Energy Prices

Jesse Norman Excerpts

Thursday 16th March 2017 Commons Chamber

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Jesse Norman)]

This is the second debate in which I have had the pleasure of speaking this week, Mr Deputy Speaker, and, as the fellow said, truly you’re getting to be a habit with me, and I thoroughly welcome that.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Always a pleasure.

[Jesse Norman]

Let that be noted in the record. Thank you, Mr Deputy Speaker.

I congratulate my hon. Friend the Member for Weston-super-Mare (John Penrose) on fighting his way through the dragons of dragons’ den and, with his colleagues, securing the booty of this debate, which I greatly welcome. Whatever else its effect might be, it sends a powerful signal about the feelings of not only the Members who have spoken so well today but Members up and down the country on the issues that have been described. I will talk about those issues and the policy and will try to weave in my responses to the speeches during the course of my comments.

The Government are firmly focused on getting the best deal for energy consumers and on ensuring that the market works for everyone. We absolutely expect energy companies to treat all their customers fairly. We therefore continue to be concerned about price rises that will hit millions of people already paying more than they need to. It is not acceptable that five of the largest suppliers are increasing their standard variable prices, hitting customers hard in the pocket when they are already paying more than necessary. It must be noted that wholesale prices, which account for about half of an average bill, are still lower than in 2014. This is a moment not for crisis, but for sober reflection.

Prices are not the same as bills. The recent report from the House of Lords Economic Affairs Committee reminded us that electricity bills have risen little over the past 25 years, which is due to insulation, appliance improvement and other things. Prices are not the same as bills, but that is not to say that prices are not important and that price rises are not a matter for concern.

[Caroline Flint]

It is important that we have a candid, open and honest discussion. The Minister makes a good point about prices versus bills, because the amount of energy that we use has gone down significantly over the past 10 years. Is he as concerned as I am that the big six might be keeping their tariffs unwelcomely high because they are having to compensate for the fact that we are using less energy?

[Jesse Norman]

It is an interesting suggestion that the changes may have cushioned the effect of price rises in the way the right hon. Lady describes. I thank her for that thought, and I would certainly like to give it some reflection.

[John Penrose]

Further to the intervention of my co-sponsor, the right hon. Member for Don Valley (Caroline Flint), the point about prices versus bills is an important one. Does the Minister agree that if prices stay unfairly or unnecessarily high, one of the Government’s other main goals of improving overall productivity across the economy—energy bills are a vital and central part of the cost base for most businesses—will be much harder to achieve? We can do more with less if we are more efficient in our energy sector.

[Jesse Norman]

This is really a debate about retail energy prices. The problems are less marked in many areas of the business market, but it is undoubtedly true that business bills must be kept as low as possible to encourage productivity. As my hon. Friend knows, the Government have undertaken several steps precisely to achieve that.

Colleagues on both sides of the House have noted that, with suppliers buying their energy up to two years in advance, suppliers should be protected from recent fluctuations in the wholesale energy price. Some suppliers have chosen to act differently by freezing standard variable prices through winter and beyond, which alone shows that price rises are not inevitable. It is a fact that the majority of customers—around 66%—are on standard variable tariffs and continue to pay considerably more than customers on fixed-term deals.

The Competition and Markets Authority highlighted that such customers have been losing out by an estimated £1.4 billion a year—that figure is disputed—over the past few years. There have been persistently high differentials between the cheapest fixed deals and standard variable tariffs. The latest published Ofgem data show the differential to be some £200. There has been good focus today on fuel poverty, as there was the other night, and it is those who can least afford it who are most likely to lose out. Households with low incomes, people with low qualifications, those in the rented sector and those over 65 are more likely to lose out than others. The recent price rises serve only to underline the fact that the majority of consumers are paying more than they need to pay.

What can be done about it? The House widely recognises that, in many markets, effective competition drives down prices, promotes innovation and assists improvement in customer services. The Government have worked hard with Ofgem to try to improve competition. The right hon. Member for Don Valley (Caroline Flint) mentioned “Groundhog Day,” possibly inadvertently casting herself in the role of Andie MacDowell, which is certainly how I see her. It is not fair to say that we are in “Groundhog Day” because there has been some progress. Members rightly point to the fact that there are now more than 50 energy suppliers in the domestic market, up from 13 in 2010, and of course there are potential new entrants, including local authorities, waiting in the wings—we welcome them to the market. Independent suppliers now have more than 18% of the dual-fuel market, up from less than 1% seven years ago.

I was pleased to hear from the hon. Member for Bristol East (Kerry McCarthy), who mentioned Bristol Energy and the social conscience it brings to energy supply, which is typical of a tier of new and wider-ranging suppliers, including not-for-profit suppliers, that have entered the market—there are housing providers, too. Smaller suppliers are leading the way in using smart, pre-pay and other technologies to support customers in finding the best deal using their mobile phone.

We had a good discussion on switching, and it has been rightly noted that an increasing number of households are switching their energy supplier. There were some 7.8 million energy account switches last year, an increase of 28% on the previous year. Switching is putting increasing competitive pressure on the big six—although, as my hon. Friend the Member for Weston-super-Mare noted, there is a great deal of churn—but it is still only 15.8% of gas and electricity customers, so we are a long way from a position where anyone should feel that a large number of people are actively availing themselves of the opportunity to switch, as one might expect in a more competitive market.

