Energy Suppliers and Prices

Charles Hendry Excerpts

Tuesday 28th February 2012 Westminster Hall

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

It is a pleasure to serve under your chairmanship this afternoon, Ms Osborne. I congratulate the hon. Member for Brighton, Pavilion (Caroline Lucas) on securing this debate. It is a shame that we did not have a longer debate—an hour and a half—because we have had an unusually large number of interventions, which shows the interest that the subject attracts. I hope that all hon. Members will understand that I want to use the remaining time available to respond to the debate, rather than take further interventions.

The hon. Lady has secured this debate at a time when we have started to see some prices coming down. In recent weeks we have seen price reductions, which will see around a 2% weighted average decrease in retail prices. Prices on wholesale markets are beginning to reduce and companies recognise that they can start to take some of the pressure off consumers. We all share the hon. Lady’s ambition that consumers should be supported at a time when they are inevitably extremely worried about the level of energy prices.

I will talk about some of the measures that we are taking to address the issues. First, it is important to state that we need a market that operates and functions better. Some of the measures that the hon. Lady has set out would make the situation worse. We need to get £200 billion of new investment in our energy infrastructure over the next 10 to 15 years. The more that we make this an unattractive place for people to invest—they are mostly international investors—the greater the likelihood that we will see energy and electricity being rationed, because of a lack of investment in new supply and a lack of investment in the other associated areas of energy efficiency. The consumer will therefore end up picking up the tab.

I was also disappointed that we did not hear any recognition of the global issues that must be addressed. We are having this debate at a time when oil and gas prices are at their highest levels in recent years. The increase in wholesale prices is being driven partly by instability in the middle east and partly by other geopolitical measures. We therefore cannot divorce the issue of energy prices from what is happening globally. However, we can do and are doing a significant amount to assist consumers in paying their bills.

[Caroline Lucas]

Will the Minister give way?

[Charles Hendry]

I will not. I hope that the hon. Lady will understand. She has raised many issues, and I want to try to respond to them comprehensively. I am more than happy to meet her separately to discuss the ideas behind her initiative and campaign.

We are already requiring energy companies to provide help to 2 million of the poorest and most vulnerable households through the warm home discount, at a cost of £250 million this year, an increase of 40% over earlier arrangements. Over the next four years, suppliers will provide support worth £1.1 billion. Citizens Advice and Ofgem have received their highest level of funding yet from suppliers for the Energy Best Deal campaign, which helps vulnerable consumers shop around for the best deal. We have extended the carbon emissions reduction target until the end of the year, which we expect will benefit 600,000 of the most vulnerable low-income families, including those with elderly people and people with disabilities, and suppliers will be investing some £400 million in heating and insulation measures to help those households. In addition, the community energy saving programme, CESP, is expected to deliver about £350 million in energy efficiency measures to 90,000 households.

Looking forward, we are introducing the energy company obligation, which will include support to provide affordable warmth to low-income vulnerable households through heating and insulation measures. The ECO will provide £1.3 billion in support each year to householders who cannot achieve significant energy savings without additional support, and will have a specific target to provide heating and insulation to the low-income vulnerable households at greatest risk of fuel poverty.

We are also spending £110 million through Warm Front on heating and insulation to help households make their homes warmer. During the current winter, the winter fuel payment, worth £250 for households with members aged up to 79 and £400 for those with members aged 80 and over, will help 12.7 million older people in 9 million households with their fuel bills.

As I hope the hon. Lady will understand, significant support is going into measures to mitigate the effects of high energy bills, and particularly to ensure that we do not just help with this year’s bills but provide support in addressing the issue year on year in future through greater emphasis on energy efficiency, for which she called in her comments.

[Caroline Lucas]

I thank the Minister for his response. He says that the Government are tackling the problem by, for example, providing the new ECO, but we know that the amount of money in the ECO is £1.3 billion and that by the time we subtract the money being ring-fenced for hard-to-treat homes, there will be far less money left for tackling fuel poverty than came from CERT, CESP and Warm Front. We also know that the money is being raised by a levy on all householders, which will push more people into fuel poverty, whereas Warm Front and the other programmes were funded by taxpayers’ contributions. In the rest of his remarks, will he address the issue of a public inquiry? I do not think that what he is saying addresses the key point, which is about profits, not prices.

