Magnox: Early Contract Terminations

Iain Wright Excerpts

Monday 27th March 2017 Commons Chamber

[Greg Clark]

I agree with my right hon. Friend: it is important quickly to learn the lessons and to apply them. This is very important work. The work is being carried out to a high standard, but those lessons must be learned and applied.

[Mr Iain Wright (Hartlepool) (Lab)]

May I thank the Secretary of State for his courtesy call on this matter this morning and for his subsequent letter? The Business, Energy and Industrial Strategy Committee will challenge hard, but work constructively with him and with Steve Holliday on this important issue. Will he clarify whether the inquiry will be confined to the procurement process, which led to this specific contract? Will it consider other contracts such as the one to decommission Dounreay, which was awarded to essentially the same consortium that won the Magnox contract? I think that he has already confirmed this, but will he say whether the inquiry will be broad enough to consider whether the governance and management arrangements of the NDA have always been, and will continue to be, fit for purpose?

[Greg Clark]

I am grateful to the Chairman of the Select Committee for what he said. I can confirm that the governance and the management arrangements of the NDA are very much in scope. I put the terms of reference in the Library of both Houses of Parliament this morning. It is open to Mr Holliday to go where the evidence takes him—to use that phrase on this. The particular concern is over this contract, but if he feels that he needs to look at other aspects of the NDA’s management, he is absolutely free to do so.

Energy Prices

Iain Wright Excerpts

Thursday 16th March 2017 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

I congratulate the hon. Member for Weston-super-Mare (John Penrose); it is an honour to follow his speech. He set out the arguments incredibly well. He is passionate and knowledgeable, and his points about the energy market were incredibly measured. I pay tribute to him, my right hon. Friend the Member for Don Valley (Caroline Flint) and the hon. Member for North Ayrshire and Arran (Patricia Gibson) for securing this important debate. The issue affects all our constituents—millions of people up and down the country—and I thank the Backbench Business Committee for agreeing to the debate.

The excellent opening address of the hon. Member for Weston-super-Mare made it very clear that the energy market is not working in the best interests of customers. That is not to say that there is any collusion whatever between the energy companies—far from it. Ofgem told us on the Select Committee on Business, Energy and Industrial Strategy that the major energy companies have quite different price strategies; there can be a difference of about £140 a year between what the major energy suppliers charge dual fuel customers. In addition, as the hon. Gentleman said, there have been welcome new entrants to the energy market, which have disrupted, in a very positive way, the energy oligopoly that has been in place for far too long. There are more innovative companies offering better choice, service, and value to the energy customer. Ten years ago, the big six companies dominated the entire market, with a 100% market share. Last year, that had moved to 85%, which is great. That is positive news. New entrants are taking market share and offering quite competitive fixed-term deals.

I said that there was no evidence of collusion between energy companies, but there are marked similarities between the major energy companies’ business models, and they do not act in the best interests of customers; in fact, as the hon. Gentleman said, they actually punish customer loyalty. Their business models are predicated on a sizeable proportion, if not the majority, of their customer base being, and continuing indefinitely, on their standard variable tariff. Looking at the big six companies, 74% of British Gas customers are on its SVT; for EDF, it is 56%; for E.ON, 73%; for npower, 59%; and for ScottishPower, 50%; and an astonishing 91% of SSE’s customer base is on the SVT.

SVTs are, in the main, the most expensive of all the energy tariffs available, yet almost half of all customers have been with the same supplier for five years or more, and 44% of customers have never changed tariff. It is almost guaranteed that those households are overpaying for their energy. The Competition and Markets Authority estimates that, due to a lack of competition in the market, collectively customers are overpaying for their energy to the tune of £1.4 billion. Despite all that, and the very clear evidence that the market is not working in the interests of customers, energy companies continue to penalise customers for their loyalty. The longer a person is with a company, the more they are likely to pay. In a modern, customer services-oriented economy, what other market could possibly say that?

When npower raised its prices by 14% last month, Ofgem stated to the Select Committee quite categorically that it did not see a case for such a significant rise. Ofgem’s chief executive told our Committee that wholesale costs had risen by about 15% in the past year. However, the overall cost of energy was marginally below what it had been three years ago.

[Mr Charles Walker]

I made this same point to my hon. Friend the Member for Weston-super-Mare (John Penrose): the big six and Veolia behave in this way because there is a culture of arrogance and entitlement. That is the problem, and we—or, more to the point, the companies—need to address that culture.

[Mr Wright]

The hon. Gentleman is absolutely right. A market has to be dynamic. Companies should be nervous about customers moving away, but customers are not doing that. As I said, these companies’ business models are entirely predicated on the fact that people will, for a variety of reasons, stay on the expensive tariff; because of that, though companies may provide loss-leading deals for new customers, they scoff at customer loyalty. This market is not working in anybody’s interests. It is not dynamic, efficient or effective, and ultimately it is not benefiting customers.

[Mr Walker]

The problem is not just the way that organisations such as Veolia and the big six treat their customers; it is the way that they treat their regulators and this place—elected representatives.

[Mr Wright]

This is not just about price and cost; it is about customer service, and what teeth the regulator has—and, ultimately, the Government provide—to ensure a dynamic energy market.

It is true that wholesale costs went up by about 15% last year, and obviously the wholesale cost of energy is ultimately a big part of the energy bill that goes to the customer, but the cost of energy is marginally lower than it was three years ago. Companies hedge their risks when it comes to purchasing energy, which should flatten any price spikes that they experience when buying their energy on the global market. That means that retail prices to customers might not fall as quickly and as sharply when wholesale prices fall, but conversely, it certainly should stop big price hikes when wholesale prices rise, and we have seen no evidence whatsoever of that.

Last month, in announcing its big price rise—the biggest for many years—npower stated on its website:

“over the past few years, the cost of supplying energy to your home has increased, as well as the amount we need to pay towards government schemes.”

This is slightly unusual for me, but allow me robustly to defend the Government. The phrases that npower and other companies have used about the cost of Government schemes are simply wrong. The Committee on Climate Change today published its analysis of energy prices and household costs, which showed that 9% of the average dual fuel bill for domestic customers is accounted for by the cost of moving towards a UK-based low-carbon electricity supply and support for energy efficiency home improvements. The notion that energy companies can justify price increases through Government action or policies is simply disingenuous.

[Caroline Flint (Don Valley) (Lab)]

My hon. Friend makes an important point. It is worth everybody reading that report from the Committee on Climate Change. Does he accept that part of that 9% of the bill goes on helping people—sometimes the poorest in our communities —to reduce their household bill by introducing energy efficiency measures? It is a worthwhile 9% investment.

[Mr Wright]

Absolutely, and as my right hon. Friend, who has done fantastic work on this, knows all too well, energy efficiency measures are a key plank of ensuring our competitiveness, tackling fuel poverty and addressing our decarbonisation targets. Everybody wins when energy efficiency measures are prioritised.

[Mr George Howarth]

My hon. Friend is making a very good case. Does he agree that the energy efficiency measures introduced in tower blocks, and sometimes in low-rise properties, can be complicated to use, and if they are not used properly, they can be more expensive to the consumer? I have had two examples in my constituency over the past few years in which people have ended up paying more for a lower standard of heating. Does he think that there is a case for the Government looking at issuing guidance to local authorities and registered social landlords about how to install these systems and inform tenants about how they are supposed to be used?

[Mr Wright]

My right hon. Friend makes a really powerful point. I was in the Chamber when he made an intervention about switching suppliers and noted that often people in tower blocks are not able to do that. He makes a powerful case and vividly illustrates that the market is not working in the interests of consumers, who might often be in low-waged and vulnerable households. The Government and regulator need to take steps to make sure that the market works.

Ofgem told us that energy companies have increased their prices largely because they have not been successful in controlling their own costs. Sufficient and efficient companies have been able to reduce and absorb cost increases, and have therefore passed on those benefits to the customers by eliminating any risk of price increases. Others have not done so and, due to the nature of their business model, which I explained earlier, feel that they do not have to consider customers because customers simply will not switch and will continue to stay on the most expensive tariff. Customers are literally paying the price for the failure of energy companies to manage their businesses and control their costs. I said to the hon. Member for Broxbourne (Mr Walker) that I would mention that this is about not just costs, but customer service and a lack of trust in energy companies. There is a huge number of examples. I imagine that every hon. Member has cases regarding this in their inbox.

