of an energy price cap. I am particularly concerned that some companies may not be up front about the facts: this is a temporary cap, ordered by Parliament, the level of which is set by Ofgem to protect consumers on standard and default tariffs from excessive charging. Companies must not seek to absolve themselves from blame for the fact that a cap is being introduced—an action that they have necessitated. Nor must they be able to play it off as some sort of benevolence introduced by them to help their customers. I am also concerned that companies might imply that the cap brings about the best deal for customers and indicates in some way that they need not shop around.

Communications from suppliers have not always been totally clear, but they need to be. The last thing we need in setting and executing the cap is for communications to confuse, entice or entrap customers into any false beliefs or misunderstandings. The amendment seeks to ensure that suppliers cannot use the setting of a cap as a marketing opportunity. Companies are very clever in their use of marketing language to seduce customers into perhaps believing that the cap is protecting them in more ways than it was created for. We should not provide any opportunity for suppliers to mislead consumers, accidentally or otherwise, into believing that the price cap is beneficial in any other way or being put in place for any purpose other than that for which it was intended; namely, that it is as a temporary cap until such time as circumstances dictate that it must be lifted. It must not allow the supplier to appear to be the instigator of the cap. Nor must the cap be called anything other than what it is: a temporary cap. I am concerned about the wording being used to describe the cap. A company might say that it is a beneficial cap or a protective cap, but there should not be anything to indicate a benefit in the name of the cap.

The amendment is very dictatorial, particularly for a Liberal. It states that the term used should be simply that it is a temporary cap and that, once it has been implemented, all companies should use that phrase in reference to it. There cannot then be any dodging around it. Since writing the amendment, I think it needs to go further and perhaps disallow any words around the name too so that suppliers cannot add adjectives to it. I am not sure how particular we can get on this, but I refer to words such as “beneficial” or “protective” temporary cap. It may seem picky and dictatorial, but my background pre-politics was in marketing and design, and it takes one to know one. Communications are hugely important. There can be no objection to calling it what it is: a temporary cap. In that way, no supplier will be able to use the name of the cap or its description inappropriately.

In the same vein, it should also be obligatory for suppliers to make it clear that the cap does not mean that the price under the cap will necessarily be the best price or the cheapest price. In any communications, suppliers must include clear and accessible information about switching energy suppliers.

Amendment 22 from us and Amendment 23 from Labour concern the provisions in the Bill surrounding the publication of information regarding variations in the cap. Clause 4 states that if the authority is thinking about modifying the price cap, it must notify holders of supply licences, but there is no requirement once a decision is made for companies to inform customers. These amendments put this requirement into the Bill.

Lastly in the group, Amendment 38 is in the name of my noble friend Lord Teverson, who cannot be here today. He wanted Ofgem to have powers to regulate the websites of energy suppliers and energy price comparison site operators. The purpose of that power would be to ensure that consumers are presented with objective information on immediate and future costs and matters of customer service sufficient to make informed decisions about energy supplier choice. I know he wanted a specific requirement for all such sites to list the immediate cost of energy to the consumer, together with, and in the same format, future costs when the initial contract term ends. This would protect consumers from being seduced by a good offer and a good price only to be shortly disappointed to find a huge hike when the first contract ends. He wanted a requirement also that, for each tariff, the terms under which price variations can be applied are clearly shown. However, much of that was out of scope, so Amendment 38 is a lesser version. It requires the authority to modify the supply licence conditions to ensure that the information presented on energy companies’ websites is “sufficiently objective” and to modify the Ofgem Confidence Code so that only price comparison websites that are similarly objective can be accredited by the code.

[Lord Carlile of Berriew (CB)]

My Lords, I want to speak, if I may, in favour of Amendment 23 in the name of the noble Lord, Lord Grantchester. At Second Reading, I referred briefly to my attempts to change tariff with my electricity and gas supplier. I think I described it as a parlour game on a computer system that did not always work. It seems to me that what we need to give the public is, first, clarity and, secondly, the capacity to compare one supplier with another.

