Domestic Gas and Electricity (Tariff Cap) Bill

Stephen Kerr Excerpts

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

[Greg Clark]

The Bill focuses narrowly on a problem that the independent inquiry has exposed as being very significant. As I have said, 10% of the annual expenditure of the poorest households is on energy. I recognise that we need to be agile in our regulatory system, and I hope that the behaviour of companies in other markets will reflect the fact that it is not acceptable to use information to ratchet up the amount paid by vulnerable consumers in particular. This is a regulated market with a regulator that is there to protect the interests of consumers, and I think it right for the Bill to focus on that.

[Stephen Kerr (Stirling) (Con)]

I fully support the Bill, but I have a question about Ofgem. The Secretary of State has mentioned a change in the behaviour of the energy companies, but what about a change in the behaviour of Ofgem in increasing productivity and being more on the ball? So far it has failed consumers miserably in that respect.

[Greg Clark]

I too would like to see greater agility on the part of the regulator. It seems to me that its powers would have allowed these actions to be taken under its existing remit, and it is a matter of regret that we have to introduce a Bill to compel it to act in this way. I concede, however—this was made clear in evidence given to the Select Committee on which my hon. Friend serves—that in recent months the current management of Ofgem have displayed more understanding of the need to act to protect consumers.

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[Stephen Kerr (Stirling) (Con)]

I rise to make a short contribution to the debate on this important Bill. I pay particular tribute to the right hon. Member for Don Valley (Caroline Flint) and my hon. Friend the Member for Weston-super-Mare (John Penrose) for their persistence over time to get us to this point.

The Bill will make a real impact on the day-to-day lives of the people who elected me, which is why it matters very much to me and why I have been pleased to sit here listening to the debate for several hours. When it comes to such important issues, we are talking not about academic abstractions or economic theories, but about reducing the energy bills of my constituents. That really does matter to me, as it matters to them, so I support the Bill and wish to make a few comments on it.

The price cap in the Bill is not, as some might fear, a corruption of the free market, but a market intervention to protect consumers from the worst excesses of a market that is not working. On a related note, I shall quote the words of a very famous Scotsman, which I am sure that you, Mr Speaker, will recognise instantly:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

I am not laying the charge of corruption against the big six, but their activities might be described as a contrivance to raise prices.

The price cap is a blunt object—

[Mr Speaker]

Order. I was rather hoping that the hon. Gentleman was going to furnish us with the page reference in “The Wealth of Nations”.

[Stephen Kerr]

I am unable to furnish you with the page number in “The Wealth of Nations”, Mr Speaker, but you are absolutely right that it is, of course, the famous Scotsman, Adam Smith, to whom I was referring. He was a great soul indeed.

The price cap can be a blunt object if it is left in place too long: it could cause stagnation; it could cause a reduction in competitiveness; and it could reduce the scope for investment in innovation in the sector. The effect of the price cap is not intended to result in that end; it is to lead to something far subtler. I am talking about a market intervention that is consumer-led and that is about empowering consumers. I am glad that the cap is time limited. It gives us time, as has been said by many Members in this debate, to fix the market, but what does the fix look like? My contention is that the Government, Ofgem and the industry must work harder to create this consumer-led marketplace. New technology is becoming available to empower consumers—to give them more control over their energy consumption and supply like never before. It gives consumers the data they need to optimise their energy consumption and to give them control over their energy costs.

The idea of this technology is the start of something that is unstoppable—I am talking about the idea of the smart home. In effect, what it does is give power to consumers, which ultimately is what this Bill is all about. The average household energy bill—if someone is on a standard variable tariff—is between £1,200 and £1,300 a year. It is incredible how little interest many consumers pay to that kind of expense going through their households. Part of the remedy to this disengagement, or lack of interest, must be to give consumers the confidence to feel empowered to deal with those costs. At the heart of all this is the smart meter. I do not have time in this debate to talk much about smart meters, but they can create data, display data and give uses to data that help consumers to optimise their energy bills.

We need to make it easier for people to switch. There is a great fog that comes over many people’s minds when they are given the opportunity to switch suppliers. If we can make it as easy to switch supplier as it is to open an app on a smartphone or press a button on a smart meter, the game is on. I remain convinced that this technology can fix the market in time—and “in time” is the key phrase. We need a real national effort to install smart meters in every property across the country. There is a Bill, which has gone through this place and is now in the other place, that is about smart meters. There are issues about smart meters that demand the urgent attention of anyone who has an interest in seeing this vital national infrastructure installed in this country. There are technical issues, but that is not what we are here to discuss.

What are we discussing? Why am I standing here in the first place? Frankly, it is because we have a broken market. I wish to apportion blame for that: I put the blame firmly at the door of the regulator, which has been around, in one form or another, since the 1980s. I firmly believe that the regulator already has the power to do what this Bill will give it the power to do, but it lacks the will to use that power.

