Domestic Gas and Electricity (Tariff Cap) Bill

(Limited Text - Ministerial Extracts only)

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

[Rebecca Pow]

Thank you.

I am delighted to speak in support of this Bill. It focuses on a temporary managing of the energy market, which has not been managed well enough, which is why we are talking about the whole concept of this Bill. I will speak briefly, and only to amendments 7 and 9. I do not disagree with the sentiment of, and intention behind, these amendments, and above all it is, of course, vitally important that we look after the vulnerable in society, in particular in terms of energy, and especially when the market is deemed not to be functioning properly.

It is crucial that people can keep warm and cook the right food and that they are comfortable and well, but this Bill already addresses that. It places a new set of duties and powers on Ofgem to protect consumers on variable and default tariffs, and Ofgem already has a duty under the electricity and gas Acts to have regard to the need to protect vulnerable customers. We should also remember that in 2016 the Competition and Markets Authority made an order, following its energy market review, to put in place a safeguard tariff for customers on prepayment meters, and about 4 million people have benefited from that. Last year, Ofgem took the decision under its principal duties in the electricity and gas Acts to extend the safeguard tariff to customers in receipt of the warm home discount.

Ofgem must have regard to the need to protect vulnerable customers when exercising its functions under these Acts, and I would argue that that is already being done. However, I agree with my hon. Friend the Member for Stirling (Stephen Kerr) that it is crucial that Ofgem uses its powers and uses them well and that its feet are held to the fire in this respect—to use an energy term. It also introduced an enforceable vulnerability principle into the domestic standards of conduct, making it clear that suppliers must do more to treat vulnerable customers fairly, and this must be done.

Realistically, therefore, these amendments seem to be overkill, placing new obligations on Ofgem that are not necessary; however, it must use the powers it has. Also, as many Members have said, the powers in this Bill are only temporary: the price cap operated by Ofgem is not intended to last beyond 2023, and I fully support that. By contrast, Ofgem’s powers to protect vulnerable customers under the electricity and gas Acts are not limited.

It is necessary to bring in the fairness that this Bill has right at its heart. Its main aim is to place a new set of duties and powers on Ofgem to protect customers on standard variable tariffs. That is what this is really all about; far too many people have been taken for a ride. In 2016, about 11 million people were paying a total of £2 billion over the odds for their energy; that is simply not right. Individuals are said to be paying about £300 too much. Many people falling into this category are the elderly, and I am speaking on this Bill in part because Somerset has a particularly ageing population, and they have been taken advantage of, as indeed have many young people who are in rental accommodation because they are tied to one form or another of payment.

We must not mess about any further with this Bill. We must be able to see the wood for the trees; we do not want to bring in another lot of suggestions and regulations that delay the Bill, because it is more important than ever that its measures come into operation this winter. It is essential that we protect the vulnerable, but it is not necessary to legislate further on vulnerability, as suggested by amendments 7 and 9. I hope that on this basis the amendments will be withdrawn.

[The Minister for Energy and Clean Growth (Claire Perry)]

I thank all colleagues here this afternoon for their intelligent and sensible contributions to a debate that has run for several years. We are now within striking distance of bringing this Bill to a conclusion and sending it off in good order to the other place. I particularly thank my relatively close—geographically speaking—party colleague, my hon. Friend the Member for Weston-super-Mare (John Penrose), whose dogged and intelligent scrutiny, along with that of his colleagues, has made this a much better Bill, and I pay the same compliment to the hon. Member for Leeds West (Rachel Reeves) and her Select Committee. This shows that when we work together we can deliver good legislation. I will respond to the amendments discussed today and my hope is that in doing so no Member feels obliged to press their amendments to a vote.

