Climate Change
Debate between Caroline Flint and Andrew Gwynne
Caroline Flint
The eco-towns were such a good idea that the coalition Government did not dump it—they called them garden towns instead. We have just had a debate on the need for more housing. If we build, we should do it in a more sustainable way, creating communities like those great garden cities of the past that took account of transport, jobs and health. If the hon. Gentleman is saying that he does not believe that housing is important, he is on the wrong side of that debate.
Andrew Gwynne (Denton and Reddish) (Lab)
My right hon. Friend mentioned flooding, which has been a very serious issue in recent years. The previous Conservative-Liberal Democrat coalition Government cut the Environment Agency’s flood defence budget by a massive 21% and cut the capital grants for flood schemes by 31%. Was not that incredibly short-sighted?
Caroline Flint
My hon. Friend is absolutely right: it was incredibly short-sighted. Not long after that, the Prime Minister said that he would sign a cheque for whatever amount to sort out the problem. After the event is not good enough. We need to take action before these events to make sure that we address not only the financial costs for the communities affected but the devastating social costs that families and businesses suffer from if we do not get this right.
In government we passed the Climate Change Act 2008, which legally bound us to reducing carbon emissions by 80% by 2050. It is worth remembering that back in 2008 only five Members of Parliament voted against this ground-breaking legislation, and that strong consensus influenced policy around the world. There are now climate change laws in 66 countries, and even more are developing them. Denmark, Finland and Mexico have all now passed their own climate change Acts with legally binding emissions targets. Labour is proud of its leadership on climate change. We doubled renewable energy generation and put in the work to make sure that the UK was a global leader in a range of clean energy technologies. Two thirds of the renewable projects that came online in the past five years started under the previous Labour Government, and we can be proud of the jobs that those projects have created.
We put climate change on the agenda at the G8 in Gleneagles in 2005, making sure that this issue was discussed at the highest levels. We welcome the agreement that the G7 countries reached this week to phase out the use of fossil fuels by the end of this century and to cut greenhouse gases by 40% to 70% by 2050 from 2010 levels. That is positive, but only if the Paris conference sets out staging posts on how to get there.
Energy Prices
Debate between Caroline Flint and Andrew Gwynne(9 years, 10 months ago)
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Caroline Flint
On the average energy bill, gas and electricity have gone up by about £260 since 2010. I shall say a little more about who has been hardest hit by that. If we look at the poorest people in our communities, we find that their price rises have gone up substantially more. On every occasion since I was given this job by my right hon. Friend the Leader of the Opposition, I have consistently raised concerns, as I think the hon. Gentleman will appreciate, not only about wholesale cost falls not being passed on, but about the sharp practices going on in the sector, which need to be attended to.
Andrew Gwynne (Denton and Reddish) (Lab)
My right hon. Friend will know that, like all regulators, the energy regulator, Ofgem, has its functions set out in statute—originally, I think, in the Gas Act 1986 and the Electricity Act 1989, as amended by subsequent legislation. Its primary purpose is to protect the interests of the consumer. Consumers’ interests are not being protected because that legislation does not allow the passing on of the cost cuts that my right hon. Friend has highlighted. Is that not precisely why we need to change the law?
Caroline Flint
I agree with my hon. Friend. Every time we have debated the powers of Ofgem, the regulator, we have been told that it has the powers, but is not using them in a practical way to deal with the challenges and problems that consumers face. I believe that, if we make laws in this place, it is essential for us to make laws that make sense and are clear—what is on the tin should be what is in the tin—and to ensure that those laws are enforced.
Energy Company Licence Revocation
Debate between Caroline Flint and Andrew Gwynne(10 years, 2 months ago)
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Caroline Flint
I will come to that in the next part of my speech, and I am sure that I shall be able to answer that question. That would be a matter for the regulator, given its present powers to revoke a licence. At present, it can revoke a licence only in certain conditions, and I do not believe that those conditions are sufficient to meet today’s challenge of making the market more consumer-focused and more competitive.
Crucially, at the moment companies can break the rules and get punished for it—in the form of either a fine or an order to change their behaviour in some way—and as long as they comply by paying the fine or following the order, the slate is effectively wiped clean. At no point can the regulator say, “Enough is enough; you’ve broken the rules too many times and now your licence will be revoked.”
Andrew Gwynne (Denton and Reddish) (Lab)
Is this not precisely where the Secretary of State is missing the point? My right hon. Friend will know that since 2001, 31 fines totalling around £90 million have been imposed, and that another 11 investigations are in the pipeline. Is this not precisely the reason that we need to give additional powers to the regulator—to stop this bad practice?
