Lord Whitty
Main Page: Lord Whitty (Labour - Life peer)
Lord Whitty
I, too, thank the Minister for getting fuel poverty into the Bill. Throughout the Commons proceedings, and the earlier stages of the proceedings in this House, there was considerable criticism that one of the major areas of concern in energy policy—fuel poverty—was not reflected in the Bill. We now have a clear indication of the way the Government are going on this. I also join the noble Lord, Lord Jenkin, and others in thanking the Minister and her officials for trying to explain this somewhat complex position to us last night. The penny may have dropped but I am not sure the shillings have yet on all of it.
Indeed, some of it is not clear and cannot be clear until the Government, in six or eight months’ time, come up with a strategy and the secondary regulations. I understand that. On the other hand, there are some problems with the approach as so-far revealed. The Minister said she wants to display a rigorous and flexible strategy under these provisions. There is a slight danger of being too rigorous and complex on definition and target issues and too flexible and unclear on what the actual strategy will deliver. I will come back to some of those points.
I thank the Government for getting us here. However, we should not ignore the fact that this is, for those of us who have been engaged in fuel poverty and those who suffer from it, quite a sad point. Although most of us have recognised that this has been the situation for some considerable time, we have now explicitly recognised that the statutory ambitions set, with all-party support, in the legislation originated by the noble Baroness, Lady Maddock, and the follow-through of that, have failed. That has implications for other targets that we set in this area. There is a necessity to be rigorous in not only setting targets but also checking, enforcing, reporting and adapting to any failure to meet those targets, however difficult that might seem.
This is also the point where we have accepted that achieving those statutory targets is not easy. Previous statutory targets talked about the eradication of fuel poverty. We have now abandoned that ambition and substituted reduction, and a reduction that will be made in order of priority. I understand why that is the Government’s position, but in terms of the campaign on fuel poverty it is quite a serious retreat. It might be inevitable. From now, we need to treat it as inevitable and ensure that the new policy, strategy and less ambitious targets are achieved but we should not let this pass without recognising that it is a quite a profound change in our approach.
It is also more of a technologically significant change in the measurement. We debated this and others have commented on it. Some of us had the suspicion when the Treasury, when obliging DECC to look at this area, hoped that the redefinition would define the problem away. Whatever else one may say about Professor Hills, he has definitely reinforced and underlined that fuel poverty is an important and distinct area of policy, one that requires rigorous and effective measures to tackle it. Even with his measurement, which excluded a number of things, we have 2.5 million households in England alone suffering from it. We owe Professor Hills a debt for his report. We are now trying to turn that into some measure of reality.
The first complication it presents is that we now have an English target which measured differently from that in Scotland, Northern Ireland and, probably, Wales. That makes a UK approach to it difficult. Indeed, there was some advance on the basis of the old measurement, which was relatively easily understood, even though it was itself quite complex. It was relatively well established and we were about to adopt it on a pan-European basis. Europe will also have to think again about any co-ordinated approach on this.
Let us accept that the Hills definition will be one of the main measurements. I cannot remember the exact reference, but quite near the beginning of the report that I received yesterday, it says that from now on the Government will establish the figures only on the basis of one of the Hills measurements—namely, the low-income/high-cost measurement. At least for a few years, we need not only to take in the other Hills amendment, relating to the depth of fuel poverty—which in some ways is a useful and more understandable measurement—but to continue to measure it on the old scale. That is the normal approach in a lot of statistical series. Eventually, we may not need that, but for the next five years the credibility of this strategy requires us to look at what we previously defined as fuel poverty, and what our colleagues in devolved Administrations are probably going to go on using as the definition, in order to see how well we are doing. On a purely statistical basis, we ought to retain that.
It is of course also true that many points in Professor Hills’s strategy are not yet fully reflected in the Government’s actions. We will come back to that as we go on over the next few months. As expressed in the documentation now before us, there is clearly a triangle of effects on fuel poverty: household income, the energy efficiency of the home and the appliances within it, and the price of energy. All three are open to government intervention. The strategy shown by the Government so far focuses very much on intervention on the energy efficiency of homes. I am strongly in favour of such intervention but there is a danger of ignoring the other two sides of the triangle and the forces that define whether fuel poverty is going up or down.
It is important that we find a way of conveying the narrative on all three fronts to the population. Fuel poverty itself, the measurements involved and the nomenclature of the various intervention schemes are complicated enough, and we must find a clear narrative to explain what we are doing on all those fronts. At the moment, as the Commons Select Committee said only a few weeks ago, the Government are unable to convey what they are trying to do and why they are trying to do it when it comes to fuel poverty and energy efficiency interventions.