[Charles Hendry]

I will of course address those issues, but it is important to provide the context of what else is being done. A tremendous amount of help is being given, more than ever before, to insulate hard-to-heat homes and direct support to people to pay their fuel bills. That is part of the overall energy picture, and it is important to take a holistic approach and understand the issue that way.

In addition, it is important to highlight the impact that the green deal will have. Through the green deal, we are determined to move this country from being one of the least energy-efficient in the whole of Europe to being one of the most. That is an extraordinary challenge, and one that we are determined to address. We recognise that we as Government should be trying to create an environment in which we can make lasting changes to our households so that people can reduce their bills over time.

To come directly to the points raised by the hon. Lady, I think that we all recognise that energy companies need to make a profit and invest in infrastructure for the future. They must also make a return for their shareholders. We have considered pricing here and elsewhere carefully. As my hon. Friend the Member for Warrington South (David Mowat) said, prices here for both electricity and gas are some of the lowest in Europe. However, that is not the same as having the cheapest bills. Our bills are often higher, because our energy efficiency is less good. Again, that reinforces the hon. Lady’s point that we need to make much more progress on energy efficiency in order to contain those bills.

It is also worth considering how suppliers’ profits here stack up against other countries. Their profitability in the United Kingdom is worse than in almost any other jurisdiction where they operate. If we want suppliers to continue to invest the £200 billion necessary, they must see the UK as a good economic area in which to invest. The more measures we put in place to make ours an unattractive investment regime, the worse we will make things in the longer term for consumers in this country.

This is not a case in which one must be on the side either of consumers or of industry. In the longer term, we can only be on the side of the consumer by creating an environment in which businesses want to invest. Through our market reforms and other measures, we are trying to make the UK an attractive jurisdiction and ensure that the regulator, Ofgem, takes strong action to prevent excess profiteering in the sector.

The hon. Lady discussed having new entrants into the market. We are absolutely committed to making that happen. One measure of the success of our market reform proposals will be whether we increase liquidity by bringing more companies into play in the market, but we should be clear that six is already an unusually large number, larger than in any other European country. Most other European countries have one or two dominant players and low levels of switching. Levels of switching here are three or four times higher than in countries such as Germany, which she held up as a good example. There are many aspects of our market that create better opportunities for consumers, and we must be determined to protect those aspects as we go forward.

It is essential for Ofgem to monitor the market closely. My concern about the sort of public inquiry that she suggested involves the consequences. The companies looking to invest in Britain are exactly the companies with the funding and expertise to invest in renewables, which she says—and I agree—are important. However, if we hold an inquiry, they will defer, making it much more challenging to get new investment during the two years of that investigation. Our scope for meeting our renewables targets will therefore start to slip away. The approach that she suggests would have consequences, and I believe that there are better ways to protect consumers in the short term rather than the long term, as her approach would do.

Part of our approach is boosting competition. We have already gone a long way to cut red tape for smaller suppliers, and have increased from 50,000 to 250,000 the number of customers that companies must have before being required to participate in environmental and social schemes. We are making it easier for small companies to get a foothold in the market.

In December, Ofgem published for consultation radical proposals to require suppliers to simplify their tariffs and billing information so that consumers can compare supplier deals much more easily in order to decide whether they will be better off switching. Currently, more than 400 different tariffs are available—that is the scenario that we inherited when we came into Government—which inevitably leads to great confusion and makes it much more difficult, as the hon. Lady said, for consumers to make an informed choice when they are looking for the best deal.

Progress is being made on simplifying the approach. British Gas and SSE have announced that they intend to simplify their tariff structures; SSE has pledged to reduce the number of tariffs that it offers from 68 to just four. Once we get into a world where people can understand much more clearly what they are paying for and see more effectively how it compares with what other companies are offering, consumers will be in a much better position to exercise choice. The big six still cover about 99% of the domestic retail market, so it is important to have additional suppliers and players in the retail sector to ensure that we get the best deal for consumers. I am pleased to see that significant work is happening.

I also welcome the move towards collective switching, an issue taken up by Which? in the past few weeks, which brings together a range of consumers to give them much more confidence and to buy on their behalf. There is more liquidity, more companies are coming into the market and the market will operate better. A tougher regulator is taking action to ensure that comparison between companies is easier and that profitability is not excessive. Above all, we are creating a market in which businesses will be keen to invest, in order to ensure, in the most affordable way, security of supply and low carbon in the longer term.