Domestic Gas and Electricity (Tariff Cap) Bill

Lord Mackay of Clashfern Excerpts

2nd reading (Hansard): House of Lords
Tuesday 22nd May 2018 Lords Chamber

[Lord Mackay of Clashfern (Con)]

My Lords I shall confine myself to the Bill. I think my noble friend Lord Ridley’s submission is that it should not get a Second Reading. That is rather wide of the real mark, so I shall not go down that road. I ought to declare an interest. I am a dual account customer of an energy company and I have an absolutely minute holding in Centrica.

Apart from these, my main interest is trying to understand what this Bill does and what it imposes on the regulator. It is significant that the Government have not tried to set the cap themselves. That is probably wise because the difficulties are quite substantial. We need only read what the authority has to have in mind to realise that. The principal object of the Bill is to protect existing and future domestic customers who pay standard, variable and default rates. I understand that the other customers are people on time-limited contracts. One of the difficulties that I have found as a customer is finding out exactly what the variable contracts you can have are likely to result in long term. One thing is certain: to do that, you have to make sure that you look at the account pretty regularly to see whether the contract term has run out, because if that happens without having done anything, you find yourself in the area that needs protection.

Protection is designed to prevent people being overcharged. If that is the primary responsibility of the authority under Clause 1(6), it is interesting to see what the conditions are that have to be satisfied—or that the authority “must have regard to” rather than satisfy. First, in subsection (6)(a), there is,

“the need to create incentives for holders of supply licences to improve their efficiency”.

I am slightly at a loss—I am not at all technical in this matter—to know how you create incentives for holders of supply licences to improve efficiency by imposing a price cap. My noble friend will explain that when he replies, I am sure.

The next one is,

“the need to set the cap at a level that enables the holders of supply licences to compete effectively for domestic supply contracts”.

Again that strikes me as quite a difficult thing to do if you are aiming to protect customers.

The next one is,

“the need to maintain incentives for domestic customers to switch to different domestic supply contracts”.

As far as I am concerned, the main incentive to switch to a fixed-term contract is because, on the whole, the rate is usually less than in any of the other variable options that require protection. That perhaps is not too difficult, but on the other hand, if it is meant to relate to switching to other suppliers and not just switching to fixed-term contracts with the same supplier, I find it difficult to see how the price cap can help to maintain that.

Finally, subsection (6)(d) refers to,

“the need to ensure that holders of supply licences who operate efficiently are able to finance activities authorised by the licence”.

One need only look at these provisions to see how difficult fixing this tariff will be.

One thing that struck me on reading the Bill was that the Government accept that fuel costs are an essential part of life, but the difficulty associated with the fact that houses are rather leaky is an important aspect. There is not much that a consumer can do to prevent that, at least quickly. I had thought that there might be a reference to the benefit rates that people get. Presumably the universal credit system takes account of the fact that people are required to pay for fuel. In considering the level of the cap, that would be quite important. All this is just designed to show how difficult it is to fix this particular cap.

Then I come to the fact that there is no appeal provision in this Bill. As forecast by the noble Lord, Lord Stevenson of Balmacara, I am going to say something about that. The details are a matter for Committee, because one would want to put a fairly detailed proposal forward. No appeal system means that we have judicial review, because that is not excluded, and I do not think that it could be. It means that, if the companies or the people proposed to be protected feel that either of those things is not working as it should, they have to go to court on judicial review. I wrote a fairly detailed letter to the Minister in the Commons on this matter, and after some time I got a fairly detailed letter back. I do not propose to weary your Lordships with examining them just now, but I shall attempt to take account of these in framing our possible amendment for discussion in Committee.

One thing is certain—that the courts are not very equipped for dealing with the detail of this cap. Apart from the difficulties that I have just highlighted, which seem fairly difficult theoretical problems, the courts have very little in the way of help. In the letter to which I referred, I am told—of course, it was not news to me—that the court could appoint assessors. Of course it could, but that is not a fixed arrangement such as is supplied by the Competition and Markets Authority. Therefore, my view is quite strongly that a proper appeals system to the Competition and Markets Authority is something that we should consider very carefully indeed. The idea that it could defer the introduction of the cap is, of course, not really a fact. In any case, our amendment could make sure that that did not happen.