The new definition, as I say, has some advantages. It probably excludes a number of Members of the House of Lords who are on a reasonable income but live in rather draughty castles. I commend it from that point of view. However, although the Minister may contest this, it does not obviously take us hugely further forward in terms of operationally identifying precisely who those people are. It is pretty sound statistically but, operationally, we have no further clue as to whether such and such a house in such and such a town or village is actually suffering from fuel poverty or not. At one point, as mentioned last night at the briefing, the document refers to assessing the condition of housing at a local level. However, we do not actually have a register of the condition of every house—we only have a broad idea of what the SAP rating of certain kinds of housing is—nor do we have the identification of the household structure and the household income within it. I am not sure that we ever can have that. However, to make this provision work most cost-effectively, we need to see whether local authorities, or other local bodies taking the lead on this, can pin down the priority areas more precisely in terms of streets, houses or type of persons.
Baroness Maddock
I thank the noble Lord for giving way. When I introduced the Home Energy Conservation Act, that was one of the things we were trying to get local authorities to do. In the early days, they were quite innovative. For example, Sutton had infra red photographs in its local library which showed where the relevant houses were. I agree entirely with the noble Lord that we need to be able to do that but there are other things that we can do and there is legislation to enable people to do them.
Lord Whitty
Yes, but this has not been a priority for local authorities and in the present period of austerity is unlikely to become so unless the strategy that the Minister comes up with in a few months’ time places that obligation on them and provides resources to enable them to carry it out. At the other end, the income end, the data-sharing arrangements which were introduced in legislation—two Energy Bills ago, I think—have not fully worked in enabling suppliers to identify which of their customers are likely to be on benefits, which, itself, is only a very rough proxy of the fuel poor.
The document and the Minister have indicated that we need to be more targeted in our approach. Indeed, there is a significant element of prioritisation, so if we need to identify, first, those who are in deepest fuel poverty and take action with them initially, we need to have more detailed information, at least in broad terms. If we are to have an area approach, there is a bit of a conflict between that and a prioritisation on grounds of deepest fuel poverty or, indeed, the other priority identified in the document of serious health problems, which poses even more difficulties and is subject to data protection problems.
Given the Government’s emphasis on intervention in regard to energy efficiency, it is important to obtain clarity about the resources being put in by the Government or being diverted from consumers’ bills to deal with this. I asked the Minister whether the Government could indicate the total amount to be spent on fuel poverty determined energy efficiency interventions over, say, the next five years. The figures that NEA has come up with, comparing 2010-11 to this year, show a significant drop in intervention because not only did Warm Front, which was taxpayer-funded, end completely at the end of last year, although some schemes are still being completed, SERT and CESP were dropped and we all moved onto the ECO. We have another group of amendments dealing with the ECO and I do not want to go into those in detail now, but even assuming that the ECO works, in aggregate more than £200 million less is being diverted via taxpayers’ money or cross-subsidy from the consumer into fuel poverty and energy efficiency schemes. I will discuss later whether, even within that, the ECO is working most efficiently.
It is important to move forward on this issue and the government amendments are a significant step in that direction. Some of the documentation is still not adequate and we are unlikely to see any more before the Bill completes its passage. It could be another six to eight months before the secondary legislation appears, which takes us well into the second half of next year. By that time, according to most prognostications, energy prices will have risen, low-income households will not have seen an increase in their income and the tariffs that are likely to be offered under Ofgem’s new arrangements will not have been geared to attacking the problem of fuel poverty. That is the other area that is not covered in the Government’s policy statement, which I spoke of at probably excessive length in our previous Committee session—namely, that you can use the tariff structure as well as energy-efficiency interventions in order to improve.
Lord Whitty
“Collective redress
Within twelve months of this Act coming into force, the Secretary of State shall bring forward regulations providing for forms of collective redress for consumers of gas and electricity.”
Lord Whitty
My Lords, Amendment 51ZA is a probing amendment, although it is one that the Government could give some commitments to taking forward, if not precisely in this form.
The Government are rightly giving Ofgem the power, in cases of breach of licence condition, to require licence holders—that is, supply companies—to pay compensation to the consumers who have suffered detriment, as well as raising a fine. I am not entirely clear whether that power also covers Ofgem requiring compensation for straightforward breach of general consumer law, rather than strict breach of licence, but it would make sense if it did.