Caroline Flint
Absolutely. As I have said, the regulator cannot at any point say, “Enough is enough.” That is the key difference between what we are proposing and the status quo. Our proposal would deal with the problem that we have seen in the past, wherein companies are allowed to get away with repeatedly breaking the rules in slightly different ways, or breaking different rules, without fear of losing their licences.
Clearly, the intention behind this policy is to encourage companies to treat their customers better, and the best outcome would be if the power never needed to be used. But if the regulator did decide to use it, the provision would need to have a clear legal basis, almost certainly set down in legislation, in order for it to be exercised with confidence. Otherwise, the threat of legal challenge would probably prevent it from ever being used. That is why it is important that this new power should be clearly put into law, just as the existing power to fine a company up to 10% of its global turnover has a clear basis in law. This would undoubtedly represent a significant addition to the regulator’s powers, and there are important questions about how it would work and about its implications, which I want to address before I finish.
I want to make it clear from the outset that the regulator would remain operationally independent and free from any interference from Ministers. Any decision about whether to revoke a supplier’s licence would be made by the independent regulator alone, but, like all economic regulators in the UK, its functions and powers are defined in statute. What we are debating today, therefore, is not whether any particular company deserves to lose its licence, but whether the regulator should have the power to make that decision, if it thought it necessary. We think that it should have that power.
The process itself would also be very similar to the existing enforcement process, except that, at the end, the regulator would have the power to revoke a supplier’s licence. In practice, an investigation of an allegation of a breach of the rules would begin and the normal process would follow, with a period of information gathering, investigation and notification of the supplier concerned. If the regulator believed at the end of the process that there had been a breach of the rules that had been serious and deliberate and had harmed consumers, and if there had been repeated instances of such behaviour in the past, under our proposals it would have the power to revoke a supplier’s licence in the same way as it has the power to impose a financial penalty or make a consumer redress order. Within the existing enforcement framework there would be clear guidelines for energy companies and a system for appeals.
In the event that a supplier lost its licence, it would mean in practice that it was no longer able to operate as an energy supply company. Let me make it clear that at the moment, companies wishing to supply and generate energy or supply and distribute energy require separate licences for each activity. We have already proposed that vertically integrated energy companies would have legally to separate their generation business from their supply business, and that as a result any decision to revoke the licence would apply only to the licence in question and not to other licences the parent company had. There would be a notice period between the decision to revoke a licence and its coming into force that, by law, must be no less than 30 days. During that period, the company would have to arrange for a trade sale for another supplier to take on its customers.
Energy companies already market and compete to win new customers. Acquiring new customers in such a way would represent a valuable commercial opportunity and avoid the normal acquisition costs. Small suppliers might wish to expand, and if a significant number of customers were available, new entrants might enter the market. In the event that a trade sale is not arranged, the regulator has the power to appoint a supplier of last resort and the rules are in place to ensure that any consumers who are moved to another supplier are protected. Either way, the supply of energy would continue as normal.
This is what I mean by a tough new regulator overseeing a market that works for consumers, not just the companies in it.
Energy Prices
Debate between Caroline Flint and Andrew Gwynne(10 years, 5 months ago)
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Andrew Gwynne (Denton and Reddish) (Lab)
Will my right hon. Friend give way?
Caroline Flint
I will give way one more time, then I want to make progress. I realise that we are short of time because the earlier debate went on considerably longer than expected.
Andrew Gwynne
I am grateful to my right hon. Friend. Was she as shocked as I was to see in the annual fuel poverty statistics report projections of households in fuel poverty increasing to 2.33 million? That is equivalent to the population of west Yorkshire living in fuel poverty. Is that not a damning indictment of a market that just does not work?
Caroline Flint
It is regrettable and worrying that, as I understand it, the number of families in fuel poverty is higher now than 10 years ago. All families deserve a good deal, whether they are in fuel poverty or not, but of course we need to give full attention to those who are most vulnerable.
As is to be expected, the companies have come up with all kinds of excuses, and I shall deal with each of them in turn. The first excuse is that even if wholesale costs have fallen, other costs have increased. Given that wholesale costs are by far the biggest single component of a household’s energy bill, making up about half of it, we would need evidence of quite dramatic increases in other costs for this claim to hold true. What might those other costs be? Energy bills are made up of five components: wholesale costs, network charges, environmental and social policies, and the supplier’s operating costs and profits. If we leave aside the operating costs and profits, which are within the company’s control, that leaves only two possibilities—network charges and policy costs, both of which, helpfully, are regulated by Ofgem or mandated by Government, meaning that we can test the companies’ claims.
