Domestic Gas and Electricity (Tariff Cap) Bill

Debate between Mark Pawsey and John Penrose

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.