Energy Prices

Mike Weir Excerpts

Wednesday 18th June 2014 Commons Chamber

[Mr Mike Weir (Angus) (SNP)]

It does seem to me sometimes in these debates that it is the same old gang assembling to go over their greatest hits. However, the recent decision to make a referral to the Competition and Markets Authority has changed the scene significantly. I support the referral and hope that a decision will come fairly swiftly, although the history of such referrals does not give me a great deal of confidence.

[Mr Davey]

My previous job was as competition Minister and we reformed the processes so it is quicker.

[Mr Weir]

I will wait and see how quick “quicker” is.

It is interesting to look at some of the reasons that Ofgem give for the referral. It notes that average dual fuel prices increased by 24% between 2009 and 2013, which is just over 10% higher than general inflation over the same period. At the same time, energy consumption has decreased. In effect, even though consumers are perhaps reacting to the message of saving energy, they are still seeing substantial costs, leading many to question the cost-effectiveness of energy-saving measures. I have made the point before that one of the defects of the green deal scheme is that many consumers simply no longer trust the energy companies and will be reluctant to take part in any scheme—even a good one—that they are promoting. This is borne out by the state of the market assessment, which says:

“We found evidence of low levels of consumer satisfaction. Only 51-52 per cent of customers said they were satisfied with their supplier, and customer complaints have increased by more than 50 per cent since the beginning of 2011. Our survey evidence showed that in 2013, 43 per cent of customers did not trust energy suppliers to be open and transparent in their dealings with consumers, an increase of 4 percentage points from the previous year.”

Not surprisingly, it concluded:

“Levels of customer confidence and trust are not what we would expect to see in an industry that is successful in meeting its customers’ needs and expectations.”

That is a fairly damning indictment of the way consumers view the major energy companies, and should not come as a huge shock to anyone who has dealt with the issue. This is especially true since the assessment also notes that between 2009 and 2012, the earnings before interest and tax, as it puts it, of the energy companies have shown a very substantial rise of around £700 million, standing as of 2012 at £3.7 billion.

It is interesting to note that within non-domestic supply, profits have fallen slightly, while domestic supply profits have increased from £233 million to £1,190 million —a staggering rise over a four-year period. It seems to me that there must be something wrong with that. Clearly, the hard-pressed consumer was bearing the brunt of the massive price rises at a time when wages were, at best, static and other essential costs such as food were also rising sharply. It is no wonder that many of our constituents were feeling under very considerable financial pressure, and many still feel that they are seeing no benefit from a recovering economy, when their family circumstances remain very tight indeed.

It was interesting to hear what the Secretary of State said about the rocket and feather approach. I am not an expert on hedging, but it seems to me that its object is to prevent sudden price spikes or price falls. Whether it comes down like a feather is one side of the equation, but if it is going up by a rocket, the hedging strategy is clearly not working. We must question whether the energy companies are truly taking part in a hedging strategy, or whether this might be just another excuse. The Competition and Markets Authority needs to look at that.

The figures on the costs are only part of the picture. It is all very well talking about the average cost of a dual fuel bill, but that disguises a multitude of other consumers who are on much more expensive deals. I have often cited the costs that those on prepayment meters face. Although it is true that many companies set those tariffs to the rate of their standard domestic tariff, those are still much higher than the tariffs for those who can pay by direct debit or have dual fuel or fixed-term deals, many of which are not available to those on prepayment meters. The situation can be much worse for those who have debts because the meter can be set at a very high recovery rate. Research by Citizens Advice Scotland disclosed cases where some people had £7 out of every £10 they paid taken towards arrears.

Governments have consistently argued—we have heard it again today—that switching is the way for people to save money. The truth is that those who would benefit most from switching are those who find it very difficult, if not impossible, to switch. Those who are most active in switching are those who are already on better deals. As Ofgem put it in its report:

“Customers that are prepared to manage their accounts online, pay by direct debit, and fix the cost of energy for 12-18 months are able to get the best deals.”

It is also true, it seems to me, that the amount that can be saved is relatively small; the differences between the best online deals of the major companies tend not to be great and the benefits of repeated switching are subject to a law of diminishing returns.

It is also the case, however, that the very nature of these deals—managing accounts online, paying by direct debit and so forth—tend to exclude those who are the most fuel poor since they are also the least likely to have bank accounts, or at least bank accounts prepared to accept direct debit payments, and the least likely to have ready access to a computer to enable them to manage their accounts online.

[Jake Berry]

Will the hon. Gentleman give way?

[Mr Weir]

No, as many others wish to speak.

In many of the rural areas of our constituencies, the banks have been in retreat for many years, so that many even quite large villages no longer have a bank branch, and some of the smaller towns are seeing banks close. The banks are, like so many other businesses, retreating to the internet, which increases the isolation and difficulties for those who do not have ready access to it in the area of energy switching as in so many other areas.

There are other ways in which the energy companies may be—I will not say “fixing the market”, but Ofgem talks of “tacit co-ordination”. It has said:

“Several firms’ business plans stated that they wait until competitors have announced their price changes, not just to avoid the adverse publicity of going first with a price rise, but to assess the extent of their own price adjustment.”

Is that not an example of what we have described all along as a “follow-my-leader” attitude among the companies? None of them will step far out of line. In a true competition, one would expect some companies to be prepared to take a hit on profits in the short term, at least, in order to build up their business, but that does not seem to be happening in this instance.

The Secretary of State attacked Labour policy. I myself remain very sceptical about many aspects of it, especially the price freeze, but I entirely agree that the regulator should have the power to force energy suppliers to pass wholesale price cuts on to consumers if the suppliers themselves fail to do so, and I will therefore be supporting the motion. However, let me issue one plea to both the Opposition and the Government Front Benches. Every time we talk about energy, we talk about the big six and dual fuel: gas and electricity. The poor off-grid customers are being left out again: they pay more than anyone else. Please will someone grasp that nettle?