Domestic Gas and Electricity (Tariff Cap) Bill

Lord Whitty Excerpts

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

[Lord Whitty (Lab)]

My Lords, the noble Lord, Lord Hunt, reminded us that the motivation for this Bill did not stem either from the industry or from the sector regulator but was based on the very substantial CMA report in 2016 on decisions by Ministers and indeed by the Prime Minister. He is correct in saying that some interventions by Prime Ministers have not turned out that well, including David Cameron’s intervention on the four tariffs. That was not a great success, to say the least, and had to be abandoned, as he says. The fact that this intervention seems to have united the election pledges of Mrs May and Ed Miliband —albeit in different elections—does not necessarily mean it is going to be any more successful. In passing, I also agree with the noble Lord, Lord Hunt, on the need for an appeal to the CMA. I think that is needed in the Bill: I agree with him and, prospectively, with the noble and learned Lord, Lord Mackay of Clashfern.

I need to declare an interest: I will be chairing a commission on vulnerable energy consumers set up by the industry. That body has only just started work, so nothing I say today should be taken as anticipating the commission’s conclusions or anything like it.

But I do have some immediate questions. My two queries are these: are we answering, or attempting to answer, the wrong question? And are price caps on their own ever enough to protect the most vulnerable consumers? The CMA report two years ago met a mixed response. For myself, I thought its analysis was very substantial and essentially sound, but I also felt that its detailed recommendations were, in some cases, weak and confused, and that lies behind the method that this intervention is intended to achieve—what the CMA found was wrong with the market.

The CMA did indeed find that the big six, in particular, were making excessive profits margins on their standard variable tariff customers, but the key finding, as implied by the Minister in his opening remarks, was that this is a somewhat odd market, in that energy consumers are broadly speaking split into two groups, with one group being exploited and another benefiting. Newer, more active customers—the switchers —were being cross-subsidised by the loyal, older customers who have never, or not recently, switched supplier or tariff. The CMA also identified, as has been said, that the most marked unfairness related to prepayment meter customers. On that, the regulator has now moved and I support that in principle.

But if the problem is that long-term customers, often customers of the big six who have actually not switched since privatisation, are effectively cross-subsidising switchers, company by company—in other words, there is a sort of negative loyalty bonus—then surely the remedy is that the relativity between the tariff with which long-term customers pay, which is normally the default tariff or the standard variable tariff, and the tariff and package for newcomers is the most important metric in this approach. In other words, as my noble friend Lord Stevenson implied, we should perhaps be regulating by differential or by margin between the two, rather than, or possibly in addition to, an absolute cap. I appreciate that this could be complex, because many of the starter rates which entice new customers and switchers are time-limited and in practice revert to something very close to the standard variable tariff after a year or two. That is another practice that perhaps the regulator should look at. But the issue of whether a relative cap is more appropriate than an absolute cap needs returning to. I am not sure that the Government gave an adequate reply to that in the Commons. I would like to hear more clearly the rationale for that today.

My second point is that the price needs to be seen together with the broader issue of customer service, customer choice and consumer protection—for all but particularly for those who are the most vulnerable, either temporarily or permanently. Let us face it: most households do not understand the energy market or the choices within it. For many people, price comparison sites can be more confusing than helpful and in some cases are downright misleading. Any tariff intervention, therefore, needs to be accompanied by greater care for the consumer, for example on the choice of method of communication between the supplier and the consumer. The insistence on electronic or telephonic communication disadvantages certain subgroups of consumers, who prefer paper. Noble Lords may well have received the information on the Keep Me Posted campaign, which spells this out. The additional help that companies appear to offer consumers is often very limited and does not really help the individual consumer to navigate the complexity of tariffs; rather, they revert to the default position of staying on the rate that they have always been on.

It is no use simply putting a cap on the price, valuable though that can be in certain circumstances, if the consumer does not understand how and why they are being charged that rate and what the alternatives are. At a minimum, therefore, the Bill needs to have some provision on customer service and support and help for vulnerable consumers—perhaps I should say the more vulnerable consumers, since most of us are at risk at some point in our lives and sometimes struggle with our energy bills. The Bill would be better for such a clause, even if it were put in the most general terms. I repeat that I would like a clearer answer to why the Bill is, on the face of it, about a temporary absolute cap, when it has clearly been shown that a relative control would reduce unfairness and deliver a more just relative treatment between long-standing customers and the small, active proportion—it may be 20%—of frequent switchers.

The Bill requires a further CMA investigation of the market. I am not against another detailed study. I find tying it to the timetable for smart meters slightly odd. At best that needs to be kept reasonably flexible. The point is that neither price caps nor competition is sufficient to ensure that all consumers benefit from the market. Treatment of the more passive and the more vulnerable consumers requires much more specific interventions by companies and a better consumer service from all suppliers. It is true that all markets require switchers to make them work, but in a market as central to our lives as energy the market price and the structure of tariffs need to reflect fairness and justice for all consumers, certainly, but between different groups of consumers as well.