Domestic Gas and Electricity (Tariff Cap) Bill

Bill Grant Excerpts

2nd reading: House of Commons
Tuesday 6th March 2018 Commons Chamber

[Bill Grant (Ayr, Carrick and Cumnock) (Con)]

It would be prudent at this time for me to thank the Business, Energy and Industrial Strategy Committee for its hard work and its contribution to the Bill. I wish to refer to what the hon. Member for Leeds North West (Alex Sobel), who is no longer in his place, said earlier about paying with meters. He appeared to think that they came along with privatisation, but I can go back to the 1950s and 1960s, when meters took a shilling, which is the equivalent of 5p today. Prepayment meters have been with us for quite some time.

When competition works, it delivers the best for consumers, shareholders and the Government alike, and over the past two decades, energy utilities have secured significant investment. It would be a mistake to damage the market that has evolved in recent decades or distort it unnecessarily by introducing state-owned or publicly owned suppliers. That would jeopardise public investment, cost the taxpayer significant sums and lead to the loss of corporate tax receipts. That approach would, in my view, be folly, given that this Conservative Government have already worked hard, and continue to do so, to ensure that the market is more competitive.

The number of energy suppliers has increased fourfold, from about 13 to 50, since 2010, giving the consumer a much wider range of options should they choose to take them. The advent of smart meters will in due course make energy bills more accurate and pricing more transparent, although I concede that there is some way to go to secure the installation of about 53 million such meters by 2020, which is an ambitious target. By working with Ofgem, which has rightly come in for some criticism this afternoon, and by harnessing the power of the internet, the Government will make it quicker and easier for consumers to switch suppliers, which should reduce their energy costs.

There is a large of group of over 5 million active consumers who are willing to use their options to secure the best deal, as was referred to earlier in the debate. Almost one in five United Kingdom households are switching supplier each and every year. The big six are having to work much harder and offer better deals to retain that group of important customers and to compete for their loyalty. However, there are people who, for whatever reason, still do not switch. The non-switchers, who include some of the least well off and the most vulnerable in society, remain for the most part a captive market for the large and dominant suppliers. A form of two-tier market has inadvertently emerged, and those households tend to be on high-cost tariffs.

Our aim as Conservatives must be to create a competitive market that is fair to consumers and to the suppliers, and in which the big six cannot rest on their laurels and prosper—and they have prospered—by inflicting higher charges on those who can least afford it. Encouraging switching does go some way towards achieving that, and we should certainly continue those efforts, but in the meantime we also need to protect the very large group of non-switchers.

The Conservative manifesto proposed the introduction of a safeguard tariff that would protect consumers on the poorest-value tariffs, and I am pleased to support this Bill, which honours that commitment. Indeed, I commend the Government for driving forward their promise to deliver lower fuel bills for millions of customers. This temporary cap, which is not a freeze, as has been said often today, will ensure that 11 million or so customers on a standard variable tariff will, delightfully, no longer have to pay an inflated price for their gas or electricity. That can only be good news for constituents in Ayr, Carrick and Cumnock and throughout the United Kingdom. It is not a distortion of the market, but a corrective measure.

In 2015-16, it was estimated that domestic customers in the UK supplied by the big six paid almost £1.5 billion more than they would have done in a properly functioning marketplace. It is clear that the marketplace is not working, but it will work better, because the Bill will help to reduce that figure and bring prices into line with what they should be in a properly functioning market, while letting the market continue and even flourish within the confines of the cap.

In conclusion, as a Conservative, I believe in the free market, but like many, I recognise that there are times when it can fall short, and this is one of those occasions. It is then the Government’s responsibility to listen, step in and make the necessary reforms and regulations to ensure that the market works well for as many people as possible. The Bill will ease the unfairness and yet allow the market to prosper. I am pleased to support it and, in doing so, note that the cap will cease by the end of 2023 at the latest, but there is the opportunity for it to end in the near future, in 2020.

Domestic Gas and Electricity (Tariff Cap) Bill (First sitting)

Bill Grant Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 13th March 2018 Public Bill Committees

[Stephen Kerr]

Neither of you had any concerns relating to that. You agreed with the Select Committee.