As a member of the Business, Energy and Industrial Strategy Committee, I was astonished to hear the leadership of the regulator, who were in front of us, admit in effect that they had the power to set the tariff cap, but that they were too frightened of litigation from the companies that they were supposed to be there to regulate in the first place. As we say in Sterling, why have a dog and bark yourself? That seems an apt expression for a regulator that has failed to protect the free market and has allowed itself to be sucked into the game of special interests. It is almost protecting the very businesses that it was supposed to be there to regulate. It is now time to question Ofgem and its fitness for purpose. If the leadership of Ofgem will not take these powers that will inevitably pass through Parliament and become law and use them to protect the customer and to build and create a proper, free and competitive market in energy, that leadership will need to be changed. It is time that we were better served by that regulator.

The energy suppliers are benefiting from this lax regulatory regime. By creating a situation in which they charge rip-off prices for standard variable rates, the big six suppliers have broken the covenant that all companies have with their customers. They have lost the trust of the people. They may use the period of the tariff cap to restore and rebuild that trust by working to create this proper functioning marketplace.

Let us not forget what these companies have done. They have used profits from standard variable tariffs to subsidise their cheaper tariffs. Unengaged consumers have been punished harshly because of their loyalty, to the tune of at least £300 per household per year—much too high. According to the Competition and Markets Authority, the country has overpaid a total of £1.4 billion. Consumers have been ripped off for years at the hands of companies that should have known better and at the mercy of a regulator that has proved ineffective. It is time for us to take action and to work pragmatically to solve this problem for our constituents. It is a time not for economic dogma or ideology, but for proper pragmatism. The Bill is a superb example of the pragmatism that this Government pursue, and I am proud to support it.

Domestic Gas and Electricity (Tariff Cap) Bill (First sitting)

Stephen Kerr Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 13th March 2018 Public Bill Committees

[The Chair]

I want to bring in Stephen Kerr here. I should say that we have only another seven minutes.

[Stephen Kerr (Stirling) (Con)]

Q My question is about appeal. Ofgem come up with their absolute level. There has been a lot of discussion from different commentators about the right of appeal. The Business, Energy and Industrial Strategy Committee came up with its view. What is your view, Greg?

Greg Jackson: Appeal rights—for example, Competition and Markets Authority appeal rights—would probably mean that every time the cap is being reviewed every six months or quarter, it gets tied up in process. It means it never actually happens. Of course, that is what the big six want.

Hayden Wood: I completely agree. If consumers are going to benefit from this, we want them in by the next winter, and also Ofgem needs to be able to set the price, and not have to go through a long appeals process because, as Juliet said, things move in the energy market, so it needs to be nimble—

[Stephen Kerr]

Q Very clearly, you two are aligned.

Juliet Davenport: The only thing I would comment on is this. In a business you have got a first line, a second line and a third line of defence. Normally, Ofgem would be your second line of defence. The issue you have got is that you are blurring their rules: they are acting as first line and second line. That is where the appeal is a concern because they are setting the prices, and then they have got to judge themselves, almost, on setting the prices.

[Stephen Kerr]

Q What is your view, then?

Juliet Davenport: I wonder whether you have to look at the role within this: how you get that to be independent rule setting—whether it almost has to sit aside from Ofgem so that Ofgem can oversee it. If you put it within the regulator, I agree it is going to get—

[Stephen Kerr]

Q But they have to consult, don’t they?

Juliet Davenport: They will have to consult but, even so, I think you can see this being contested time after time. On the prepayment meter cap that has gone in so far, our calculation is that it has been incorrectly calculated probably about twice already. The question is that, if that then goes across 11 million customers, what is going to happen at that point, when it really starts to hit people’s balance sheets?

[Stephen Kerr]

Q How transparent is the calculation?

Juliet Davenport: It is not.

[Stephen Kerr]

It is not?

Juliet Davenport: It is not transparent till afterwards. You are immediately in breach if you do not comply. There is a process where you cannot actually challenge it.

[Stephen Kerr]

Neither of you had any concerns relating to that. You agreed with the Select Committee.

Hayden Wood: I would say that this goes back to the transparency point that I made earlier. I have an issue with a non-transparent process where the methodology, formula, and data input into that process are not published. That is an issue. I do not have information on the appeal issue.

Greg Jackson: The idea that you end up going to appeal in order to get the right to over-charge customers is going to be pretty grotesque. The reality is that they may try to do that, and you have to stop them. We have to prevent it becoming tied up in process. The prices are all still grotesquely high, whether they are set at £1,050, £1,075 or £1,030.

[Bill Grant (Ayr, Carrick and Cumnock) (Con)]

Q Juliet touched on smart meters earlier and the rather ambitious and expensive project that is endeavouring to secure 53 million installations by 2020. To what extent do you believe that smart meters can make the market work for consumers? This is to everyone. Could it lead to an early end to the cap, or could it make it redundant before 2023? It is not a freeze, it is a cap. There are opportunities three years prior to 2023 in which it could be eased or lifted. What is your view on that?

