Ed Davey
Main Page: Ed Davey (Liberal Democrat - Kingston and Surbiton)(10 years, 3 months ago)
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Caroline Flint
No, I do not accept that. We can clearly see that where wholesale costs have fallen the public as the bill payers have not seen a reduction in their bills—this has nothing to do with other aspects asked of these companies in terms of helping to tackle fuel poverty or helping to support the renewable sector—but when wholesale costs have gone up, the energy companies, and in particular the big six, are quick to remind everyone that is because their costs have risen. We expect the reverse to happen when wholesale costs go down.
As I said, the reason bills have risen is that the energy market is broken. We have already set out a number of proposals that we will put in place if we are elected in eight months’ time: an energy price freeze until 2017, saving the average household £120; all those over the age of 75 put on the lowest tariff; a ring fence between the generation and retail arms of vertically integrated energy companies; a pool for all electricity to be traded in, and greater transparency for trades in the gas market; and a tough new regulator with new powers to police the market and protect consumers, including new powers to protect off-grid households and small businesses, and to force energy companies to cut their prices when wholesale costs fall if they do not do it first. All of these proposals have been put before the House, but Conservative and Liberal Democrat Members have voted against each and every one of them.
The Secretary of State for Energy and Climate Change (Mr Edward Davey)
If Labour were to be elected at the next election, would it make the changes the right hon. Lady mentions ahead of the reporting of the investigation by the independent Competition and Markets Authority?
Caroline Flint
Of course some of the issues the CMA is looking at are the very issues we have been raising for the last two to three years, so I have welcomed the CMA review. As I have said in public already, it is working out quite well, because the CMA review is, in terms of when the clock started ticking, scheduled to finish around December 2015; it has 18 months in which to do its inquiry. If we get elected next year, our plan is to publish a White Paper, having taken through emergency legislation on the price freeze, and we can see a very good way that our White Paper and proposals can dovetail with the discussions happening with the CMA. In fact I am very open to the fact that the CMA may come up with further proposals that need to be addressed. So I do not fear the CMA; I welcome it. But what I do believe very strongly is that whatever reviews are being undertaken by the CMA, that should not paralyse politicians and those in government from doing the right thing.
Caroline Flint
I really think the Secretary of State is clutching at straws here. We believe very strongly—this is why we set out a Green Paper for energy market reform—that we have identified and tapped into some answers as to how to reform this market. I have to caution the Secretary of State. He may be surprised, if he asks his advisers, and perhaps speaks to some of the energy companies, how in a number of areas they welcome some of our reforms. So he needs to be a little more cautious about putting down Labour’s proposals. A number of them command respect across this House—even though it might not be said publicly—and, actually, in the energy sector as well.
Caroline Flint
I could not have put that better myself. There is no evidence that the shareholders or managers of the companies take a hit in terms of the benefits they receive; the cost of the fines is often absorbed back into the pot that the bill payers have to pay.
We have heard about the 31 investigations and about the fines that have been imposed. The Secretary of State might claim that this is a sign of success and evidence of a tough new regulatory environment, but that would be true only if there were evidence that companies had changed their ways and that the fines had deterred them from breaking the rules again. The evidence shows that they have not learned their lessons despite all the previous fines and penalties. Information that I have obtained under the Freedom of Information Act reveals that those firms are now facing another 15 probes into poor customer service, incorrect billing and other bad practice. No company has a God-given right to be in the market, to charge its customers and to make a profit just because it has always done so—least of all, those that inherited millions of customers from before the industry was privatised and opened to competition.
Today’s motion proposes a new power for the regulator to revoke energy companies’ licences when there have been repeated instances of the most serious and deliberate breaches of their licence conditions that harm the interests of consumers. Of course, any decision to revoke a licence would have to be subject to due process and to be consistent with the regulator’s overriding objective of protecting consumers and promoting a competitive, transparent and fair energy market.
