Charlie Elphicke
Main Page: Charlie Elphicke (Independent - Dover)(9 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text
Caroline Flint (Don Valley) (Lab)
I beg to move,
That this House notes the policy of the Opposition to freeze energy prices until 2017, ensuring that prices can fall but not rise; and calls on the Government to bring forward fast-track legislation immediately to put a statutory duty on the energy regulator for Great Britain to ensure that energy suppliers pass on price cuts to consumers when wholesale costs fall, if suppliers fail to act.
Last week, in a remarkable U-turn, the Chancellor complained that energy companies were not passing on falling wholesale costs. Of course, he did not say that he would actually do anything about it, but for the first time in nearly five years, he at least accepted there was a problem. Now, it is time for him and all Government Members to put their money where their mouths are, because today’s motion is a very simple one.
Wholesale prices have fallen substantially and over a sustained period. With the exception of those for people with E.ON, which reduced its gas price by 3.5% yesterday, consumer bills have not fallen. We think they should, and we want all consumers to see the full benefits of reductions in wholesale costs. Today’s motion thus proposes that if energy companies refuse to cut their prices, the Government should act by giving the regulator the power and a legal duty to force energy suppliers to cut their prices when wholesale costs fall.
Caroline Flint
I will give way shortly.
That brings us to the second question that the House needs to consider today. Have those savings been passed on to consumers? Yesterday, E.ON announced a price cut of 3.5%. Of course, any cut to anyone’s energy bill is to be welcomed, but E.ON is just one company, and it has cut the price of only one fuel—gas. Electricity prices remain unchanged, and it just so happens that E.ON has more electricity customers than gas customers. Moreover, it has cut its gas price by only 3.5%, which must be set against falls of between 20% and 30% in wholesale gas prices. Even if we allow for the fact that wholesale costs make up only half the energy bill, that suggests that, after cutting its price, E.ON has still pocketed most of the savings from falling wholesale prices. The idea that we are
“winning the war on energy bills”,
as the Secretary of State told The Northern Echo last week, is about as far from reality as the right hon. Gentleman’s chances of becoming leader of his party—much though some of us relish the prospect.
Some of the energy companies collude with the Government in perpetuating the idea that bills are falling. According to a press release issued on Sunday by Energy UK, the trade association for the energy companies,
“Energy suppliers are already passing on price cuts to customers.”
Apart from E.ON, none of the suppliers—notably the big six, which have millions of “sticky” customers on expensive tariffs—have cut the price of their standard variable tariff, which is the tariff that most people are on. What they are doing is offering cheaper tariffs in order to acquire new customers, but offering cheaper deals to a small number of new customers is completely different from passing on savings to existing customers. The obvious question to be asked is this: if companies can afford to offer cheaper deals—often hundreds of pounds cheaper—to acquire new customers, what is preventing them from reducing bills for the rest of their customers? That is the second fact that we have established this afternoon: wholesale costs have fallen, and the savings have not been passed on to consumers.
Mr Davey
No, I want to make some progress; I will give way later.
Secondly, I will demonstrate that the Opposition’s proposed new regulations would be bad regulations, resulting in higher prices for consumers, not lower. I am not against regulations where they work better than competition, but Labour’s proposed regulations, involving wholesale-retail price links, would produce yo-yo pricing and higher pricing, and consumers do not want either.
The first part of my argument is that consumers benefit most from increasing competition in energy markets, and not from introducing bad regulation. It is interesting to note that Labour used to agree with competitive energy markets. Back in 2002, under Labour, all gas and electricity price controls were abolished. The argument supported by the Labour Government at the time was that the gas and electricity markets had become more competitive and that regulation was no longer needed. When the present Leader of the Opposition became Energy Secretary of State in 2008, he continued to back a policy of no additional price regulation, even though it was already becoming clear that the big six energy firms created under Labour were not producing the competitive outcomes that Labour had said it wanted. So clear were the problems in the market that there were calls for an investigation of that market by the independent competition authorities. Those calls for an inquiry were rejected by Labour—specifically by the present Leader of the Opposition. Worse still, not only did he reject a competition inquiry, but he took no significant action to improve competition for consumers. Interestingly, he also took no action to reintroduce price regulation. He just did nothing.
Charlie Elphicke
It is important that we should test the credibility of the Opposition’s arguments against their record in government. To that end, will my right hon. Friend tell us what happened to gas prices and to fuel poverty under the last Labour Government?
Mr Davey
I think I counted three questions in there, and I shall try to answer all three, if I can remember them. The right hon. Lady said that Ofgem believed the situation to be getting worse. Certainly, its 2013 report compared the situation with the one outlined in its previous report and said that there were reasons for concern. That is why we supported its referral to the Competition and Markets Authority of our gas and electricity markets. She then talked about switching, and she was right to say that switching rates fell a little bit in recent years. The reason for that is that we have got rid of doorstep mis-selling. Doorstep mis-selling was responsible for a big boost in switching figures, but people were switching from one big six supplier to another, and often getting a very bad deal as a result. I am delighted that it has now been got rid of, even if that means that overall switching figures are down. Now, because we have made switching easier and faster—through collective switching and so on—we are seeing that situation turn around. This time, people are not switching between big six companies and getting a poor deal; they are switching away from the big six into the small suppliers and getting a much better deal. That is something that never happened under Labour.