Let me give two analogies, one good and one bad. The first occurred to me on Saturday when I was standing at a bus stop in central London alongside a hoarding advertising a new credit card deal. At the bottom of the advertisement, in big letters, it said, “Interest rate 57%”. On the face of it, that is quite a high interest rate, but the company has to advertise that interest rate so that it is really clear to the consumer. That is the sort of clarity we need. The bad analogy relates to train fares. Noble Lords who travel a great deal by train may, like me, go on to one of the internet sites that offer you the timetable and the train fares. With train fares there is absolutely no way of making a decent comparison between the different options available. Indeed, it is so complicated that, if you buy your ticket in Llandrindod Wells to go to Paddington, it may be a different price for precisely the same ticket if you buy it in Paddington to go to Llandrindod Wells.

If we are going to do this job now in the Bill, what is required is to ensure that consumers are able to make a proper comparison between the supplier they have and the alternative suppliers available. It does not mean that they will necessarily take the cheapest supplier. The noble Lord, Lord Lennie, made a point about green suppliers. Some of us might decide that we are prepared to pay a few pounds extra for the purposes of a better environment, but at the moment we have no way of knowing what sort of value green suppliers present. We have to go on to their website and take their word for it, which is not necessarily good enough. Amendment 23 at least makes a start in achieving those joint aims of clarity and the ability to compare.

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[Lord Henley]

I fully accept that, but the big six is six out of 70 companies. There are another 64, and that number is growing. It might be a small tail but it is good to know that those alternatives are available as suppliers.

I am grateful to the noble Lord, Lord Berkeley, for moving his amendment and to other noble Lords for speaking to theirs. The general message is that everyone is seeking more information and information of the right sort, which should be—I forget where the noble Lord was quoting from—on a durable medium. He took that to be paper, but it might be extended to vellum, if we remember our debates on other occasions about what Acts of Parliament ought to be printed on.

I am grateful to the noble Baroness, Lady Featherstone, for her amendment and her frank admission that, for a Liberal, she was being somewhat dictatorial. It is not unusual for Liberals to be somewhat dictatorial; in fact, I find them very prone to banning things and ordering us around, but that is the nature of the beast.

I am also grateful to the noble Lord, Lord Carlile, for mentioning his difficulties in trying to get information and change his supplier online. I also know how difficult that can be. One gets online and has problems, then that dreaded expression comes up: “Frequently asked questions”. One can always guarantee that the one question you want to ask will not be one of the frequently asked questions. I was grateful for the analogy he gave of the very good advertisement he saw for a credit card setting out interest rates of some 56%. I take it that he did not bother to take up such an offer. I will ignore what he said about train fares, only to say that I am grateful not to have to respond for the Department for Transport on this occasion. However, as someone who, like him, travels a great deal, I agree that fares can be difficult to follow.

It is very important that we make sure that energy companies not only are as transparent as possible with consumers but provide as much information as is necessary. I am happy to report that Ofgem’s standard licence conditions require—they are dictatorial, you see—suppliers to communicate information about cheaper tariffs to a customer with a “Could you pay less?” label on the first page of bills and statements of account. It is a requirement that the information on cheaper tariffs is included, along with a message saying, “Remember, it might be worth thinking about switching your tariff or supplier”. That required information includes details of the estimated savings that could be achieved by switching to a cheaper tariff.

As I made clear, customers can also continue to specify whether they wish to receive this information electronically or in a hard copy. I noted the percentages given by the noble Lord, Lord Berkeley, on how much people know what is happening in their bank accounts, whether they receive information on paper or online. The simple fact is that a great many people wish to receive this information online. We do not want to prevent that, but Ofgem is imposing a condition that customers must be offered the right choice. Ofgem is also leading a programme of work across industry, including detailed trials of different problems to engage people. Early information from these trials suggests that they can be effective at improving switching rates, however difficult some noble Lords might find that to achieve.

The Government are also working to improve consumer engagement. We provided a little over £1 million in funding for the Big Energy Saving Network and the Big Energy Saving Week last winter. We are also progressing midata in the domestic retail energy market. Midata is the method of electronically transferring customers’ data from a company system to a third party, such as a price comparison website, and should open the door to innovative third-party switching services.

