Domestic Gas and Electricity (Tariff Cap) Bill

Lord Stevenson of Balmacara Excerpts

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

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the Minister for introducing the Bill and for giving it a good going-over in terms of its various elements. It is a very short Bill, but sometimes the shorter Bills are the more contentious ones that come before us. We will have to see how we get on with this.

I should also apologise for the non-appearance of my noble friend Lord Grantchester, who would normally introduce Bills of this type—he has a lot of experience and knowledge of them—but unfortunately he is ill and cannot be with us today. I am sure that your Lordships will join me in sending him good wishes for a speedy recovery.

[Noble Lords]

Hear, hear.

[Lord Stevenson of Balmacara]

We are very pleased that the Bill is finally before the House today. The 2017 Conservative manifesto committed to implementing an energy price cap, and it has been Labour Party policy since 2013 to introduce a price cap on consumer energy bills. So, as the Minister says, we should have a harmonious time on this Bill. But as background, let us be clear that National Energy Action found that, on average, some 9,700 people die each year because they live in cold homes. To put that in context, it is close to the number of people who die from breast or prostate cancer every year. So although the principle underlying the Bill is good, we remain concerned that, as drafted, it does not go far enough. Why? Because our energy market is fundamentally broken and needs to be changed. The Bill is silent about the fundamental changes that need to be made.

I start with the question of why the Bill does not provide any direction from the Secretary of State on what might be a preferred level for the cap. The Bill merely states:

“The authority must exercise its functions … with a view to protecting existing and future domestic customers who pay standard variable and default rates”.


In so doing, Ofgem must consider a number of factors, including creating incentives for suppliers to improve efficiency, enabling suppliers to compete effectively, maintaining incentives to switch between suppliers, and the need to ensure that the holders of supply licences which operate efficiently are able to finance activities authorised by that licence. It is a good list, but it is a very interesting list, because it is largely focused on maintaining the present structure of the industry. Where is the need for Ofgem to devise a scheme that benefits consumers? We want to promote fair and transparent competition within the energy market but not at the cost of consumers, neither literally nor metaphorically. Why do the Government insist on a market-facing approach? Is it perhaps because the main aim of the Bill is to promote switching, not to protect vulnerable consumers?

Secondly, why is there no duty on Ofgem to consult on how such measures can accurately be quantified? Will they form part of Ofgem’s cap methodology consultation, and if not, how will Ofgem reach a determination among these somewhat contradictory goals?

Thirdly, we welcome the fact that the Government are bringing in an absolute cap. We are agreed that it will help customers, especially those languishing on standard variable tariffs. However, this absolute cap is time-limited; it will be in place for only a few years before it is lifted. While there are reviews of switching practice going on, the Government have not answered the fundamental question of how they expect the energy market to be fixed by the time we reach the end of this process. Surely we should not be changing things in an arbitrary way until the landscape of the energy market has changed and all customers benefit from low energy prices, especially those who have not switched from SVTs. Perhaps the solution would be to require that a relative price differential mechanism should be established and implemented while the absolute cap is in place. This would at least have the effect of preventing the current and perverse “tease and squeeze” culture of trying to attract customers with cheap or loss-leading tariffs and then rolling these customers on to very expensive SVTs, as commonly happens in the market. A relative price differential, absent the fundamental reform which is required, would at least drag SVTs down towards cheaper tariffs and hinder the “tease and squeeze” approach.

Fourthly, what is the process when the cap comes to an end in 2020? The Bill merely states:

“The Authority must carry out a review into whether conditions are in place for effective competition for domestic supply contracts”.


It does stipulate that the review must include an assessment of progress made in installing smart meters, but unfortunately that is as good as it gets. We think it is highly unlikely that the smart meter rollout will get anywhere near completion by that date. Why not use the completion of that programme as a point at which to review the capping scheme, without a sunset clause?

Fifthly, what exactly is a “clear and realistic definition of effective competition”? The magazine Which? says that,

“the criteria for effective competition are not defined so it is not certain under what circumstances the cap will be lifted or how its success will be judged”.

Sixthly, we are concerned that the consumers who benefit from Ofgem’s safeguard tariff may actually see their energy bills rise as a result of the cap. If the overall price cap consumes the safeguard tariff, vulnerable customers could see their prices go up by more than £30 as a result of the difference between the safeguard situation and the likely absolute tariff. When responding to these concerns on Report in another place, the Minister agreed that it would be perverse for some of the most vulnerable customers to see their energy prices go up as a result of a price cap and agreed to give the issue further consideration. The Minister did not mention it in his introductory speech, but I hope he has reflected on this and will, during the passage of the Bill, require Ofgem to identify affected customers and put in place measures to offset their loss or else not proceed with removing the safeguard tariff.

Seventhly, we are concerned that, because this Bill is at heart intended to promote switching as a means of reforming the energy market, it will not of itself reduce prices. According to the Dieter Helm review, the cost of energy is significantly higher than it needs to be to meet the Government’s objectives and, in particular, to be consistent with the Climate Change Act and security of supply. Further, energy policy, regulation and market design are not fit for the purposes of the emerging low-carbon energy market as it undergoes profound technical change. Since this was a review commissioned by the department, I think it is fair to ask the Minister why the Bill does not seek to remedy the problems identified by Dr Helm. If, as Dr Helm suggests, we are moving towards a decarbonised, digital, smart electric energy world, why are customers not benefiting more from the prospect of ever-lower costs from cleaner energy? To narrow it down to something at the heart of the Bill, why are the Government even considering excluding green energy from the cap?