Citizens Advice told the Committee that companies are getting the very basics wrong with late, missing and inaccurate bills. When they get things wrong, they are failing to provide customers with redress. The market is simply not working. So what is the solution? The current policy response seems to be a dual approach—to encourage companies to engage with their customers more efficiently and to communicate widely the benefits that come from switching. Switching should certainly be encouraged, as customers can make savings of hundreds of pounds if they switch. On the back of the recent price rises from energy companies, I switched the energy supplier for our house and we saved £249. There are big savings to be made. I encourage customers to switch, switch and switch again.

As the hon. Member for Weston-super-Mare said, a small proportion of domestic customers do switch, and they switch very often. They are savvy customers who know the market and want to get the best possible deal, but that remains relatively rare. The vast majority of energy customers do not switch for a wide variety of reasons. For example, people may think, “Can I switch? Aren’t I still with the local electricity board?”, “Will it be too complex? I’m frightened of the hassle factor”, or “I’m frightened that my energy supply might be disrupted.” There is a whole range of things, not least, as the hon. Gentleman said, that people lead busy lives, so they often do not consider an essential utility such as energy. It is not sufficient to state that the energy market will be fixed by encouraging more switching and better engagement. There needs to be a fair deal for all energy customers—for the two thirds who do not switch, and not just for those who do so.

The Government often talk a good game when it comes to tackling energy prices. When it was revealed in the autumn that the energy companies were making higher profits than reported, the Secretary of State hauled those companies into his Department for an explanation, but nothing materialised. When npower raises its prices last month, a spokesman for the Prime Minister said:

“We are concerned by Npower’s planned increases—we are committed to getting the best for households. Suppliers are protected from recent fluctuations in wholesale energy prices which are set two years in advance so we expect them to treat customers fairly and clearly where markets are not working we are prepared to act.”

Only this week, in answer to my question during business, energy and industrial strategy questions, the Secretary of State said that “time is up” for those energy companies. But no action has been taken. Customers will have to endure in the next days, weeks and possibly months high prices rises with no action taken whatever. The regulator says the price rises are not justified, No. 10 says that it is concerned, and the Department has had energy companies hauled in, but nothing has been done. This does not seem to reflect the urgency that should be given to the issue. The key point that I would like to be made in this debate is the Minister saying how the Government are going act—and act now—to ensure that customers get a better deal.

The hon. Member for Weston-super-Mare has an important policy response suggestion when it comes to a restricted price cap, and this could be an important means of providing customers with some respite. He mentioned a number of energy companies that have put forward the idea, and there are some quite striking quotes from the people who run those companies. Stephen Fitzpatrick, chief executive of Ovo Energy, said that the energy market was failing because companies were

“free to charge whatever they think they can get away with, at the expense of disengaged or confused customers.”

He also said:

“The time has come for the Government to step in and take bold action to protect consumers’ interests.”

Greg Jackson, chief executive of Octopus Energy, which has about 80,000 customers, said:

“Energy customers are being robbed in broad daylight, and it’s time for decisive action to end the misery for millions.”

Will the Government look favourably on the hon. Gentleman’s point about a price cap? It is very clear that, at a time of crippling price rises from companies seemingly indifferent to the plight of customers, there needs to be a fundamental change to ensure that the market works for all. In the Minister’s response to the debate, he must set out the detailed steps he will take immediately and in the longer term to act in the interests of customers, and set out the timetable. The time for strong words, for hauling the companies into the Department, and for Green Papers and future legislation is over. If the regulator says that there is no justification for price increases and the Prime Minister is saying that action needs to happen, why can we not have action now? Customers are facing price rises now. We should not have to wait for a Green Paper or legislation in the months to come. We need to act immediately. On that basis, what are the Government going to do now?

--- Later in debate ---

[Caroline Flint]

Exactly. We have the historical evidence that month by month people are still paying far too much for their energy bills.

It is absolutely astonishing that this is happening in what is meant to be a competitive market. The overcharging and the excessive profit margin made from standard variable tariff customers clearly provides no encouragement to move those customers on to a better deal. I believe that this is a bankrupt business model. If we are all admitting—even the energy companies have had to face up to this—that people are paying over the odds, then the companies have a business model based on that. If all these customers were miraculously to move to a lower tariff tomorrow, where would the companies be left? The inertia is compounded by a management approach that does not seem to want any form of effective change.

Unfortunately, the more the Government have publicly urged consumers to switch to save, the more the companies are absolved of any responsibility to move customers on to a better deal. A sticky, passive, unengaged customer base appears to suit some of these firms down to the ground. When, back in 2012, EDF automatically moved vulnerable elderly customers on to its cheapest tariff, sadly other suppliers did not follow up with this better practice.

The CMA’s final report concluded that to eliminate overcharging, prices would have to fall across the board by an average of 3% per year between now and 2020. It hoped that its measures to promote switching would create more competition in the market and have a downward effect on prices, but it was reluctant to say exactly how successful it expected that to be. The problem that the CMA faces is that the UK has an energy market with unhappy consumers, a dysfunctional pricing mechanism, and companies that are, I am afraid, largely immune to competitive pressures.

Ofgem has reported that some 3.3 million households switched supplier from January to December 2016. This is apparently the highest level of switching for six years, but it equates to less than 12% of households. I worry that we have a two-tier energy market: an active, informed class of consumer who is energy-conscious, internet-savvy, shopping around and managing their accounts online, and a far bigger, less informed, less engaged, less internet-savvy, discontented majority.

[Mr Iain Wright]

My right hon. Friend is second to none in her knowledge of energy policy. She may be coming on to this, but I would be interested to get her thoughts on policy fixes. Does she think that the regulator has the powers but is not using them, or that the Government need to give the regulator more powers to help fix this broken market?

[Caroline Flint]

The regulator already has powers in its back pocket. It can intervene if it thinks that the market is uncompetitive. It can, if necessary, take customers off a company that is failing and allow them to get a better deal elsewhere from other suppliers. However, we do need Government to take responsibility. Whether we have the relative price cap that the hon. Member for Weston-super-Mare proposes or my suggestion of a protected tariff—if not permanent, then temporary—to fix this market, it is clear that more reform is needed. I wish that the regulator would use its powers; it has been very slow to do so, although it has speeded up in recent years. There is more it could do, but there is more that Government could provide it with to do a better job.

One of the CMA’s proposals is that data on customers should be shared so that other energy suppliers can send their offers to customers. The problem is that people will be bombarded with leaflets and emails from operators in a sector in which their trust is already so low that they may not put any more in this marketing mechanism. These are the very people—immune to direct mail, annoyed by calls from would-be energy suppliers, and mistrustful of the whole industry—who are not being helped by any of the measures put forward since the CMA report.

The CMA believes that by encouraging switching and a shared database for companies to market new tariffs to each other’s customers, price competition can be made to work. However, I am afraid that this shared database seems to be a new label for an old solution. We have had six years of trying to bring a consumer benefit by switching—six years of abject failure. I must therefore ask the Minister whether it is realistic to assume that 28 million households will be able to reduce their average bills by 3% a year, as the CMA suggests, for each year between 2017 and 2020. The CMA believes that if it succeeds in its aim, this steady price fall would eliminate the overcharging—the detriment—but even if it did, it would not repay one penny of the money already unfairly taken from consumers. I see no mechanism in the CMA’s prescription that can achieve even the objective it has set. Adding customers who have remained on a standard default tariff for three years to a huge marketing database for other companies to prey on will not, in itself, make this market more competitive.

In March, Ofgem published the information that January’s cheapest available tariff was 22% cheaper than the average customer’s bill, but did not identify how long that offer lasted or how many customers benefited. However, let us follow its logic. What if that tariff was widely available? What if the 12% of switchers—3.3 million consumers—all switched to this new best value tariff, and what if those 12% of customers all got a saving of 20% on their bills? This change alone might notionally cut average bills by 2%—almost the 3% the CMA hoped to achieve through its measures—but it would not reduce the detriment by one penny for the 88% who do not switch. The penalty incurred by the vast majority would remain.

Also among the CMA’s recommendations is that price comparison websites should no longer have to display every deal on the market, so consumers may only see the deals that give the website a commission. The majority of customers who remain resistant to the lures of the marketeers will still see no gain. Those customers—some 20 million who pay the default standard variable tariffs and endure their prices going up and down as the energy provider chooses—are left at the mercy of their supplier, which the CMA has already identified as consistently overcharging them. They certainly cannot rely on wholesale prices to save them, because there is no obligation to pass on falls in wholesale prices to consumers—not even in part. Ofgem reported that wholesale gas prices fell by 44% between 2012 and 2016, yet consumers saw their energy bills rise by 7% over the same period. Such a perverse result could happen only in a dysfunctional market. Where do consumers turn to get fairness? The only avenue for the majority of consumers is the Government, who are the one agency with the powers to change the game at a stroke. How long will the public have to wait before the Government finally act as a consumers’ champion?

