Robert Halfon
Main Page: Robert Halfon (Conservative - Harlow)Energy Company Charges
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Robert Halfon (Harlow) (Con)
After the debate, I think that I will enter the Olympics because I do not think that I have ever walked so fast in my life as when this debate started slightly early.
I am hugely grateful to my hon. Friend the Member for Ynys Môn (Albert Owen)—I call him my hon. Friend on purpose—not only because he has campaigned on this issue for far longer than I have and since before I was even in this House, but because he was a huge support in tabling the motion and in going to the Backbench Business Committee. I also thank him for his speech.
I would also like to thank my hon. Friend the Member for New Forest East (Dr Lewis), the hon. Member for North Down (Lady Hermon), the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd) and all those who came with me to the Backbench Business Committee, particularly my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch), who is winding up the debate and has done an enormous amount of work on this issue. I also thank the 177 Members who have signed the motion, making it one of the best supported Back-Bench motions in the history of such motions. That reflects the fact that this is an all-party issue and not just a Conservative issue, a Labour issue or a Unionist issue.
Organisations, such as Which?, have done a huge amount of work to promote consumer rights in this field and they keep me posted on what is happening. We must remember that Which? has led a campaign on this matter for quite a long time.
Mr Mark Spencer (Sherwood) (Con)
I am sure that the House will recognise that my hon. Friend is a tremendous campaigner—an award-winning campaigner—on these matters. I think that it is worth putting that on the record at the start of his comments.
Robert Halfon
I am proud to call my hon. Friend a friend and I appreciate his remarks.
It is no secret that consumers are feeling hard pressed. The cost of utility bills has gone up exponentially in the past three years. Since 2007, the average electricity bill has gone up by 20% in real terms and gas bills have gone up by a shocking 43%, proving that they are a major burden on the cost of living. Citizens Advice has warned that energy bills are rising at up to eight times the rate of earnings. It is no surprise that polling shows that the rising cost of energy bills is a top concern for the British public.
I welcome the efforts that the Minister and the Government have made to help, including by forcing companies to put consumers on the lowest possible tariff, providing a rebate to every domestic electricity customer, reducing bills by £130 for 2 million of the poorest households and protecting pensioners’ cold weather payments. However, with price increases, companies making large profits and general dissatisfaction with energy companies across the United Kingdom, it is clear that the energy market is not working at its prime.
The payment of energy bills by direct debit is often associated with companies overestimating a household’s energy usage, resulting in overcharging and a large amount of credit being built up. Understandably, that upsets many customers and it has rightly received a lot of attention from the media.
Alok Sharma (Reading West) (Con)
My hon. Friend is a huge consumer champion, not just on this issue, but on many others. More power to his elbow. He makes a good point about the way in which direct debits work. They are not a panacea. Last week, I received an e-mail from my constituent, Mr Balfour, who told me that his 87-year-old father had built up a £1,400 credit because he was paying by direct debit. According to Ofgem, direct debits are meant to be set on a fair and reasonable basis. Does my hon. Friend share my view that we should define in more detail what “fair and reasonable” means?
Robert Halfon
My hon. Friend makes a hugely important point, and I suspect that the Minister will have more to say about it. I welcome the fact that the Government are forcing companies to compensate customers, such as his constituent, who have been mis-sold or overcharged. I know that the Department of Energy and Climate Change has asked Energy UK to set up direct debit best practice guidelines.
The problems associated with customers not paying their gas and electricity bills by direct debit have largely been ignored, even though it can end up costing consumers significantly more. Unlike the hon. Member for Ynys Môn, who has known about the problem for some time, I first became aware of it only a few weeks ago. A pensioner in my constituency told me that she had received a letter from Co-operative Energy saying that because she was not paying her bills by direct debit, she would be charged £63 a year extra. I could not believe it—I wondered how on earth such a thing could happen, given that she had gone to the post office religiously to pay on time. I thought, “That is a lot of money”, so on the Monday, I rang up Co-operative Energy and spoke to the general manager, who was very pleasant. He said, “Actually, ours is one of the lowest”. There I was thinking that £63 was a lot of money.
