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.

--- Later in debate ---

[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.