Paul Flynn
Main Page: Paul Flynn (Labour - Newport West)(10 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text
Mr Davey
I am about to do so. I said that our reforms are beginning to work. It is true—that is what I said. I admit that energy prices have gone up in this Parliament, but they have gone up slower than they did in the last Parliament, when energy bills went up faster on average every year than they have in this Parliament. Indeed, fuel poverty went up under Labour, whereas the latest statistics show it falling. The hon. Gentleman should look at the facts.
Mr Davey
No, I will not; I am going to make some progress.
Pursuing the Opposition’s policies would be nothing short of a disaster, not just for consumers but for investment, for decarbonisation and for energy security. If any Government were so misguided as to intervene with the two prices regulations proposed by the right hon. Member for Don Valley (Caroline Flint) it would lead to chaos in our energy system.
Today’s latest debate on energy prices does have something new—well, sort of new. The right hon. Lady—quite rightly, in my view—wants us to focus on the fact that while wholesale prices for gas and electricity have by and large fallen in recent months, most energy companies have yet to cut their retail prices. Many people, over many years, have looked at this phenomenon—at the way in which wholesale and retail energy prices relate to each other and at how there always seems to be a time lag between changes in wholesale prices and in retail prices, especially when wholesale prices are falling. The explanation that energy firms give for this time lag is the way in which they buy their wholesale energy: to spread their risks and hedge, to smooth out the prices they charge customers, they buy much of their gas and electricity six months, 12 months, 18 months or even further ahead on the futures markets. Therefore, energy firms claim, they cannot immediately pass on today’s wholesale price falls, because the gas or electricity they are supplying was bought at the higher prices of months past. The right hon. Lady spoke a lot about that. Like many people before her, she is worried about the so-called rocket and feather problem: the energy companies appear all too ready to allow their retail prices to go up like a rocket when wholesale prices rise, but when wholesale prices fall their retail prices are no longer rockets but feathers, gently falling ever so slowly so that the energy firms can profit.
That argument leads to two questions: first, is it true? Do energy prices follow this rocket and feather model? Secondly, if it is true, what should we do about it? My answers to these questions are clear. It may well be true—there seems to be evidence that it happens. It was one of the reasons I asked the competition authorities last year to undertake the first-ever annual competition assessment of the energy markets. Interestingly, the independent competition authorities stated:
“We have found that suppliers do not adjust their prices as quickly when costs fall compared to when wholesale costs rise.”
In fact, it was one of a number of reasons and findings that led Ofgem to propose a market investigation reference. That is exactly what I think we should support when faced with such a worrying finding for consumers. There should be a no-holds barred inquiry by independent experts, whom we have given real teeth to act for consumers. That is the action that the right hon. Lady should be proposing and that I am backing as Secretary of State for Energy and Climate Change.
Mr Davey
No.
I am not the first Secretary of State for Energy and Climate Change to be confronted with the problem of wholesale and retail energy prices—the possibility of a rocket and feather consumer energy price rip-off. As Secretary of State for Energy and Climate Change, the right hon. Member for Doncaster North (Edward Miliband), the Leader of the Opposition, presided over a period in which wholesale prices crashed and retail prices did not. When he did my job, between September 2008 and January 2010, wholesale prices actually fell faster than the figures set out in the Opposition’s motion. Wholesale electricity prices on the day-ahead market fell not by the 23% mentioned in the motion but by 62.5%. Under the Leader of the Opposition, wholesale gas prices to businesses fell not by 38% but by 43%. A big driver of those falls was, of course, the massive recession, and they went on so long that, eventually, retail prices for consumers fell—but only by a bit: electricity by 7.5%, not the 62.5% fall in wholesale prices enjoyed by the energy firms, and gas by 5.6%, not the wholesale fall of 43%.
The energy prices rocket and feather phenomenon is, therefore, not new. I thought it would be worth finding out what lessons we have to learn from my predecessor, the leader of the Labour party. What did he do when he had the power? He called a summit—a summit. He reported back to this House on what action he had taken:
“I impressed upon the companies the need for retail energy prices to reflect changes in wholesale prices as soon as possible.”
He “impressed upon” them that retail prices should reflect wholesale prices “as soon as possible”. It just never happened. But, to be fair, he went further, in standing up to the energy companies. He told the House that
“The Government and the industry are agreed on the need to bring down retail gas and electricity prices.”—[Official Report, 18 November 2008; Vol. 483, c. 14WS.]
It was “agreed”; it just never happened—it never reflected wholesale prices. Perhaps that was because, a month later, the Labour leader backed down. He said—fiercely, no doubt, and the right hon. Lady should listen to this—
“We have recently seen big falls in wholesale gas and electricity prices, but I understand that because energy companies tend to buy in advance they won't be passed on immediately.”
It sounds as though he was more impressed upon than impressive.
