Domestic Gas and Electricity (Tariff Cap) Bill

James Heappey Excerpts

Wednesday 18th July 2018 Commons Chamber

[Claire Perry]

The hon. Gentleman refers to the regrettable series of price increases that we have seen from all the major, big six energy companies. Prices will of course go up because, as the hon. Gentleman will know, the wholesale price of gas in particular doubled—I believe; I will make sure the record is correct—in the last six months. The regulator can always define price rises as excessive, but the point of this very welcome cap is that those who are particularly vulnerable and who are on standard variable and default tariffs—often people who are elderly, perhaps less well-educated and furthest from the digital market, in which we all compete to switch—will be protected without having to switch. Indeed, the work that Ofgem is currently undertaking to ensure that the cap is set at a fair level will be vital to making sure that those protections come forward.

Amendment (a) will ensure that the legacy of the Bill, of which we should be extremely proud, is not undone by a return to business as usual by those suppliers that have thought up or carry out additional practices, such as tease and squeeze. I thank Members of this House, including Members from the Opposition Front-Bench team, for helping to create the amendment, which we believe is the most appropriate response to the concerns raised by members in this House and in the other place. I am delighted to see my hon. Friend the Member for Weston-super-Mare (John Penrose) nodding during my speech. Along with the right hon. Member for Don Valley (Caroline Flint) and others, he has been vital in driving this issue up to the top of the Government’s agenda and making sure that we get the Bill and this amendment right. I offer huge thanks to my hon. Friend and the others who have been involved.

[James Heappey (Wells) (Con)]

Will the Minister confirm that while the Bill has had to take this unexpected second lap of this place, Ofgem has been hard at work on its preparations for enacting what is likely to be in the Bill when it is passed? Will she join me in advising any energy companies that are considering legal action over the summer that it would be rather inappropriate for them to get in the way of legislation passed in this place quite legitimately?

[Claire Perry]

I thank my hon. Friend for that intervention, because it enables me to say four things. First, I am grateful to the noble Members of the other House, because legislation is always better when it is scrutinised carefully. I think amendment 1 is helpful, so I am not unhappy to have the chance to talk about it.

Secondly, the new chair of Ofgem, Martin Cave, who will shortly take up his post, is a brilliant campaigner in support of the idea that customers should benefit from this regulated energy market. Indeed, I think he proposed the original idea of a tariff price cap. His appointment and the Bill will both help to strengthen Ofgem’s powers. Members will know that he wrote to the Chairman of the Business, Energy and Industrial Strategy Committee—I think it was only last week—setting out Ofgem’s determination to use its powers as widely as possible.

Thirdly, I reassure my hon. Friend that I have come to the House from a meeting with Ofgem, at which we discussed its progress on the price cap. That is well under way, and Ofgem has an extremely good team working on it. Ofgem has already published various technical papers setting out the methodology behind the cap calculation, and it intends to publish in full the details of that in very short order. That will give everybody a chance to scrutinise the cap and make sure that there is nothing untoward.

Fourthly, I wrote to the chairmen of the big six—I think they are all men—last week setting out that the Government would take an extremely dim view of companies that sought to frustrate the introduction of the cap, for which we have all worked so hard, by some sort of legal challenge; and that instead they should work with Government in this exciting time in the energy markets and look to their own activities to see how they can drive down costs, and drive up efficiency and customer service.

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[James Heappey]

Will the Minister reassure the House that she does not see this price cap as “job done” in terms of reducing people’s bills, and that she and her team in BEIS will continue to drive forward innovation in the energy markets so that new tariffs can come forward, and continue to focus on energy efficiency measures so that we can drive down people’s bills in those ways as well?

[Claire Perry]

My hon. Friend uses his great experience in this area to point to this being two halves of an equation in making sure, first, that energy is going into a property at the lowest possible price, and secondly, that consumption is as low as can be.

With ECO now at over £600 million, we are targeting that entirely at fuel poverty. The consultation has closed and we have the responses to come out. There is the whole challenge of getting energy efficiency levels up so that, overall, households are more energy-efficient. I am looking at the hon. Member for Neath (Christina Rees) on the Opposition Front Bench. I very much enjoyed a visit to her constituency to see an energy-positive home. That is an incredible innovation funded by her local excellent councillors, looking at how to design homes that return energy to the grid and are cool and lovely to live in. That is the kind of technology and innovation that we want to see.

I hope that we can all agree on this amendment, send it up to be agreed in the other place, and get on and pass the Bill before this place rises, because the regulator has told us that it will need up to five months to calculate the mechanism. It is absolutely vital, as my hon. Friend the Member for Wells (James Heappey) said, that that mechanism is absolutely watertight so that energy companies do not seek to frustrate further the introduction of this measure. We want it in place by the end of this year so that people can start saving on their energy bills this winter.