Greg Jackson: I think smart meters make this all the more important right now. If we do not clean up the energy market before we end up with everybody having a different price every half hour, it is going to be a wild west. We have the opportunity to clean up pricing now, and that is why it is particularly important that we deal with this topic of the difference between the highest and lowest tariffs. If it is hard for someone to know where they stand at the moment, then it will be even harder for them to know where they stand in the world of rampant time-of-use tariffs. Let us tidy up pricing now, and then smart meters really can be a path to success.

Hayden Wood: To add to that, we find the conflation of the price cap and the smart metering quite troubling. We do not see a relation between them. A person’s understanding of how much energy they use does not influence how often they might go into the market and look at price comparison sites and understand how much they are paying versus other suppliers. We are also not aware of any evidence suggesting that installing a smart meter would offset the £100 a year that a consumer would save under this price cap. The Government’s own data would suggest that the installation of a smart meter saves the consumer only £11 a year on their energy bill. They are actually separate things.

Juliet Davenport: My personal view is that they do come together when we get proper smart meters: SMETS2 in as opposed to SMETS1. The SMETS2 meters are going to make a significant difference to switchability. At the moment, if you take on a SMETS1 and you are not SMETS1-qualified you cannot switch them to smart metering. You would have a proper smart process in terms of switching. We are going to see some disruption in the market there with accessibility of data and third parties providing information in the house that can switch you instantly to another supplier if you are over-paying. That is the intelligence we are going to see with an increased amount of data. I am quite excited about smart meters and what they can do. They will facilitate households in saving much more than at the moment because we are going to see the smart house plug into that.

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[Vicky Ford]

Q One of the issues that has been raised is making sure that the price cap does not disincentivise investment in infrastructure. During the consultation, will you also be listening to infrastructure investors to take into consideration their views when setting the cap?

Dermot Nolan: We will listen to everybody when taking views on setting the cap. However, the infrastructure should not formally be part of the price cap. It should not affect the way in which the price cap will broadly be set in terms of interactions with suppliers and the prices of the inputs they purchase. So although we will listen to everyone, I do not think infrastructure investors per se will be crucially involved.

I came in at the end of the last session and heard about smart metering. We will have to consider the smart metering costs, but only in the efficient cost. One of the difficult tasks in setting any level of cap is deciding a precise, efficient cost for the firms and ensuring that those efficient costs are passed on in the cap.

[Stephen Kerr]

Q In the past, Ofgem has said that it accepts the outcome of the CMA’s energy market investigation, including the majority view that said a price cap would have a negative impact on competition. How are you going to manage that? You have accepted that a price cap can lead to a loss of competition in the marketplace. How will you know? How are you going to measure competitiveness in the marketplace, and what will you do in terms of pulling levers in order to rectify that?

Dermot Nolan: The CMA view was split. We said we would go with the majority view, but one of the points about the process is that Parliament has now taken a decision. It is absolutely something that we will implement, because we are servants of Parliament, and we will implement it as quickly and as effectively as possible.

On the theme of competition, in my reading of the draft legislation, it seems to me that there is a desire to bring in a cap but also a desire to develop a more competitive market. There are a number of things that we are putting in place that we believe will help develop a competitive market further.

On smart metering, I know there were different views among the earlier panel, but smart metering is helpful. It is in some sense a necessary condition for, if you like, a digitised retail energy sector. There will be faster and more reliable switching processes. There are a number of remedies we have tested for prompts—ways in which people who have not yet been prompted to engage in the market will be prompted further. We have tested a lot of those already, trialled many of them and are going to roll them out in the next couple of years. There is the work on what we call midata, where we are going to push forward with a secure piece of your data that you can use in any price comparison website or any particular thing that will facilitate competition.

There are two more points—I know I am listing them off, but I want to be clear. One is that we think vulnerable protections will still be necessary if a full price cap is removed. We will look at whether any vulnerability price caps should be kept and, in particular, whether other forms and ways of protecting vulnerable customers, including things such as collective switches, could be used.

[Stephen Kerr]

Q Going back to the measures you mentioned earlier, which will underpin the competitiveness of the marketplace, those are things that can be done now. Yes?

Dermot Nolan: Those are things that will be done over the next year to two years.

[Stephen Kerr]

Q Tell us again how you will know that they are working. What are the features of a market to which you will say, “Yes, this is a competitive market.”?

Dermot Nolan: Last year we published a response to the Competition and Markets Authority—which, going forward, will form the core of our report to the Secretary of State, as envisaged under the Bill—that we called a state of the market. It was a detailed look at the state of competition in the retail sector. It will look at a number of indicators; it will be on the basis of this suite of indicators—there will not be one perfect one. It will include the numbers switching, but also survey evidence, levels of satisfaction in the market, whether people feel more trust in the market, and whether the vulnerable, in particular, feel empowered to switch or still feel disengaged. We will focus on and continue to develop a suite of indicators that will form the basis of a report to the Secretary of State, which, as envisaged in the Bill, we will make on a yearly basis.

