Energy Prices

Debate between Ian Lavery and John Robertson

Wednesday 19th October 2011 Commons Chamber

[John Robertson]

The hon. Gentleman is talking about a completely different area. I will talk about windfall taxes later, but suffice it to say that that proposal would have stifled what we were trying to do at the time. The hon. Gentleman thought that that was a good idea, but that is because he was on his side of the House and I was on my side of the House.

Eradicating fuel poverty involves tackling all three of the root causes that I mentioned. I have some sympathy with the energy companies as regards prices rising as a result of the influence of the wholesale energy market. As a member of the Energy and Climate Change Committee, I am fully aware that wholesale prices have risen by 30% this year, but I am also aware that they are lower than a few years ago. According to Bloomberg, in autumn 2008 the wholesale price for our gas hit prices of 70p a therm, compared with 59p a therm today, showing that wholesale gas prices have dropped by 15% since then. Similarly, prices in the wholesale electricity market reached £120 per megawatt-hour in autumn 2008; today, they are £51.20 per megawatt-hour, which is less than half the price back then.

As a result, there is great suspicion by many, including Ofgem, that the big six have not been passing on wholesale market price reductions. Surprise, surprise! As far as I am concerned, these are anti-competitive acts, especially towards smaller energy companies. Chapter II of the Competition Act 1998 prohibits the abuse of dominant position in a market by one or more undertakings which may affect the trade within the UK. According to the competition law guidelines,

“Conduct may be abusive when, through the effects of conduct on the competitive process, it adversely affects consumers directly (for example, through the prices charged) or indirectly (for example, conduct which reduces the intensity of existing competition or of potential competition). A dominant undertaking is under special responsibility not to allow its conduct to impair undistorted competition.”

I have previously accused the big six of acting like a cartel on many occasions. That is supported by the nature of the recent price rises, whereby tacit collusion appears to be taking place as the big six followed one by one in raising prices at a similar rate, following a price leader. Overall, it is debatable whether that accusation would be upheld in a court of law, but it is a fair political point to make.

The Government have not pursued every angle on energy prices, especially as one of their current positions is to say that pensioners in Glasgow and the rest of Scotland should use less gas and electricity this winter. According to the findings of the Hills fuel poverty review, which is out today, 2,700 people will die in England and Wales as a result of this year’s energy price rises by the big six energy companies. Should these people really take the advice of the Prime Minister and his Secretary of State to use less energy? I am sure that the Minister will have a copy of the review, and I suggest that he study it. The fact that so many people will lose their lives as a result of energy price rises means that we have to consider this seriously. I do not make that as a political point but as a point about human beings.

[Ian Lavery]

It was said earlier that probably 36,000 people died last year as a result of cold-related illness. My hon. Friend said that 2,700 people will die because of the price increases. Is that in addition to the 36,000?

[John Robertson]

Yes. According to the Hills report, that will happen because of the increases. My right hon. Friend the Member for Wentworth and Dearne (John Healey) said that that means that in every constituency in the country, four people will die for that reason. That bears thinking about.

I would like VAT on utility bills to be zero-rated, but as far as I am aware there is an EU law against that. It is a matter for next week’s debate—perhaps it will be raised by Conservative Members—which I will probably ignore of course. I should like the Government to reverse the cut in the winter fuel payment. We heard earlier that they were going to maintain the level established by the previous Government. However, the previous Government had a record of consolidating the money at the end of the financial year, and we will never know whether they would have consolidated the £100 level because we did not win the election, unfortunately. As a result, elderly people in this country are now suffering.

Early-day motion 2279, which I signed last night, asks the Secretary of State, or Ofgem at the very least, openly to consider imposing a financial penalty on energy suppliers for anti-competitive behaviour in the energy market—or at least to remind energy companies of their social and competitive responsibilities and the consequences if they forget them. At times it feels as though Ofgem and the Government offer too many carrots and not enough sticks to the big six. Ofgem can impose a maximum financial penalty of 10% of an energy company’s turnover if it is seen to act anti-competitively. I suggest that it has been proven that that is happening. However, in its 11 years of existence, Ofgem has not once levied the maximum fine on an energy company.

If such a fine was imposed, the money could be collected by the Treasury and put in the Consolidated Fund, and the Prime Minister could tell his Chancellor to redistribute it to the hard-pressed customers in our constituencies this winter. How much would a 10% financial penalty raise? According to the Library, using the revenue figures for 2009-10, we could raise £9.5 billion from just three of the big six, with £2.4 billion coming from British Gas alone. Alternatively, a collective penalty levied on the total sales of gas and electricity to the domestic sector, which were £27 billion in 2010, would raise £2.7 billion. Clearly, money could be raised to help people this winter not through a windfall tax, but by using the enforcement powers that are already there. However, there needs to be the political will to do that, and to ensure that our irregular regulator is doing all it can.

Furthermore, I strongly suspect that behind these price rises we will find that the companies have grossly failed to stockpile energy reserves and to hedge adequately against future price rises. There may be a number of reasons for that, but I think that one is ineptitude. I also think that the answer lies in the fact that they have no incentive to do so.

I try to represent my constituents at all times. There is a group of people in my constituency who cannot access the internet in any way. Glasgow has the lowest uptake of internet access of any city in the country. We also know that very few elderly people are connected to the internet. Therefore, despite the calls from the Secretary of State and the Prime Minister for people to go and find something cheaper, those people are left with what they have got, particularly those who live in houses made of concrete blocks that cannot have cavity wall insulation or any other energy efficiency measures installed. There are 400 tariffs for them to choose between, if they can understand them. The Minister could not, and I am not surprised. Left to their own devices, those people will have either to continue as they are or to switch the heating off. Consequently, 2,700 people in England and Wales will be added to the statistics, including people in my constituency.