Caroline Flint
Main Page: Caroline Flint (Labour - Don Valley)(10 years, 8 months ago)
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Caroline Flint (Don Valley) (Lab)
I beg to move,
That this House recognises the importance of the energy industry to the security and prosperity of the UK economy; notes that the average household energy bill has increased by over £300 since the 2010 general election; further notes that the big six energy companies have had a £3.3 billion uplift in profits over the same period; welcomes the recent report on Energy Prices, Profits and Poverty from the Energy and Climate Change Committee (Fifth Report, HC 108) which found that Ofgem is failing consumers; regrets that the Government has halved support for people in fuel poverty, and that as of 20 August 2013 only 132 households had signed up for a Green Deal plan; further regrets the Prime Minister’s broken promise to legislate so that energy companies have to give the lowest tariff to their customers; and calls on the Government to bring forward amendments to the Energy Bill to make the energy market more competitive and transparent by requiring energy companies to pool the power they generate and to make it available to any retailer, to create a tough new energy watchdog with the power to force energy companies to pass on price cuts when wholesale costs fall, and to put all over-75 year olds on the cheapest tariff.
Earlier this afternoon, we heard from my hon. Friends the Members for Leeds West (Rachel Reeves) and for Nottingham East (Chris Leslie) about the full scale of the cost-of-living crisis unfolding in Britain. For 37 of the 38 months in which this Government have been in power, real wages have fallen. At the same time that people have seen their incomes squeezed, the cost of living has also increased sharply. In the last three years alone, the average household energy bill has increased by over £300. It is no wonder that Which? research has shown that 79% of people now worry about how to pay their energy bills. With nearly four in 10 people saying they are likely to have to cut back on their energy spending in the coming months, and with warnings of more price rises coming later this year, I make no apologies for returning to a topic that we have debated a number of times in the last couple of years.
As we know, energy companies claim that there is a whole raft of reasons why energy bills are going up—wholesale costs, network charges and social and environmental obligations. With all those extra costs, one might think that profit margins would have come down, but quite the opposite. It is now clear that, regardless of those costs, these companies have seen a substantial increase in their profits. We know that because since 2009, energy companies have been required to publish information on their financial performance, including their profits. The information shows that in 2009, Britain’s big six energy companies made just over £2.2 billion in profit. In 2012, by contrast, they made more than £3.7 billion in profit—an increase of nearly 70%. Overall, over the last three years, Britain’s big six energy companies have seen a huge profits uplift of more than £3.3 billion. If anything, this is likely to be an underestimate because it excludes their profits on trading and from gas storage.
Mr Peter Lilley (Hitchin and Harpenden) (Con)
I noticed that, among the factors affecting energy bills, the right hon. Lady did not mention the cost of moving from lower-priced fossil fuels to very expensive renewables. That is the only item that is directly under the control of this House. Was it not somewhat disingenuous not to mention it?
Caroline Flint
Actually, I mentioned “social and environmental obligations” in my opening statement, and part of those obligations mean moving to cleaner energy in the future. I think I have the support of Ministers in saying that if we stay stuck in the past in relation to fossil fuels, we will create an even bigger bill for the future. We need to move to cleaner, renewable energy and other low-carbon energy in order to achieve both security and fairer prices in the long term.
The Secretary of State for Energy and Climate Change (Mr Edward Davey)
In the interests of consensus, does the right hon. Lady accept that it is essential and urgent for Britain to increase investment in renewables, low carbon and energy infrastructure generally, and does she accept that we need to invest about £110 billion over the next 10 years?
Caroline Flint
Yes, I do accept that, and in view of the Secretary of State’s comments, let me be absolutely clear about one thing. The opening words of the motion before us today rightly recognise
“the importance of the energy industry to the security and prosperity”
of the British economy. The companies that keep the hospitals warm, factories working and the lights on in 25 million homes are doing a pretty fundamental job for the British economy. They employ hundreds of thousands of people and create skilled apprenticeships right across the country. Over the next 10 years, we need these companies to invest in the UK—in new power stations, pipes and wires.
