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.