Alan Whitehead
Main Page: Alan Whitehead (Labour - Southampton, Test)
Mr Davey
There is a limit, of course. The right hon. Gentleman ought to follow this debate more closely. Indeed, we have reduced subsidies and our policy is to reduce them still further.
The truth is that, rather than helping consumers, Labour’s price freeze is a pro-big six policy. For all the bluster about taking on the big six, the right hon. Member for Don Valley is just playing into their hands. If Labour makes the smaller competitors go bankrupt, the people who will enjoy that are the big six, and the right hon. Lady knows that.
Dr Alan Whitehead (Southampton, Test) (Lab)
As part of the right hon. Gentlemen’s thought experiment, has he considered how far down the curve the very large energy companies purchase the bulk of their forward energy supplies and the relationship between that forward purchase and small energy companies purchasing on the back of larger purchases than necessary for the obligations of the large energy companies? How does that fit in with this thought experiment about small energy companies going bust if large energy companies are buying so far ahead of the curve?
Mr Davey
It fits in exactly, and I am delighted that the hon. Gentleman has raised that point. The larger companies can buy 18 months ahead, so if there is a rise in wholesale gas prices, they are hedged—they are protected. The smaller companies find it much harder to buy ahead, so if the wholesale prices go up, they get crushed. That is the truth about Labour’s policy. It may seem popular in Labour’s focus groups, but I am afraid it has not been thought through. As The Guardian said, it is “good politics”, but it is “bad policy”.
Mr Yeo
The hon. Gentleman, another valued member of my Select Committee, raises a point that I was just going to come to. The consequences of the delay that will be imposed are themselves damaging in some respects.
The second aim of energy policy, which is affordability, is also harmed. As I have pointed out, if companies believe that prices will be frozen in May 2015, they will inevitably seek opportunities to raise their prices in the intervening period. Announcing a price freeze 20 months in advance has the perverse consequence of raising prices for consumers during that 20-month stretch faster than they would otherwise have risen.
The Leader of the Opposition, who certainly grabbed the headlines in his party conference speech last September, did not, I am afraid, do a great deal more than that. It is not a serious policy to announce a price freeze 20 months in advance. If this were an Opposition who were genuinely concerned about keeping consumer prices down, they would not announce the freeze until the day after they took office. There is an honourable and admirable precedent for that sort of approach, which was taken by the last Labour Prime Minister. When he was Chancellor of the Exchequer in 1997, he took the world by surprise a weekend after the election by announcing the formation of the Monetary Policy Committee at the Bank of England and transferring the power to control interest rates away from Ministers and the Treasury to an independent committee. An Opposition who were really concerned about consumer prices would have said, “We have this brilliant idea, but it can only work if we don’t say anything about it until we are in a position to implement it.”
Dr Whitehead
Is the hon. Gentleman saying that there should be a price freeze, but that we should not tell anyone about it until we introduce it? Or is he saying that we should let some people know, but not others, so that it will work, or that there should not be a price freeze?
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.
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to follow the hon. Member for South Suffolk (Mr Yeo), the Chair of the Energy and Climate Change Committee. He made a number of points in his contribution, not all of which support what the Secretary of State was saying this afternoon.
This debate is about ensuring that competition works better across the board—for those who generate and supply power, for those who retail power and for what happens in between. I found curious it that the Secretary of State had the air of a querulous member of the Opposition trying to pick holes in Government policy, using some fairly obscure devices yet apparently forgetting he is the Government.
The Government are presiding over a situation, of which we are all aware, in which competition does not work well at all. We all understand that that is related to the vertical integration of companies that have dealings across the board—in both generation and retail—and the extent to which opportunities to put that right over time have conspicuously been missed. The debate this afternoon over what we do about an energy price freeze and how that brings in other arrangements, which secure much better competition and a much better functioning market, does not solve the problem of world energy prices but goes an enormously long way to ensuring that those arrangements can deliver the best possible outcome, particularly for customers, in the context of varying world prices. The question of whether a price freeze creates a problem for investment seems to be rather misplaced, inasmuch as one argument for a better framework for investment in the future is that if the market works better in the first place people will invest in supply and the workings of the market.
It is not just Centrica that has stopped investing in gas power plants. No one is investing in gas power plants in the UK at the moment; 14 planning permissions are available but only one has been taken up, by an Irish energy company that has a long-term view of how the market will work rather than a short-term view of how it is working. Other plants are being mothballed as we speak. It is not that the market is working well at the moment in attracting investment and future arrangements might harm it; the question is how to maintain the long-term arrangement to secure proper investment.
In some of his rather more obscure defences of the fact that the Government have done only minor things to secure better competition in the market, the Secretary of State mentioned the Ofgem report on wholesale power market liquidity produced a little while ago. The report does not support the Secretary of State’s claims. All it says on the market making obligation is that if the market has
“robust price information…available…along the curve, the market will be functioning sufficiently well to support competition.”
It does not say that along the curve most of the trading is between energy companies, not on the market, and that reforming the day-ahead market does not make any difference. Claims that a pool is only about the day-ahead market are also rather misplaced, in that a functioning pool also deals with issues along the curve. The problem of independent companies having access to the markets is therefore substantially ameliorated by the existence of the pool, because it gives them access to the market that they do not have at the moment.
The Secretary of State says that the Government made some competition changes in the Energy Act 2013: they made only one, which he mentioned and which was a result of an amendment that I tabled, by creating an offtaker of last resort. That was it—that was the one thing in the Energy Act that concerned competition—and now, as a result of going for an auction contract for difference market for established players rather than an administrative market, they have destroyed the effect of that.
The aim is to get competition working better across the board. Things are better for investment in the long term as a result, and that is the way in which we should consider this issue for the future. I suggest therefore that the motion, which says exactly that, is one that the House should embrace, because that is what the markets need to work better for customers and investors—
