Energy Market Reform

Guy Opperman Excerpts

Wednesday 24th October 2012 Commons Chamber

[Caroline Flint]

I want to make more progress.

When this House last debated energy efficiency in May, I used information that I had once again obtained through parliamentary questions to warn that the energy companies were on course to miss their targets. The Minister of State, Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker), complacently told the House that

“we fully expect them to deliver their obligations and we will make sure that they do.”—[Official Report, 16 May 2012; Vol. 545, c. 554.]

Now, with the schemes due to end in less than 10 weeks, Ofgem is warning that the companies will not meet their targets, and families across the country will miss out and be left facing a cold winter with poorly insulated homes. Why have the Government failed to get a grip on this situation? Why have they failed to tackle the energy companies’ lack of activity and joined-up activity with local people to deliver? We have 10 weeks left and it looks like we are not going to meet the targets that the Minister said we would in May.

We should not worry, however, because we are told that everything will be okay as a result of the green deal. The Government originally said that this scheme would reach 14 million households by 2020, so why is it that when the scheme was launched earlier this month there were just two registered providers? Why would anyone want to take up the green deal when they will end up paying more in interest rates and charges than for the actual energy efficiency measures? Support on energy company obligations for the fuel poor and low-income households will be cut by half next year, and the end of the Warm Front scheme means that this will be the first Administration since the 1970s not to have a Government-funded energy efficiency programme.

[Guy Opperman (Hexham) (Con)]

The hon. Member for Wansbeck (Ian Lavery) and I inherited in excess of 20% fuel poverty in the north-east when we were elected in Northumberland in May 2010—but I will leave aside the past. Does the right hon. Lady not accept that these plans for, to use her own words, more competitiveness, more transparency and a fairer way forward are, at the very least, a step in the right direction?

[Caroline Flint]

We are going to make three propositions today that we think will help boost the market and make it more competitive, and I look forward to receiving support from the Government’s Front-Bench representatives. I know that the hon. Gentleman has raised on many occasions the issues faced by his constituents who are off-grid. Part of our proposals for a new energy watchdog is to bring those who are off-grid back under the arrangements that everybody else benefits from by being under one regulator. That is one of the ways in which we would reform Ofgem.

We want to help people do the right thing. We believe that, even in opposition, we can help people make their homes more efficient and find the cheapest deal, which is why we have launched our own collective switching campaign, “Switch Together”. When it comes to it, that is the big difference between us and the Government. They think that the public are to blame, because when they tell people to shop around, what they are actually saying is, “It’s down to you. You’re on your own.” We do not think that the public are to blame for rocketing energy prices. The problem is the way in which our energy market works.

Let us look, therefore, at the dominance of the big six energy companies, which between them supply about 99% of the homes in Britain. By itself, that does not necessarily mean that competition in the market is ineffective. However, the fact that no new entrant has achieved anything like the scale of operations that would challenge the big six shows that there are barriers to newcomers trying to break in.

Secondly, let us look at the market shares of the big six energy companies in their former monopoly areas, which The Independent on Sunday exposed using information that I obtained through parliamentary questions. Privatisation was meant to lead to greater competition and a better deal for consumers, but in every part of the country, the company that used to run the regional electricity board still has a stranglehold over the market.

Thirdly, energy companies like to tell us that electricity and gas prices in the UK are among the lowest in Europe. However, when tax is taken out of the equation, which is an instrument of Government policy, not an indication of market efficiency, electricity and gas prices in the UK are among the highest in Europe, not the lowest. Tax on energy is lower than that on most goods only because Labour defeated the last Tory Government’s plans to increase the VAT on domestic fuel in 1994.

Fourthly—this is perhaps the most damning point of all—whenever the energy companies announce their latest round of price hikes, they tell us that they are only passing on their costs. However, if pricing is competitive and the market is functioning properly, falls in the wholesale cost should be passed on as quickly as increases. So why is it that when prices rise, bills go up like a rocket, but when prices come down, they fall like a feather, if at all? The only reason for that is that the market is not functioning in a proper, competitive way.