This proposal would build on best practice from regulators overseas. In some parts of the United States, energy regulators already have the power to revoke an energy supplier’s licence. The Pennsylvania Public Utility Commission, for example, has the power to revoke a supplier’s licence if it breaks consumer protection law or transfers customers without their consent. That sends out the clearest possible message to energy companies that if they carry on mistreating their customers, their licence will be on the line. That strikes me as a pretty common-sense measure.
I hope that the Secretary of State will be able to support our motion today. I say that because when I announced this proposal in August, it was telling that the Government did not put anyone up to discuss it on television or on the radio, and that no Minister commented on the proposal. All we had were anonymous quotes from a Conservative spokesman and a Liberal Democrat source, and between them they could not muster a single good reason not to support the measure. All they seemed to suggest was that Ofgem already had this power, which is simply not true. I have discussed the issue of non-financial penalties with Ofgem and written to it about our proposal, and it has made it absolutely clear that this would be a new power. Indeed, the statement that it issued on the day of my announcement began
“Ofgem is always interested to work with government on any new powers or refinements to existing powers which would help to further protect consumers.”
As today’s motion notes, the regulator has limited powers to revoke licences in certain specific cases, but they are largely of an administrative nature—for example, if a company goes into administration, if it gets a licence but does not supply any gas or electricity in the following year, or if it does not pay a fine.
Caroline Flint
Absolutely. As I have said, the regulator cannot at any point say, “Enough is enough.” That is the key difference between what we are proposing and the status quo. Our proposal would deal with the problem that we have seen in the past, wherein companies are allowed to get away with repeatedly breaking the rules in slightly different ways, or breaking different rules, without fear of losing their licences.
Clearly, the intention behind this policy is to encourage companies to treat their customers better, and the best outcome would be if the power never needed to be used. But if the regulator did decide to use it, the provision would need to have a clear legal basis, almost certainly set down in legislation, in order for it to be exercised with confidence. Otherwise, the threat of legal challenge would probably prevent it from ever being used. That is why it is important that this new power should be clearly put into law, just as the existing power to fine a company up to 10% of its global turnover has a clear basis in law. This would undoubtedly represent a significant addition to the regulator’s powers, and there are important questions about how it would work and about its implications, which I want to address before I finish.
I want to make it clear from the outset that the regulator would remain operationally independent and free from any interference from Ministers. Any decision about whether to revoke a supplier’s licence would be made by the independent regulator alone, but, like all economic regulators in the UK, its functions and powers are defined in statute. What we are debating today, therefore, is not whether any particular company deserves to lose its licence, but whether the regulator should have the power to make that decision, if it thought it necessary. We think that it should have that power.
The process itself would also be very similar to the existing enforcement process, except that, at the end, the regulator would have the power to revoke a supplier’s licence. In practice, an investigation of an allegation of a breach of the rules would begin and the normal process would follow, with a period of information gathering, investigation and notification of the supplier concerned. If the regulator believed at the end of the process that there had been a breach of the rules that had been serious and deliberate and had harmed consumers, and if there had been repeated instances of such behaviour in the past, under our proposals it would have the power to revoke a supplier’s licence in the same way as it has the power to impose a financial penalty or make a consumer redress order. Within the existing enforcement framework there would be clear guidelines for energy companies and a system for appeals.
In the event that a supplier lost its licence, it would mean in practice that it was no longer able to operate as an energy supply company. Let me make it clear that at the moment, companies wishing to supply and generate energy or supply and distribute energy require separate licences for each activity. We have already proposed that vertically integrated energy companies would have legally to separate their generation business from their supply business, and that as a result any decision to revoke the licence would apply only to the licence in question and not to other licences the parent company had. There would be a notice period between the decision to revoke a licence and its coming into force that, by law, must be no less than 30 days. During that period, the company would have to arrange for a trade sale for another supplier to take on its customers.
Energy companies already market and compete to win new customers. Acquiring new customers in such a way would represent a valuable commercial opportunity and avoid the normal acquisition costs. Small suppliers might wish to expand, and if a significant number of customers were available, new entrants might enter the market. In the event that a trade sale is not arranged, the regulator has the power to appoint a supplier of last resort and the rules are in place to ensure that any consumers who are moved to another supplier are protected. Either way, the supply of energy would continue as normal.
