Energy Prices

David Mowat Excerpts

Wednesday 18th June 2014 Commons Chamber

[David Mowat (Warrington South) (Con)]

The hon. Member for Angus (Mr Weir) said that these debates are often attended by the same old gang, so I plead guilty to being part of it. I think that this is the fourth time we have debated this subject in this Parliament, but it is important that we do so. We all have constituents living in fuel poverty, and 700,000 people in this country work in energy-intensive industries, particularly in the north-east and the north-west. It matters very much that those industries are supported and that we do what is right for them. The issue is a serious one. The Secretary of State called it the “rocket and feather” issue, which I think is a good phrase. I think that we agree that the issue exists. The decision for the House is how we solve it: Labour’s method, or what the Government propose. I will talk a little about both.

There is a related debate that we never have, although I think that we will, either in this Parliament or the next. The big issue facing this country is not just about cost; it is also about security. We have to replace about 20 GW of supply by the end of the next decade. Our capacity margin in 2017 will apparently be 2%, which is almost too small to measure. This week the Secretary of State wrote to industries to ask them to volunteer for power cuts. I am a little less sanguine than he is about the efficacy of that.

How we solve that problem also goes to the heart of the Government’s and the Opposition’s approach to this serious issue: the changes in wholesale prices, on the face of it, are not being reflected in changes in the price of gas and electricity. It is right that Ofgem has been asked to investigate that and that there will be a full competition investigation. I do not know whether it is to do with the spot price, the forward price or the hedging price. I do not know whether it is to do with political risk, in the sense that energy companies will be cognisant of what the Opposition have said, which has an effect on their cost of capital that we need to acknowledge. However, I agree with the Opposition that if the energy companies are somehow keeping prices high in anticipation of a freeze, that is completely unacceptable. That is prima facie evidence that the market does not work. If that is happening, it is unacceptable and will have to be investigated.

What are the Government doing? We know about the competition review. We have talked about tariff simplification, in relation to our reduction of green deal charges. There are nine new entrants. One thing that mystifies me in this whole discussion is that we talk about the big six as an oligopoly and as presenting an issue, given the size of the market. However, in Germany, it is the big three in gas and the big two in electricity; in France, it is the big one or the big three; and even in Ireland, it is the big five. On the face of it, the problem is not one of market structure, but of other issues that we need to investigate.

The big issue we face is about why the market acts so stickily, why people do not transfer and why the feather comes down so slowly. It is clear that switching does not work as well as it should—it works better in the retail petrol market—and the industry plays it wrong because it likes the feather effect. The industry clearly wants to make money, and the feather works for it. Our job and the market’s job is to find ways of making the feather come down more like a rocket. That will include 24-hour switching, and I think that all such measures will work.

What the Labour party is suggesting—in good faith—will not work. The word “moral” has been used today and there is a tendency to insult the big six, but these guys or some combination of them will have to spend £110 billion over the next decade or so. We have heard about secret deals and cartels, but we should not speak about the issue in that way.

The point must be made that every time we vote in this House on energy prices— this really surprises me—Opposition Members go through the Lobby in favour of more expensive energy. In 2011, the Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for Bexhill and Battle (Gregory Barker), wanted to reduce the solar PV tariff from six times grid parity to four times grid parity, but the Opposition rejected it. In 2013, they were determined to force through a unilateral carbon target, in spite of the fact that our carbon emissions are among the lowest in Europe; it would cost £130 on every bill. The big date was 4 December 2013, when Opposition Members voted in the Lobby for accelerating the closure of UK power stations over and above what is required by the directive relating to industries with large emissions.

An Opposition who vote in that way are not acting as though they were about to go into government or as though they were a serious party of government. It is reasonable for us and the country to conclude that they have nothing serious to say on the issue.