Energy Company Charges

Julie Elliott Excerpts

Tuesday 4th February 2014 Commons Chamber

[Julie Elliott (Sunderland Central) (Lab)]

I congratulate the hon. Member for Harlow (Robert Halfon) and others on securing this important debate. I thank the hon. Member for Chatham and Aylesford (Tracey Crouch) for offering to move the motion and my hon. Friend the Member for Ynys Môn (Albert Owen) for starting the debate in rather unusual circumstances. I also thank the Backbench Business Committee for allowing us to discuss these issues.

Ever since my right hon. Friends the Members for Doncaster North (Edward Miliband) and for Don Valley (Caroline Flint) made their announcements on energy at the Labour party conference last year, the way in which the market works or, more accurately, does not work has rightly come under greater scrutiny. Today’s debate is another symptom of that.

This debate has highlighted one of the essential facts about the energy market: we have not one energy market, but two, with companies targeting the lowest prices at a small section of the market, while charging everyone else whatever they think they can get away with. That is evident when one looks at the difference in prices between customers who pay by direct debit and those who pay by other means. It is also evident when one compares the prices that are paid by loyal customers, by which I mean customers who have never switched, which is the majority of people, with the prices paid by those who have switched. Tariffs should be cost-reflective: any difference for a different type of customer, payment or account—for example, dual fuel versus single fuel—must reflect only the costs that are associated with serving those customers and must be justified by the savings that suppliers enjoy.

Ofgem is responsible for ensuring that that happens. Following its energy supply probe in 2008, it introduced new rules that were designed specifically to prevent such anti-competitive behaviour. There will of course be marginal differences in costs between different payment methods and it is reasonable that there should be a small discount for customers who use cheaper payment methods, such as direct debit. However, what we are seeing is not a small difference but, in some cases, discounts of as much as £100—far and away above what could be reasonably justified. Ofgem has the power to act, but it does not. The Government should be intervening, but they are not.

The discounts for those on direct debit are not free. They must be paid for by someone. They are therefore being subsidised by those not paying by direct debit. In effect, energy companies are overcharging loyal and, in some cases, vulnerable customers, such as those who do not have access to bank accounts, to pay for deep discounts for the active segment of the market.

[Robert Halfon]

Will the hon. Lady give way?

[Julie Elliott]

No, I do not have much time now.

The rules on tariffs being cost-reflective are clear, and Ofgem has the power to intervene and stop loyal customers being ripped off, so why has it taken no action, and why have the Government failed to act? My right hon. Friend the Member for Don Valley has repeatedly raised the question of Ofgem’s inaction, yet the Secretary of State has strongly disagreed with her when she has said that Ofgem is not using its powers. Will the Minister of State, the right hon. Member for Bexhill and Battle (Gregory Barker), enlighten the House on whether he is one of the Ministers cited in The Independent last week who have told Ofgem that it is in the last chance saloon and must take immediate action to improve competition? Given that the Secretary of State referred to our plans to replace Ofgem with a regulator that actually stands up for the consumer as “silly”, perhaps it was the Minister of State.

I say gently to the hon. Member for Harlow, who presented his case with conviction today, that capping the level of discount available to customers who pay by direct debit is probably not the answer on its own. In all likelihood, companies would just reduce the discount, and customers paying by standard credit or prepayment meter would carry on paying exactly as much as they are now. In fact, he alluded to that point when he called for fundamental reform, which is what we propose.

The practice of overcharging people who do not pay by direct debit, in order to target the lowest prices at the most active end of the market, is part of a broader problem in the energy market. In a vibrant and competitive market, suppliers would compete to give their customers the best deals and the best customer service would reward loyal customers. In our broken energy market, the big companies are overcharging and punishing their most loyal customers. That is why we need Labour’s plans to reform the energy market.

The plans that we have set out will reintroduce competition, restore transparency and create a tough new energy watchdog that will actually stand up for consumers. We will inject competition by separating energy generation from supply and requiring all energy companies to trade their energy in an open market by selling into a pool. We will reintroduce transparency by establishing a new, simpler tariff structure so that people can compare prices, just as they could before they were made artificially complicated.

As my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) clearly outlined, the Secretary of State may be intensely relaxed about Ofgem’s performance, but the Opposition are not. We will create a tough new regulator with new powers and new leadership, to stand up for consumers. It will have the power to force energy companies to cut their prices when there is evidence that reductions in wholesale costs have not been passed on to consumers, as would happen if the market were functioning in a properly competitive manner, and powers of collective redress.

Implementing those crucial reforms will take time, which is why, with immediate action upon entering office, we will freeze prices until January 2017, when our reforms will start kicking in. That will save the typical household £120 and the average business £1,800.

I am pleased that the Minister has come around to the fact that the energy market is broken. He said in an interview last week that he was unaware that three of the big six energy firms were not passing cuts on to fixed-price customers, and that that was unacceptable. He should pay closer attention to detail, because I raised the issue in the House just a few weeks ago, when he was in his place. I welcome his change of heart, but I do not understand how it could have taken him this long to come to that conclusion.

The Labour party has been clear: we will fix the market and put an end to secret deals and unfair pricing, our new regulator will stand up for consumers, and we will put all over-75s on the lowest tariff. Massive charges for non-direct-debit households are indicative of a broken market, and our reforms will ensure that all consumers get a fair deal under a Labour Government.

--- Later in debate ---

[Gregory Barker]

Absolutely, and of course we look at the criteria. I have listened carefully today and in our discussions with my hon. Friend about the criteria, and we are asking Ofgem not to make a cursory comparison, but to establish forensically whether these charges are genuinely cost-reflective.

[Julie Elliott]

Ofgem’s investigation into Scottish Power has been going on since March 2011. Why does the Minister have faith that Ofgem is looking into this properly and will come up with a real answer?

[Gregory Barker]

Ofgem will be reporting in the near future as part of the competition test. It has the necessary powers, and we have made it clear that we expect a forensic analysis of the cost differentials and criteria.

This is not a new phenomenon, however. The Labour party had 13 years to crack it, but it took no action. Moreover, the Leader of the Opposition spent two years as Secretary of State for Energy and Climate Change, so the question is not “Why has it taken since 2011?”, but “Why did Labour do nothing, between 1997 and 2010, when it had the time, the power, the majority and the authority?” What did Labour do? Zero, zip, nothing. So before they ask, in high dudgeon, why we are not acting faster, would they please explain why they did nothing to help consumers for 13 years? When we get a credible answer, we will give their criticisms more credit.

I do not want to go off on a completely partisan rant, however, because some good questions have been raised, and I do not want to diminish their seriousness. We take the issue of prepayment meters and standard payments seriously, but we are also looking at direct debits. Some 55% of people pay by direct debit and 45% pay by standard payment.