Energy Price Freeze

Kerry McCarthy Excerpts

Wednesday 2nd April 2014 Commons Chamber

[Caroline Flint]

I absolutely agree, which is why one of our proposals is to create an electricity pool or power exchange whereby all energy for that sector is put into a pool, enabling anybody to come in and compete on price to retail. Small suppliers, and, I have to say, increasingly some of the bigger players, recognise that this idea is making some headway in the discussions on what the future should offer. We look to Northern Ireland and other countries to learn from their experiences. We do not operate in a bubble; it is worth looking elsewhere for ideas.

The report identifies five significant problems. Many of them were things that Labour Members raised in the eight previous Opposition day debates on this issue and that feature in our Green Paper. The first problem is weak competition. Companies are able to increase their profit margins at will, without any obvious efficiencies or improvement in customer service. They are simply getting away with passing on cost increases, but not cost reductions.

The second problem is market segmentation: suppliers enjoying big market shares in their old monopoly areas, and companies charging some customers, particularly loyal customers, significantly more than others, even though they are providing them with an identical product. Thirdly, there is tacit co-ordination between suppliers: price announcements, normally increases of similar amounts, being announced at the same time and with growing lead-in times. Fourthly, there are barriers to entry and expansion for new players in the market. In particular, the lack of liquidity in the wholesale market makes it difficult for non-integrated players to access power at competitive prices. The fifth problem is weak customer pressure: low and declining levels of customer trust in this market.

That is the final reason a price freeze is so important. Yes, it is about compensating consumers for overcharging in the past. Yes, it is about protecting them from any more unfair price rises while the market is being reformed for the future, but it is also a line in the sand. It tells the companies that their days of overcharging are over, and it tells consumers that the rules of the game have changed for good. It tells them that the rules are no longer set by six giant companies, but by one Government acting for the many not the mighty few.

[Kerry McCarthy (Bristol East) (Lab)]

Did not Ofgem identify—in, I think 2008—16 things it thought was wrong with the energy market? It admitted, in 2011, that 12 of them had got worse or had stayed the same. Is it not key to have an energy watchdog that stands up for consumers, takes on the big six and rectifies the issues my right hon. Friend has identified?

[Caroline Flint]

My hon. Friend is right to draw attention to recent Ofgem investigations. In fact, in the past six years I think it has had three major investigations: on supply, the retail market and the wholesale market. It has failed to get to grips with the real problem. We have seen piecemeal changes that are just not having any impact. Even when there were recommendations about the market and how it could be reformed, it did not take them on board. It is only recently that it seems to be waking up to that.

Ultimately, competition will work only if companies are constrained by the fear of losing customers if they increase their prices too much. Consumers will be prepared to engage in the market, to invest their time and effort to secure the best deal, only if they believe the market is fair and if there are proper rules in place to prevent them from being ripped-off. We should be honest, too, that switching cannot be the only metric of a healthy market. There will always be those for whom regular switching is not a reality, either because they do not have the confidence to switch, even in a simplified system, or because they may have the confidence, but are time-poor and seem to spend their whole life switching from one thing to another. A healthy market must be a managed market, and that is why the price freeze is so important.