[James Heappey]

Q I am keen to understand what you think a good market looks like. In a lot of other markets, we would consider happy customers who think that they are getting good customer service and a good deal to be a good thing. In the energy market we seem to be quite aggressively pursuing the absolute opposite. We seem to think that a good market looks like lots of people who are moving constantly to find a better deal.

I wonder how we do something in this price-capping process that, when energy companies go to war with one another over price, ensures that all of their consumers, including those who are loyal and seeing the benefits of good customer service, get rewarded, rather than simply perpetuating this view that a good energy market is one in which everybody is moving constantly and there is no incentive for companies to deliver good service.

Dermot Nolan: Absolutely. When I talked about a suite of indicators earlier, I think one should not over-concentrate on switching. It is perfectly possible, as James Heappey has said, to have a market that is functioning relatively well, but, actually, observed levels of switching are slow. What is important is that the customer must have the ability to switch if treated poorly.

In that sense, what we have seen, particularly in the energy market over the past two years, as we have seen in other markets, is a divergence of outcomes—£200 or £300 between people’s bills. Some—not all, because more than 20% of our domestic residential customers now come from small suppliers—have the disengaged feeling of, “I don’t feel comfortable switching and don’t feel protected.” The reforms that I mentioned in the last question are about trying to create a situation where we go back to the engaged customer—in some sense protecting the disengaged—with less variation between the engaged and the disengaged as a result and with people feeling, “I don’t need to switch, because I am not going to get charged £300 or £400 more by my own supplier if I don’t switch.” That is the kind of market that we would revert to. I think the reforms that we have set out will get us in that direction.

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[Vicky Ford]

Q Just to come in on this issue of reviewing every six months, that is of course in the Bill.

Pete Moorey: That is good news.

[Stephen Kerr]

Q Would it help to remove the stickiness of customers if the SVTs were renamed emergency tariffs, because that is quite alarming?

Pete Moorey: I don’t know. It might do. That probably returns to the point I made to Alan Whitehead around testing and trialling different ways of engaging people in the market. It is really important that Ofgem tests how it communicates the safeguard and whether it should be called the safeguard. There is a real danger that most consumers, once they hear they are on a safeguard tariff, think that there is absolutely no reason for them to switch. Once the cap is in place, one of our key messages at Which? would be to go out there and say to people, “The safeguard tariff is not the cheapest tariff on the market. You could well still be saving hundreds of pounds by switching, particularly to some of the smaller suppliers in the market.”

[Stephen Kerr]

Q I think the standard variable tariff sounds rather benign.

Pete Moorey: Absolutely.

[Stephen Kerr]

Q If it was something more aggressively named, people might go, “I don’t want to go on this tariff.”

Pete Moorey: I think it should be tested.

Peter Smith: There is also a risk that if people are on the safeguard tariff, they think that they are safeguarded, but they are not taking up the wider support schemes that the Government have made suppliers deliver—things such as the energy company obligation, the warm home discount scheme, free gas safety checks and the priority services register. There are a number of other things that need to be considered to assess whether or not consumer engagement is happening, particularly for vulnerable households.

[The Chair]

If there are no further questions from Members, I thank the witnesses for their evidence.

Ordered, That further consideration be now adjourned. —(Rebecca Harris.)

Domestic Gas and Electricity (Tariff Cap) Bill (Second sitting)

Stephen Kerr Excerpts

Committee Debate: 2nd sitting: House of Commons
Tuesday 13th March 2018 Public Bill Committees

[Dr Whitehead]

I thank my right hon. Friend for that intervention underlining the thrust of what I have to say. Although we may take serious account of Ofgem’s earnest intentions, which we heard about this morning, we are not legislating for the good side of earnest intentions, but for what we want to happen in the end with the Bill. To put in the Bill what we actually want to happen clarifies matters for the future, rather than spreading confusion. We will have declared—I use that word because we cannot entirely proof ourselves against the possibility of an unexpected legal challenge, although, if I can be congratulatory to the Bill’s constructors for a moment, they have done a good job of ensuring that it is as legally unchallengeable as it can be—

[Stephen Kerr (Stirling) (Con)]

I perfectly understand where the hon. Gentleman is coming from, because Ofgem’s performance over the last few years has been less than inspiring. Having said that, both sides of the House have said, and we heard it again from Ofgem today, that we know what our destination is with the Bill. I cannot understand what we gain by putting a date in it, beyond what we have already amassed in terms of collective evidence and collective will that we have to see this enacted before next winter.

[Dr Whitehead]

I fully accept that there are different interpretations of the best way forward within the overall agreed framework of where we want to go. Perhaps hon. Members take the perfectly reasonable, honourable and thought-out view that we have got what we want to say in the Bill, we have heard what Ofgem thinks it can do and we are happy to leave it there. My view is that it would be helpful to properly encapsulate our position on the Bill by saying in it what we want to happen—by setting an out-date for the considerations that Ofgem has to undertake before the cap becomes real.

