Energy Price Freeze

Debate between Tim Yeo and Fiona O'Donnell

Wednesday 2nd April 2014 Commons Chamber

[Mr Tim Yeo (South Suffolk) (Con)]

I draw the House’s attention to my entry in the Register of Members’ Financial Interests.

It is pleasure to follow the hon. Member for Glasgow North West (John Robertson), a valued member of my Select Committee who consistently shows a great and real passion for helping those who suffer from fuel poverty—I guess more of his constituents than mine are in that position, but it is also an issue in parts of South Suffolk.

Many colleagues are anxious to speak, so I wish to make just a few brief points about the price freeze and the Competition and Markets Authority reference. However, I want to begin with a plea for honesty in the debate about energy prices. No politician, whatever party they belong to, can control energy costs, because the biggest component in an energy bill, be it for gas or electricity, is the international wholesale price of gas, which is completely outside the control of this Government, past Governments and future Governments. It is simply dishonest—it is not playing fair with the public—to pretend that a new Government could wave a magic wand and stop prices from going up. If global demand for gas rises sharply, as the International Energy Agency points out is likely to happen because of the expansion of the Asian economies, the international price will go up and the tankers that leave Qatar full of liquefied natural gas, some of which we want to have here, will be more expensive than they are today. So please let us try at least to start the debate in an honest way, without making promises about energy bills that cannot possibly be honoured in the long term.

[Fiona O'Donnell]

Can the hon. Gentleman explain to me and my constituents why SSE is able to announce a price freeze, then?

[Mr Yeo]

I am coming on to deal with that specific point; if the hon. Lady waits for a moment, I will explain it. First, let me urge everyone to try for a bipartisan debate, as a good starting point, in the interests of helping the public to understand the issues better.

There is general agreement across all the parties that there are three principal aims of energy policy. The first is security of supply, which is fundamental. I do not think the public would tolerate the kind of cuts that occurred in the 1970s. Modern life, both domestically and in business, depends now on a continuous supply of electricity. The second aim is affordability, which is much in everyone’s minds right now. The third is reducing greenhouse gas emissions, which the latest Inter- governmental Panel on Climate Change report underlines should have equal priority to the other two.

Any proposed energy policy should be measured against those three aims, and I am sorry to say that, as my right hon. Friend the Secretary of State has eloquently pointed out, the proposed price freeze does not score terribly well on those three tests. On security, a price freeze will actively harm Britain’s interests. It will inevitably deter and discourage new investment in capacity, particularly in electricity generation capacity, just at the time when, as is universally accepted, Britain needs huge new investment—£110 billion is a commonly agreed figure for the level of new investment needed in the next few years. Of course, as we all know, we face a situation over the next two or three years where margins of spare capacity will be at historically low levels. A very severe winter in this country and in north-western Europe could mean that we face a risk—not a huge risk—of a black-out.

The danger that the price freeze will discourage new investment has already been shown by some of the reactions. My hon. Friend the Member for Warrington South (David Mowat) referred to Centrica. It is all very well for Sam Laidlaw to say that, in the event of vertical integration coming to an end, Centrica would stop investment, but the truth is that in the UK it has already stopped investing. [Laughter.] It pulled out of a nuclear consortium last year. The company is investing heavily in other countries—in markets where it can see better returns than at home. This should not be a cause for laughter by the Opposition; it is very serious, because one of our biggest energy companies is deciding that Britain is no longer a market in which it wishes to participate.

--- Later in debate ---

[Mr Yeo]

I am saying that I am not in favour of a price freeze, but a price freeze that is signalled 18 months in advance is clearly a cynical electoral manoeuvre and has nothing to do with a responsible approach to trying to reduce consumer prices. I am not in favour of the freeze, but I am even less in favour of playing politics with energy bills in the way, I fear, that the Leader of the Opposition did by saying, “Okay, let’s have this price freeze, but obviously we can’t implement it until the middle of 2015.”

On the third test of cutting greenhouse gas emissions, a price freeze is at best neutral. I am afraid that I have to conclude that the Opposition’s proposal for a price freeze has the damaging effects of cutting investment, increasing the risk of the lights going out, and raising prices and consumer bills faster than otherwise would happen, at the same time as doing nothing to reduce emissions.

One final consequence of the proposal, which has been pointed out so I will not labour it, is the effect it has on small independent suppliers. Clearly, it is very damaging for them. If ever there was a policy designed to prop up the dominance of the big six it is the price freeze proposed by the Opposition. The ability of those smaller companies to survive the losses that a price freeze could impose on them is inevitably much less than large international companies.

Let me turn now to the Competition and Markets Authority reference. I believe that that was a belated recognition by Ofgem of the market failure in the energy industry, which is evident in a number of aspects, and of the risks that are, at the very least, inherent in vertical integration. Ofgem has been asleep on the job for the past two or three years. It has not used the powers that it already has as effectively as it should. Indeed, it commissioned BDO the accountants to make a number of recommendations, which it then proceeded to ignore once they had been announced.

[Fiona O'Donnell]

I am grateful to the hon. Gentleman for giving way; he is being very generous. Given that he feels that Ofgem has not been doing its job properly for some time, does he regret the fact that when his Committee asked the Secretary of State’s predecessor to hold an inquiry into the market in November 2011, the Government did not take action then?