I see from the list of speakers that we are going to have the benefit of the wisdom of the noble and learned Lord, Lord Mackay of Clashfern, later on. I have a suspicion—I may be wrong—that he is going to talk about appeal mechanisms and will want to ensure that there is a proper merit-based appeal mechanism to the CMA if any company, the prices of which are capped by the Bill, is adversely affected. I do not want to anticipate his speech because I look forward to hearing it, but I put it to him that there may also be a case for civic agencies such as Which? or Citizens Advice to be able to raise appeals on behalf of consumers in a symmetrical, although not identical, manner. Perhaps he will consider this suggestion carefully when he comes to his amendments at a later stage of the Bill.

As I have said, the Bill does not provide an answer to the broken energy market. The rules in place are contradictory and self-cancelling. The place of green energy is equivocal. Between 2007 and 2013, electricity bills soared by 20%, while in the past year alone every household in the UK paid an average of £120 towards the dividends extracted by energy company shareholders. Over the past few months, report after report and news story after news story has detailed the unfairness of the current system. However, it must be noted that the final bills that consumers face are not simply a consequence of manipulation by some supply companies. As the BEIS Select Committee has highlighted, network-fixed costs make up the second highest element of a dual fuel energy bill.

Reform of the market is critical not just to instil fairness and affordability but to ensure that Britain has an energy system fit for the future. We are experiencing a pace of change in the energy sector that has never been seen before. Batteries, storage and smart systems are transforming demand and supply. There is a move to smarter, more decentralised forms of energy generation and supply, emulating many of the models established across Europe, along with the potential of accessing a low-carbon market that is, according to Goldman Sachs, worth over $600 billion.

The main problem is why the system is not treating vulnerable consumers fairly. The Business, Energy and Industrial Strategy Committee found that vulnerable and low-income families were especially affected by poor-value tariffs, with 83% of those living in social rented housing, 75% of those on low incomes, 73% of those with no qualifications and 74% of disabled customers on a standard variable contract. It was clear from the committee’s findings that, even with the advent of smart meters, these groups will still require protection from overcharging. I therefore urge the Government to reconsider their opposition in the other place to amending Clause 7 to ensure that, when it considers “effective competition”, Ofgem has regard to the impact of removing or extending the cap in relation to vulnerable and disabled customers.

Finally, I am concerned that there is no timetable in the Bill and no guarantee that the price cap will be in place for this winter. The Bill currently states that Ofgem must introduce a cap “as soon as practicable” after it is passed, but Ofgem has already said that it would take around five months after the Bill receives Royal Assent to enact a price cap because it has a statutory duty to consult power companies. We need to look at this again. Ofgem currently estimates that it,

“will look to set the level of the cap over the autumn and bring the cap into effect at the end of this year”.

But that is half way through next winter—the cap will not even be in place when the weather turns in autumn this year. The Bill would be greatly improved by the inclusion of a hard deadline by which the cap must be in place, and we will seek to include such a deadline of the last weekend in October 2018, when the clocks go back.

Domestic Gas and Electricity (Tariff Cap) Bill

Lord Stevenson of Balmacara Excerpts

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

[Lord Stevenson of Balmacara (Lab)]

My Lords, three issues are being raised now. The last two speeches and the introduction were about communication and the points were well made, but we are probably all asking, “What is this all for?” We are missing a dog that has not barked, which, in its most recent form is, saving the presence of my noble friend Lord Whitty, Consumer Focus. Previous regimes have had national consumer councils and other bodies. There was an active and statutorily supported consumer interest that was also part of the process, from which the problems which we are now talking about seem to have emerged. We do not have that; we have a different structure in place and it is, perhaps, too soon to make judgments on it. However, an issue has been raised that should not be allowed to go away simply because the system does not currently encourage it. Like the noble Lord, Lord Carlile, I have also tried to change my rather complicated fuel arrangements. The house I am in has been brought together from three separate properties and I have three gas and three electricity suppliers. I recognise that this issue exists on the other side of the divide here. It is not simply a doubling: this is an exponential difficulty for those providers who are not able to cope with the issue. That is my problem, but it exemplifies the difficulty of trying to get information.

I have three points of concern. First, it is a problem that there is no statutory body to which you can go that will take this issue on and act on your behalf. Citizens Advice, for all its merits, is not that body and we miss Consumer Focus. Secondly, there is a case—even though there may be costs—for looking very critically at the information flow from the companies at the moment. They may well be trying their best; they may be saddled with statutory responsibilities, but the end product is more pages of more and more complicated, structured things that do not give you the information you require in a way that you can use. For most individuals looking to exercise the market power that consumers should have in this area, this would be a clear statement of the unit cost per kilowatt hour of energy consumed. We do not want a mixture of consumption and fixed costs and to then discover that there are all sorts of fixed costs that are never brought forward, such as network costs, smart meter costs and other things that exist below the line but are never provided in a sensible way. There is a direct issue of communication between the provider and the consumer.

My third point is raised in Amendment 38. The way in which the market has to operate in these rather asymmetric arrangements is for there to be comparison sites and other information providers, which we all tend to go to when we can. There is another problem here, which has not been touched on yet but which we must think about. To what extent are these truly independent? It has been said, by those who have given evidence to us, that many of the comparison sites are only there because they take a commission on the provision of information about the companies by which they are retained. I find it difficult to see how consumers are supposed to work out what is the best deal. This may not be limited to the energy area, but if it exists there then some action needs to be taken, whether by statute or regulation, to make sure that this is a proper aid to consumer choice, not an additional complication.

We were also looking for a way of getting an amendment in this area. I am impressed that the noble Baroness and the noble Lord, Lord Teverson—who cannot be with us—were able to find a form of words. It does not take the trick but it is certainly in the right field. I hope that when the Minister responds he will give the Committee some information about where we might take this issue. It is not dealt with properly in the Bill; it is effectively out of scope in terms of what the Bill currently does. Perhaps, with a little offline discussion, we can bring a bit more focus to it. That would be worth while.

