Energy Prices

John Penrose Excerpts

Thursday 16th March 2017 Commons Chamber

[John Penrose (Weston-super-Mare) (Con)]

I beg to move,

That this House deplores the big six energy firms’ treatment of out-of-contract energy customers on default tariffs; believes immediate action is needed to protect those consumers, and that pushing customers to start switching will not fix the problem sufficiently quickly or completely on its own; and calls on the industry, regulators and the Government to consider solutions which recognise that many people lead busy lives and that switching their energy supplier may not always be a high priority.

I thank the Backbench Business Committee for finding the time for us to debate this important and topical motion today. I also thank my two co-sponsors, the right hon. Member for Don Valley (Caroline Flint) and the hon. Member for North Ayrshire and Arran (Patricia Gibson), and the 50 or so MPs from across the political spectrum who all feel that the treatment of most energy customers is sufficiently outrageous and unjust to merit raising it here, in the mother of all Parliaments.

Most industries believe that customer loyalty is hugely important; an asset to be prized. Most businesses reward their most loyal customers with special treatment to keep them coming back—whether it is a supermarket’s loyalty card, an airline’s air miles scheme or just the coffee card that gives you a free cuppa after it has been stamped 10 times. Energy is an exception. What other industry does not give its most loyal customers any discounts or special deals, but instead charges them higher prices than anyone else? Which companies believe that loyalty should be exploited, not rewarded? Which one of them treats their longest-serving customers as chumps, to be quietly and secretively switched on to expensive, unfair deals when they are not looking, and then milked—ripped off mercilessly for as long as possible? The answer is the big six energy firms. The rest of the energy industry is pretty good. There are 30 or more newish energy firms snapping at the heels of the big six, and they understand that customer loyalty matters if they want to grow.

[Mr David Nuttall (Bury North) (Con)]

As my hon. Friend will know, there has been a huge roll-out of smart meters, which is one way of people keeping an eye on their energy bills. Unfortunately, though, when people do switch providers, they find that their smart meter has to be replaced at the same time. Does he agree that that is one reason why perhaps some people are becoming unwilling to change providers?

[John Penrose]

There are many reasons why switching has not caught on to anything like the degree that we need it to if we are to transform the sector. I understand that one factor may very well be this problem with the introduction of smart meters, but there are others, too. My hon. Friend was quite right to point that issue out, and I will mention some others later on in my speech.

As I said, there are 30 or more newish energy firms snapping at the heels of the big six, and they understand that loyalty matters. Obviously, some are more impressive than others, but they all have one thing in common: they are hungry. They know they have to impress and delight their clients, because they cannot rely on exploiting a “back book” of long-term customers to stay fat and happy. The figures are stark. Roughly two thirds of all customers—at least 20 million households—are on the expensive, rip-off deals: the standard variable tariff. A minority of customers switch to a different energy supplier regularly, but most of us do not. The amount of switching has been creeping upwards, but much of the change has come from the same bargain hunters churning round and round in ever faster circles between different energy firms. The number of households that have rarely or never switched remains stubbornly high, which suits the big six just fine. So, what is the answer? How do we put energy customers in the driving seat? Do we give them the same power to choose a new supplier as easily as we switch to a different brand of toothpaste or coffee? How do we make them compete to delight us, rather than quietly exploiting us?

First, we have to make switching a lot easier. Choosing that different brand of toothpaste in a supermarket is easy: we just pick a different tube off the shelf. Too many people find switching to a different energy firm scary and stressful, and are frightened off as a result. Even the price comparison sites, which have an interest in making the process as simple and as easy as possible, say that huge numbers of customers abandon their search when they are asked a basic, essential question such as what is their current energy usage. Others think that switching is likely to go wrong, and that they might end up cold and shivering in a home without power if the move does not happen smoothly.

My hon. Friend the Member for Bury North (Mr Nuttall) has already mentioned the impact on some households of the new smart meters. Others simply have not got the time to switch. Many of us lead busy lives, juggling careers, childcare, school runs and goodness knows what else. Switching our energy supplier can easily become one of those things that we all know we should do, like washing the car or joining a gym, but we never quite get round to doing. The difference is that other products do not automatically switch us to a super-expensive brand of toothpaste or coffee unless we tell them not to. They do not expect us to be on our toes all the time to stop them changing the terms of our deal and ripping us off when we are not looking. For toothpaste, coffee and almost everything else, loyalty and inertia work in the customer’s favour; they are on our side. That does not apply to energy. If we relax, they will have us.