This is what I mean by a tough new regulator overseeing a market that works for consumers, not just the companies in it.
Mr Davey
I am grateful to the right hon. Lady for giving way. She is explaining her policy and asking the House to say that this is needed because of things going wrong in the market and because energy companies keep treating their customers badly. I have some sympathy with that observation and shall make some comments about it. However, as she is asking for a new power, surely she has to give an example of where the power would have been used in the past. She is saying that the power is needed because companies are getting away with things at the moment and that the power would have been used in certain circumstances, but can she give us an example?
Caroline Flint
It is already on the statute book that the regulator has the power to fine up to 10% of the global turnover of any company. I might need to go back and check, but I believe that nobody had to prove that that had been used anywhere else before the power was put on the statute book. The Secretary of State is following a ridiculous line of argument. In recent years, a number of instances have led to investigations and fines and have shown repeated evidence of ways in which customers have been let down. We are saying that that is not good enough and that there has to be the ultimate sanction of companies losing their licence. That is the proposition. The detail needs to be discussed before it is put into law. I have been up front and honest about that, but I find it hard to believe that the Secretary of State has seriously set his face against the proposition.
The Secretary of State for Energy and Climate Change (Mr Edward Davey)
I thank the right hon. Member for Don Valley (Caroline Flint) for calling a debate on an important subject: how best can we protect energy consumers from unfair treatment by their suppliers? Although there are examples of good customer service—energy companies that are treating their customers properly—it is hardly controversial to say that there are far too many cases where energy firms have let their customers down badly—the mis-selling, the poor complaints handling, and the poor billing. This is not new; it has been going on for many years and can just take different forms. Right hon. and hon. Members who have served in this House for a few Parliaments will recall all the scandals of doorstep mis-selling. I recall an elderly constituent coming to my local surgery in 2003 having been appallingly treated and conned by a representative of one of today’s big six. So this is a serious matter and, despite efforts by the previous Government, this Government’s focus on this issue and the work of Ofgem, it is clear that there are still energy firms that are treating their customers unacceptably.
Yasmin Qureshi
The right hon. Gentleman gave the examples of mis-selling and the mistreatment of customers. Are they not the type of repeat offending by energy companies that should mean that their licences could be revoked?
Mr Davey
I will explain to the House that under current rules licences can be revoked, and I will deal with these issues. I am admitting that this a good debate to have, because there is a problem—nobody is suggesting otherwise. But, as always, the question is: what is the best way to deal with that problem? What is going to work? What is the best way to crack down on this to punish firms that get it wrong? In essence, we can use three tools: competition; regulation; and technology. The right hon. Member for Don Valley has focused on regulation, and I want to address her proposal in detail, for tough regulation certainly has a vital role to play in holding companies to account. However, I regret that her motion and her speech totally failed to mention competition and technology—those were not even mentioned once. That is a serious mistake, which the Opposition keep making. For many of the smaller suppliers now competing—
Caroline Flint
Does the right hon. Gentleman accept that in different ways the Opposition have put forward motions for debate in this House where we have engaged with competition? In my speech I mentioned a number of our proposals to create a pool to separate the energy generation and supply side. Today, we have tabled a motion that tries to identify a particular problem. We have done that because we think it is the right thing to do, and we find it hard to believe that we could not get the full support of the House on this one issue.
Mr Davey
I am going to deal with the right hon. Lady’s proposal, as I have said. However, she failed to deal with one of the comments made by a Government Member about the importance of competition. Competition does drive good customer service, as I hope she will recognise. I wish she had done so in her intervention on me, but she did not.
Barry Gardiner (Brent North) (Lab)
The Secretary of State has given himself the power to change the contract for difference allocation framework, which is part of his regulation on competition, and the budget notice as close as 10 days before an allocation round begins. Can he assure the House that the European Commission regards 10 days as a sufficient period to determine whether the round is state-aid compliant? If he cannot, what assurance can he give that delays will not result from this? Crucially, what impact might this likelihood of change and delay have on investor confidence to create the very competition he is talking about?