[Lord Henley]

My Lords, before I respond to the amendments, I will assist my noble friend Lady Neville-Rolfe by answering one of her questions. We are now up to 70 suppliers. She talked about it possibly having got to the high 40s or 50s, but one should be grateful that the number is higher and rising.

[Lord Stevenson of Balmacara]

I am grateful to the noble Lord for that information. It would not be right to accept that figure at face value. It may well be 70, but there is a huge discrepancy in size and capacity in that number. We are talking about the big six and then a very large number of small companies with perhaps 1% or 2% of the market. It is not quite as has been said.

[Lord Henley]

I fully accept that, but the big six is six out of 70 companies. There are another 64, and that number is growing. It might be a small tail but it is good to know that those alternatives are available as suppliers.

I am grateful to the noble Lord, Lord Berkeley, for moving his amendment and to other noble Lords for speaking to theirs. The general message is that everyone is seeking more information and information of the right sort, which should be—I forget where the noble Lord was quoting from—on a durable medium. He took that to be paper, but it might be extended to vellum, if we remember our debates on other occasions about what Acts of Parliament ought to be printed on.

I am grateful to the noble Baroness, Lady Featherstone, for her amendment and her frank admission that, for a Liberal, she was being somewhat dictatorial. It is not unusual for Liberals to be somewhat dictatorial; in fact, I find them very prone to banning things and ordering us around, but that is the nature of the beast.

I am also grateful to the noble Lord, Lord Carlile, for mentioning his difficulties in trying to get information and change his supplier online. I also know how difficult that can be. One gets online and has problems, then that dreaded expression comes up: “Frequently asked questions”. One can always guarantee that the one question you want to ask will not be one of the frequently asked questions. I was grateful for the analogy he gave of the very good advertisement he saw for a credit card setting out interest rates of some 56%. I take it that he did not bother to take up such an offer. I will ignore what he said about train fares, only to say that I am grateful not to have to respond for the Department for Transport on this occasion. However, as someone who, like him, travels a great deal, I agree that fares can be difficult to follow.

It is very important that we make sure that energy companies not only are as transparent as possible with consumers but provide as much information as is necessary. I am happy to report that Ofgem’s standard licence conditions require—they are dictatorial, you see—suppliers to communicate information about cheaper tariffs to a customer with a “Could you pay less?” label on the first page of bills and statements of account. It is a requirement that the information on cheaper tariffs is included, along with a message saying, “Remember, it might be worth thinking about switching your tariff or supplier”. That required information includes details of the estimated savings that could be achieved by switching to a cheaper tariff.

As I made clear, customers can also continue to specify whether they wish to receive this information electronically or in a hard copy. I noted the percentages given by the noble Lord, Lord Berkeley, on how much people know what is happening in their bank accounts, whether they receive information on paper or online. The simple fact is that a great many people wish to receive this information online. We do not want to prevent that, but Ofgem is imposing a condition that customers must be offered the right choice. Ofgem is also leading a programme of work across industry, including detailed trials of different problems to engage people. Early information from these trials suggests that they can be effective at improving switching rates, however difficult some noble Lords might find that to achieve.

The Government are also working to improve consumer engagement. We provided a little over £1 million in funding for the Big Energy Saving Network and the Big Energy Saving Week last winter. We are also progressing midata in the domestic retail energy market. Midata is the method of electronically transferring customers’ data from a company system to a third party, such as a price comparison website, and should open the door to innovative third-party switching services.

The Government take transparency and ensuring that customers have the information available to switch very seriously, so although I agree with the spirit of these amendments, the processes and policies are in place for consumers to have the appropriate information that they need. It is also worth remembering the warnings that my noble friend Lady Neville-Rolfe gave about trying to insist on too much. Perhaps we should bear in mind the acronym KISS: keep it simple, stupid. There is a limit to the amount of information that should be provided and what is provided should be kept simple. I hope that with that explanation—

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Moved by

[Lord Stevenson of Balmacara]

4: Clause 1, page 2, line 15, at end insert—
“( ) the need to ensure that adequate protection exists for vulnerable domestic customers, including ensuring those customers who currently benefit under a cap imposed by the Authority on rates or amounts charged for, or in relation to, the supply of gas or electricity because they appear to the Authority to be vulnerable, retain those benefits.”

[Lord Stevenson of Balmacara]

There is no plot, my Lords. We are not trying to keep my noble friend Lord Grantchester away from the Dispatch Box but we find it more equitable to share the responsibility, so we are popping up as need demands. I am sure he will return to his commanding position as leader on the Bill very shortly.

It seems odd to have got to the third group of our amendments to find an amendment that, while ostensibly about the various types of cap that are envisaged in play, actually asks a rather deeper question. What is the Government’s intention behind the Bill and what is behind their intention to have Ofgem, as authority, introduce this within a reasonable time after the passing of the Bill? Is it to help vulnerable customers? Is it to help with fuel poverty? Both issues have been raised already in this debate. Or is it more focused on the market and its efficiency and is therefore unrelated to some of the issues we have already touched on, in terms of how people react to the provision of caps?

This issue was raised in the other place in Committee and on Report. What the Government were going to do about this was left open. At the heart of this amendment is a suggestion that the Government need to step up to the plate and tell us where they want to go on this. The discussion that took place in Committee in the other place on 30 April raised the points I shall make, at a superficial level. At the end, the Minister offered some assurances in summing up, but he did not bring forward amendments at later stages. Your Lordships’ House has not yet seen any from the Government.