The idea, however, that the significant uplift in profits is all somehow to do with investment simply does not stack up. For one thing, if we look carefully at the profits and investment trends of the big six energy companies, as Bloomberg did last year, we see a very odd pattern emerge. The companies with the biggest profit margins have the lowest investment profiles, while the companies with the smallest margins are ploughing the most back in.
Moreover, at a time when the industry overall is enjoying unprecedented profits, we are not seeing anything like the investment that we need. Analysis by Bloomberg New Energy Finance shows that investment in clean energy has fallen by more than half since the last general election, and that under this Government just one new gas-fired power station, in Carrington in Manchester, is scheduled to open before the next election. Every other gas-fired power station that is coming on stream was commissioned, received planning permission and began to be constructed under the last Labour Government. In any case, the need for investment cannot mean allowing the energy market to fail consumers.
Mr John Redwood (Wokingham) (Con)
Does the right hon. Lady not understand that if she backs the most expensive and least rewarding forms of energy investment, to the tune of £110 billion—which is what she wishes to do—profits of less than £4 billion a year will not pay for all that?
Caroline Flint
The choice that we face is between moving to the energy market that is best suited to the future and continuing to incur the additional costs of the past. The Energy and Climate Change Committee has produced information about the cost of decarbonising our power sector, but has also drawn attention to the cost of not doing anything. I believe that the cost of staying stuck in the past would far exceed the cost of investing the amount that we need to invest in renewable and low-carbon energy for the future.
Caroline Flint
Of course I agree that those companies should make profits. I do not want to become involved in a back-and-forth question session because I know that other Members wish to speak, but the Secretary of State has not answered my question. Is he not worried about the fact that some of the companies with the largest profit margins are investing the smallest amounts, while those with the smallest profit margins seem to be investing more? The need for investment cannot mean allowing the energy market to fail consumers. Today I shall explain not just how the Government are going wrong, but how the position could be improved.
Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)
Is my right hon. Friend as surprised as I am that none of the Members who have intervened so far have mentioned consumers? People such as my constituents have seen fuel poverty—extreme fuel poverty—double over the last 10 years. They have suffered attacks on their living standards and increases in gas and electricity prices, while the six big companies that the Government appear to be defending have made profits of £3.3 billion.
Caroline Flint
In fact, that £3.3 billion is over and above those companies’ profits. It is not just their profit base; it is the uplift on what I would describe as, in itself, a pretty healthy profit.
Caroline Flint
No. I am going to make some progress. I shall say more about consumers later, and there will be plenty of time for interventions then. Let me begin, however, by saying something about energy efficiency.
There is agreement on the fact that the best way in which to protect people from rising energy bills is to make their homes better insulated and more energy-efficient. The Government’s flagship programme is the green deal. It replaced the Warm Front programme, which helped more than 2 million families to insulate their homes under the last Labour Government.
Members may recall that the last Secretary of State said that the green deal would help to insulate 3.5 million homes. Clearly a great deal has happened since that statement, and it would be understandable if Members took those words with a pinch of salt. However, the Prime Minister told the House that the scheme would be “bigger and better” than any schemes that had preceded it. It would be groundbreaking, revolutionary, and the envy of countries all over the world. When it was launched earlier this year, the Minister of State, Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker) told Radio 4 that he would be having sleepless nights if fewer than 10,000 people had signed up for it by the end of the year.
Eight months in, how many people have actually signed up for a green deal package? Has the number hit 8,000, or 4,000? Can the Minister look forward to a good night’s sleep before the end of the year? I am afraid not, because so far just 132 people have signed up. Therefore, almost five out of six hon. Members in this House do not have a single constituent who has signed up for the green deal. The saddest thing is that this was all so predictable. For the last three years my hon. Friend the Member for Liverpool, Wavertree (Luciana Berger) and I have warned that interest rates of 8% or even 9% would put people off, that hidden charges would put people off, that penalty payments would put people off, but this Government are not good at listening.
The Secretary of State will no doubt claim that it is still early days, and I really wish that were the case. On the latest count over 58,000 people have had assessments. That shows that the public are interested in making their homes more energy-efficient, but the problem is that once they have had their assessment, 99% of people say they do not think it is a good deal and are not signing up.
