Energy Price Freeze

Fiona O'Donnell Excerpts

Wednesday 2nd April 2014 Commons Chamber

[Mr Davey]

It fits in exactly, and I am delighted that the hon. Gentleman has raised that point. The larger companies can buy 18 months ahead, so if there is a rise in wholesale gas prices, they are hedged—they are protected. The smaller companies find it much harder to buy ahead, so if the wholesale prices go up, they get crushed. That is the truth about Labour’s policy. It may seem popular in Labour’s focus groups, but I am afraid it has not been thought through. As The Guardian said, it is “good politics”, but it is “bad policy”.

[Fiona O'Donnell (East Lothian) (Lab)]

I am not sure whether the right hon. Gentleman’s thought experiment had started when he drove his Energy Act 2013 through Parliament, which he certainly took plenty of time to do. Can he point to one single measure in that Act which has increased and supported competition?

[Mr Davey]

I am glad that the hon. Lady has mentioned the Energy Act 2013, because she voted for it. If she looks at the detail, she will see that not only did it reform Ofgem by giving it more powers to grant compensation to consumers who were badly treated, but it supported Ofgem’s retail and wholesale market reforms by having reserved powers to make sure they went through. Those powers are in place and are making sure those reforms go through.

I was talking about Labour’s bad energy policy, and let us look at its record in government on energy markets and prices. In the retail markets, Labour allowed the big companies to choke off proper competition—the very competition that privatised markets need in order to operate in the interests of consumers. It created Labour’s big six—the big six that dominate retail and wholesale markets.

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[Mr Tim Yeo (South Suffolk) (Con)]

I draw the House’s attention to my entry in the Register of Members’ Financial Interests.

It is pleasure to follow the hon. Member for Glasgow North West (John Robertson), a valued member of my Select Committee who consistently shows a great and real passion for helping those who suffer from fuel poverty—I guess more of his constituents than mine are in that position, but it is also an issue in parts of South Suffolk.

Many colleagues are anxious to speak, so I wish to make just a few brief points about the price freeze and the Competition and Markets Authority reference. However, I want to begin with a plea for honesty in the debate about energy prices. No politician, whatever party they belong to, can control energy costs, because the biggest component in an energy bill, be it for gas or electricity, is the international wholesale price of gas, which is completely outside the control of this Government, past Governments and future Governments. It is simply dishonest—it is not playing fair with the public—to pretend that a new Government could wave a magic wand and stop prices from going up. If global demand for gas rises sharply, as the International Energy Agency points out is likely to happen because of the expansion of the Asian economies, the international price will go up and the tankers that leave Qatar full of liquefied natural gas, some of which we want to have here, will be more expensive than they are today. So please let us try at least to start the debate in an honest way, without making promises about energy bills that cannot possibly be honoured in the long term.

[Fiona O'Donnell]

Can the hon. Gentleman explain to me and my constituents why SSE is able to announce a price freeze, then?

[Mr Yeo]

I am coming on to deal with that specific point; if the hon. Lady waits for a moment, I will explain it. First, let me urge everyone to try for a bipartisan debate, as a good starting point, in the interests of helping the public to understand the issues better.

There is general agreement across all the parties that there are three principal aims of energy policy. The first is security of supply, which is fundamental. I do not think the public would tolerate the kind of cuts that occurred in the 1970s. Modern life, both domestically and in business, depends now on a continuous supply of electricity. The second aim is affordability, which is much in everyone’s minds right now. The third is reducing greenhouse gas emissions, which the latest Inter- governmental Panel on Climate Change report underlines should have equal priority to the other two.

Any proposed energy policy should be measured against those three aims, and I am sorry to say that, as my right hon. Friend the Secretary of State has eloquently pointed out, the proposed price freeze does not score terribly well on those three tests. On security, a price freeze will actively harm Britain’s interests. It will inevitably deter and discourage new investment in capacity, particularly in electricity generation capacity, just at the time when, as is universally accepted, Britain needs huge new investment—£110 billion is a commonly agreed figure for the level of new investment needed in the next few years. Of course, as we all know, we face a situation over the next two or three years where margins of spare capacity will be at historically low levels. A very severe winter in this country and in north-western Europe could mean that we face a risk—not a huge risk—of a black-out.

The danger that the price freeze will discourage new investment has already been shown by some of the reactions. My hon. Friend the Member for Warrington South (David Mowat) referred to Centrica. It is all very well for Sam Laidlaw to say that, in the event of vertical integration coming to an end, Centrica would stop investment, but the truth is that in the UK it has already stopped investing. [Laughter.] It pulled out of a nuclear consortium last year. The company is investing heavily in other countries—in markets where it can see better returns than at home. This should not be a cause for laughter by the Opposition; it is very serious, because one of our biggest energy companies is deciding that Britain is no longer a market in which it wishes to participate.

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[Mr Yeo]

I am saying that I am not in favour of a price freeze, but a price freeze that is signalled 18 months in advance is clearly a cynical electoral manoeuvre and has nothing to do with a responsible approach to trying to reduce consumer prices. I am not in favour of the freeze, but I am even less in favour of playing politics with energy bills in the way, I fear, that the Leader of the Opposition did by saying, “Okay, let’s have this price freeze, but obviously we can’t implement it until the middle of 2015.”