In 2011, when I became shadow Energy and Climate Change Secretary, I advised the Government that energy bills were soaring, but they did nothing. In October 2011, the then Prime Minister convened an energy summit and proposed to write to millions of consumers about switching, but that did not work. In November 2013, Mr Cameron tried a different approach: “get rid of all the green crap,” a senior source reported him as saying.

As has been touched on in this debate, the big six always like to divert discussion of bills on to green levies, even though investment in renewable energy and low carbon energy is exerting a downward pressure on wholesale prices. It is ironic that domestic consumption of energy, in kilowatt hours, has gone down, but we are paying more in our bills. The former Prime Minister said, “get rid of the green crap”, and he did so. The Government shortly afterwards reduced some of the environmental obligations and network charges and cut bills by between £39 and £50. Unfortunately, that year energy bills rose by an average of £120, so that did not work.

Mr Cameron always ridiculed Labour’s energy price freeze, which was a proposal to cap energy prices for 20 months while the energy market was reformed. Instead, in 2014 he announced the CMA investigation. Its initial findings the following year and its final report in June 2016 entirely vindicated Labour’s concern about unfair energy prices. We now have it on the record from one of the Government’s regulators: Britain’s consumers were ripped off year after year for a period of four years—that we know of. About that there is no dispute. It is an £8 billion scandal, and every month the financial punishment for customers grows.

So what do we want? My plea to the Government is simple. Recognise the scale of the problem. Recognise that switching campaigns, which have now become a gimmick, can only scratch the surface. They will never get to the heart of the problem. Recognise that the industry needs reform, and that until it is reformed, the Government need to introduce price protection for consumers.

I believe that that protection should take the form of a protected tariff, and I first argued for such a tariff after the general election in 2015. Consumers need nothing less than some sort of regulated maximum charge that companies can levy, which is based on wholesale prices, network costs and an acceptable level of profit. I do not believe that that can be left to the companies. Any voluntary measure is welcome, but the approach has been too piecemeal. We need the Government to act by introducing a protected tariff, which is set by Ofgem. We know that Ofgem is capable of that calculation, because it has just done a similar exercise for 3.5 million prepayment meter customers.

Am I asking for something outlandish? No. Northern Ireland still has price regulation, and a majority of countries in the European Union still have price controls of one sort or another. In the matter of price controls, we are not thwarted by the European Union. We cannot blame either the EU or Brexit for the Government’s failure to address this injustice. The problem lands on the doorsteps of No. 10 and the Department for Business, Energy and Industrial Strategy. The Government have the power and the means to end the unfairness in our energy market, or at least to offer a temporary respite, as they have done for prepayment customers, until more substantial reforms can be enacted.

In November the Secretary of State said:

“Customers who are loyal to their energy supplier should be treated well, not taken for a ride. It’s high time the big companies recognised this. I have made clear that this cannot go on and they must treat customers properly or be made to do so.”

I say to the Minister: now is the time. This problem is not going away, and I urge the Government to listen to the voices of Members of all parties who believe that the current energy market does not serve the British people well. Action is long overdue.

--- Later in debate ---

[Dr Alan Whitehead (Southampton, Test) (Lab)]

We have had an excellent and powerful debate, and I thank the hon. Member for Weston-super-Mare (John Penrose), my right hon. Friend the Member for Don Valley (Caroline Flint) and the hon. Member for North Ayrshire and Arran (Patricia Gibson) for securing it. I know there were a number of problems with the televising of the pitch for it, but as it turned out the pitch was successful, and the wisdom of the Backbench Business Committee has been borne out by the powerful contributions made today by my hon. Friends the Members for Hartlepool (Mr Wright), for Brent Central (Dawn Butler) and for Bristol East (Kerry McCarthy), the hon. Member for North Ayrshire and Arran (Patricia Gibson), and my hon. Friend the Member for Bradford South (Judith Cummins).

I intend to comment specifically on what Members have said today, but I think we can agree that they all emphasised that the present energy market is broken and no longer doing its best for customers, who, after all, are at the heart of energy generation and supply. We have found ourselves in rather an odd position, in that we have not been discussing—as we frequently do in the Chamber—the plight of a persecuted minority and what we might do about it; instead, we have been discussing the plight of a persecuted majority and what we might do about it. If that does not emphasise the point that Members have been making about the brokenness of the market, I do not know what does.

We have seen eye-watering price increases lately. A number of companies have raised the price of dual fuel by 10%, and there have been double-figure increases in electricity bills from others. The companies justify their increases on the basis of a combination of wholesale prices and the Government’s environmental measures, and even—as we have heard recently—the impact of smart meters. The problem is that we have no easy way of assessing the extent to which those claims are justified. However, as was emphasised by my right hon. Friend the Member for Don Valley, we need to lay one canard to rest, and that is the suggestion that price rises are a result of low-carbon levies. They are not. As we heard from my hon. Friend the Member for Hartlepool, the recent report from the Committee on Climate Change indicated that, overall, only 9% of bills result from Government energy measures. Indeed, not only are those energy measures not a huge part of the overall bill, but they will contribute to decreasing bills in the future by decreasing demand, by increasing energy efficiency, and, in terms of renewable energy, by changing the merit order of energy supply so that eventually the wholesale price of energy can be driven down over a period.

[Mr Iain Wright]

What does my hon. Friend think about the fact that E.ON UK last week justified its dual fuel price increase by saying:

“It is due mainly”—

we should think about that word—

“to the rise in non-energy parts of the bill such as social and environmental schemes which support renewable energy and help customers use less energy”?

Yet today it has announced big rises in profits, primarily owing to lower costs in conjunction with Government-mandated energy efficiency measures. They want to have their cake and eat it.

[Dr Whitehead]

My hon. Friend makes a powerful point; they do want to have their cake and eat it. The problem is that we are not sure where the cake is and how we can work out which bits of the cake come from which source, because the whole energy market as it stands is non-transparent. Transparency is central to being able to judge whether such price rises are justified. The transactions that the energy companies undertake in order to trade, to hedge their trading, and to bring the costs of wholesale into the retail market are almost wholly opaque, and they continue to be so.

In addition, as we have heard this afternoon, the persecuted majority get hit all ways; they are hit by the price rises and hit by paying for the most expensive tariffs in the company roster—and in some cases, up to 90% of the customers of those companies are paying for the most expensive tariffs. So not only should we not speak about standard variable tariff customers as if they are an endangered minority, because they are in fact an endangered majority, but we must stop suggesting that it is somehow their fault that they have not switched and as if they are responsible for not switching. If we look at the history that my right hon. Friend the Member for Don Valley pointed out, we see a correlation between the areas from which modern energy companies originated and their sticky customer base. In fact, in a number of instances, a large proportion of those sticky customers were inherited when the companies were privatised and have stayed with them ever since. One might think that that shows admirable loyalty to those companies, and that to treat those customers in the way we have heard about this afternoon is absolutely the wrong thing to do.

Such behaviour produces a huge base of customers that is advantageous to energy companies, not to put too fine a point on it. As the hon. Member for Weston-super-Mare said, those customers will pay more for less year after year, they will not desert the company as a result, and they can be relied on to be milked to the benefit of the company’s finances. That points to the problem with the solution to this issue that the Government and the Competition and Markets Authority have been pursuing, which is sort of to blame those sticky customers for the plight they find themselves in and say, “Well, if only you’d switched, everything would be okay.” Indeed, that idea is at the heart of the recent CMA report on the energy market: “Why don’t all these sticky customers switch? If they don’t, how can we poke and prod them until they do? If we keep prodding and poking them and they still do not switch, we can get other companies in to poke and prod them a bit more and then they might switch.” That is not a satisfactory final remedy, given the scale, the nature and the brokenness of the market.

However, we should not therefore be surprised to read in the principles attached to the provisional remedies that the CMA put forward—the principles on which it operated the recent inquiry—the following statement:

“It is through customers shopping around and making choices between the offerings of rival suppliers that the benefits of competition emerge.”

That is what it thought it was doing through the inquiry.

The CMA has come up with the idea of putting a cap on tariffs for customers on prepaid meters, and I pay tribute to my hon. Friend the Member for Brent Central, who has been instrumental in securing that through her campaigning on the status of those on prepaid meters and the excess sums they were paying. However, although that cap idea is welcome, it does not do very much for the overall issue. We know that those sticky customers are not going to switch in a hurry and that the energy companies know that; we know that there is no evidence that companies are trembling at the thought of their customers switching and are trimming their rises accordingly. As we have heard this afternoon, the evidence from reports is that switching is a substantial occupation for some, but not for most. Switching figures in total often conceal a churn of switching between companies, often ending back in the same place, and multiple switching by a proactive few, but none by most.