New clause 1, which we discussed at length in Committee and again today, seeks to introduce an ongoing, almost perpetual, relative price cap once the absolute price cap is removed. Like the Member speaking for the Scottish National party, the hon. Member for Kilmarnock and Loudoun (Alan Brown), I am a little perplexed by this amendment, as I said in Committee. The hon. Member for Southampton, Test (Dr Whitehead) has spoken so powerfully on many occasions against a relative cap and in favour of an absolute cap, and yet this new clause suggests bringing in the opposite: a relative cap on a perpetual basis. I will talk more about the issues we have with relative caps, but this is a little counterintuitive. It would also mean—this will be anathema to many colleagues who have spoken passionately today in support of a relative cap—effectively perpetual Government intervention in the energy market. There is strong agreement across the House in favour of competitive markets delivering the best for consumers. When those markets are broken, or regulation slips out of date, it is right to improve the powers of regulators, but perpetual Government intervention, particularly in setting prices, is not the way to deliver the best outcomes. Therefore, the new clause is not necessary.

Moving on to the comments on relative caps, Ofgem said in its evidence, which others strongly supported, that a relative cap will be gamed by the largest suppliers. If we introduce this hypothesis, it will be gamed. As my hon. Friend the Member for Eddisbury (Antoinette Sandbach) also pointed out, we also heard in Select Committee evidence sessions that there was overwhelming support for an absolute cap—now and then.

[John Penrose]

rose—

[Claire Perry]

My hon. Friend wishes to intervene, and I will of course give way.

[John Penrose]

I hesitate to pray the Labour Front Benchers in aid of my argument, but the Minister has just quoted Ofgem in favour of hers, so perhaps it will make sense. Does she not agree that it would be commercial suicide for a supplier to raise its tariffs in the competitive market, to protect its position, were a relative cap to be introduced? I think the shadow Minister said earlier that it would be commercially suicidal or a kamikaze move.

[Claire Perry]

I am afraid that I have to disagree with my hon. Friend and reject that point. That is what has been happening for many years to the most vulnerable customers, who have seen price rises recently and who are not switching for a variety of reasons. We are trying to deal with that customer group today. I hope that the hon. Member for Southampton, Test will withdraw the new clause on the basis that it is not rational and not needed.

Amendment 5 proposes that a set period of five months be placed in the Bill. We debated that at length in Committee, and I believe that we are all seized of the need to bring the Bill into force in good order as quickly as possible—we do not want to wait any longer. We want the Bill to be in place by the time we rise for the summer recess, and obviously it has to go through the other place first. We want the caps to be transparent and to be applied in time for this winter, 2018, so that people can start to benefit and make savings on their energy bills immediately.

We heard from Back Benchers why they felt the five months provision would be difficult, and I will add my concern that if Ofgem were to go over such a legal limit, even by a couple of days, it could inhibit its ability legally to bring forward the cap. We must do nothing to reduce Ofgem’s ability to consult on the cap and put it in place. It is worth emphasising again—I am sure the regulators and others are listening—that we want and expect the cap to be in place by the end of the year. I do not think the proposal in amendment 5 is either legally permissible or necessary.

Amendments 2, 3 and 4 were tabled by my hon. Friend the Member for Weston-super-Mare and supported by many Members who have thought carefully about this issue. We have refined the Bill through the course of our discussions and made it into a better piece of legislation, and I am grateful for that. We have heard again today many of the arguments that we have heard during the Bill’s passage. We are talking about a theoretical position in talking about a relative cap, because the only cap we currently have is the safeguard tariff, which is an absolute cap and which appears to be working to save customers money.

Our concern is that with a relative cap, we could see suppliers lifting their skirts on their cheaper tariffs, and that there could be an inhibiting effect on some of the innovations that my hon. Friend the Member for Wells (James Heappey) mentioned, with companies charging extremely low prices for time of use tariffs. We heard overwhelming evidence during the evidence sessions chaired by the hon. Member for Leeds West, and also in the Public Bill Committee, that absolute caps were considered a much better way of bringing forward the protections that we all want. That is the view of Ofgem, the Select Committee, Citizens Advice, moneysupermarket.com and some of the new energy companies, and I am persuaded that those organisations have the interests of the customers we are trying to help at heart.

I am also concerned that if we had relative caps, there could be a lot of gaming going on and a lot less transparency. We have talked about what would happen if suppliers lifted their prices. We know that the trouble we have is with a group of customers we refer to as disengaged. They are not digitally enabled; they tend to be older, on lower incomes and more vulnerable; and they are not as susceptible or sensitive to the price elasticity that would perhaps persuade others to switch. The aim of this price cap Bill is to protect those customers, so I do not believe that it is necessary to accept those amendments.

