UK Energy Market

Philip Boswell Excerpts

Wednesday 9th March 2016 Westminster Hall

[Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP)]

It is a pleasure to speak under your chairmanship, Mr Percy. I would first like to thank the hon. Member for Central Suffolk and North Ipswich (Dr Poulter) for securing this debate on such an important issue. His excellent speech covered all the key issues—the dominance of the big six, the lack of trust and transparency, loyalty to and by customers, fuel poverty and, of course, competition. I am delighted to see the general alignment across all parties on this subject, and I look to the Minister and the Government to address the serious issues raised.

The UK energy market is, without question, dominated by the big six suppliers. That market structure is detrimental to energy customers because companies within such structures are, by nature, subject to far less competition than those in competitive markets, and competition is key to keeping prices down. Ofgem itself has acknowledged that while there was no evidence that the big six were operating as a cartel—something that the hon. Member for Warrington South (David Mowat) spoke of—there was a possibility of tacit co-ordination between them.

Last summer, the Competition and Markets Authority found a range of problems hindering competition in the market. Two key factors were a lack of transparency and trust in the energy sector, as well as the fact that customers were not switching suppliers, which many Members have touched on. It is easy to see why many do not trust the energy sector. While energy companies have seen record profits, customers have seen their energy bills become even more expensive.

Between 2009 and 2012, during a global recession that saw millions struggle to find a stable income and keep food on the table and a roof over their families’ heads, retail profits of energy companies increased from £233 million to £1.1 billion. Ofgem has found no clear evidence that that increase in profits was due to increased efficiency by suppliers, meaning that the unprecedented growth in profits during a global recession could only be a result of charging customers more. Let us be clear: profit in itself is not a dirty word—it is vital to business and the economy. It is, however, the levels of profit that raise concern in this decade of austerity.

The CMA found last year that energy consumers were being collectively overcharged by £1.2 billion per year. Meanwhile, ScottishPower quadrupled its profits from £27 million to £114 million, and British Gas saw its profits rise 99% between 2014 and 2015—notably, at the same time as its parent company Centrica planned to cut 4,000 jobs. Just this week, npower announced it would cut 2,400 jobs, as has been well covered in this debate.

Even after the most recent overcharging scandal, energy suppliers are still overcharging customers. In January, Ofgem found that despite wholesale costs—costs that make up half of a customer’s energy bill—falling by nearly one third over the past year, that decrease in cost has not been passed along to customers. How can we possibly expect consumers to trust these energy companies when they so regularly take advantage of customers to bolster their own profits?

Coupled with that lack of trust is a lack of transparency by energy companies in terms of the tariffs they are selling to customers. A huge number of tariffs are available, the abundance of which makes switching suppliers and choosing a new tariff complex and confusing. Moreover, the related benefits and charges of the tariffs available, such as introductory offers and exit fees, are presented in a variety of ways, making the options available even more difficult to understand.

While online comparison websites are a welcome tool for consumers to help navigate the complexity of the various tariffs available to them, the variety of tariff structures available means that even using those websites does not guarantee that a customer will select the cheapest tariff or instil confidence in the customer in their decision to switch suppliers. Moreover, as my hon. Friend the Member for Glasgow South West (Chris Stephens) said, the most vulnerable in society are often unable to utilise those online resources. That combined lack of trust and lack of transparency makes customers hesitant to switch. In turn, it gives incumbency advantages to suppliers, which is a politically correct way of saying that suppliers systematically overcharge and exploit their existing long-term customers.

Turning to fuel poverty, in any debate on the energy market, it would be remiss of me to fail to acknowledge the real-life impact on consumers of the fact that the energy market, at present, does not work in their best interests. That impact is most evident in the prevalence of fuel poverty among the most vulnerable in society. My hon. Friend spoke articulately—if somewhat quietly—about the very serious issues of high tariffs for those in fuel poverty and the lack of opportunity to switch, telling us distressing real-life stories of how vulnerable and not well-off customers suffer most under the present system.

In the last 10 years, under energy market regulation dictated from Westminster by successive new Labour and Tory Governments, the number of households living in fuel poverty in Scotland has risen by 10% to 40% of households—let me say that again: 40% of households in Scotland are living in fuel poverty. Fuel poverty means more than simply not being able to keep the heating on. Fuel poverty has been found to cause mental health problems in adolescents, as well as respiratory problems in children. It affects the educational attainment and the emotional wellbeing of children and means that household income, which could otherwise be used to purchase healthy, nutritious food, goes on paying energy bills.

The combination of mental and physical health problems, poor diet, emotional turmoil and diminished educational attainment caused by fuel poverty is a recipe for condemning people to the cycle of poverty. To me, and clearly to most Members speaking today, that is completely unacceptable. Why should so many suffer while energy companies systematically continue to overcharge customers and take advantage of the market failures in the energy market that this Tory Government continue to fail to address?

After considering the many contributions made by hon. Members, it is clear to me what needs to be done to address the critical issue of the UK energy market’s failure to benefit consumers. First and foremost, the systematic overcharging of customers must end, and the cost of energy bills must be reduced. The fact that this overcharging is so common is a clear indicator that the regulatory structure is not working at present.

More needs to be done to make switching suppliers easier. If customers had the confidence to switch suppliers, competition in the market would increase and, in turn, hopefully help to push down prices. That means addressing the two underlying reasons why customers are not switching suppliers—the lack of trust in the industry and the lack of clarity and transparency surrounding the different tariffs available to customers.

Finally, the growth of green energy provides a potential competitor to the big six energy providers, creating huge scope to help to push down prices for customers. However, barriers to entry and expansion remain for energy providers. Proactive steps must be taken to ensure that this growing sector, which provides energy that is both renewable and potentially cheaper than traditional sources, is able to compete against the dominance of the big six.