That is the primary purpose of what I have to say. I think that there is some difficulty about the matter of when the people or authority fixing the cap are not required to take account of the benefits system and the rates of benefit in fixing the cap. That suggests to me that the purpose of the cap is a somewhat difficult concept to grasp and therefore difficult for the authority to fix—which, no doubt, is why the Government did not fix it themselves in the first place.

Domestic Gas and Electricity (Tariff Cap) Bill

Lord Mackay of Clashfern Excerpts

Committee: 1st sitting (Hansard): House of Lords
Monday 11th June 2018 Grand Committee

Moved by

[Lord Mackay of Clashfern]

5: Clause 1, page 2, line 20, at end insert—
“(8) Subject to subsections (9) to (12), sections 11C to 11H of the Electricity Act 1989 and sections 23B to 23G of the Gas Act 1986 apply to modifications of the standard supply licence conditions made under this section.(9) Any appeal against modifications to the standard supply licence conditions made pursuant to this section—(a) may not challenge the decision to impose a price control in principle; but(b) subject to paragraph (a), may relate to—(i) the principles applied in setting the tariff cap conditions in question,(ii) the methods applied or calculations used or data used in setting the tariff cap conditions, or(iii) what the provisions contained in the tariff cap conditions should or should not be (including at what level the tariff cap control should or should not be set).(10) The decision of the Authority to modify the standard supply licence conditions to include tariff cap conditions is to have full effect pending the determination by the Competition and Markets Authority (CMA) of any appeal.(11) Paragraph 2 of Schedule 5A to the Electricity Act 1989 and paragraph 2 of Schedule 4A to the Gas Act 1986 do not apply to modifications of the standard supply licence conditions made under this section.(12) Notwithstanding section 11G(1) of the Electricity Act 1989 and section 23F(1) of the Gas Act 1986, the CMA must determine an appeal against modifications of the standard supply licence conditions made under this section within the period of 4 months beginning with the day on which it accepts the appeal.”

[Lord Mackay of Clashfern (Con)]

My Lords, I want to raise a very specific point about the possibility of an appeal against the decision to fix the tariff at a particular level. I declare an interest: I have a minute shareholding in Centrica, which I think is a residue of Mr Therm, and of course we are all participants in the market in that we get gas and/or electricity.

The question that the amendment addresses is whether there should be a statutory form of appeal against the level at which the tariff is set by the authority. I think it is agreed that some kind of judicial challenge is available. Judicial review is said to be the challenge. It is interesting to see how the Select Committee approached that. I do not think it was a fundamental or central point of the committee’s consideration. It asked something like 500 questions, of which four were about the appeal provision. The committee’s main interest in appeal was to prevent delay in bringing in the tariff. I can see the very cogent reason for that. We want the tariff to come in as soon as practicable. If it is to be valuable, it certainly must come in in time for the next winter.

I will show that what I am proposing is a good deal better from that point of view than what the committee thought. The committee seemed to have been concerned mainly that there would be no effective legal challenge of the judgment. In a way, I am rather sad about that because it rather suggests that legal challenge does damage to a decision. My belief is that the aim of legal challenge is to improve a decision; if necessary, to make it fairer than it is already. I need not elaborate on that, because both the Government and those noble Lords who support this amendment agree that a judicial challenge of some kind is available.

I will go through our amendment in a little detail, to show what we are trying to do. First, the sections referred to are a code which allows for appeals in the particular situation of modifications of the licence conditions. That is a general code, introduced by the words:

“An appeal lies to the CMA against a decision by the authority to proceed with a modification of a condition of a licence under Section 23”.


Of course, that includes price variation and that is clear from Section 23E, where a price control decision is effectively mentioned. The committee said that judicial review was a reasonable way of challenging a price control. If that is the point of view of the Government—and of preceding Governments, many of whom contributed to this code—it is strange that they have a code for price control at all. This is quite an elaborate code, with provision for rules and all that kind of thing, and with the CMA experts—who know something about this area—dealing with the matter.

