Energy Company Charges

Mike Weir Excerpts

Tuesday 4th February 2014 Commons Chamber

[Albert Owen]

Yes, absolutely—I am coming to that.

I want to deal with a number of groups and issues, including the two main themes—vulnerable customers and choice, which the Government talk about all the time but which some people do not have. This is about helping and protecting vulnerable people, and that is the purpose of the motion. It is good to see that the proposer of the motion, the hon. Member for Harlow, is now here. I am taking over his role for a few minutes, but I am sure, Mr Deputy Speaker, that he will catch your eye and will not be penalised for being late.

There has been some progress on energy prices. Compared with a few years ago, bills are more transparent and a number of tariffs have been simplified. I pay tribute to Ofgem, the regulator, for setting up the retail market review, which was helpful, and to the work of hon. Members, including those who serve on the Energy and Climate Committee, which has been very proactive in holding the energy companies to account on tariffs and the price mechanisms in bills.

A few weeks ago—it seems like a long time ago now—we debated a proposed price freeze. Many people’s reaction was to say that it was a con. In terms of cons by political parties, we have to look closely at what the Prime Minister has said on several occasions about people going on to the cheapest tariff. The reality is that many people are adversely affected by prices. If they are off the gas grid, for instance, they will never get the best deal offered by energy companies because they cannot have the dual fuel discount. Equally, there are people on fixed charges and various other things that are built into the system. However, there is now simplification and the situation is improving regardless of legislation.

[Mr Mike Weir (Angus) (SNP)]

Is not the situation even worse than the hon. Gentleman suggests? Under the legislation, people on pre-payment meters, for example, can never get anything like the lowest tariffs available.

[Albert Owen]

Absolutely—that was my next point. These people are in vulnerable positions—not only those in houses in multiple occupation but those in rural areas. I know small estates in my area where people have these very high payments and are unable to get the best tariffs. It is a bit of a con. Although we passed the legislation and had those debates, it is worth putting this in its proper context, and I thank the hon. Gentleman for his intervention.

--- Later in debate ---

[Albert Owen]

My hon. Friend is absolutely right. I am sure that that issue will be addressed again as the Consumer Rights Bill goes through Parliament. I can remember a time when cash was cool. People went in on time and paid their bill in cash, and that was considered a good method of payment. Today, people are being penalised for exercising that very choice.

The hon. Member for Harlow has singled out companies in his early-day motions, but many companies have good practices. For instance, my supplier gives an early payment bonus to people who pay early by cheque or cash, or in other forms. There are mechanisms that can be used, but they need to be adopted by the whole industry.

[Mr Weir]

The hon. Gentleman is being generous in giving way. Does he not recognise that some companies claw money back, because they now charge for sending out paper bills?

[Albert Owen]

Yes.

--- Later in debate ---

[Mr Mike Weir (Angus) (SNP)]

I congratulate the hon. Member for Harlow (Robert Halfon) on securing the debate and on amassing such an impressive number of supporters. I also congratulate the Backbench Business Committee on securing the time for the debate.

All our constituents have suffered from rocketing energy prices over the last few years. Hard as that is for everyone, it is harder still for those who are unable to access the special deals that are offered by just about all the energy companies. In passing, however, I note that it is not all plain sailing for those who sign up to pay by direct debit, which can involve either a quarterly bill payment or paying a set amount per month. Those who take the quarterly bill payment option do not necessarily have any control over the amount being taken from their bank account, especially if they are out a lot and regularly have estimated bills. That can be a real problem. For those who opt to pay a set amount per month by direct debit, the company will regularly try to increase the amount they pay, whether or not the current amount covers their bills. Any attempt to retrieve an overpayment can result in a long tussle. At any given time, the energy companies are sitting on substantial sums that have been overpaid by customers. These are estimated to be about £2 billion, earning the companies £36 million a year in interest. It is hardly surprising that they keep trying to up the level of people’s direct debits.

Matters are not helped by the fact that energy companies are often not transparent about the charges that will actually be applied. The hon. Member for Makerfield (Yvonne Fovargue) mentioned the fact that many people on prepayment meters did not know what tariff they were on. In recent price rises we were told the average, but that hides a multitude of sins. A constituent, a low energy user, contacted me yesterday regarding the charges levied on his flat. He told me that the unit charge had risen from 7.242p to 10.89p—a rise of some 50%. That is outrageous.

