Domestic Gas and Electricity (Tariff Cap) Bill

Lord Redesdale Excerpts

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

[Lord Redesdale (LD)]

My Lords, I declare my interest as the CEO of the Energy Managers Association, which runs courses on procurement—I can tell noble Lords that it is an extremely complicated area in the non-domestic sector—and as the CEO of the Water Retail Company, a retailer in the new water market, next to which the energy market looks positively logical.

The Minister started by saying that there has been a failure in the marketplace and this should lead to major intervention. Here I must digress. I have just been talking to my son, who is doing his politics A-level at the moment, and some of the work that he has to do is to link political ideology to certain policies. I was trying to work out where this Bill fits. One could say that it fits with Corbynism. Obviously it was introduced originally by Ed Miliband, so it is a Labour policy going backwards, but I suppose that now it could be seen as a Mayism, if there is such a thing. However, this policy does not have an ideological base; it is really just a way of trying to garner public support. Saying that energy bills are high and we want to reduce them is a very easy way of bringing about public support. The speed with which this is being introduced could have something to do with the very valid points raised by my noble friend Lord Teverson, but it could also be that people are just trying to get the political benefit of doing this.

I am not against the reduction of the cost of energy and looking the problems of the marketplace. However, for years we have been talking about the energy sector becoming one of the most competitive marketplaces in Europe. If we have a competitive marketplace that is being pushed forward, there will be winners and losers. Indeed, the problem with the marketplace is that for companies to afford the deals to bring customers through the door, there have to be tariffs where they make more money in the marketplace.

The CMA report came out with a number of assertions about the amount of money being made by energy companies. I have to agree with the noble Viscount, Lord Ridley—perhaps for the first time ever in this Chamber—that there are certain problems with that assumption. I believe that the CMA report was highlighting a problem but I do not think the figures given could be taken as anything more than indicative. The reason I raise these points is not that I believe energy companies have a right to receive a certain amount of profit, but that I believe any cap being set is fraught with a number of difficult assumptions.

The cap will skew the marketplace. It is not as easy as saying, “We will set a cap”, because certain things going on at the moment mean that the cap may have to change quite quickly. As of half an hour ago, 48.1% of our energy came from gas. Twenty per cent of our gas comes from Qatar, and the recent problems with the treaty with Iran mean that there could be problems with the Strait of Hormuz. Even if nothing actually happens, the uncertainty could lead to a rise in fossil fuel prices which will have a major effect.

The noble Viscount, Lord Ridley, said—

[Viscount Ridley]

As we are agreeing so much today, does the noble Lord agree with what the Energy Minister said yesterday: these are reasons why we should get on with shale gas in this country?

[Lord Redesdale]

I am very tempted to go down that line. Of course, we could become energy independent if we were to use shale gas—for a whole seven years, and then it would be gone. I am not sure it is such a long-term solution.

There is a real issue about the cost of fuel, although wholesale costs will of course be a smaller amount compared to levies. However, we have to move to a low-carbon economy, away from our present one, although today, no power whatever was being generated by coal.

The Bill is flawed. It is being taken forward at great speed. Many people are saying that it is a popular Bill, because we all want to reduce the cost, especially to the most vulnerable, but I ask the Minister to look again at three things in the Bill which I know will be raised in amendments.

First, I ask him to reintroduce the CMA as the body that reviews any price cap. I do not suggest that this would hold up the process in any shape or form—a point raised by the noble Lord, Lord Hunt—but as the CMA is used as the backstop for most other Bills as good practice, leaving it out of this measure seems slightly perverse.

Secondly, I hope, following the Minister’s statement in another place that renewables tariffs may well be exempt from the price cap, that that provision will be introduced. I am thinking of shifting to a renewables tariff that would be higher than the price cap. I am prepared to pay more for a renewable source of energy. That is probably a point on which the noble Viscount and I disagree, but there is value in renewable energy. Although the Minister talked about ensuring that that was the case, I should like to see something in the Bill.

Thirdly, one problem often raised by energy companies, as well as the risk that they face from global politics, is regulatory risk. I find it interesting that the last substantive clause in the Bill says that this tariff rate might end in 2020, but it might go to 2021, 2022 or 2023, at which point it must stop. That is a difficult assertion to make, considering that companies buying large amounts of energy for the future have to make certain assumptions about where the price will be and what regulation they will face in future. On that point, I look forward to the next stage of the Bill.