Although I do not doubt for a moment the bona fides of Ofgem, or the sincerity of what Dermot Nolan said this morning, nevertheless, if we are not as clear as we can be about what we want to put forward in the Bill, it is conceivable—no more than conceivable—that someone could say, “Actually, we said five months, but some unexpected circumstances have cropped up—not a legal challenge, but other things—so we can push that further down the line. We’ll have to say that we are a bit sorry about that, but that’s how it is.” I do not want that circumstance to be even remotely in the minds of anyone at Ofgem over the next few months.

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[Claire Perry]

I appreciate the hon. Gentleman’s support, and I am delighted that we have cross-party support. I think we are all agreed that this is a robust Bill. I thank the hon. Gentleman for sharing his tribute to the parliamentary team, who have done a good job drafting it.

[Stephen Kerr]

I would like to pick up on the comments made by the hon. Member for Kilmarnock and Loudoun about the robust performance that we saw from Ofgem this morning. Frankly, that could be, in part, because when Ofgem appeared before the Select Committee scrutinising the legislation, it was less than robust—the witness was less than robust. I think he has got the message: he cannot be neutral on this; he has to be robust. We saw that today and that gives me great confidence that we will see this Bill enacted in the way we envisage.

[Claire Perry]

I defer to my hon. Friend’s experience. He sat through this process, doing an excellent job on the Business, Energy and Industrial Strategy Committee, and has seen the evolution of this robustness.

In response to the hon. Member for Kilmarnock and Loudoun, I think the Bill is absolutely robust. We are agreed: we have a tight, well-drafted Bill that does not allow for random amendments. The challenge is that the actual job of setting the price cap has, quite rightly, been given to the independent regulator. We have to go through a process of transparency and confidence building, if you like, with participants in the market, so that the number is set at the level we want to deliver maximum benefits to consumers without the dis-benefits of driving investment out of the industry, or indeed providing a less competitive environment. That is why I have been persuaded that Ofgem gets the deadline, believes it has the right to do it, but has asked for a period in which, quite rightly, it can go through a very transparent process. The more transparency the better, because that will head off any possible legal challenge. I wish we did not have to be in the world of worrying about future legal challenges, but I think we are all convinced that we need to make the whole process as robust as possible.

In responding to the hon. Gentleman from north of the border, Kilmarnock and Loudoun, I hope I have persuaded the hon. Gentleman from a long way south of there to withdraw his amendment.

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[Stephen Kerr]

indicated dissent.

[Dr Whitehead]

The hon. Gentleman shakes his head. I cannot possibly comment on that. I got this on the internet, by the way. The headline was “Millions of Brits in line for £100 as Theresa May delivers on energy price cap promise”. Underneath, it said:

“The price cap on 11 million gas and electricity bills is to come in by end of the year as The Sun’s Power to the People campaign pays off”.

“It was The Sun wot done it”—not us, by the way.

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[Dr Whitehead]

The hon. Gentleman makes an important point about what could happen prior to the cap coming in. Energy companies could be gaming ahead of the game with their prices, so what would savings look like after that? I am not sure that we can do anything about that right now. As Ofgem mentioned, if energy companies are too blatant in their price rises over the next period, they will be in breach of their obligations to Ofgem anyway.

We have seen several instances of small price rises recently. We heard about one—a comparative gas price—this morning. Bulb, one of the witnesses this morning, put up its rate by £24 just a few weeks ago. That was for particular purposes, but one could argue that it was a gaming price rise ahead of the legislation. Bulb was very clear that it was not, and that it was for other purposes, but we clearly have to be alert to that possibility.

If that does happen, what anyone has said about what savings would result from this price cap would have to be taken relative to whatever that price was at the point when the price cap was introduced. It would be possible for consumers to say at that point, “Actually, we were promised a £100 price saving. It does not look like a £100 saving to me, because it is a saving against a price rise that will end up increasing my bills.” In wishing to place this in the legislation, I am indicating that we in this Committee do not wish to let the public down regarding what might happen with this price cap.

The Prime Minister has already said that there will be a £100 saving. Indeed, I do not know whether this applies to anyone present, but interestingly The Sun article states:

“Government insiders say the cap should save at least £100, potentially rising to £300 a year with increased competition and faster switching.”

Government insiders, whoever they are, are suggesting that the £100 is a minimum and it could be considerably more.

[Stephen Kerr]

More important than any quotation from The Sun, the number that really counts is the £1.4 billion of detriment that was identified in the CMA report. That is the number we should be going on. Confusing the issue by coming up with arbitrary numbers in the Bill means taking our eye off the ball of the £1.4 billion.

[Dr Whitehead]

The hon. Gentleman is right to draw attention to the CMA figure. Customers were, in effect, being overcharged by that over a considerable period. Indeed, that was a substantial precursor to the idea that there should be a price cap in legislation in the first place. A regime was in place that allowed overcharging by a variety of devices, a number of which were identified by CMA in its report. We want not only to cap the price for a certain period of time, but to ensure that the behaviour that allowed more than £1 billion to be overcharged is not repeated. We do not want to be back here in a few years’ time, saying “That is terrible—now we have to implement another price cap.”