At heart, there is common ground that it would be a perverse outcome of this price-cap Bill if low-income and vulnerable consumers currently protected by the safeguard tariff had their energy bills increased as a direct result of the introduction of measures in it. We are clearly looking for some certainty about this. Perhaps, when they are designing the wider cap, the Government could highlight that existing provisions require Ofgem to have due regard to low-income and vulnerable customers who are already protected by the safeguard tariff. I echo the points made by the noble Baroness, Lady Featherstone, about this new cap needing a name; otherwise, we shall get into trouble over what we are talking about. There are, of course, other measures in place. There is a warm homes discount, which may be extended. To what extent does that interpose itself in relation to the cap in the Bill? There are measures to protect those who pay cash through prepaid meters in their homes. Where do they stand in relation to it?

To answer my original question, the Government see this more as a market-mechanism Bill than as anything to do with consumers, whether they are vulnerable, disabled, or fall into another category under existing measures. I think that is a mistake. A case was made in our first discussion this afternoon for making sure that we do not see the return of cold homes and the impact that illnesses have on the wider economy if people are not able to fund and maintain a warm and watertight home. However, the problem that needs to be solved for that to happen is not within the Bill but is raised by it. The current market allows for things to happen that are clearly inimical to consumer interests. We see a widespread use of what is called “tease and squeeze”. This is a technical term, which Hansard will want to look up. It is not found in any legal text but describes perfectly what happens to most customers of the big six and less so to those of the other 64 companies that make up the energy supply market, but it is still present. As was raised at Second Reading, it involves, in essence, the availability of extremely discounted initial tariffs to which people can switch, followed by a quick change to a much higher one, which is never really disclosed in any detail and does not appear on many price comparison sites. When you are signed up, you are squeezed. You are teased first with a chance to cut your energy bills quickly by moving to a wonderful new company that has sprung up. Within a year, however, you find that you are on a much higher tariff. If you pay by direct debit, as many people do, you may not notice that until the letter—probably not an email—arrives saying that you have suddenly built up huge arrears and have to pay them a large sum of money. I am not in any sense implying that any illegality or malpractice is going on in the marketplace, but it is certainly not in the consumer’s interest to have this tease and squeeze arrangement operating at will in a situation where the information flows are asymmetric and difficult to read and where the consumers themselves are not able to use effective mechanisms such as price comparison sites to identify exactly what their costs will be, both when they switch and, much more importantly, later.

Many noble Lords may have been approached by companies and others who have an interest in this area. It seems to attract a large number of people who have views on how this issue should go forward. Noble Lords will have been told that one of the major problems affecting it is that when you try to work out the actual costs of the deals that are available, and what they would mean to a consumer who is paying, the information is so opaque and difficult that people end up frustrated and unable to see it. They certainly do not get the most important information, which is the long-run cost that they are entering into.

Arguing back from where I had got to, if the Bill is primarily about improving the market, surely what we should be focusing on, given what I have been describing, is a better series of powers and regulations held by Ofgem to clean it up. We should ban “tease and squeeze” and make sure that consumers are offered clear and unequivocal information about what they are signing up to—now, a year down the line and further down the line, subject always to cost. We have to get behind the idea that this is in some sense a market, but to say that 70 companies compete openly and fairly for the consumer’s interest does not describe effectively what is happening. A group of small companies has been set up which are primarily concerned with issuing bits of paper called bills and getting money out of people. They do not have the sort of competitive marketing operations that we would expect in a fully fledged and operating market; I think the Government accept that. The Bill is only one very small part of what must happen next, which is a clean-up of the whole operation.

We know that this is one part of that. It was probably a politically inspired decision to try to get some locus in this area, which was very much the opposition parties’ game before the last election. Nevertheless, that will work only if some serious effort is put behind the arguments by bringing forward proposals that people will listen to and act on. If, as we have heard, the main measure behind this provision is the smart meters programme, the Government are putting their money on the wrong horse. From all the information we have—we will probably have the advice of the NAO in three or four months’ time—this programme does not seem to be delivering on the aspirations the Government had for it. If that does not work and the information in the home is not available to consumers at the point of consumption, we will not have an effective, intelligence-led approach to how we may look at our bills and try to make sensible decisions about their cost.

That was a bit of a rant to get the Committee into this debate. The issue behind this amendment is whether we should look more carefully at the issues that have arisen from the ideas already in play to protect vulnerable consumers, while ensuring that they are not affected by the introduction of this price-capping Bill and that as a result consumers benefit, the market is cleaned up and the Government get what they deserve in trying to ensure that people have a fair and open market that works well for all concerned. I beg to move.

[Baroness Featherstone]

My Lords, the purpose of Amendment 12 continues that theme. It would ensure that wherever there is a vulnerable person, whichever supplier they are with and whatever tariff they are on, the Government would empower Ofgem to deliver the lowest tariff—the tariff for vulnerable people. It would also ensure that that lower tariff is not deleteriously affected by the Bill in any way whatever, and that there can and would be no unintended consequences that result in vulnerable people paying more. The Government need to clarify for the record that the introduction of the price cap does not, and must not, allow for Ofgem to remove or fail to extend the current safeguard tariff for low-income or vulnerable households. It would be helpful if the Minister could lay out how this will not and could not be the case, and demonstrate beyond doubt how the two caps—the one already in place for vulnerable people and the new energy price cap being introduced—can operate at the same time, without causing detriment to anyone eligible for a lower tariff for reasons of low income or vulnerability.

Amendments 27 and 31 relate to Clause 7, which we will debate later. It says that Ofgem,

“must carry out a review into whether conditions are in place for effective competition”—

to include, among other things, consideration of the rollout of smart meters—and must recommend whether the cap should be extended or lifted. Then, after considering the review, the Secretary of State must publish a statement on whether the cap should be lifted or extended. Amendment 27 requires Ofgem to take into account,

“the level of protection in place for disabled domestic customers”,

at that time as part of that review process. Amendment 31 requires the Secretary of State to,

“have regard to the level of protection in place for disabled domestic customers”,

as part of the statement setting out whether the cap should be extended or lifted.