Of course the energy companies dispute that, but in 2011, Ofgem found evidence that energy suppliers were slower in passing on reductions in wholesale energy costs than in passing on increases. Its report stated:

“We have found some evidence that customer energy bills respond more rapidly to rising supplier costs compared with falling costs.”

That is what Consumer Focus thinks too. It found a gap between the price at which energy companies buy electricity and gas, and what they sell them to the public for. Its research shows that even though the wholesale prices for both electricity and gas have fallen since 2008, retail prices for both are significantly higher today than four years ago.

--- Later in debate ---

[Guy Opperman (Hexham) (Con)]

I would suggest that fuel poverty and energy prices are apolitical, cross-party issues. These matters greatly affect the residents of Northumberland whom I and my colleague on the Opposition Benches, the hon. Member for Wansbeck (Ian Lavery), represent. Successive Governments have, to their credit, tried to address the problems. I do not come here to criticise the previous Government. As I have made clear to the shadow Secretary of State, the right hon. Member for Don Valley (Caroline Flint), there is much that could be said on that, but I am more interested in how we should proceed.

I wholeheartedly welcome the current Government’s decision to address the issues we face robustly and properly. It is good that we are seeking greater transparency and competition, and greater opportunity for people to have cheaper energy. Much of this debate has focused on electricity, of course, as it is the primary source of power, but I want to talk, too, about heating oil, liquefied petroleum gas, biomass and shale gas.

I support this Government’s efforts to explore shale gas provision through the Department for Environment, Food and Rural Affairs as well as the Department of Energy and Climate Change, and to try to make the most of the fact that we have so much potential shale gas power. It has transformed the energy market in the United States of America. If we do not push forward with this, we will have to face up to the consequences. We must proceed in an environmentally sound way, of course, but we should be pursuing the shale gas option.

I listened very carefully to the shadow Secretary of State’s weighty and lengthy speech. I must point out, however, that it is undoubtedly the case that the reduction in tariffs now being sought was most certainly not sought by the Leader of the Opposition when he was Labour Energy Secretary. He could have legislated for Ofgem to act, as the current Government are now doing.

The motion talks about those aged 75 and over, which I welcome, but we are addressing these issues as they impact on everybody, not just the over-75s. In the main energy market, it is true that there used to be 14 major competitor companies and there are now just six. The heating oil market is important in Northumberland, and there used to be 17 different providers in the Northumberland area, but due to the way the market was—supposedly—being run by the previous Labour Secretary of State, they were amalgamated and the amount of competition rapidly reduced. Similarly, there is now a single provider of LPG in my area and to the west of the region; there is no competition whatever. This market is manifestly broken, therefore, and I welcome the action that has been taken.

The hon. Member for Southampton, Test (Dr Whitehead) is clearly very learned in respect of the issues under discussion. He talked about a modern version of the pool—that sounds like something somebody would propose for planning permission—but that was scrapped in 2000, and neither was it in the 2010 Labour party manifesto. [Interruption.] I am not going to get into this topic now; I look forward to hearing evidence to the contrary in the winding-up speeches—when it will, perhaps, be pointed out to me exactly where in Labour’s 2010 manifesto is the proposal to establish the brave, modern pool features.

I have one particular criticism of the policy of the current Government, however. It is to do with the provision of biomass, whether by way of companies or households. I should declare an interest in that there is a company called EGGER in my constituency, which employs more than 400 people, and it is materially affected—as are vast numbers of other people—by the fact that the state continues to subsidise domestic purchase of biomass so that those who wish to purchase timber and other core products are priced out of the market. This is a cross-party issue which I and others have raised with the relevant Ministers and Secretaries of State, but we must address the fact that energy is currently costing more because we are subsidising it, and that subsidy could be got rid of. Renewables obligation certificates could be reformed so that imported timber is subject to a subsidy, but domestic timber is not. That would save taxpayers’ money. It would allow a level playing field for the use of the core product and it would allow businesses to prosper and move forward in the right way.

I will reject the motion, therefore, as it is manifestly wrong, and I will support the Government.