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

Labour Members are delighted that the Bill to institute an absolute price cap on energy costs is about to pass into law, mechanisms notwithstanding, this afternoon. We are delighted because of the parentage of the Bill, which emanates from the Labour Benches. If hon. Members are worried about the authenticity of the parentage, I can produce a birth certificate: the motion that was debated in this Chamber on a Wednesday afternoon, at exactly this time, on 6 November 2013. It said:

“That this House calls on the Government to freeze electricity and gas prices for 20 months whilst legislation is introduced to ring-fence the generation businesses of the vertically integrated energy companies from their supply businesses, to require all electricity generators and suppliers to trade their power via an open exchange, to establish a tough new regulator with the power to force energy suppliers to pass on price cuts when wholesale costs fall, and to put all over-75-year-olds on the cheapest tariff.”

That motion was in the name of my right hon. Friend the Member for Don Valley (Caroline Flint). When it was debated that afternoon, it did not, I have to say, receive a terribly positive response from the Government of the day.

[James Heappey]

How times have changed.

[Dr Whitehead]

Indeed.

Five and a half years later, we are almost there. I hope that the procedures on the market issues that we have discussed during the Bill’s progress ensure that while there is a price cap those issues are addressed so that we can, as the mechanism in the Bill suggests, come out of the price cap with market conditions resolved in a much better way for customers. Indeed, just as was suggested in that motion, the Bill provides for a procedure to declare the market in place, at which time the cap is ended. That could be about 20 months or perhaps three years, but nevertheless there is a mechanism for that.

What happens at the end of cap conditions is important, and that is what the amendments that have come from the other place at the end of the Bill process deal with, rather than the principle of the absolute cap—the central principle of the Bill—which, I am delighted to say, was received in the other place as warmly as in this House. On termination of the cap, the Lords amendment would put in place a relative tariff differential that would limit the price range between the highest and lowest tariff a company can charge—the so-called “tease and squeeze” problem that the Minister mentioned. That would be not within the absolute cap but part of the return to market conditions that would nevertheless shape how the market subsequently works for the benefit of customers.

I am delighted that the Government have responded positively in the shape of their amendment in lieu, which I am pleased to say the Opposition not only were given sight of but had the opportunity to work on in detail, to ensure that between us we had a resolution to the outstanding issue from the other place. We can endorse the amendment and recommend that their lordships consider it a worthy response to the message we received.

The amendment is slightly different, using an Ofgem mechanism to bring about a solution to tariff ratios, but from the amendment’s drafting I am confident that Ofgem would receive the message in no uncertain terms of how it should use its powers, should the report it is required to write before termination of the cap comes about demonstrate a continuing problem in tariff differentials.

The Bill has always had more than a tinge of Labour parentage to it and now its offspring has further elements of Labour input, which I, for one, very much welcome. It is now a Bill that all sides can agree does the right thing on energy prices and how the market works. That signal of unity from all sections of the House sends an important message to all those affected by the legislation—that this is a serious piece of work, which will work, and that we are all determined to make it happen. If the Bill can pass back to the other place for its final procedures on that basis, that will strengthen considerably the efforts that we are embarking on to ensure that prices are maintained in the interests of customers over the next period through the freeze mechanism.

I thank the Minister very much for the constructive and open way in which she has conducted discussions on the Bill hitherto, and I at least note in distinguished messages the input of the hon. Member for Weston-super-Mare (John Penrose), and of course my right hon. Friend the Member for Don Valley, who I mentioned at the beginning of my comments, whose role in the Bill’s parentage should be not underestimated at all; indeed, it should be written up in dispatches.

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[Stephen Kerr]

I join others in paying tribute to the work done by my right hon. Friend the Minister in leading the Bill through the House. I also pay tribute to the Opposition spokesman, the hon. Member for Southampton, Test (Dr Whitehead), and to my hon. Friend the Member for Weston-super-Mare (John Penrose). There has also been mention of the right hon. Member for Don Valley (Caroline Flint). I agree with much—indeed everything—of what I have heard, including from the Scottish National party spokesman, which is always noteworthy, as I think he would agree.

I want to take this opportunity to comment on the nature of the marketplace because, as my hon. Friend the Member for Weston-super-Mare rightly mentioned, this is a marketplace where consumers are punished, or at least treated as suckers, by the companies they are loyal to, and that surely cannot be allowed. I am therefore proud to stand in support of this Bill, and to see it progress quickly from this place to the other place and, very quickly after that, into law. A lot of significant issues have been discussed as the Bill has made progress through pre-scrutiny, Committee and back to the Floor of the House.