I decided to investigate every single energy company, and the results were shocking. Of the 26 companies that responded, five only allowed their customers to pay by direct debit and 17 charged their customers different rates depending on the method that they used to pay. Only four companies charged their consumers the same whether or not they paid by direct debit. In a euphemism extraordinaire, many of the companies that charged extra said not that they were adding a surcharge but that they were discounting the bills of people who used direct debit, because there were lower costs.
Mr Jim Cunningham
The hon. Gentleman has been a great champion of a lot of energy issues over the past two or three years, for which I pay him tribute.
It strikes me that we must have a good look at how energy companies are structured and at the powers that the regulator has. I am not convinced about the regulator. I do not want to be party political—we are trying to get a consensus tonight—but does the hon. Gentleman share my hope that the Secretary of State for Work and Pensions will examine the motion tonight? There have been strong stories in the press that the Government are going to abolish the winter fuel allowance. I do not know whether that is true or false, but we hope that the message will get through to the Minister responsible in one way or another.
Robert Halfon
I want more money to go to the poorest pensioners, including the winter fuel allowance. I do not believe that millionaires or people with earnings of more than £100,000 should get winter fuel payments, and I would rather they went to the poorest.
Charlie Elphicke (Dover) (Con)
I congratulate my hon. Friend on his speech. Does he agree that when people are in credit, interest should be paid at a proper rate? Does he believe that the reason why balances creep up is that bill models are too opaque, and that a filling station-type model might be better?
Robert Halfon
My hon. Friend makes an important point, and I am sure the Minister has heard his remarks.
Philip Davies (Shipley) (Con)
I totally understand my hon. Friend’s point, but my only concern about the thrust of his arguments is that people are being charged less for paying by direct debit rather than being charged more for not doing so. If we stop that differential payment scheme, energy companies might equalise charges upwards rather than downwards and charge everybody more for their bills, in which case nobody will benefit and some people will lose out even though everyone will be paying the same.
Robert Halfon
I thank my hon. Friend, with whom I have discussed the issue. I will come on to it later, so I hope he will bear with me for a moment.
Some companies’ levies are extraordinary. I spoke last night to the managing director of Spark Energy, which says that it has a special tariff system and that the majority of its customers are tenants. Some 10,000 of Spark’s 80,000 customers, those who do not pay by direct debit, are charged up to £390 a year extra. The managing director told me that that was purely down to costs. I will make this point later, but what is to stop another company coming along and saying, “It’s £450 or £500 and that is down to costs”? We need transparency.
Let me make three points: first, I believe that these charges effectively act as a stealth tax on the poor; secondly, I want to rebut the arguments used by energy companies to defend such practices; and thirdly, I will say what I think the Government should do about them.
The excessive charges often hit those we should protecting the most, and just like my constituent, it is often the elderly who are affected. Many pensioners do not like paying by direct debit because they want to be in control of their finances. Over the past few weeks I have been inundated with letters from pensioners. One said:
“We are from the old school—brought up to put our bills money away every week. Never to be in debt. But because we prefer not to have direct debit, we are punished.”
Another wrote that
“as members of the older generation, we are very aware that keeping a careful eye on budgets and control of finances is very important, and we have always been in favour of paying bills as and when they arise—budgeting year by year for increases and ensuring that we have money to cover such expenses. In this way we avoid becoming overdrawn and incurring bank charges.”
That is exactly the sort of fiscal responsibility we should encourage, and it is not exclusive to pensioners.
Understandably, anyone on a low income might be concerned that a direct debit could be taken at a moment when they are not able to pay for it. They might be waiting to get paid a day later, for example, and missing a direct debit payment would incur a heavy bank charge. It also does not take into account those who struggle to get access to proper banking facilities. Some 1.9 million households in the UK do not have a current account and there is no facility for them to have an overdraft. Half a million of those households do not even have access to a basic bank account that can accept direct payments. Such people are incredibly vulnerable and have very little choice over their payment methods, yet they are being penalised for that and are often those who can afford it least.
This is not just about finances because, crucially, many people, particularly the elderly—certainly in my constituent’s case—enjoy the social aspect of going to the post office to pay their bills. Many pensioners have contacted me to say that they do not trust direct debits and feel that companies discriminate against them because they cannot use computers. As one person rightly pointed out, direct debits and credits are always susceptible to human error on the part of the recipient, and mistakes take an enormous amount of time to sort out. All echelons of society should be catered for, not just computer and smartphone users, credit card holders and the technologically literate generation.
