Domestic Gas and Electricity (Tariff Cap) Bill

Patricia Gibson Excerpts

2nd reading: House of Commons
Tuesday 6th March 2018 Commons Chamber

[Patricia Gibson (North Ayrshire and Arran) (SNP)]

I have long expressed concern and alarm at the way the energy market simply does not seem to work for consumers. I have worked with Members from other parties, most notably the hon. Member for Weston-super-Mare (John Penrose), to try to ensure action is taken on this issue.

The fact that the Bill will impose a cap on the price of the standard variable and default tariffs, at least until 2020 and possibly longer, is good news for consumer, particularly those who do not switch for a whole variety of reasons. The Competition and Markets Authority’s investigations found

“a lack of engagement in the markets on the part of many customers, which suppliers are able to exploit by charging high prices.”

Indeed, some 34% of domestic energy customers had never considered switching supplier, with 56% saying that they did not know whether it was possible or did not know whether they had done so in the past.

As we have heard, consumers on standard variable tariffs are much more likely to be older, disabled, on low incomes, living in rented accommodation or without internet access. Those on standard variable tariffs have not seen their bills fall by much when the cost of providing energy has fallen. Such savings as are available are passed on only to consumers who were active switchers, as we have heard. We have to understand that not all consumers can engage in the switching process, so suppliers clearly need to do more to ensure that customers are not trapped in poor deals. The poorer someone is, the more likely they are to be on the more expensive standard variable tariff, subsidising cheaper electricity deals for the better-off. That cannot be right, and is essentially what has brought us to this point.

People in my constituency of North Ayrshire and Arran are overpaying on energy bills by £5.5 million a year. That illustrates the need for action in the market, but that action is much more urgent than the mooted timetable of winter 2018 would suggest. I absolutely welcome the cap, but I am extremely disappointed that Ofgem has said it will need five months to implement it. We have been told that the cap will be in place for winter 2018, but why not sooner? I am afraid that the perception again raises its head that Ofgem is dragging its feet.

The Bill is indeed welcome, but the focus hereafter must be on fixing this broken market. We must have easier and faster ways to switch suppliers, for those who can and do; we need more transparent energy bills for consumers; and we need to create the conditions for a much more competitive market. Some people propose that we should consider scrapping standard variable tariffs altogether and prohibiting all tariffs without an end date, as they inhibit consumer engagement, but that prompts the question what energy suppliers can and will do to increase consumer engagement, because the figures for switching and the CMA investigations have shown that consumer engagement is severely lacking, for a whole variety of reasons.

Is it not interesting that, since there has been political focus on this matter, with a commitment from all parties to tackle the standard variable tariff rip-off, we now see some energy companies withdrawing this tariff, or seeking to introduce new measures to prevent customers from languishing on it? That shows that, so far, there has been a lack of will to deal with this issue on the part of the bigger companies in particular. However, it is clear that political focus in itself can help to drive change.

I echo the view that was expressed earlier: we must take care that the action taken in this Bill, welcome as it is, does not lead to higher prices in the longer term. We cannot have a situation in which energy providers offset initial price reductions with increases once the cap is removed. We also need to ensure that consumers who are on a cap default tariff do not lose out as market conditions change in the future. When the cap is lifted, we need to ensure that we know what the conditions and criteria for doing so are and that, in the end, we are left with a more competitive and fairer market for consumers. We need to know what the impact of this cap is and to ensure that there will be no adverse impact on a competitive market.

What is done by the Government and the regulator for the period during which this cap is in place really matters. I am keen to hear the Minister’s thoughts on this, as we cannot begin too early to prepare for what comes after this cap—whenever it is lifted. We need to know how we can continue to protect consumers and ensure that they have energy deals that are right for them and that they are not ripped off as they have been. We cannot go back to business as usual after the cap is removed. We need real and lasting change, and this period when the cap is in place is an opportunity to make that change happen.

--- Later in debate ---

[Patricia Gibson]

Will the hon. Lady give way?

[Antoinette Sandbach]

I must sit down soon; I have taken many interventions.

We must make data far more available to allow more competition in the market. That is where the Government’s policy differs from that of the Labour party.

--- Later in debate ---

[Drew Hendry]

Yes, absolutely. There needs to be an acceptance that this is just one measure and there are many more measures—including on energy efficiency, which should have had much more attention from the Government.

There remains a need to remove legislative obstacles to data sharing for vulnerable customers to give them better consumer protection. There also remains—

[Patricia Gibson]

Will my hon. Friend give way?

[Drew Hendry]

Yes.

[Patricia Gibson]

I will make a very brief intervention if I may, Mr Deputy Speaker. As I said in my speech, we are having this debate because of the loyalty penalty that people pay. We see this in the energy industry, the insurance industry and a whole range of industries. Does my hon. Friend agree that we need more Government regulation across industries to stop people being punished for being loyal to their providers, whatever the market?

[Drew Hendry]

I absolutely agree. To assist, Mr Deputy Speaker, I will take no more interventions during the rest of this speech.