Mr Davey
I congratulate the hon. Gentleman on getting that question into this debate. I say gently to him that on CfD and state aid we have clearance, so presumably the Commission has examined that matter. I have not specifically asked it that question, but it has given us state-aid clearance. The way we have proceeded with the allocation proposals for CfD is to ensure that we get just that investor confidence, and the fact that we are seeing such interest and such investment is tantamount to showing that we have it right.
Failing to focus on competition is a serious mistake by the Opposition, because many smaller suppliers competing against Labour’s big six are doing so not just on price but on the basis of better customer service. If we talk to the independents about their business model, we hear some of them say that higher quality customer service is their main competitive edge. The growth of competition since 2010 suggests that they are right and that competition has a key role to play here. From less than 1% of the market, the small suppliers now have more than 7% and it is still growing. Customers now have more choice than ever, with 25 suppliers competing for their custom.
Small suppliers provide electricity to 2 million customers, and they have gained more than 1 million customers in the past 12 months. Clearly, customers are voting with their feet when they are not happy with the service they are getting. Yes, we need to make the competition rule work more effectively, which is why we support the independent Competition and Markets Authority in the most profound investigation of British energy markets ever seen.
It was telling to hear that the right hon. Lady does not intend to wait to hear the result of the Competition and Markets Authority investigation. She will prejudge the authority’s report. That is quite a revelation, which is worthy of more debate. We are not simply waiting for that report from the Competition and Markets Authority. We have already done so much to encourage new suppliers and to make switching easier, simpler and quicker. We believe that we must continue to sharpen the competition tool for consumers, so that when they are poorly treated, they can vote with their feet.
I am acutely aware that competition has not always worked for the most vulnerable in society, such as elderly people who might not be internet savvy. During my time as Secretary of State, I have placed a focus on new business models and new ways of helping such people—from collective switching to developing, with the voluntary sector, citizens advice bureau, Age Concern and so on, new forms of advice with the big energy saving network. Ofgem is also increasingly focused on how we can ensure that energy markets better serve the fuel poor and the less well off.
Graham Stringer (Blackley and Broughton) (Lab)
The implication of what the Secretary of State is saying is that he accepts that competition is imperfect at the present time. If we have a situation in which competition improves and there is better service all round, is he saying that when an energy company behaves in an appalling fashion they should be able, in all circumstances, to continue to supply energy to consumers and that there should not be the ultimate sanction of saying, “Your behaviour is so appalling that you no longer have the right to deliver gas and/or electricity in this country”?
Mr Davey
No, I am not saying that. If the hon. Gentleman waits for a second, I will put a lot of emphasis on tough regulation, but there needs to be a balance. There needs to be competition as well, because it can often work more quickly and more effectively, and it really hits the firms that are losing customers. Some of the big six have lost tens of thousands—in some cases, hundreds of thousands—of customers because we have enabled competition. I accept that things are not perfect yet, which is why we are working so hard.
Huw Irranca-Davies
The right hon. Gentleman is making a good point in that competition can drive improvement in a number of areas. But badly regulated competition leading to market failure is an issue not just with the big six but with potential new entrants, which could be doing well at the moment but they could fail or overstretch themselves. May I suggest to him that there is a straightforward analogy that any football or rugby supporter will understand? As rules are imposed on that game, players know that if they do something stupid, they will end up in the sin bin for 10 minutes on a rugby pitch. If they do it again, they will be off the field. If they do a spear tackle, they will be red-carded and could be banned for months. If they assault somebody on the field, they could end up in jail. We are not saying that these things should not be used. Companies will want to avoid them being used. The fact that they are there drives good behaviour.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I am sure that the hon. Gentleman intended to be brief.