Robert Halfon
I will give way to the hon. Member for South Antrim (Dr McCrea) who represents a party that has been enormously supportive on this issue.
Dr McCrea
I congratulate the hon. Gentleman on the effort he is making on this important issue. The motion before us reminds us that more than 1 million people in the UK do not have access to a bank account. Surely that points to the fact that energy companies are penalising the weakest and most vulnerable people in society.
Robert Halfon
The hon. Gentleman is right, and even worse, those companies justify the charges by saying that they are because of the cost of pursuing non-payers. In essence, the poorest and pensioners who pay on time are paying for companies to pursue non-payers or late-payers.
Mr Marcus Jones
My hon. Friend is a true consumer champion. Does he agree that the same principle exists for many people who have not got access to the internet and are penalised for asking their supplier for a paper bill and charged a levy as a result?
Robert Halfon
My hon. Friend is right, as he will understand as I continue my remarks.
Dan Byles (North Warwickshire) (Con)
I, too, congratulate my hon. Friend on securing this important debate. Is he aware of any studies or work that looks at exactly how the burden of this problem falls on different income distribution groups? If such work is not available, does he think that Ofgem, or possibly the Department of Energy and Climate Change, should commission it so that we can see exactly where the burden of this disparity falls on different income deciles?
Robert Halfon
My hon. Friend makes an important point. I know that Which? has done an enormous amount of work, as have other organisations and the Keep Me Posted campaign. I am sure the Minister has heard my hon. Friend’s remarks.
How do some of the energy companies justify these fees? First, they claim, amazingly, that the fees they charge are proportionate. Under Ofgem’s licensing conditions to energy companies, they are required to ensure that what they charge is reflective of cost. As I have said, I have no problem with a small administrative charge to reflect the extra cost companies face in processing a cheque, but many companies offer a paperless discount of approximately £6 per annum, implying that the cost of letters is £6. Keep Me Posted, after discussions with mailshot companies, has revealed that the cost of printing letters, staff cost, postage and printing is 19p per item. I would therefore question how some companies have concluded that sending out letters can cost up to £15, and whether that is truly proportionate. It is also worth noting that some companies, such as Good Energy and Green Energy UK, do not charge their customers anything different based on their preferred type of payment, believing that customers should not be penalised for how they choose to pay.
Secondly, the companies argue that they should charge more owing to the cost of providing credit to customers. Of course, I understand that when one pays for something retrospectively there is an extra cost, but, as I have said, it is also worth pointing out that some companies that charge retrospectively do not charge anywhere near as much as the big utility companies. BT is not my favourite company. Nevertheless, it bills customers retrospectively for the calls they make, yet charges just £2 a month to customers who do not pay by direct debit. There is no extra charge for any customers who are on a low income and therefore qualify for the BT basic service. I praise BT for making a commercial decision not to rip off their customers and to charge just £2 a month. I believe that companies should be able to meet some of these extra costs themselves. Because of the nature of direct debit payments, customers often pay too much.
Kate Hoey
I congratulate the hon. Gentleman on his articulate outlining of the case. He mentions BT. His ten-minute rule Bill next week covers a much wider area, because it is clearly not just the energy companies that do this. Does he not agree with me that a basic principle should be that if someone has a bill and they want to pay it in cash, they should not be charged a penny extra for doing so?
Madam Deputy Speaker (Dawn Primarolo)
Order. Before the hon. Gentleman replies to that intervention, may I remind him that the Backbench Business Committee recommends 10 to 15 minutes for opening speeches? He is not making an opening speech, but he is being allowed that time. That 10 to 15 minutes does not allow extra time for interventions. He has been very generous, but a lot of Members wish to speak. I would be grateful if he could now draw his remarks to a conclusion.
Robert Halfon
Thank you, Madam Deputy Speaker. I will do my best.
The third claim is that the cost differential—coming on to the point made by my hon. Friend the Member for Shipley (Philip Davies)—is due to the discount that companies offer customers who pay by direct debit. Indeed, many energy companies I spoke to told me that what they actually offered was a discount to encourage customers to use direct debit. However, if companies are using discounts to attract customers, it seems possible that they are using non-direct debit paying customers to subsidise these accounts—the point I made earlier. Differences in price should therefore be called a premium, rather than a discount, which can be misleading. Calling a difference of £390 a discount is like calling a mortuary a negative patients output. Any price savings must be proportional and must be communicated transparently to the customer.
