Michael Connarty
Main Page: Michael Connarty (Labour - Linlithgow and East Falkirk)Energy Prices
Michael Connarty Excerpts(10 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text
Michael Connarty
It is very important that the Minister is not allowed to get away with an empty boast. The Energy and Climate Change Committee report states that
“gas and electricity have risen by 41% and 20% in the UK in real terms. . . This has had an adverse impact on fuel poor households and thrown Government targets to eliminate the problem by 2016 off-course.”
How can the right hon. Gentleman boast that prices are being cut in real terms when the facts in the Committee’s report deny that?
Mr Davey
I am about to do so. I said that our reforms are beginning to work. It is true—that is what I said. I admit that energy prices have gone up in this Parliament, but they have gone up slower than they did in the last Parliament, when energy bills went up faster on average every year than they have in this Parliament. Indeed, fuel poverty went up under Labour, whereas the latest statistics show it falling. The hon. Gentleman should look at the facts.
Chris Heaton-Harris
I shall say something about fuel poverty later in my speech, but I believe that a huge majority of Northern Ireland fuel customers are off grid, and that solutions are currently being sought.
Chris Heaton-Harris
I will take just one more intervention, from my good friend the hon. Member for Linlithgow and East Falkirk.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Perhaps I can help here. Because of the interventions, I shall have to reduce the time limit for speeches, and one of the first to be affected will be the hon. Member for Linlithgow and East Falkirk.
Michael Connarty
Nevertheless, the point that I am about to make is very relevant. The hon. Gentleman has been a Member of the European Parliament. The European Union has restricted roaming charges and other charges that have been used excessively by telecoms companies. It is saying that that does not work. Is that not exactly what the hon. Gentleman is attacking in the context of energy prices?
Chris Heaton-Harris
Indeed, and across Europe those very same telecoms companies are now coming to Governments saying they are not investing as much as they used to, because they have not got as much money as they would have had otherwise.
A direct effect of price ceilings is a shortage of supply. In an unhampered market, especially in energy where supply and demand are balanced by the free-functioning price mechanism, if the Government were to impose a price ceiling below the market price, as is proposed, the quantity of energy supply would fall as it would make less financial sense for companies to produce, while demand for energy would increase as a result of the lower prices. The result would be a shortage of energy, with consumers unable to find satisfactory supply.
In addition to the direct negative effects of price control, a series of indirect effects would emerge from the Government manipulation of prices proposed by the Opposition. While price controls do legally change the price, they cannot overcome the fundamental economic issue of deciding how to allocate scarce resources among an array of feasible alternatives. In the absence of the ability to use prices to ration scarce goods, alternative mechanisms emerge. Shortages, for example, would lead to long queues, as happened in the United States in the past because of gas prices, and backlogs, which tend to lead to subsequent Government interventions such as rationing schemes.
Most people understand that the controlling of energy prices, which has been tried before in the UK and elsewhere, has conclusively failed. For proof, we can look west, to California’s experience with price controls on retail energy, which led to shortages manifested in rolling power cuts throughout the state.
Even more importantly, price controls would discourage energy companies from making new, long-term investments, which is precisely what is needed to increase the supply of energy and improve standards of living. What this means is that, at best, the Opposition’s strategy might provide short-term benefits in the form of lower energy bills for a few, but with the associated cost of some form of deterioration in quality and quantity of supply in the immediate future. In the long run, prices would have to go up because the universal improvement in supply would fall away completely. The Opposition policy would have the exact opposite effect on prices from what they intend.
All economic knowledge and sense dictate that the Opposition idea is wrong-headed and misguided. If their goal is to improve standards of living, policy must focus, as it currently does, on incentivising and improving the quality and quantity of supply. Price controls serve to achieve the exact opposite, lowering the standard of living of many while providing political gains for few. The proposal must be dismissed as an uninformed fallacy.
However, we should not be surprised that the Leader of the Opposition and his party are focusing on a price freeze and the cost of living. The right hon. Gentleman is essentially just watching his own back, for it was he, in his previous guise of Secretary of State for Energy and Climate Change, who drove through policies that he knew would drive up prices for consumers and drive people into fuel poverty. He was happy for that to happen—there was no concern at all about a cost of living crisis. Indeed, back when he was Energy Secretary, the Labour leader gave the LSE Ralph Miliband lecture. On 19 November 2009, he explicitly confirmed that his policies would see energy bills rise:
“It needs a willingness to take the argument to people about the tough choices involved in tackling climate change. This is the starting point: a willingness to engage with people on, for example, the fact that to deal with the problem of climate change, energy bills are likely to rise.”