According to Ofgem, network costs are up slightly, by about £7 on the average bill compared with last year, and are forecast to remain flat this year. So that cannot explain the gulf between wholesale costs and retail prices. What about environmental and social policies—the levies that pay for investment in clean energy, insulation and support for the most vulnerable? Given the cuts to schemes such as ECO, the energy company obligation, the fact that the warm home discount is now funded by the taxpayer and the cuts to the forecast increase in the carbon floor price, the claim does not ring true.
Undoubtedly, there are cost pressures, particularly from the small-scale feed-in tariff, but I hope the Secretary of State, who, after all, sets and monitors these costs, will agree that in no way can they account for the scale of the gap we are now seeing between the prices that companies pay for energy and what they charge their customers.
The second excuse we have heard is that the companies’ hedging strategies prevent them from passing on the reductions. What are these hedging strategies? One would be forgiven for thinking that they are a convenient device that enables the companies to complicate matters and confuse people whenever they are challenged about their prices. In fact, they are simply companies’ trading strategies, which determine how far out and in what quantity they begin to buy the energy they need for any given day. So what the energy companies are saying, in effect, is, “Sorry, we bought our energy on another day when it happened to be more expensive”—which, by the way, just happens to make their generation businesses more money, but let us not get into that for now.
It is impossible for anyone to verify the companies’ claims because they never disclose their hedging strategies, but I invite the House to be sceptical. In a properly functioning competitive market, we would expect that, given that wholesale costs are the largest single component of bills, there would be some motivation for companies to try to out-compete their competitors on that price. Adopting a different hedge might allow them to do that. Just to say that companies have different hedging strategies does not address the substantive question of whether they are adopting trading strategies that impose higher than necessary costs on consumers.
An even less persuasive version of that argument has been suggested. Some so-called analysts have suggested that the reason the companies have failed to pass on the cost reductions is the prospect of an energy price freeze. Although I welcome their confidence in a Labour victory at the next general election, I must say that of all the excuses I have heard in my time in this job, that has to be the most ludicrous. The idea that the day after my right hon. Friend the Leader of the Opposition made his speech on 24 September last year all the energy companies went out and bought up all their energy for the next four years does not stand up to the slightest scrutiny.
Let me be clear: if there is any evidence of suppliers colluding to inflate their margins, which I am sure the Competition and Markets Authority will monitor with great interest, and if this Government refuse to take action, we will. Of course, if we had greater transparency in the way energy is bought and sold in the first place, as Labour has proposed through our electricity pool and ring fence, the issue would be a lot clearer for everyone.
The final excuse we have heard is that nothing untoward could possibly be happening because the energy market is so competitive. Switching is up, we are told, and competition has never been more vigorous, but the facts speak for themselves: wholesale costs have fallen substantially, and over a sustained period; and not only has none of the major suppliers cut its prices, but none has even indicated that it has any intention of doing so. Indeed, some suppliers have actually ruled out price cuts this year. In its interim management statement, published last month, Centrica reported:
“No change expected in residential energy prices this year”.
However, as today’s motion notes, if competition was working effectively, we would expect wholesale cost reductions to be passed on as quickly and fully as wholesale cost increases, but we never see that. A report published by Ofgem in 2011 stated:
“We have found some evidence that customer energy bills respond more rapidly to rising supplier costs compared with falling costs.”
In its “State of the Market Assessment” this year, which led it to make a referral to the CMA, Ofgem again found that:
“There appears to be an asymmetry in how suppliers respond to changes in costs. We found that suppliers pass on cost increases more fully and more quickly than cost decreases.”
Furthermore, it observed that:
“The asymmetry we found was greater than when Ofgem performed a similar exercise in 2011.”
It is not just wholesale costs. It must be a bitter disappointment to the Secretary of State that four of the big six have still not passed on the full £50 saving to 3.7 million customers following the deal he struck with them on green levies in December.
This is not some passing trend that will correct itself in the fullness of time; it is a systemic problem in our energy market that is a result of deep-seated and fundamental flaws in its structure and regulation. Waiting for the CMA to report is not an option. Wholesale prices have been falling for the past six months, with no signs that consumers will benefit, and the CMA investigation, which has not even begun, will take a further 18 months to complete.
That being the case, the question raised is this: what should we do about it? In theory, there are two things that can protect consumers: competition, where companies compete on pricing and customer service to win and retain customers; and regulation, where consumers enjoy certain defined protections. But in the energy market competition is at best immature and regulation, at least on pricing, is non-existent.
Energy Price Freeze
Debate between Caroline Flint and Andrew Gwynne(10 years, 7 months ago)
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Caroline Flint
It was a recommendation from Ofgem that we want to abolish. It was wrong and it did not work, and I will get to that point. Unlike the Secretary of State, I came to this job to look seriously at what has gone wrong in the energy market, and since privatisation over 30 years ago, mistakes have been made. Mistakes are being made now that could be put right if the Secretary of State had the gumption to do it, but he does not.