The Minister of State, Department of Energy and Climate Change (Gregory Barker)
There is absolutely no factual basis for that assertion. The latest DECC polling shows that over 70% of people who have had a green deal assessment have said they either have work in progress or intend to or are likely to have work done.
Caroline Flint
The facts speak for themselves. There were 58,000 assessments, but only 132 people have signed up. I am sure Government Members will do their best to defend the green deal this afternoon, but they might want to ask themselves why their constituents do not want it if it is such a fantastic scheme.
Alongside the green deal is the energy company obligation, which is a successor scheme to the obligations on the energy companies that we put in place. Again, in principle it has our support. However, when support for people in fuel poverty has been cut by half, the help that is available should be targeted where it is most needed, yet under ECO 60% of the funding could go to households who can already afford to pay, not to people in fuel poverty. When times are tough and money is in short supply, that is simply indefensible.
Mr Russell Brown (Dumfries and Galloway) (Lab)
I spoke in the last debate. Some 41% of households in my constituency are in fuel poverty. What does my right hon. Friend have to say about what I believe is the sharp practice by some of the energy companies who want to increase customers’ monthly direct debit payments by 15%, 20% or 25%, with no real rhyme or reason, when there is no justification for that as their customers are not using that increased amount?
Caroline Flint
Although some of the companies have reformed how they treat their customers, I am afraid that I receive information every day from members of the public including my own constituents—and also colleagues in this House who tell me about their experiences and those of their constituents—about what can only be described as sharp practices. Why should a customer who is paying a fair rate for their energy have to pay an uprated rate just to allow that money to sit in the coffers of the energy companies so they can benefit from any interest on it? That is just not fair and there is still a huge job of work to be done.
John Robertson (Glasgow North West) (Lab)
Some 56% of people are saying they have cut back on their use of electricity and gas yet their bills are going up. They ask, “What is the point of the green deal, when it does not matter how much I save because prices are going up anyway?” No wonder nobody wants to know about the Government’s green deal.
Caroline Flint
My hon. Friend is right, and that lack of confidence and trust in the market and how it operates is at the heart of our motion.
I want to tackle this issue head-on by turning to the question of the retail energy market. It is nearly a year ago now that the Prime Minister promised to force the energy companies, by law, to put all their customers on the cheapest tariff. Let me remind the House of exactly what the Prime Minister said on 17 October last year:
“we will be legislating so that energy companies have to give the lowest tariff to their customers”.—[Official Report, 17 October 2012; Vol. 551, c. 316.]
He reaffirmed his proposal at Prime Minister’s questions earlier today, but the details show that it will not in fact apply to all customers; it will apply only to people on closed or dead tariffs, which is a tiny fraction of consumers as a whole.
Given the crucial difference between what the Prime Minister promised and what the proposals entail, it is reasonable to ask exactly how many people will benefit. Since then, I have asked one urgent question, six oral questions in the House and six written parliamentary questions to get to the bottom of this, but every time the Government have refused to answer.
This is meant to be their core offer to consumers, yet the Government cannot even tell me how many people will be moved to a better deal, when that will happen or how much they will expect to save. So I ask the Secretary of State again today: how many people will the energy companies be forced to move to the cheapest deal? Why is his Department so far refusing to answer my freedom of information request on this issue? Why has so much time and so many resources been wasted trying to shore up a policy announcement made off the cuff?
The sad thing is that there is agreement across the House and, to its credit, within industry that the proliferation of tariffs in the past few years has hindered, rather than helped, consumer choice and competition. Instead of focusing on that, the Department has wasted a year trying to dig the Prime Minister out of a policy hole entirely of his own making, creating unnecessary confusion for the public.
Mr Stewart Jackson (Peterborough) (Con)
Before the right hon. Lady gets too far along the road of critiquing the dysfunctional market, perhaps we ought to consider that the Labour Government inherited a dynamic and efficient market, geared to competition for consumers with 14 companies, and handed on to this Government an oligopoly of six companies, which she now criticises.