Charlie Elphicke
To underline that point, I switched from SSE and British Gas to a new dual-fuel supplier a couple of years ago and saved 25%. The Opposition should not sneer at switching, because it can make a dramatic difference to people’s bills.
Mr Davey
Indeed. I was going on to respond to the right hon. Lady’s third question, because a host of deals are available across the country. I would have thought Labour Front Benchers wanted to support these deals and tell people about them and how people can switch and save money—if they really cared. For example, a year ago in London there was not a single deal in the market where the average household could get its annual supply of electricity and gas for less than £1,000, whereas today, because prices have been coming down, 13 deals offer the average household an annual dual fuel bill of less than £1,000.
I still want to do more. I am going to continue to fight for consumers every day that I hold this office, in stark contrast to the record of the Leader of the Opposition when he was Energy and Climate Change Secretary. The exciting news is that our competition from the smaller suppliers, which is taking huge numbers of customers from the big six, is now forcing the big six to act, too. Last autumn, the time when energy prices are normally put up, the big six froze them—without any regulation and without Labour’s price freeze. Yesterday, E.ON went further, cutting its variable gas tariff by 3.5%. Some have dismissed that cut as being only 3.5%, noting that gas wholesale prices fell by nearly 18% across 2014 and saying that the cut is too small. Let us look at what E.ON said. First, it notes that wholesale costs are 46% of the bill, so of course retail costs will not go down as fast as wholesale costs in any case, unless all costs, such as network and administration costs also fell by the same as wholesale costs—this observation is called arithmetic. Secondly, Tony Cocker, E.ON’s chief executive officer, has said:
“Given the possibility of a price freeze, we are undoubtedly taking a risk today”.
So we have to ask: if E.ON did not face the risk of Labour’s price freeze, would it have cut its prices even more?
Perhaps the Labour party does not want to listen to industry leaders, even the ones who are cutting prices, but the same point is being made by consumer champions. For example, Martin Lewis of MoneySavingExpert.com has warned that energy firms are not cutting their prices, even though they would like to, because they fear being locked in by a Labour price freeze that would make them suffer losses. Consumer champion—[Interruption.] Not a vested interest. Consumer champion Ann Robinson of uSwitch has speculated that the prospect of Labour’s price freeze could be to blame for the big six delaying cuts in standard prices.
Of course, there may be other explanations for the delay in the big six passing on the costs. When the Leader of the Opposition was doing my job, he explained that it was about energy companies buying their electricity and gas forward—hedging—to protect consumers. After a summit with energy firms—he was very good at having summits, after which no policy changes were announced—he said:
“We have recently seen big falls in wholesale gas and electricity prices, but I understand that because energy companies tend to buy in advance they won't be passed on immediately.”
One is tempted to ask: what has changed? Why did he do nothing when he could but now, months before an election, claim he has found an answer?
Whatever the cause, I welcome the fact that E.ON has not only cut its standard variable gas tariff, but is offering a fixed-price deal at just £923 for the average household. I want the other big energy firms to follow suit, but we will not need a regulation for that to happen. I confidently predict that competition will force the other large energy firms to cut prices, or they will continue to lose customers in droves to competitors—that is competition. Indeed, I am very confident that we will soon see more energy firms cutting their prices and offering even better deals.
Mr Davey
Did Members note that there was no quote from a source? The right hon. Lady was trying to compare a quote from a Labour source with a quote from a journalist—not terribly good.
We have always known that the freeze would be a bad idea. If wholesale prices rose during the freeze, small firms would go bust, damaging competition. If wholesale prices fall, energy firms would just make massive profits. If the freeze has become a cap, then that raises more questions. A cap implies that Labour’s regulation would work only one way. Wholesale price cuts would have to be passed on, but not price rises. Energy firms could only lose from such a regulation.
Opposition Members may not care about that, but they should remember that that means that consumers lose. For if the risk is only one way—lose—the energy firms will have to price in that risk in the prices that they charge, which means higher prices. Indeed, they will also have to price in extra regulatory uncertainty from Labour’s wholesale return to regulated prices. This will, therefore, be disastrous for consumers. Clearly, Labour’s policy would end up raising prices, but what about its proposal to force, by regulation, wholesale price cuts to be passed on to consumers? How would that work? First, there would have to be a wholesale price—the reference wholesale price—used for the purpose. Last June, I asked the right hon. Lady whether that wholesale price would be priced daily, weekly or monthly and she did not answer. I have asked her again and she still has not answered. That is strange, because the Leader of the Opposition told Andrew Marr this Sunday that he wanted to fast-track regulation, so one would assume that he had worked this out. We can only guess. Will consumer energy prices yo-yo up and down every day, every week or every month with wholesale prices? We just do not know.