As I said, we need data sharing for vulnerable customers to give them better protection. There remains a risk, as was highlighted by the hon. Member for Rugby (Mark Pawsey), who is still in the Chamber, that suppliers may just increase their lowest prices to maintain profit. We will all be watching carefully to see how they react.

So what must now be done? In Scotland, the SNP Government are providing resources for financial health check-ups to help pensioners and those on low incomes to make the most of their money and to secure the best energy tariffs. The UK Government will, I hope, follow suit.

We call on the Government to place a new duty on energy companies to set out a clear timetable for reducing the number of people on prepayment meters, to implement the Competition and Markets Authority’s call to reduce the costs for households and to introduce a requirement for energy companies to prioritise the roll-out of new-generation smart meters to households at risk of fuel poverty. That can all be done in short measure.

When it comes to disabled people, even more action is needed. Disabled people face higher energy costs because of issues related to their impairment or condition. Those extra costs have a detrimental impact on disabled people’s financial resilience and ability to fully participate in society. The price cap goes some way, but the UK Government must now put in place longer term plans alongside the price cap to improve support for disabled consumers, including increasing accessible communication and digital inclusion and, as I mentioned earlier, building on more effective data use.

The challenges for disabled people are that they have no choice but to consume more. They have limited mobility, use more heating to stay warm and run additional technology and equipment. Over a quarter—27%—of households with a disabled person spend more than £1,500 a year on energy, and nearly 800,000 households across the nations of the UK spend more than £,2,500.

There must be a different way to deal with this. In Scotland, the Scottish Government have announced a publicly owned energy company, supporting efforts to take fuel poverty and climate change targets seriously. We will provide people, particularly those on low incomes, with more choice and the option of a supplier whose only job is to secure the lowest price for consumers and who looks after the wellbeing of those who lack the confidence or ability to engage effectively in complex energy markets. That will also allow us to deliver on broader energy ambitions for renewable generation and the maximisation of community benefit. By the end of this parliamentary term, the conditions will be in place to meet the set-up challenges.

In welcoming the Bill, I once again stress that this action comes too late in the day for many. Progress on helping hard-pressed consumers must now be much more rapid and effective, especially for those who are hurting the most.

Domestic Gas and Electricity (Tariff Cap) Bill

Patricia Gibson Excerpts

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

[Andrew Lewer (Northampton South) (Con)]

I welcome the opportunity to speak on the Bill and the amendments. Millions of consumers in the UK are facing challenges with their energy bills, and I find it outrageous that loyalty is punished by some energy companies. It is counterproductive, especially for those speaking up for the free market. We must be careful, however, not to commit the politician’s syllogism from “Yes, Minister”: “There is a problem. Something must be done. This is something, so let’s do this.” The amendments seek to ameliorate that.

I am not a great believer in the idea that the gentlemen in Whitehall know best when it comes to running energy, and I worry that the idea that said proverbial gentlemen in a panel are best placed to determine energy prices gives succour to Labour ideas that it, as the state, is best placed to run the whole sector. The fact that Labour does believe that is precisely why I would not support any of its amendments but will stick with a Government who, notwithstanding their occasional prices and incomes board-type moments, represent a strong—indeed, the best—bulwark against socialism.

I will not go into huge technical details other than to praise the work and determination of my hon. Friend the Member for Weston-super-Mare (John Penrose), who has argued for a more dynamic solution to this problem, proposing a maximum mark-up between the ultra-competitive, consumer-friendly deals and the default tariffs that loyal customers pay. I supported his amendments and the intention to point out a better way of stimulating the market towards greater fairness via relative cap mechanisms.

Nevertheless, the fact is we are facing an urgent problem for which we need an urgent solution. To this end, I will support the Bill with—and, indeed, because of—the added sunset clauses, for which I thank the Minister, and which make this a temporary measure up until 2020. I hope that comments from me and others will point the way ahead at that time.

[Patricia Gibson (North Ayrshire and Arran) (SNP)]

I am delighted to support the Bill, and I am glad to have worked with the hon. Member for Weston-super-Mare (John Penrose), who was instrumental in its introduction and in pushing for the cap. It is disappointing that Ofgem required five months in which to implement it, but at least we shall have it in time for winter 2018.

The amendments to support and protect vulnerable and domestic consumers during the cap’s implementation are of course welcome, and it is right for the Minister and Ofgem to take account of the distinct needs and circumstances of vulnerable consumers when setting the cap, but since entering the House I, like the hon. Gentleman, have developed a healthy scepticism in my opinion of the way in which regulators, including Ofgem, go about their business—or not, as the case may be.

More than a quarter of households that contain a disabled person—27%, or about 4.1 million—spend more than £1,500 a year on a year on energy, and 790,000 of those spend more than £2,500. In my constituency, consumers are overpaying for electricity by £5.5 million a year. There is no denying that high energy costs have a serious impact on disabled people’s financial resilience. They limit those people’s ability to access employment and training and savings, and their ability to participate fully in society. Vulnerable and disabled consumers face higher energy costs than any other consumers, and that must be factored into any consideration.