In January 2010, the Labour leader was even more candid:
“Yes, there are upward pressures on energy bills, and that makes life difficult for people, including those in fuel poverty; but it is right that we go down the low-carbon energy route.”
Michael Connarty (Linlithgow and East Falkirk) (Lab)
The reality of what we have been discussing has been distorted slightly by the Secretary of State. I am disappointed in him, and I am glad that he is here to hear me say so, because in many other respects regarding energy security I hold him in high regard. I have to say, however, that his trivialisation of the problem that so many families face is shameful coming from a Liberal. I would have expected such a thing from a high Tory who has so much money that he never meets real people and who has his staff deal with his problems, but from the Secretary of State it is too much to bear.
Given that a year ago the DECC Committee produced a report on energy prices, profits and poverty, those are the issues that he should have addressed. He should have indicated in some way how the Government had taken stock of what was said in that report. The changes that have happened since mean that the situation has got worse, not better, for ordinary families.
The wholesale price of gas has come down. All the analysis from the economists shows that 50% of energy bills comes from wholesale prices. Gas prices have fallen by 38% and electricity prices by 23%, yet energy prices have gone up by 10% on average. In the past year, energy companies’ profit margins are up by 21% for single tariffs and more for dual tariffs. This cannot be denied. These are the things that the Labour party wants to address by saying to the companies, “No, you are not too big to control.” Just as the banks are considered to be too big to fail, the energy companies are considered to be too big to control. Government Members have said that to do so threatens the future because they will not be able to afford to invest. I am an economist, and my understanding of investment is that it means calculating the net present value as at today to work out what will have to be raised in income to cover future investments, building in some profit margin. It does not mean taking the profits now—trousering them and giving them to shareholders in such a way that shareholder value is boosted but no income is put away for future investments. That is what is supposed to happen but it is not happening in the energy market because profits are seen as a cash cow for short-term use.
Families in my constituency and in Falkirk district and West Lothian may not face some of the big, dire problems that my hon. Friend the Member for West Dunbartonshire (Gemma Doyle) described. Yesterday I saw a chart showing that in those areas of Scotland there is over 25% unemployment among young people. The unemployment level in my area is lower, but there are still a lot of families facing real poverty. Bills have risen by an average of £300 per year, but what is more important is the affordability gap. Analysis shows that the real income for families across these constituencies and in most of the UK has fallen by £1,600, while the energy affordability gap has gone up. It is not £300 but £480 for the average family in my constituency and across the UK. The people in part-time, short-term, low-guaranteed-hours work who are called the new employed are in fact the new benefit-dependent working poor. People are sanctioned as they struggle to find work and to cope with the devices used to get people off benefits on the basis that they are no longer seeking employment. They are no longer in employment; they are sanctioned and out of employment. That is what people are facing and what the Government should have addressed.
The root cause of the problem is partly the structure of the industry and partly the behaviour of the energy companies, which Ofgem has tried to police. I have been looking at some of the facts. SSE got a £750,000 fine for not providing connections properly. Scottish Power got a £700,000 fine for not giving the right price difference and payment type. Npower got a £125,000 fine. There was a £12 million fine for E.ON, which persisted in mis-selling between 2010 and 2013. The companies are reacting by trying to bully this Government and frighten a future incoming Government. For example, SSE announced that it would freeze energy prices at least until 2016 and legally separate its retail and wholesale businesses. Those ideas were put forward as options to be looked at seriously when we have the price freeze. On the same day, it announced that it would withdraw from five out of six wind farms and reduce its investment in renewables from £7.2 billion to £2 billion-£3 billion. This happens because these companies think they are so powerful that we cannot control them, and the Government have been so supine in their attitude to them that they are getting away with it.
The real problem is the structure of the industry. Calor Gas in my constituency, which distributes to the whole of Scotland from Grangemouth, says that trading alone trebles the price it has to pay for its own gas to supply to the people who need it, particularly in rural areas where people do not have the option of anything else. The vertical integration of the industry means that it can hide its profits and put costs in one section and not another. These companies have to be broken up, they have to be taken on, and, if need be, they have to be controlled. I have no fear of that from the perspective of the consumer.