The issue is not just about the price cap, but about what happens afterwards. We need to do what we can, both during the passage of the Bill and during the price cap, to ensure that circumstances in the market prevent such overcharging from happening again. One of the underlying aims of the Prime Minister’s statement about the savings that would arise was that the price cap should be more than just a temporary punishment for certain energy companies; it should be an attempt to reset the market so that things work differently. The proposal for the £100 saving derives from that.

In May 2017, the BBC site—I do watch the BBC—reported that the

“Prime Minister…said 17 million households would benefit by up to £100 from the cap on poor value standard variable tariffs.”

What has been in the papers recently is slightly different, but it is clear that the original plan was a £100 saving for customers paying standard variable tariffs. That is the public’s expectation, as franked by the Prime Minister, of the consequences of the price cap; committing to it in the Bill would show that our intention is in line with the results they expect. Including the £100 saving as a consideration for Ofgem would complete the circle. As I say, it was a suggestion not from any Opposition Member, but from the Prime Minister, about how the Bill should work. We merely seek to enshrine her words in the Bill.

Our other amendments serve essentially the same purpose but relate to later clauses, especially clause 8, which sets out a clear mechanism for the circumstances in which the cap can be terminated, describing subsection by subsection what will happen at the end of each year from 2020 until 2023, when the sunset clause has effect. In each year, the trigger for rolling over the tariff cap conditions for another year is that

“the statement published by the Secretary of State in that year under section 7 is to the effect that the conditions are not yet in place for effective competition for domestic supply contracts”.

Our amendments would insert an additional condition for effective competition in each year, based on whether the Secretary of State thinks that

“effective competition does not exist for vulnerable or disabled domestic customers”.

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[Claire Perry]

Again, it was a very effective evidence session this morning. I was just going to come on to some of the other support we are looking to provide, in particular through the Energy Company Obligation, where we may be looking to help a broader group of people than is currently eligible.

I want to touch on some of the other duties that Ofgem already has in relation to protection of this customer group. The original gas and electricity Acts place a duty on Ofgem to protect the interests of existing and future customers. In carrying out this duty, Ofgem should have regard to the interests of individuals who are disabled or chronically sick, individuals of pensionable age, individuals with low income and individuals residing in rural areas. So I would argue that Ofgem already has these duties in place as part of its conditions. Indeed, the Bill, in which we make it explicit that we need Ofgem to consider all customers and all competition in setting the cap, makes the amendment surplus to requirements.

[Stephen Kerr]

I just have a brief question. I know the Minister has acknowledged the Select Committee’s work on pre-legislative scrutiny. One of the recommendations in its report was about amending the Digital Economy Act 2017 to allow data to be shared with energy companies. That is a huge impediment right now to getting help to the most vulnerable—particularly those who are on SVTs.

[Claire Perry]

Yes. Again, I want to thank my hon. Friend and the Select Committee for bringing forward a series of recommendations, which we have accepted. He refers to a statutory instrument that is being started in the Cabinet Office, which I am assured will receive assent—or whatever the right word is—during the passage of this Bill, subject, of course, to cross-party support. That opens up the opportunity for much better data sharing to support vulnerable and disabled consumers.

It is extremely important that we continue to look at this group. We heard today that some of those we might consider most vulnerable are also the most assiduous switchers, because they simply do not have a penny to spare. I guess the issue I have, which is why we are here, is that we do not want people to have to invest the time in shopping around to feel that they are always getting the best deal.

Households that are receiving the warm home discount, in addition to qualifying for the safeguarding tariff, get £140 a year. Of course, we protect our pensioners, with up to £300 a year for winter fuel payments. Sadly, the cold weather payment was also triggered in the last couple of weeks, and that was another £25 during the cold snap. There is also the priority services register, which is a free service provided by suppliers for people of pensionable age who are disabled or chronically sick, have a long-term medical condition or are in a vulnerable situation. Those people go to the front of the queue should an emergency—a supply interruption—interrupt their heating or cooking facilities.

Finally, I want to mention the ECO consultation, which we will bring forward shortly. It is my intention, as far as possible, to pivot the whole of ECO to focussing on the challenge of fuel poverty and trying to make sure that those in the greatest poverty receive the greatest benefit, but also to use the programme to support more innovation and more targeting. I live in an off-grid area, and I am fed up of getting ECO leaflets through my door. It does not feel like the best targeted scheme to me, and I would like it to be targeted at those who are perhaps time-poor and need the help the most.

--- Later in debate ---

[Dr Whitehead]

I would say that the essential point is how far up the beach and close to the walls the greenwashing actually goes. Can we conversely say that we can put greenwashing into a particular box and say “That looks like greenwashing”, but as we move up the scale of more and more renewables in the system, the greenwashing ceases and therefore can we say that this really is a renewable product and is something we can apply special exemption arrangements to? That is the nub of the debate.

