Energy Market Reform

Justin Tomlinson Excerpts

Wednesday 24th October 2012 Commons Chamber

[Justin Tomlinson (North Swindon) (Con)]

It is a pleasure to follow the hon. Member for Luton South (Gavin Shuker), who spoke from the perspective of the consumer. I, too, will focus on that viewpoint. I welcome the fact that the Government are to use the Energy Bill to get consumers the best deal on their energy. Today, I want to discuss some of the specific measures.

Many hon. Members have talked about simpler tariffs. In 2011, Ofgem proposed that each supplier be required to offer one standard tariff for each payment type. Martin Lewis of MoneySavingExpert.com conducted a survey of 3,500 people on what they wanted. They were given three choices: lots of choice—there are already hundreds of different tariffs and unravelling them is an extremely complicated process—a few simple tariffs, or one flat rate per company. In the responses, 18% voted for lots of choice, 37% for a few simple tariffs and 46% for one flat rate per company. That shows clearly that the Prime Minister was on to something. Consumers do not want to be diddled—[Interruption.] The shadow Secretary of State, the right hon. Member for Don Valley (Caroline Flint), claims that we are out of touch, but I think the evidence shows that that is nonsense.

A number of people have asked why fewer people are looking to switch. One of the answers is welcome—it is a result of reducing the use of the aggressive and misleading door-to-door sales techniques that used to go on. We are thankful for that. I have been championing the cause, which is supported by 234 cross-party MPs, of financial education. Working out which is the best deal is a complicated process, so if we can equip the next generation of consumers and make them savvy, financially educated people, more of them will take advantage of the ability to do that.

Another reason is that people have had their fingers burnt. What tends to happen is that a customer is sat on one tariff; then, their supplier hikes up the price, which makes them proactive in looking to change supplier. Suppliers that have not already hiked up their prices increase their sales activity, tempting the customer to switch, but a few days later the customer discovers that the new supplier is raising its prices, probably by far more than the old supplier had.

There were welcome moves to put annual energy usage on customers’ bills, giving the information they needed to make comparisons more easily, but now we are all being encouraged to take e-bills. A lot of customers simply cannot remember their password or choose not to access their account, so fewer are getting the information now that it no longer comes on the traditional paper bills sent through the post. Which? carried out a survey—I think the shadow Secretary of State mentioned it—on whether consumers were given accurate information and found that 44% were not. People cannot rely on suppliers to give them the promised price. With Martin Lewis, I have been calling for measures to ensure that people who transfer get that tariff for at least six months, so that they avoid that “sudden price hike three days later” problem. In the current market conditions, people would be sensible to seek a fixed tariff.

There have been some welcome moves. Last December, 4 million of the most vulnerable energy consumers were written to so that they could be given advice. Savvy financial consumers and those who have internet access can find the information, but not all people can do that. The big energy saving week highlighted the issue in the media, and the home heat helpline has helped a considerable number of people by providing independent advice.

I am keen to extend the use of smart meters, so that people can see the tangible cost of their energy usage. One of my colleagues has just moved into a new flat, where there is a pay-as-you-go meter. Since she has had to physically charge up her key with £20 each time, she has made an effort to turn off any electrical appliance that is not needed. That is a good thing, but it also highlights a problem, because a lot of the most vulnerable consumers are on that extremely expensive tariff. We must ensure that vulnerable consumers have access to the cheapest tariffs.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

Vulnerable consumers on a payment meter can self-disconnect, without anyone knowing that they are in trouble.

[Justin Tomlinson]

An apt point.

Businesses that go into administration are in a similar position to vulnerable consumers. Although the law says that businesses that have gone into administration should continue to be supplied, the suppliers will crank up the tariff to the highest level available, further endangering the prospects of that company in financial distress. That is something that I have been working on with R3, the insolvency practitioner representatives.

There is confusion about what is the lowest tariff. We all understand the standard rate charge and unit price, but all consumers are different. Some may opt to pay a premium for a green tariff, for example, or for the different forms of payment. We will need to take that into consideration, but there are examples of how the policy could work. With my mobile phone contract, for example, I regularly get texts from my mobile phone company mid-contract, advising me that I could be on a better tariff. By a simple telephone call I am able to change to a better deal without having to extend my contract.

Many speakers have mentioned breaking up the dominance of the big six. I welcome moves to allow more liquidity for independent suppliers and potential new entrants. The hon. Member for Luton South will then not be one of the 1%; he will become part of the majority. We must accept that over the next decade higher global oil and gas prices are to be expected, so we need to get tariffs right not only now, but in the medium and long term. We do not necessarily control our own destiny. We need to control more of our energy supply and have greater energy security. We as a nation should be exporting energy to other countries, the profits of which we can use to subsidise our own consumers.

In conclusion, I echo the words of my hon. Friend the Member for Hexham (Guy Opperman) who said that energy market reform is a step in the right direction. We must show collectively that we are on the side of the consumer. The market is complex and there are vulnerable people who have a vested interest in our getting it right. We must press on and do so.