Domestic Gas and Electricity (Tariff Cap) Bill

Rachel Reeves Excerpts

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

[Greg Clark]

There already is a cap for those on prepayment meters, and that is being extended to some of those who are identified as the most vulnerable. The reason for this more general scope is that not everyone can be identified through the receipt of particular benefits—that does not comprise the whole population of those who are vulnerable—so the Bill proposes a backstop.

[Rachel Reeves (Leeds West) (Lab)]

I thank the Secretary of State for giving way and I welcome the Bill, which will do a great deal to reduce the energy prices paid by consumers. On the point about helping the most vulnerable customers, one issue that we have is that data about who those customers are is not shared with energy companies. The Cabinet Office already has a consultation on showing this data as part of the Digital Economy Act 2017, and the Department for Business, Energy and Industrial Strategy has announced another consultation. When will the Department get on and give the powers to enable the data to be shared, so that we can protect the most vulnerable customers?

[Greg Clark]

The hon. Lady makes a very important point. The statutory instrument that will allow that data sharing will be tabled shortly, before this Bill, which we hope will make rapid progress, receives Royal Assent. She is absolutely right.

I was explaining that the original RPI minus X model, which required annual reductions in prices by incumbents, was followed around the world, but with new developments in technology and practice, it is vital to keep our regulatory system up-to-date. In recent years, it has become more and more possible for suppliers to have extensive information on the habits and behaviour of individual consumers—often more information than the consumers know about their own habits, which are studied so minutely. Incumbent suppliers can identify which of their consumers do not respond to higher prices and instead display loyalty to what they might think of as a long-standing and trusted supplier. They can then penalise those customers with ever higher prices.

The CMA identified the problem and recommended that certain consumers, those on prepayment meters, should be protected from such pricing behaviour. It also recommended measures to drive up the rates of switching. The roll-out of smart meters in particular can make information that is currently only available to the incumbent supplier available to other potential suppliers, with the customer’s permission, which is what everyone wants to be able to drive up competition.

In its report, the CMA was in two minds about whether that action was sufficient, and a minority report thought that such remedies, including smart meters, would not come soon enough to eradicate this detriment quickly enough. The minority report said:

“The harm which is presently inflicted on households…is very severe…the remedies proposed for the large majority of households will take some time to come into effect. That is why…they must be supplemented by a wider price control designed to give household customers adequate and timely protection from very high current levels of overcharging”.

--- Later in debate ---

[Rachel Reeves (Leeds West) (Lab)]

It is an honour to follow the right hon. Member for Harlow (Robert Halfon).

I welcome the Bill and look forward to its clauses becoming law in due course, with the impact that will have on energy bills. Of course, Labour first proposed action to tackle excessive energy prices in 2013. I look forward to hearing shortly, I hope, from my right hon. Friend the Member for Don Valley (Caroline Flint), who was the architect of that policy. As my right hon. Friend the Member for Doncaster North (Edward Miliband) put it at the time,

“When wholesale prices go up, people pay more. When they come down, they still pay more.”

Between 2010 and 2015, energy bills went up by £300 on average, so in the 2015 Labour party manifesto, we committed to cap energy bills until 2017, ensuring that bills could fall but not rise. That same winter, we committed to giving the regulator the power to cut bills and then to reform the energy market to deliver fairer prices and a better deal for consumers. Like all good ideas that Oppositions have, it has now somewhat belatedly become Government policy. I congratulate the Secretary of State and the Minister on that.

The fact that the energy market is broken is undeniable. It is a feeling shared by Members across the House and, indeed, by all our constituents. The Business, Energy and Industrial Strategy Committee’s report showed that it is a two-tier market in which customer loyalty is not rewarded but punished with excessive prices. It is totally unacceptable that nearly 60% of customers pay up to £350 more a year for their energy, on average, especially when those customers are the most vulnerable: 83% of those living in socially rented housing, 75% of those on low incomes and 74% of disabled customers are on standard variable tariffs, which we know rip consumers off. It is unacceptable that the exploitative behaviour of some energy providers exacerbates the financial woes of customers who were already facing difficult financial decisions. I do not want to live in a country where so many people are priced out of heating their homes in the winter, or having to choose between sitting in a freezing cold flat and putting food on their table. This Bill is a step in the right direction in addressing some of those concerns.

The big six energy companies insisted in evidence to our Select Committee that the market was already competitive and delivering fair outcomes and that this action was excessive and unnecessary, but our report showed why that is not the case. The CEO of E.ON told us in evidence that it is fair that customers who do not engage in the market pay more for their energy. We found that this kind of discriminative pricing is unfair on customers who cannot engage with competition, as opposed to those who can take advantage of it. Centrica admitted in its evidence to making the majority of its profits on expensive standard variable tariffs. It is not alone in that position, as a large majority of all big six customers are on standard variable tariffs, including 68% of Centrica’s customers.