[Stephen Kerr]

I would like to share with the hon. Gentleman the very words of Dermot Nolan in relation to this issue. In evidence to the Select Committee, he said in answer to a question about how it is decided whether energy is green or not:

“There are ways to determine the source of energy as to whether the generation of energy by that company has occurred in a sufficiently green fashion, which we have a definition for already, although not a perfect one. We would make specific requirements of companies on that. We would audit them and we would police it. If they were not compliant, we would tell them they must immediately withdraw the tariff or face enforcement action.”

That answer and the agenda that Ofgem is following make the amendment redundant.

[Dr Whitehead]

That is a reasonable and honestly held opinion about the extent to which it is possible easily to distinguish when greenwash is not greenwash and the point at which an energy company, even with a partially green tariff, puts in something that is honestly green and not something that they have just cooked up because they happen to have purchased something that has an element of traceable green energy in it.

Even under the circumstances that the hon. Gentleman mentions, it would be fairly difficult for Ofgem to make easy distinctions when it came to what it was doing about tariffs that could be jumbled up with a lot of brown energy but nevertheless be claimed to be at least partially green.

I have tried to think this through and consider how we might be able to make honest citizens of those companies under such circumstances. It is possible to argue that even if a company accidentally buys green energy, if it is genuine green energy, then yes, it has sourced green energy. However, the bar needs to be set rather higher.

Domestic Gas and Electricity (Tariff Cap) Bill

Stephen Kerr Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 30th April 2018 Commons Chamber

[Dr Whitehead]

Indeed, the hon. Gentleman has a point, which is why now—on Report—the amendment would put a maximum number of months, not a specific date, in the Bill. One might say that hon. Members listened to each other in Committee regarding possible future amendments, which is why I tabled amendment 5 in this manner. However, the fundamental point of the amendment is still to get the Bill working, so that the cap is in place before the winter. Ofgem has said that it thinks it can have a cap up and running in five months, as we have suggested in the amendment. We therefore want the maximum timeframe of five months to be reflected in the Bill, so that the cap is guaranteed at around the time when people get their winter fuel allowance, not when winter returns, as it seems to do these days, in the middle of next spring.

Amendment 6 seeks to quantify the saving that customers might expect as a result of the cap, but we do not wish to make up a figure in so doing. We want to take the Prime Minister’s word on this, when she specified that customers would save £100 as a result of the price cap that her Government were about to introduce. To be precise, The Sun of 27 February this year had the splendid headline “Millions of Brits in line for £100 as Theresa May delivers on energy price cap promise”. This was just one of a number of sources reporting the Prime Minister’s price save promise, but The Sun went further, stating:

“Government insiders say the cap should save at least £100, potentially rising to £300 a year with increased competition and faster switching.”

Now, I do not know whether there are any Government insiders in the Chamber—or, indeed, whether the Minister is one of those cited—but we can assure them that we will take the conservative route on this occasion and propose only that the Bill will do what the Prime Minister says it will.

[Stephen Kerr (Stirling) (Con)]

I am slightly perturbed that the hon. Gentleman is quoting The Sun as the authority by which we make legislation in this House.

[Dr Whitehead]

On reflection, I can join the hon. Gentleman in being slightly perturbed that I am quoting The Sun in this context. I assure him that although I quoted The Sun, a range of authorities from the Daily Mail —getting better?—up to the BBC’s website suggested that the Prime Minister did actually say that people would save £100. If the hon. Gentleman thinks that quoting The Sun was not entirely appropriate under all the other circumstances, I can do nothing other than agree with him.

Amendment 7 would ensure that vulnerable customers, including those already protected by a tariff cap, do not lose that protection as a result of the overall cap being introduced.

--- Later in debate ---

[John Penrose]

That argument has been advanced for both a relative cap and for an absolute cap; some people argue that it applies to both. We heard earlier a rather good explanation of why the argument does not really apply, which is that it would be commercial suicide, or a commercial kamikaze effort, for anybody to try to raise their prices in the switching market, which is highly competitive, because they would very rapidly start losing customers hand over fist. I understand that argument, but I do not think it would be relevant in practice.

[Stephen Kerr]

Just to underline the delicate nature of the balance that we are talking about in terms of caps, the majority view of the Competition and Markets Authority in its report was that a standard variable tariff cap would

“run excessive risks of undermining the competitive process”.

This would be likely to result in worse outcomes for consumers in the long run by

“reducing the incentives of suppliers to compete”

and

“reducing the incentives of customers to engage”,

so a delicate balance needs to be struck.

[John Penrose]

That is absolutely bang on the money. For goodness’ sake, the Competition and Markets Authority is suggesting such a thing, and that is after all its business.

--- Later in debate ---

[Rachel Reeves]

I am pleased that my hon. Friend and fellow Leeds MP mentions White Rose Energy, which is doing fantastic work. It ensures that customers in Yorkshire have a greater choice of energy companies and genuinely puts customers first. During prelegislative scrutiny, we heard from other small companies, including Bulb and Bristol Energy who are also trying to support their customers.