The Government appear to be questioning the idea of an appeal on this level, on the ground that it might cause delay. The amendment seeks to deal with all these things. It makes it clear that there is no question of attacking the principle of the cap. That is a political decision to be made by Parliament and, therefore, the appeal decision may not challenge that point. However, it may challenge the principles applied in setting the tariff up. As I pointed out at Second Reading—I shall not repeat myself—it is quite a difficult decision. The conditions the authority has to satisfy in reaching a decision are quite difficult. I can see that there is certainly room for a difference of opinion on exactly what emphasis there should be on these various matters.

The Government made a point about the possibility of delay and that question concerned the Select Committee. The amendment deals with that by proposing new subsection (11), which takes out the power in the existing code to set aside a price control decision until a decision is taken by the CMA. To make it thicker, proposed new subsection (10) says:

“The decision of the Authority to modify the standard supply licence conditions to include tariff cap conditions is to have full effect pending the determination by the Competition and Markets Authority (CMA) of any appeal”.


There is, therefore, absolutely no question of any delay in this procedural matter. Of course, if it was successful, it might have an effect in respect of settling matters afterwards, but the tariff will come in on the date when the authority decides that it should.

We have thought about the possibility of delay in relation to the decision-making of the authority. The authority has the usual limit of six months. In view of the urgency of this matter, although it is not absolutely vital, we have suggested four months for the authority’s decision. These are perfectly simple matters, I think, and they answer all the Government’s objections to this form of appeal.

The noble Lord, Lord Grantchester, has tabled an amendment on costs. Perhaps your Lordships know already that there is a provision about costs in the scheme under the existing Act, and it may be that some modification of that is required. The other point that comes out very forcefully from his amendment is that appeals are made not just by the licence holders. The appeal is there also for the consumer. When you look at the conditions, you see that there is certainly a possibility that the tariff might be too high. I am not saying for a minute that the authority will not do its best to get the right tariff—I am assuming that it will—but appeals are perhaps intended to review that kind of decision. Therefore, it is vital that the consumer representative, which is the citizens advice bureau, Citizens Advice Scotland or a combination of both, has the right of appeal.

I do not think there is any possible answer to this as against judicial review. Apart from anything else, judicial review is not a very technical type of review, in the sense that the judges are extremely skilful and talented but not many have a detailed knowledge of the gas and electricity industry. That is part of the scope of an appeal, as is set down under the statute: that the appellate authority is already equipped with the kind of expertise that is needed to decide this question. The Government kindly wrote me a very full letter saying that, in a judicial review, the judge could appoint assessors. As you can imagine, I am rather aware of that. However, it tends to show exactly what I am saying: that you should have an appeal that is supported by the relevant expertise. The very need for an assessor, which is suggested as a possibility—although I concede that the judge might not require it—goes a certain distance in that direction. That the Government have said it shows that this is an extremely useful and appropriate form of appeal.

We put the four-month period in to make sure that everything is looked at. I do not necessarily say that it is absolutely essential, and it may be that a correct decision is worth more than a hurried one. Still, we are showing our certain desire to have this disposed of as soon as possible. For that reason, in my submission to your Lordships, this amendment is eminently reasonable and one for which the Government so far have produced no reasoned alternative. I beg to move my amendment.

Amendment 6 (to Amendment 5)

Moved by

--- Later in debate ---

[Lord Henley]

My Lords, as I made clear, they would be using the CMA to delay this process, and we do not think that that would be right. I do not think that that would be the case with judicial review, but, as I said, I am more than happy to discuss these matters later. We have set out our position here and in the letter that my right honourable friend sent to my noble and learned friend.

[Lord Mackay of Clashfern]

My Lords—

--- Later in debate ---

Amendment 6 (to Amendment 5) withdrawn.

[Lord Mackay of Clashfern]

My Lords, I find it difficult to know exactly what the basis is on which the Government now stand in relation to this. I would be extremely happy to have further discussion involving as many of us here as would wish to take part. I am sure that the Government would welcome that.

The situation is that an appeal under these provisions requires the permission of the CMA. The idea that some tariff licence holders would try to exploit this in some way is well met by the procedures that are laid down in this scheme. My noble friend began with the rather frightening suggestion that I needed to add something like 12 clauses to the Bill. It may be wrong, but subsection (8) of our proposed new clause states that:

“Subject to subsections (9) to (12), sections 11C to 11H of the Electricity Act 1989 and sections 23B to 23G of the Gas Act 1986”—


my noble friend’s production, with modifications, of course—

“apply to modifications of the standard supply licence conditions made under this section”.

