Energy Prices

Charles Hendry Excerpts

Wednesday 19th October 2011 Commons Chamber

[Karl Turner (Kingston upon Hull East) (Lab)]

I am pleased to have managed to catch your eye, Mr Deputy Speaker, to be called to speak in this important debate. In the UK, 6.4 million homes are in fuel poverty and that number continues to rise. That is the number of households spending 10% or more of their income on their energy bills.

There are two key factors: energy prices and household incomes. Fuel prices continue to rise at astronomical rates and Government policies have left families in this country seriously squeezed. At the same time, the six most dominant energy firms, which, as I understand it, control 99% of the market, have seen their profits increase to £125 per person. That is absolutely scandalous. The figure has increased from £15 to £125 since June, so no wonder our constituents are seriously concerned about those companies taking them for a ride. My own father—who is a constituent of mine—calls it daylight robbery. Given what my hon. Friend the Member for Glasgow North West (John Robertson) has said, I think that is worse than daylight robbery. It goes beyond robbery with violence and is tantamount, to me, to corporate manslaughter. It is estimated that 2,700 people will die this year as a result of the increase in fuel prices. That is an absolute disgrace.

It is important to recognise that, in the last quarter alone, such profits equate to billions of pounds. It shocks me to hear the Secretary of State defend the energy companies, saying that they are not the Salvation Army. Is it not time that we looked at this carefully? People are deciding between eating and turning the central heating on, so it is perhaps time for a little philanthropy from those companies.

The Government’s rhetoric is not good enough. We are most certainly not “all in this together”. It is not enough for the Prime Minister to arrange a publicity stunt with the energy bosses and then tell my constituents to shop around, switch energy supplier, insulate their loft spaces and save. It is dreadfully patronising to those people who have already attempted that but have found navigating the system extremely complicated. Indeed, the Minister of State, Department of Energy and Climate Change, the hon. Member for Wealden (Charles Hendry) experienced that when he attempted to change suppliers.

The Government could call for an investigation into allegations of mis-selling, but they have not done so. Consumers who have been ripped off by companies should be properly compensated. In my view, that is the type of thing that the Secretary of State should have said when he addressed the House from the Dispatch Box. The Government should tell energy companies to use their soaring profits to help families and businesses with crippling energy bills.

We need a mandatory social tariff. Energy suppliers should be forced to charge less to their most vulnerable customers, and I am confused as to why the Prime Minister did not ask for that in his energy summit. The Government need to stand up to the powerful vested interests in the energy industry, and to provide help, rather than patronising people. They are out of touch. Cutting support for the most vulnerable is absolutely appalling, which brings me on to the winter fuel allowance.

The Prime Minister’s decision to cut the winter fuel allowance will affect thousands of pensioners, including many hundreds in my constituency—[Interruption.] The Minister says something from a sedentary position that I cannot quite make out, but I wish he would listen and allow me to make the points that I want to make, because if he did so, he would learn something about real people in my constituency, who are suffering quite severely.

[The Minister of State, Department of Energy and Climate Change (Charles Hendry)]

I am grateful to the hon. Gentleman for giving way. The reality is that the allowance was introduced by the previous Government on a temporary basis. For the year after the election, no money whatever was allocated to it. The allowance was a temporary measure, and this Government have continued the policy of the Labour Government. We have not cut it; that is what the previous Government planned to do.

[Karl Turner]

That is absolute nonsense. This Government are running the country, and winter fuel payments have been cut by £50 for over-60s and by £100 for over-80s.

--- Later in debate ---

[The Minister of State, Department of Energy and Climate Change (Charles Hendry)]

I am delighted to have the chance to respond to what has been, broadly, an excellent, high-quality and wide-ranging debate. Some contributions were perhaps overly political, but for the most part they were thoughtful. That reflects the genuine concern on both sides of the House, and the fact that in every single part of the country, people are worried about fuel prices this Christmas and this winter. They want the Government and the Opposition to work together as effectively as possible to try to deal with those issues.