The Government take transparency and ensuring that customers have the information available to switch very seriously, so although I agree with the spirit of these amendments, the processes and policies are in place for consumers to have the appropriate information that they need. It is also worth remembering the warnings that my noble friend Lady Neville-Rolfe gave about trying to insist on too much. Perhaps we should bear in mind the acronym KISS: keep it simple, stupid. There is a limit to the amount of information that should be provided and what is provided should be kept simple. I hope that with that explanation—

[Baroness Featherstone]

Has the Minister considered my argument about controlling how the cap might be referred to—perhaps as the “temporary cap”? That goes to the heart of the matter.

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[Lord Stevenson of Balmacara]

There is no plot, my Lords. We are not trying to keep my noble friend Lord Grantchester away from the Dispatch Box but we find it more equitable to share the responsibility, so we are popping up as need demands. I am sure he will return to his commanding position as leader on the Bill very shortly.

It seems odd to have got to the third group of our amendments to find an amendment that, while ostensibly about the various types of cap that are envisaged in play, actually asks a rather deeper question. What is the Government’s intention behind the Bill and what is behind their intention to have Ofgem, as authority, introduce this within a reasonable time after the passing of the Bill? Is it to help vulnerable customers? Is it to help with fuel poverty? Both issues have been raised already in this debate. Or is it more focused on the market and its efficiency and is therefore unrelated to some of the issues we have already touched on, in terms of how people react to the provision of caps?

This issue was raised in the other place in Committee and on Report. What the Government were going to do about this was left open. At the heart of this amendment is a suggestion that the Government need to step up to the plate and tell us where they want to go on this. The discussion that took place in Committee in the other place on 30 April raised the points I shall make, at a superficial level. At the end, the Minister offered some assurances in summing up, but he did not bring forward amendments at later stages. Your Lordships’ House has not yet seen any from the Government.

At heart, there is common ground that it would be a perverse outcome of this price-cap Bill if low-income and vulnerable consumers currently protected by the safeguard tariff had their energy bills increased as a direct result of the introduction of measures in it. We are clearly looking for some certainty about this. Perhaps, when they are designing the wider cap, the Government could highlight that existing provisions require Ofgem to have due regard to low-income and vulnerable customers who are already protected by the safeguard tariff. I echo the points made by the noble Baroness, Lady Featherstone, about this new cap needing a name; otherwise, we shall get into trouble over what we are talking about. There are, of course, other measures in place. There is a warm homes discount, which may be extended. To what extent does that interpose itself in relation to the cap in the Bill? There are measures to protect those who pay cash through prepaid meters in their homes. Where do they stand in relation to it?

To answer my original question, the Government see this more as a market-mechanism Bill than as anything to do with consumers, whether they are vulnerable, disabled, or fall into another category under existing measures. I think that is a mistake. A case was made in our first discussion this afternoon for making sure that we do not see the return of cold homes and the impact that illnesses have on the wider economy if people are not able to fund and maintain a warm and watertight home. However, the problem that needs to be solved for that to happen is not within the Bill but is raised by it. The current market allows for things to happen that are clearly inimical to consumer interests. We see a widespread use of what is called “tease and squeeze”. This is a technical term, which Hansard will want to look up. It is not found in any legal text but describes perfectly what happens to most customers of the big six and less so to those of the other 64 companies that make up the energy supply market, but it is still present. As was raised at Second Reading, it involves, in essence, the availability of extremely discounted initial tariffs to which people can switch, followed by a quick change to a much higher one, which is never really disclosed in any detail and does not appear on many price comparison sites. When you are signed up, you are squeezed. You are teased first with a chance to cut your energy bills quickly by moving to a wonderful new company that has sprung up. Within a year, however, you find that you are on a much higher tariff. If you pay by direct debit, as many people do, you may not notice that until the letter—probably not an email—arrives saying that you have suddenly built up huge arrears and have to pay them a large sum of money. I am not in any sense implying that any illegality or malpractice is going on in the marketplace, but it is certainly not in the consumer’s interest to have this tease and squeeze arrangement operating at will in a situation where the information flows are asymmetric and difficult to read and where the consumers themselves are not able to use effective mechanisms such as price comparison sites to identify exactly what their costs will be, both when they switch and, much more importantly, later.