Fortunately, there are some simple things that make switching easier, less stressful, simpler and not so scary. The main one is making our customer data easily available to a new energy firm if we give them our permission. That way we do not have to fill in endless online pages with information that we cannot remember or that we have not got. At the moment, the information can take days to come through, and the big six throw all sorts of obstacles in the way. They have no interest in making it easy or simple.

In future, we should just be able to ask our new firm to get it from our existing supplier in a few seconds, with a click of a mouse or a tick of a box—simple, quick, easy and safe. The number of people switching will go through the roof if we do that.

[Mr George Howarth (Knowsley) (Lab)]

The hon. Gentleman is making a very good point, and I agree with it. Does he agree though that it is more problematic for people who live in tower blocks, where the energy supply is collectively controlled by the landlord who might not have any incentive to switch to another supplier?

[John Penrose]

The right hon. Gentleman is exactly right. One of the things that may be improved by the roll-out of smart meters, which we heard about earlier, is those collective bills, which would be broken down. Many energy suppliers and others in the industry are concerned that too many hopes may be being invested in smart meters and they may not necessarily produce a lasting uplift in customer engagement and interest—they will start off as an interesting new gadget in the corner of the room, but after a few weeks or months that interest may die away. We will have to wait and see, but he is right that there is an opportunity, at the very least.

In the spirit of trying to make switching simpler and less scary, firms such as Make It Cheaper, Flipper, OVO and Money Saving Expert provide end-to-end services that do the donkey work for us, handling everything from finding a better deal to organising the switch itself. They appeal to those of us who currently think that even the most convenient price comparison sites take too much of our valuable time.

[Mr Charles Walker (Broxbourne) (Con)]

Does my hon. Friend agree that part of the problem with the big six and other generators, such as Veolia, is that they are not straightforward and honest with their customers and stakeholders? Until they are straightforward and honest, there will be disquiet about their conduct.

[John Penrose]

That is one of the underlying concerns about the way that this industry operates. People are not necessarily asked at the moment they are switched to the default tariff, so when they notice that they have been—if they notice—they feel that they are being ripped off, because those default tariffs are so much higher. That leads to distrust of the suppliers, and that is one of the things corroding the underlying trust in the industry as a whole. It is incredibly dangerous. I think some forward-thinking people in the industry understand that and the brand damage that is being done, not just to individual firms but to the sector as a whole. Trust is slow to gain and easy to lose. My hon. Friend has a background in marketing and consumer business, so I am sure that he understands what I mean.

Rolling out the end-to-end services that I mentioned, which are still in their infancy, should persuade a new group of customers who currently do not switch at all to do so, extending the number of people in that stubborn two thirds of the customer base who do not switch, or do so very rarely.

These changes, taken together, are essential steps to solving the underlying fundamental problems that make the energy market such a rip-off. If the Government, the regulator—Ofgem—and perhaps even enlightened energy firms themselves are willing to take those steps, abuses and consumer detriment will start to fall and customers will finally be in the driving seat, as we already are and expect to be for everything else, from toothpaste and coffee to cornflakes and soap.

But how long will this take to fix? How quickly will the rip-off stop? Even then, will there still be stubborn pockets of problems left over here and there? Given that fully two thirds of all customers are on these rip-off tariffs and that proportion has been glacially slow to change, there is an awfully long way still to go. Even under the most optimistic scenarios, an unacceptably large number of households will still be being ripped off for too many years yet. So we need a stopgap—a temporary solution—while all those other changes to make switching easier and less scary start to take effect.

The answer is a relative price cap—a maximum mark-up between each energy firm’s best deal and its default tariff. If someone forgot to switch to a new deal when their existing one came to an end, they would not be ripped off too badly, but people would still be able to save plenty of money when they got round to switching again, so it would always still be worth their while to become engaged and take that additional action, should they be so minded.

Under these proposals, energy firms would still be able to compete on price—they could still decide whether they wanted to be the Aldi or Lidl of the industry, or the Waitrose or Marks and Spencer—and could still have as many tariffs as they wanted, so there would be plenty of customer choice. If someone wanted a green energy tariff, that would be fine. If someone did not like computers or wanted to do it the old-fashioned way with offline paper and an ink deal, that would be no problem.

