Energy Company Charges

Sammy Wilson Excerpts

Tuesday 4th February 2014 Commons Chamber

[Sammy Wilson (East Antrim) (DUP)]

I congratulate the hon. Member for Harlow (Robert Halfon) on securing this debate through the Backbench Business Committee and on the work that he has done on this issue. When we consider the impact of rising energy bills on people across the United Kingdom, every aspect of those increases should be closely examined.

Northern Ireland has one of the highest levels of energy bills, and we have certainly had the highest increases in recent years. That is the result of a range of issues, including the green energy policies of central Government that add £100 a year to energy bills. On top of that, perverse incentives lead to direct debit increases for consumers.

That all hits Northern Ireland in a number of ways. First, we have the lowest percentage of people in the United Kingdom paying by direct debit—38% as opposed to 55% across the rest of the UK. There are many reasons for that, including a more conservative approach to such things. Fewer people have access to bank accounts and the remoteness of many rural areas means many people cannot pay online. In my constituency, a huge programme is trying to connect people to broadband because of the low level of coverage for thousands of households. Those in remote areas, especially those in the Antrim plateau, do not even have broadband as an option. As a result, 42% of people in Northern Ireland live in fuel poverty. That is exacerbated by perverse incentives that affect how energy bills are structured.

[Ian Swales]

The hon. Gentleman is talking about perverse incentives. Does he agree that people who have access to the internet and pay by direct debit are those who are most likely to switch, which means that the energy companies have a perverse incentive to give them the lowest tariffs to try to keep them?

[Sammy Wilson]

They do. The hon. Gentleman makes a very important point, and in most cases those people have the greatest ability to pay for electricity. In Northern Ireland, for example, those who cannot pay by direct debit or online will pay £55 more a year for their energy bill. That is about half the increase they pay as a result of the green subsidies consumers must pay to the energy companies.

[Bob Stewart]

It seems to me that, from the point of view of an energy company, if people can be put on to direct debit payments, all too often those who can afford it will not challenge their bill—they will just say that it is done and dusted. That is a big advantage for the energy companies.

[Sammy Wilson]

It is a huge incentive. The figure has already been quoted. People do not query their direct debits and as a result huge surpluses worth £2 billion across the United Kingdom have built up, meaning that people are in effect lending the energy companies money for nothing and those companies reap the interest. Meanwhile, those who cannot afford to or choose for whatever reason not to pay by direct debit must pay extra.

The companies’ defence is that they have additional costs in dealing with people who do not pay by direct debit. I approached Power NI about that and it identified two additional costs. First, if people pay by cheque, the company pays additional transaction costs. Secondly, if people pay by cheque, even if they pay on time—I did not understand this—the company says that that affects its cash flow. But as long as people pay promptly, whether by direct debit at the end of the month or by cheque at the end of the month, the company’s cash flow is not affected. I do not know what transaction costs the power companies are paying if they have to charge 6% to 8% more when a member of the public pays by cash or cheque. They are certainly not the kinds of transaction costs one would expect in those circumstances.

What action can be taken? First—a number of Members have mentioned this—the power companies must be more transparent. They cannot simply throw the matter aside and glibly say, “We charge people who do not pay by direct debit extra because we have increased costs.” Those costs must be quantified. As I have said, I do not accept that the costs are 6% to 8% higher just because someone chooses to pay at a post office or by sending the power company a cheque.

Secondly, I believe that there is a role for the regulator, whether Ofgem or, in Northern Ireland, the Utility Regulator. The regulator should be on the side of the consumer. In fact, that is one of its objectives and part of its remit. However, when I contacted the Utility Regulator about the cost disparity, I received a letter that might as well have been written by the power company. Indeed, the power company probably would have given a better explanation, rather than the few lines I received from the Utility Regulator. There was no challenge function, no querying of the differences in costs, and no seeking of additional information. It simply stated the differences, which I already knew, and the reasons for them, but there was no indication of whether that would be challenged.

I also believe that there is a role for the Government in this, whether through the Consumer Rights Bill, which is currently going through the House; by encouraging the regulator to act by digging more deeply into the reasons given by the power companies; or indeed, as has been suggested, by finding find ways of increasing competition, which of course would give consumers more options.

It is striking that some of the smaller companies, which are hungry for customers, do not face those additional costs. In fact, some of them do not impose additional charges at all. That is why I cannot believe that there are such huge cost differences for the larger power companies. Perhaps that is the good impact of competition. Why do some companies find that there are huge costs resulting from people paying in a particular way and other companies do not? Or is it that the smaller companies are hungry for customers and wish to compete? If that is the case, I think there is a lesson for the Government: the more competition we have in the power industry, the more chance we have of addressing these issues.

I thank the House for listening to my arguments and the hon. Member for Harlow for securing the debate. I trust that some good will eventually come from this to help those who are on the bottom rung when it comes to their ability to pay their power bills each month.