Domestic Gas and Electricity (Tariff Cap) Bill

Rebecca Long Bailey Excerpts

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

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

I am pleased that the Bill is before the House today, but I must express my exasperation that it has taken so long to get to this point. The 2017 Conservative manifesto committed to implementing an energy price cap that would protect 17 million households. The Government then repeatedly rowed back on that promise, passing responsibility to Ofgem, which made it clear that legislation was required. After months of to-ing and fro-ing, the Prime Minister reintroduced her commitment in her conference speech, and finally, on 11 October, a draft Bill was published. That Bill was then passed to the Business, Energy and Industrial Strategy Committee for pre-legislative scrutiny, which, due to the thorough work rightly done by colleagues, was not completed until mid-February. At the same time, a leaked conversation between the civil service and an energy investor seemed to suggest that the Government had no intention of seeing through the legislation. So yes, I was relieved last week to finally see the Bill introduced to Parliament, and I welcome the Government’s foray into a policy that they previously denounced as Marxist, but it remains the case that, as a result of this Government’s inaction, millions of households have been left to scrape through the winter facing a choice between cold homes or astronomical bills.

As all hon. Members will be aware, the UK experienced one of its coldest periods for decades over the past week, with the Met Office reporting that the UK had officially broken its record for the lowest March temperatures in a 24-hour period on Friday. As a result of this Government’s dithering and delay, the 4 million households currently living in fuel poverty, 1 million of which include a disabled person, will be receiving whopping bills at the end of the month. Startlingly, the latest figures from National Energy Action for the winter of 2016-17 show that excess winter deaths were 39.5% higher than in the year before, with an estimated 34,300 excess winter deaths in England and Wales.

[James Heappey]

The hon. Lady underlines the fact that the harshness of the recent weather will have increased energy bills for millions of people. Was she therefore as impressed as I was by the speed at which emergency payments were made to the most vulnerable to help them with their additional heating costs?

[Rebecca Long Bailey]

The emergency payments were certainly welcome—I thank the hon. Gentleman for his comment—but the fact remains that this price cap should have been in place this winter and it was not.

National Energy Action also found that each year an average of 9,700 people die due to living in a cold home. That equates to 80 people per day, the same number of people who die from breast or prostate cancer each year. It has been Labour party policy since 2013 to introduce a price cap on consumer energy bills, and although the principle of this Bill is positive, I remain concerned that, as drafted, it does not go far enough.

[Antoinette Sandbach (Eddisbury) (Con)]

Given that electricity prices rose by 44% between 2003 and 2007, will the hon. Lady outline what action the Labour Government took in their 13 years in power to address this issue?

[Rebecca Long Bailey]

The hon. Lady makes an interesting point. I think that both sides of the House have reached something of a consensus on our energy market. People on the right and left—wherever they place themselves on the political spectrum—agree that our energy market is fundamentally broken and needs to be reviewed. It is interesting that the Government put their own commission in place, under Dieter Helm, but we have had no response from them so far about the proposals it made.

I have several issues with the Bill as drafted, but I start with the fact that it does not provide any direction from the Secretary of State on his preferred level of cap, which effectively passes the buck to Ofgem. The Bill merely states:

“The Authority must exercise its functions…with a view to protecting existing and future domestic customers who pay standard variable and default rates”.

In doing so, Ofgem must consider a number of factors, including creating incentives for suppliers to improve efficiency, enabling suppliers to compete effectively, maintaining incentives to switch between suppliers, and the need to ensure that holders of supply licences who operate efficiently are able to finance activities authorised by that licence.

[Mr Simon Clarke (Middlesbrough South and East Cleveland) (Con)]

With respect, I dispute the hon. Lady’s claim that we are in accord on energy policy. The Opposition’s stated policy is to proceed with wholesale nationalisation, which Government Members strongly disagree with. Does she not accept that renationalising National Grid and the energy sector would be antithetical to driving down prices, which is what we all want?

[Rebecca Long Bailey]

I refer the hon. Gentleman to the Labour party’s manifesto, which clearly states that we wish to increase competition in the energy market by creating regional suppliers. We want to promote fair and transparent competition within the energy market, but unfortunately the Government do not advocate a similar position. We hope to fine-tune aspects of the Bill as it goes through the House so that competition in the energy market will be effective, fair and transparent.

[Gareth Thomas]

The hon. Member for Middlesbrough South and East Cleveland (Mr Clarke) deliberately misinterprets our policy. The shadow Chancellor has committed the Labour party to supporting a doubling of the co-operative sector. Energy co-operatives do not mean nationalisation, but they do amount to democratic public ownership. Will my hon. Friend re-endorse the commitment to see more energy co-operatives in the market?

[Rebecca Long Bailey]

I wholeheartedly support my hon. Friend’s fantastic point. I think that our manifesto commitments have been misrepresented or, in the case of the hon. Member for Middlesbrough South and East Cleveland (Mr Clarke), overstated. I again encourage him to read our manifesto, which encourages competition in the energy market while also considering some of its fundamental problems, such as in relation to grid ownership. I will address those points later in my speech.