[John Penrose]

I just want to point out that the criticism that the relative cap can result in an increase in switching rates and tariffs has equally been applied to the absolute cap. There has been criticism of both kinds of cap, not just of the relative cap.

[Claire Perry]

There has been a lot of criticism of both kinds of cap, but if we look at the one sort of cap that we have—the prepayment meter cap that is extended to vulnerable customers—we see that those customers have saved between £60 and £120 on the basis of that cap. It has actually worked to reduce their prices. I am pleased that my hon. Friend is not intending to press his amendment to a vote.

Amendment 6 seeks to ensure that we have a stated amount of the savings that might accrue. I think that is perhaps slightly mischievous, and it does not really reflect the consensual spirit that we have had throughout the passage of the Bill. I can imagine that the people coming up with these numbers were looking at the savings that we have discussed in relation to the prepayment cap, or indeed the £300 average difference between the most expensive and the cheapest tariffs in the market. However, as my right hon. Friend the Member for Wokingham (John Redwood) said, we need to calculate volume as well as price to estimate the service, and we do not yet know what cap Ofgem will set. We also do not want to constrain Ofgem’s ability to set the cap or to create targets for the big six to work towards as the maximum saving. I hope that, on the basis of that explanation, the hon. Member for Southampton, Test will be content not to press his amendment.

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[Frank Field]

Might the Minister meet people to discuss amendment 1 further?

[Claire Perry]

There has been a huge amount of scrutiny, and I am hoping that we can get the legislation through to the other place, but my door is open. We want a well-functioning energy market that works for everybody and provides competitively priced energy.

I was asked an important question about the statutory instrument, which is also going through the House, that enables data sharing between the DWP and others. It has completed its pre-legislative scrutiny and will be introduced during the passage of this Bill. It is a vital and necessary part of ensuring that the powers in the Bill work.

[Dr Whitehead]

Will the Minister be clear with us tonight that the safeguard tariff and the absolute cap do not contradict each other and that they can be introduced together, so that the protections can continue? Is she convinced that that is the way forward?

[Claire Perry]

There is nothing in the Bill that interferes with Ofgem’s ability to extend the safeguard tariff, which is part of an existing separate set of powers. By having this discussion, we are sending a clear message that we expect Ofgem to retain adequate protections for the most vulnerable consumers once the Bill is passed. I thank colleagues for putting that matter forward for debate today, because it is an absolutely vital point that we must get across. However, on the basis of my responses, I hope that the hon. Member for Leeds West will not feel the need to press amendment 9.

Amendment 8 essentially sets out the conditions that would determine success when we consider whether the price cap should be removed. As we discussed in Committee, it is not the job of Ministers to prejudge the regulator’s work on what a good market will look like in two years’ time. This country has seen some of the most rapid evolution in energy innovation, and in the future there may well be factors that are no longer considered relevant in establishing competition or factors that do not best address consumers’ needs. I do not want to put anything into the Bill that would give energy companies something to target. The Bill is supposed to be about giving the regulator broad powers to ensure that companies deliver a better price for consumers, not try to engineer a particular outcome. I hope that the hon. Member for Southampton, Test considers that a sufficient explanation and will not press amendment 8.

It has been great to have so much cross-party conversation and discussion on this important piece of legislation. I forgot to mention the vital point made by the right hon. Member for Don Valley (Caroline Flint) about green tariffs, but the process of setting such tariffs will be scrutinised as never before and we will have better, more transparent tariffs as a result. I hope that all Members are satisfied with the explanations I have provided and that we will not need to trouble the Lobby Clerks this evening.

[Dr Whitehead]

On the basis of the explanations that have been put forward, we will be happy not to press our amendments, but we will wish to press new clause 1, which has not been properly understood or responded to this evening.

Question put, That the clause be read a Second time.