I am delighted to confirm today that the idea of a relative cap is supported by three of the largest challenger brands—OVO, Utility Warehouse and Octopus Energy, which cover hundreds of thousands of customers between them—and I hope to persuade others to join the cause in due course.

Crucially, a relative cap is a lot better than a normal price cap. A relative cap would mean that each energy firm could still adjust its prices whenever the wholesale price of gas or electricity went up or down, but a normal cap would mean that Ofgem had to approve any changes, which inevitably would be slower and create work for lawyers and lobbyists. A relative cap would also mean that energy firms still had plenty of incentives to innovate and find new ways to please particular groups of customers however they wanted, without needing Ofgem’s approval first.

Lobbyists and lawyers will hate a relative cap, because there will be much less lobbying and lawyering to do. Putting customers in the driver’s seat would mean fewer fat fees and fat lunches. If customers could switch their supplier as easily as changing their brand of cornflakes or soap, we politicians, and the bureaucrats and regulators, would rightly matter a lot less in this area. Because of the extra clarity and simplicity, a relative cap would mean that we could deregulate, too, by striking out reams of regulations, red tape and guidelines that complicate the market and stop energy firms thinking about their customers first and foremost and make them focus on their regulators, lawyers and compliance directors instead. A relative cap would reduce red tape rather than add to it.

But the people who would hate a relative cap the most are the big six, because it would force them to treat us, their consumers, fairly, to reward loyalty rather than exploit it and to fight hard to keep long-standing customers rather than take us for granted. In other words, it would force the industry to be a normal industry with normal firms where the customer, not the regulator or politicians, is king.

I know that both Ministers and regulators understand this problem. They have spoken to me and many others in this House about it, and both the Secretary of State for Business, Energy and Industrial Strategy and the Prime Minister have been trenchant in criticising the sector for not delivering an economy that works for everyone, so I hope that they will accept the thrust of this motion.

The time for action has come. We simply cannot argue, as others have tried to, that even though fully two thirds of the country is being ripped off, we are not going to help or protect those victims because it is their own silly fault if they are not savvy enough to switch. Yes, we need to make switching easier and safer so that, eventually, most of us do it most of the time. That is clearly the right long-term answer. But I hope that Ministers accept that, until that glorious day, we cannot simply sit back and allow consumers to be harmed on this scale for this long and do nothing. We need to do more.

[Alex Salmond (Gordon) (SNP)]

On a point of order, Madam Deputy Speaker. This is further to a point of order I raised a couple of hours ago with Mr Speaker about a prime ministerial statement on the Scottish constitution that he pointed out was hypothetical at that time. He said that if such a statement were made, he would entertain a statement from the Dispatch Box by the Prime Minister. That statement has now been made by the Prime Minister, and it has been interpreted as an attempt to bounce the Scottish Parliament’s vote next Tuesday on a Scottish referendum. She seems to be dictating the timing of any such referendum. These points were put to her at Prime Minister’s Question Time yesterday, and she had a full and fair opportunity to give her answer and to be questioned.

Madam Deputy Speaker, you will understand that parliamentary accountability means that if somebody such as the Prime Minister makes a statement about a change of policy, Members of Parliament are prepared to ask questions about it—questions such as, “What happens if the Scottish Parliament is not bounced and votes for a referendum next week? Why does the Prime Minister believe that the timing is not right when this House is going to be asked in 18 months’ time to take or leave a deal with Europe?” Fundamentally, there is arrogance in saying to people in Scotland that they shall not have the right to an act of self-determination or saying to this Parliament that we do not have the right to examination.

Madam Deputy Speaker, have you had a request from the Prime Minister to come to the Dispatch Box and go for parliamentary accountability, or does she feel that Scotland is some sort of county as opposed to the country that it actually is?

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[Caroline Flint (Don Valley) (Lab)]

It is a pleasure to follow my hon. Friend the Member for Brent Central (Dawn Butler). I congratulate her on the work she has done serving communities and families that are over-reliant on prepayment meters, and it is a welcome change that they will get some help in the months ahead. I would also say that I have a number of people living in the private rented sector in my constituency—I am sure the proportion is far higher in her constituency. It is a big problem for tenants when landlords do not do enough to make sure that the homes they rent out—they often get housing benefit from the state for doing that—are not decent homes with proper energy-efficiency measures. I know that my hon. Friend will carry on working on behalf of her constituents and people elsewhere.