Andrew Gwynne (Denton and Reddish) (Lab)
The price freeze that my right hon. Friend is proposing is not an end in itself. Is not the fundamental problem that the big six supply energy to 97% of homes and control 70% of power generation in this country? That means that people cannot shop around and often get overcharged. Do we need the price freeze so that we can begin the process of resetting the market?
Caroline Flint
My hon. Friend is right. It is a temporary price freeze while we reform the market and restore faith and trust. That is absolutely necessary for the journey we are asking the British public to continue with us in relation to energy.
Energy Price Freeze
Debate between Caroline Flint and Andrew Gwynne
Caroline Flint
For the past month we have seen the Secretary of State and members of the Government standing up for the big six—[Hon. Members: “The big seven.”] —the big seven, rather than standing up for the consumers and businesses of this country, which are being ripped off. If we want a secure future in which investment can come forward, we need a little less bickering on the Government Benches about green levies and less fighting against what consumers want.
Andrew Gwynne (Denton and Reddish) (Lab)
My right hon. Friend is right to debunk the myth about investment. Is she aware that under this Government we have dropped to seventh in the world in investment in clean energy technology?
Caroline Flint
Absolutely. Investment has halved from £7 billion to just over £3 billion. It is a shame that the consensus that we created in government has not been held together because of the fractious relationships on the Government Benches.
Caroline Flint
I am not going to give way.
The reason that is needed is simple: the public have been overcharged. Figures we published yesterday revealed a large and growing gap between the costs that energy companies have paid on the wholesale market and the prices they have charged their customers. They confirm what the chief executive of Ovo said the week before last when he noted that wholesale prices had been broadly flat over the last two years and that companies could be facing higher wholesale costs only if they had bought energy from themselves and above the market price.
Those figures, which have been audited by the House of Commons Library, also confirm that the mark-up cannot be explained by any of the other excuses we keep hearing from the companies when they raise prices, be they network charges or policy costs, because more than half the increase in bills has gone straight to the energy companies, either in the form of higher profits or to pay for inefficiencies in their businesses.
Andrew Gwynne
My right hon. Friend will also be aware of the information Ofgem published this week showing that wholesale prices have increased by just 1.7%, while the average bill has increased by more than 9%. Is not that why Labour is absolutely right to call for a price freeze?
Caroline Flint
My hon. Friend is absolutely right. There is a growing chorus of voices saying that something is wrong in the market and in what we are being told about rising costs leading companies to increase bills. It just does not add up. Research by the Institute for Public Policy Research has shown that efficiency savings alone could knock £70 off the average bill. To correct the overcharging that has happened in the past and give consumers some badly needed respite for the future, we propose to freeze prices for 20 months.
Energy Prices and Profits
Debate between Caroline Flint and Andrew Gwynne(11 years, 2 months ago)
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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.
Cost of Living
Debate between Caroline Flint and Andrew Gwynne
Caroline Flint
The Prime Minister promised change, but things have got worse, not better. He inherited an economy in which growth had returned, inflation was low, unemployment was falling and borrowing was lower than forecast. Today the economy is still flatlining, with more people out of work than when he became Prime Minister, the slowest economic recovery for more than 100 years, prices rising faster than earnings and real wages down £1,700 since 2010, while energy bills, train fares and the cost of a weekly shop have spiralled out of control.
Andrew Gwynne (Denton and Reddish) (Lab)
My right hon. Friend is right to mention train fares. The Government talk a lot about reducing the cap to 1%, but is not the truth that they have removed the ban on so-called flexibility, meaning that train companies can now increase their ticket prices by as much as 5% above the retail prices index, which was something the Labour Government removed?
Caroline Flint
My hon. Friend is absolutely right, which is why our amendment puts forward an alternative to the Government’s proposal that would help commuters.
Fuel Poverty and Energy Efficiency
Debate between Caroline Flint and Andrew Gwynne(11 years, 10 months ago)
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Caroline Flint
I will give way to my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) and then I will make a bit of progress. I might take more interventions later.
Andrew Gwynne (Denton and Reddish) (Lab)
In a previous reply my right hon. Friend spoke about collective switching schemes. May I inform her that, as of this afternoon, 15,034 UK residents have signed up to the Labour-controlled Greater Manchester Combined Authority’s Fair Energy initiative? That will help them benefit from substantial combined purchasing power across the Greater Manchester city region’s 10 councils, and lower household bills as a result. Is that not a result of Labour in action?
Caroline Flint
It very much is an example of what Labour councils can do at local level and I am proud that the British Labour party was the first political party in British history to launch its own energy collective switching scheme.