The big six have lobbied intensely to get appeal rights to the Competition and Markets Authority because they want to try to stop this cap happening by dragging the process through the courts. I am pleased that this Bill rules out that action by those companies. Some argue that switching is increasing and so a cap is not necessary. Although the number of customers switching suppliers has improved recently, it is not improving nearly fast enough, with only a third of customers having switched in the past three years. It is time to try a different approach —one that puts the onus on suppliers to do the right thing. The big six energy companies have brought this cap on themselves by their discriminative pricing practices.

The BEIS Committee held four evidence sessions and analysed 44 pieces of written evidence as part of our pre-legislative scrutiny of the draft Bill. We welcome the Government’s Bill and the intention to put an end to the overcharging of 12 million households on poor-value standard variable and default tariffs.

One of our key recommendations to the Government was that they seek Royal Assent for the Bill before the summer recess, allowing Ofgem time to consult and then set the cap, so that customers do not spend another Christmas facing excessive prices. I welcome the letter from Ofgem today saying that it will be able to meet that timetable, so that we do not go through another winter of excessively high bills. My only disappointment is that this legislation did not come sooner. Last week, temperatures dropped significantly across the whole country. If there had been a price cap in place, families would not have had to worry about rising bills during this unprecedented drop in temperatures.

Following our Select Committee’s work, the Government have accepted all the recommendations that we made, including excluding the possibility of a relative price cap—something that the hon. Member for Weston-super-Mare (John Penrose) advocated, but which I believe would push up prices for customers who switch, rather than reducing the standard variable tariffs. It seems obvious that that is what would happen. For the big six energy companies, 70% or 80% of their customers are on standard variable tariffs and that is where they earn their profits, so they will not unilaterally drop those prices. Instead, they will increase prices for new customers, to cling on to their profits. That is why excluding the possibility of a relative price cap is the right thing to do.

[John Penrose]

I thank the hon. Lady for giving way; I will try to keep this brief. Does she accept that that criticism about a potential rise in competitive switching deal prices is being levelled by others at the absolute cap? When such a course as she described was experimented with last summer by Centrica, it lost market share hand over fist and was really hurt commercially, so it is unlikely to try that again.

[Rachel Reeves]

When we took evidence from the big six companies and probed them on where their profits came from, they were very clear that their profits came from the standard variable tariffs. Centrica has a £287 difference between its standard variable tariff and its best tariff, while Scottish Power has a £333 difference between those tariffs. They are earning their profits on the higher tariffs, and I just do not think that they will unilaterally reduce those tariffs, because that will be a hit to their profits, not a slight reduction in the number of new customers they get. The Government are right to exclude that cap, and that is why our Select Committee recommended that.

The Government have also accepted our recommendation to continue encouraging consumer switching. I believe that competition and regulation can co-exist effectively.

[Mark Pawsey]

Will the hon. Lady give way?

[Rachel Reeves]

I give way to the fellow member of my Committee.

[Mark Pawsey]

We heard a lot of evidence from the challenger companies. There are 60 suppliers in the energy market now, and while switching rates are not increasing fast enough, they are increasing. Does the hon. Lady share my concern that with a cap, there will be precious little incentive for people to look at alternative suppliers and change and that the rate of switching we have managed to get in recent years will start to fall back?

[Rachel Reeves]

I hope that does not happen. Ofgem and the Competition and Markets Authority are putting the cap in place to make it easier for customers to switch. Northern Ireland, where there is a price cap, has as much switching as we do. The international examples suggest that we can have switching in a market that also has a price cap.

[Peter Kyle]

Will my hon. Friend give way?

[Rachel Reeves]

Sorry, I am not going to give way again, otherwise I am going to get into trouble with Madam Deputy Speaker, and I am more scared of her than I am of my hon. Friend.

[Peter Kyle]

For the time being.

[Rachel Reeves]

Indeed.

There are two areas where the Government need to take action to ensure that, once the price cap is over in 2021 or 2023, we do not go back to business as usual. First, they need to give greater clarity about what will happen to things such as the energy company obligation and the warm home discount once the price cap goes away.

Secondly, I welcome the Secretary of State’s commitment today that the statutory instrument on data sharing to allow energy companies to know who their vulnerable customers are will be tabled before the Bill receives Royal Assent. We need to see that SI and those changes, because the energy companies do not know all the customers who are vulnerable and experiencing financial difficulties. Our Committee is convinced that those two issues will be key in ensuring that, both during and after implementation of the price cap, those who need it most get the protection they need.

The time for action is over-ripe. These rip-off practices cannot be allowed to continue. There is cross-party support for this legislation, and both the Labour and Conservative manifestos at the last election included a commitment to cap energy prices. Now the Government must make that cap a reality before next winter. I strongly urge colleagues across the House to support the Bill, to deliver some fairness to all our constituents.

