Energy Price Freeze

David Mowat Excerpts

Wednesday 6th November 2013 Commons Chamber

[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.

[David Mowat (Warrington South) (Con)]

The Secretary of State has made a valid point about the consensus on the Energy Bill. Is he aware that the Labour party amended the Energy Bill yesterday in a way that will ensure that coal stations are switched off more quickly, at an estimated average cost per consumer of £50? The Labour party then comes to this House and proposes this motion. What does he think about that?

[Mr Davey]

We are listening to their lordships House. I have to tell my hon. Friend that the argument is a little more complicated than what he has set out.

Consensus is critical, not just across the House, but within the coalition parties. I accept that there have been debates within the coalition, but we have come together and produced a coherent energy policy. I will aim to rebuild the consensus with the right hon. Member for Don Valley because, as I think she knows, that is in the national interest.

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[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—

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[Mr Hood]

Yes. Indeed, half the world’s energy is produced by coal.

We are an island people and, in my younger life when I was a miner, we were self-sufficient in energy. It is thanks to Government failures that we now have to go cap in hand to the Russians for gas, to the Chinese for coal—they are now buying up coal all over the world—and the French for nuclear-generated electricity.

[David Mowat]

Will the hon. Gentleman give way?

[Mr Hood]

I feel compelled to give way to the hon. Gentleman, because he has been trying to intervene on many Members, and nobody has allowed him in.

[David Mowat]

I thank the hon. Gentleman for giving way, although the Secretary of State did, in his generosity, let me have a go. The hon. Gentleman makes a good point about coal. Over 50% of this country’s capacity comes from coal. Was he as surprised as I was to see that Labour had tabled an amendment to the Energy Bill yesterday whose effect would be to close down the existing coal stations more quickly than is already planned. Does that not seem odd?

[Mr Hood]

I have been in this House a while now, and I have seen policies from both sides. There is too keen an opinion about being anti-coal. I know that the hon. Member for Brighton, Pavilion (Caroline Lucas) and the green movement, and some coalition Members, are anti-coal, but it is a fact of life that our energy would be a lot cheaper today if we had not closed down the Scottish mining industry. I attended an Adjournment debate today called by my hon. Friend the Member for Mansfield (Sir Alan Meale), in which he described how the few miners that are left had been deprived of their concessionary fuel. He talked about how pensioners, widows and disabled miners had lost out on their pension rights. This is all because there is no mining industry to support our people in retirement. That is quite shameful.

Since 2011, the cost of energy has risen at an average rate of 1.6% a year, but the big six have increased prices by an average of 10.4% a year. I have listened to those who defend that situation, including the Secretary of State, who was so illiberal that it was untrue. He was more Osborne-ite than Lib Dem. I also listened to the hon. Member for Wealden (Charles Hendry). They seem to justify not freezing energy prices and not correcting the rigged market because to do so would interfere with investment. If those who are taking us for a ride by rigging the markets are saying, “If you stop me rigging the market, I will not invest,” my response would be that Governments have to govern. We cannot be held hostage by those monopolies. The situation in Scotland in recent weeks, in which the Government were being held to ransom, should worry us all.

The truth is that my constituents are hurting, as are yours, Madam Deputy Speaker, and we need a Government who are on their side, not one who make excuses, support the bosses and the privileged few, reward the wealthy and punish the poor. That is not what this Parliament should be doing.

I am getting nostalgic as I recall another one of my favourite quotes—that it is “the duty of government to seek to improve the quality and standard of life of its poorest citizen. Any Government that doesn’t do that is immoral”. We need to revisit that quote. Everything we do in this place should be driven not by the need to punish the poor for their poverty, but by the need to help them and lift them out of their poverty. When Governments and Parliaments fail at doing that, it has to be examined.

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[David Mowat (Warrington South) (Con)]

We all agree that there is a real problem here and that the real problem is energy bills and fuel poverty, not just for consumers, but for industry, too. We hear about energy-intensive industries closing all the time.

It is refreshing that we are here talking about reducing energy prices. In a lot of energy debates, I usually go through the Division Lobbies trying to stop the Opposition from increasing energy prices. We have divided, for example, on the decarbonisation target and on a perfectly respectable and reasonable proposal from the Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for Bexhill and Battle (Gregory Barker), to reduce the solar tariff from six times grid parity to four times grid parity. As I mentioned earlier, Labour tabled an amendment in the House of Lords last night that will increase bills. Let us agree, however, that we are on the same side, at least in terms of our objective—we want to decrease bills.