I genuinely cannot understand the justification for the Lords amendment. I agree with the hon. Member for Kilmarnock and Loudoun (Alan Brown). The idea that we could legislate in a temporary Bill for an energy market in 2023 seems to me to be quite absurd. Sitting here today, we have no idea what the energy market will even look like in 2023-24. Perhaps the noble Lords have a crystal ball that allows them foresight that we do not enjoy in this House, but somehow I doubt that they do. With the rate of change in the market being what it is, we can comfortably expect that, when we get to the sunset year, 2023-24, the landscape will be much changed from what it is today.

While we have debated many issues on the Bill, I would disappoint the Minister if I did not mention smart meters, as a sideline. I know that the Bill is a temporary measure to fix the energy market, which is badly broken, but it also gives consumers control. It should also give them the right to see how their energy usage is affected by their choice of appliance and how they use their appliances. One way we will do that is through the roll-out of smart meters. I support that but continue to have what I hope are felt to be genuine concerns about the nature of the roll-out and how it is being conducted.

The SMETS1 meters are a poor substitute for the real thing. We have not heard recently how many SMETS2 meters are installed and connected to the Data Communications Company but, bearing in mind the £11 billion cost and that this is a vital part of our national infrastructure for the energy networks of the future, I feel that it is appropriate to mention in passing that we need a stronger handle on where the SMETS2 programme is, its cost and all the issues surrounding it.

[James Heappey]

I very much agree with my hon. Friend. Rushing into the deployment of SMETS2 meters before the technology has been properly proven and the Data Communications Company is fully up and running might lead to a collapse in consumer confidence in smart meters generally, which would have an adverse effect on the smart programme.

[Stephen Kerr]

I agree, and that is why it is important to discuss the real-time issues surrounding the SMETS2 meter and the future smart meter network, which is so important to the future of our energy market.

In conclusion, at the heart of this issue is the need for lower energy prices, and helping consumers to understand how much energy they are using and how they can save money by changing supplier. I look forward to the day when through an app, or rather, with one click, it will be possible for consumers to make smart choices painlessly. If we do this right—and I think we are—this tariff cap measure can fall away in 2023 without causing any problem, and more consumers will be engaged and able to make the right decisions for their households. We will also be able to see the energy companies properly competing and creating the competitive market that the Bill seeks to create.

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[James Heappey]

What a joy it is to be in this Chamber when consensus abounds, after a couple of days of tearing strips off one other. It is really rather nice to be in here, all agreeing. That has rather characterised the progress of the Bill throughout its time in this place and in the Bill Committee, on which I had the privilege to serve. I think it is right that we seek to remove the amendment that the Lords have sent back, but I am glad that a compromise has been agreed between the two Front-Bench teams and I think that the amendment in lieu that we have proposed is very sensible.

Since the Bill has been delayed by this extra lap in Parliament, I think it is worth while to rehearse the arguments once again. The price cap is only a part of the challenge, so I want to add a few other things to the exhortation from my hon. Friend the Member for Stirling (Stephen Kerr) about smart meters. The Government must push on with those very urgently, because the savings from them will be far greater than the savings that we will achieve for our constituents from this Bill.

First, on decentralised generation, putting storage in behind the meter and aggregated demand-side response, I know that the Minister is looking at what comes after feed-in tariffs when they start to run out next year. I hope that she can see merit in finding a mechanism to replace them that really unlocks the market for people who want to install generation in their homes or businesses, storage, demand response and the capacity that comes from electric vehicles.

Secondly, I hope that we can send a strong signal to industry and the regulator over the delivery of heat as a service. Heat as a service is a huge opportunity for energy efficiency to become the responsibility of the supplier, not out of obligation, but because it sees an opportunity to make bigger margins by providing energy more cheaply and efficiently. If we can make that happen, we will secure huge savings for consumers. Thirdly, as we replace the green deal, let us allow storage to be a part of this so that again people can find savings. Fourthly, on replacing the ECO, the consultation has been completed and responses have been had, and I know that plenty of tech companies have made representations for smart thermostats and other clean tech to be included within the ECO catalogue. Let us make that the case.

We have put in an awful lot of time, in this place, the other place and in Committee, to deliver a saving to our constituents of around £100. That is not to be sniffed at, but we can prove to an awful lot of people that an enduring price cap is not the answer by getting all sorts of other things right at the same time. Energy efficiency, storage, the flexibility of demand response and decentralised generation have the potential to slash bills to a fraction of what they currently are. Let us not let this price cap distract us from the real prize, which is huge savings for our constituents from clean tech.

[Rebecca Pow]

I welcome the Bill, as it places consumers at its heart. That is really what we are talking about. In particular, I welcome the amendment in lieu, which is a tweak but a valuable tweak that makes the Bill really work. I also reiterate what my hon. Friend the Member for Wells (James Heappey) said. How wonderful it is to have unity in the Chamber after these last few days. It is welcome and a lovely feeling.