Many noble Lords may have been approached by companies and others who have an interest in this area. It seems to attract a large number of people who have views on how this issue should go forward. Noble Lords will have been told that one of the major problems affecting it is that when you try to work out the actual costs of the deals that are available, and what they would mean to a consumer who is paying, the information is so opaque and difficult that people end up frustrated and unable to see it. They certainly do not get the most important information, which is the long-run cost that they are entering into.

Arguing back from where I had got to, if the Bill is primarily about improving the market, surely what we should be focusing on, given what I have been describing, is a better series of powers and regulations held by Ofgem to clean it up. We should ban “tease and squeeze” and make sure that consumers are offered clear and unequivocal information about what they are signing up to—now, a year down the line and further down the line, subject always to cost. We have to get behind the idea that this is in some sense a market, but to say that 70 companies compete openly and fairly for the consumer’s interest does not describe effectively what is happening. A group of small companies has been set up which are primarily concerned with issuing bits of paper called bills and getting money out of people. They do not have the sort of competitive marketing operations that we would expect in a fully fledged and operating market; I think the Government accept that. The Bill is only one very small part of what must happen next, which is a clean-up of the whole operation.

We know that this is one part of that. It was probably a politically inspired decision to try to get some locus in this area, which was very much the opposition parties’ game before the last election. Nevertheless, that will work only if some serious effort is put behind the arguments by bringing forward proposals that people will listen to and act on. If, as we have heard, the main measure behind this provision is the smart meters programme, the Government are putting their money on the wrong horse. From all the information we have—we will probably have the advice of the NAO in three or four months’ time—this programme does not seem to be delivering on the aspirations the Government had for it. If that does not work and the information in the home is not available to consumers at the point of consumption, we will not have an effective, intelligence-led approach to how we may look at our bills and try to make sensible decisions about their cost.

That was a bit of a rant to get the Committee into this debate. The issue behind this amendment is whether we should look more carefully at the issues that have arisen from the ideas already in play to protect vulnerable consumers, while ensuring that they are not affected by the introduction of this price-capping Bill and that as a result consumers benefit, the market is cleaned up and the Government get what they deserve in trying to ensure that people have a fair and open market that works well for all concerned. I beg to move.

[Baroness Featherstone]

My Lords, the purpose of Amendment 12 continues that theme. It would ensure that wherever there is a vulnerable person, whichever supplier they are with and whatever tariff they are on, the Government would empower Ofgem to deliver the lowest tariff—the tariff for vulnerable people. It would also ensure that that lower tariff is not deleteriously affected by the Bill in any way whatever, and that there can and would be no unintended consequences that result in vulnerable people paying more. The Government need to clarify for the record that the introduction of the price cap does not, and must not, allow for Ofgem to remove or fail to extend the current safeguard tariff for low-income or vulnerable households. It would be helpful if the Minister could lay out how this will not and could not be the case, and demonstrate beyond doubt how the two caps—the one already in place for vulnerable people and the new energy price cap being introduced—can operate at the same time, without causing detriment to anyone eligible for a lower tariff for reasons of low income or vulnerability.

Amendments 27 and 31 relate to Clause 7, which we will debate later. It says that Ofgem,

“must carry out a review into whether conditions are in place for effective competition”—

to include, among other things, consideration of the rollout of smart meters—and must recommend whether the cap should be extended or lifted. Then, after considering the review, the Secretary of State must publish a statement on whether the cap should be lifted or extended. Amendment 27 requires Ofgem to take into account,

“the level of protection in place for disabled domestic customers”,

at that time as part of that review process. Amendment 31 requires the Secretary of State to,

“have regard to the level of protection in place for disabled domestic customers”,

as part of the statement setting out whether the cap should be extended or lifted.

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[Baroness Featherstone]

I have no legal training—which may be painfully obvious to the Committee—nor much experience of the consumer world, but I have listened to the arguments, which have been well made. There is not a point left in my speech that would not be repetitious. I am intrigued to understand what on earth the Minister is going to say in reply. In my view, these arguments are unarguable.

