Albert Owen
Main Page: Albert Owen (Labour - Ynys Môn)
Albert Owen (Ynys Môn) (Lab)
Is the Secretary of State comparing and contrasting the years 2009 and 2010 to 2013, and seriously telling the House of Commons that many of the billion-pound contracts for offshore wind started and finished in the period to which he refers, or will he be honest with us and say that we need continuity of policy by consent, so that we can get the policy structure we all need? Will he stop playing silly games about years and trying to blame the previous Government?
Mr Davey
I am prepared to give credit to all parties, which is something the Opposition rarely do. I am pleased that they voted for our Energy Act 2013 and now support the market investigation reference, but it was the Conservatives and Liberal Democrats, in opposition, who had to push time and again to get the Labour Government to act on things such as feed-in tariffs, so we will not take any lectures on that.
We are acting to bring far greater openness to the retail markets so that the energy suppliers can be held to account for their prices, and we are acting to increase liquidity in the wholesale markets, further boosting competition. All these actions maintain the pressure that bears down on prices. As the competition authorities take forward their work in the proper manner, we will continue to act to ensure that we have a real evidence base on how to continue to mend the markets that Labour ran into the ground. That work will take around 18 months to complete, but as I said at the start, because of Government action, the energy companies are now saying that there should be no further rises in bills over the next year unless circumstances change drastically. Some have gone further, and I welcome that.
Mr Yeo
My hon. Friend is right in what he says. I was going to deal with that point in response to the hon. Member for East Lothian (Fiona O'Donnell), but I will bring it forward. One of the other damaging effects of a proposed price freeze is shown exactly by SSE’s actions in its voluntary price freeze—it introduced that having raised its prices to a level it thought would be acceptable for the next two years. It actually brought forward a price increase, at the expense of consumers, in order to be able to announce this headline-grabbing freeze, and at the same time, as my hon. Friend mentioned, it announced that it was pulling out of three very substantial low-carbon investments. The freeze that SSE announced had two directly damaging effects.
Albert Owen
The hon. Gentleman is making an interesting observation. He is saying that a Government price freeze may deter investment in the future, but he slightly contradicts himself by saying that it is already being deterred—I agree with him on that. Tellingly, the chief executive officer of Centrica said he believed that a long review of energy markets would also cause disinvestment by companies. Is the hon. Gentleman concerned about that? Does he think the reference and the whole process could be speeded up so that investment is not put on hold?
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.”
Damian Hinds (East Hampshire) (Con)
This is an extremely serious issue that goes to the heart of the competitiveness of British businesses, large and small, and the costs borne by hard-pressed households, especially the most vulnerable in our society. It therefore deserves proper, sober treatment, not naked populism. The Opposition try to frame the debate as one in which the big six’s defenders and apologists are against the public interest. In fact, we must all be on the side of the consumer against whatever stands in the way. The motion pits supporters of a rational, transparent competition policy framework against those who advocate arbitrary intervention that is politically motivated.
In this country we do not, or should not, mix competition policy and politics. That is a dangerous road that leads inexorably to political preferment for other sectors, with all the inequity and inefficiency that would bring, and indeed the explosion of lobbying we would all look forward to. Our competition policy system mixes rules-based and discretionary approaches, but with a bias correctly towards the rules-based approach. We set up a system and then set experts on the problem to work out what needs to be done. To say that a referral proves that the system is broken, as the right hon. Member for Don Valley (Caroline Flint) has done, is to fly directly in the face of the principles that underpin the system and give investors confidence. For politicians to decide to impose a price freeze without a transparent investigation would undermine much of the British economy, and the effects would be felt far beyond the energy sector.
There are big concerns about competition in the sector, and they are legitimate. We know from the annual assessment of competition, which shows the situation in sharp relief, that there is a largely settled geographical pattern, low shares of new entrants, relatively low consumer engagement, in part because of the complexity of the market, and increased profits that appear not to be directly reflected in increases in efficiency. There is the question of entry barriers and the extent to which vertical integration makes that situation worse. It has been suggested that there might be some tacit co-ordination in the market. In this country, running a cartel is somewhere between extremely difficult and impossible. However, as Galbraith once said, there are a number of habitable halfway houses in which oligopoly situations can pertain, and it is very important to guard against those.
The market appears to be somewhat mired, and it certainly lacks public confidence, so it is right that the CMA should investigate, but it would be wrong to accompany that investigation with a Government-imposed price freeze. Why? First, there is of course the theoretical possibility that costs will come down. It is wishful thinking for the Opposition to say that a freeze will stop prices going up but whenever costs come down there will be more players in the market. Of course there will not be. What incentive would they have? Secondly, in the event of cost pressures, a freeze would hurt small firms most, partly because they have the smallest reserves for absorbing cost increases, less ability to forward-buy and higher percentage marketing costs as they try to attract more customers.
Thirdly, firms inevitably find ways around price freezes. We do not know what they will be, but companies are smart and usually find a way to do it. They can nip in with a price increase before a freeze is imposed, they can cut investment, as has been mentioned a number of times, and—this has not yet been discussed—they can discriminate against less profitable customers. If a ceiling is put on the price, there will still be plenty of customers who are profitable at that price, but there will be others who are not, and companies might decide to reject those customers.