For too long, too many customers have been left on poor-value deals. At the end of last year, the Government announced new measures to increase transparency for consumers. I welcome the point the hon. Member for Southampton, Test (Dr Whitehead) made about transparency, and he is right: several studies have found that the markets are less transparent here in many different ways than one might like. An effort was made to begin to crack that and increase transparency for consumers, including through the publication of an energy supplier league table by Ofgem, which was designed to shine a light on the most expensive standard variable tariffs.

We know that some consumers worry that switching supplier may be difficult and time-consuming. This is not just an economic matter; it is also a cultural matter. We must recognise that and not allow purely economic analysis to take over. We are also taking forward proposals to mandate Midata in the energy sector, which should also have an effect. Midata will allow consumers to get hold of their energy data electronically and use them to find the best deal. It will make the switching process quicker, easier and more accurate, and, with luck, it will allow people to switch using tablets and smartphone applications more easily. We are very keen that the benefits of this are not restricted, in any sense, to the tech savvy, but are available to anyone who owns a mobile phone at the very least. We will therefore work with industry, switching companies and consumer groups to ensure that all consumers can access and use their data to switch.

The hon. Member for North Ayrshire and Arran (Patricia Gibson) rightly mentioned the time it takes to switch supplier. All I would say is that it used to take five weeks and the Government are working with Ofgem to get it down now to 21 days. Once we have done that, we will work to push it down to where it should be, which is at 24 hours. That will be a major improvement to our system.

There was some discussion about customer service, where some improvement has been made. The latest Ofgem data show that suppliers received more than 3 million fewer customer complaints in 2016 than in 2014, but as there were still 3.5 million complaints that is not saying much and they still have a long way to go. We are working with Ofgem and the ombudsman to identify and fix systemic issues, which damage customer service. As the House will know, an Ofgem review last year resulted in increased communication between Ofgem, the ombudsman and Citizens Advice, an organisation I greatly esteem, as I know many colleagues do. It is working on developing a rating system that will help customers to see at a glance how their energy suppliers are performing.

As Members noted, the CMA had some positive things to report after concluding its two-year energy market investigation. It found that wholesale energy markets and the retail market for larger businesses are working well, but for domestic energy suppliers the report is a wake-up call. It is important to note that the CMA’s report was not unequivocal in every sense, and it has been contested; I note a letter from some senior energy regulators who raised the question of whether it is true to see detriment in the way the CMA has. It is important to acknowledge that fact. However, the CMA’s position was clear: consumers should be able to trust energy companies and to know that they are getting a good deal. The CMA found that a lack of competition meant that about 70% of big six customers remained on their supplier’s most expensive tariff despite the savings they could make by moving to another tariff. We have encouraged, and Ofgem is introducing, a prepayment meter cap, which will protect 4 million households across Britain from the beginning of next month.

We are determined to go further and, as the House will know, we have a consumer Green Paper in prospect, which will examine specific sectors. We will respond sooner rather than later, and separately, to the CMA energy market report. Our Green Paper will examine markets that are not working fairly for consumers. In general, consumers in this country enjoy strong protections and an effective regime which help them get the best deal, but where those markets are not doing their job—where competition is not effective—the Government will look to intervene to improve competition and to strengthen outcomes.

The Green Paper will complement and sit within the Government’s industrial strategy to build on the work to deliver an economy that, as I have described, works for everyone. We announced some proposals in the Budget, including the ending of the cycle of subscription traps, the shortening and simplification of small print, and the introduction of new powers to impose fines on companies that mistreat customers. The Green Paper will provide more detail on those proposals.

Let me round up my speech with a couple of reflections on some of the helpful comments that were made in Members’ speeches. I was intrigued to notice that, according to the hon. Member for Brent Central (Dawn Butler), it is now Labour policy to renationalise the big six companies. I would welcome further clarification on that, together with an explanation of how much it would cost and how it would be funded. That was an interesting contribution.

I very much congratulate and thank my shadow, the hon. Member for Southampton, Test, for recognising the complexity of the problem we face. He is certainly right to focus on transparency. In recognition of that, I assure him and my hon. Friend the Member for Weston-super-Mare that the Government will reflect on such contributions. The Government’s record on intervening in electricity and energy markets is not absolutely unblemished. On several occasions, changes have been made, only for them to have to be unwound because it turned out that they were contrary to competitive pricing or innovation. That is worth recognising.

[Caroline Flint]

I listened positively to what the Minister said about the Government being prepared to intervene when a market is not working. I remind him that the Confederation of British Industry refers to the energy market as a managed market, because energy is an essential-to-life product; it really is set apart from the products that we discussed earlier, such as toothpaste, that we buy every day. I urge the Minister to stand up for what Governments should do, which is set the framework in which markets operate.

[Jesse Norman]

The right hon. Lady’s point is well taken. One does not need to have read far into “The Wealth of Nations” to know that markets are most effective not only when they are as deep as possible—when the benefits of specialisation and the division of labour, and therefore value generation, can be realised—but when they are supported by a strong state and a strong system of justice and enforcement. That is absolutely the tone of our approach to the market in this case.

I thank right hon. and hon. Members for a thoughtful and interesting debate that has covered a great deal of ground in a limited time. As the House will know, the Government are acting to make switching easier and quicker. We are rolling out smart meters and we are continuing to help the vulnerable and those in low-income households with their energy bills. The CMA did important work to highlight how much consumers are currently losing out, and we recognise that the recent price rises underline the fact that the majority of consumers are paying more, it appears, than they need to. We believe that current practice is not acceptable, and we will set out proposals to address the issues shortly.