Domestic Gas and Electricity (Tariff Cap) Bill

Mark Pawsey Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 30th April 2018 Commons Chamber

[John Penrose]

That is absolutely bang on the money. For goodness’ sake, the Competition and Markets Authority is suggesting such a thing, and that is after all its business.

[Mark Pawsey (Rugby) (Con)]

Will my hon. Friend give way?

[John Penrose]

I will take one more intervention, but then I must make some progress.

[Mark Pawsey]

My hon. Friend is talking about people moving from a competitive rate to the default, which he describes as the standard variable tariff. Does he think that people would be less inclined to put up with the higher rate if it had an alternative name, such as an “emergency tariff”?

[John Penrose]

There is now a whole range of underlying pro-competitive reforms—I am not normally one to give Ofgem a vast amount of credit, but it really deserves some in this case—that are needed in this market. Renaming the default or standard variable tariff may not have a huge effect, but it might have a positive effect. There is a series of other things, some of which are even more important, that must happen. It is crucial—I agree with the Labour spokesman about this, as I think we all would—that we do not waste our time and that Ofgem continues to reform the market while this temporary price cap is in effect because, when the price cap comes off, we will want the market to have been sufficiently reformed that no further price caps are necessary, because it works like a normal market in which the customer is king. If we have not done that, we will have wasted our time and everybody else’s.

I was talking about the complications and the hideous complexity of Ofgem’s proposals, but if all that inflexibility and complexity has not put Members off already, they should have a look at the bureaucracy. Pretty much every free market economist will agree that the best way to discover a price is not through a committee that meets every couple of months, but with a genuinely competitive market in which supply and demand are matched from moment to moment all day, every day. Fortunately, we just happen to have one of those handy. The switching market is full of deals on which energy firms compete like mad for business. It is innovative; it has razor-sharp prices; and it takes changes in wholesale energy costs in its stride every day of every week. The customer is, in other words, genuinely king or queen.

That is, as we have just discussed, exactly what we want to see in the rest of the market, so why are we ignoring it? Why go for a far less competitive version that is inflexible, hideously complicated, bureaucratic and committee-based when we could simply tie rip-off default tariffs firmly to the switching market and go down the pub for a drink? The mechanism, as we have heard, would be simplicity itself: a maximum mark-up between each energy firm’s best competitive price and its default tariff—we would cap the gap. Unlike with the arrangements in the Bill, there would be just one decision for regulators to take: the size of the gap. Everything else would be taken care of by the link to the competitive switching market.

--- Later in debate ---

[Stephen Kerr]

It is a great privilege to follow the hon. Member for Leeds West (Rachel Reeves), the Chair of the Business, Energy and Industrial Strategy Committee.

There was no shortage of energy—or capping of energy—at yesterday’s Stirling Scottish marathon. There was, however, a lot of evidence of determination, particularly as competitors approached the finishing line despite the agonies that some were obviously going through. There was a great deal of grit on display. In addressing amendment 9, it is a lack of grit and determination—almost supine passiveness—that is causing me to have grave concerns about how Ofgem goes about its business.

During prelegislative scrutiny of the Bill, the Select Committee held an evidence session, to which my hon. Friend the Member for Eddisbury (Antoinette Sandbach) referred earlier. I am sorry to have to say this, but I was unimpressed by the evidence presented in January by Dermot Nolan, the chief executive of Ofgem. He did not come across as a person with an appetite for what I feel needs to be done. He lacked that grit and determination. He admitted to my hon. Friend that, in respect of Ofgem’s statutory duty to protect vulnerable customers,

“I accept the point that we could and should have done better on vulnerable customers. We have relatively recently put in place principles for vulnerability, which will give a stronger level of protection.”

When the hon. Member for Hove (Peter Kyle), who is not in his place, challenged Dermot Nolan on what was in effect an admission of failure on his part to fulfil his statutory responsibility towards the protection of those who are vulnerable, he answered:

“We have not done as well as we could have. I fully accept that.”

This perturbs me. It perturbed me then and it perturbs me now. The hon. Gentleman, who is an esteemed member of the Select Committee, seemed to me to hit the nail firmly on the head when he said to Dermot Nolan:

“If you do not mind me saying, throughout the testimony here and before, you have been describing what is happening in the market; you are the single most important player in the market, because you have the most extraordinary powers as a regulator, yet your testimony sounds so incredibly passive. Do you ever just roll your sleeves up and get stuck in? I do not really see the evidence of that.”

I share the concerns expressed so vividly by the hon. Gentleman.

Since becoming a Member of this House last year and having the privilege of being appointed to the Business, Energy and Industrial Strategy Committee, I have had the opportunity to hear first-hand evidence and testimony from a number of regulators. I have, in all honesty, been underwhelmed by every one of them.

[Mark Pawsey]

My hon. Friend is giving an account of the evidence given by Ofgem to the Select Committee. Does he share my concern that the Bill would give that very body the powers to set the energy price cap?

[Stephen Kerr]

I am grateful to my hon. Friend for his intervention. I share the concerns—I think they are shared across the whole House—about the performance of Ofgem as a regulator. I have broader concerns about the general performance of regulators full stop. Frankly, we seem to have a collection of regulators who either have powers but do not seem to be prepared to use them, or who do not feel they have adequate powers but are not prepared to ask for them. That seems incredible to me. I am very wary of leaving the issue of vulnerable energy customers to the discretion of Ofgem, because I am fearful that the discretion of Ofgem will mean that it will continue, by its own admission, to fail vulnerable customers.

This is an important issue that needs to be aired here and now on Report. Ofgem needs to sit up and take note. It is also important that we hear from the Minister, from the Dispatch Box, what change in the pattern of behaviour we should expect to see from Dermot Nolan and Ofgem. Will they have the determination and grit of the marathon runners in Stirling yesterday? Will they do something with the powers they currently have and the powers they will have when the Bill is passed? Above all, I want the Government to fulfil the promise of our Prime Minister who, on behalf of the Conservative party, said:

“Our party did not end the unjust and inefficient monopolies of the old nationalised energy corporations only to replace them with a system that traps the poorest customers on the worst deals”.

I am fearful that that is what we could do. I look for reassurance from the Minister.