That is why we have said that we will not oppose the motion—I could happily have written much of it myself. The motion states that the energy market is in urgent need of reform. That is why we ignored the Labour party’s claim before the election that there was no case for reform and have started the most wide-ranging reform process of the past 20 years.

The motion refers to concerns about Ofgem’s study into prices and margins. We encouraged Ofgem to carry out that work, and it was under this Government, not the previous Government, that it was started. The motion states that

“energy tariffs are confusing and unfair”.

Everyone who has spoken in this debate has talked about the difficulty of switching suppliers owing to the complexity of the system. That is an issue on which we really want to see progress. It also calls on us “to investigate mis-selling”. We are putting that right, although it would have been within the gift of the previous Administration to have addressed it—but they did not take that opportunity. The motion asks that we apply a simple format to tariffs so that people can compare them easily. Again, that is work that we are taking forward through Ofgem.

[Mr Watts]

rose—

[Charles Hendry]

The hon. Gentleman popped in 10 minutes ago, while others have been here for five and a half hours, so I shall not give way to him.

The motion calls for the publication of trading data, but Ofgem, under this Government, have now engaged forensic accountants to untangle the accounts of the big six. It also refers to breaking the dominance of the big six, but it is this Government who have started to facilitate the process by which smaller companies can enter the market and by which power generation can be auctioned off by the major companies. The hon. Member for Liverpool, Wavertree (Luciana Berger) asked whether the Government were going to stand alongside the big six. I think that we have shown, through our actions, that we are prepared to tackle the abuses that were there when the leader of the Labour party was Energy Secretary, and we have decided to move things forward.

The right hon. Member for Don Valley (Caroline Flint) talked about the energy summit. I hope that, on reflection, people will realise that the messages from that summit are important to our constituents. No one is pretending that they are the full answer or the long-term answer, but all our constituents would be well-advised, in the run-up to this winter, to consider what they can do themselves to mitigate high prices. My right hon. Friend the Secretary of State has never said that consumers should be blamed for current high prices, but he has said that there are things that we can all do and which we should be doing. Ridiculing that, as she did, might be good politics, but it does not help her constituents. If the alternative that she is suggesting is that they should not check their bills—my right hon. Friend has said how valuable that has been—consider switching or insulate, under her suggestion, her constituents would suffer this winter.

[Caroline Flint]

The Opposition are certainly not suggesting that people should not try to get the best deal. The problem is, as has been amplified today, that they cannot find the best deal when they try. The Secretary of State said in his opening speech—if I heard correctly—that the letters that people receive will tell customers what is the cheapest deal for them. Will they get that specific information or will they just be asked to ring a number to check?

[Charles Hendry]

It will be a combination. That information will be on their bills if it is believed that they could be on a cheaper tariff. We advocated such a measure while in opposition, but it was rejected by the then Government. Also, letters specifically suggesting that someone would benefit from changing will be sent to them when the company believes that they could be on a lower tariff.

In addition, we need to focus on the economic realities. The hon. Member for Ynys Môn (Albert Owen), to whom I respond with the fondness with which he spoke himself, said that he was going to be political, but actually gave one of the most balanced and effective speeches of the debate. He talked about the role of the big six and the fact that we need them for the country’s future electricity and energy security. He and his constituents will know how important the two German companies, RWE and E.ON, are to the building of a new power station. He was right to say that this debate was not about whether we are pro-business and anti-consumer or anti-business and pro-consumer. We need those energy companies to invest in the future of energy generation in this country if prices are not to go through the roof because of insufficient supply.

My hon. Friends the Members for Suffolk Coastal (Dr Coffey) and for Warrington South (David Mowat) drew attention to the massive challenge and the £110 billion that has to be invested this decade in our future energy infrastructure if we are to keep the lights on. The existing energy companies are part of that process. There need to be others, but we cannot achieve that if we drive away the existing players.