Before I explore that further, let me highlight an inconvenient truth that is at the heart of this debate. That inconvenient truth is comparability with other countries in the EU. I heard the shadow Secretary of State make two observations about other EU countries. I think she said that Spain already had a cap. That is true; she is right. Spain’s energy prices, however—for gas and electricity—are higher than ours. I do not think there is much point in having a cap if energy prices are higher than ours. The right hon. Lady also mentioned Scandinavia and its pool as a model for her pool. Again, if she looks at the gas and electricity prices in Denmark and Sweden, she will see that they are the highest in the EU—considerably higher than ours. We need to be careful, therefore, to look at these things in the round. [Interruption.] The shadow Secretary of State intervenes from a sedentary position; if she wants to intervene, I will be far more generous than she was.

[Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)]

The hon. Gentleman mentioned comparative prices and specifically mentioned Denmark. Is not one of the problems the fact that consumers here in Britain have to pay higher prices because much of the responsibility for conservation is being placed on those who purchase power—consumers—rather than on others whose main concern seems to be to deliver to their shareholders?

[David Mowat]

I am going to talk about progressive versus regressive ways of paying. Let me make the point again that among the 27 countries in the EU, our gas prices are the 26th highest. If a cartel is being operated, it is not a very good cartel. That is not to say that consumers are not in real difficulty now. One of the big issues, and one of the distinctive features of our energy market, is not so much the unit price as the fact that our housing stock is spectacularly poor in terms of energy insulation.

[Mr Donohoe]

The hon. Gentleman is right to say that the prices are lower, but can he explain why in the last few years the increase has been larger than in any other European country?

[David Mowat]

No, I cannot, because I am not an expert on the market. I am merely trying to establish whether the absolute prices that we are paying vis-à-vis our European competitors indicate the existence of a cartel, as has been claimed on many occasions. That does not appear to me to be the case, but someone can always intervene on me—actually, they cannot, because that would be the third intervention and I would not be given extra time, but someone could always discuss the point with me in future.

The fact remains that we have the 26th highest gas prices out of 27 in Europe and we need to be clear about what problem we are trying to solve. The problem that we should be trying to solve is the problem of our housing stock, whose standards need to be raised to the level of the standards in the rest of Europe. Germany’s gas prices are 40% higher than ours, but its gas bills are lower than ours. Why? Because its housing is better insulated and better built.

I have five points to make. My first point is that whatever we decide to do on the basis of the various reviews, we should not reverse the thrust of our policy on insulation. We should not give up on the energy company obligation, the green deal and smart meters. I do not agree with the hon. Member for Brighton, Pavilion (Caroline Lucas) on many issues, but I do agree that far and away the most effective way of making progress on energy in general is to ensure that there is better conservation and more efficiency.

Secondly, we need to make the market work better—

[Dr Whitehead]

Will the hon. Gentleman give way?

[David Mowat]

No, I will not, because I have already given way twice.

I welcome the proposal for a competition review: it would clear the air. If there is indeed no cartel, surely everyone should welcome it. I also welcome the proposal for 24-hour switching, although, having reflected on why I might not switch as often as I should, I concluded that it was still too difficult. I have just moved house, and it took a long time for me to manage to speak to those guys on the phone. I suggest to Members on both Front Benches that we should introduce a fining system. If it takes more than 10 or 12 rings for any of the big six to answer the phone and transfer callers to someone who can deal with their query, that company should be fined. I bet that if we introduced such a system, we would find that the energy companies hired more people and dealt with calls more efficiently, and switching—whether in 24 hours or not—would be much easier.

Of course we need more new entrants to the market, but I have a further, serious criticism to make of the big six. They have described a margin of 4% or 5% as reasonable, which is an entirely spurious observation. I have no idea whether such a margin is reasonable, but the point is that we should evaluate them on the basis of their return on capital employed. A margin of 4% is a huge margin for a foreign exchange dealer and for a petrol retailer, but a very small margin for any other retailer. When someone asks if £7 million a day is too much profit or too little, that is a very hard question to answer. The big six are entitled to a reasonable return on their capital employed. We should focus on that, and they should focus on it too when they are telling us how reasonable they are.