Mr Davey
When a Welsh MP gives a rugby analogy, one should be careful. However, I will address that point, because I have a lot of sympathy with what the hon. Gentleman is saying. I am grateful that he at least recognises that competition has a role to play. Technology also has a key role to play. The smart meter roll-out, for example, will be crucial in tackling some of the issues that consumers complain most about, especially inaccurate bills. Smart metering will help us to address even more problems faced by prepayment meter customers and it will enable 24-hour switching. So technology and competition are important in addressing these matters, and we need to have them on the table.
Despite those differences, there is no disagreement between parties over the importance of the regulation tool. Strong regulation has a vital role to play in protecting consumers. The previous Labour Government recognised that, and set up Ofgem. Indeed the Leader of the Opposition, when he was doing my job, reformed Ofgem to give it more powers to protect the consumer. He chose not to give it the power that the right hon. Lady wants, but we will leave that aside for the moment. This Government recognise the role regulation has to play for customers, which is why we have strengthened it. We have ensured that when an energy firm is fined and punished, the money does not just go to the Treasury. Customers who have been wronged are now properly compensated; we have put money in their pockets. We are even introducing criminal sanctions into the regulatory armoury. In the future, if an individual is found guilty of manipulating the energy market, they could go to prison.
Caroline Flint
Will the Secretary of State admit that even when fines are imposed, the money does not always go back to the victims? In some cases, it has gone to other groups of customers. Will he now correct himself and say that it does not always go to the victims of the problem under investigation?
Mr Davey
Before the implementation of the powers in the Energy Act 2013, some redress schemes were on a voluntary basis and the money did not always go to the individual customers who were wronged. The real intention of the new powers is that money will go to the customers. There will be proper consumer redress. That did not happen before. Under us, it is now happening. I repeat what I was saying before the right hon. Lady intervened. This Government are passing rules that stipulate that people who manipulate energy markets could go to prison. No one can accuse this Government of being unwilling to use the regulatory tool in the toughest way possible on behalf of consumers.
The right hon. Lady’s motion is focused not on regulation in general, where there is agreement, but on one new regulation. No, that is not quite true. I apologise, Madam Deputy Speaker. Her motion states quite clearly that it is focused on reforming an existing regulation—changing an existing power. Currently, Ofgem can remove a company’s licence. In other words, the regulator can now shut down a company. The regulator already has the power effectively to say to a company—its employees, customers, suppliers and shareholders—“What you have done is so bad that you can no longer trade.” It is a tough power, and rightly so. It is what we might call the “nuclear” option, because the consequences are severe for the customer as well as for the company.
Let us imagine that the nuclear option is taken by the regulator. It does not matter whether we use the current carefully designed system, which I will describe later, or the more arbitrary system being proposed by the right hon. Lady. The time spent preparing to use this nuclear option will be critical. Under the current situation, because of the ratcheting up, contingency arrangements could be put in place. If things are done more quickly and directly, as the right hon. Lady wants, there could be chaos. It would be bad for the staff, as there would be a significant loss of jobs. It would be bad for consumers, as they would have to be switched to another company or companies very quickly. That is not easy, not even in 30 days, without real difficulties and challenges. If it were a large firm that was being closed down, it is likely that only other large firms would be able to absorb that number of customers quickly. The result is that Labour's big six would become Labour's big five—genius!
Caroline Flint
Does the Secretary of State agree that the grounds on which Ofgem may revoke a licence do not contain any mention of consumers, or even the word “consumer”, or tackle the issue of repeated offences of harmful, abusive behaviour in customer practice?
Caroline Flint
Does the Secretary of State remember that I said that of course Ofgem can revoke a licence if there is a failure to pay a fine? The problem is that, once the fine is paid, there is nothing in the revocation terms to enable Ofgem to find against the company if there are repeated offences. That is the clarity that we need in law—not to wipe the slate clean.
Mr Davey
The right hon. Lady should allow me to explain the current system, because I think she will find that a failure to comply with a final order can result, in extreme circumstances, in revocation. It is the process leading up to the issuing of the final order that she does not seem to understand, so let me deal with it.
