Energy Markets Competition Assessment

Caroline Flint Excerpts

Thursday 27th March 2014 Commons Chamber

[Caroline Flint (Don Valley) (Lab)]

I thank the Secretary of State for early sight of his statement. The Opposition welcome the decision to refer the energy market to a competition inquiry. The launch of a full-blown market investigation is confirmation that the energy market is broken, but while it is happening, consumers should be protected from any more unfair price rises, and energy bills should be frozen until 2017.

Does the Secretary of State accept that Ofgem’s decision to refer the energy market for a full competition investigation is a clear admission that there are serious problems with the way in which the energy market works? Does he believe that the Government were mistaken to reject the proposal put forward by my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier) for a competition inquiry in 2011?

In the light of today’s report, what assessment has the Secretary of State made of the effectiveness of Ofgem? As he will know, in the past six years, Ofgem has undertaken three major investigations into the energy market. In none of those did Ofgem feel the need to make a reference to competition authorities, or indeed to acknowledge that there are fundamental structural problems with the energy market. Just last December, the Secretary of State told the House:

“Ofgem is fit for purpose.”—[Official Report, 2 December 2013; Vol. 571, c. 634.]

However, is not today’s decision a clear admission that Ofgem has failed to protect consumers? Will he therefore ensure that the market investigations look not just at the players in the market, but at the regulator, too?

In the Secretary of State’s statement, he made the bizarre claim that the energy markets have improved since 2010, but the chief executive of Ofgem today told the BBC that it referred the energy market for investigation for the very reason that conditions in the market have got worse. Is the Secretary of State saying that he disagrees with that assessment?

Today’s assessment also clearly identifies vertical integration as one of the main issues for a full market investigation. The Secretary of State seems conveniently to have forgotten that the last Conservative Government privatised the energy industry and removed the restrictions on vertical integration. Therefore, if he wants to blame anyone for that, he should take it up with his colleague, the Minister of State, Department of Energy and Climate Change, the right hon. Member for Sevenoaks (Michael Fallon), who was a Minister at the time.

The Secretary of State has previously claimed that a ring fence between the generation and retail arms of energy companies had real problems and could push up prices. Therefore, in the light of today’s report, will he admit that he was wrong to rule out Labour’s proposals for a ring fence?

I want to ask the Secretary of State a few specific questions on the details of how the investigation will work. First, will the market investigation cover small businesses as well as domestic consumers? Small businesses face many of the same problems as households but enjoy fewer protections. Does he agree that it would be a mistake to exclude them from the remit of the market investigation? Secondly, on the timetable, when does he expect Ofgem formally to refer the energy market for investigation, and when will the investigation begin? Thirdly, when does he expect the CMA to appoint a market reference group to undertake the investigation?

The only reason for the statement today is the speech by my right hon. Friend the Member for Doncaster North (Edward Miliband) at the Labour party conference last year. The Secretary of State, the Prime Minister and the energy companies all said that a price freeze was unworkable and impossible to deliver. Yesterday’s decision by SSE showed that a price freeze is possible, and today’s confirmation that the energy market is broken shows that it is needed by all customers. The public want radical action to reform the energy market, as Labour has proposed, but while the review takes place, they rightly want to know what help they can expect now. If I were standing where the Secretary of State is standing, I would take action to impose a price freeze for all consumers. Instead of defending the big six and asking for their co-operation, why does he not just enforce a price freeze now?

[Mr Davey]

First, I welcome the right hon. Lady’s welcome for today’s announcement. That is very important for people outside this House to see: not just consumers and small businesses who will be the beneficiaries of this action, but investors and the industry. Cross-party agreement on the way forward to promote competition in energy markets is very important for investment, so I strongly welcome her welcome. Political agreement is a good step forward for energy markets.

I disagree, I am afraid, with some of the right hon. Lady’s other comments. Of course I agree that there are serious problems. One of the reasons why the Government have been reforming energy markets from day one is that we thought there were problems. One of the reasons we asked Ofgem and the competition authorities to do this work is because we were impatient that not more was happening in the markets. What is interesting about the referral is that the Leader of the Opposition could have done it when he was doing my job, but he refused to take this measure. He refused to do so when he had the power, so I have to say to her that Labour does not really have a leg to stand on. Labour created the big six; we are taking action to create competition.

I am surprised that the right hon. Lady continues to bash Ofgem, the independent regulator. It has taken action in the past few years, particularly under this Government, to improve competition. I thought Labour supported the retail market review and the wholesale market reforms of the market maker obligation. I know she was not on top of reforms in the wholesale market, but Ofgem has taken that action and is now proposing the referral. In the spirit of welcoming the statement, she should also welcome the action Ofgem has taken. Labour set up Ofgem and when the Leader of the Opposition was doing my job he reformed it to make it more effective, so it is ironic for the right hon. Lady and the Opposition to criticise their creation that they reformed.

The right hon. Lady asked one or two specific questions. She asked me whether small business would be covered in the reference. Yes, it will. That is, of course, the independent competition authority’s business, but we believe that it will be and that it should be. On the timetable, as I set out in my statement, we expect the consultation to finish by 23 May. Ofgem will then make its final decision. We expect all of that to happen and the assessment to get going before summer.

The right hon. Lady asked about the price freeze. The problem with Labour’s blanket price freeze is that it is a pro-big six policy. Labour created the big six and it is supporting the big six. Of course SSE is able to have an energy price freeze—it is a big company. Big companies have the balance sheets that enable them to buy 18 months ahead. We have never said that the big six could not have a price freeze. It is the smaller competitors who oppose the price freeze. When the Leader of the Opposition made his announcement to the Labour conference, it was the small companies that were complaining, saying that it would put them out of business. That is the true Labour party: putting the smaller competitors out of business.

The right hon. Lady needs to reflect on all her policies. I am delighted that she has, at long last, changed her mind and agreed to the market investigation reference. That is good to hear, but the Government have been acting to help people with their bills through the warm home discount for the 2 million lowest income households, through the average £50 we took off bills before December, and through our work on energy efficiency and switching. We have been extremely active and will continue to be active during the review, as will Ofgem. The Government are in favour of better prices through more competition to deliver secure green energy.