Caroline Flint
It is fascinating how figures can be used. The briefing that Energy UK gave Members on both sides of the House says that 17 companies are operating in the market. The problem is market share; the big six control 98% of the market. I do not call that competition, and we will not get it until we get a fairer sharing out of the market—that will make a real difference.
Barry Gardiner (Brent North) (Lab)
In response to the previous intervention, would my right hon. Friend simply care to draw the House’s attention to the fact that the previous Labour Government had to reform the market not once, but twice, through NETA and BETTA—the new electricity trading arrangements and the British electricity trading and transmission arrangements? They did so to ensure that, in what had been a dysfunctional market, something better and more competitive was created. That created the big six, which now, through the change in circumstances, have reached a different stage in their genesis and need reform as well. The idea that the Labour Government inherited a well-functioning market is nonsense, and Government Members know it.
Caroline Flint
I absolutely agree with my hon. Friend. Just for the record, energy bills fell under my right hon. Friend the Leader of the Opposition. When he became Secretary of State for Energy and Climate Change the average bill was £1,215, and when he left it was £1,105. I am happy with that drop of more than £100, but since then there has been an increase of more than £300 in the past few years.
Alongside simpler tariffs, which we would all agree with, protections should be put in place for people less able or less inclined to switch. That is why our motion proposes to require the energy companies to put all those over the age of 75 on to the cheapest tariff. We know that the over-75s are the most likely to live in homes with poor energy efficiency and the most vulnerable to the cold weather, but the least likely to switch supplier, so they often pay more than they need to. That is sometimes simply because they do not have enough confidence to access the internet, where the information on the cheapest deals is available, or to operate an online account. I have discussed our proposal with suppliers, and they indicate that there is no reason why it cannot be done, so I hope that the Secretary of State will be able to give a more positive response than he has in the past.
Caroline Lucas (Brighton, Pavilion) (Green)
Yesterday, Lord Stern dismissed claims that fracking could bring down the price of gas in the UK as “baseless economics”. Given the long list of experts explaining why shale gas will not help people who are struggling with high energy bills and will actually trash our climate commitments, will the right hon. Lady take this opportunity to rule out fracking in the UK under any future Labour Government?
Caroline Flint
I have been clear that our approach to fracking and what it could offer must be evidence-led. In the past few years, I have been disappointed by the fact that, for all sorts of reasons, the Government have chosen to up the ante on what gas from such exploration can provide. We do not really know the exact cost-benefits of fracking for gas. We do not know how much is there and whether those benefits will be realised when we get it out of the ground. I am afraid that I shall have to disappoint the hon. Lady by not ruling it out, but our approach must be evidence-based and pragmatic. I certainly do not believe that we should be offering tax breaks, given everything that is going on in this country, for something that might not happen for 10 years, if it happens at all.
The Government have harmed the reasonable debate that we should be having about fracking by trying to polarise the use of the gas against that of renewables. That has been incredibly unfortunate as regards having a practical, reasonable and evidence-led debate. That is what we will lead on in trying to debate the issue, which is important for our country.
As I have said, we can simplify the tariffs. We can take our proposal to put all those who are over 75 on the cheapest tariff. But before we even get to tariffs, we must ensure that the prices that make up bills are set fairly and openly in a properly competitive environment. That is crucial because wholesale costs are the single biggest component of domestic energy bills and make up more than half the prices consumers pay.
If we do not have a competitive wholesale market putting a downward pressure on prices, people might be on the cheapest tariff but might still not be getting a fair deal. The Government seem to say that they agree that the market is not as transparent or competitive as it should be, but what are they doing about it? Not very much.
Caroline Flint
I just want to make a little progress.
The Energy Bill takes broadly based back-stop powers to improve liquidity, but the Government cannot even say in what circumstances or in what way they would use those powers. I am sure that the Secretary of State will pray in aid Ofgem’s work on liquidity. In our previous exchanges, he has defended the regulator against my criticisms, but I hope that he has read the Select Committee’s report, “Energy Prices, Profits and Poverty”, which was published over the summer. Its conclusion is stark. The very first page of the report states:
“Ofgem is failing consumers by not taking all possible steps to improve transparency and openness in the energy market.”