With regard to the factors that Ofgem must consider, the problem is that although the Opposition are not averse to these principles, at present they are at best ambiguous, and there is no duty to consult on how such measures can be accurately quantified. Perhaps the Minister for Energy and Clean Growth will confirm how these measures will be quantified. Will they form part of Ofgem’s cap methodology consultation? If not, how will Ofgem determine these ambiguous proposals?

Speaking of those guidelines, Energy UK has highlighted the uncertainty in which the provisions are shrouded. Indeed, The Guardian’s financial editor recently commented of the chief executive of Ofgem:

“At best, he is being sent mixed messages by government. At worst, he is being asked to deliver contradictory goals.”

We recognise that Ofgem will consult on the cap methodology to be used, but has the Secretary of State given any indication to Ofgem of the final outcome he wants to see? The Prime Minister promised that £100 would be knocked off 17 million household bills, but nothing in the Bill will ensure that that happens.

Labour has confirmed that we would introduce an immediate emergency price cap to ensure that the average dual fuel household bill remains below £1,000 a year. Had that policy been in place since 2010, the average customer would have saved more than £1,000 on their bills by now. Will the Minister confirm whether the final cap will go anywhere near Labour’s proposals, or indeed anywhere near the Prime Minister’s promise?

Just as ambiguous is the mechanism for deciding whether to extend the cap beyond the end of 2020. The Bill merely states:

“The Authority must carry out a review into whether conditions are in place for effective competition for domestic supply contracts.”

It does stipulate that the review must include an assessment of progress made in installing smart meters, but unfortunately that is as good as it gets. The industry has expressed concern that this provision is unclear. I agree. For example, Energy UK says that there is an absence of a

“clear and realistic definition of effective competition”.

Which? says:

“the criteria for effective competition are not defined so it is not certain under what circumstances the cap will be lifted or how its success will be judged.”

Will the Secretary of State issue any further guidance on what the conditions for effective competition might be, or are we simply deferring to Ofgem to determine that without question?

[Mark Pawsey]

Does the hon. Lady support the sunset clause, which means that this legislation will not apply indefinitely as we will reach a stage where there is sufficient competition, or would she rather see a permanent price cap that lasts forever?

[Rebecca Long Bailey]

The hon. Gentleman makes an important point, and I will refer to this later in my submission. The Bill does not provide an answer to the broken energy market; it is simply a sticking plaster while the energy market is reformed. We would not expect the provision to be in place for a prolonged period. We are not openly against sunset provisions, although we might dispute how they are drafted, which we will explore in Committee.

In considering the cap removal, I must raise an issue that was highlighted recently by the Business, Energy and Industrial Strategy Committee. It found that vulnerable and low-income people were especially affected by poor-value tariffs, with 83% of those living in social rented housing, 75% of those on low incomes, 73% of those with no qualifications and 74% of disabled customers on a standard variable contract. It was clear from the Committee’s findings that, even with the advent of smart meters, those groups will still require protection from overcharging. I therefore urge the Government to consider representations by charities such as Scope, which has called for clause 7 to be amended to ensure that Ofgem, when it considers “effective competition”, has regard to the impact of removing or extending the cap in relation to vulnerable and disabled customers.

Finally on the drafting of the Bill, I am concerned that there is no guarantee that the price cap will be in place this winter, despite the Secretary of State’s earlier assertions. The Bill states that Ofgem must introduce a cap “as soon as practicable” after it is passed, but Ofgem has already said that it would take around five months after a Bill receives Royal Assent to enact a price cap because it has a statutory duty to consult power companies. This morning Ofgem has said that it

“will look to set the level of the cap over the autumn and bring the cap into effect at the end of this year”.

It therefore seems that the cap will not even be in place when the weather turns in autumn this year. I think that the Bill would be greatly improved by the inclusion of a hard deadline by which the cap must be in place, and Labour will be seeking to include such a deadline in Committee.

Given that the Government have already set the date for Committee consideration as 15 March, it would be encouraging if they provided a clear date for cap implementation because, even accounting for the relevant consultation periods set out in the Bill, it would be possible to introduce the cap earlier than next winter. Indeed, my advice is that including such a date might even lay to rest suggestions in some press reports that the big six, and indeed some members of the Cabinet, have been lobbying the Secretary of State to procrastinate or even drop the Bill entirely.

[James Heappey]

The shadow Secretary of State is kind to give way to me a second time. Does she agree that another option she might consider to help to introduce the cap as quickly as possible would be for her party to pledge its full support in helping to get the Bill through the House and the other place as quickly as possible?

[Rebecca Long Bailey]

I thank the hon. Gentleman for that very helpful comment. I have not opposed the Bill in any of my comments so far; I am providing helpful advice. We support the principle of a price cap and want it to be introduced in the most efficient and detailed way possible.