I would like to thank the co-sponsors of the debate, the hon. Member for Weston-super-Mare (John Penrose) and the hon. Member for North Ayrshire and Arran (Patricia Gibson), who helped to secure the support of 50 other hon. and right hon. Members to obtain this important debate.

My thanks also go to the Backbench Business Committee—Parliament’s own “Dragons’ Den”—for agreeing to our application. It was only five minutes before we went in that I realised the meeting was going to be broadcast, so I had to get my act together quickly, but we were clearly successful, and we secured this debate for today.

It is well known to family and friends that I love the movies. [Hon. Members: “Hear, hear!”] Thank you. It is still on my bucket list to be an extra in one—I just put that out there. One of my favourite comedies is “Groundhog Day”, in which the character played by Bill Murray has to replay a single day until he sees the error of his ways. For me, today’s debate feels like “Groundhog Day” because we are reliving the same arguments about our uncompetitive energy market, companies’ poor customer service and ripping-off of customers on standard variable tariffs—points I have made for the past six years. The Ministers keep changing, but I am still here, and I hope that the Minister today, like Bill Murray in the film, will break this spell, because, not for the first time, the headlines have, as hon. Members have mentioned, been full of the eye-watering price increases made recently by four of the big six energy companies—price hikes that are completely unjustified.

However, in many respects, that is not the principal reason for this debate. We sought the debate to address the fact that the energy market is not working; it is failing Britain’s consumers in almost every respect. It does not promote effective competition. The regional giants created after privatisation remain the dominant players in their home regions 30 years later. We talk about the big six, but for many regions, it is the big one.

The energy market also does not promote transparency. In the period following the Thatcher privatisation of British Gas in 1986 and of the regional electricity boards in 1989, there was a succession of mergers and takeovers. That led to companies being, at one and the same time, energy retailers and power generators. Today, the generation and retail arms of these companies remain within pretty much the same corporate structures. One consequence of that is a complete lack of transparency over the price at which these companies sell energy to themselves before retailing to the public. The reforms Labour proposed in 2015 would have resolved that.

The energy market does not promote consumer confidence. The issue is not whether, superficially, one company offers a fixed-price deal for £150 less than another; it is why 88% of consumers still refuse to switch from one supplier to another. The evidence from the CMA survey of 7,000 consumers was clear: 56% had never switched supplier, or did not recall ever switching, and 72% had never switched tariff with an existing supplier. This market is suffering a long-term crisis of consumer confidence. While a minority of customers shop around, the vast majority seem to want little or nothing to do with the energy companies.

That is not a sign of contentment—of millions of satisfied customers—but quite the opposite. The CMA found that the number of recorded customer complaints rose sixfold from 2008 to 2014. Ofgem’s own research between 2014 and 2016, which was published in September 2016, found that the proportion of domestic complainants who were very dissatisfied with how their complaint was handled increased significantly over that two-year period. The most recent figures showed that 67% of npower customers and 64% of Scottish Power customers were very dissatisfied. Even the medium-sized and smaller companies were not immune—we cannot let them off the hook. First Utility performed worst, with 63% of customers very dissatisfied. The figure for Utility Warehouse was 53%, and for OVO, it was 49%.

The Government preside over a domestic energy market that is not competitive, lacks transparency and has a hell of a lot of dissatisfied consumers. Those factors alone should ring alarm bells in Whitehall and Westminster, but it is the outcome for consumers that ensures that the Government must act. The secrecy, the dominance by a few uncompetitive companies, and the disillusioned, untrusting customer base, which is largely disengaged, all lead to one certain outcome: a consistent failure of the market to offer fair prices. That should be no surprise to any of us. We have regional monopolies—secret and inefficient—low customer engagement and unresponsive pricing. That is why this debate is so important.