The fourth claim is that the cost is reflective of the fact that those who do not pay by direct debit are more of a risk for non-payment. I have seen the cost breakdown of some companies that shows how much this adds on to the extra charge. Roughly, it makes up about half. Returning to some of the people I quoted at the beginning of this speech, all of them said that they pay on time without fail. Why should they pay more because of other people’s mistakes?
The fifth claim—I am nearing the end of my remarks—is that introducing a cap on what companies can charge consumers would result in everyone’s prices going up. That should not be the case, and the suggestion that it would push up prices is symptomatic of an energy market that is not as competitive as it should be. Energy companies should be fighting to keep these charges as low as possible to hold on to as many customers as they can. It tends to be the smaller companies that charge the least or do not differentiate between payment types. I am pleased that the Government are encouraging new entrants to the market, but in the short term I believe that a moderate cap on fees charged is the answer.
In conclusion, I am not against energy companies. I believe in business, but I believe in fair business, not the juggernaut of the big corporation. That is why I urge the Government, first, properly to investigate these charges and reassure customers that their bills are proportionate and that they are not being hoodwinked. Any companies whose charges are not found to be proportionate should be subject to a fine or windfall tax, with all the money being passed back to the consumer. Secondly, there should be fundamental reform of the system. As I have suggested, late fees should be for those who pay late—
Madam Deputy Speaker (Dawn Primarolo)
Order. It is now three minutes since I asked the hon. Gentleman to conclude his remarks. There is going to be a tight time limit. When I say “conclude”, I normally mean a couple of sentences. I realise he has a lot to say, but to say it within the time is always the challenge in the House. Will he please give us his last two short sentences, otherwise I will just sit him down?
Robert Halfon
Yes, Madam Deputy Speaker.
Finally, a cap should be introduced on the amount a customer can be charged. We need transparency, a cap on charges and fundamental reform.
Julie Elliott (Sunderland Central) (Lab)
I congratulate the hon. Member for Harlow (Robert Halfon) and others on securing this important debate. I thank the hon. Member for Chatham and Aylesford (Tracey Crouch) for offering to move the motion and my hon. Friend the Member for Ynys Môn (Albert Owen) for starting the debate in rather unusual circumstances. I also thank the Backbench Business Committee for allowing us to discuss these issues.
Ever since my right hon. Friends the Members for Doncaster North (Edward Miliband) and for Don Valley (Caroline Flint) made their announcements on energy at the Labour party conference last year, the way in which the market works or, more accurately, does not work has rightly come under greater scrutiny. Today’s debate is another symptom of that.
This debate has highlighted one of the essential facts about the energy market: we have not one energy market, but two, with companies targeting the lowest prices at a small section of the market, while charging everyone else whatever they think they can get away with. That is evident when one looks at the difference in prices between customers who pay by direct debit and those who pay by other means. It is also evident when one compares the prices that are paid by loyal customers, by which I mean customers who have never switched, which is the majority of people, with the prices paid by those who have switched. Tariffs should be cost-reflective: any difference for a different type of customer, payment or account—for example, dual fuel versus single fuel—must reflect only the costs that are associated with serving those customers and must be justified by the savings that suppliers enjoy.
Ofgem is responsible for ensuring that that happens. Following its energy supply probe in 2008, it introduced new rules that were designed specifically to prevent such anti-competitive behaviour. There will of course be marginal differences in costs between different payment methods and it is reasonable that there should be a small discount for customers who use cheaper payment methods, such as direct debit. However, what we are seeing is not a small difference but, in some cases, discounts of as much as £100—far and away above what could be reasonably justified. Ofgem has the power to act, but it does not. The Government should be intervening, but they are not.
The discounts for those on direct debit are not free. They must be paid for by someone. They are therefore being subsidised by those not paying by direct debit. In effect, energy companies are overcharging loyal and, in some cases, vulnerable customers, such as those who do not have access to bank accounts, to pay for deep discounts for the active segment of the market.
Julie Elliott
No, I do not have much time now.