[Lord Young of Norwood Green]

My Lords, there is no danger of my repeating what I said at Second Reading because unfortunately I missed the cut and was too late to make a contribution. I do not want to repeat what has been said by the noble and learned Lords. I am trying to think of the collective noun for a group of such distinguished legal experts. I am not sure “a clutch” does them justice—if your Lordships will pardon the pun.

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Moved by

[Baroness Featherstone]

13: Clause 3, page 3, line 8, at end insert—
“( ) Tariff cap conditions do not apply in relation to any supply of electricity by a holder of a supply licence who, in relation to the supply, has complied with—(a) Condition 21D.4(a) of the standard electricity supply licence conditions (obligation to ensure that claimed environmental benefits are a result of customers choosing to purchase the tariff), or(b) an obligation that is a replacement for the obligation imposed by Condition 21D.4(a).”

[Baroness Featherstone]

My Lords, one of the concerns that I raised at Second Reading is that there is no requirement for the authority to exempt from the cap those who wish to pursue a more environmental tariff. Under Clause 3(2) the authority may exempt such customers but there is no obligation to do so. There was such an obligation in the draft Bill, and with Amendment 13 we would reinsert the wording that was used then into this version of the Bill. The BEIS Select Committee was worried that the wording was too ambiguous and would allow companies with tariffs that were not environmental to use it as a loophole to escape the cap. We have tabled this probing amendment to ask the Government why more has not been done to get this into the Bill. Clause 3 enables Ofgem to exempt green tariffs from a cap if a customer makes the choice to move to a tariff that provides energy from renewable sources only—but with no clear timetable for introducing those exemptions.

Earlier this year, the Government stated that they would seek an exemption for green energy tariffs from the price cap. They said that if the power was from a renewable source only, it would be exempt from the cap, but Ofgem is not required to consult on this before the cap is implemented. If this is not amended, there will be a chilling effect on what is still a nascent but vital industry. Taking the Government at their word, encouraging consumers to stay green or to go green should be built into the introduction of the cap from day one.

In March this year, Ofgem published an update on its plans for the price cap. At that point, it said that it was planning to issue a series of working papers on a whole range of aspects of the cap ahead of a policy consultation. One such paper was to be called “Our views on an exemption for tariffs which may support the production of renewable gas and electricity”. It issued a series of working papers, none of which related to that exemption. If we cannot get this in the Bill, the cap when instituted will not include that green exemption. I look forward to hearing what the Minister says about how the Government might amend the Bill to ensure that consumers who choose to buy clean energy are not disadvantaged. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, I support the amendment of the noble Baroness, Lady Featherstone. The amendments in this group are variations on the same theme, which is the question of how one can find in the Bill the right balance between the wish to encourage the drive towards reduced carbon and no-carbon generation of power as far as possible and, at the same time, trying to get out of what appears to be a cul-de-sac in which the more we propose exemptions from the tariff for those who exercise clear preferences for green supply and carbon-free generation, the more they will not feel the benefit from measures that are meant to reduce the cost of the electricity and power that they consume. I do not know what the right balance for that is, so this is a probing amendment.

Our solution—we are not wedded to it but I would be interested to hear the Government’s observations on it—is that a situation where a consumer has clearly and unambiguously signified their intention to always select energy provided from wind or other renewable sources might provide a break point in which one could exercise discretion on whether they obtained the benefit of the cap. That seems to play to my earlier concern that this would prioritise people who used carbon-based energy sources as the only ones to benefit from the cap and would therefore reduce their costs.

I am not entirely clear which way we should go on this. It seems unreasonable to take an extreme position one way or the other, but that seems the only way to find an equitable solution. I look forward to hearing the Minister’s response.

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[Baroness Vere of Norbiton]

I thank the noble Lord for his questions. I would like to come back to the second question in due course because I did not quite follow the tension he identified between different types of consumers and whether they would be caught by the exemption and so on. I think there is an opportunity for us to meet again after this to discuss the green tariff exemption specifically.