That seems to put all the conditions in the tariff arrangement into the Bill for the purposes of dealing with the tariff. I cannot understand what more is required. I am in favour not of prolixity but rather of trying to be brief. That seems to me to do it briefly.

The whole procedure is involved. The only thing we are doing is modifying the procedure to take account of the concerns that the Government have expressed about delay and the power that the CMA has to postpone the coming into effect of the tariff under appeal. That is what we have tried to deal with, to resolve the issues that seemed to concern the Government in the letter that the Minister kindly sent me a little time ago.

I am extremely happy, as I said, to be involved in any discussions about this. At the moment, I find it very hard to see why the Government should want to have judicial review more than this, because some people think that exploitation can happen under judicial review. I remember some time ago reading out a passage from a colleague’s book about this and his experience of judicial review in relation to his education policy. I am not saying whether that is right or wrong, but I am saying that this procedure we are proposing is as protected against any kind of exploitation as it could be, because the permission of the authority is required and it will be very astute to know if it is just exploitation for the sake of some big member of the licence holders group. So I do not honestly think that that is a very serious objection.

As I said at the outset, I do not think the Select Committee was really concerned about anything except the delay that it thought would be involved in any kind of procedure. It would apply to judicial review—indeed, probably more than any other—because I doubt it would be right to try to remove the power of the judge to suspend the thing if he thought that that was required, whereas we expressly remove the statutory power of the CMA to put that in.

I think we have answered, as best we can, every possible concern that the Government have, so I would be glad to explore this—I was just about to say “exploit this”—at a meeting between now and Report. I am very keen that we should get ahead with this. We do not want to delay the passage of the Bill through this House, not at all—the sooner it gets through, the better, and the sooner the cap is in place the better, if it is going to be worth while.

Amendment 5 withdrawn.

Domestic Gas and Electricity (Tariff Cap) Bill

Lord Mackay of Clashfern Excerpts

Report stage (Hansard): House of Lords
Wednesday 27th June 2018 Lords Chamber

Moved by

[Lord Mackay of Clashfern]

3: Clause 1, page 2, line 20, at end insert—
“(8) Subject to subsections (9) to (12), sections 11C to 11H of the Electricity Act 1989 and sections 23B to 23G of the Gas Act 1986 apply to modifications of the standard supply licence conditions made under this section.(9) Any appeal against modifications to the standard supply licence conditions made pursuant to this section—(a) may not challenge the decision to impose a price control in principle; but(b) subject to paragraph (a), may relate to—(i) the principles applied in setting the tariff cap conditions in question,(ii) the methods applied or calculations used or data used in setting the tariff cap conditions, or (iii) what the provisions contained in the tariff cap conditions should or should not be (including at what level the tariff cap control should or should not be set).(10) The decision of the Authority to modify the standard supply licence conditions to include tariff cap conditions is to have full effect pending the determination by the Competition and Markets Authority (CMA) of any appeal.(11) Paragraph 2 of Schedule 5A to the Electricity Act 1989 and paragraph 2 of Schedule 4A to the Gas Act 1986 do not apply to modifications of the standard supply licence conditions made under this section.(12) Notwithstanding section 11G(1) of the Electricity Act 1989 and section 23F(1) of the Gas Act 1986, the CMA must determine an appeal against modifications of the standard supply licence conditions made under this section within the period of 4 months beginning with the day on which it accepts the appeal.”

[Lord Mackay of Clashfern (Con)]

My Lords, we considered this amendment in Committee. My noble friend Lord Hunt of Wirral will be here in a moment, I think, but the noble Lord, Lord Carlile of Berriew, has let me know that he cannot be here because he is appearing in court in Birmingham. He thinks it is probably his last appearance in court, so it is an occasion for congratulating him on a long life of very great success in the courts.

I move this amendment, which is, as I say, the same as was moved at the previous stage. I want, first, to deal with a technical matter that my noble friend raised when he said that we needed 11 or so new clauses in the Bill. My understanding is that the cap will apply to electricity and gas and therefore that it is right that the electricity appeal provisions and gas appeal provisions are referred to and incorporated in relation to this matter in the Bill and that the appropriate procedures will apply in relation to that.

