Caroline Flint
Main Page: Caroline Flint (Labour - Don Valley)
Caroline Flint (Don Valley) (Lab)
I thank the Secretary of State for advance sight of his statement.
The wholesale gas price makes up about half of the average consumer’s bill, and as we know, energy companies are quick to blame wholesale costs when they put up people’s bills. Therefore, any suggestion that the wholesale gas market has been manipulated is a serious allegation that needs a full and rapid investigation. As the Secretary of State has said, the Financial Services Authority and Ofgem are looking into those allegations.
On the investigation being undertaken by the FSA, let me ask him three clear questions. First, when did the FSA initiate its investigation, and if he was informed about the allegations on Friday, why did he not come to the House yesterday, instead of leaving the public to learn about them in the press? Secondly, can he provide the House with any more information about the investigation’s remit and terms of reference? Thirdly, when does he expect the FSA to report its findings?
Separately, I understand that Ofgem is also looking into allegations made by a price reporting agency about unusual trading behaviour on 28 September, which is the end of the gas financial year and a key benchmark for future prices. Can the Secretary of State confirm today whether Ofgem has launched a formal investigation into those allegations, and if so, how its investigation will be different from the one being conducted by the FSA? Can he also tell the House when Ofgem was first notified about the allegations and whether it informed his Department? Can he also say a little more about the role of the Office of Fair Trading ?
Whatever the outcome of the investigations, the truth is that the energy companies have been allowed to run their businesses in such a complicated way that it is almost impossible to know the true cost of energy. The allegations that have been made in the past 24 hours suggest deep structural problems with the way in which our market works and is regulated. That is why over the past year I have argued for radical reform of the energy market to make it more transparent and more competitive, as well as for the creation of a tough new regulator.
On the first point, does the Secretary of State agree that the main reason it is so difficult to work out the true cost of energy is that most energy is bought and sold through secret, back-room deals and that energy companies are allowed to generate power, buy it from themselves and sell it on to the public? Does he agree that, with the energy Bill due imminently, now is the time to force the energy companies to sell all the power they generate into an open pool, which anyone could bid to retail to the public? That would improve transparency, increase competition and put downward pressure on bills.
On the second point, if the existing regulation of the energy market was working properly, why has it taken a whistleblower to bring the allegations to light? When we last debated the energy market just two weeks ago, the Secretary of State defended the existing regulator, Ofgem, and said that my proposal to create a tough new regulator with a statutory duty to monitor the relationship between wholesale and retail prices would be
“very damaging to the interests of energy consumers”.—[Official Report, 1 November 2012; Vol. 552, c. 364.]
In light of these allegations, can he tell me today whether he still has confidence in Ofgem?
Energy bills have risen by more than £200 in the past two years and the latest round of price hikes will add another £100 this winter. Business as usual is not an option. Today’s allegations of price fixing in the gas market show that it is more important than ever that we reform Britain’s energy market to make it fairer and simpler, and create an energy market that the public can trust.
Mr Davey
I am grateful for the right hon. Lady’s response. Let me try to deal with all her questions.
I understand that the FSA was approached by The Guardian and heard the information from the whistleblower last week. My understanding is that the FSA will follow the normal remit for any such investigation, considering whether an offence has been committed once it has looked at the allegations and reviewed the evidence. Of course, we cannot give detailed timing for that, and I am surprised that the right hon. Lady expects me to do so. That is a matter for the independent regulatory bodies, as they go about their process in the proper way.
The right hon. Lady asked why I did not come to the House yesterday. The reason is that we have rules to protect whistleblowers. It would have been quite wrong for me to come to the House before the whistleblower had made their statement. I hope she accepts that. We were ready to come to the House, but we were waiting for the information to enter the public domain in the proper way, and I have come to the House in the first instance after that.
The right hon. Lady asked about Ofgem’s role. Ofgem is working jointly with the FSA and it is important that it does so, because we do not yet know, as it looks at the allegations, whether there has been a problem in the energy markets—the physical markets—or the financial markets. We do not know whether financial services regulations or other regulations will have to be used, so Ofgem is engaged, just as it should be, in working with its fellow regulators.
The right hon. Lady asked whether the OFT would be involved. Again, that will depend on the nature of the allegations as they are analysed, and whether there has been an abuse—a breach—of competition powers in some way. Ofgem has concurrent powers with the OFT, as the right hon. Lady knows, but the OFT has more experience in some areas, particularly in prosecuting cartel offences. However, these are early days and this is speculation. We do not yet know whether the OFT would be involved, but clearly it stands ready.
The right hon. Lady then talked about the pool. She has concerns about the lack of transparency in energy prices, particularly electricity prices, which she and I debated in the last Opposition day debate on the issue. I explained that her proposals for a pool would not sort out the problem of liquidity. It is our proposal to bring forward reserve powers in the energy Bill, in case Ofgem’s proposals on managing auctions—or whatever it ends up deciding on improving liquidity—do not work. However, we on the Government Benches are absolutely committed to extra liquidity and more transparency of pricing, because that will drive competition, which is clearly the best way forward.
The right hon. Lady continues to suggest that the pool is the answer. These are early days, so it is certainly not clear that a pool would have helped with these offences. However, I remind her that it was the previous Government who abolished the electricity pool, partly because Labour Ministers considered it to be open to market manipulation and therefore detrimental to consumers—so her proposals for a pool are even less appealing as a result of these allegations.
The right hon. Lady now invites me to support her proposal on Ofgem, but from my experience of working with Ofgem and the FSA over the weekend and this week, and of having my officials work with them and seeing them in action, I take completely the reverse point of view. She ought to withdraw her proposal and support the role of an independent regulator. Ofgem has extensive powers; we are adding to them. Ofgem has used those powers where it has felt it necessary. Disbanding Ofgem at the moment would not speed up the investigation or help consumers with their bills now, so I am afraid I am not tempted to take up that proposal from the right hon. Lady. It would be totally unacceptable if people were profiting from manipulating energy prices, so I believe the whole House should back these investigations.