Hayden Wood: I would say that this goes back to the transparency point that I made earlier. I have an issue with a non-transparent process where the methodology, formula, and data input into that process are not published. That is an issue. I do not have information on the appeal issue.

Greg Jackson: The idea that you end up going to appeal in order to get the right to over-charge customers is going to be pretty grotesque. The reality is that they may try to do that, and you have to stop them. We have to prevent it becoming tied up in process. The prices are all still grotesquely high, whether they are set at £1,050, £1,075 or £1,030.

[Bill Grant (Ayr, Carrick and Cumnock) (Con)]

Q Juliet touched on smart meters earlier and the rather ambitious and expensive project that is endeavouring to secure 53 million installations by 2020. To what extent do you believe that smart meters can make the market work for consumers? This is to everyone. Could it lead to an early end to the cap, or could it make it redundant before 2023? It is not a freeze, it is a cap. There are opportunities three years prior to 2023 in which it could be eased or lifted. What is your view on that?

Greg Jackson: I think smart meters make this all the more important right now. If we do not clean up the energy market before we end up with everybody having a different price every half hour, it is going to be a wild west. We have the opportunity to clean up pricing now, and that is why it is particularly important that we deal with this topic of the difference between the highest and lowest tariffs. If it is hard for someone to know where they stand at the moment, then it will be even harder for them to know where they stand in the world of rampant time-of-use tariffs. Let us tidy up pricing now, and then smart meters really can be a path to success.

Hayden Wood: To add to that, we find the conflation of the price cap and the smart metering quite troubling. We do not see a relation between them. A person’s understanding of how much energy they use does not influence how often they might go into the market and look at price comparison sites and understand how much they are paying versus other suppliers. We are also not aware of any evidence suggesting that installing a smart meter would offset the £100 a year that a consumer would save under this price cap. The Government’s own data would suggest that the installation of a smart meter saves the consumer only £11 a year on their energy bill. They are actually separate things.

Juliet Davenport: My personal view is that they do come together when we get proper smart meters: SMETS2 in as opposed to SMETS1. The SMETS2 meters are going to make a significant difference to switchability. At the moment, if you take on a SMETS1 and you are not SMETS1-qualified you cannot switch them to smart metering. You would have a proper smart process in terms of switching. We are going to see some disruption in the market there with accessibility of data and third parties providing information in the house that can switch you instantly to another supplier if you are over-paying. That is the intelligence we are going to see with an increased amount of data. I am quite excited about smart meters and what they can do. They will facilitate households in saving much more than at the moment because we are going to see the smart house plug into that.

[The Chair]

I am sorry, I just wanted to bring in Alex Norris.

[Alex Norris (Nottingham North) (Lab/Co-op)]

My question has been answered.

[Bill Grant]

I welcome the embracing of the new technology and I know it is not perfect right now. You seem rather negative, Hayden.

Hayden Wood: On smart meters? Oh no, we are extremely positive about smart meters, but not—

[Bill Grant]

Thank you, we will leave it at that. It was my misinterpretation.

[James Heappey]

Q You have the Minister to your front and the regulator behind you. What does the end-state look like? Is this price cap to repair the current market, or to deliver something new. If new, what is it?

Greg Jackson: You now have a market of 70-odd companies, mainly vying it out in a 20% churning area. If we get this right, you will be able to let loose the competitive efforts of companies like ours and 68 or however many others to bring prices down for everyone. Getting it right involves the decency cap or the absolute cap and finding a way to tidy up the entirely unjustifiable hundreds of pounds of difference between the cheapest and most expensive tariffs from each supplier. At that point you can let loose our competitive efforts to bring prices down for everyone.

--- Later in debate ---

[Vicky Ford]

Q So, is 2023 the right date?

Pete Moorey: Yes. I think it is the right date, but the critical thing is that Ofgem has the ability on a very regular basis to review how the price cap is working, to set out transparently the changes being made in the market, and to be able to recommend to the Government whether the cap should be removed earlier. I think that having that balance is right.

[Bill Grant]

Q We mentioned smart meters. Do you believe that the roll-out of the smart meters will engender or promote effective competition in the energy market, and, if so, will that contribute to the ending of the cap by 2023? Indeed, I think there is an opportunity in the previous three years to end the cap. What part do you think that process will play?