The level of consumer complaints in the energy sector is one of the highest—in some years, the highest—of all sectors in our economy. The level of complaints dealt with by the consumer organisations, the ombudsman and, on occasion, by the courts, as well as by Ofgem, remains high despite significant improvements made or claimed by the supply companies.
It is clear that the complaints systems of several of the large energy companies are not really up to scratch. The ombudsman and Ofgem remark on this from time to time. Tens of thousands of consumers suffer from the effects of mis-selling, misleading information and misleading advice on choice of tariff and other conditions relating to tariffs; for example, on the cost determination. If you switch tariff, you have to pay a significant cost but that is rarely conveyed to you up front in an understandable form when you sign up for the tariff. It is a significant inhibition to many consumers switching and therefore to there being a proper consumer-led market in this sector.
One of the other areas of complaint is contested bills, particularly the estimated bills. As we were saying the other day, these are by definition wrong but are often insisted upon by the companies. On many occasions, eventually a settlement is reached, but it is on an individual basis. It may involve an ombudsman case but it reflects the general approach of the company to its consumers. In the impact assessment of the Bill, the provisions to improve Ofgem’s powers in this area are not given an accurate assessment. However, it is implied that the effect will be positive, and certainly I think that it will be. However, the size of detriment in the energy sector is potentially very large, and the inhibition on taking individual cases is also substantial. You have to go through a complaints process, and if you are not satisfied, you have to go to the ombudsman, take a case to court or get help from the various consumer and interest group organisations. That ends up costing a lot of time and often a lot of money, with not necessarily a coherent outcome to each case.
This situation is not confined to energy but, because of the high level of problems within energy, there are general aspects of provider behaviour from which a large number of consumers suffer. It is difficult to prove on an individual basis, but it is important that we recognise that there ought to be better systems for getting redress for consumers. By and large, consumer law in this country does not include collective provision, unlike in the United States, where there are significant class action provisions. Successive Governments have gone part of the way down the road towards greater collective provision, recognising that, for example, the PPI scandal in financial services would have been much better dealt with had there been a collective redress system rather than often quite aggressive complaints-handling companies taking up cases of varying degrees of authenticity, which led to differential outcomes case by case.
That was recognised by BIS in some of the discussion that surrounded the presentation of the draft consumer rights Bill that is now under pre-legislative scrutiny in another place. You have to get quite a long way into the Bill before you find it, but it is a significant breakthrough. It comes in paragraph 7 of Schedule 14 to the Bill and is the beginning of a provision for general collective redress in this area. It is on an opt-in basis, which is still somewhat narrower than the provision in the Financial Services and Markets Act of the previous Government, which unfortunately had to be dropped in its original form. It had a whole section on collective redress in the financial sector, which could have been taken out and generalised into other sectors and was particularly apposite for areas such as energy, where there is a regulator, regulated provisions and licence conditions, as well as general consumer law.
I attempted to get that written into the Enterprise and Regulatory Reform Bill, given that parliamentary counsel had already cleared it two years earlier. I have not bothered to provide the three pages for this Bill, because it covers esoteric matters relating to energy. I have set myself the slightly less ambitious target of requiring the Secretary of State to come forward 12 months after the Act is passed with some provision for collective redress in this area. I am encouraged by the fact that the Government have provided for at least one form of collective redress through the consumer rights Bill. Therefore, I hope that in 12 months’ time, the attitude of the House of Commons to that Bill and the Government’s reflection on it will give some guidance on how to do this with energy.
Therefore, it is an open-ended requirement on the Secretary of State in terms of the precise provisions. However, it is a signal that in this area of quite substantial consumer detriment and very substantial consumer distrust of the whole system we take this opportunity to make it clear that the Secretary of State must, at some future date, provide a means of collective redress within this sector.
There is a second amendment in this group to which I should refer. Amendment 51ZE seeks to delete the limit of the redress to detriment that occurred more than five years ago. The reality is that some of the mis-selling in energy, just like some of the mis-selling in the financial sector, started a long time ago, and the decision to apply a five-year limit is completely arbitrary. Indeed, that does not apply in the financial services sector. If a practice started seven years ago and was still happening within the last five years, there is no reason why the earlier detriment should not be taken into account. I am being quite modest in suggesting a 15-year limitation. I would be delighted if the Minister accepted my substitution of 15 for five; I would be even more delighted if he said that on reflection the Government would prefer to delete the limit altogether, because there are some long-standing wrongs in this area and the five-year limit does not seem sensible. I beg to move Amendment 51ZA.