I am afraid Ofgem’s proposals on wholesale market liquidity do not go anywhere near addressing the two main problems with the market.
The first problem is that the market is dominated by six companies that both generate power and retail it to consumers with a market share of 98%. As Which? pointed out in its report over the summer, the obvious problem with the structure is that it provides little incentive for companies to keep wholesale prices efficient if the effect of doing so is to reduce the overall profitability of the company. Why would the supply arm of an energy company try to drive down profits on the generation arm if the outcome was to reduce the amount of money the company as a whole was making? Although the companies are right to say, as they frequently do, that their retail profits are only 5%, which is pretty healthy, their profit margins on generation are much more substantial. Which? suggests in its report that last year they were about 19%.
Caroline Flint
I have given way quite a lot and I want to make a bit of progress. I will see whether I have time later to take another intervention from the Secretary of State.
I have set out the first problem. The second problem is that if energy companies can source most or all of the power that they need for their customers from their power stations, there is much less need to trade in the open market. According to one estimate from the London Energy Brokers Association, average daily market traded volumes were just 6% of total generation. For those reasons, we have proposed the pool to which the motion refers. A pool would be a single mechanism bringing all generators and suppliers together to buy and sell all their power.
To put it simply, in a pool—or an open exchange, or whatever else we might call it—all generators will be required to sell all the power that they generate on to an open market, and all suppliers will have to buy it from there, too. That would do two very important things: it would put a break between generation and supply; and it would result in much greater volumes being traded openly. Indeed, that is one reason why the markets in other countries where there is a more exchange-based trading system, such as Nord Pool, are more liquid, more transparent and have more market participants. I believe that such a market would be more attractive to invest in, particularly for independent generators or companies wishing to enter the supply market.
Andrew Gwynne (Denton and Reddish) (Lab)
Is my right hon. Friend aware of the recent report by the respected think-tank the Institute for Public Policy Research, which shows that the efficiency savings resulting from increased competition in the energy market could alone bring bills down by around £70?
Caroline Flint
That is absolutely right. I do not believe that the present situation encourages or incentivises efficiency within those companies. Importantly, it does not provide an open and transparent basis on which to judge the true cost of energy, which I think is vital if we are to move the debate on energy in this country forward.
Mr Davey
Today we have learnt that the right hon. Lady believes that we need investment in the energy sector and that investors will need profits. Given what she has just said, can she tell the House what level of profit she thinks is excessive and when she thinks profits become unfair to the consumer?
Caroline Flint
I think that the difficult thing here is for the country to understand why the Secretary of State has set his face against opening up the market and making it more transparent. This is not about companies not making a profit; it is about creating more competition. Every time we discuss the price of energy, we will have various voices, including the Government’s, defending how the companies operate. I want to create a more open and transparent market, so that we can all judge what is a fair price and, alongside that, what are fair profits. It is not fair if people cannot get to the bottom of how energy is bought and sold. It cannot be right for the market to be rigged in such a way that the vast majority of energy is sold within a company and then sold on to us. Other countries do it differently, and I think that we can, too.
John Penrose (Weston-super-Mare) (Con)
Does the shadow Secretary of State not accept that even if her proposals were to introduce extra transparency and potentially yield some of the benefits that she is claiming, those benefits would be unlikely to be passed on to consumers unless we also reform switching and the information available to consumers, so that more are willing to vote with their feet by moving their business elsewhere? It is not just the over-75s who are less likely to switch; the entire market is insufficiently informed or able to switch conveniently to have that kind of consumer pressure on producers.
Caroline Flint
I agree with the hon. Gentleman. We could look at lots of different policies to improve customer choice and the ability to move more flexibly between suppliers. My point is that, whatever we do to the retail side of the consumer offer, we must deal with how the market works. Even the best tariff that we have at the moment might still not be a good one, because of how the wholesale market works. When I met companies that are part of Nord Pool, they did not voice the concerns that the Secretary of State mentioned today about hampering investment. Actually, I am pleased to share with the House the fact that over the past 18 months I have seen some movement in a number of the energy companies in the UK as well. I think that they are beginning to realise that some openness and transparency in the market would serve them and the British public well.
