Domestic Gas and Electricity (Tariff Cap) Bill

Geraint Davies Excerpts

2nd reading: House of Commons
Tuesday 6th March 2018 Commons Chamber

[Mark Menzies]

I thank the Secretary of State for his intervention. Steps like that seek to reassure me. As the Bill makes progress, I will follow its course in detail, particularly on this matter. I want to ensure that the Bill is effective and does not end up disappointing where we hope that it will succeed.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Will the hon. Gentleman give way?

--- Later in debate ---

[Caroline Flint (Don Valley) (Lab)]

Today is a political lesson in never giving up. Despite all the lobbying noise of vested interests, constant denials of market failure and numerous attempts to persuade energy bill payers to shop around, the Government could no longer ignore the fact that the majority of energy bill payers were—and are—being ripped off.

The Bill has a virtuous purpose: to protect customers from unfair energy prices in a market which, sadly, has failed to deliver. Its greatest shortcoming is its timing. In October 2011, I first raised the failings of the UK energy market—the overcharging and the poor value for money offered by the big six. In that year, energy prices had risen by 20%. Data required by the last Labour Government had become available to those with an “anorak” interest in tracking what was happening to prices. It was becoming clear that they did not reflect wholesale costs, and that those on standard variable tariffs were paying over the odds.

The coalition Government of Conservatives and Liberal Democrats attempted reform, but they had little to offer to affect the pricing structure of the failing retail market. They opposed Labour’s energy price freeze—a proposal to cap prices for 20 months while the energy market was reformed—but they knew that they were on the back foot as evidence of overcharging mounted. David Cameron’s agreement to a Competition and Markets Authority review in 2014 was an attempt to take pressure off the Government and kick the issue beyond the 2015 general election. That worked, but it delayed action further.

It must have come as quite a surprise to some in government when the CMA’s findings vindicated Labour’s concern about unfair energy prices. It took two years to reach a conclusion that some of us had already exposed: customers were being systematically overcharged. Between 2012 and 2015, people were overcharged by an average of £1.4 billion a year, and the detriment had increased to £2 billion a year by 2015. By the time the CMA reported the damage, overcharging since 2012 amounted to more than £8 billion. Delay has cost consumers dear.

Some may have thought that the introduction of a price cap for prepayment meter customers would lay the matter to rest, but that was never going to be the case. Ministers and others on the Government Benches were now keen to talk about market failure and systemic overpricing, using language for which my party and I had been condemned only a few years earlier. Progress has been too slow by half, but now the Government are taking action that has cross-party support, and we have an opportunity to serve notice on injustice and legislate for price protection for consumers, which I believe should take the form of a protected tariff. In fact, I argued for such protection after the 2015 general election. Consumers need nothing less than a regulated maximum charge based on wholesale prices, network costs, and an acceptable level of profit set by Ofgem.

To expose market failure is not to be against all markets. Despite privatisation, energy has always rightly been a managed market when it comes to changes in our energy generation, contracts for difference and capacity markets, and that is the case today. I believe that, across the House and across British society, it is recognised that certain products, such as energy and water, require a different level of Government intervention and regulation.

Even today, with record levels of switching—about 5 million people switched in 2017—many of the criticisms that I levelled at the energy market in 2011 still apply. The market is still dominated by the big six. Between them, they control 78% of the market. The biggest new entrant has just 1% of market share. Movements in energy prices bear little relation to the movement in wholesale prices. The majority of customers have little faith in switching and have not changed supplier for a decade or more, and, as we all know, the majority sit on expensive default standard variable tariffs. More than 5 million people have been helped with a safeguard tariff. The Bill addresses the 11 million households who are overcharged year in, year out.

So what should we do? Let us build on the cross-party support and, through the Bill, defend the principle of a short-term cap on a failing market. We should not be cowed by the self-interested propaganda that we have heard from opponents of the price cap. At the extreme end, we have Centrica linking its plan to shed jobs up to 2020 with the cap. That is outrageous. Centrica has lived off its nationalised legacy—a sticky customer base that it has treated badly. Business analysts observe that British Gas’s businesses supplying energy to business have been performing poorly and that Centrica’s US operation, Direct Energy, has underperformed. They note that almost 80% of those employed by Centrica are abroad—just one in five are in the UK. While those UK jobs are important, it is little surprise that trade unions representing Centrica employees—Unite the union, GMB and Unison—are rightly sceptical about why UK employees might bear the brunt of the effect of corporate failures internationally under the leadership of Iain Conn.

A cap does not mean an end to competition. A reasonably set upper limit on unit prices that is reviewed every six months allows lots of opportunity for competition beneath the cap. It is not a difficult concept. The cap is a maximum; it is not a requirement to charge prices at that level, and the industry knows that full well. It also knows that it will put a bar on unfair prices, and not before time.

[Geraint Davies]

I am listening fascinated to my right hon. Friend’s speech. She is aware that there has been a history of oligopoly abuse in terms of delays in changing prices for customers when world commodity prices change, meaning that there are excessive differentials. Does she think it is possible to have a relatively simple system that takes those two factors into account, but also takes the opportunity to encourage renewables?

[Caroline Flint]

Absolutely, and I am going to come on to renewables. Ministers should beware of any proposal to exempt green tariffs or low-carbon tariffs from the price cap, and let me be clear why. In 75% of days in 2017, wind power supplied more energy than coal power in the UK. Nuclear and renewables are central to our power output in the UK energy market and the generators are well rewarded for that. The notion that any energy provider should charge a premium for so-called green tariffs does not stand up to scrutiny. Consumer support for 100% green energy is welcome, but the idea that they should pay the most expensive tariff cannot be justified. I therefore hope that the Secretary of State will rule that out and deliver a comprehensive cap.