Baroness Liddell of Coatdyke
My Lords, I support my noble friend in his amendment. The amendment seems particularly sensible and apposite, because at the time that this legislation was being crafted we were not aware of some of the mis-selling issues that were to emerge from the customers of energy suppliers. The last time I checked, there was something like 27 cases still pending with Ofgem, and that was before the announcement of the fines relating to mis-selling affecting Scottish and Southern Energy. Given the number and complexity of tariffs, many people will be checking whether they have been mis-sold.
It has been suggested that there is a danger that the mis-selling of electricity and energy in general could reach a stage where it matches the mis-selling of PPI and some of the financial services mis-selling. This would be useful for the Government to have in the armoury should that situation emerge. It is not radical; it is actually quite a simple measure. If we take into account that the most recent instances of mis-selling had been in the pipeline at Ofgem for around four years, my noble friend’s proposal to extend the time period from five to 15 years is measured and logical. I do not see this as greatly controversial but as a way of dealing with a problem that may be coming over the horizon and that would save recourse to additional legislation in the future. If the Minister cannot make a commitment today to support my noble friend’s amendment, perhaps this is something we might be able to return to on Report.
Lord Whitty
My Lords, I find the explanation on the five-year period extraordinary. I think it was my noble friend Lady Liddell who mentioned that the notorious recent Scottish and Southern case had gone on for four years. It would not have needed to go on for more than another six months for it to fall foul of this restriction. There may be something in the argument of the noble Lord, Lord Deben, that you need some restriction. Indeed, that is why I proposed a 15-year period rather than delete the provision entirely. I do not accept that there should be a shorter jurisdiction for energy than there is for financial services, nor do I accept the argument put forward by the noble Lord, Lord Deben, that it is a bad thing for people to be entitled to redress for the mis-selling of, for example, PPI and pensions in the financial services sector which happened a long time ago, albeit that continued until relatively recently. As for confidence, there is no consumer confidence in the energy sector. It is all very well saying there will be no business confidence if companies think they are going to be fined for something which happened 15 years ago, but at the moment there is almost nil consumer confidence. The energy sector has the worst record among the allegedly competitive markets in terms of consumer confidence. That is partly because over time consumers have had difficulty understanding whether or not they have been misled or mis-sold products and have faced grave hurdles in trying to remedy that. Sometimes they have—
Lord Deben
For the correction of the record, the problem is that the further you extend something, the less you can prove the case, the greater the chance that the people who are now involved had nothing to do with it and the less the chance that the circumstances in which it took place can reasonably be identified. You have to have a balance; that is all. There are many examples of cases where the conditions that obtained 15 and 20 years ago are unprovable and very different from the conditions obtaining now. In the end, you have an unfair circumstance. Therefore, some way or other, you have to have a decent balance—otherwise, you find that people’s confidence and willingness to invest in industry reduces. That is the experience and that is why so many fewer people now provide services to the public than used to be the case. We have destroyed confidence. You have to have confidence on both sides; that is all.
Baroness Liddell of Coatdyke
I am very grateful to my noble friend for giving way but the noble Lord, Lord Deben, referred to the financial services industry. The whole issue around the mis-selling of personal pensions covered a period of between 15 to 20 years. One of the reasons why there had to be redress there was because the entire financial services industry had been damaged. Our energy suppliers are being damaged at the moment. I remind noble Lords of the statement by Warren Buffett that it takes 20 years to build a reputation but five minutes to lose it. We owe a debt to the industry to make sure that it operates with the highest possible standards. One way of doing that is to support the amendments that my noble friend has put forward.
Lord Whitty
My Lords, my noble friend has expressed the position far more precisely than me. I underline her comments. I will not pursue the point today but I ask the department to reflect on it and on how it will justify to the public that there should be a lower level of potential redress in the energy sector than there is in the financial services sector. I just ask that question.
In relation to collective redress, I believe that the Government, the Minister for Consumer Affairs and the noble Baroness, Lady Verma, who is replying for her department, have moved some way to recognise the need for consumer redress to be dealt with on a collective basis on occasion. It is particularly important that that is provided for in the regulated sectors. The amendment that I am proposing would allow the Minister to come forward with a whole range of potential forms of collective redress. Most of those would be less expensive than individuals taking cases themselves and would take less time. They could, indeed, be pursued by intermediaries, but the aggregate cost to consumers and the industry would be significantly less than if every single consumer, or even 10% of consumers, started to take individual cases through the courts, with each one taking time to reach a conclusion. I cannot see that collective redress is ever going to be more time-consuming and costly than having a range of thousands of individual redress cases, whether they are taken through the ombudsman, the economic regulator or the courts.