The hon. Member for Glasgow North West (John Robertson), who spoke with his usual sincerity on a theme that is familiar to him, almost implied that we would be better off without those companies. However, if we drive them out, who will invest in the nuclear plants that he wants? It will be international companies that choose to make those investments, but if he says that they are not welcome here, the nuclear renaissance that he and I both want simply will not happen. If we reach a point where supply does not meet demand, the first thing that will happen is that prices will go up. His constituents in Scotland—as well as those of the hon. Members for Ynys Môn and for Islwyn (Chris Evans) in Wales—will be the worst affected by that, because they are the ones who use the most electricity, as they are often at home, owing to the conditions that he spoke about, in the coldest climates in our country. They are the people we must bear in mind for the longer term if we want to address the problem properly and effectively.

We have looked at the profits that the companies are making compared with their profits globally. Their profits in the United Kingdom are often a small part of their overall profitability. We need those investors to play a bigger role, just as we need more companies coming forward.

[Dr Whitehead]

rose—

[Charles Hendry]

I will give way if there is time later, but I want to respond to all the points that have been made.

At the end of a year when we have seen the worst nuclear incident for decades, the worst oil and gas incident and unrest in the middle east, where so much of our oil and gas comes from, it was inevitable that there would be upward pressure on prices. Looking ahead to next winter, the wholesale gas price is 40% more than it was last year, and gas makes up 40% of our generation, which makes a knock-on consequence inevitable. In the face of those global pressures, we should focus on how we—the Government, Parliament, industry, consumer groups and individual Members—can ensure that we support our constituents through this period.

I do not say this to make a political point, but we should recognise that there is a legacy issue that needs to be picked up as well. We need to secure investment in this decade at twice the rate of the last decade. We have to play catch-up, and the market reform process, which was put off for too long, now needs to be addressed. We have acted to prevent consumers from being affected by price increases that would otherwise have happened. The carbon capture and storage levy was going to be included in people’s bills; we have taken it off, saving them an equivalent of £1 billion over time. The previous Administration’s renewable heat incentive would have added an estimated £179 to annual bills by 2020, but we have removed it to ensure that we cut the impact on consumers, while the tough decision that we took on feed-in tariffs will save consumers £3.5 billion to 2020. The Labour party could not have been stronger in opposing that, but we believed that it was right to be on the side of consumers rather than wealthy investors. In the renewable obligation banding review, which we will publish shortly, we will show how we want to use those resources most efficiently and effectively to introduce the low-carbon economy that we want to see.

There has been criticism of the level of green charges—the hon. Member for East Antrim (Sammy Wilson) was one of the people who raised that—but it is sensible to put them in context. Some £20 of a typical gas bill of £600 relates to green or environmental charges, whereas £41 in an electricity bill of £500 relates to environmental charges—well under 10%—with a further £19 relating to energy efficiency programmes in the homes of some of the poorest in our communities, which is work that we should all support. In total, therefore, we are talking not about the figure of £200 that we read in the press—we have challenged the media to say why they have quoted that figure—but about £80 in a bill of £120, which is not the real reason why energy prices are being driven up. We have said clearly that we will look carefully at how those moneys are allocated to ensure that we deliver the best possible growth outcome in this country.

The right hon. Member for Wentworth and Dearne (John Healey) talked about standing charges and rising block tariffs, which the hon. Member for St Ives (Andrew George) also picked up. My concern is that switching the system would not just penalise people in the largest houses, but would hit the people who, because of circumstances beyond their control, are the major energy users. They are people who are older and at home more, and who need more warmth in the winter. They are people who have disabilities and perhaps cannot get out. They might be large families, perhaps on low incomes, or people who are out of work. In making the kinds of change that the right hon. Gentleman advocates, we would have to be very careful that they did not have a perverse consequence, and that the people who, through no fault of their own, have to use more energy—particularly heat—would not be adversely affected in the process. We will look at the ideas that he has put forward, but we need to be aware of the potential consequences.

We could have made progress on this matter earlier. My hon. Friend the Member for East Hampshire (Damian Hinds) called for greater transparency in energy bills. In the 2010 Energy Bill, we tabled new clause 4 on that subject, but it was voted down by the Labour Government. The kind of information that we will now require, proposals for which we are asking Ofgem to take forward, would have been addressed more effectively if that provision had been adopted. We tried even earlier, when we tabled new clause 4 to the 2008 Energy Bill. That dealt with environmental charges and clarity in bills, but it was voted down by the then Government.