--- Later in debate ---

[Lord Henley]

I am grateful to the noble Baroness for making clear the Liberal Democrat policy on this, but she did start by saying that the cap should never have been necessary and that she did not like it. However, she then stated that she wanted the cap introduced. I want to make sure that we have it in place, and that is why I must go back to the timing. While I cannot guarantee that we will have it in place by the time the clocks change, we hope to have it by the winter. For that reason, perhaps I may remind noble Lords that it would be helpful if we could deal with the Bill and see it returned from the Commons with all the concerns having been dealt with in one way or another by the time we take up our buckets and spades at the end of term. I do not know what it is that noble Lords do in the holiday months. We should get the Bill on to the statute book with Royal Assent so that the processes can continue and, by the end of the year, we will have a cap that offers benefit to consumers. If the Motion that I shall move at the end of the debate is agreed, I look forward to a constructive Committee stage in the Moses Room so that we can go through these matters and then sort them out on Report. I hope noble Lords will bear in mind what I said about timing at this stage.

As I said, the noble Lords, Lord Stevenson and Lord Teverson, set out a template for a number of points that I want to deal with: vulnerable consumers, the absolute versus the relative, conditions for effective competition, the cost of an energy review and green tariffs—other noble Lords covered all these points so I hope that they will not mind if I do not pause to mention every name—as well as some of the network costs, the timing of the Bill, which I just have dealt with so I can cross that out, appeals and, finally, the cost of environmental levies, as mentioned by my noble friend Lord Ridley. I will refer to some of those at the end.

For now, I will run through some of those points; it might save a little time in Committee but I doubt it. I also want to say how grateful I was to my noble friend Lady Bloomfield for reminding us that bringing forward a Bill of this sort was very unusual for a Conservative Government, as I tried to make clear at the beginning of the debate. We believe, as she cited, that there are occasions where markets are not working and it is necessary to intervene. That is what we are doing; we are intervening temporarily. These are not rent controls. This is not about bringing back a prices and incomes commission. It is a temporary measure to deal with the current problem of markets not working. In time, we hope to be able to return to what I sensed the noble Baroness, Lady Featherstone, wanted to take the Liberal party back to—a glorious, 19th-century free market approach—although she reverted to something different later on. We will get there in the end and I look forward to that joyous Committee stage.

I begin with the crucial point about appeals made by my noble and learned friend Lord Mackay, my noble friend Lord Hunt—an eminent lawyer whom I have served under—and other eminent lawyers whose tongues I have borne the sting of, such as the noble Lord, Lord Carlile, and the noble Lord, Lord Redesdale. Obviously, we will debate this issue in much greater detail in Committee; as noble Lords know, it was raised in another place and considered by the Select Committee. We should all be grateful for the work done by that committee on the Bill and for our process of sending draft Bills to Select Committees or other committees. Having considered this issue, the committee concluded that,

“judicial review is a common and satisfactory appeal route for energy decisions, even highly technical ones”.

The Government hope that energy suppliers will focus on engaging with the regulator’s consultations on the design of the price cap, rather than the scope for appeals and legal challenges. I appreciate that noble Lords who spoke on this think otherwise. They think that an appeal to the CMA would be less burdensome than using judicial review. We can reflect on that and we will consider it, but I note what Members have to say at this stage. I think we will have considerable discussion on it in Committee.

Concerns about vulnerable consumers were raised by the noble Lord, Lord Carlile, the noble Baroness, Lady Featherstone, and others such as the noble Lord, Lord Whitty. Again, additional protections for vulnerable customers and the interaction of the cap with Ofgem’s existing safeguard tariff will be a matter for the regulator. The Bill provides for Ofgem to maintain a cap for vulnerable consumers that is separate from the prepayment meter cap imposed by the CMA. In addition to the duty imposed on Ofgem by Clause 1(6) to protect all existing and future domestic customers on standard variable tariffs, the Gas and Electricity Acts impose duties to protect the interests of customers. In carrying out this duty, Ofgem should have regard to all the points that noble Lords have raised. The noble Baroness mentioned the document produced by Scope, which I have seen. Obviously, Ofgem should take into account the interests of individuals who are disabled, chronically sick, of pensionable age—as the noble Baroness, Lady Featherstone, pointed out, there are many of that last group in this House—with low incomes or residing in rural areas and others. Again, these are matters that we can consider later.

The subject of the absolute versus the relative cap was raised by the noble Lords, Lord Stevenson and Lord Teverson. This matter was discussed at considerable length in another place; quite often, one needs a cold towel wrapped around one’s head to understand some of the technicalities. Again, it is a process that we will consider in great detail. The Government, Ofgem, the Select Committee and another place all believe that what we are doing is the right way to proceed. A relative cap might simply prompt the withdrawal of more competitive rates by larger companies while offering no protection to those on poorer-value tariffs. We will look again at this in greater detail but, on some occasions, I think noble Lords will find these matters difficult.