The rules on tariffs being cost-reflective are clear, and Ofgem has the power to intervene and stop loyal customers being ripped off, so why has it taken no action, and why have the Government failed to act? My right hon. Friend the Member for Don Valley has repeatedly raised the question of Ofgem’s inaction, yet the Secretary of State has strongly disagreed with her when she has said that Ofgem is not using its powers. Will the Minister of State, the right hon. Member for Bexhill and Battle (Gregory Barker), enlighten the House on whether he is one of the Ministers cited in The Independent last week who have told Ofgem that it is in the last chance saloon and must take immediate action to improve competition? Given that the Secretary of State referred to our plans to replace Ofgem with a regulator that actually stands up for the consumer as “silly”, perhaps it was the Minister of State.
I say gently to the hon. Member for Harlow, who presented his case with conviction today, that capping the level of discount available to customers who pay by direct debit is probably not the answer on its own. In all likelihood, companies would just reduce the discount, and customers paying by standard credit or prepayment meter would carry on paying exactly as much as they are now. In fact, he alluded to that point when he called for fundamental reform, which is what we propose.
The practice of overcharging people who do not pay by direct debit, in order to target the lowest prices at the most active end of the market, is part of a broader problem in the energy market. In a vibrant and competitive market, suppliers would compete to give their customers the best deals and the best customer service would reward loyal customers. In our broken energy market, the big companies are overcharging and punishing their most loyal customers. That is why we need Labour’s plans to reform the energy market.
The plans that we have set out will reintroduce competition, restore transparency and create a tough new energy watchdog that will actually stand up for consumers. We will inject competition by separating energy generation from supply and requiring all energy companies to trade their energy in an open market by selling into a pool. We will reintroduce transparency by establishing a new, simpler tariff structure so that people can compare prices, just as they could before they were made artificially complicated.
As my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) clearly outlined, the Secretary of State may be intensely relaxed about Ofgem’s performance, but the Opposition are not. We will create a tough new regulator with new powers and new leadership, to stand up for consumers. It will have the power to force energy companies to cut their prices when there is evidence that reductions in wholesale costs have not been passed on to consumers, as would happen if the market were functioning in a properly competitive manner, and powers of collective redress.
Implementing those crucial reforms will take time, which is why, with immediate action upon entering office, we will freeze prices until January 2017, when our reforms will start kicking in. That will save the typical household £120 and the average business £1,800.
I am pleased that the Minister has come around to the fact that the energy market is broken. He said in an interview last week that he was unaware that three of the big six energy firms were not passing cuts on to fixed-price customers, and that that was unacceptable. He should pay closer attention to detail, because I raised the issue in the House just a few weeks ago, when he was in his place. I welcome his change of heart, but I do not understand how it could have taken him this long to come to that conclusion.
The Labour party has been clear: we will fix the market and put an end to secret deals and unfair pricing, our new regulator will stand up for consumers, and we will put all over-75s on the lowest tariff. Massive charges for non-direct-debit households are indicative of a broken market, and our reforms will ensure that all consumers get a fair deal under a Labour Government.
Gregory Barker
In just a moment. I want to make some progress and I have to give my hon. Friend the Member for Chatham and Aylesford time to wrap up.
My hon. Friend the Member for Harlow drilled to the centre of the issue when he raised the fact that Spark Energy is charging a premium of £300-plus. That is staggering. Scottish Power, one of the big six created by the Labour party, is offering a premium—or a discount, depending on which way we look at it—of £99. The right hon. Member for Don Valley (Caroline Flint) asked why we were not doing anything. We are doing something: there is already a specific ongoing investigation into Scottish Power. This is not just about Scottish Power, however: for npower, that figure is £95. As part of the competition test, we have asked Ofgem to look at all the energy suppliers to ensure genuine cost reflection. We want to know why these costs are so much more than those charged by other utilities providers, such as water and telephone companies.
Robert Halfon
My right hon. Friend is right about the costs, but do we not need to look at the criteria by which they are measured?
Gregory Barker
Absolutely, and of course we look at the criteria. I have listened carefully today and in our discussions with my hon. Friend about the criteria, and we are asking Ofgem not to make a cursory comparison, but to establish forensically whether these charges are genuinely cost-reflective.