We have heard many contributions on energy efficiency. That, too, is an area in which we could have made greater progress. We proposed the green deal in an amendment to the 2010 Energy Bill, but it was blocked by the Labour Government. We could have had 18 months more progress on insulation, on dealing with energy efficiency and on taking a long-term perspective on these issues, rather than trying to deal with them on a small-scale basis.

My hon. Friend the Member for Halesowen and Rowley Regis (James Morris) was absolutely right to highlight the important role that the warm home discount will play, and the help that it will provide. He was also right about the need to speed up the process on smart meters. We pushed for that in the 2010 Energy Bill, and I have been pushing for it since 2006. Only now are we in a position to try to take some of those measures further forward. In all those areas, we are making up for lost time.

[Albert Owen]

Will the Minister give way?

[Charles Hendry]

I will not give way, as I have several other points that I want to make, including some on the hon. Gentleman’s concerns about off-grid consumers. He said that he would like us to meet up and talk about the issues, and I would like him and my hon. Friends the Members for Hexham (Guy Opperman), for Truro and Falmouth (Sarah Newton), for Suffolk Coastal (Dr Coffey) and for St Ives, and others, to talk to me about how we should take this work forward. Important work has been done by the Office of Fair Trading, and we need to look at how to take that further. The issue that was raised about differential pricing and price on delivery has been addressed, and the OFT has said that it will continue to look at examples of market abuse.

I want to see what more we can do to develop the gas grid, because that would be of real benefit to the constituents of the hon. Member for Ynys Môn. I also want to see what additional powers would need to be taken, and where. The OFT’s report suggests that the market is working in almost all parts of the country, but we need to be certain, as our constituents face very high bills over the coming months, that we are doing this in the most appropriate way.

The role of shale gas was mentioned, but that issue will not affect energy pricing this winter. It is too early to know whether it will be a game-changer in the United Kingdom, but it could have a significant role to play. I would say to my hon. Friend the Member for Wycombe (Steve Baker) that it would be unwise to bet the farm on shale gas, unless his farm happened to be in north America and sitting on top of a shale gas deposit. However, we look forward to these technologies and the contributions that they can make as we will take forward a wide-ranging, all-embracing energy policy.

There has been a legacy of neglect. There has been a failure to secure the necessary investment in new energy infrastructure, and to address fuel poverty, which rose from 2.4 million to 3 million households over the course of the last Labour Government. There has been a failure to give consumers the clarity that they want, and to facilitate an effective changing regime, but that is now being put right. There has been an absolute failure to grip the challenges of energy efficiency. The hon. Member for Liverpool, Wavertree said that, for too long, those issues had not been addressed, and she was right. For too long, they were not addressed, but we have now taken forward many of the measures that the motion calls for—

[Mr Alan Campbell (Tynemouth) (Lab)]

claimed to move the closure (Standing Order No. 36).

Question put forthwith, That the Question be now put.

Question agreed to.

Main Question put accordingly and agreed to.

Resolved,

That this House believes that the energy market does not serve the public interest and is in need of urgent reform; notes with concern research by OFGEM showing that average household energy bills have risen, while energy companies’ profit margins have soared; recognises that, with a cold winter forecast and Government support cut, millions of families will struggle to heat their homes; believes that energy tariffs are confusing and unfair, meaning that 80 per cent. of people currently pay more for their energy than they need to, and that consumers who try to switch are often given inaccurate information; further believes that to tackle climate change, build a new low carbon economy and make the UK a world leader in green energy, which will bring new industry and jobs to the UK, people need to know that the energy market is fair; and calls on the Government to investigate mis-selling and ensure consumers are compensated, introduce a simple format to be applied across all tariffs, so that people can compare the full range of energy deals at a glance, increase transparency by requiring energy companies to publish their trading data, reform the energy market to break the dominance of the Big Six by requiring them to sell power into a pool, allowing new businesses to enter the market, increasing competition and driving down energy bills for families and businesses, and demand that energy companies use their profits to help reduce energy bills this winter.