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.

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[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.