Lord Whitty
AEnergy company obligationEnergy company obligations
Subject to the review provided for in section (Energy company obligations review) the provisions related to the energy company obligation shall in principle be extended to 2019.”
Lord Whitty
My Lords, we have touched on this. The ECO is central to the Government’s strategy for delivering on their fuel poverty targets. We have had a lengthy debate on the context in which they will do so, and the targets and strategies that they will adopt. Clearly, their main attack on fuel poverty will be through the measures they bring to improve the energy efficiency of the homes of the fuel poor. The ECO is intended to be the main weapon for them to do this.
I have had some exchanges with the noble Baroness about how we are going on the ECO at the moment. I have received information from various sources that there are serious problems. This follows quite a good year—the last year of the old scheme, if I may put it that way—when a significant increase was recorded by the climate change committee in many types of interventions, including cavity wall insulation, solid wall treatments and loft insulation. All those schemes have now come to an end. They are all being replaced by the ECO, which in aggregate terms is less than the aggregate of the others—although the Minister pointed out that you also have to take into account the warm homes discount. That is on the other side of the equation—the income side—whereas in aggregate under the ECO, the number of schemes that will be delivered, and the aggregate cost and resources devoted to the schemes, will be less than under the pre-existing three schemes.
That would be a problem in itself, but it will be a greater problem if the way in which the ECO is being delivered is inefficient. Several sources appear to suggest that there is a serious problem with measures being brought forward under the ECO. On the climate change committee’s figures, the number of cavity wall insulation interventions declined by 60% in the first few months of the ECO regime. That is a serious teething problem. It may be a teething problem but it needs to be addressed seriously. The new structure under the various regulations introducing the ECO seems to create a problem for the cost of each individual measure as well.
I am probably not the only noble Lord who has received a letter from Scottish and Southern on this point. The supply companies have to buy from the market the interventions that they require to make up their ECO contribution. They have said, and this is quite startling, that the cost of some of those interventions under the ECO provisions is more than twice than under the old schemes. That reflects the volume but it also reflects the new system.
Scottish and Southern claims that the average cost at which it is buying cavity wall insulation, solid wall insulation and loft insulation has more than doubled under the new regime. That is also reflected in the views expressed by the insulation industry and the installers. They say that because the volume of work has gone down substantially, they can no longer send their workforce to an area where they can do four or five jobs in two or three days. They now have to go to an area where they can do only one job and then move on to the other side of the country, or the region, and carry out the other jobs. Therefore, the average cost to them is increasing. That is reflected in the prices they are offering through the brokerage system, which is therefore affecting the charge that Scottish and Southern and other electricity suppliers pay in the ECO context.
That is not a good situation. It is also having a knock-on effect in that those firms are also laying off workers. My own union, the GMB, which is the main organiser of insulation and installation workers, has seen significant layoffs already and sees more in the pipeline as the old schemes end. I have asked the Minister to give me some details about how the department sees the situation, but that is how it is seen from the point of view of the energy suppliers, the industry and the workers within the industry. If this goes on, the effectiveness of the ECO intervention is going to be substantially less than the equivalent level of resources that were provided under the pre-existing schemes.
Part of the problem, according to both the suppliers and the installation industry, is that the period over which the ECO is supposed to be operating is relatively short. Under present provisions, it runs to only 2015. That can be extended but at the moment there is certainty only over it existing until 2015. My amendments are an attempt to address this issue by, first, extending the period of the ECO in principle to 2019, giving time for this to be smoothed over; and secondly, providing for a review of how the ECO is operating. I am suggesting that we should put that in statute. If the Government are not prepared to put it in statute, they should make a commitment, in view of these assertions, that they need to look within the next six to 12 months at how the ECO is really working out.
The last stages of the old scheme are now going through their finishing stages. Everything that is starts from now on will, therefore, be under the ECO provision. Unless ECO rapidly builds to the same volume—and I hope at the same or better price—it will not deliver as great an impact on energy efficiency of homes, and thus on fuel poverty, as the previous system, even pound for pound and intervention by intervention. I want a review, which should be in the context of the ECO system lasting for a longer period because, theoretically, it is simpler than the multiple systems we had before. We need to know, however, what is really going on and whether the system and the market that has been established are operating properly. If they are, in the sense that real costs are being charged, what is wrong? Are the volume, incentives, or relations down the supply chain not right, or is there a basic flaw in the system itself? The sooner we have the answer, the sooner we can put the ECO system on a better basis, and one in which the industry, suppliers and consumers can have confidence. I beg to move.