I said the UK energy market does not offer fair prices, so let me illustrate that central criticism. First, as my hon. Friend the Member for Hartlepool (Mr Wright) said, the big six energy giants account for 85% of the market, and they treat their long-standing loyal customers worst, as the hon. Member for Weston-super-Mare pointed out. Those customers, without exception, will pay for energy on the most expensive default tariff. The only customers treated worse are those forced to live in a home that has a prepayment meter, either because the landlord requires it or because they have a poor credit or payment history. In 20 years, this group has grown to account for 16% of all households. Even the CMA could not ignore the fact that this group pays a premium of around £80 a year, as well as paying in advance for its energy. I therefore welcome, as I said, the decision to provide some price protection by capping the amount an energy company can charge these customers, but that measure does nothing for the remaining majority of customers who are also being overcharged year after year.

What about the overcharging of the majority of mainstream consumers? Even the CMA could not fully explain this overcharging. Its best estimate was that between 2012 and 2015 the average amount overcharged was some £1.5 billion per year, reaching almost £2 billion per year by 2015. The CMA also found that the revenue from standard variable tariff customers was 11% higher for electricity and 15% higher for gas compared with the average revenue for other customers—and this before any of the current price hikes came into effect. The CMA concluded that in any one year the “detriment”, as it describes it—the amount that is overcharged—was made up of about £600 million a year in excess profits, and the remainder, about £850 million, was down to “inefficiencies”, whatever they may be. This points to bad management by some very highly paid individuals.

[John Penrose]

The right hon. Lady is making a very compelling case, as she did with me in the dragons’ den pitch for this debate. She is absolutely right about the CMA’s figures showing such horrendous levels of customer detriment. Not only that, but the gap between the standard variable price that is being charged and the wholesale price has been getting wider over the past four years, so the situation is bad and getting worse as time goes by.

[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.

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[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.

[John Penrose]

I am sure that transparency is a sensible and worthwhile thing to aim for, but does the hon. Gentleman agree that it does not matter terribly much from a consumer’s point of view, because consumers do not care whether their supplier has a good hedging strategy or a bad one? That is up to the supplier to deal with and to manage. Some will get it right and some will get it wrong, but if they get it wrong, it should hit their managers’ bonuses and their shareholders’ returns rather than the price that the consumer eventually pays. We might want to understand this, but we should not seek to use it as a justification for high or low prices. Ultimately we should be tougher on the suppliers than that.

[Dr Whitehead]

Indeed. The hon. Gentleman makes an important point about the relationship of the customer to those transactions. However, with vertical integration, those transactions could cause money that should go to the customer to be siphoned off into different areas as a result of those opaque trades, and that is important to the customer in the long term. That is why we need full transparency in all those market trade arrangements.

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[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.

--- Later in debate ---

[John Penrose]

I repeat my thanks, not only to my co-sponsors, the right hon. Member for Don Valley (Caroline Flint) and the hon. Member for North Ayrshire and Arran (Patricia Gibson), but to everybody else who took part in the debate, which has been full of passion and determination. This issue has been around for far too long and, in spite of the best efforts of successive Governments, it has not got better sufficiently quickly, so there is clearly further to travel.

I am very reassured by the direction of travel that the Minister has just laid out. I particularly welcome his comments about rolling out Midata, as it should solve many of the problems with data access, which are obstacles to switching. However, it has been around for six years, and we are still waiting for its roll out—it is rather like waiting for Godot. We anticipate and we hope that it will arrive very shortly. It is good to hear that there is fresh impetus and fresh energy behind that move.

Equally, 24-hour switching will help to drive up competition. Right the way across the political spectrum and throughout this debate, there has been recognition that progress towards a properly competitive market in which the big six suppliers feel under pressure to look after their customers has been too slow and needs to move faster. I am very reassured to hear my hon. Friend making that commitment from the Government Benches, and saying that it is not moving fast enough. The clear implication of all the speeches we have heard today is that, politically, his way is clear. When people such as me, a bone dry free marketer, and others from across the political spectrum are willing to look at a relative price cap or other measures—I am talking about the Chairman of the Select Committee and the two Opposition Front-Bench speakers, the hon. Members for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) and for Southampton, Test—we can say quite categorically that this is an idea whose time has come. There is a thirst for action and for movement. Therefore, the Government should be bold and willing to move soon.

Question put and agreed to.

Resolved,

That this House deplores the big six energy firms’ treatment of out-of-contract energy customers on default tariffs; believes immediate action is needed to protect those consumers, and that pushing customers to start switching will not fix the problem sufficiently quickly or completely on its own; and calls on the industry, regulators and the Government to consider solutions which recognise that many people lead busy lives and that switching their energy supplier may not always be a high priority.