Mr Davey
I have spoken to Ofgem’s chief executive, Dermot Nolan. He is worried because the Labour party wants to get rid of Ofgem, even though it is doing this fine job and talking to energy companies. Ofgem is worried that Labour wants to undermine the regulatory system. Interestingly, who set up Ofgem? The Labour party. Who reformed Ofgem just a few years ago to make it more effective? The Leader of the Opposition. There is no consistency or coherence about anything on energy policy from Labour.
Let us consider some more basic questions—Labour Members will have to answer them at some stage if they are to be vaguely credible. If the regulation forces energy bills to drop immediately when day-ahead wholesale prices drop, what will that mean when wholesale prices rise? Will the regulation be exactly same both ways? If regulation forces retail prices to track wholesale prices, how often will a consumer’s energy bill have to be recalculated and what will be the cost of that? Who will be the genius who second-guesses companies’ forward buying strategies, and decides whether they are good or bad? Will all suppliers have to purchase at the same time for the same contract period in Labour’s brave new world?
The logic of the massive state price control that Labour is proposing is clear: Labour wants to destroy the forward energy markets. It wants to end competition between companies, which is based on who has the brightest and best purchasing strategy to deal with things such as events in the UK or in Iraq, and manage those sorts of problems. If we end that competition, who will lose when the risks are greater? It will be consumers who pay in higher prices.
Paul Flynn
On a point of order, Mr Deputy Speaker. I came to the Chamber expecting a debate about energy prices. Nowhere on the Order Paper does it say that we would be treated to a drivelling, ad hominem attack on the Leader of the Opposition.
Mr Deputy Speaker (Mr Lindsay Hoyle)
That is not a point of order. You have made your point, Mr Flynn, but it is up to the Secretary of State whether he wishes to give way. He is giving way now and again. It is not as though he could not hear you, so I suspect he is not giving way by choice.
Paul Flynn (Newport West) (Lab)
Quem deus vult perdere, dementat prius. I know that I do not have to translate those words for your benefit, Mr Speaker, nor for the beneficiaries of comprehensive education in good Catholic authorities or the papal knights on the Opposition Benches, but perhaps I should explain for the victims of the public school system on the Government Benches that those words, which came into my mind while the Secretary of State was speaking, of course mean: “Those whom the gods intend to destroy, they first make mad.”
The Secretary of State went to great lengths to shut me up. I tried with great difficulty to intervene on him, but he chose seven others and left me speechless. What terrible things can I have been saying that have alarmed him so much? I should perhaps warn my friends on the Opposition Front Bench that what I say might cause a little trauma to them. It might be a good idea, if they want one, to go out and have a cup of tea.
I wish to make a very simple point about the future cost of electricity. Incredibly, and almost without public controversy, we have done an extraordinary deal with money from China that will not do much for our energy security. We have done another deal with a corporation from France. Those are the countries that we will depend on for our energy security in future. That was the process for deciding on the Hinkley Point C power station.
The right hon. Member for Kingston and Surbiton (Mr Davey), who is now the Secretary of State, explained to his constituents in 2009 that he was against any nuclear power stations because they would cost taxpayers and consumers billions of pounds. I wonder if that is what he was afraid I would say. I am sure that his constituents would love to know, when they voted for him thinking that they would get a nuclear-free future, why they now find—possibly because of the lure of the red box—that he has changed his mind. I would like to know why, and perhaps he can explain that. The Liberal Democrat party is in a sorry state, and the gods are certainly sending a message, in the European elections and elsewhere, about its imminent extinction in the political fold. It is about time he forgot the lure of high office and returned to his anti-nuclear roots.
The European Commission is looking at Hinkley Point, and I hope that the Commission will do the right thing and say that the £17.6 billion subsidy that the power station receives puts it wildly in conflict with competition rules. For those of us with long memories—one can forget about things after four years—the Liberal Democrats agreed in 2010 that there would be no subsidies on nuclear power. I suppose that £17.6 billion is a trivial matter that is not worth considering.
We have got into an extraordinary deal whereby we have agreed to pay EDF £92.50 per MWh, which is three times what it charges its French customers and twice the going rate for electricity. Not only that, but we have guaranteed that price for the next 35 years. It is scarcely believable. We have even paid to insure EDF against any potential reduction in prices. The deal is wonderful for the French, and French newspapers have praised it, saying that it would mean 15,000 new jobs—not in Britain, but in France. No explanation for the situation has ever come forward. The Government are closing their eyes and hoping that they can just carry on.
What is the story of the success of nuclear power in recent years in Europe? Two new power stations have been built. One, in Finland, should have been generating electricity in 2009, so it is five years late and €4 billion over budget. The other, at Flamanville in Northern France, is in a similar state. There is an atrocious record of nuclear power that is never delivered on time or on budget.
We also have the chilling lesson of Fukushima, which is where we come into really serious money. The compensation that is thought to have been paid for Fukushima is £250 billion. In addition, as the Germans and many other European countries have realised, the anxiety that is created by being a neighbour to a nuclear power station is simply not worth it.
I strongly support what my hon. Friend the Member for Swansea West (Geraint Davies) said about proceeding with the tide as a power source—an immense cliff of water that goes up and down the Severn estuary twice a day—