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[Lord Stevenson of Balmacara]

I thank all those who have joined me in this debate, in particular the noble Baroness and my noble friend Lord Whitty. I am grateful to the Minister for going through the issues and I will read his words in Hansard to make sure they cover the points I have made. However, it might be helpful to him if I lay down a specific list of the issues that we need to resolve, and perhaps a letter from him would make absolutely clear what is being said on these points. He said that the Government have laid the SI that is necessary for data sharing, which I think is the precursor to extending the safeguarded tariff. I had not spotted that myself, but if it is true and it could be confirmed, that would be great. Does that therefore mean that the extensions to the safeguard tariff will be available to coincide with the introduction of the Bill? If it is likely that the cap will be introduced by the end of the year—it is unlikely to be before that —can we be assured that the extensions to the safeguard tariff will also be brought in at that time?

[Lord Henley]

I am not sure that I can give an absolute assurance on that now but I will certainly make sure it is in the letter that the noble Lord has requested from me.

[Lord Stevenson of Balmacara]

I am not looking for an immediate answer but I am trying to make sure that we are not missing anything out. I think the winter fuel payment and the cold weather payment are in different statutes and I cannot see them being affected by this but, again, confirmation that they will not be affected by anything in the Bill would be helpful.

I declare an interest that I am on the priority services register, being of that age. I am looking to see if anyone else is nodding. It was a rather scary moment when someone rang and asked, “Do you want to go on the register, you poor, shivering old person living alone in your house?”—which was certainly not how I felt at the time. But it actually turned out to be quite nice because when there was—inevitably—a power cut within the next couple of weeks, someone rang up and said, “There is a power cut”. I said, “I know that”. They said, “But you are on our register, we have to tell you”. There were various other things I could bore your Lordships with but it was quite amusing.

I have the same question about the warm home discount: will that fit into the way the Bill is being brought in and can we be assured that it will continue and will not be affected?

In summary, I think all the speakers were interested in getting an unambiguous overarching statement from the Minister that the safeguard tariff will not be withdrawn prematurely and will be extended to fit in with the recommendations. If we could get that, I would be very grateful. I beg leave to withdraw the amendment.

Amendment 4 withdrawn.

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Moved by

[Lord Stevenson of Balmacara]

6: Clause 1, at end insert—
“(13) The cost of an appeal initiated by a statutory consumer advocate for energy consumers must be met by the Exchequer.”

[Lord Stevenson of Balmacara]

My Lords, I can be very brief, because this amendment tabled in the name of my noble friend Lord Grantchester has already been argued for very persuasively by the proposer of the original amendment and I have nothing to add to that.

The noble and learned Lord makes the point that there are two or three bodies on which there is an expectation that they will look after the consumer interest in matters affecting energy, and one key issue will be the pricing of any cap. An appeal has to be available to them because that decision involves judgment being exercised throughout as many imponderable questions need to be looked at for the authority to arrive at the decision. When we asked about this, Citizens Advice said that it is nervous about the fact that very often these appeals were done with a lack of equality of arms, in that senior counsel are often briefed and brought in by the companies and, therefore, to be able to argue the case persuasively it feels it also has to take counsel. That is expensive, costing perhaps more than it is able to afford. Therefore, the question of cost has arisen. I think the noble and learned Lord, Lord Mackay, made the point so I do not need to emphasise that there is an issue here. If the Government could find a way for these costs to be met, it would obviously be better—we would not need to amend anything—but the amendment needs to stay there to make a point. I beg to move.

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[Lord Stevenson of Balmacara]

I am sorry to interrupt but the procedure is for me to respond first. I thank the Minister for his response, although I think the arguments were won fairly and squarely by those who proposed the original amendment. I hope that there was support around the table for the additionality of the consumer statutory representatives. The point is made that they are funded to be consumer statutory representatives—that is true. It is not true that they are funded adequately to carry out all the functions that could apply if this additional responsibility were placed on them. It would be a perverse outcome for the Government to rely on existing funding and not supplement it if a large number of people suffered badly as a result of a benefit that was supposed to come to them but which was not done properly and needed to be appealed, and the appellant was not able to fund their appeal.

I think we will have further discussions on this issue. I make it clear that we are minded to support the noble and learned Lord’s amendment. As such, we would like to be part of that discussion and debate when it comes. In the interim, I beg leave to withdraw our amendment.

Amendment 6 (to Amendment 5) withdrawn.

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[Baroness Featherstone]

My Lords, one of the concerns that I raised at Second Reading is that there is no requirement for the authority to exempt from the cap those who wish to pursue a more environmental tariff. Under Clause 3(2) the authority may exempt such customers but there is no obligation to do so. There was such an obligation in the draft Bill, and with Amendment 13 we would reinsert the wording that was used then into this version of the Bill. The BEIS Select Committee was worried that the wording was too ambiguous and would allow companies with tariffs that were not environmental to use it as a loophole to escape the cap. We have tabled this probing amendment to ask the Government why more has not been done to get this into the Bill. Clause 3 enables Ofgem to exempt green tariffs from a cap if a customer makes the choice to move to a tariff that provides energy from renewable sources only—but with no clear timetable for introducing those exemptions.

Earlier this year, the Government stated that they would seek an exemption for green energy tariffs from the price cap. They said that if the power was from a renewable source only, it would be exempt from the cap, but Ofgem is not required to consult on this before the cap is implemented. If this is not amended, there will be a chilling effect on what is still a nascent but vital industry. Taking the Government at their word, encouraging consumers to stay green or to go green should be built into the introduction of the cap from day one.