I think that there is consensus across the House that the energy price cap is no more than a sticking plaster, and that much deeper problems within the UK’s energy market need to be addressed. The market is fundamentally broken. Electricity bills soared by 20% between 2007 and 2013, while in the past year alone, every household in the UK paid £120 for dividends to energy company shareholders. Over the past few months, report after report and news story after news story have detailed the unfairness of the current system, but it must be noted that the final bills that consumers face are not simply a consequence of manipulation by some supply companies. As the Business, Energy and Industrial Strategy Committee has highlighted, network costs make up the second highest element of a duel fuel energy bill.

The Energy and Climate Intelligence Unit found last year that the six distribution network operators made an average profit margin after tax of 32% a year between 2010 and 2015, equating to £10 billion over six years. At the same time, shareholders received £5.1 billion in dividends. In a subsequent report, the ECIU calculated that electricity network companies’ exceptionally high profits are set to add £20 to household energy bills this year. Moreover, analysis by Citizens Advice last year calculated that network operators, including National Grid, had made £7.5 billion in unjustified profits, which it thinks should be returned to consumers. Quite frankly, that is the exploitation of a natural monopoly. It is not a market and there is no effective competition, and I want to hear how the Minister will deal with competition within this element of the energy market.

[Gareth Thomas]

I am grateful to my hon. Friend for giving way a second time. Is it not a problem—and deeply ironic—that Conservative Members should defend an energy system in which foreign nationalised companies have more control and earn more income and wealth from the distribution and supply of British energy than the British citizenry?

[Rebecca Long Bailey]

My hon. Friend makes a fantastic point. Many people across Britain find the situation absurd.

As I said, I welcome the Minister’s comments about how she will tackle network exploitation but, along with the BEIS Committee, the Opposition are closely monitoring the next phase of network regulation. We also wonder whether the Minister will shine a little more light on what that might entail, what benchmark the Government have set as their acceptable level of regulation, and what actions she will take if Ofgem’s proposals are insufficient, as was the case with the initial price cap proposals.

The Labour party has been clear that it will not allow the exploitation to continue. We will radically reform the UK’s energy system, not just tinker around the edges, and if the Government are serious about reforming the market and protecting consumers, it is about time that they keep up. Sadly, however, the Secretary of State’s opening remarks were rather thin on proposals for long-term market reform. Reform of the market is not just critical in order to instil fairness and affordability, but vital to ensure that Britain has an energy system fit for the future.

We are experiencing a pace of technological change within the energy sector that has never been seen before. Batteries, storage and smart systems are transforming demand and supply. There is a move to smarter, more decentralised forms of energy generation and supply, emulating many of the models we have seen established across Europe, along with the potential of accessing a low-carbon market that is, according to Goldman Sachs, worth over $600 billion.

Dieter Helm, who was commissioned last year by the Government to conduct a review into the cost of energy, said:

“The corporate structures and policies designed for the 20th-century world no longer work well.”

That review had two main findings: first, that the cost of energy is significantly higher than it needs to be to meet the Government’s objectives and, in particular, to be consistent with the Climate Change Act 2008 and to ensure security of supply; and, secondly, that energy policy, regulation and market design are not fit for the purposes of the emerging low-carbon energy market as it undergoes profound technical change. Dieter published his report in late October. It echoed our calls for a change in ownership of the electricity network; unsurprisingly, we heard little from the Government.

Following the report’s publication, the Government launched a call for evidence to gather the views of stakeholders. That process closed on 5 January this year. I have not heard anything from the Government about that, so in the absence of any future energy vision from the Secretary of State today, perhaps the Minister for Energy and Clean Growth will confirm when a response to that consultation will be published and if the Government agree with Dieter Helm’s proposals.

[Mark Menzies]

The hon. Lady is making suggestions to improve the Bill, so what role does she see for the Competition and Markets Authority to ensure that consumers’ interests are paramount?

[Rebecca Long Bailey]

The hon. Gentleman makes an interesting point. We would expect all stakeholders to be engaged in the process, because the Bill must suit the entire energy market and deal effectively with competition. As I set out earlier, the Bill, as drafted, does not provide sufficient clarity on what is meant by “effective competition”.

[Mr Jim Cunningham (Coventry South) (Lab)]

In answer to the question asked by the hon. Member for Fylde (Mark Menzies), the regulator is supposed to represent consumers, but it is not strong enough to do that. The sooner we have a proper inquiry into the energy market the better. I have been saying that for the past seven years.

[Rebecca Long Bailey]

My hon. Friend makes a fantastic point about the need for a fundamental root-and-branch look into how our energy market functions and what we will expect to see from it if it is to suit our needs.

The Opposition are pleased that the Government have caught up and finally brought forward legislation to ensure that a price cap is implemented, but the Bill is frankly too little, too late, for millions of people who will not feel benefit this winter and nor, it would seem, for half of next winter. This sticking plaster is only guaranteed to be in place until the end of 2020, so the Government need urgently to bring forward radical proposals for long-term reform of the energy market. We have already set out a clear plan, and it is time that this Government started to catch up.

[Several hon. Members rose—]