Baroness Verma
My Lords, I am grateful to the noble Lord, Lord Whitty, for his amendments dealing with the future of the energy company obligations and the approach to replacement boilers adopted within the scheme. By way of background, ECO is worth £1.3 billion per year and is split into three obligations: affordable warmth; carbon savings communities; and carbon saving. ECO has been specifically designed to help us fight the battle against fuel poverty and to reduce carbon emissions by requiring obligated energy suppliers to invest in heating and energy-efficiency measures. Importantly, ECO is expected to be more cost effective than the Warm Front Scheme, with the delivery cost of 120,000 major measures estimated at around £350 million each year under the affordable warmth obligation. Under Warm Front, this amount of funding might have supported only 80,000 major measures, on which basis ECO is likely to be 50% more cost effective than the previous government-funded scheme. I recognise how important it is for vulnerable consumers to know how to access the support. That is why, in recognition of some of the reported difficulties, as the noble Lord, Lord Whitty, stated in his opening remarks, in identifying vulnerable customers who are eligible for help, we have provided a data-matching and referral service for ECO affordable warmth, operated by the government-funded energy saving advice service. Working in partnership with the Department for Work and Pensions, this service confirms whether a consumer meets the qualifying benefit criteria. Already, nearly 12,000 customers have been referred to an obligated energy supplier through this route. As we work on a new fuel poverty strategy to support the proposed new fuel poverty target, we will also be considering the scope for making more extensive use of data matching in future.
I turn to the amendments in more detail. Amendments 51ZB and 51ZC propose that ECO be extended to 2019, subject to a review. At the time that ECO was introduced, we indicated the intention that ECO would run until at least 2022 and the Government will, in due course, bring forward proposals for consultation on what the next phase of ECO, from 2015, should look like. In designing these proposals, it is important that we have flexibility to take account of experience under the current phase of ECO and new issues that may arise. It would therefore be wrong to restrict the future design of ECO to its current provisions. As part of our consultations on its future, we would, in any event, also consult all the organisations specified in the noble Lord’s amendment. Given the Government’s plans for the future of ECO, we believe that setting this requirement in law would be damagingly restrictive.
Lord Whitty
My Lords, it is precisely for the reason that this needs to be about the long term that I suggested that we extended the statutory period. I appreciate that we have talked to industry and said that we intend to run it to 2022, but all the industry sees is that it is going to run to 2015. I would certainly ask the Government at least to look at that. If the system is going to run to 2022, subject maybe to some tweaking, it would be useful for both the energy suppliers and the installation and insulation industry to know that that is indeed going to be the case. I can pass the noble Baroness the exact costs that Scottish and Southern claims it now has to pay, as against the figures in the DECC initial assessment of the cost of the ECO. Those costs are quite startling. For loft insulation, it goes from about £280 per installation to the brokerage outcome of £1,080. There is a similar escalation for cavity wall insulations. These are not consumer figures or even the insulation industry’s figures. They are ones that the insulation industry has charged to a supplier. Scottish and Southern draw the conclusion that we should put a cap on ECO. I do not go along with suggesting we should do that. Nor do I suggest that we should cut back on the ECO and change course. I suggest that the Government look at these figures and see how they have arisen. If it is a teething problem I accept that we need to give it a little time to settle down but I would like to be convinced that it will, otherwise the scheme will not be cost effective.
I did not speak very much about Amendment 51ZD, on boilers, in my opening remarks because I thought it was self-evident that probably the biggest contribution to household energy efficiency achieved in the last 10 years was when we required all replacement boilers to be A- or B-rated. That was a dramatic change and it has brought dividends to thousands of households. The amendment suggests that we try to extend that into the area of identified fuel poverty. Where the suppliers know that there is an old, inefficient boiler still operating, and that is matched with data identifying a household as within the definition of fuel poverty, there should be a possibility of using the ECO allowance to replace it. The amendment is not saying that it is mandatory to do so or that you use up the whole of your ECO figures in so doing. It simply says that that ought to be one measure recognised under the ECO portfolio. It matches one set of figures to another and tackles fuel poverty and energy efficiency at its very heart. If we could replace the F-, G- and worse-rated boilers that are still in a lot of poor homes, particularly in the private rented sector, with A- and B-rated boilers, it would make a huge difference to people’s bills and the energy efficiency of those buildings.
