Domestic Gas and Electricity (Tariff Cap) Bill

Bim Afolami Excerpts

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

[John Penrose]

The right hon. Lady is one of the co-organisers of the letter, and I thank her again for her help. No matter how clever, good and high calibre the committee, people are just not as good as the market at price discovery, provided the market runs properly. When she was shadow Secretary of State for Energy and Climate Change, I heard her talk about having to get a better energy market with better price discovery and having to re-establish an energy pool precisely because of that point. Ofgem, no matter how hard it tries or how well intentioned it may be, just will not get it right a large proportion of the time.

[Bim Afolami (Hitchin and Harpenden) (Con)]

My hon. Friend knows a great deal about this issue. Is not the point that this is not a price freeze but a price cap? Those two things are different and allow a sensible regulator, as the right hon. Member for Don Valley (Caroline Flint) suggests, to set a ceiling rather than an absolute price.

[John Penrose]

I agree that there is a difference between a freeze and a cap, but there are a couple of things that, none the less, make it an extremely risky and dangerous proposition to go down that road. For example, what if Ofgem picks a number and the international price of energy falls the very next day? What then? Switching customers in the ultra-competitive part of the market would find their prices drop quickly as energy firms react to the news, but Ofgem’s capped prices for loyal, non-switching customers on default tariffs—that is the example my hon. Friend talks about—would not move at all for another six months, when the cap can be reset according to the terms of the Bill. In that situation, the cap would be ineffective at protecting the customers it is designed to help and, because it is officially blessed by Ofgem, it would embed and legitimise high prices. Things would get worse rather than better.

It is not just me who is worried about that. Which? says it is

“not certain that customers on a capped default tariff will benefit as market conditions change in future”.

--- Later in debate ---

[James Heappey (Wells) (Con)]

This is an important Bill that comes from a very good manifesto commitment. Our energy market is undoubtedly broken, with millions of consumers stuck on the most expensive tariffs. Many are taken for granted and, arguably, even exploited for their loyalty, and it is right that the Government have intervened to protect them.

In many ways, in delivering this cap we have accepted that we failed over the last few decades to create the culture of switching that we hoped for. That is not to say that impressive progress has not been made; it has been, and we have seen further progress in the last few months, but even if that recent improvement in progress were to continue, we would still have far too many people—disproportionately concentrated among the most vulnerable and the lowest income consumers—left on the most expensive tariffs.

We should also note that some of the biggest energy suppliers have changed the way they operate SVT-type products over the past nine months, which is very welcome. One suspects that they saw what was coming down the tracks. None the less, I know that they will feel aggrieved by the Bill after voluntarily acting to tackle the problem of those stuck on rip-off SVTs.

The progress on switching and the improved behaviour of the big suppliers underlines why the cap need only be temporary. My hope is that the Secretary of State will encourage the industry to respond quickly to the cap so that tariff structures become fairer for the most loyal consumers. Clear criteria for ending the cap would be most welcome. While the cap is in force, let us not take our foot off the accelerator in encouraging more people to start switching. In short, the cap must be regarded as a means to an end, not—I suspect this is the view of some Opposition Members—as an end in itself.

[Bim Afolami]

Does not the Bill show the Government’s general approach to intervention in markets, which we have heard a lot about this afternoon, which is about markets not as a means in themselves, but as a means to an end, which is good, cheap and reliable energy for the British people?

[James Heappey]

My hon. Friend is indeed right. To resort to my former career as a soldier, I hope that the Government see this as a raid into the energy market, rather than an occupation.

In her opening remarks, the shadow Secretary of State made the important point that an amazing energy future is emerging in the margins of our current broken market, although I disagree with her analysis that the Government are not embracing that, because the clean growth strategy is a passionate embrace of those opportunities. Insurgent companies such as Octopus Energy are relishing bringing the new time-of-use tariffs to the market, giving consumers the benefits of fluctuating wholesale energy prices. Others are looking at how localised generation or aggregated shifts in demand might allow consumers to access cheaper energy or monetise their flexibility. Others still are looking at delivering heat and power as a service, often enabled by clean tech provided by the supplier for free, with the supplier then monetising the customer’s flexibility in order to make their margin. These and countless other innovations are accelerating our decarbonisation, increasing system flexibility—and therefore our energy security—and will mean lower bills for consumers.

We must also create an energy system that allows the full price-reducing power of clean technologies to bring down prices for the consumer. This will require significant regulatory change in order properly to unlock storage, demand-side response and the advantages of generating and consuming energy locally. We must also encourage the deployment of more renewables, no longer because they are the cleanest method of generation, although they still are, but because they are now so obviously the cheapest.