Caroline Flint
I will make some progress.
A pool or open exchange would have one other big advantage over the current market arrangements. The Energy Bill introduces contracts for difference to encourage investment in low-carbon sources of electricity. Those are essentially contracts with low-carbon electricity generators to pay a fixed price for the power that they produce. If the price that the generator receives in the market is less than the agreed strike price, consumers are liable to make up the difference. At the moment, with such little trading happening on the open market, there is no reliable way to work out what the market price actually is.
In August, the Secretary of State published more information on how contracts for difference will work, but what did it say on the question of how to work out market prices for baseload power? Let me quote from paragraph 15 of annex B of the draft operational framework, with which I am sure he is familiar. It states that
“indicating the precise source of prices, based on current price publications, in detail today would not be useful.”
Actually, I think that knowing how many billions of pounds of consumers’ money will be allocated would be pretty useful, but without a pool, I simply do not see how the Government will work it out.
Caroline Flint
I am going to make some progress.
Alongside our proposals for a more competitive open energy market, the motion calls for a much tougher regulator than we have had in the past. As I said earlier, in its report the Select Committee echoed many of our criticisms of Ofgem over the past year. I do not intend to rehearse all those criticisms, as it could take some time, but I want to urge the House to support one important change. In a properly competitive market, cost reductions should be passed on as quickly and as fully as cost increases. At the moment, when wholesale costs increase, bills go up like a rocket, but when wholesale costs fall, bills fall like a feather, if at all. That is why our motion calls on the House to support the establishment of a tough new regulator with a statutory duty to monitor the relationship between the prices that energy companies pay for their energy and the bills that the public pay and the power to force the companies to cut prices when wholesale costs fall.
Why is this all so important to the public? Rather than never having had it so good, as the Government try to tell them, rising energy bills are one of the main reasons why they are finding it harder and harder to make ends meet. Even in better times, though, the public deserve a fair deal. This problem is not confined to the poorest. Millions of people are facing real hardship because of a cost-of-living crisis reinforced, I am afraid, by the Government’s complacency over soaring energy prices, incompetence in helping the public to insulate their homes and indifference to the plight of our oldest citizens paying over the odds for the energy that they use. Last year, there were 24,000 excess winter deaths in our country. Even on the Government’s revised definition, well over 2 million households are in fuel poverty, and the gap between their bills and what they can afford to pay is growing ever wider.
The Opposition’s job is to scrutinise the Government and hold them to account, but it is also to develop alternative ideas to tackle the challenges that the country and its people face. The risk, of course, is that the Government pinch them. Today I tell the House that, with the Energy Bill still going through Parliament, if our proposals can help to restore people’s faith in the energy market and get people a fairer deal, I gladly offer them up. I commend the motion to the House.
Mr Davey
Let me be clear that we have an independent regulator, which the Labour party tends to forget. I should say to my colleagues that under the EU third package on energy, we have to have an independent regulator. The proposals that have been made are Ofgem’s, but I am on the record as supporting them strongly. As I have explained, Ofgem has proposed a market maker system, whereby the six vertically integrated companies will be mandated to sell power in the forward markets in the UK.
What about the third element of Labour’s package? It is a bit vague, talking about tackling the big six. The House should know from what I have said that we are already doing that through competition. What did Labour do in office? In 1998, there were 14 firms in the electricity supply market retailing electricity to customers. By 2010 there were just six, as my hon. Friend the Member for Peterborough (Mr Jackson) said. Rather than promote competition to help consumers, Labour did the reverse, and it now promises to undo what it did. What a shambles the Opposition policy is, and what a shambles the last Labour Government were.
If Labour’s energy policy would really help consumers, will the right hon. Member for Don Valley tell the House by how much the average energy bill would fall under her party? She tells us that she is proposing radical changes, so what would the impact be for consumers? We published detailed analysis of the impact on people’s bills of our energy and climate change policies, and it showed our policies helping people by keeping their bills lower than they would have been. We need to know what the impact of her policies would be.