Under the right hon. Lady’s proposals, the nuclear option has considerable—potentially large—negative consequences for competition. Just think how the customers would feel. Would the confusion and hassle of a forced move make them feel any better? Other companies would need to take on those customers, and that means changing tariffs, with consumers possibly paying more. All those issues would need to be worked through at a chaotic moment. It is quite right that the current rules limit the circumstances in which the nuclear option can be used, and the process that Ofgem would effectively have to go through before it can be invoked. Indeed, Parliament, under the previous Government, set the bar for the nuclear option quite high. The list of circumstances in which the power can be used includes a variety of things, from the failure of a company to comply with a final order from the regulator, to a company’s making false statements when applying for a licence, to a firm’s not paying a financial penalty.
The right hon. Lady is proposing to lower the bar for the nuclear option. Labour now wants to amend the existing power, so that the regulator can close down a company for—I quote from the motion—
“repeated instances of the most serious and deliberate breaches of their licence conditions”.
How does that differ from the existing situation? Well, at the moment Ofgem cannot explicitly close down a firm for persistent behaviour; that is true. It cannot go quickly or directly to the nuclear option, as the right hon. Lady wants. Ofgem would instead have to ratchet up its sanctions: first, higher fines, and regulatory orders requiring specific improvements in performance by specific dates—ever-tougher, and increasingly damaging for the firm.
Ian Lavery (Wansbeck) (Lab)
Is it not financially attractive to these energy companies to rip the customers off, as they have been, and take the rap on the fingers from Ofgem, pay the fines that Ofgem imposes on them, wipe the slate clean and start all over again?
Mr Davey
That may have been the case in the past, but increasingly it is not because the companies are losing customers, the fines are getting heavier and Ofgem is getting tougher. I wish it had been tougher in the past. Just look at the fines that have been levied and can be levied. We have seen fines of £3 million, £4 million, £10 million, £15 million. Indeed, under the coalition we have seen Ofgem fine more companies than ever before, and by higher amounts. In the nine years after Ofgem was established, it took enforcement action in just 10 cases. Since 2010, in four years, we have seen 27 cases, with fines totalling nearly £51 million. Moreover, because the current Government wanted to ensure that it was not just the Treasury that benefited from enforcement action against energy firms that misbehaved, there is now money for consumer redress as well—since 2010, nearly £60 million has already been paid out directly to consumers, the people who have suffered. Nothing like that happened under Labour. So under us, as the fines on a persistently poorly performing firm went up and up, so could consumer redress; so could the consumer compensation.
What is the maximum that could be levied? Well, if a firm continually failed to comply, the fines and redress could be increased up to 10% of a firm’s turnover, as the right hon. Lady said. For a huge energy company such as British Gas, that could equate to a whopping £1 billion —not a figure that any company, however large, can take lightly. That is what the law currently allows for, and these fines are being used, under this Government, far more than they were under the softies opposite.
Caroline Flint
Does the Secretary of State agree that if Ofgem investigates a company and the company pays the fine, and later the company breaches again the rules relating to fairness to customers in the way that I have outlined, what Ofgem cannot do is revoke the licence? It has to do another investigation, which may result in a fine, but what it cannot do is take into account past history on these issues and revoke the licence where there is persistent abusive behaviour to the customers. Does he support the recommendation that we are making or not?
Mr Davey
When Ofgem has another breach put to it, it has to look at that breach; it has to look at what has happened in that breach. It does not, as I am about to say, only have the fine/penalty option; it may issue improvement orders, as we are seeing. Let me come to the process, because I think the right hon. Lady’s policy will not stand up, and she will see that we have lots of powers to help consumers.
Mr Davey
I am going to make some progress.