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20:20

Division 142

Ayes: 125

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Labour: 123
Independent: 1
Green Party: 1

Noes: 288

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Conservative: 278
Democratic Unionist Party: 9
Independent: 1

Third Reading

--- Later in debate ---

[The Secretary of State for Business, Energy and Industrial Strategy (Greg Clark)]

I beg to move, That the Bill be now read the Third time.

Creating a more affordable and competitive energy market that works for British families was a central pillar of the Government’s manifesto last year. Every household in the country depends on gas or electricity, or both—they are essential services on which we all rely. On average, each household spends about £1,250 a year on energy at home. It is one of our biggest household bills, and for the poorest 10% of households, energy is about 10% of their annual household expenditure. Yet in the past few years, prices for customers on standard variable and default tariffs have not declined; they have continued to increase. The further price hikes we have witnessed in recent weeks from a number of the big six suppliers are consistent with the analysis of the Competition and Markets Authority that that part of the market is not operating competitively.

The Government’s ambition is to make sure that Britain has an innovative, competitive, productive and prosperous economy. To underpin that, we need an energy market that works to the benefit of consumers, workers, investors and, of course, the environment. This Government recognised, as did the CMA, that for 11 million customers on standard variable tariffs, the market is not working. In many cases, prices are above what they would be in a competitive market.

The Bill therefore focuses narrowly on a problem that has been exposed as highly significant: overpricing for consumers who have remained loyal to their energy providers. This segment of the market has displayed weak competition. Such behaviour on the part of the energy companies must come to an end, and the Bill, along with other measures, will help to end the abuse. The Bill requires Ofgem to introduce a temporary absolute tariff cap on SVTs—default rates—that will protect consumers. That will go alongside complementary measures enacted by this Government, including the roll-out of smart meters, together with other reforms that Ofgem is making to the market. This has been welcomed by new entrants in the market, which are providing more choice for consumers that ever before. A number of them provided evidence during the Bill’s scrutiny.

I would like to take a moment to express my gratitude to hon. Members for the way in which they have engaged with the Bill throughout its passage. I thank Members on both sides of the House who have contributed to its development, especially those who served on the Select Committee, which gave the Bill valuable pre-legislative scrutiny, and those who served on the Public Bill Committee. The discussions were excellent and forensic, and the Bill has been strengthened during its passage through the House. I pay particular tribute to and thank my right hon. Friend the Minister for Energy and Clean Growth. I also thank the Clerks, the House authorities, the experts who gave oral evidence to the Committee, the organisations that took time to provide expert written evidence and my superb officials, who will continue their tireless efforts as the Bill proceeds.

I thank the Opposition Front-Bench team. In characteristic style, the hon. Member for Southampton, Test (Dr Whitehead) brought to bear his long-standing interest in and deep knowledge of these matters. Members have offered challenges and insight throughout the Bill’s passage, and their contributions will benefit the legislation. The debates have thrown light on important issues, such as the need for Ofgem to ensure that there is transparency when setting and reviewing the cap and to consider all customers, especially the vulnerable and the disabled, when doing so.

Our debates have resulted in a productive discussion on the important issue of the need for the exemption of green tariffs, about which my right hon. Friend the Minister for Energy and Clean Growth has written to members of the Bill Committee. My right hon. Friend is a passionate champion of green issues in the House, and that, combined with her advocacy for the consumer, has made this an ideal first Bill for her to take forward in her current role. We are grateful to her for that.

The debates have sent a clear and consistent message from the House that its expectation is that Ofgem should implement a robust price cap to be in place for the winter. The Bill will require Ofgem to protect consumers on standard variable tariffs. It will ensure that loyalty is no longer penalised while also ensuring that efficient suppliers can continue to do business.

As the House knows, the Government are committed to reforming the energy market. The Smart Meters Bill, which is progressing through the House of Lords as we speak, represents another important stepping stone towards a more competitive market. The Domestic Gas and Electricity (Tariff Cap) Bill will ensure that British families are protected as we correct an intolerable situation in which, according to the independent competition authorities, consumers have been exposed to paying £1.4 billion a year more than they would in a competitive market. That abuse should end. The Bill will not only give Ofgem the powers to achieve that, but introduce the requirement that it should do so, and I commend it to the House.