Your Lordships will recall the argument that I presented along with my colleagues last time on the relative suitability of the two possibilities for appeal against the decision of the authority to put the cap at a certain level. We were very much of the view that the technical nature of the appeal was such that it would be much better as an appeal to the CMA rather than a judicial review. One reason for that was that we were able in the amendment to control the form and timing of that appeal in a way that you cannot do for judicial review, at least not very easily—and some would say not at all. At any rate, it is much easier to do it through the CMA.

We dealt with all the main objections that the Government had to the CMA appeals. However, my noble friend undertook to write to the CMA to see what it thought about this. I am not absolutely clear to what extent the CMA considered our amendment in detail, but it returned a pretty negative answer to the question of whether it would be appropriate for it. It thought that, on the whole, judicial review was more appropriate. The motivation is not entirely clear to me; the letter is not one of the most lucid that I have ever read, but the decision that the CMA has taken is lucid enough: it does not want anything to do with this particular process, if at all possible.

In that situation, my colleagues and I had a meeting with the Minister—my noble friend Lord Henley—and the Minister in charge of this Bill in the House of Commons. We had a very full meeting and they have persuaded me that the chances of this amendment being accepted by the House of Commons are such that we should not press it here, because it would just be a waste of time to press it here if we were sure that it would come back. All that would happen is that we waste time and money. We have therefore decided together that we will not press this amendment to a Division.

However, we emphasise that, although we have departed from our suggestion for a CMA appeal, there is still the possibility of judicial review, which is particularly important with regard to the procedures that are used. It is therefore very important that the authority, in conducting the consultation and the decision-making with regard to its task, does so in a procedure which properly takes account of the various matters that are put to it. Therefore, although we are sorry that the CMA appeal is not to go ahead, we believe that an effective appeal on matters that are important exists in the shape of judicial review. I beg to move the amendment and, as I say, I will withdraw it in due course.

Amendment 4 (to Amendment 3) not moved.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I will briefly address the substantive motion and explain why we are not moving Amendment 4. It is not from any wish to exculpate us from the needs that should apply to bodies which represent consumers in relation to appeals; it is simply that, given the news that the noble and learned Lord wishes to withdraw his amendment, there seems little point in moving an amendment that will have to be withdrawn in turn.

I congratulate the noble and learned Lord again on introducing his amendment with considerable skill and clarity. He made his case comprehensively. Like him, I am completely bemused by the Government’s response to this, which seems to be more to do with protecting Ofgem than with the merits of the case he made. We are in a situation where the only appeal that will be available in this area is JR. We understand the defects in that and we think that it is probably wrong, not just because of the case that was well made by the noble and learned Lord but because it is an open invitation to seeing a greater amount of judge-made law rather than statutory law, which is a wrong thing. Nevertheless, we respect the decisions being taken by the movers of the amendment, and look forward to hearing a response from the Government.

[Lord Mackay of Clashfern]

My Lords—

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

I think my noble and learned friend would like me at least to respond before he seeks to withdraw his amendment. I echo his congratulations to the noble Lord, Lord Carlile, on his last appearance in the courts after many years. I hope that as a result we will see him in this House—but perhaps speaking to amendments where he might want to support the Government.

I hope that I can set out the Government’s arguments in responding to my noble and learned friend and that in doing so it will be useful to the House to get our views on the record. As we discussed in Committee, Amendment 3 would insert a right of appeal regarding the price cap to the Competition and Markets Authority. As I said in Committee, we believe—as did the BEIS Select Committee when it looked at this, and others—that judicial review provides a sufficient means of challenge to ensure the provision of a fair and public hearing within a reasonable time by an independent and impartial body established by law. As I understand it, the belief is that the decision of Ofgem when it puts the cap in place should be reviewed by another body of experts—specifically the CMA—because Ofgem could get something wrong.

As my noble and learned friend made clear, in Committee I undertook to write to the CMA to seek its views on his amendment. I felt that it would be prudent to see what the CMA had to say about creating what would be a new right of appeal to that body relating to a decision taken in exercise of Ofgem’s powers under the Bill.

