Energy Price Freeze

Charles Hendry Excerpts

Wednesday 6th November 2013 Commons Chamber

[Caroline Flint]

I will make a little progress, then I will be happy to give way.

[Charles Hendry (Wealden) (Con)]

Will the right hon. Lady give way?

[Caroline Flint]

I will make a little more progress.

At the outset I want to deal with a few of the myths that the Government have resorted to peddling in the absence of any credible policies of their own and because they are confused about how to respond to our proposals. The first myth is that the price freeze cannot or will not happen or that the idea is a con. Let me tell the House that there is only one situation in which this price freeze will not happen: if the Conservatives or Liberal Democrats win the next election. If we are elected, this price freeze will happen. The idea that a price freeze will not work if wholesale prices increase is complete and utter rubbish.

As the energy companies themselves admit, they are not buying today all the energy they need to supply their customers tomorrow. They buy their gas and electricity two, three or even four years before it is supplied, precisely in order to manage the risk of fluctuation in wholesale prices. The Secretary of State must know this, so the Government’s argument does not stand up.

The second myth is that companies will undermine the freeze either by hiking up their prices beforehand or by increasing them afterwards, but as I asked the Secretary of State at the last Energy and Climate Change questions, if companies collude to increase their prices beyond anything that can be justified before the next election, will he stop them? If he will not, let me be clear: we will take action. As for what happens after the price freeze ends, the reason it lasts for 20 months is that that is how long we think it will take to enact our reforms to overhaul this market. By that point, we will have a new regulator in place, with the power to force companies to cut their prices when wholesale costs fall, which will prevent the kind of mark-up and overcharging that we all know is happening. This price freeze will happen and it will work.

[Caroline Flint]

I do agree. It is sad that in recent times so many people who want to invest in energy have said that the capital costs are going up because of the dithering and indecisiveness of this Government towards investment in energy.

The third myth is that our proposals will deter investment. Nothing could be further from the truth. As EDF’s decision on Hinkley Point C shows, what matters for investors is long-term certainty on returns, not short-term gains based on overcharging. That is why we have supported the Energy Bill and given our backing to the framework of contracts for difference and the capacity market. And we will put right this Government’s failure to set a decarbonisation target, in order to give low-carbon investors the certainty they need to invest throughout this decade and the next.

[Charles Hendry]

Can the right hon. Lady name a single international investor who says that they are more likely to invest the billions of pounds we need in our energy infrastructure as a result of the policies that she is following? I know many who say they are less likely to invest, but can she name one who is more likely to?

[Caroline Flint]

What I hear from investors such as Siemens is their concern that the fact that the Government have not signed up to a decarbonisation target has affected their confidence in investing in our country. It is incredibly sad that the investment in renewable energy has halved in the past three to four years that this Government have been in charge.

--- Later in debate ---

[Mr Davey]

We rejected the right hon. Lady’s arguments at that time and we reject them again today, as I shall set out. However, I am serious when I say that it is critical that we show investors around the world that there is consensus on these issues. I will try to rebuild that consensus in this debate and time and again afterwards, because I believe that that is in the national interest.

[Charles Hendry]

I completely agree with my right hon. Friend on the need for consensus. Does he agree that one of the outcomes of the consensus that there had been until recently was very low political risk when investing in the energy infrastructure of this country? As a direct result of what the Labour party has done, there is now political risk in this country, which pushes up the cost of borrowing and pushes up bills.

[Mr Davey]

My hon. Friend is right. What the Labour party has done has increased the cost of capital. Who loses as a result? The consumer. By recklessly proposing this irresponsible policy, the Labour party has shown that it is against the consumer.

--- Later in debate ---

[Charles Hendry (Wealden) (Con)]

I put on the record my entry in the Register of Members’ Financial Interests, including my presidency of National Energy Action, the country’s leading fuel poverty charity.

Anybody listening to the speech from the right hon. Member for Don Valley (Caroline Flint) will have been oblivious to the fact that this country faces an energy crunch. There is no doubt that it is coming. We can debate whether it will be in the latter part of this decade or in the middle of it, but clearly we need an enormous amount of new investment if we are to deliver the energy security we need. I make no apology, therefore, for starting my speech by talking about energy security. We cannot have affordability without security of supply.

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

Does the hon. Gentleman agree that nuclear power is part of the equation and that the Scottish Executive have made a grave error of judgment in ruling it out as a source of energy in Scotland?