I am disappointed that the Minister is not prepared to take this up. She has to recognise that there is a perceived problem with the ECO at the moment that the Government and the department need to put right. I am not saying we should abandon the policy or even drastically change it but we need to get it right. If we do not get it right within a few months it will begin to fall into disrepute. At the moment there is that danger. I hope that in not accepting the amendments the Minister will at least accept that there is a bit of a problem. People need to be talked to as a matter or urgency and, if necessary, a formal review by the department needs to take place. With that, I beg leave to withdraw the amendment.
Lord Whitty
Lord Whitty
My Lords, Amendment 51ZE deals again with the redress powers. The issue here is that the Government have rightly given Ofgem the ability to require compensation as well as to fine for breach of licence conditions or consumer law, but it is not clear whether this could apply to the cases that are currently under investigation by Ofgem, to which my noble friend Lady Liddell, who is no longer in her place, referred earlier.
Those outstanding investigations include one that started in September 2010, looking at doorstep selling for Scottish and Southern, ScottishPower and npower; a separate one into doorstep selling for E.ON; one into customer complaint systems at EDF; and one into misleading tariffs from ScottishPower. In total, there are eight or nine ongoing investigations, some of which have been going on for three years.
Ofgem has therefore already started a number of such investigations and, as I understand it, will start some more in the months between now and Royal Assent. At present it does not appear that the powers to award compensation would be allowable under that welcome provision in this Bill. However, if Ofgem finds against the companies it seems likely that a significant number of consumers will have suffered detriment and that the consideration of potential damage to the companies has outweighed the Government’s determination to ensure justice for those consumers.
When a similar point was put in the Commons by my honourable friend Tom Greatrex, the Minister replied that this would be retrospective legislation. It is not retrospective legislation. Ofgem would have to find that there had been breach of consumer law or a licence that already existed. Previously, consumers would have to go to court to get compensation but the provisions in this Bill would allow Ofgem to award that compensation. This is not inventing a law in retrospect; it is ensuring that the compensation comes through an easier channel.
It is important that those consumers whose complaints are currently being investigated by Ofgem benefit in the same way as future consumers will from what is a sensible improvement to the situation by the Government. I hope that the Minister will not resort to the retrospective legislation argument, because it is not retrospective legislation; it is simply improving delivery of the penalty and the rightful compensation that is due to these consumers. I beg to move.
Lord Gardiner of Kimble
My Lords, I thank the noble Lord for his amendments. Amendments 51ZEA and 51ZFA are designed to amend Schedule 14 and permit retrospective application of these powers. I am aware that these amendments were debated both in Committee and on Report in the other place. The aim of these amendments is to allow Ofgem to require redress for events that happened prior to the enactment of this Bill.
In seeking to take powers through the Energy Bill, our objective has been to put consumers first and we will consider any amendments from that perspective. It may appear that it is in consumers’ best interests to seek to put right consumer harm irrespective of when it took place, but the effect of retrospectively applying powers in the energy market will have negative impacts on all consumers.
Noble Lords will be aware of the presumption that powers should not generally be applied retrospectively. This is an important principle, but we are also concerned by the effect this will have on consumers. It is likely that the introduction of the regulatory uncertainty that these amendments will create will lead to increases in the cost of capital for energy companies, pushing up bills for everyone. We want to avoid creating investor uncertainty, particularly when we are trying to encourage the private sector investment that is required to move to a low-carbon economy. Increasing costs will hit most heavily the small energy companies that we want to come into the sector. We want new entrants to the market and do not want to accept amendments that could hinder them.
In addition, smaller energy companies would be most likely to shoulder the burden of the increased costs of insurance premiums that could arise from these amendments, as companies seek to cover their liability for events prior to the enactment of the Bill. My noble friend Lord Deben touched on some of these concerns more generally when we debated an earlier group of amendments. The combination of these factors may push up costs for energy consumers, impacting the very people we seek to protect. The potential unintended consequences of these measures mean that, while I am entirely sympathetic to the intentions behind the amendments, it could be counterproductive to accept them. For those reasons, I hope that at this stage the noble Lord will feel able to withdraw his amendment.
Lord Whitty
My Lords, I am afraid that I do not accept those arguments at all. New entrants will not be affected. If they are not operating in the market at the moment, they will be operating under the very process that is prescribed in the Bill. There is therefore no uncertainty for them. Furthermore, the only retrospection will be in how compensation is delivered. Any breach will have been under a contract or licence that already existed at the time that the breach occurred. Any breach of consumer law would have been a breach of the law at the time, and therefore susceptible to a court case brought by one or more consumers at that point. This is not retrospective legislation. It is simply tying up the delivery of existing legislation and existing licensing conditions.
