Domestic Gas and Electricity (Tariff Cap) Bill

Oliver Letwin Excerpts

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

[Dr Whitehead]

On reflection, I can join the hon. Gentleman in being slightly perturbed that I am quoting The Sun in this context. I assure him that although I quoted The Sun, a range of authorities from the Daily Mail —getting better?—up to the BBC’s website suggested that the Prime Minister did actually say that people would save £100. If the hon. Gentleman thinks that quoting The Sun was not entirely appropriate under all the other circumstances, I can do nothing other than agree with him.

Amendment 7 would ensure that vulnerable customers, including those already protected by a tariff cap, do not lose that protection as a result of the overall cap being introduced.

[Sir Oliver Letwin (West Dorset) (Con)]

If we put together the hon. Gentleman’s remarks about amendments 5 and 6—the general gist of which I have no quarrel with—and if Ofgem were subject to legal challenge as a result of trying to impose a cap of this size on that timetable, what does he suggest would be the effect of his amendments if they had entered law? How would Ofgem deal with the conflict between the courts and an Act of Parliament?

[Dr Whitehead]

My understanding is that the question of a timeframe for implementation of the cap would be strengthened considerably regarding a potential legal challenge by providing for a maximum period for the introduction of the cap, rather than a specified date. I think that we accept the principle that there should be some indication in the Bill of when the cap is to arise; certainly, in previous discussions of the Bill, there has been a real concern about the body responsible for implementing a cap after the legislation has been passed through the House taking any or no specified period to prepare the cap for its actual execution. The preparation of the cap will also be part of the process by which it is strengthened against legal challenge. That therefore needs to be done carefully and properly so that it is implemented it in a way that is proofed against such legal challenges. Ofgem indicated in its evidence to the Committee the period that it thought reasonable for it to be required to take forward the implementation of the cap. Placing that period in the Bill therefore seems, at least to the Opposition, to be adding to the proof against legal action rather than detracting from it.

[Sir Oliver Letwin]

I completely accept that it is advantageous to give Ofgem a push to do this on the timescale that the hon. Gentleman is describing. However, clause 1(1) says that

“the Authority…must modify the standard supply licence conditions”,

and under his amendments, it would have to have done that by a given date, yet the court may be preventing it from doing so. I still do not understand how he deals with that legal conflict.

[Dr Whitehead]

The Bill says that what needs to be done to modify licences to bring the cap about, among other things, has to be done by Ofgem as part of its implementation process. The question of legal challenge to Ofgem concerns, at its heart, what Ofgem does over whatever period may be specified to ensure that the implementation of the cap does not deviate from what is set out in legislation. That is the clear basis on which the cap should be undertaken, and that is the responsibility of Ofgem.

The second issue is the time within which Ofgem considers that it can introduce that cap in the way that the right hon. Gentleman has described, given its workload and capacity to do so. Indeed, Ofgem is on the public record, through the evidence that it gave to the Committee—he will know that that has some weight through being a public statement in Hansard—as saying that it felt that it could do it within five months. The amendment merely tries to tidy up the process by putting that timeframe into the Bill, while not in any way detracting from the strength or otherwise of what Ofgem is required to do in acting to implement the cap in a way that is both effective and legally watertight.

I am not sure that I can go too much further with the right hon. Gentleman’s point. I am happy to take it up with him separately if he wishes. However, I have explained where we are in seeking a combination of watertightness in the Bill and clarity that the wishes of this House can be undertaken in through the price cap coming in during the period when it is supposed to come in.

Amendment 7 relates to the point made by my hon. Friend the Member for Harrow West (Gareth Thomas) about vulnerable customers and people who are not in a position to take advantage of all the devices that other, less vulnerable customers would be able to take advantage of—that is, customers protected by the existing tariff cap in particular. In our view, it is important that those who are protected by the tariff cap do not lose that protection as a result of the overall cap being introduced. It would be helpful if the Minister, even if she is not minded to accept the amendment, put it beyond doubt that that is the Government’s intention and that they will not seek to lose the current safeguard tariff as the overall tariff cap comes in.