So we have almost a perfect storm in our markets. Prices are spiralling. Ofgem said about recent price rises that it did not

“see any case for significant price increases where suppliers have bought energy well in advance.”

Customers were stuck in the middle of that spiral, however, and in most instances were paying out on disadvantageous tariffs, to boot. So, in the customers’ interest, we need to get a grip on that problem urgently.

We have heard this afternoon that getting that grip has been promised on a number of occasions. We heard that the Prime Minister suggested that everyone should be put on the lowest tariff. That has disappeared. We heard more recently Ministers saying that companies are in the last-chance saloon and something has to happen, but very little has actually taken place. That is despite the fact that, as Members have mentioned, it is plain that customers have been overcharged for a long period by energy companies, with the CMA itself estimating a sum of almost £2 billion by 2015.

So a regulated price cap within which competition could take place is a good idea. I recognise, however, that a price cap has to be considered within the context of the fact that there will be real pressures on costs. It is true that, on occasions, wholesale markets go up, and the energy companies will have to absorb that through price increases. So a cap that allows that arrangement to take place, but within which work can be done to ensure that competition remains, is a good starting idea, as is the idea that sticky customers should, after a certain period, be taken into protected tariffs, as my right hon. Friend the Member for Don Valley suggested, or on to the lowest tariff that a company offers. That is one way of starting to take action in relation to sticky customers.

I believe that there is rather more to the present dysfunction of the energy market than just the question of sticky customers, however. Ofgem said recently that there was not a case for significant price rises when suppliers had bought energy well in advance. Perhaps we need to deconstruct that sentence. It is not clear whether Ofgem was referring to companies buying wisely in advance or a long time in advance. Either way, the injunction is sound. Long-term buying strategies and smart hedging mean that price rises should not be spiking in the way that they all too often do, but we do not know what companies are actually up to when they are buying.

We do not know what is happening as far as energy company trades are concerned. For example, 95% of trades by wholesale energy companies are over the counter and we cannot see what they consist of. We do not know the extent to which energy companies that are vertically integrated effectively trade with themselves, or the extent to which this reflects fair trade in the market in forward trading. Surely we need to open up the market to full transparency, not just day-ahead but right along the curve, so that we know what is going on and we can act to prevent the abuses of trading positions that take place to the advantage of companies’ resources but to the disadvantage of customers.

Oral Answers to Questions

Iain Wright Excerpts

Tuesday 14th March 2017 Commons Chamber

[Greg Clark]

As my hon. Friend knows, in the growth deals that are part of the midlands engine there is support, through local enterprise partnerships, for small businesses—both start-ups and growing businesses.

[Mr Iain Wright (Hartlepool) (Lab)]

Following npower’s 15% price hike last month, the Government pledged that

“where markets are not working we are prepared to act.”

E.ON raised its prices by 14% last week and SSE by 8% yesterday. How many more companies need to raise their prices before the Government actually act to stop energy customers getting fleeced?

[Greg Clark]

The hon. Gentleman is absolutely right that that behaviour is unacceptable. It has been reported by Ofgem that there is no reason to increase prices. We have committed to a Green Paper on consumer markets, which will be published very shortly. The time is up for these companies.

Opel/Vauxhall: Sale to PSA Group

Iain Wright Excerpts

Monday 6th March 2017 Commons Chamber

[Greg Clark]

My hon. Friend is absolutely right. We have had many discussions about opportunities for expanding the manufacture and provision of ultra-low emission vehicles. This country has a very good reputation as a hotbed of research in that area, and PSA wants to expand its exposure to that and is doing so. I am determined that we should seize the opportunity that that gives us for our sector to go from strength to strength.

[Mr Iain Wright (Hartlepool) (Lab)]

The plants at Luton and Ellesmere Port are productive and efficient. They have a highly skilled workforce that any company would be proud to employ—this is not a basket-case industry—but in the face of strong foreign Government support, we need an active and interventionist Government who are determined to safeguard these competitive skills and manufacturing assets for Britain. If the new enterprise plans to become profitable through the development of products and the supply chain, and by moving the production of Opel cars on to PSA assembly lines, what specific things will the Government pledge to do both to win the new model Astra for Britain and to develop this country’s automotive supply chain?

[Greg Clark]

The Chairman of the Business, Energy and Industrial Strategy Committee is absolutely right. I do not think that anyone in PSA and GM, or in the French and German Governments, would think that we have been anything other than completely active in promoting the strengths of the UK. He is absolutely right: the presence of those factories in this country is not a matter of altruism; they are efficient and they make a great contribution to the performance of the company. We will build on that through the industrial strategy. I have mentioned research and development on electric vehicles, and the training and development of the workforce is a very important asset. We have a good workforce there, which we need to keep equipped for the future. He will see in the industrial strategy, as it develops, a renewed commitment to research and training in the auto sector.

The Government’s Productivity Plan

Iain Wright Excerpts

Tuesday 28th February 2017 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

I welcome the opportunity for the House to debate the supplementary estimates affecting the Department for Business, Energy and Industrial Strategy. It is a real honour and pleasure to chair the Select Committee and I am particularly fortunate to lead a Committee with excellent hon. Members—I see some of them in the Chamber: the hon. Members for Cannock Chase (Amanda Milling), for Derby North (Amanda Solloway), for Edinburgh West (Michelle Thomson), for Bedford (Richard Fuller) and for Warwick and Leamington (Chris White). We try to work hard together to put in place policies that ensure workers in this country have higher skills and wages and greater protection, in firms that are productive, competitive, profitable and have barriers to scale up removed.

The title of today’s debate references the Government’s productivity plan, and I shall come on to that in a moment. However, given that this debate is about the estimates, I want to mention a couple of points regarding them. On a broader point, in my time in the House, it has always struck me as odd, even concerning, that billions of pounds of taxpayers’ money are voted through on the nod without any real debate, scrutiny or challenge. This debate will be about the Government’s productivity plan, and most of the contributions, including my own, will be on that document, which already seems to be becoming rapidly obsolete. At the end of it we will be asked to approve billions of pounds. The manner in which estimates are presented is opaque and often downright unhelpful. It is difficult to follow the money.

Of course, Departments produce annual reports, which are more helpful. They are scrutinised by Select Committees such as our own, and the National Audit Office conducts its own work, but the basic point of this place is to scrutinise and to challenge the Executive and then legitimately to permit the Government’s wish to tax the general public. I am far from convinced that the current system allows that to happen in an effective manner. Therefore, I look forward to the Procedure Committee coming up with some more radical improvements in this area.

The supplementary estimates reflect the machinery of government changes, with two Departments, the Department for Business, Innovation and Skills and the Department of Energy and Climate Change, coming together and losing responsibilities for further and higher education and for exports. BIS and DECC had resource savings targets of 16% and 17% respectively by 2020. The BIS Department had the “BIS 2020” publication, which contained a number of proposals to make budget cuts in this period, including, for a Department tasked with regional growth and pushing the northern powerhouse, the closure of the Sheffield office. A large part of the savings for the BIS Department was to be achieved through changing the way further education and higher education were to be funded. However, given the machinery of government changes, that option is no longer available to BEIS. Therefore—this relates to the point I made on the opaqueness of the estimates—it is impossible to tell, based on the information in front of us, what the planned savings of the new Department are and whether the “BIS 2020” programme is continuing.

When the Secretary of State came before the Select Committee before Christmas, I asked him whether similar savings of 16% to 17% would be required. He confirmed that. He said that the “BIS 2020” programme was no longer available, because it was a new Department, but he did not offer any alternative. When I asked what things the Department would stop doing in order to make the necessary cuts to the resource budget, the Secretary of State said:

“We are going to set out the proposals to the Department and I am sure the Committee will want to see that. I am very happy to send them to the Committee to look at. We want to take the opportunity of the two Departments coming together to, as it were, re-engineer the way that the Department is run to make sure that we take advantage of a big opportunity to tie things up here internally.”

That is very clear. However, no such proposals have been brought forward. I would be grateful if the Minister could outline what specific savings the new Department has to make and precisely how he intends to make those savings, including what activities will be stopped. That is in the context of the supplementary estimates before us, which state that the administration costs of the Department are rising from £425.6 million this year to £528.5 million next year. There is no explanation for that in the memorandum. Could the Minister provide one?