[Charles Hendry]

I will not get involved in the private discussion between the Labour party and the Scottish National party, which seems to be creeping into this debate, but it is a matter of regret that new nuclear power plant will not be built in Scotland as well as England.

Without the necessary investment, we will see not the lights going out, as people sometimes say, but brown-outs, where major energy users are asked to come off line for a period, and a price spike, which will have very damaging consequences for businesses and consumers. We need huge investment, therefore, in a range of different sectors. As part of the solution, we need to reform the market to bring in more investment than we have seen for many years. The situation was bad under the last Labour Government, but it goes back much further. Although we recognise the need for others to enter the market, I am disturbed by part of this debate, because we cannot secure such investment without the big six. We need the big six alongside other players in the market, and were we to drive them away, it would be much more difficult to deliver the necessary security of supply.

Market reform is part of the process, but until recently, so has been political consensus. When the right hon. Lady reflects on her speech today, I hope she will consider its impact in the boardrooms in Spain, Germany, France and elsewhere around the world. They will be saying, “Is this a party that welcomes our involvement and future investment in the UK?” I can assure her that she is introducing a degree of political risk, making it more difficult to secure the investment we need if we are to deliver the affordability we want.

[David Morris (Morecambe and Lunesdale) (Con)]

Is my hon. Friend aware that when the Leader of the Opposition announced the price freeze, £1 billion was wiped off the energy stock market overnight?

[Charles Hendry]

That did happen, but it is actually worse than that, because to deliver the £100 billion-plus we need invested in our low-carbon sector, the companies investing need to borrow money, and the greater the political risk, the higher the interest on that borrowing. If the cost of borrowing increases by even 1%, the result will be a dead-weight cost of £1 billion a year on consumers’ energy bills—just to pay for Labour’s political risk.

[David Mowat]

Will my hon. Friend give way, quickly?

[Charles Hendry]

I will not, because we are all on a strict time limit.

Some of the projects that Labour says it cares about most will be hardest hit. Low-carbon projects are lumpier and require more investment upfront and so are most difficult to finance. I am talking about nuclear projects, renewables projects and in due course, I hope, carbon capture and storage. If companies looking to invest in those areas think that the terms under which they might invest could be changed retrospectively to their disadvantage, they will move away from the UK. We have to make this country more attractive to investment than elsewhere. If we do not, companies looking at international opportunities—

[Albert Owen]

Will the hon. Gentleman give way?

[Charles Hendry]

I will not. I know the hon. Gentleman’s enthusiasm for nuclear, and I want that nuclear power station built on Anglesey almost as much as he does. I care very strongly about that.

If we are to get the necessary investment, we must make a compelling case for why companies should come here, rather than go somewhere else.

We have heard reference to the decarbonisation target, but there is nothing in the motion about how that can be met. The measures in the motion would make it harder to get the investment we need to reach that target. Labour is going back to what it has done before, setting grandstanding, ambitious targets without putting in place the road map necessary to meet them. When we came into government, we had to put in place the renewables road map and the fuel poverty road map to address some of those challenges.

The motion is not only counter-productive, but shows breathtaking ignorance of the factors that have driven up prices. We know that prices in this country over recent years have been driven up more by the wholesale price of gas, which is beyond—I believe—even the control of the right hon. Lady and Governments of any colour. The International Energy Agency says that we are moving into a golden age of gas, but it warns us not to assume that it will be cheap, as countries such as Japan and Germany move from nuclear to gas and growth in China and India means a greater demand for gas there as well. Those will remain the issues really determining prices.

Labour’s policy is based on a deliberate falsehood about the causes of energy price increases and would be counter-productive, even if companies did not increase their prices to take account of it. It might play well with focus groups and work as a short-term political initiative, but it will do massive long-term damage to our ability to attract investment into the country, and in the process will do massive long-term damage to consumers, who will end up picking up the tab. That is especially unfortunate, because there are areas in the motion—for example, on transparency—where we could build on Ofgem’s work and deliver the common ground that many of us care passionately about.

So what do we do? First, we need to have an honest debate about the factors driving up prices and to link that with an understanding of the long-term investment we need in this country and how we are going to secure it. As the Secretary of State said, we need once more to take politics out of energy policy, just as John Hutton and Malcolm Wicks did and as we tried to do in the early years of this Government. That is an important objective in its own right. We also need action now on the changes that Ofgem is proposing. These decisions should be taken by the regulator, not by politicians. One of the changes that we have made is to say that the Government should set the policy framework and that a robust regulator should then deal with how the market operates, rather than having politicians constantly wanting to be regulators as well as policy makers. We also need to focus on ease of switching, and we need to do more to ensure that people are on the best available tariff.