One of the main purposes of energy firms buying ahead and hedging is to protect consumers from yo-yo prices. Forward buying smoothes prices for consumers. Let me explain this rather fatal problem with the Opposition’s proposal another way. Let me use data from last year to show how Labour’s policy would work—or actually not work. Over the whole year, day-ahead wholesale gas prices fell by almost 18%. But that fall over the whole year masked significant ups and downs during the year. For example, between March and July, gas prices fell by almost 40% before rising again by nearly 50% by December. If Ofgem had forced suppliers to drop retail prices to consumers to reflect the lows in wholesale gas prices in July, would it have had to force companies to raise retail prices to reflect the highs of December? Or would the right hon. Lady expect the firms simply to bear that loss? No answer cometh. What a lot of nonsense this is.
Charlie Elphicke
Does my right hon. Friend not agree that having that yo-yo system would massively impact on continuity of supply, because we would not be able to have long-term contracts to guarantee the delivery and supply of gas to this nation?
Mr Davey
Indeed. The danger is that the Government—some sort of Gosplan regulator—would effectively have to decide the purchasing strategies of all energy companies. Clearly, Labour has found someone who is much better than all the market participants. I do not know who that individual is; he has not been identified. Not only is this a lot of nonsense, but it will be very costly. Firms will face higher administrative costs. They will have to notify customers of price changes far more regularly, and the customer will have to pay for that.
Charlie Elphicke (Dover) (Con)
The longer this debate goes on, the clearer one can see why, under Labour, gas bills doubled, electricity bills went up by 15% and fuel poverty trebled. Labour Members like to talk the game when it comes to lower prices, populism and easy answers, but the reality, as we saw when they were in office, is that their measures are ineffective and often counter-productive.
Let us take their current price freeze idea. If Labour’s policy had been implemented when it was announced, energy consumers would have lost out. Today’s consumers are better off with the Conservative/coalition policy that has been pursued. It is clear that Labour sources realise this and provide quotes that admit it. A Labour source spoke to The Sun and “Mail Online”, so let me acquaint Labour Members with this for their better understanding of their own policy. This Labour source said, and Labour Members should listen carefully:
“The freeze was announced at a time when energy prices were rising inexorably—nobody was talking about prices coming down, or even thinking about it. Obviously, if bills are coming down at the election there may have to be a bit of rebranding to make it clear it will operate as a price cap instead.”
What we are seeing, and what this debate is all about, is the screeching of brakes and the squeal of tyres as the Labour bandwagon puts into effect another mad U-turn that is ill thought out and entirely chaotic, as the freeze is rebranded as a cap to take advantage of the reality that petrol, fuel and energy prices are now falling.
Mark Reckless
The hon. Gentleman is absolutely correct in the criticisms he makes of the Opposition, but does he, like them, support the increase in the levy control framework and green levies from £2.3 billion in 2012 to £9.8 billion in 2020—a quadrupling of money added to bills or to taxpayers?
Charlie Elphicke
I am proud that this Government have rolled back the green levies by £50, and I note that, not so long ago, the shadow Secretary of State was talking about green taxes as being “only” £113. I note, too, that the Leader of the Opposition wants to increase green levies and put more greenery in our electricity bills, driving up the cost of power. We know that the Opposition have set out that policy and that we have taken action to safeguard the interests and position of consumers. [Interruption.] If the shadow Secretary of State wants to make an intervention, I would welcome it.
Caroline Flint
Is the hon. Gentleman aware that when the Government let the energy companies off the hook, this meant 400,000 fewer households got insulation, and that a huge amount of the benefits going to the energy companies was never passed on to their customers?
Charlie Elphicke
It is pity to hear that from the shadow Secretary of State who served in a Government who allowed the sort of integration in the energy market that permitted generators to integrate vertically so that providers at the downstream end were able to have an unnecessary and wrongful monopolistic position.
That brings me to the key point that switching is a really important part of a competitive market. It is a real shame that the Opposition have sneered at switching and mocked its importance. They seem to want some kind of monopolistic Leviathan of energy oligopolies that they had when they were in office. I think that is wrong and that we need to encourage competition and switching. When I switched, I made a substantial saving and all Members should encourage people to do the same. We should be there for our constituents as consumers, helping them by urging them to be aware of how to get the best possible deal.
What we have seen in today’s debate is complete chaos in the Labour party’s position on the energy market, just as we have seen complete chaos when it comes to their economic policy. Time and again, and so close to an election, the Labour party is simply all over the place when it comes to the kind of policies that go to the heart of how our consumers, our constituents and our people will live. That underlines the fact that we need a long-term economic plan, which Government Members have, and that this Government’s longer-term planning on the energy market is clearly the right way forward, getting consumers the best deal.