Energy Prices, Profits and Poverty

Debate between Jonathan Reynolds and Lord Lilley

Thursday 7th November 2013 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

As ever, it is a pleasure to serve under your chairmanship, Ms Dorries, and it is a particular pleasure to be here today to discuss the Select Committee on Energy and Climate Change’s report entitled “Energy Prices, Profits and Poverty”, and the responses to it.

I commend the Select Committee on producing such a thorough and authoritative report. On behalf of the Opposition, I welcome the tone and tenor of the conclusions and recommendations. They mirror our criticisms of the energy market and reflect our desire to see that market improved for the benefit of British consumers and British businesses. The conclusions were ably set out by the Chair of the Committee, the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), in his opening speech. The Committee is fortunate to have on it a number of hon. Members who possess real expertise on, and insight into, energy policy in the UK, and who command widespread respect in the House. We have heard from many of them today, but unfortunately I do not think that I will be able to go through each of their speeches, because of the short time that we have to wind up the debate.

As is well known, the Labour party is not satisfied with how the energy market is functioning. We have therefore laid out plans for ambitious reform of that market, involving separating the generation and supply sides of the big six energy companies, establishing a new regulator and, crucially, freezing prices for 20 months while we get that job done. The evidence for the need for that reform package is visible to all of us in our constituencies, day in, day out, but this report has added to that list of evidence. I would like, in the remainder of the debate, to draw the House’s attention to some of the conclusions that I feel are particularly relevant.

One thing that comes across very starkly from the report’s conclusions is the dissatisfaction with the regulator, Ofgem. Several recommendations demand more activity from Ofgem, but conclusion 16 on page 73 seems particularly frank. In it, the Committee states that it is “astonished” at how long it has taken Ofgem to act on improving wholesale market competitiveness to ensure that customers are paying a fair price for their energy. In the rarefied language of parliamentary reports, that stands out as particularly hard-hitting, and it is our belief that Ofgem needs to be replaced with a much more effective regulator that has powers to force energy companies to reduce their prices when the wholesale cost of energy falls.

Yesterday, in the Opposition day debate, the Secretary of State attacked the Labour party over its plans to reform Ofgem before claiming, in a somewhat contradictory fashion, that he himself was seeking to reform Ofgem. Some people would say, “That’s the Liberal Democrats for you,” but I would never think of being so cruel.

Much of the Government’s response to the problems of the energy market has been to encourage people to switch their supplier. Of course people should ensure that they are getting the best deal that they can, and of course we should ensure that switching supplier is as simple as possible. However, from the consumers’ perspective, there is little point in making the effort to switch supplier when they are just switching from one company that is overcharging to another that is overcharging.

As is noted in conclusions 8, the low-level of switching between suppliers is a symptom, not a cause, of a lack of competition. It is difficult to see how any policy to make switching easy could have a significant effect if underlying problems in the market are not addressed. The Government seem to be deliberately ignoring the fact that switching has actually halved in two years, with only 340,000 people switching in June this year; that is down from almost 800,000 in summer 2011. The Government have to accept that fundamental flaws in the market have caused that lack of competition. Structural reform to break the stranglehold of the big six and introduce transparency into the market is the only way to fix those problems.

On the subject of green levies, I agree with recommendation 4 that there needs to be

“a full and frank conversation about the contribution that consumers are being expected to make”,

and many speakers today echoed that point.

There was a moment in the Opposition day debate yesterday when an MP on the Government Benches—I do not wish to embarrass them by name—gave a speech praising the Government’s subsidies for nuclear power and low-carbon generation, which they said had an effect on power stations in their constituency. They also praised the ECO scheme and the Government’s efficiency measures. However, they then said, very directly, that green levies must be rolled back. If MPs do not have a sound understanding of what these green levies are, it does not make things easier for the public.

[Mr Lilley]

Will the shadow Minister explain how rising green levies would be coped with, were he ever to get the opportunity to freeze tariffs?

[Jonathan Reynolds]

I am about to discuss a part of those green levies in which I am very interested: the ECO, particularly as it relates to fuel poverty. I was pleased to see that the Committee’s report focused on that in some detail. I know there will be widespread agreement among Members that fuel poverty, whatever measure the Government use, is far too high in this country. The news that, in the whole of Europe, only Estonia has a higher proportion of households in fuel poverty than the UK should set all our alarm bells ringing.

From our exchange at the Dispatch Box yesterday, it seems that the Minister of State, Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker), and I have substantially different views on the performance of the Government’s flagship ECO scheme. I simply do not believe that the ECO is ambitious or effective enough to meet the fuel poverty challenge in this country. In answer to the right hon. Member for Hitchin and Harpenden (Mr Lilley), the chances are that the ECO’s cost will rise out of proportion to the success of the measures being delivered.

The Government’s objective is to try to lift one in 10 —or, in the worst-case scenario, one in 20—of the households in fuel poverty out of it. That is not a sufficient response to the scale of the crisis. To that end, I especially welcome the Committee’s recommendation 24 —the recommendation that ECO expenditure be focused more heavily on fuel-poor households.

I will not have time to go into the detail I had hoped to. In relation to the green deal, it is clear that only Government Ministers believe that the scheme is still working. If we were to focus the ECO more heavily on the fuel-poor, as the report requests, the green deal would need to work far more effectively to tackle carbon reductions, which could be paid for by people who would be willing to pay if there was an attractive enough package.

In conclusion, the Select Committee should be commended for producing a report of this quality. All of us who want to see the energy market reformed and a better deal secured for consumers and businesses need to engage with its recommendations. We believe that the report endorses our case for serious structural reform, a tougher regulator, the reform of the green deal and the replacement of the ECO. I thank the Committee members for their diligence and insight, which is a credit to their constituents, to the House and to the public debate on these issues.