As I have made clear, we have policies to help hard-pressed consumers and to help improve competition in the retail electricity market, including policies with Ofgem to help consumers. On the supply side, we have deregulated to make it easier for smaller suppliers to enter the market. We now have our “offtake of last resort” mechanism through an amendment that I introduced into the Energy Bill in the other place, and we are supporting Ofgem’s reforms to the retail market to deliver tariff simplification and get a better deal for more consumers. Labour failed to do that even when pushed to do so in the House. The confusing array of tariffs—there were a huge number—got to such a point that it was hindering competition and hurting consumers, not helping them and driving competition. We are right to back Ofgem with more reserve powers so that we can ensure that vulnerable people are not left being fleeced on so-called dead tariffs, and so that people find it easier to choose and switch.
Caroline Flint
The Secretary of State talks about providing Ofgem with more powers. Does it not concern him that we and the Energy and Climate Change Committee have identified that it has not been using the powers that it already has? How the regulator sees its role in relation to the energy market is at the heart of the problem. Following the recent report, which was a forensic examination of how the market works, it disregarded the recommendations of the independent consultant, and the Select Committee says that it should reconsider the matter. A regulator not using the powers that it already has is worrying, and that is at the heart of some of the problems that we face.
Mr Davey
On the Committee’s proposals about whether Ofgem should pursue the BDO recommendations on accounting transparency, the right hon. Lady will have to wait until we publish our response to the Committee. However, I disagree strongly with her that Ofgem is not using its powers. It is certainly using its powers under us, which is why we have the retail market review delivering the tariff simplification that Labour failed to introduce, and why we are seeing reform proposals for the wholesale market, which Labour failed to do.
Mr Lilley
That is the total impact of Government policies. Whatever the figure is, my constituents and the constituents of the hon. Member for Glasgow North West (John Robertson) are paying it. Overall, if one third of the cost of renewables is falling on households directly, the other two thirds also falls on households. There is no such thing as industry in this case. All costs are borne by individuals: by consumers and employees, and by pensioners through the impact on the value of shares and profits that are held largely by pension funds. We should not allow the costs we are imposing on people to be ignored or understated.
The second disgraceful aspect of the Opposition motion is the pretence that the rise in energy bills we have experienced in recent years is largely or entirely due to a rise in profits. I wish that were true. If it were true that the rise in profits accounted for the 41% rise in gas prices and the 20% rise in electricity prices, undoubtedly those profits would be excessive and we could bring down profits and prices by greater competition or better regulation. Sadly, however, it is not true. Table 6 of the Select Committee’s report records that the average profit margin of the big six is 7.6%, which cannot account for the massive 20% and 41% increase in prices.
Caroline Flint
Will the right hon. Gentleman clarify what aspect of the profit margins he is basing those figures on?
Mr Lilley
That is the average of both generating profits and distributions profits. It is in table 6 of the report, which I am sure the right hon. Lady has read assiduously. She can check it if she wishes.
The right hon. Lady refused to answer a question about what a correct level of profit would be, but I cannot believe that she thinks profits are more than twice as high as they need to be. Even if we were to halve the profit level from 7.6% to 3.8%, the effect on prices would be very small compared with the huge increase we have seen. As we all know, the increase is largely the result of the increase in fuel prices, which is outside the control of Governments.
The suggestion that all energy companies have seen massive rises in profits is also dispelled by table 4, on page 27 of the report. Indeed, the Committee referred to the figure given in the Labour party’s motion of an increase in profits of £3 billion, which I think comes from Consumer Focus. The report states:
“Table 4, however, doesn’t appear to support this.”
Table 4 shows what has happened to companies’ profit margins from 2007 to 2011. For EDF, the average profit margin was 15.7% and went down to 8.5%. For SSE, it went from 4.2% to just 0.8%. For British Gas Centrica, it has gone down from 7.3% to 5.6%. For Scottish Power, it has come down from 11% to 4.4%. For E.ON, it has come down from 6.8% to minus 2.2%. For npower, it has come down from 12.2% to minus 5.5%. Therefore, the idea that there is huge scope for us to bring down excess profits, and thereby prices, through regulation or improved competition is sadly not correct, and it is dishonest to pretend that it is.