On the Government’s productivity plan, the factors regarding the UK’s productivity performance are well rehearsed but worth reiterating. At a national level, productivity has stalled. GDP per hour stands at 17% below its 35-year long-term trend and has only just exceeded the peak it had reached prior to the global financial crash. We as a nation are falling further behind our major competitors. Output per hour in the G7 excluding the UK was 18% above that of the UK, the widest gap in productivity since records began in 1991. That statistic shows the marked differences in performance between ourselves and our competitors. When it comes to productivity, we are above Japan by about 16 percentage points. Italy, however, is 10 % more productive than we are. The US and France are 30% more productive than we are, and Germany is 36% more productive than the UK. Of course, productivity in all developed countries was badly jolted as a result of the 2008 global crash, but the gap between our long-term productivity trend and that of our competitors in the G7 is about twice as big. Productivity and pay are intimately linked. Productivity gains are the way in which real wage growth—and, hence, living standards—can rise.

[John Redwood (Wokingham) (Con)]

Does the hon. Gentleman accept that some countries with very high levels of unemployment can have a higher productivity figure, whereas we put the people to work in lower value activities, which is surely better than them being out of work, because the best way to get a job is to start off in a job that is not so good?

[Mr Wright]

I will respond to the right hon. Gentleman in a moment when I talk about the structure of our employment market and how I do not think it deals with living standards, helps our constituents, or improves the long-term competitiveness of our nation.

It is little wonder, given the intimate link between productivity and pay, that Paul Krugman said:

“Productivity isn’t everything, but in the long run it is almost everything.”

Reflecting this, wage growth has been anaemic. In the period between 2007 and 2015, British workers suffered a bigger fall in wages than those in any other advanced country with the exception of Greece. Average pay fell in real terms by more than 10%. In the same period, real wages grew in France by 11% and in Germany by 14%. Median pay for workers in this country is still around 5% below its pre-crisis peak. There has been a lost decade of wage growth for our constituents, the British workers.

However, the headline nationwide figures for productivity, worrying though they are, mask the stark differences in regional productivity. Gross value added per hour in London is 32% above the UK average. The only other region with productivity above the UK average is the south-east of England, which is 9% above the average. The regions of the north and the midlands—including my own region of the north-east, and those of my fellow Select Committee members, the hon. Members for Cannock Chase, for Derby North and for Warwick and Leamington—have productivity levels between 10% and 15% below the UK average. In the nations of the United Kingdom, productivity in Scotland, which includes the constituency of the hon. Member for Edinburgh West, is 2% below the national average, while in Wales it is 19% below the average. Were it not for the performance of London and the south-east, the gap between ourselves and our major economic rivals, with whom we are competing for orders, trade and market share, would be even more dire.

[Michelle Thomson (Edinburgh West) (Ind)]

In this place, we habitually compare our productivity with that of the G7, but I recall a debate on this matter around this time last year for which I did some research into medium-sized countries such as Norway, where productivity levels are significantly higher than in any of the G7 countries. Is the hon. Gentleman going to explore how the scale of those medium-sized countries could be a factor affecting productivity?

[Mr Wright]

I am going to talk about scale in relation to the size of firms, as opposed to the size of nations, but the hon. Lady makes an important point.

This is not a dry and dusty economic treatise. I am talking about real, unsatisfactory productivity growth across the UK that is affecting the living standards of the constituents of hon. Members on the Committee and of Members across the whole House. That is why the Committee wanted to examine the Government’s productivity plan. This is not about dragging London and the south-east back; it is about moving the regions and nations closer to the economic performance of the capital.

The distinctive structure of our economy could also be acting as a drag on our economic performance. About four-fifths of our economy is made up of services, which is higher than in any other G7 country. It is clear that the service sector has driven the economic recovery since the downturn in 2008, but in the main the sector tends to have lower productivity than manufacturing. Moreover, in the past 30 years, we have seen a shift in the nature of jobs in this country. For every 10 middle-skilled jobs that disappeared in the UK in the 1990s and the first decade of the 21st century, about 4.5 of the replacement jobs were high-skilled and 5.5 were low-skilled. In Ireland, the ratio was 8:2 in favour of high-skilled jobs; in France and Germany, it was about 7:3. The nature of our economy and our skills set means that our major economic rivals are moving away from us and going higher up the value chain than we are. That is clearly having an adverse impact on productivity and living standards.

In addition, Britain is a nation, if not of shopkeepers, then certainly of small businesses. That is a great thing. In the 21st century, the number of businesses in the UK has increased by an average of 3% per year, to reach 5.5 million, which is 2 million more businesses than in 2000. However, the proportion of firms that employ people has fallen in the same period from about a third of companies in 2000 to around a quarter today. Micro-businesses—those enterprises employing fewer than 10 people—account for 96% of all businesses in the UK. The domination of small businesses in our economy has implications for productivity levels. They are unable to take advantage of economies of scale, they are more likely to face difficulties in accessing finance for new product, for process development or for scale-up activity, and they may find it difficult to find the time not merely to fulfil existing orders but to identify opportunities and secure bigger contracts for domestic and export markets. Those companies cannot afford armies of procurement and export teams.

[Sir Greg Knight (East Yorkshire) (Con)]

Does the hon. Gentleman agree that in certain sectors of industry, such as tourism, the jobs that are needed are low-skilled jobs such as running a caravan park?

[Mr Wright]

The right hon. Gentleman makes an important point. I want to see a pound generated being a pound generated throughout the economy, but I would like the structure and model of our economy to move higher up the value chain than running a caravan park, as he suggests.

Another big factor determining productivity levels is investment in research and development. R and D spend by UK businesses hit almost £21 billion in 2015, with an average growth rate of 4.2% since 1991. On the face of it, that is impressive, although the publication “The UK R&D Landscape” has stated that

“the business enterprise component of R&D expenditure in the UK is low by international standards, even after adjusting for structural difference between countries. It is also concentrated in the hands of a few very large firms and the small number of industrial sectors in which they are based.”

Indeed, seven sectors of our economy account for over two thirds of all R and D spend. The pharmaceutical industry accounts for a fifth of all R and D in this country. The automotive sector now accounts for 13%, reflecting its growth spurt in recent years, which is testimony to the great work that the car manufacturing businesses are doing. Aerospace accounts for 8% of the total.

Investment in R and D is concentrated in the hands of foreign-owned businesses. A quarter of a century ago, 73% of business R and D spend was undertaken by British-owned firms and 27% by foreign-owned companies. Since 2011, however, more than half the investment spend has been undertaken by foreign-owned firms. This has reflected the changing ownership of UK plc, with foreign direct investment often taking over larger British firms. This has certainly resulted in a boost to productivity, but it also leaves us vulnerable. In the event of a downturn in those investors’ home countries, there is no patriotic “stickiness”, and that R and D investment could fall and jobs and production facilities here in the UK could be cut to safeguard activity overseas in their home market.

[Jeremy Quin (Horsham) (Con)]

I take the hon. Gentleman’s point about the “stickiness” of that investment, but it is a tribute to this country’s universities and the skills to be found here that foreign investors choose to come to the UK and base R and D resources here.

[Mr Wright]

The hon. Gentleman is absolutely right. In terms of bang for our buck, the amount of great work that the universities sector carries out and the number of spin-out companies that higher education provides are a magnet, in contrast with the “stickiness”, for foreign direct investment. We have to make this country as attractive as possible to such investment. Just as I referred to London and the south-east pulling up our productivity, I dread to think what our productivity and investment levels might be if we did not have that foreign direct investment.

Despite the R and D spend of both Government and business, we have never spent the OECD average—far from it. In the past 35 years or so, we have spent 2% of GDP on R and D only once and that was in 1986. The long-term trend is around 1.6% or 1.7%, which is not good enough if we want living standards to be maintained or productivity to rise. Productivity weaknesses clearly need addressing, and the previous Government introduced the productivity plan. We welcomed the Government’s attention on this pressing matter, but the plan lacked focus and did not demonstrate how success would be judged. Rather than being a clear road map or strategy for how the UK would close the productivity gap, it disappointed by being a mere collection of existing policies, with nothing new, distinctive or game-changing. The plan had 15 areas covering all aspects of Government and business activity, incorporating skills, R and D, housing and transport. However, it had no meaningful metrics to evaluate its relative success or failure and no milestones to track progress.

Although the plan was a Treasury initiative, the old Department for Business, Innovation and Skills clearly had a role to play, but clear lines of communication and accountability were non-existent. BIS and Treasury Ministers told our Committee that the plan was monitored by civil servants, which seemed somewhat relaxed given that productivity was meant to be the Government’s most pressing economic challenge. They seemed to forget that they were members of a ministerial Sub-Committee. Productivity now seems so 2015.