In fact, the current law allows the regulator to do more than just fine a company. Let us take an example. Ofgem can issue provisional orders that require a range of things, including banning a company from taking on new customers and setting specific behaviour that it must meet so that it is no longer in breach of licence conditions, including the standards of conduct. A final order can be issued when Ofgem believes that the same licence contravention is likely to continue, and in doing so Ofgem can look at the pattern of behaviour of previous breaches. Breaching a final order could then trigger a licence revocation, even if that remains an extreme circumstance. The powers that the right hon. Lady is talking about already exist in the form that I have described, where orders happen and improvement orders are required and they are not complied with.
This looks like a regime that is working today and it was not working under Labour. If the Opposition are proposing to lower the bar for a nuclear option, it is incumbent on them to explain exactly when that would be used, because consumers and businesses need to know exactly where the line is drawn. Perhaps the right hon. Lady wants to clarify her position now; she failed to do so, despite being intervened on by myself and my hon. Friend the Member for Warrington South (David Mowat).
Let me give the right hon. Lady an example. Would she have expected Ofgem to have closed npower down by now? More complaints have been made about npower than any other energy company. It is under investigation. Does she think her new power should have been used to revoke npower’s licence? A simple yes or no would suffice, if she is willing to give us an example. She is not, and the House will have noted that.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. The right hon. Gentleman is not giving way.
Mr Davey
The right hon. Lady really must tell the House, would she have pressed the nuclear button yet? Is there one example of energy company bad behaviour that she thinks would have merited her policy?
Ofgem could close an energy company down, but it would have to give that firm the chance to improve. If a company ignored improvement orders, Ofgem could then issue a final order, and if that was ignored, it could then close the company down under current law. But the right hon. Lady seems to want the regulator to be able to intervene before an improvement process has been gone through—before a final order.
Mr Davey
Well, if the right hon. Lady does not want that—if she is still expecting a process of orders and final orders—the House should be clear: she is proposing absolutely nothing new of substance. This whole debate is a fabrication. But if she does want Ofgem to be able to close a company down earlier—if she does not want Ofgem to go through an improvement process with a firm that has behaved badly, as now—she really has to tell us how her proposal will work, and how it will be different in substance to the current system, and she has failed to do so.
I do not question the right hon. Lady’s motives or commitment in initiating this debate; I agree that there is a problem, and we both want the same thing. We want a consumer-focused market in which bills are kept as low as possible and the energy companies provide a high-quality service. The question before us is, what is the right way to achieve that? The Government favour a balanced approach of competition, technology and regulation, giving people the choice to move to new suppliers with better service and better deals. Under this Government, the new independent suppliers that we have encouraged regularly top the best-buy tables and the tables for best customer service. People are voting with their feet thanks to our increasing competition and punishing bad service. The new independents are growing rapidly, with more than 2 million customers, and the big six are losing market share every day.
We can improve services for customers with technology, bringing the digital revolution to the energy market so that information is more accurate and easier to understand. Smart meters could do for energy what the smartphone has done for mobile communications. Regulation is vital, and we are making sure that we have an active and engaged regulator with the right balance of powers to effect change. There is a basket of powers that we have strengthened, such as criminal sanctions where appropriate, powers to fine companies and compensate customers directly, and the ability to work with companies with poor customer service and help them to improve. As a very last resort, with the bar set high, we have the power to revoke a licence where there has been a serious breach of conduct. That is the picture under this Government.
David T. C. Davies (Monmouth) (Con)
Will the right hon. Gentleman give way?
David T. C. Davies
I appreciate that, and the right hon. Gentleman is making some very good points, but I have to pick him up on one thing. If smart meters are such a good idea, can he explain why the Government are having to sell them to the public using Bob Geldof and two cartoon characters? If smart meters are as good as smartphones, why are the public not willing to go out and buy them?
Mr Davey
Obviously, I am grateful to my hon. Friend for his helpful comments. Smart meters have been well tested, and there is a lot of enthusiasm for them. One million have been rolled out, and consumers have embraced them. I was asked to quote Sir Bob Geldof at the launch of Smart Energy GB, but I do not think I will. I promised to give way to other hon. Members.