On the first issue, the consultation, it is the Government’s intention to put an exemption in place for appropriate green tariffs, but the issue, as was brought out in previous discussions on the Bill, is that sometimes what is green is not green and the whole area can actually be very grey. We must not get ourselves into a situation where the real green tariffs are losing out. I am happy to have conversations in future.

[Baroness Featherstone]

I listened carefully to what the Minister said. It is very complex. There is still the kernel of an issue here, so I will read Hansard and consider what the Minister said. At the moment, I am uneasy that we have not bottomed out the issue that needs to be defined in the Bill to give the Government and the opposition parties surety that we have not, by accident or by design, done something to ace out what we are trying to value in all this. I beg leave to withdraw the amendment.

Amendment 13 withdrawn.

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Moved by

[Baroness Featherstone]

20: After Clause 3, insert the following new Clause—
“Review of the context surrounding the introduction of the tariff cap conditions
(1) The Secretary of State must carry out a review of the context surrounding the introduction of the tariff cap conditions.(2) The review must make reference to—(a) the circumstances that necessitated a cap on energy prices being introduced;(b) whether or not the circumstances referenced in paragraph (a) could have been prevented by earlier intervention; and(c) what steps the Government can take to prevent a cap being necessary in the future.(3) The Secretary of State must lay a report of the assessment before both Houses of Parliament within one year of the passing of this Act.”

[Baroness Featherstone]

This amendment is about context and the prevention of any repetition of a need for a cap. It is again a probing amendment to get the Government to talk about advancing their thinking on how not to allow a broken energy market to arise again. A cap should never be necessary. It is not a good answer but an answer. Everyone agrees that competition and a properly working market should be the effective way to do this. This amendment suggests that a review needs to be carried out to understand the circumstances that necessitated the introduction of the cap. Could the circumstances that heralded that necessity have been avoided had action been taken earlier? Were there warning signs? I would say that there were. With more consumers switching and more competition, I hope we will not be in that situation again, but the big six still have around 80% of the market. Was that a contributing factor? Of course it was. How is it that prices became so high? What measures might be introduced at an earlier and more expedient point to prevent a recurrence? What are the Government going to do to monitor what companies say to customers?

I raised another issue at Second Reading. Recently, some of the large energy suppliers raised their prices. I questioned the rise and the answer I got was that wholesale energy costs were rising and therefore prices had to rise. Shortly after that, E.ON’s profits rose by 41%, which was so far beyond any rise in the cost of wholesale energy that it made one wonder whether there really was cause and effect and whether rising energy costs were the sole arbiter of the rise in price. That is something the Government need to look into. If we do not examine, review and contextualise what brought us to having to introduce a cap to protect people on standard variable and default tariffs, how can we be sure it will not happen again? I look forward to the Minister’s answer about what the Government will put in place to ensure that that never happens again.

[Lord Grantchester]

I shall speak to Amendments 21 and 24, which are in my name. Under Clause 4, Ofgem must undertake various actions by way of notice of proposed modifications, including giving notice that it proposes to make modifications. Amendment 21 specifies that Ofgem must provide reasons in a narrative that explains why it is making modifications—ideally, an assessment of why modifications are being proposed.

We all recognise that energy bills soared 20% between 2007 and 2013 and that the average household pays around £300 more today than it might otherwise do in a more competitive market. However, in the interests of transparency it is imperative that Ofgem outlines its reasons for setting the price cap at any given level for the benefit of suppliers and customers alike. That would help set parameters when undertaking later reviews and assist greater scrutiny.

Amendment 24 has been proposed following the debate last week in your Lordships’ House on the European Union Committee’s report Brexit: energy security. In its report the committee portrayed how the UK and the EU are already increasingly interconnected on energy. Already, high levels of gas are being piped from Norway and over 5% of electricity demand is being met from the EU, with estimates that this source of electricity supply is likely to increase to over 25%. At present the UK is a member of the internal energy market and the committee’s report underlines the risk should the UK not remain within the IEM. From evidence received, it is universally argued that the UK could be more vulnerable to supply shortages or challenges, making supply less efficient, with the result that retail prices to consumers could rise. Amendment 24 specifies that the consequences of Brexit must become part of the review of the market and the application of the cap.