In March this year, Ofgem published an update on its plans for the price cap. At that point, it said that it was planning to issue a series of working papers on a whole range of aspects of the cap ahead of a policy consultation. One such paper was to be called “Our views on an exemption for tariffs which may support the production of renewable gas and electricity”. It issued a series of working papers, none of which related to that exemption. If we cannot get this in the Bill, the cap when instituted will not include that green exemption. I look forward to hearing what the Minister says about how the Government might amend the Bill to ensure that consumers who choose to buy clean energy are not disadvantaged. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, I support the amendment of the noble Baroness, Lady Featherstone. The amendments in this group are variations on the same theme, which is the question of how one can find in the Bill the right balance between the wish to encourage the drive towards reduced carbon and no-carbon generation of power as far as possible and, at the same time, trying to get out of what appears to be a cul-de-sac in which the more we propose exemptions from the tariff for those who exercise clear preferences for green supply and carbon-free generation, the more they will not feel the benefit from measures that are meant to reduce the cost of the electricity and power that they consume. I do not know what the right balance for that is, so this is a probing amendment.

Our solution—we are not wedded to it but I would be interested to hear the Government’s observations on it—is that a situation where a consumer has clearly and unambiguously signified their intention to always select energy provided from wind or other renewable sources might provide a break point in which one could exercise discretion on whether they obtained the benefit of the cap. That seems to play to my earlier concern that this would prioritise people who used carbon-based energy sources as the only ones to benefit from the cap and would therefore reduce their costs.

I am not entirely clear which way we should go on this. It seems unreasonable to take an extreme position one way or the other, but that seems the only way to find an equitable solution. I look forward to hearing the Minister’s response.

[Baroness Vere of Norbiton (Con)]

My Lords, I will address the proposed amendments to Clause 3 from the noble Baroness, Lady Featherstone, regarding arrangements for exemptions from the price cap.

On Amendments 13 and 14, the Government are clear that it is right for Ofgem, as the expert regulator, to look at an exemption from the cap for green standard variable tariffs, remembering that fixed-term green tariffs are not covered by the cap. The Bill requires Ofgem to consult on an exemption and, if it decides to put an exemption in place, it must be for tariffs that are chosen by consumers and which support the production of gas and the generation of electricity from renewable sources.

The Government do not wish to prejudge the outcome of Ofgem’s consultation. We are very much aware of the arguments around having an exemption but are also aware that, as with any exemption, there may be a risk of gaming—or greenwashing, as it is sometimes known. This is a complex area and we should not make any judgments or decisions until Ofgem has undertaken its consultation and examined the approaches to an exemption.

The Government note that many fixed-term green tariffs that support renewable energy generation are already available on the market. These offer consumers considerable savings compared with non-green SVT tariffs. Some new entrants to the market also expect to deliver green standard variable tariffs at levels below where they expect Ofgem to set the price cap. Fixed-term green tariffs would still be available in the event that the regulator chooses not to exempt green SVTs from the price cap. In view of this explanation, I feel that Amendments 13 and 14 are unnecessary.

Amendment 15 concerns vulnerable consumers. As has been noted in relation to earlier amendments, Ofgem will keep the safeguard tariff in place for warm home discount recipients if it offers a higher level of protection than the market-wide price cap under the Bill.

Amendments 16 and 17 are in the name of the noble Lord, Lord Grantchester. Amendment 16 creates a situation whereby, if Ofgem decides that actively chosen green tariffs that support the production of renewable energy should be exempt, all consumers on such tariffs would need to opt in to this exemption; otherwise, the cap would still apply. There may be unintended consequences from this approach. If Ofgem does decide to exempt green tariffs and yet only a small proportion of consumers opt in to the exemption—for whatever reason—these suppliers could find that their tariffs become financially unsustainable. Such a situation could counteract the aim of encouraging and maintaining investment in renewable energy, while also limiting the choice of green tariffs available to consumers. The Government are therefore not convinced that an opt-in clause would be helpful.

On Amendment 17, I remind noble Lords that Ofgem published its policy consultation on 25 May and it remains open for submissions. The consultation contains a section on the green tariff exemption. Ofgem is engaging widely on the consultation, including through workshops with suppliers and consumer groups. As such, the amendment comes somewhat after the fact, and so I believe it is not necessary.

Finally, Amendments 18 and 19 are also in the name of the noble Lord, Lord Grantchester. I agree with the thrust of Amendment 18. As I have said, Ofgem’s policy consultation is already under way. In Appendix 13 of the consultation, Ofgem sets out the proposed criteria by which it may consider green tariffs to be exempt. One is that the green tariffs,

“provide support for renewables, materially beyond support provided through subsidies, obligations or other mandatory mechanisms”.

On Amendment 19, the Bill requires Ofgem to complete the consultation so that the licence modifications giving effect to the price cap include the exemption. Of course, this is subject to Ofgem deciding to put the exemption in place following the consultation. As setting a price cap and determining a robust exemption—subject to the outcome of the consultation—clearly involve a lot of work, the Bill provides a little flexibility in the event that this is not possible. Nevertheless, it still requires Ofgem to put in place any exemption as soon as practicable following the modifications putting in place the cap taking effect. Consequently, the Government do not see the need to include Amendments 18 and 19 in the Bill, and I hope the noble Lord will feel able to not move them.

[Lord Stevenson of Balmacara]

I am sorry to interrupt: perhaps I might check two things with the Minister. I think we agree that there is an issue here that is very difficult to bottom out and therefore the consultation process is obviously helpful in that. What I was trying to get across, although perhaps I failed—I think the noble Baroness, Lady Featherstone, made the same point—is that given that we are in a consultation process, where does this all lie in relation to the Bill? Are the Government really saying that actually this is too difficult to deal with in the Bill and it is being passed to Ofcom to make whatever decision it can make in the light of the consultation?