Huw Irranca-Davies
The right hon. Gentleman has been very courteous in giving way. I suggest to him that he does not close his mind entirely to our proposal because what he has described in some detail is, in effect, a series of yellow cards, following which there is no red card—there is nothing more serious. It is like saying to a player each time, “You have committed a misdemeanour, and now we will wipe the record clean.” The result of that would be appalling behaviour, and that is what we are seeing in some parts of the energy sector. I ask the right hon. Gentleman to keep an open mind because we want an escalation that is clear to energy companies, to consumers and to the investor community.
Mr Davey
I am grateful to the hon. Gentleman for his measured comments. The process in the law that I have described does end in a red card, and I hope that when he and the right hon. Member for Don Valley look at it in more detail, they will see that it can result in a red card. I said that I would give way to the hon. Member for Bolton South East (Yasmin Qureshi).
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I appreciate that the hon. Lady waited a long time to make an intervention, but it is not a speech.
Mr Davey
I reassure the hon. Lady that we have legal advisers in the Department, as does Ofgem.
Looked at together, the Labour party’s proposals—not just the one before the House today—are clearly designed to upset the current balance between competition and regulation. Labour seems to want to rely on more heavy-handed regulation and even price controls to try to micro-manage energy costs and customer service standards from the desk of the Energy Secretary in Whitehall. We know what the consequences of that approach are because we have seen them before: distorted markets, reduced competition, poorer service and lower investment.
Let me gently remind the right hon. Member for Don Valley of her party’s record in government and, indeed, in opposition. The Labour Government set up Ofgem and decided what powers it would have, and when they realised they had got it wrong they reformed Ofgem. In opposition Labour decided it would scrap Ofgem. Now it seems to have U-turned and is looking at Ofgem’s powers instead. First, Labour proposed making Ofgem force companies to track wholesale prices in their retail prices, something which would destroy forward markets and force energy companies to purchase energy in the short-term markets. That is bad news for their customers, as I demonstrated the last time we debated energy policy. It is a recipe for chaos and yo-yo bills, with prices as volatile as the wholesale markets themselves, and on average higher than now.
Now the right hon. Lady proposes to lower the bar on the most extreme sanction the regulator has—revoking a licence, putting companies out of business, reducing competition and causing chaos for their customers. One has to think very carefully before changing the existing power to revoke a licence.
Caroline Flint
A final order could include a company being told to change the telephone script that it uses in its sales work, and it could comply with that order. Does the Secretary of State accept, however, that if the same company slightly breaks the rules again or undermines its service to its customers in a different way, the present guidance to Ofgem does not enable it to show that company the red card and deal with repetitive abusive behaviour that is slightly different from investigations that have led to sanctions in the past? Does he accept that that is a loophole in the current system?
Mr Davey
No, I do not because if a situation gets to the point of a final order, the regulator will look at other behaviours, but it will judge that particular breach. The right hon. Lady gives one example, but we could give many more. For example, we have heard from npower and Ofgem today that npower has made the improvements that were required of it. Presumably, if it had not done so, there would have been another improvement order and, potentially, a final order. Of course, it does not automatically follow that after a final order we go to revocation of a licence, but it is a process that could result in revocation after the matter has been properly investigated. I am glad that I have had a chance to explain that to her.
So far today the right hon. Lady has not been able to come up with one circumstance in which her proposal would be used. She has not given us one example of a case in which Ofgem has fined a company and she thinks that, under her power, Ofgem should have closed it down. She has simply failed to make the case for reforming the existing power. She has failed to make the case for lowering the bar. I have shown that this power exists but it is a nuclear option, and rightly so because the consequences of its use are so severe.
I say to the House that we have the right balance. We are making progress and have achieved more competition, tougher regulation, more choice and higher fines. People are able to punish firms themselves, without having to wait for the Government to do something. But when the regulator does punish a firm, under this Government, there is real financial redress. I thank the right hon. Lady for giving me this chance to show that not only do we take this issue seriously, but we have acted. I say to her and the House that the nuclear option of revoking a licence should remain, but it should remain one of last resort because that is in the consumer interest.