In the Government’s response to the Select Committee, they failed to address this point while being pressed to undertake an assessment of the consequences of the UK leaving the IEM. How do the Government propose that Ofgem should assess the situation in its review? The effect should be recognised for the application of the cap and, hence, included in the Bill.

[Baroness Vere of Norbiton]

My Lords, I will speak to Amendments 20, 21 and 24, which relate to the reasons for this cap and the details of its implementation.

The noble Baroness, Lady Featherstone, proposes a review of the energy market, in particular setting out the reasons for the cap, whether it could have been avoided and how a price cap can be avoided in the future. The Bill follows on from an extensive two-year investigation undertaken by the Competition and Markets Authority. This reported that there was, in effect, a two-tier market, with good value tariffs for those who engage in switching suppliers but for those who do not, the market was uncompetitive and these consumers were being charged an unjustifiably high price for their basic energy needs.

The CMA also found that the significant market share of the largest energy companies and the use of the standard variable tariffs had led to a situation where customers, including some of the most vulnerable in society, are simply paying too much, They are also paying for the inefficiencies of the larger companies to the tune of around £1.4 billion a year. The noble Baroness, Lady Featherstone, mentioned E.ON and its 41%. I was not quite sure what she was referring to and whether that was a return on capital. A profit increase of 41% would depend on its starting and end points; it is not hugely relevant, depending on the leverage of the company. Potentially, we should look at its return on capital, which is far more instructive.

It was as a result of this very detailed, two-year report that the Government and Ofgem undertook to protect those on the poorest-value tariffs on a temporary basis until the conditions for effective competition are established. In addition, Ofgem is actively considering the future of the energy retail market. This work is looking at barriers to innovation and whether the current market model needs to be reformed. Another review at this stage would simply tell us what we already know and take resources away from the vital work being carried out to support the necessary reforms of the market.

On Amendment 21 proposed by the noble Lord, Lord Grantchester, I am sure he is aware that, as part of the licence modification process, Ofgem will be required to state that it proposes to make the modifications and their effect. Subject to the will of Parliament, it is clear that this action is going to take place; indeed, suppliers and other interested parties are actively involved in the consultation being conducted by Ofgem. The amendment is therefore not necessary.

The noble Lord’s Amendment 24 relates to those matters which Ofgem should consider during its review of the level of the cap, which must take place at least once every six months. It is incredibly important that Ofgem, as the industry regulator, be allowed to consider what it feels matters the most. He may be pleased to learn that Ofgem has published a consultation paper which sets out the matters it proposes to review when considering the level of the cap. That will of course include wholesale prices and many of the factors raised in the debate of last week, which he mentioned. Hence, the amendment is unnecessary at this stage.

I hope that the noble Baroness and noble Lord are content with my explanations and will be willing to withdraw or not move their amendments.

[Baroness Featherstone]

I thank the Minister for her response. I understand that the Bill puts in place an examination of the conditions for effective competition, as an answer for not having a cap, but I am trying to go a little deeper. I want to avert the idea that a cap can become a mechanism whenever the market is dysfunctional. It is not the answer and we therefore have to go deeper. On the basis that I will consider what the Minister has said, I am happy to withdraw my amendment.

Amendment 20 withdrawn.

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We heard in Amendment 37 a slightly different recommendation from the DPRR Committee as regards Clause 9. I am sure that the Minister will be able to respond to this. The committee said that, under the clause, Ofgem is allowed to make modifications to the standard conditions of supply licences in consequence of the tariff cap conditions ceasing, although in fact the power is framed so that Ofgem may make such modifications as it considers expedient or necessary. The committee took exception to the way the term “expedient” constitutes a significant widening of the powers conferred by Clause 9. I am sure that the Minister has a response to that, at least in draft if not fully ready, and again I look forward to his comments.

[Baroness Featherstone]

I am somewhat in sympathy with the noble Baroness, Lady Neville-Rolfe, on ending the scheme in 2020. She also raised the issue of the political element. With an election in 2022, if not before, I would not want to see a race on who could cap the most as a part of political manifestos. What the energy market needs is a real resolution.