[Peter Kyle (Hove) (Lab)]

My hon. Friend is giving a superb speech about the impact of productivity and the role of the Business, Energy and Industrial Strategy Committee, which he chairs and on which I proudly serve. Will he say a couple more words about the importance of the machinery of government in delivering a productivity plan? He just mentioned it, but it is shocking that Ministers came before our Committee and were totally unaware that their responsibility for the productivity plan was being scrutinised by a Cabinet Sub-Committee. The machinery of government and Departments, such as the Treasury, will play a crucial role in scrutinising the strategy and delivering for organisations on the frontline.

[Mr Wright]

One of the weaknesses of government—this is based not on the colour of Administrations but on the nature and culture of Whitehall—is that it is silo-based. The lack of co-ordination is clear. In the modern age, with pressing economic challenges, we need greater monitoring, scrutiny, supervision and co-ordination across the Government.

It would be interesting to hear about the current status of the productivity plan because, as I said, it seems so 2015. It was intensely fashionable, but only for around 12 months. The new buzz phrase is “industrial strategy.” The strategy contains 12 pillars, as opposed to the 15 areas of the productivity plan, so we are seeing some efficiency. I welcome the Government’s willingness to embrace the phrase as a potentially positive thing, but it exemplifies one of the problems that we face. Successive Governments have tended to announce something, to provide a new initiative or to undertake a review. Policy flits like a butterfly from one thing to the next, with little if any meaningful impact on the ground on firms’ productivity or our constituents’ living standards, which is to the detriment of long-term economic competitiveness.

[Callum McCaig (Aberdeen South) (SNP)]

The hon. Gentleman is making a well-informed speech. He says that there is no influence on businesses’ productivity, but it actually has a damaging impact in certain cases. Take investment in renewables, for example. The industry ramps up and is able to support it, but then the pipeline that it is relying on is whipped away through Government policy changes.

[Mr Wright]

The hon. Gentleman is spot on. Constantly changing energy policy can undermine long-term investor confidence and the ability to ensure that foreign direct and other investment is attracted to this country. Businesses require as much certainty and clarity as possible. Of course, things change—“Events, dear boy, events”—but it is important to have a clear road map and to minimise policy tinkering as far as possible.

[Robert Jenrick (Newark) (Con)]

Before the hon. Gentleman concludes, will he return to the point made by my right hon. Friend the Member for Wokingham (John Redwood)? Perhaps the largest piece in our productivity puzzle is the fact that we have essentially traded some of our productivity for high levels of employment. That is a good thing, so we must proceed cautiously before wishing away any job—even if they do tend to be lower paid and lower skilled.

[Mr Wright]

I thank the hon. Gentleman for reminding me about that intervention. Employment is crucial and having record levels of employment is a good thing. However, we want good, full-time employment on permanent contracts. We want people to be secure in their jobs and able to invest in their own lives and communities with some confidence. Over the past 20 or 30 years, we have moved towards insecurity and precarious forms of employment, such as bogus self-employment, zero-hours contracts or agency work. We have to think about our vision for the economy. Is it about everybody in work being paid pitiful wages or ensuring that we can pull the activities of Government and industry together to upskill people and move them up the value chain so that, ultimately, they have higher living standards?

[John Redwood]

I think the hon. Gentleman and I agree on this. My point is that it is easier to get to higher pay, more skills and smarter working if we start from a base of many more people being in work, which is the good news about Britain. None of us is happy with people in low-paid jobs without skills or machine power at their back.

[Mr Wright]

The right hon. Gentleman must accept that although the best position to be in to get a job over the past five or 10 years was to be in employment, people are stuck on low-paid, zero-hours contracts in precarious types of employment. They are not moving on. There is no social mobility or economic progress. We seem to be stuck at the bottom floor when it comes to getting people into employment and that is not the model that we should be using.

I hope that the industrial strategy learns the lessons of the productivity plan. The Select Committee will publish our report into the Government’s industrial strategy later this week, and we hope that it will address some of the matters that the productivity plan does not: a longer-term focus providing more policy certainty; greater collaboration and co-ordination across Government to mitigate the problem of a silo-based approach across Whitehall Departments, as mentioned by my hon. Friend the Member for Hove (Peter Kyle); and the lack of meaningful metrics, milestones and measurements of success. If it is to work and succeed, the industrial strategy cannot just be this year’s model; it needs to be a thoughtful and well-established cornerstone of an economic and business policy framework, and an economic and business mindset, to increase productivity, compete with the rest of the world, and improve living standards for all in this country.

--- Later in debate ---

[Jeremy Quin (Horsham) (Con)]

I am most grateful to you, Mr Deputy Speaker, for calling me. I was thinking long and hard about the wise words of the hon. Lady who preceded me.

This is a debate in which we are showing the way for the UK economy. Up until now, the debate has been of a very high quality, albeit with a relatively low number of Members present. It was opened by the hon. Member for Hartlepool (Mr Wright). It has been a pleasure to work under his joint chairmanship of the Select Committee investigation into BHS and Sir Philip Green. I believe there has been some news on that this afternoon.

[Mr Wright]

Take your glasses off.

[Jeremy Quin]

Indeed.

--- Later in debate ---

[The Minister for Universities, Science, Research and Innovation (Joseph Johnson)]

I thank the hon. Member for Hartlepool (Mr Wright) for opening this debate and the hon. Members who have taken part in this afternoon’s excellent proceedings. I welcome the Committee’s decision to focus on the challenge of boosting productivity in the UK; it is one of the Government’s key economic priorities over this Parliament, as we of course recognise that this is the route to raising living standards for people in the UK. Since the financial crisis, we have focused on stabilising the economy, tackling the deficit and creating jobs. As hon. Members have said, the UK has seen strong growth since then: the economy has grown by more than 14% since 2010—that is the second fastest growth rate among major advanced economies, after the United States; employment has reached a record high, with 2.8 million more people in work now than in the first quarter of 2010; and unemployment is at its lowest level for 11 years.

However, if we raised our productivity by just one percentage point every year, within a decade we would add £240 billion to the size of our economy—that is £9,000 for every household in Britain. That is why the Government have taken action to improve productivity in the UK economy. As hon. Members have noted, we published “Fixing the foundations: Creating a more prosperous nation”, a plan for productivity growth in the UK over a decade. It outlines how we can encourage further investment in science, education, skills and infrastructure, and how we can promote a dynamic economy through reforming planning laws, boosting competition and creating a northern powerhouse.

Today, I will seek to address some of the Committee’s concerns and report back to the House on some of the progress we have made in implementing the plan’s commitments. Before doing so, I would like to tackle the questions the hon. Gentleman put about the status of “BIS 2020” and the impact of the machinery of government changes he mentioned on the delivery of the plan. The principles behind the “BIS 2020” work are still important: creating a simpler, cheaper and better Department by 2020. Recent events reaffirm the importance of our becoming increasingly flexible and able to respond rapidly to the demands of new priorities. Given the machinery of government changes, we will be considering in the coming months how the reform plans of BEIS—of its two predecessor Departments—should be best aligned.

[Mr Iain Wright]

The Minister is giving a similar answer to the one given by the Secretary of State before Christmas, but the new Department has now been in operation for seven months and the Minister still cannot say what the savings will be and what activities will be stopped. Does he really think that is good enough, seven months into the new Department’s life?

[Joseph Johnson]

As I said, the alignment of the two Departments’ work programmes is complex, but the process is well under way. Further reports will be made available to the Select Committee in due course.

In its report, the Select Committee expressed concerns about the clarity of the productivity plan’s objectives and the extent to which it represented a new plan for productivity growth. The plan sets out clear objectives that directly target the high-level drivers of productivity performance. It also contains several innovative new policies, such as the commitments to set up a national roads fund and a network of prestigious institutes of technology.

The report also questioned the extent to which Ministers are engaged in the implementation of the plan’s policies. The ministerial team regularly discusses issues relating to the main policies in the productivity plan at several Cabinet Committees, including the Economy and Industrial Strategy Committee. Alongside the Cabinet Committees, the Government have set up a series of implementation taskforces, which are attended by relevant Ministers and senior officials. For example, the earn or learn taskforce is supporting the Government’s commitment to reach 3 million apprenticeships starts in England by 2020, which is one of the many ways the Government are addressing the skills challenges the country faces.

As recommended by the Select Committee, our response includes an update that details the progress made on and future implementation of each of the plan’s 172 commitments. It shows that more than a third of commitments have now been fully delivered, and that outstanding commitments remain on track. For example, we have published a new national infra- structure delivery plan, which details more than £100 billion of planned public investment in infrastructure to 2021; we finalised the funding policy for the apprenticeship levy ahead of its introduction in April 2017; and, through the Housing and Planning Act 2016, we legislated for key planning reforms, such as automatic permission in principle on brownfield sites.