I am not saying that that is wrong. I just ask the Minister to accept my earlier argument that this was actually rather a difficult principle and perhaps should be in primary legislation; otherwise, there is a question of gaming and other things. The point of principle was whether we should give priority to the encouragement that would flow to smaller, greener energy producers, which would not have their income reduced because they were carved out of the new tariff, at the expense of green-minded ordinary citizens who want to get their supply from green sources but are poor, vulnerable, disabled or fall into the category of needing support but find themselves removed from that support system because they are prioritising green energy. That does not seem fair. I wonder whether we should think very carefully about whether it is right to simply pass this to Ofgem to do on the basis of the consultation or whether we should take a decision within the Bill itself.

--- Later in debate ---

[Baroness Neville-Rolfe]

My Lords, in moving Amendment 29 I will speak to linked Amendments 30 and 34. I should perhaps express my regret that I arrived too late to speak at Second Reading as a consequence of other commitments.

The purpose of these amendments is to make it more difficult to extend the duration of a price cap and to ensure that it is temporary, if I may pick up the useful word used by the noble Baroness, Lady Featherstone, in her amendment to Clause 2. As the helpful notes on the Bill say in paragraph 15:

“The cap applies until the end of 2020 but it may be extended, for a year on up to three occasions, if the conditions for effective competition in the market for supply contracts are not in place”.


The basic point is that I am unconvinced of the merits of price caps. Setting prices at a low level may seem superficially attractive but experience in many jurisdictions shows the problems that they create. For example, in California in 2001 retail prices were capped at levels that ended up being below the wholesale cost of energy. As a result, retailers found themselves $20 billion in debt and one of them went bankrupt. The state then had to step in. Price caps are against most economic theory and have unintended consequences, as we have discussed, so there is no need for me to labour the point.

If I may, though, I will share one personal experience of price regulation somewhat akin to what we are now discussing. As a junior civil servant, I was responsible for the milk costing system, administered with the help of a leading accountancy firm. In effect, we were responsible for setting the permitted retail price of milk. Unfortunately, a member of the departmental team unwisely agreed that a visit to an international dairy conference in Miami was a legitimate expense. As a result, everyone paid more for their milk. This was an early lesson in why it is better to avoid government interference in pricing.

Still, we are where we are and we need to improve the Bill. I believe it would be much better if the cap ended in 2020 and that, as drafted, it is far too easy for the Government to extend it. Indeed, there seems to be almost no prospect of ending it before 2023. Yet the Minister, Claire Perry, said in Committee in the Commons that there was,

“strong consensus in the Committee”,

that the cap should be temporary and that a proposal under discussion to extend it further,

“creates disincentives and uncertainty in a market where we have to have certainty to generate investment”.—[Official Report, Commons, Domestic Gas and Electricity (Tariff Cap) Bill Committee, 15/3/18; cols. 86-88.]

I would add that price caps where the case for a cap is strongest—for those 4 million households with prepayment meters, and for a million vulnerable consumers—have already been introduced by Ofgem. I ask the Minister to update us on the impact of those before the Bill leaves Committee. The noble Lord, Lord Whitty, made some powerful points about those very consumers and the complications of dealing with them. I hope his commission will come up with some simple innovative ideas that we can all support.

I heartily dislike needless regulation. I would like the Government to come back to Parliament and seek primary legislation if they want to extend these temporary controls beyond 2020. Clause 8 makes it far too easy to extend them, and my amendments would return this power to Parliament. I know from my wide experience of government as a civil servant, from working in business and as a Business Minister that getting rid of regulation is always a low priority in the modern world. This hurts competitiveness and is bad for our economy. I very much welcome the use of a sunset clause but it should be just that. As for the detail of what is proposed, my Amendments 29, 30 and 34 would remove the possibility of extending the cap by deleting most of Clause 8 and making related amendments to the review procedure in Clause 7.

I have to accept that there is a political dimension to the proposed price cap, and I know the Minister will have to support the Bill in the round. However, I would ask him to go away and think about whether we should really extend the cap beyond 2020 without primary legislation—that is, another Bill—and the process of review that always precedes such legislation. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, this is a somewhat complicated group of amendments because within it are points of view that are mutually contradictory and indeed on which we hold contradictory positions. So we are not going to agree on this, and I look forward to hearing the Minister trying to weave a way through that does not upset one side or the other too much. He does not normally care too much about whether he does that, but that is for another time.

Our amendments are probably based on the assumption that the rather high aspirations that you can read into the Bill in terms of how it might reform and change the basic market for electricity and gas supply will be achieved, and takes the sanguine view that they are not going to be achieved in time for the cap to be reduced at the appropriate time. If that is the case, it also has the benefit of making sure that vulnerable consumers are not caught by the other schemes referred to by the noble Baroness, Lady Neville-Rolfe, which we discussed earlier. They would continue to operate and we would take that to be a good thing, but as we have discovered, that is of course not the primary purpose of this Bill.

--- Later in debate ---

Moved by

[Lord Stevenson of Balmacara]

36: After Clause 8, insert the following new Clause—
“Ongoing relative tariff differential
(1) The Secretary of State must, during the term of the tariff cap conditions being in place, develop, ready for implementation, a relative tariff differential. (2) A relative tariff differential is a requirement on supply licence holders that the difference between the cheapest advertised rate and the most expensive standard variable or default rate shall be no more than a specified proportion of the cheapest advertised rate.(3) The Authority will be responsible for setting the proportion referred to in subsection (2).(4) The relative tariff differential shall take effect on the termination of the tariff cap conditions.”