Finally, picking up on Pete’s reference the less well-off groups, or those who are less price-savvy—I think that was the term—do you think the meters will assist those people in understanding their expenditure? Do you really think it will have an impact?

Pete Moorey: I hope so, but I think there are significant challenges for the roll-out. The fact is that the roll-out does not appear to be going as well as it should. Our own research in the last few months revealed that energy suppliers would be having to install 24 meters per minute for us to hit the target by 2020. So we have to keep a close eye on the smart meter roll-out. I do hope that it leads to changes, and changes that benefit all consumers, but that will require not only groups like us but also yourselves to keep an incredibly close eye on the roll-out.

Peter Smith: National Energy Action runs something called the communities programme, alongside Smart Energy GB, which is the organisation that exists to engage smart meter roll-out. We are doing some valuable work on that, but we are concerned that the roll-out is significantly back-loaded now. That challenges the cost-benefit analysis that the Government originally estimated, which assumes cumulative benefits running all the way through successive years, up to 2020. Now we are in 2018—and 2020 is there; so there is a concern.

[Bill Grant]

Q Is it 53 million installations? I think that is the target by—

Peter Smith: It would be slightly less than that, but it depends whether you think you need to put in SMETS2 meters, once they are ready, and replace the SMETS1 meters. We recognise the value of smart meters, particularly for low-income and vulnerable households, given the fear of an unknown bill. Estimated bills are the biggest concern that these guys get, so we recognise that they can have sufficient benefits. The trouble is we are so back-loaded now, the care and attention and extra help that we thought was going to be possible with smart meter roll-out is now going to be compromised, as everybody, as you say, is just going for volume.

[Kerry McCarthy (Bristol East) (Lab)]

Q This question is for NEA; I think you have already covered quite a bit of this. Obviously your remit is to look at issues of fuel poverty. You have already spoken about the warm home discount scheme and the safeguarding tariff, and the need for more engagement to make more people aware of those. You have just mentioned that smart meters have a role to play in fuel poverty as well. Do you think this Bill will help to address fuel poverty? Do you think there is enough in it? Do you think it really gets to the heart of it, or is it just about consumers being overpriced at the top end of the market and people being perhaps neglected at the bottom?

Peter Smith: First things first: it was reflected in my comments to the Business, Energy and Industrial Strategy Committee as well that NEA believes we must also tackle the vicious overlap between the households with the lowest incomes living in the least efficient homes. That needs to continue to be a priority, and, sadly, we have seen a dramatic drop-off recently in home energy efficiency delivery rates. You could build that into one condition by which Ofgem could make an assessment about whether we are now pulling on that lever as hard as can, maybe as part of an ambitious energy efficiency infrastructure programme.

The second thing relates particularly to the Bill. As I have described, there is a risk that we are assuming that the same people are covered through the SVT-wide cap as benefit currently—or would do in a few months’ time, with the extension of data-sharing powers—in the safeguard tariff. There is a difference between the people that it covers, so not everybody that will be protected by the SVT-wide cap will be protected by the safeguard tariff currently; and the values are very different—or could potentially be very different—in terms of the value of the safeguard tariff currently in place. That is about £100.

Given the drivers on Ofgem to create headroom to encourage competition and so on, that headroom might be significantly reduced. Therefore the general value that the two relative caps present might be very different. So in simple terms we cannot assure ourselves that the provisions in the Bill are consistent with the value that the safeguard tariff is currently providing. Ofgem need to consider that issue in relation to clause 2. It should be written into the Bill.

Domestic Gas and Electricity (Tariff Cap) Bill

Bill Grant Excerpts

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

[Patricia Gibson]

I thank the hon. Gentleman for that clarification. I appreciate that such tariffs will benefit some consumers—I do not think anyone would deny that—but I question whether the system would be flexible enough to benefit all families with children, and others whose energy use cannot be as flexible as they might like.