As we heard earlier, the amendments that are intended to establish either an ongoing tariff differential or a relative cap are simply not robust enough to ensure that consumers would ultimately benefit from them. There is a risk that both the relative tariff differential and the relative cap could trigger unintended consequences, such as energy companies’ raising their minimum tariffs to meet the required difference from their maximum tariffs. That poses a series of questions about consumers’ interests. Indeed, stakeholders such as Ofgem, the Government and Citizens Advice have warned that a relative cap would not prevent overcharging and might simply result in price increases for the best-value tariffs. There is widespread agreement that an absolute cap is the best option if overcharging is to be prevented. Moreover, a relative cap might decrease the number of people switching providers or tariffs, which would clearly not be in the interests of consumers.

We need to know more details of the criteria that Ofgem must follow when conducting its review of competition for domestic supply contracts under clause 7. Those criteria are set out in amendment 8. It is essential that the Minister and Ofgem are as transparent as possible when setting the targets, so that the price cap does what it says on the tin. The hon. Member for Wells (James Heappey) spoke about time of use tariffs. I am extremely suspicious of those, because they will inevitably penalise families with children, who have little flexibility when it comes to controlling when they use their energy. I do not think any of us want that.

[James Heappey]

The hon. Lady makes a good point, but I think that there will automatically be technology in white goods, for instance, that will allow people to shift their demand to take advantage of time of use tariffs. Most families will save significantly as a result.

[Patricia Gibson]

I thank the hon. Gentleman for that clarification. I appreciate that such tariffs will benefit some consumers—I do not think anyone would deny that—but I question whether the system would be flexible enough to benefit all families with children, and others whose energy use cannot be as flexible as they might like.

The amendment to ensure that customers must benefit from the cap by at least £100 seems very arbitrary and risks unintended consequences. I agree with the hon. Member for Wells about that, and with my hon. Friend the Member for Kilmarnock and Loudoun (Alan Brown). There is widespread concern that the big energy companies will use exemptions and green tariffs to ensure that they meet the target.

It is essential that the Bill delivers for consumers and that the period of the cap is used to deliver a fairer, more competitive market for consumers. It must deliver a change for consumers who have been overcharged for too long. There is consensus that the energy market is broken and needs to be fixed, which is why the Bill was introduced in the first place. It enables us to begin to do that, but we must ensure that we get it right and that there are no unintended consequences for the very consumers whom we seek to protect and assist. I know that the Minister will be mindful of that. We need to ensure that consumers benefit from action on this issue after the tariff is lifted in 2020 or 2023.

The launch of the independently chaired commission for customers in vulnerable circumstances by Energy UK in January will report on its findings and recommendations on energy companies, the Government, regulators and consumer groups towards the end of this year. I hope that the Minister or the Secretary of State will note that as we approach the end of the tariff cap, so that the voices of consumers can feed directly into the process of ensuring that they are offered as much protection as possible as the broken market is improved to become more fair and transparent.

[Bill Grant (Ayr, Carrick and Cumnock) (Con)]

It is a pleasure to follow the hon. Member for North Ayrshire and Arran (Patricia Gibson).

It is clear that the energy market is not working for the consumer, and with that in mind, I am pleased to support the Bill. However, I firmly believe that these additional measures must be temporary. Permanent Government intervention in the energy market of the kind that is proposed in new clause 1 is, I believe, unnecessary. Indeed, things are already changing. As recently as 2010, there were only 13 energy suppliers in the United Kingdom; now there are well over 60. Independent suppliers are growing and, rightly, posing new challenges for the big six. They already account for some 20% of the dual fuel market.

The basis of healthy competition is enabling consumers to go elsewhere with relative ease if they find a better deal. Nearly 20% of households a year already switch suppliers. By making switching quicker and easier, we can make that figure even higher and force big suppliers to stop taking long-standing customers for granted as they have done for many years.

There are now about 10 million first-generation smart meters in operation in the United Kingdom. While the roll-out is progressing, there is a long way to go to meet the ambitious target of 53 million by 2020. In the context of the Bill, a key element is the roll-out of the SMETS 2 meters, which is due to begin this year. SMETS 2 consumers will benefit from quick and easy switching, and the meters should be intelligent enough to identify the lowest tariff. They have the potential to be a real force for competition in the energy market. At that point, there will be no need for the price cap, which is why it would not be prudent to introduce a permanent relative cap. It would be bad for customers, and it would work against the positive changes that will be made over the next few years.

New clause 1 is the product of a belief that markets simply do not work. As a Conservative, I believe that they can work. I note the progress that we have made, and the progress that we will make in the coming years. I acknowledge that the market needs the temporary cap, and I support the Bill as a means of protecting consumers, not only in my constituency but throughout Scotland and throughout the United Kingdom. I am sure that it will contribute to a reduction in the very real fuel poverty that some people endure.