[Lord Stevenson of Balmacara]

My Lords, we have reached the last group, which is composed of two amendments on roughly the same area. I will not speak to Amendment 36A, tabled by my noble friend Lady Kennedy of Cradley, but I am looking forward to what she has to say. I might come back at the end of that.

The Minister said in concluding on what I thought to be my rather wonderful Amendment 32, which found no favour, that smart meters are only one of the many ways one could judge whether the market for an electricity supplier was working well. What he was really saying was that switching was the real test and that meters were a means to that. But Christmas comes more than once a year when you are talking about Bills of this nature. We want to offer him another Christmas present, Amendment 36, which will give him all that he wants about the effective market and more. We urge him, even at this later hour and towards the end of a gruelling day that he has had to endure, to look very carefully at this.

The answer to most of the problems in the electricity market, certainly from a consumer point of view, comes down to this tease and squeeze. Amendment 36 takes the trick of eliminating that, because if you impose a relative cap—we would argue that that should be done after the absolute cap has finished, but my noble friend will argue a different approach—then the present arrangements under which companies can entice you to switch with an attractive offer made for the first year, or possibly less, of the time that you move to their mode of operating, billing and consumer care would mean that they could not then squeeze you once you have passed that initial period. If there is a chance that Ofgem can limit the differential between the highest and lowest prices charged by each supplier after the absolute cap ends, we will have emerged to a point where there will not be the incredible unfairness and problems that there are in the current market. We could therefore move away from the temporary cap with confidence.

I urge the Minister to think very carefully about this because it does supply for taking out this egregious behaviour and it would find a lot of support around the industry. I beg to move.

--- Later in debate ---

[Lord Henley]

I welcome the noble Baroness, Lady Kennedy of Cradley, to our discussions. Amendments 36 and 36A are broadly similar in asking the Secretary of State to develop an ongoing relative tariff differential. However, Amendment 36 says:

“The relative tariff differential shall take effect on the termination of the tariff cap conditions”,


while Amendment 36A, in the name of the noble Baroness, Lady Kennedy, to which a Liberal, the noble Lord, Lord Teverson, has joined his name—it must have good free-market credentials—says:

“The relative tariff differential is to take effect on the commencement of the tariff cap conditions and to be ongoing after the tariff cap conditions cease”.


They are broadly similar but would come into effect at different times. They would cap the most expensive advertised variable and default rate tariffs as a proportion of the cheapest, and Ofgem would set the differential.

There may be a need for further protections once the cap has ended, particularly for vulnerable consumers. Ofgem has indicated as much and has enduring powers to operate protections but I do not think it would be sensible to seek to determine the precise form that any protection takes, if it is needed at all. The energy market is likely to change significantly between now and then. Smart meters are just one part of that. The new clause inserted by these amendments would seem to introduce an indefinite relative price cap. It is not the intention of the Bill or the Government to put in place such a permanent cap.

We have come back again to tease and squeeze, which the noble Lord mentioned earlier. I briefly responded to that. I appreciate that the aim is to get rid of the practice of tease and squeeze. However, there is the risk that under the amendments suppliers would raise their least expensive standard variable and default tariffs, rather than decrease their most expensive. That is the Government’s fundamental concern about any kind of relative price cap. The Government and others, including the BEIS Select Committee, believe that a relative price cap would not work. I do not see how the outcome of a relative price cap would be any different, whether it was in place alongside an absolute cap or after the absolute price cap had been removed. A relative cap as a permanent feature of the market risks undoing the work of the temporary absolute cap.

The best way of ending the practice of tease and squeeze will be the detailed work, as I said, that Ofgem is undertaking to test better ways to secure customer engagement; the work to make switching quicker and more reliable; and the many other programmes to make the market work better. Recent changes mean suppliers can now make their default tariff a fixed-rate rather than a variable-rate deal, and many have done so. The Government believe that better engagement and better switching that leads to more effective competition is a proportionate and sustainable solution, rather than concurrent and permanent relative price caps. I hope that my explanations will satisfy noble Lords and my noble friend. I hope, therefore, that the noble Lord will feel able to withdraw his amendment.

[Lord Stevenson of Balmacara]

I am grateful to the Minister for his response. I also pay tribute to my noble friend Lady Kennedy for a powerful speech, trying to root the approach we are taking in a much deeper analysis—a richer and more enduring issue about what is going on in the marketplace as far as consumers are concerned, which is a theme we have developed throughout the Committee.

We would all be much happier with the Government’s approach if we could see real evidence that things were changing in the market. The thing that gives the lie to a lot of what the Government’s position is based on is that, for many years now, we have all seen the appalling behaviour on the part of semi-monopolies, operating virtually as they will against a regulator which does not have the powers. The Minister said that Ofgem had enduring powers. If it has them, why has it not acted before now to get rid of some of these appalling behaviours such as tease and squeeze, which has been so disruptive, and making super-profits out of a natural monopoly? I thought the whole point about regulatory structures was to prevent that. Therefore, I do not think the action has lived up to the rhetoric.

My noble friend said that she thought it was time to say good riddance to the bad rubbish we are being served up by these committees. The judgment we have to make is whether we are prepared to wait and see whether the latest round of the approach taken by the Government will have any effect at all. If, indeed, it has an effect, will it be in time? I have my doubts about that. We are relying on smart meters and customers, who may be in significant numbers in relative terms, but if it is all the same people switching regularly and 80% of people are not switching—and those 80% are the sort one would expect to get the message and switch—then the market is broken. If it is broken, it will need much more serious measures than we have currently to see how it may be taken forward. We will think carefully about this but may want to come back to it on Report. In the interim, I beg leave to withdraw the amendment.

Amendment 36 withdrawn.

Domestic Gas and Electricity (Tariff Cap) Bill

Lord Stevenson of Balmacara Excerpts

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

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—