[Lord Henley]

My Lords, I hope that I can deal with this group of amendments in the two, three or four-dimensional manner that the noble Lord, Lord Stevenson, has asked me to. Given that my noble friend Lady Neville-Rolfe moved the first amendment, I should say that, like her, generally speaking the Government are not convinced about price caps. We have our doubts and we made it clear at Second Reading that we do not like to go down this route and we said that it had to be temporary, albeit with an ability to extend the cap for a short while, year by year, but no more than that.

The aim of my noble friend’s amendment is to end it in 2020. The noble Baroness, Lady Featherstone, also has some sympathy with that, as she returns her party to classic, 19th-century liberalism—a wonderful development. We believe that it should be a temporary measure and that 2020 is the right time to end it, with the ability to extend it to a final, absolute sunset in 2023. I do not think that removing the possibility of extending would provide consumers with protection if the conditions for effective competition were not in place at the same time. As I said, we prefer to do it that way. I rather dread the thought of further primary legislation each year if we wanted to extend it or do it for another year. We have already had that with other Bills.

My noble friend asked if I could report a little on the prepayment meter cap and the effect it has had. The evidence seems to be that, since the cap, prices have come down to below it. There has been some bunching of prices, but there is competition below the cap in the prepayment market. That shows that these things can occasionally work. However, as I said to my noble friend, philosophically we do not like the idea of caps. I rather agree with her.

I turn to the other amendments in the group. The noble Lord, Lord Stevenson, spoke to Amendment 32, the purpose of which appears to be to create a firm link between the price cap’s removal and the completion of the rollout of smart meters. It seems to suggest that the cap can be extended in circumstances where the smart meters programme has been completed, but the conditions for effective competition are not in place. The rollout of smart meters is but one of many possible indicators that define a competitive market. There will be other indicators of the conditions for effective competition. Ofgem’s consultation points towards other factors that might indicate that the conditions for effective competition are in place, including ways of improving customer engagement and increasing switching. I am sure that the amendment aims to be helpful, but I believe it is simpler and safer to leave it to Ofgem to assess the conditions for effective competition, rather than put provisions on the face of the Bill that would link statements about the future of the price cap to particular programmes.

The noble Lord also spoke to Amendments 33 and 35. The Government would not wish to see an inversion of this Bill’s policy intention by removing the price cap’s sunset clause. I repeat that we have no intention of delivering an indefinite price cap. As I have made clear on a number of occasions, this is a targeted and temporary intervention until the conditions for effective competition are in place. I think that is why the Bill achieved broad, cross-party consensus in another place and was endorsed by the BEIS Select Committee. Amendment 35 would also increase the risk of transforming this temporary measure into a permanent feature of the retail energy market. Again, we do not believe that that would be appropriate.

Finally, I turn to Amendment 37, which is a probing amendment seeking to understand the purpose of Clause 9. Clause 9 empowers Ofgem to modify the standard supply licence conditions following the removal or cessation of the tariff cap as specified under Clause 8. The clause allows Ofgem to modify the standard supply licence conditions as it considers necessary or expedient, but with the requirement that Ofgem publishes the modifications to alert all stakeholders as to the impact of the modifications. The publication of the Secretary of State’s decision will alert stakeholders to the cap coming to an end. This provision would enable the licence conditions to be tidied up to reflect the cap being lifted. Otherwise, they would remain in the licence but would be redundant.

We have been clear that the price cap is a necessary intervention in the market, but one that should only remain until the conditions for effective competition are in place. The decision on extending or removing the cap will be made in the light of the report and recommendation from the expert regulator. The Government are not prepared to enable this price cap to be a permanent feature as it could risk distorting the market, but noble Lords will wish to note that Ofgem has enduring powers to protect consumers and specific duties regarding vulnerable consumers. Indeed, Ofgem has indicated that it may be necessary to have in place price protection for a narrower set of consumers once the price cap under this Bill has ceased to be in place.

I hope I have provided the appropriate assurances. Though the amendments are coming from rather different directions, I hope first of all that my noble friend will withdraw her amendment with the assurance I have given and, secondly, that the noble Lord, Lord Stevenson, will not feel it necessary to move his amendments.