The crux of the debate is not so much energy prices as social exclusion. Gratifying as it is to give the big six energy companies a well deserved kick, we also need to examine the actions taken by many of our major financial institutions and how they work against people accessing cheaper energy deals. The Minister may be able to do something about energy companies and Ofgem, but we need a cross-governmental effort to look also at how people access finance and bank accounts. The major energy companies all offer better deals if people can pay for their energy by direct debit; Citizens Advice reckons that the average saving is £100 on that paid by people who pay by other methods, although it can be as high as £140. That is great for people who are able to pay by direct debit, but many of those most in need of cheaper energy are the very people unable to pay by direct debit. There can be many reasons for that. Banking exclusion is one such reason, because about 1 million people do not have a bank account. We have all seen in recent years the flight of the banks from rural areas and areas of deprivation, and just the other week many branch closures were announced.

[Sheila Gilmore]

I am sure the hon. Gentleman is aware of this, but I would like him to comment on it. Many big banks have retreated from things such as basic bank accounts—Barclays is the only one of the major banks still to offer that—so in the past few years things have gone backwards on banking inclusion.

[Mr Weir]

The hon. Lady is right about that, and I will deal with the matter in a moment.

Another reason is digital exclusion, because many people do not or cannot access the internet, perhaps because they cannot afford it or they are unable to work a computer because of illness or age. Other people are simply disengaged from any competitive initiatives. Some may lead chaotic lives, whereas others may simply live in privately rented accommodation and move frequently to seek employment, and, thus, cannot enter into the longer-term agreements demanded by many of the direct debit arrangements.

Today’s debate pack contains an interesting table detailing the percentage of people who pay by direct debit. The figure for the south-east is 63% and the one for my area of north Scotland is 56%. Surprisingly, London’s figure, 41%, is one of the lowest, but that is because of the transient nature of London’s population and the fact that it contains a huge number of houses in multiple occupation and young people living in them. Those things push the figure down.

Some people are simply wary of getting into debt, especially if they have previously had problems, and they do not want to get into the position where they cannot control exactly when money comes out of their accounts and have to juggle their income to ensure that all bills are met. The availability of direct debit arrangements further discriminates against such consumers.

Let me directly address the point made by the hon. Member for Edinburgh East (Sheila Gilmore). Anyone who cares to look at banking comparison sites such as MoneySuperMarket.com or money.co.uk will find that data on best buy basic bank accounts show that some managed accounts with niche suppliers, which are supposedly specifically designed to help people with poor credit histories budget, have substantial monthly fees of about £12 to £14; those come up first if people google “basic bank accounts”. By contrast, some of us still, at least for the moment, enjoy free banking, as well as being able to get direct debit payments on our energy. It is also illuminating to look at the discussion forums on some of these sites and at the threads on basic bank accounts. It is apparent that the big banks, some of which still offer basic bank accounts without a fee, try to place people who inquire about basic bank accounts on their basic current accounts, which allow the very overdrafts that many of those seeking basic bank accounts seek to avoid. Such accounts can also sometimes come with swingeing penalties should the limit be exceeded.

In addition, people may find that the payment card for their basic bank account works only in certain automated teller machines. That makes things difficult, particularly in rural areas, where there may be only one ATM; if it does not happen to be the right one, people cannot access their money. Many people who have had difficulties with banks in the past are also wary of opening basic bank accounts with the same banking group, as they have real concerns that the money that goes into them might be swiped by the banks to clear pre-existing debts. All of that works against taking advantage of direct debit deals.

The situation is even worse for people who are on prepayment meters. As I have said before, this is one of the rare examples where people are actually penalised for paying in cash up front. Not only can they not access special deals, but the tariff is often higher. Many people who rent privately have no option, as private landlords have often installed prepayment meters. Worse still, when meters are calibrated to recover existing debt, much of the money is taken before energy is provided.

Those are just a few of the many issues around energy prices. For many people, the advice from successive Governments to switch suppliers or to pay by direct debit simply does not work. I accept that there are additional costs in different types of payments, but the huge disparity in charges shows that the current system is not working. We need real action on the matter and a fairer and transparent charging system. The motion calls for a cap on charges, which is very reasonable. I appreciate that the problem is not all down to the Department of Energy and Climate Change. As I said earlier, I hope that there will be a cross-governmental effort to deal with the problem.