[Ian Lavery]

Will the hon. Gentleman give way?

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[David Mowat]

I am sorry; I will not.

I understand that a former Prime Minister has suggested that, if we experienced a particularly cold winter and, as a consequence, the energy companies made more money than they had budgeted to make, a windfall tax might be an appropriate response. The companies could argue that something in the other direction should be provided in the event of a warm winter, but I agree with the former Prime Minister that if they make additional, incremental, supranormal profits over and above what they would have made in a normal winter, a windfall tax—or what a consultant would presumably describe as a profit-sharing mechanism—is fair enough.

There might need to be structural changes in the industry. If the market is not working, I agree with the Opposition that they are entitled to intervene. We have just intervened in the private pensions industry. I campaigned for that, and it was right. If this market is not working, they are right to intervene. My problem is that I have looked very hard but I genuinely find it difficult to see the evidence that the market is not working to the extent that they say. We must remember, too, that we need these guys to put £200 billion into our infrastructure in the next decade.

My third point is about what I consider to be our increasingly unilateral position on carbon emissions leadership. We need to have a grown-up discussion about this, and the House needs to understand that our carbon emissions are 20% lower than Germany’s per unit of GDP and per capita. We are not a high-carbon country, yet as we see Europe and Germany reining back—unabated building of coal-power stations and vetoing the emissions trading system and all that goes with that—it is not reasonable for us to be constrained by unilateral carbon leadership. If we are going to do that, we need to be honest about the cost. Frankly, too often people say some of these policies are cost-neutral or even cost-effective. They are not; there is a cost to them. It may be a price worth paying, and maybe we should pay it, but at least let us be honest.

My fourth point is about the balance between regressive and progressive taxes. I agree that putting all these charges on to bills is particularly regressive, and if the current review finds that certain parts should come into general taxation, I will support that.

My final point is that we should have more honesty in this debate. There is a cost to going green. It is not enough for those on the Front Benches to say that in 10 years’ time it will be seen to be more cost-effective to be doing this than not. That is quite unlikely; it is quite unlikely that we will discover we have to do these things for the sake of the planet, as opposed to burning coal, which would be much cheaper, and that there is no cost to it. There is a cost to this; we should take it on the chin and discuss things in that context.

The energy companies should stop talking about their 4% or 5% margins, which is a ridiculous concept, and start talking about what their return on capital is. I do not believe it is an unreasonable return, although I may be wrong, but at least let us be honest.

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[Albert Owen]

I used to work on oil tankers and gas tankers, and I know that they stay at anchor for some time waiting for the prices to vary before they empty their cargo and get the price for it. That is an important issue.

The energy market is flawed, as Government Members have actually agreed. The Secretary of State, who made an appalling speech and left quickly, did not tackle the issues at all and did not come up with any suggestions. He said that the Government were doing things for the consumer, but the reality is that the Select Committee and others have been lobbying hard for Ofgem, the regulator, to help the consumer. It is doing slightly more but not enough—and it is too late. It is a disgrace that the Secretary of State leaves so quickly after making so many interventions in this debate—he is not even prepared to sit there. The energy team has been reduced by half a Minister, as one of them is doing a job share with the Department for Business, Innovation and Skills, yet the Secretary of State cannot sit down there. Instead he has to get a Whip to sit on the Front Bench because the team has been depleted. Energy is at the top of people’s agenda, but it is way down at the bottom of this Government’s priorities.

The hon. Member for Warrington South (David Mowat) asked why, compared with Europe, we are paying less for our bills. One reason—I have told him this before and I hope he is listening—is that people in many other European countries pay VAT at 20% or more on their fuel and energy costs. I am sure that he is not suggesting that this country takes that approach so that we can make a comparison—

[David Mowat]

rose—

[Albert Owen]

I am not going to give way, as the hon. Gentleman has had a good number of interventions on that. VAT is one reason for the situation he describes.

For other things the hon. Gentleman has to look not to Europe but to his own Front-Bench team, because the ECO—energy company obligation—was introduced this January by the Government. The Prime Minister boasted that it was one of his flagships of the greenest Government ever and about how the green levies were going up, yet only last week he said he was going to change all that. The Prime Minister is making policy on the hoof—I will never accuse him of being consistent on anything and he is certainly not consistent on energy policy.