Energy Prices

Patricia Gibson Excerpts

Thursday 16th March 2017 Commons Chamber

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

I am delighted to be a co-sponsor of this debate, and I am grateful to the hon. Member for Weston-super-Mare (John Penrose), the right hon. Member for Don Valley (Caroline Flint) and, indeed, the Backbench Business Committee, for enabling it to take place. As has been pointed out—this is one of the disadvantages of speaking so far down the list—this debate is long overdue. Ultimately, it is a debate about how we can empower consumers, as they too often face injustice in relation to energy prices.

We know that average annual domestic gas and electricity bills in Scotland increased by up to 114% and 50% respectively between 2004 and 2015, but the price that consumers pay varies, depending on their method of payment, and the consumer does not always have control over their method of payment. On average, electricity and gas consumers across Scotland using standard credit and prepayment meters face bills that are approximately 10% higher than for those able to use direct debit. The cost of a unit of gas is similar across Scotland and the rest of the British energy market for domestic consumers, but the unit price of electricity differs considerably within Scotland. Consumers in the north of Scotland pay on average between 8% and 9% more per kilowatt-hour of electricity, depending on payment type, than in the rest of Britain.

The big six energy companies supply gas and electricity to over 50 million homes, with a market share of 85% of UK domestic customers. Last year, the Competition and Markets Authority completed a two-year inquiry into the energy market, and the hope is that costs can be driven down by increasing competition between suppliers and helping more customers to switch to better deals. However, as we have heard, there is a problem. The Competition and Markets Authority has found that the

“vast majority of people don’t switch providers”,

and, even worse, that 70% of all big six customers are on the default standard variable tariff, which means that 16 million homes are paying more for their energy than they should. As the hon. Member for Weston-super-Mare pointed out, loyalty is treated as something to be exploited, rather than rewarded. The premium that standard variable tariff consumers pay over those who switch has tended to increase over time. In 2008, it was less than £100 each year, but by mid-2015 it stood at £330, and it currently stands at about £230. In all that time, rates of switching are no higher, so clearly, as the motion sets out, the way to protect consumers cannot be done simply by encouraging them to switch suppliers; much more is required.

Consumers on standard variable tariffs are much more likely to be older, disabled, on low incomes, living in rented accommodation and without internet access. Those on standard variable tariffs did not see their bills fall by much when the cost of providing energy dropped in 2014-15. Such savings as were available were passed on only to consumers who were active switchers. Not all consumers can engage in the switching process, so clearly suppliers need to do more to ensure that these customers are not trapped in poor deals.

The existing market provides scope for households to save money on their energy bills by switching, but a low level of consumer engagement in the market still persists. Indeed, the Competition and Markets Authority found in its investigations that one of the main issues is

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

Some 34% of domestic energy customers had never considered switching supplier, with 56% saying they did not know if it was possible or did not know if they had done so in the past. In the context of this debate, I want to draw attention to one issue of concern. Switching can take up to 21 days, which is a considerable period. A consumer thinking about switching may be concerned or fear that something will go wrong during that extended period, for which I do not believe there is sufficient justification.

One result is that energy is becoming increasingly unaffordable for consumers. Between 2004 and 2014, average annual domestic gas prices rose by about 125% in real terms. Significantly, consumers who are engaged in the market are typically higher income earners who have access to both a mains gas supply and the internet, so they can carry out comparison shopping much more easily, and they can of course pay by direct debit. This is yet more evidence that the way to protect consumers is not simply to encourage them to switch suppliers.

Energy efficiency measures are important, as we have heard. The Scottish Government have done a lot of work on that, and they are driving down fuel poverty, although it still remains stubbornly high. Ultimately and fundamentally, however, we need effective regulation of the retail energy market, and we need to work collaboratively with energy suppliers to explore ways of helping low-income households with their energy bills. We need a market that works equally well for all energy consumers, regardless of where they are on the income scale.

It will be important to monitor closely the widespread review that Ofgem is currently undertaking of its consumer regulation framework. Given what we have heard today, there must be a case for the safeguard tariff—the limit on the amount prepayment customers are charged—to be expanded to include consumers on the standard variable tariff who are eligible for the warm home discount on a credit meter. It is also important for the Government to set targets for suppliers to reduce significantly by 2020 the number of customers on standard variable tariffs. If suppliers cannot or do not meet these targets, consideration must be given to broadening the safeguard tariff to protect other standard variable tariff customers. I would very much like the Minister to address these issues today.

Just because consumers, who very often are vulnerable, are not able to negotiate the process of switching does not mean they should be left at the mercy of a market that punishes them for it. Energy is an essential utility and much more must be done to protect those who are currently very poorly served and overcharged. I think we all agree that doing nothing is not an option. I hope the Minister addresses the concerns that I and others have raised today, and reassures the House that he is protecting consumers and putting energy companies on notice that things cannot and must not continue in the same way as they have been.