The noble Lord, Lord Stevenson, talked about the conditions we need for effective competition—it was the third point he raised. The legislation is framed so that consumers’ incentives to switch, which is what we want, and suppliers’ incentives to compete are maintained. I appreciate that the noble Lord, Lord Carlile, in his usual amusing way, pointed out how difficult it can sometimes be when we sit down with our computers and have all these messages appearing. We want to make it easier; we will try to do that. That is one reason why we hope that the cap will be just a temporary measure which is removed when the conditions for effective competition are in place. We have not provided in the Bill for what those conditions will be, as in a changing market we do not want to impose conditions that may not be met or tie the removal of the cap to measures that will not be in place by the time that the wider market has become competitive. It will be for Ofgem to report on whether those conditions are met, and the Secretary of State will then make that decision on removal or extension. Clause 8 makes provision for that to happen repeatedly over the years if we seek an extension.

The fourth point raised by the noble Lord was the Cost of Energy Review. We are aware of Dieter Helm’s comprehensive and fully independent review of the cost of energy: I think it arrived very soon after I became a Minister and it was probably the noble Lord who put down a question very soon after that, which I had to respond to despite the fact that the review was some 158 pages. I had to assure him, or someone, that I had not read the entire review in the time available, which was about four days. I have had more time. I cannot claim to have read it absolutely from beginning to end, but we are still considering those findings and we will in due course set out our next steps in light of the responses we have had from others to it.

The Government have already taken action that has helped reduce costs and helped consumers to manage their bills. The cost of offshore wind, as noble Lords will know, has halved over the last two years. We have paid compensation to eligible businesses in energy-intensive industries across the UK for the indirect costs of energy policies: that has totalled well over £500 million since August 2013. We are also seeking to do more by upgrading something like a million homes to meet our obligations to make them more efficient. The costs of those policies to deliver clean growth on bills are more than offset by savings from improvements in energy efficiency, saving on average in 2016 something of the order of £14 on household bills.

The noble Lord, Lord Stevenson, and others raised green tariffs. The Bill places a duty on Ofgem to consult on exemptions to the cap for green tariffs. I note in passing that while the noble Lord, Lord Redesdale, is perfectly happy to pay more, that will not be the case for everyone; but we leave that to him. Green tariffs are tariffs that support the production of gas or the generation of electricity from renewable sources.

[Lord Redesdale]

My Lords, I raised the example of myself but there are tens of thousands, if not hundreds of thousands, of consumers who are also prepared to take that route and would want that opportunity.

[Lord Henley]

I appreciate that that is the case and I have been on various websites that have offered me the choice of going either for a cheaper deal or what is termed a greener deal: that is an option for individuals to make. What we are looking at in this Bill is obviously to provide a cap to provide safeguards for people.

The Bill places a duty on Ofgem to consult on exemptions to the cap for green tariffs—those tariffs that support the production of gas or the generation of electricity from renewable sources. Having consulted, Ofgem will then have the power to implement exemption from the cap. That is for it; we are not opposed to green tariffs being exempt.

Moving on, network costs was another concern of the noble Lord, Lord Stevenson, and others. He asked, while being tougher in the future was all well and good, were customers being ripped off now? One could say that this is a matter for Ofgem: it is the independent regulator and responsible by law for setting the price controls. Ofgem reports that its assessment of network company business plans and the benefit-sharing arrangements in place in the price control is expected to save the consumers yet another £15 billion in the current price control Bill.

The seventh point the noble Lord raised was about timing. I repeat what I said at the beginning: it is important that we make good progress with the Bill, that we get it through to Royal Assent before the Summer Recess, and then we—or, rather, Ofgem—can get on with the process of bringing in a price cap, so that we will be ready with everything in place for the coming winter.

Lastly, I will touch on some of my noble friend Lord Ridley’s points. He referred to the “pachyderm in the parlour” and blamed the Government for putting up energy costs by imposing greenery, as I think he would put it, on household energy bills. I say to him that government policy costs make up only a relatively small proportion of the household energy bill—around 8% on average, according to Ofgem. Last year, as he will be aware, we published our Clean Growth Strategy, which outlined our commitment to supporting the growth of clean and renewable energy for all. Action to cut emissions can be a win-win for consumers: better insulated homes and more efficient vehicles mean less money spent on gas, electricity and other fuels. Our policies have helped reduce energy bills and costs overall: for example, my noble friend will be aware that we have seen the cost of solar cells come down by some 80% since 2008 and, as I said earlier, the cost of offshore wind has declined by about 50% over the past two years.