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.