If the Government continue to resist this, they will need better arguments. There is no retrospection in the sense that the noble Lord, Lord Deben, talked about earlier. He perhaps had a point. This simply concerns consumers who are currently under investigation. We also have to bear in mind, when talking about the detriment to consumers, that some of them might have started a court case had it not been for the fact that they knew that Ofgem was beginning to investigate the situation and that they might be precluded from bringing such a case.
The idea that resisting the amendment is in the interests of consumers, or that it should be resisted because it implies a breach of the principle—which I fully support—of not legislating retrospectively, is wrong. I hope that the Government will look at this again before Report. At this point, I beg leave to withdraw the amendment.
Lord Whitty
Lord Whitty
My Lords, this is a straightforward question. The size of any compensation is limited to 10% of the company’s turnover, which is a fair amount. For some of these companies, it would be about £1 billion, which is a fair whack of compensation. Therefore, the possibility of awarding that compensation to an individual consumer would arise very rarely. However, it is of course possible that a serious breach of an industrial contract could lead to a loss to an operator of that order. My principal point here is that, in most sector regulations, a 10% limit applies to the fine that the regulator can impose. It is a reasonable limit on the enforcement and sanctioning powers of a public body. If Ofwat, Ofcom and Ofgem have the ability to impose fines of this order, the 10% limit is not unreasonable, but it is irrelevant to any potential compensation. The Minister may say this will never arise, and he may well be right, but in principle, if you have suffered detriment, should there be a limit on the degree to which you can seek redress for that detriment? That is the principle I am trying to establish. I beg to move.
Lord Gardiner of Kimble
My Lords, Amendments 51ZEB and 51ZEC, 51ZFB and 51ZFC are designed to amend Schedule 14 and permit unlimited liability for energy companies by seeking to ensure that the amount of compensation that can be required through a consumer redress order is not limited. I am aware that these amendments were debated both in Committee and on Report in the other place.
Our aim in drafting the powers in the Bill has been to ensure that the overall interests of the consumer are put first. With this in mind, we have sought to achieve a balance between the need for consumers to get speedy access to the redress they are due and an appeal process which is proportionate to the potential liability faced by energy companies and which does not present a barrier to entry for the small suppliers that we need to ensure a healthy competitive market.
In response to previous amendments, I mentioned that consumers can obtain redress through the courts under existing arrangements. However, the legal process is lengthy and does not offer a typically quick remedy for consumers who have lost out. This is largely because the legal process is necessarily equal to the potential sums at stake, where compensation is unlimited. Schedule 14 sets out powers which contain appeal mechanisms that are proportionate to the potential penalty. These are also limited to 10% of an energy company’s annual turnover and offer a relatively straightforward resolution of cases.
Accepting amendments to remove the cap could deny consumers timely compensation, as they would require us to make changes to the appeal mechanism, which could result in a more lengthy resolution of cases. Given how unlikely it is that consumers would lose out on a scale that went beyond the level of the 10% cap, we do not consider such a change is justifiable. As the noble Lord, Lord Whitty, has mentioned, for the very largest domestic energy suppliers to exceed a cap of 10% of annual turnover would mean penalties and compensation of over £1 billion. This contrasts with the largest penalty imposed by Ofgem to date of £15 million. We therefore believe that the proposed cap on redress is unlikely to hamper Ofgem’s ability to impose appropriate redress orders.
As I have mentioned in relation to previous amendments, removing the cap on liability could also have adverse impacts on smaller energy companies and, in turn, on consumer bills, due to the increased cost of capital and insurance premiums for energy companies. I assure your Lordships that the approach set out in the Bill does not let companies off the hook. The combined 10% cap on penalties and redress will apply to each separate regulatory breach, so that any company breaking the rules on a number of occasions will face correspondingly larger payouts. For the reasons I have set out, I hope the noble Lord feels able to withdraw his amendment.
Lord Whitty
My Lords, I thank the Minister particularly for that last point, because it indicates that it would not apply to a single breach—a single act of mis-selling or whatever—that applied to a large number of people. I am grateful for his explanation but I still think there is a difference between a limit on the ability of the regulator to impose a fine and a limit on compensation. However, although I am not in favour of a limit on compensation, he is right to say it is pretty unlikely to be applied and therefore it is not an issue to which I intend to return. I beg to withdraw.