On the third test of cutting greenhouse gas emissions, a price freeze is at best neutral. I am afraid that I have to conclude that the Opposition’s proposal for a price freeze has the damaging effects of cutting investment, increasing the risk of the lights going out, and raising prices and consumer bills faster than otherwise would happen, at the same time as doing nothing to reduce emissions.

One final consequence of the proposal, which has been pointed out so I will not labour it, is the effect it has on small independent suppliers. Clearly, it is very damaging for them. If ever there was a policy designed to prop up the dominance of the big six it is the price freeze proposed by the Opposition. The ability of those smaller companies to survive the losses that a price freeze could impose on them is inevitably much less than large international companies.

Let me turn now to the Competition and Markets Authority reference. I believe that that was a belated recognition by Ofgem of the market failure in the energy industry, which is evident in a number of aspects, and of the risks that are, at the very least, inherent in vertical integration. Ofgem has been asleep on the job for the past two or three years. It has not used the powers that it already has as effectively as it should. Indeed, it commissioned BDO the accountants to make a number of recommendations, which it then proceeded to ignore once they had been announced.

[Fiona O'Donnell]

I am grateful to the hon. Gentleman for giving way; he is being very generous. Given that he feels that Ofgem has not been doing its job properly for some time, does he regret the fact that when his Committee asked the Secretary of State’s predecessor to hold an inquiry into the market in November 2011, the Government did not take action then?

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[Fiona O'Donnell (East Lothian) (Lab)]

It is a pleasure to follow the hon. Member for Bracknell (Dr Lee), who I thought made an illuminating speech. It was illuminating because at no point during his speech did I hear him talk about fuel poverty or about people struggling to pay their fuel bills. My constituents will be disappointed by that and I suspect that his will, too.

[Dr Phillip Lee]

Will the hon. Lady give way?

[Fiona O'Donnell]

No—I am on a limit of five minutes. I have not made any interventions in time-limited speeches and I am not going to take any, as I have only five minutes.

It has also been illuminating to see the political tomfoolery of the SNP today. As the hon. Member for Angus (Mr Weir) stood to speak, suddenly two other SNP Members came scurrying into the Chamber to give the right impression of SNP support for action on fuel poverty, and then scurried out, having made one intervention.

[Dr Phillip Lee]

On a point of order, Madam Deputy Speaker. The hon. Lady has misrepresented my speech. I talked about cost as the primary target of any energy policy, which refers to the fact that I recognise that customers are paying increased bills.

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[Fiona O'Donnell]

Thank you, Madam Deputy Speaker; as you said, the hon. Member for Bracknell has his point on the record. It certainly did not seem to me—it will not to his constituents, either, I think—that fuel poverty was the main driver of his contribution, but it is the main driver of the motion before the House.

To return to the SNP, however, I thought that Government Members must have learned to throw their voices, because when the hon. Member for Angus spoke it was like hearing a Tory speak. That is more and more what we are hearing from the SNP these days—there was more time spent bashing Labour’s attempts to do something about fuel poverty than there was spent looking at the inaction of the Government. All he seemed to have to say to the people of Scotland was that the SNP would take less money from the energy companies in the hope that they in turn would take less from the consumer. There was not much hope for the fuel-poor in Scotland from him today.

We also heard from the hon. Member for Warrington South (David Mowat), who I know has taken an interest in Scotland in the past, and has served on the Scottish Affairs Committee. He took an interest in my constituency today, referring to the closure of Cockenzie power station. The hon. Member for South Suffolk (Mr Yeo) also spoke about the problem of lack of investment. I would like both of those hon. Members—at least one of them is in the Chamber—to know that Cockenzie power station had not been converted to gas because of the Government’s dithering and delay on connection charges, which means that Iberdrola is holding back its investment. That is hurting my constituency and hurting consumers, and responsibility lies firmly with the Government.

Today’s debate has to be seen in the broader context of a cost of living crisis. I know that the Secretary of State asked questions of the Opposition Front Benchers today, and I congratulate my right hon. Friend the shadow Secretary of State on giving the House the opportunity to debate this matter today and so allowing me to stand up for my constituents. I hope that when the debate is wound up will we get a response as to whether Ofgem will be required to look at the situation of many of my constituents, who are trapped in fuel poverty because they do not have access to the gas grid, and so do not benefit from dual-fuel discounts and have only a limited number of places from which to buy their supply. There is also the issue of prepayment meters, which hits some of the most vulnerable energy consumers, particularly those on fixed incomes.

One sign that this Government’s policies are not working is the rise in the number of people using food banks. We are also seeing people having to return food to food banks because they cannot afford to pay for the energy to heat food that requires cooking. I have been away for a couple of weeks with the International Development Committee, and coming back this week I have had a sharp reminder of how the Government are in absolute denial on so many levels. There was denial from the Prime Minister today about the fiasco of the sell-off of Royal Mail. We heard denial yesterday from the Treasury Front Benchers, who would not acknowledge that people will be worse off at the end of this Government. Today we have heard denial from the Secretary of State for Energy and Climate Change, who on his own website is seen supporting the “Mind the Gap” campaign. How ironic—the gap is between the Government’s rhetoric on fuel poverty and their action on it.

We need leadership, not people sitting around tables and talking, or taking too long to put Bills through Parliament or to act on Ofgem. The energy consumers in my constituency want action and leadership from the Government now. They will get that from Labour in 2015. I commend the motion to the House.