No one in this House wants a situation where the most vulnerable customers see their prices rise because of the price cap. Perhaps Ofgem could operate the safeguarding tariff and the price cap we are debating today simultaneously. That seems entirely possible and desirable to try to avoid the issues that National Energy Action and others have raised from coming into effect.

I hope we will receive assurances from the Minister this evening that these risks will not be allowed to materialise. In that case, I will not press this amendment to a Division. Let me urge the Minister, however, to ensure that the Bill does its job of protecting customers and that energy companies are not able to use any loopholes that would mean prices rising for the most vulnerable customers: those we have the greatest duty to protect.

[Stephen Kerr]

It is a great privilege to follow the hon. Member for Leeds West (Rachel Reeves), the Chair of the Business, Energy and Industrial Strategy Committee.

There was no shortage of energy—or capping of energy—at yesterday’s Stirling Scottish marathon. There was, however, a lot of evidence of determination, particularly as competitors approached the finishing line despite the agonies that some were obviously going through. There was a great deal of grit on display. In addressing amendment 9, it is a lack of grit and determination—almost supine passiveness—that is causing me to have grave concerns about how Ofgem goes about its business.

During prelegislative scrutiny of the Bill, the Select Committee held an evidence session, to which my hon. Friend the Member for Eddisbury (Antoinette Sandbach) referred earlier. I am sorry to have to say this, but I was unimpressed by the evidence presented in January by Dermot Nolan, the chief executive of Ofgem. He did not come across as a person with an appetite for what I feel needs to be done. He lacked that grit and determination. He admitted to my hon. Friend that, in respect of Ofgem’s statutory duty to protect vulnerable customers,

“I accept the point that we could and should have done better on vulnerable customers. We have relatively recently put in place principles for vulnerability, which will give a stronger level of protection.”

When the hon. Member for Hove (Peter Kyle), who is not in his place, challenged Dermot Nolan on what was in effect an admission of failure on his part to fulfil his statutory responsibility towards the protection of those who are vulnerable, he answered:

“We have not done as well as we could have. I fully accept that.”

This perturbs me. It perturbed me then and it perturbs me now. The hon. Gentleman, who is an esteemed member of the Select Committee, seemed to me to hit the nail firmly on the head when he said to Dermot Nolan:

“If you do not mind me saying, throughout the testimony here and before, you have been describing what is happening in the market; you are the single most important player in the market, because you have the most extraordinary powers as a regulator, yet your testimony sounds so incredibly passive. Do you ever just roll your sleeves up and get stuck in? I do not really see the evidence of that.”

I share the concerns expressed so vividly by the hon. Gentleman.

Since becoming a Member of this House last year and having the privilege of being appointed to the Business, Energy and Industrial Strategy Committee, I have had the opportunity to hear first-hand evidence and testimony from a number of regulators. I have, in all honesty, been underwhelmed by every one of them.

[Mark Pawsey]

My hon. Friend is giving an account of the evidence given by Ofgem to the Select Committee. Does he share my concern that the Bill would give that very body the powers to set the energy price cap?

[Stephen Kerr]

I am grateful to my hon. Friend for his intervention. I share the concerns—I think they are shared across the whole House—about the performance of Ofgem as a regulator. I have broader concerns about the general performance of regulators full stop. Frankly, we seem to have a collection of regulators who either have powers but do not seem to be prepared to use them, or who do not feel they have adequate powers but are not prepared to ask for them. That seems incredible to me. I am very wary of leaving the issue of vulnerable energy customers to the discretion of Ofgem, because I am fearful that the discretion of Ofgem will mean that it will continue, by its own admission, to fail vulnerable customers.

This is an important issue that needs to be aired here and now on Report. Ofgem needs to sit up and take note. It is also important that we hear from the Minister, from the Dispatch Box, what change in the pattern of behaviour we should expect to see from Dermot Nolan and Ofgem. Will they have the determination and grit of the marathon runners in Stirling yesterday? Will they do something with the powers they currently have and the powers they will have when the Bill is passed? Above all, I want the Government to fulfil the promise of our Prime Minister who, on behalf of the Conservative party, said:

“Our party did not end the unjust and inefficient monopolies of the old nationalised energy corporations only to replace them with a system that traps the poorest customers on the worst deals”.

I am fearful that that is what we could do. I look for reassurance from the Minister.

[Caroline Flint (Don Valley) (Lab)]

I welcome back to the House this unfinished business. It has been a long-running saga and I have appeared in pretty much every episode for the past six years. I am hoping tonight will be my final appearance on this particular matter, with no repeats to follow.

I welcome the proposed absolute price cap. We have arrived at a place where there is much cross-party agreement, but it comes at a price. That price has been borne by consumers. The Competition and Markets Authority confirmed in 2016 that between, 2012 and 2015, the average detriment to the consumer—overcharging, in plain English—was £1.4 billion a year. The CMA found that the scale of overcharging, far from diminishing, was rising, reaching £2 billion a year by 2015.