Further mayoral devolution deals have been signed in Liverpool, Sheffield and the west midlands and we have increased the annual investment allowance to £200,000, which is its highest ever permanent level. We also announced at autumn statement a new national productivity investment fund, which will provide £23 billion of additional investment between 2017-18 and 2021-22. That will be targeted at four critical areas for improving productivity: housing, transport, digital communications, and R and D.

--- Later in debate ---

[Mr Iain Wright]

I reiterate what I said earlier about welcoming this debate on the Government’s productivity plan, and I thank all hon. Members who have contributed to it. It seems curiously appropriate that, as we were debating this, news came through that Sir Philip Green is providing up to £363 million to sort out the pensions debacle that he himself created. Many Members of the Committee worked very hard to achieve that result—the hon. Members for Horsham (Jeremy Quin), for Bedford (Richard Fuller), for Cannock Chase (Amanda Milling), for Derby North (Amanda Solloway) and for Edinburgh West (Michelle Thomson). They were forensic and professional, and they put aside party politics to all work as one in order to continue to put pressure on Sir Philip Green. They should be very proud of themselves today.

I find it appropriate that a great, great parliamentarian and a fantastic co-Chair, my right hon. Friend the Member for Birkenhead (Frank Field), is also in the Chamber. He especially provided leadership of the Joint Committee and put pressure on Sir Philip to do the right thing—to right the wrongs that he had put in place. I pay tribute to my right hon. Friend, who is also a great friend of mine.

We can see a theme in all this, which is that the economy does not work for everyone. There was a disconnect: at a time when BHS workers were facing redundancies or cuts to their pension entitlements, Sir Philip Green was getting ownership of a third yacht. There is something profoundly wrong, and structural weaknesses need to be addressed. I hope that that was the purpose behind the productivity plan and the Government’s new industrial strategy. However, this cannot last just for 12 or 18 months. It must be long standing to ensure that we get permanent change and address the problems of inadequate investment in infrastructure, skills deficiencies and appalling regional imbalances in productivity and high growth. That is the challenge. I hope we can have a long-term view to ensure that the industrial strategy becomes embedded. The productivity plan seems to be last year’s thing, frankly. I hope that the industrial strategy can persist and last for decades to come so that we can really have an economy that works for everyone.

Question deferred (Standing Order No. 54).

[Mike Kane (Wythenshawe and Sale East) (Lab)]

On a point of order, Madam Deputy Speaker. The Department for Education briefed the media earlier today that it was planning to bring forward a change to the Children and Social Work Bill to introduce statutory sex and relationships education for pupils from key stage 1 onwards. It was also my understanding that there would be a written ministerial statement outlining the update to that Bill. However, I now understand—once again, from briefings to the press, rather than any written or oral statement to this House—that there will not be an announcement today. The House is being held in contempt. This matter relates to a Bill that will return to the Floor of the House next Tuesday and that has wide support across all parties. Hon. Members need clarity from the Government. Madam Deputy Speaker, will you tell me or the House what notice, if any, you have received of whether the written statement will go ahead? If you have not, when will it be put before the House?

Vauxhall/Opel: Proposed Takeover

Iain Wright Excerpts

Monday 20th February 2017 Commons Chamber

[Greg Clark]

In the context of the Hinkley Point C decision, we said that we would come forward with measures to govern the critical national infrastructure regime. In addition, we have proposed some changes to our corporate governance regime, and we will be making suggestions as to how we can keep our merger regime up to date.

[Mr Iain Wright (Hartlepool) (Lab)]

In an earlier answer, the Secretary of State said that this will not become entangled in Brexit, but the concern will be that the issue of this important company’s future in Britain will become collateral damage in wider negotiations and deals on Brexit. In the face of elections in France and Germany this year, does he think that nations will have to engage in an ever-rising bidding game in order to maintain production facilities in their countries? If so, what will he do for British manufacturing?

[Greg Clark]

The hon. Gentleman should reflect a bit more positively on the success of Vauxhall in this country. The two plants we have been talking about are among the most efficient in Europe and, therefore, the world. So this is not about altruism; these are successful plants, which is a tribute to their workforce, and they are competitive. As I said a few moments ago, the other side of the equation is that the Vauxhall brand is a very successful one in this country. So we start from a position of strength and, as he would want, I will be vigorous in promoting those strengths and influencing the negotiations so that this excellent workforce can continue and go from strength to strength in the future.

Oral Answers to Questions

Iain Wright Excerpts

Tuesday 31st January 2017 Commons Chamber

[Greg Clark]

Happily, the private sector—British business —is an enthusiastic and increasing supporter of investment in science and research. Sometimes that is done jointly with important publicly funded institutions such as our universities, and that is one of our strengths as an economy.

[Mr Iain Wright (Hartlepool) (Lab)]

In November, the Secretary of State hauled energy companies into his Department to put pressure on them regarding claims that they were generating excess profits. This morning, at the Select Committee, Which? told us that energy companies are dismal when it comes to customer service and prices. Does he agree with that assessment, and will he outline to the House what progress has been made to get a better deal for energy customers since that meeting in November?

[Greg Clark]

Yes. The hon. Gentleman raises an important point. The Competition and Markets Authority report identified a huge detriment that consumers were facing. There has been some limited response from the energy companies. For example, they have deleted some of their more abusive tariffs, but there is further to go, and we will be making a response to the CMA report in the days ahead.

Statutory Pubs Code and Pubs Code Adjudicator

Iain Wright Excerpts

Thursday 26th January 2017 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

May I begin by saying how grateful I am to the Backbench Business Committee for allowing this important debate to take place? I thank the hon. Member for Leeds North West (Greg Mulholland), and the hon. Member for Tewkesbury (Mr Robertson), who has just spoken. I bow to their superior knowledge and awareness of the pubs code and how it should operate. I also pay tribute to the hon. Members for Warwick and Leamington (Chris White) and for Cannock Chase (Amanda Milling), who are in their places, and are fantastic and assiduous members of the Select Committee on Business, Enterprise and Industrial Strategy, which I am privileged to chair. All who have spoken so far have worked hard on pubs and the pub industry.

The industry has been characterised for many years by an imbalance in power between large pub companies and the tenants of pubs tied to those companies. The market has not worked in a fair and equitable way, and tenants have had unfair conditions imposed upon the manner in which a variety of things happen: how they sell beer and, particularly, the rent that they pay and the lease under which they operate.

The pubs code sets out how pubcos should deal with their tenants in a much fairer way. I am pleased that my hon. Friend the Member for West Bromwich West (Mr Bailey), my predecessor on the Select Committee, who worked hard on pushing the matter and ensuring that the Government’s feet were held to the fire, is in his place. I pay tribute to him, his Select Committee and my hon. Friend the Member for Chesterfield (Toby Perkins), who was on the Labour Front Bench at the time and did some great work on the subject. I am pleased to see him in his place. Those hon. Members have worked incredibly hard to try to rebalance the power relationship between pubcos and tenants.

A key part of addressing the imbalance is the Pubs Code Adjudicator. The adjudicator provides guidance on complying with the code and judges transactions to make things fairer. As we have heard, Mr Newby is the first adjudicator. In many respects, by being the first appointment, Mr Newby will shape the nature, style and tone of the job and the way in which matters will be dealt with by his successors. His judgments will set precedents, which could have ramifications for the pub trade and the pub property business for decades.

Dave Mountford of the Pubs Advisory Service and a landlord himself said to the Select Committee when we were taking evidence:

“The Pubs Code Adjudicator needs to be fair and impartial, and the decisions that he makes need to be based on our common law of justice and fairness such that they can then be applied to similar cases, so the precedent is set.”

I do not think that anybody would disagree with that. It is therefore essential that this first appointment of someone to a key role commands universal respect immediately and is not subject to any criticism or accusations of conflicts of interest, whether actual or perceived. Perception is important in such matters.

[Sir Oliver Letwin]

Does the hon. Gentleman agree that the imbalance of which he rightly speaks means that the adjudicator’s proper role is not solely to maintain an impartial view, but specifically to consider cases of abuse by the pubcos? They are asymmetrical cases of abuse: the tenants are not abusing the pub code, the pubcos are allegedly abusing it. The adjudicator’s role should therefore be to enforce on the pubcos obedience to the code. At the moment, we see examples of his looking as if he is just an arbitrator between the two parties.

--- Later in debate ---

[Mr Wright]

The right hon. Gentleman makes an incredibly important point. The adjudicator has to redress the balance in the power dynamics in the industry and there is evidence to suggest that that is not happening.