Finally, I want to talk about what we in the Government can do to reduce the impact on bills. We could take some of the extra charges off the bills. In this regard, I have some sympathy with the amendment tabled by the Scottish nationalists. There are two elements of our energy bills that are highly regressive. The charges are borne by consumers including those on the lowest incomes, but the benefits often go to those on much higher incomes. They relate to energy efficiency and to feed-in tariffs for microgeneration, and I hope that the Government’s review of those policies will look at what could be done to fund those areas out of general taxation. They are good, important policies that we should support, but the way in which they are paid for at the moment means that people on the lowest incomes are paying a disproportionate amount towards their delivery. The Government have rightly decided to review that matter, and I hope that that will offer some early relief for consumers.

This is an important debate. We need to get away from the simplistic measures proposed in the Opposition’s motion. We also need to take this opportunity to have a debate about this country’s long-term energy needs, and about how we are going to meet security of supply requirements in a low-carbon way and, above all, in a way that will keep energy affordable now and into the future.

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[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

We have had a good and interesting debate this afternoon, with many speeches from right hon. and hon. Members, particularly those on the Labour Benches, that have highlighted the importance of rising energy prices to many hard-pressed families and struggling businesses.

Let me address the thrust of the lengthy and at times tortured speech made by the Secretary of State. It is a shame that he is no longer in his place, but he explained that he would have to leave and I am sure that the Minister of State, Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker), will report back to the Secretary of State the comments made this afternoon. The Secretary of State started by mentioning consensus on the Energy Bill. As the Minister knows—and as his colleague, the Minister of State, Department of Energy and Climate Change, the right hon. Member for Sevenoaks (Michael Fallon), who is now in his place, will recall from his involvement in the final stages of the Energy Bill, after his two predecessors started the process—we scrutinised the Bill and, on balance, supported many of the measures contained in it. However, on Second Reading—the Minister, the right hon. Member for Bexhill and Battle, can check Hansard and pass this on to the Secretary of State; we said it then and again afterwards—my right hon. Friend the Member for Don Valley (Caroline Flint) warned that the Energy Bill

“fails to include direct measures to increase transparency, competition or liquidity or ensure that the energy market is properly regulated and works in the interests of consumers.”—[Official Report, 19 December 2012; Vol. 555, c. 906.]

Both my hon. Friend the Member for Liverpool, Wavertree (Luciana Berger), who spoke in the debate, and I have said that many, many times, and I am sure that the Minister heard it, as did other members of the Energy Bill Committee. This is not new: we have been saying this, and raising aspects of the problem, for at least a year, and raising some aspects for nearly two years. The Secretary of State said that he wanted consensus back. We have consensus on some of the measures in the Energy Bill, but we said at the outset that there were things missing from the Bill. That is what our policies aim to rectify, and if Ministers could get over themselves a little bit they could introduce those reforms, and consumers and other people would be in a much better position.

The hon. Member for Wealden (Charles Hendry), one of the Minister’s predecessors, discussed long-term signals and the importance of securing investment in energy infrastructure. That was the focus of the process called electricity market reform, which became the Energy Bill. There is also an important point about consent. If we expect investment to happen, people who pay energy bills need to know that the market functions effectively and that they can trust their energy supplier. That necessitates changing the retail market to make it clear, fair and transparent.

[Charles Hendry]

In her speech, the right hon. Member for Don Valley (Caroline Flint) was asked two questions. First, she was asked whether she had heard from energy companies saying that they were more likely to invest as a result of Labour policies, but she did not answer. She was also asked if she had heard from anyone saying that they would be less likely to invest, and she would not answer that one. Can the hon. Gentleman answer on her behalf?

[Tom Greatrex]

I can tell the right hon. Gentleman—[Interruption.] Sorry, I can tell the hon. Gentleman—I am promoting him; that is the regard in which I hold him—that in the period immediately after the conference speech by the Leader of the Opposition and since I have had a number of discussions with energy companies, with big suppliers, with small suppliers, with people in the supply chain, and with a whole range of people across the sector, and they have made it clear that they want a situation in which they can be trusted. They want transparency in the market. Indeed, some of the small suppliers that have been prayed in aid in speeches by Government Members have said that the most important thing is to have an open and transparent system in the energy market, which is what our reform is about. Then we will be in a position where we can have a fair debate about these issues and ensure that investment can flow, because people can understand and trust the system that will be in place.