Domestic Gas and Electricity (Tariff Cap) Bill

Rachel Reeves Excerpts

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

[Antoinette Sandbach]

I rise to speak in support of amendment 9, which is in the name of the Chair and some of the members of the Business, Energy and Industrial Strategy Committee; I know that the Chair of the Committee is also going to speak to the amendment. Its purpose is to ensure that there is adequate protection for vulnerable people while the cap is in force and beyond and to probe the Government and the Minister on the matter.

During the prelegislative scrutiny of this Bill in January, the Committee heard evidence from the chief executive of Ofgem. When I asked him about the need to protect vulnerable customers, he conceded that

“there is likely to always be a need to protect customers who would not be fully able to engage even in a…more competitive market.”

What is more, Mr Nolan admitted that Ofgem had

“not done as well as we could have”

when it came to its statutory duty to protect vulnerable customers. In fact, he apologised to the Committee for Ofgem’s failure to act appropriately to protect vulnerable customers.

The sheer number of people on standard variable tariffs was quite shocking to the Committee, and many of those people will be vulnerable customers. I note that the Minister agreed, saying that

“the regulator also needs to change. It also needs to use the powers it has more effectively.”

That evidence session did not fill me with confidence about Ofgem’s effectiveness at protecting vulnerable customers. I believe that the amendment will act as the necessary encouragement to the regulator to do just that. The amendment will also ensure that in the longer term, those who are least able to afford high bills get greater protection. That is because the amendment continues the requirement for due regard beyond the length of a cap.

I want to push the Minister on working with DWP colleagues and others to mitigate the impact of the general data protection regulation. Although the amendment targets the regulator, the Government are well equipped to handle this area. They need to ensure that the required data exchange can take place, so that vulnerable customers can be identified and offered the support that the Government want to make available to them. I am sure that the Government agree with the principle behind the amendment, and I hope that the Minister will address my concerns in full.

[Rachel Reeves (Leeds West) (Lab)]

It is a privilege to follow the hon. Member for Eddisbury (Antoinette Sandbach) in this debate. I want to speak to amendment 9, which is in my name and those of hon. Members from across the House who are members of the Business, Energy and Industrial Strategy Committee. As the Minister knows, the Committee did a large amount of work on the prelegislative scrutiny of the Bill, and we are all pleased that it has reached Report and Third Reading in time to ensure that the energy price cap is in place for next winter.

During prelegislative scrutiny, the Select Committee proposed several changes, all of which were either accepted by means of amendments to the Bill or accepted in principle. We welcome the collaborative approach of the Minister and her team. Amendment 9 addresses an outstanding concern relating to vulnerable customers that I know the Minister shares. As she knows, 83% of people in social housing, 75% of people on low incomes and 74% of disabled customers are on standard variable tariffs. The aim of the Bill is to ensure not only that everybody has a price cap, but that it will help the most vulnerable, who are predominantly on the standard variable tariffs.

One million vulnerable customers are already on Ofgem’s safeguarding tariff. The Select Committee’s first recommendation, as part of its prelegislative scrutiny, was for the Government to provide details on plans to protect vulnerable customers from overcharging when Ofgem’s safeguarding tariff and the Government’s price cap are lifted. My concern, and the concern of other members of the Committee, is what happens when the whole-of-market price cap comes in for standard variable tariffs. Will Ofgem continue with the safeguarding tariff at the same time?

In response to that recommendation, the Government gave a long list of laudable policies that are today in place for vulnerable customers. We of course welcome that list of policies, but concerns linger. Ofgem has been clear, including in a decision letter on 7 December last year, that it plans to do away with the safeguarding tariff when the whole-of-market price cap on standard variable and default tariffs comes in. Ofgem has said that the warm home discount safeguarding tariff will end in December 2019 if it has not already been replaced by other price protection—that is, the price cap we are debating and voting on this evening.

Some might say that that is fine, because the new price cap will replace the safeguarding tariff for customers on the warm home discount. That will only be the case, however, if the new price cap is at the same level or lower than the safeguarding tariff already in existence today. If it is not, then energy bills will rise for the 1 million most vulnerable customers when the price cap comes in. That would mean that the very legislation to protect consumers may hurt those who most need protection, and I know that the Minister, along with Members across the House, does not want that to happen.

[Alex Sobel (Leeds North West) (Lab/Co-op)]

My hon. Friend knows very well that in Leeds we have set up White Rose Energy, a municipal energy company. Its main mission is to protect those vulnerable consumers. When consumers move away from the cheapest tariff, it informs them repeatedly to ensure that vulnerable consumers are protected. Is that not a model of good practice for all energy companies?

[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.