I want to be clear: Mr Newby’s professional credentials and expertise are not disputed. His knowledge of the industry, having worked in the pub property business for something like 35 years, is not in doubt and cannot be questioned. However, having looked at the matter in the Select Committee, we believe that there is a significant reason why Mr Newby will find—and is finding—it difficult to command the confidence of all parts of the industry, namely a strong perception of a conflict of interest, made worse by Mr Newby’s ongoing financial interest in his former firm.

[Chris White]

During the speeches of the hon. Member for Leeds North West (Greg Mulholland) and the Chair of the Select Committee, a number of criticisms have been made of the Pubs Code Adjudicator. Does the hon. Gentleman think that he should be called before the Select Committee again?

[Mr Wright]

The issue has attracted enormous interest, not just from our Select Committee but from predecessor Select Committees, which helped to change the law. As Chair of the Select Committee, I maintain that, given the hard-working and determined members of the Select Committee such as the hon. Gentleman and the hon. Member for Cannock Chase, the issue will not go away, but continue to command our attention. We want to put pressure on the Government to look again and reopen the appointments process so that this important appointment is seen as fair and impartial, and that is not happening.

I want to touch on an issue that came up in the Select Committee’s consideration. Simon Clarke is a tied tenant and a surveyor, and both he and Mr Mountford expressed surprise and concern that Mr Newby, as a chartered surveyor, even applied for the job. Both said that someone from outside the industry was needed. Mr Mountford told us that they had said to the Department that the post required

“a judge, a retired lawyer or somebody with legal experience. We definitely said it should not be a surveyor.”

Mr Clarke said that it definitely should not have been a chartered surveyor, because there would always be a conflict of interest as surveyors would, in all likelihood, have advised one of the parties.

That brings me to the central concern about Mr Newby’s appointment. Before becoming the Pubs Code Adjudicator, Mr Newby was a director of Fleurets, a firm of business property valuers and surveyors. As the hon. Member for Leeds North West mentioned, in giving evidence to the Select Committee Mr Newby said that about 20% to 23% of the firm’s fee income—a material amount—derived from advice provided to the large pubcos. That alone lends itself to accusations of potential and perceived conflicts of interest. However, Mr Newby also continues to have financial interests in the company. He gave evidence to the Committee in May and then clarified some of his self-confessed inaccuracies in a letter to me in November—at, he said, the instigation of the Minister. Mr Newby has both shares in Fleurets Holdings Ltd and debenture loan notes owed to him by the company.

The Committee asked Mr Newby if he would provide a clean and definable break with his old firm by divesting himself of those financial interests. He stated in his November letter to me that the company is unwilling to do so in order to avoid putting

“undue strain on capital resources”—

it is probably more accurate to call it the firm’s cash flow. That is very serious and really undermines the ability of the adjudicator to command the trust and respect of all sides of the industry. He has a significant financial interest in shares and loans from the company, which derives a significant part of its revenue from large pubcos, but he cannot alter that situation because that would put strain on cash flow. In other words, he retains an ongoing financial interest, and it is in Mr Newby’s interest for the firm to do well to secure the moneys owed to him. That could mean that his judgments would assist large pubcos that have commissioned Fleurets to advise on tenancy arrangements so as to maintain the firm’s cash-flow position and profitability, and thus allow payments to be made to Mr Newby.

When Mr Newby came before the Committee, he said:

“I have taken off my previous hat and thrown it away.”

But he has not: the ongoing financial interests mean that he is still clearly wearing that hat. There is a clear perception of conflict of interest. This is like a referee officiating at a football match between Chelsea, who are top of the premiership, and Newport County, who are bottom of league two—

[John Healey (Wentworth and Dearne) (Lab)]

Or Hartlepool.

[Mr Wright]

They are not bottom just yet. It would be like a match between Newport and Chelsea, with a huge imbalance in skills and experience—perhaps that is a subject for a different debate—only for fans to discover that the referee owned shares in Chelsea’s shirt sponsor. It is as close a relationship as that. Perceptions of conflict of interest would have started immediately on appointment, and as I said to Mr Newby at the Select Committee, he cannot possibly win. Any judgment he makes will now always be accused of being unfair and partial—like that referee, who would not be seen as independent. This is a serious failing in the ability of the pubs code to operate effectively.

A vivid contrast was brought home to me in the Select Committee when I asked tenants and landlords and then executives from large pubcos whether they had confidence in Mr Newby and his appointment. The large pubcos said that they did not have a problem. The tenants were clear that they did not believe that judgments would be fair and impartial. That contrast shows that the code cannot operate effectively. The pubs code has broken down before it has even begun, and the Minister needs to intervene to ensure the code starts to work.

I am disappointed that the Secretary of State rejected our calls to reopen the appointment process. I hope the Minister accepts that this case demonstrates a serious perceived conflict of interest, and that perception is stopping the code working effectively. To ensure the viability of the pub industry and to protect the interests of tenants, which have not been addressed for many years, will she look again at reopening the process and have an adjudicator that is, and is seen to be, completely impartial and independent?

Industrial Strategy Consultation

Iain Wright Excerpts

Monday 23rd January 2017 Commons Chamber

[Greg Clark]

From her experience in the Department for Transport, my hon. Friend knows how important it is to make connections between places—it is an important means of underpinning growth. She will be aware that, through the national infrastructure fund, funding will rise by 60% from this year to 2022, which is a huge investment, and an appropriate one to make sure that the quality of our infrastructure keeps pace with the investments that our competitors are making.

[Mr Iain Wright (Hartlepool) (Lab)]

I warmly welcome and support the Government’s endorsement of a long-term, interventionist industrial strategy. I hope the strategy will play an active role in ensuring that workers are upskilled and receive higher wages and that British firms can scale up and become more enterprising, more competitive and more productive.

What is different this time from previous iterations of industrial strategy, including industrial strategies for which he was a Cabinet Minister? What will be the short-term, medium-term and long-term metrics by which the success or failure of this industrial strategy will be evaluated?

[Greg Clark]

I am grateful to the hon. Gentleman for his welcome. He says that it is an interventionist strategy, and it is true that the Government should be engaged with the economy to make sure that we have the right conditions for success, but I also point out that openness for competition to have its full run in our economy is vital to our success. As Chairman of the Business, Energy and Industrial Strategy Committee, he will reflect that point. I look forward to the Select Committee’s inquiry on the strategy.

The hon. Gentleman asks how the strategy is different from its predecessors, and I would suggest two ways in particular. First, as he will have observed, many of the themes that I have discussed are not about investing in particular companies or subsidising particular businesses but are cross-cutting. The themes are horizontal in that they look at skills right across the economy, infrastructure —looking at the importance of place and the differences between places—science and research. These are cross-economy measures, which is a different approach from those taken in the past.

Secondly, a lot of efforts in previous industrial policy were correctly about innovation, but they concentrated just on new discoveries and new inventions. That is important—as I have made clear, we need to extend our excellence into the future—but there is a big opportunity to make differences for the companies that follow and in the regions that are not competing at the top level. If we can really increase productivity there, we can make a big difference to the whole economy. That has not been the focus of previous industrial strategies.

Green Investment Bank

Iain Wright Excerpts

Wednesday 11th January 2017 Commons Chamber

[Mr Hurd]

I am delighted to respond to that question from my right hon. Friend, who was, in many respects, the guardian angel of the coalition Government, and who was intricately involved in the deliberations that led to the establishment of the Green Investment Bank. He is absolutely right, and he has made a fundamental point. We should not necessarily judge the bank on the basis of what it is at the moment; this is about what it can become, about levels of future investment and about commitment to the green purpose of the organisation. I do not think that the Government could have been clearer about the priority that we attach to those considerations. This is about the future.

[Mr Iain Wright (Hartlepool) (Lab)]

May I give the Minister another opportunity to answer the question that I asked him in the Select Committee yesterday? How can he reconcile insisting on preserving the green purposes of the bank and preventing asset stripping from a new buyer with satisfying the classifications of the Office for National Statistics in respect of public sector control and balance-sheet requirements post disposal?

[Mr Hurd]

I have great respect for the Chairman of the Business, Energy and Industrial Strategy Committee, and we had a useful exchange about this issue yesterday, but he is again making assumptions about asset stripping. He is aware of the structure that we have established, having doubtless been involved in the parliamentary debate about it. There is a great deal of concern on both sides of the House about protecting the integrity of the green purpose of the GIB, which is why we have gone through the process—which I think is robust—of setting up what is effectively a green share, along with the mechanism for its governance. That system was, I think, agreed to by Parliament and was introduced formally with the protection of corporate law.

I return, however, to the human motive of those who want to buy this organisation, which is to enable it to grow and do more. It is the authenticity, sincerity and integrity of those proposals that we are now evaluating.