The CMA’s chief executive has been kind enough to respond with a letter, which I have already shared with some noble Lords, and I would be more than happy to make it available to your Lordships more widely if necessary. The letter makes three things clear. First, the CMA shares the Government’s view that judicial review is an appropriate means of holding Ofgem to account and providing parties with a right to challenge. Secondly, the CMA shares the Government’s view that judicial review is the appropriate means of holding Ofgem to account and providing parties with a right to challenge. Thirdly, the CMA makes it clear that it does not consider itself best placed to conduct such a review and questions whether doing so would benefit consumers.

--- Later in debate ---

I am grateful to my noble and learned friend for moving the amendment—on which we have had useful discussions—and to the CMA for writing in response to my request and making its views clear. My noble and learned friend brought forward his amendment to hear again for the record what the Government’s position was, and I am grateful to him for making it clear that he does not intend to press it.

[Lord Mackay of Clashfern]

My Lords, I wish to withdraw my amendment.

Amendment 3 withdrawn.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

My Lords, the amendments in this group tabled by my noble friend Lady Neville-Rolfe would ensure that the price cap comes to an end in 2020 with no provision to extend it. The Bill allows a temporary and targeted price cap on poor value, standard variable and default tariffs. Fixed tariffs that are not default tariffs will not be affected by the cap as these are where the most competitive rates can be found. The price cap is only necessary to protect consumers on poor value tariffs until the conditions for effective competition are in place.

The Bill has a sunset clause at 2023 and the cap would fall at the end of 2020 if, at that point, the conditions for effective competition are in place; I think that my noble friend wanted a response on that issue. The Bill is constructed in this way because the Government do not want an open-ended intervention, which would not be good for competition and, therefore, consumers.

At this point, I want to address the communication received by many noble Lords about the way the Bill is drafted, potentially preventing the cap from being removed, as the cap itself may have an impact on competition. That point was not lost on the Government when the Bill was drafted, which is why the judgment on removing the price cap, as set out in Clause 7(5), depends on whether,

“the Secretary of State considers that conditions are in place for effective competition for domestic supply contracts”.

In its recent consultation, Ofgem stated:

“We interpret ‘conditions for effective competition’ as meaning that the right market framework is in place for competition to be effective for currently disengaged consumers once the cap is removed”.


In assessing whether the conditions for competition are in place, Ofgem said that it would expect to analyse both the demand side and the supply side of the market, consider whether the market structure will promote good outcomes for disengaged consumers and consider whether there are remaining barriers to engagement. It refers to market conditions, not current market outcomes, for example on the rate of switching.

Coming back to the amendment, it is clear that the Government want the cap to be in place for as short a time as necessary. Ofgem will report on the conditions for effective competition and make a recommendation. Ofgem’s recent consultation points towards a number of factors that might indicate that the conditions for effective competition are in place. On the supply side, these include more innovative business models and the rollout of smart meters. On the demand side, they include making it easier for customers to share their data securely with third parties—meaning that they do not have to look up and enter lots of data on websites when they want to switch—and promoting engagement to help customers identify the best deal. These measures will need time to be established but it is right that we ensure protections are in place until the conditions for effective competition are in place. That is why the Bill enables the price cap to be extended, one year at a time, up to the end of 2023 at the latest.

I am grateful to my noble friend for her amendments. I can confirm that, all being well, the price cap will fall away in 2020—but as we have noted, if all is not well, it will not. With that, I hope that my noble friend is assured and will withdraw her amendment.

[Lord Mackay of Clashfern]

It seems that the Secretary of State has to make a decision before the end of 2019, in respect of 2020. At that stage, it must be assumed that the price cap will not continue because, unless the Secretary of State continues it, it will stop at the end of that year. There is an extra argument, as it were, to the argument about the cap stopping then: the cap will not be in contemplation in examination of the situation because we will have to assume that it has stopped. Therefore, any effect that it has on reducing competition is out of the equation at that juncture. I hope that noble Lords follow me.

[Baroness Vere of Norbiton]

My Lords, I was doing really well until the last sentence. I tried to follow my noble and learned friend. Of course, there will be a period leading up to the point at which the Secretary of State has to make the decision on whether to keep the cap. At that time, he will look at the information that is available to him and make a judgment on whether the conditions for effective competition are in place.