--- Later in debate ---

[Dr Whitehead]

Amendment 6, as I recall, would simply place the Prime Minister’s words into legislation. It was estimated that a saving of at least £100 would result from the measures, and one aim of the legislation was to bring that saving about. It does not mean that the amount would be exactly £100—indeed, had the Prime Minister not reported that to The Sun, we might have got a rather more complex version of that price promise. We are merely reflecting what was heard on that occasion, and I hope the right hon. Gentleman will take the amendment in the spirit in which it is intended.

[Sir Oliver Letwin]

I just want to be clear, because I have got very confused about these propositions on a relative cap. On the face of it, the words of new clause 1 are strikingly similar to those of amendment 2. Is the hon. Gentleman proposing that after the absolute cap, there should be a relative cap?

[Dr Whitehead]

It can be interpreted in that way. We are fully in accord with the Government’s idea of an absolute cap, as opposed to the relative cap proposed in the amendments. We suggest that what has been characterised as a relative price cap plays an entirely different function, which is to narrow the gap between tariffs after an absolute price cap has been in place so that companies cannot game the market by switching tariffs in the way I have described. That is nothing to do, at that point, with a price cap; it is about tariff stability over a period and, indeed, an assurance for customers that they are not going to be ripped off as a result of entering on a particular tariff and subsequently being placed on a very high tariff once that initial tariff has come to an end.

--- Later in debate ---

[John Penrose (Weston-super-Mare) (Con)]

I rise to speak to amendments 2 to 4, which stand in my name and those of a variety of Conservative colleagues, including two members of the Business, Energy and Industrial Strategy Committee as well as former Ministers and Cabinet Ministers.

I should pause to say that I am not arguing against the Bill overall—I spoke and voted in favour of it in principle on Second Reading—and I hope that everyone involved in the campaign I have headed in this area for the past year and a half appreciates that I believe an energy price cap is much needed. I pay tribute to the 214 cross-party MPs who signed up to the idea, plus the Prime Minister and the Minister, who have all been vital in getting us to this point today.

My concern is about not the principles but the detail—the type of price cap envisaged under the Bill—because, to put it bluntly, a fair number of free market Tories are pretty concerned that we are choosing the most anti-competitive, complicated, bureaucratic and inflexible cap on offer. It is inflexible because the Bill specifies an absolute cap that will be set by an all-knowing committee of Ofgem regulators every few months. However, the international price of energy moves around every day, and it is impossible to know what the price will be in the next six minutes, let alone six months, so the cap price will be out of date in moments and will stay out of date until it is reset again months later. That means it will not protect customers in the way we all want and, because it will be officially blessed by Ofgem, it will embed and legitimise high prices. It is not just me who is worried. Which? says it is

“not certain that customers on a capped default tariff will benefit as market conditions change in future”.

The proposed cap is also complicated—hideously complicated. Why? The assiduous folk at Ofgem have already started publishing details of how they might go ahead and they are warming to their task. It would not be just a single cap, they say; it would be 42 different ones to cover gas and electricity, different meter types and different parts of the country. There would be more than 42 different caps, however, because each one may be split into several different versions depending on whether people pay by direct debit or in some other way, and each will have a fixed standing charge and a variable element—oh, and there is headroom, too. Each of those three items can be calculated in a marvellously technical and complicated variety of ways. For example, the variable element could use a basket of market tariffs, an updated competitive reference price, or a bottom-up cost assessment. Those things might be calculated using a periodical review of realised costs, or third-party data with pre-specified allowances for certain cost items, and so on and—turgidly, complicatedly—on.

[Sir Oliver Letwin]

My hon. Friend and I have had an engaging conversation about this for many months, but given all the things he reports Ofgem as planning, surely that means we will have not a single point tariff that rapidly becomes outdated, but rather a tariff that will respond—for example, to input costs?

[John Penrose]

As my right hon. Friend says, he and I have had many conversations about this over many months. I can only say to him that if his argument is that Ofgem might come up with a version of an absolute cap that is a bit less absolute and a bit closer to what I am proposing—in effect, one that caps the gap: a relative cap—I would agree with him that that is a good thing, but if that is the case, as a source of advantage for the cap, why would it not be even better to go the whole hog and have a relative cap in the first place?