The amendment to ensure that customers must benefit from the cap by at least £100 seems very arbitrary and risks unintended consequences. I agree with the hon. Member for Wells about that, and with my hon. Friend the Member for Kilmarnock and Loudoun (Alan Brown). There is widespread concern that the big energy companies will use exemptions and green tariffs to ensure that they meet the target.

It is essential that the Bill delivers for consumers and that the period of the cap is used to deliver a fairer, more competitive market for consumers. It must deliver a change for consumers who have been overcharged for too long. There is consensus that the energy market is broken and needs to be fixed, which is why the Bill was introduced in the first place. It enables us to begin to do that, but we must ensure that we get it right and that there are no unintended consequences for the very consumers whom we seek to protect and assist. I know that the Minister will be mindful of that. We need to ensure that consumers benefit from action on this issue after the tariff is lifted in 2020 or 2023.

The launch of the independently chaired commission for customers in vulnerable circumstances by Energy UK in January will report on its findings and recommendations on energy companies, the Government, regulators and consumer groups towards the end of this year. I hope that the Minister or the Secretary of State will note that as we approach the end of the tariff cap, so that the voices of consumers can feed directly into the process of ensuring that they are offered as much protection as possible as the broken market is improved to become more fair and transparent.

[Bill Grant (Ayr, Carrick and Cumnock) (Con)]

It is a pleasure to follow the hon. Member for North Ayrshire and Arran (Patricia Gibson).

It is clear that the energy market is not working for the consumer, and with that in mind, I am pleased to support the Bill. However, I firmly believe that these additional measures must be temporary. Permanent Government intervention in the energy market of the kind that is proposed in new clause 1 is, I believe, unnecessary. Indeed, things are already changing. As recently as 2010, there were only 13 energy suppliers in the United Kingdom; now there are well over 60. Independent suppliers are growing and, rightly, posing new challenges for the big six. They already account for some 20% of the dual fuel market.

The basis of healthy competition is enabling consumers to go elsewhere with relative ease if they find a better deal. Nearly 20% of households a year already switch suppliers. By making switching quicker and easier, we can make that figure even higher and force big suppliers to stop taking long-standing customers for granted as they have done for many years.

There are now about 10 million first-generation smart meters in operation in the United Kingdom. While the roll-out is progressing, there is a long way to go to meet the ambitious target of 53 million by 2020. In the context of the Bill, a key element is the roll-out of the SMETS 2 meters, which is due to begin this year. SMETS 2 consumers will benefit from quick and easy switching, and the meters should be intelligent enough to identify the lowest tariff. They have the potential to be a real force for competition in the energy market. At that point, there will be no need for the price cap, which is why it would not be prudent to introduce a permanent relative cap. It would be bad for customers, and it would work against the positive changes that will be made over the next few years.

New clause 1 is the product of a belief that markets simply do not work. As a Conservative, I believe that they can work. I note the progress that we have made, and the progress that we will make in the coming years. I acknowledge that the market needs the temporary cap, and I support the Bill as a means of protecting consumers, not only in my constituency but throughout Scotland and throughout the United Kingdom. I am sure that it will contribute to a reduction in the very real fuel poverty that some people endure.

[Michelle Donelan (Chippenham) (Con)]

I am delighted to speak about the Bill, having supported it throughout this Parliament and having been a member of the Bill Committee. I think it important that, when considering the new clauses and amendments, we consider the fundamental aim of the Bill, which is to guarantee protection for the 11 million households that are currently on the highest energy tariffs—as well as the 5 million vulnerable households that are already protected by Ofgem’s prepayment meter safeguard tariff cap—by introducing a measured temporary intervention to correct a market that is currently letting down and ripping off thousands of people in my constituency, and millions throughout the country.

New clause 1 would allow the Secretary of State to make requirements in relation to a differential between the cheapest and the most expensive rates offered by suppliers: in other words, a relative price cap. In practice, that would mean that once effective competition was in place in the market—or by the end of 2023 at the latest —and that tariff cap was removed, a maximum differential between the most expensive and the cheapest tariffs would be introduced. That goes against the principle of the Bill, which is to ensure that it is temporary. This should be a temporary measure to correct the market, and it should not allow Government intervention to remain permanent. This Bill is based on a mandate that came out of the Conservative manifesto, which set out a temporary intervention.