Albert Owen
I am sure that the hon. Gentleman is very genuine, but his Government introduced legislation—the Energy Act 2013—to hold back prices and interfere in the price mechanism. If what he describes would happen under a freeze, why would it not happen under the legislation that was introduced to hold prices down?
Damian Hinds
The key thing that underpins British competition policy, and indeed the approach in this market, is encouraging competition without setting prices. It is a system that tends to work, and when it does not we have competition policy authorities to investigate and determine how the system needs to be put right. That is the correct way to do it.
Of course, there is another side to the story. The margin enjoyed by the big six on domestic energy in 2012 was 4.3%. The big question is whether supernormal profit is being generated elsewhere in those companies, particularly on the generation side. My hon. Friend the Member for Warrington South (David Mowat) mentioned the international comparisons, which I think are worth bearing in mind. It is also worth remembering that high prices have not just happened in this country. Prices did not just start rising after May 2010. According to the Office for National Statistics, in 2002, 2003 and 2004 the average household energy bill was £70 a month, but by 2009 it had risen to £108 a month, a rise of more than 50%. They then went down slightly after 2009-10. The biggest factor in those price increases, including when the Labour party was in government, was wholesale energy prices, including the world oil price and declining domestic gas supplies.
Does that mean all is well and we should not worry? Of course it does not. We want markets to operate well and competitively, and there are signs that this market might not be doing so. It is perfectly possible to have markets with high levels of concentration that still operate competitively, so long as they are contestable. Confectionery, detergents and grocery retail are all markets with very high C5 ratios, but the market can still work if it is contestable, if products are clearly comparable and if switching between them is easy. It is when those last two points do not pertain, as with banks and the energy sector, that worries arise.
It is right to try to bring in more competitors, and I think that what the Government have done in that regard has been encouraging. I encourage them to do more. We also need more trusted brand names to enter the market, rather than just companies that nobody has heard of. We need to learn from companies such as Sainsbury’s and Marks & Spencer what they believe has held them back. We can go further on tariff simplification, as we are only part of the way through that process. The complexity had become comic. It will now be under much greater control, but we could go further. We need to ensure that annual energy statements are clear, consistent and prominent and that they are machine readable so that comparison sites can read them.
Overall, we know that there are problems with the market. Given the low levels of public confidence, it is right that the CMA will have a full-blown investigation. That is the way we do things in this country to get to the bottom of it. It would be quite wrong to second-guess the outcome of that with a populist price freeze.
Albert Owen (Ynys Môn) (Lab)
It is always a pleasure to follow the hon. Member for Poole (Mr Syms), who spoke a lot of sense. He was absolutely right to say—I will not go over everything he said—that when the energy markets were privatised, the splitting up of energy policy was not done in a healthy way. It was done rashly, and many issues such as nuclear waste liability could not be sold off, so the state ended up holding on to them.
The motion is about not just an energy freeze, but a reset of a market that has failed. Each and every contributor has said that there have been failures in the market, so it is right that the Government should look at the issue and take strong action. They are already intervening: the Energy Act 2013 was the Prime Minister’s way of saying that he wanted to fix prices. That is exactly what Members voted for, so intervention is happening, but it is not helping consumers in the way it should.
I am certain that every Member wants more transparent and fair energy prices, efficient regulations and the right conditions for investment. The energy market is not working well and we need to improve it. I am the first to admit that, in 13 years, the previous Government should have done more about it.
I listened with interest to the hon. Member for East Hampshire (Damian Hinds), who provided a good theory of how markets should work, but the practice is very different. He talked about energy prices in 2003-04, but they must be placed alongside today’s context, in which people’s wages are frozen and many household incomes are going down, not up, because of food and energy prices.
There are price hikes. The hon. Member for City of Chester (Stephen Mosley), who is no longer in his place, made an intervention earlier on behalf of the Whips and said that his constituents were paying £50 less on his energy bills. If that is the case, Chester is the only place in the United Kingdom with such a reduction. My constituents, who have shown me how their energy bills this year compare with last year, are paying between £70 and £90 more. That is the reality and that is why in the House of Commons we should be standing up for consumers.
I have issues with the argument that Government intervention would affect potential, much-needed investment. Contrary to what the Secretary of State said, there has not been much new investment; nor have there been many final investment decisions, in the past few years. Many previous decisions have continued after receiving consent and they are coming on stream now, or will be in the near future. Investment has been put off by uncertainty, but that uncertainty has not been caused by the Leader of the Opposition pledging an energy freeze. It happened long before that. Those companies complaining that an energy freeze will hit them have been pulling investment and decisions out of the United Kingdom. Centrica is a particularly bad example.
The Chairman of the Energy and Climate Change Committee, the hon. Member for South Suffolk (Mr Yeo) was right to say that we need to be honest, and we need to be honest that this did not start with a pledge for an energy freeze. Rising prices have become such an issue for our constituents. They are hurting so many households that we need to do something. That is why the Leader of the Opposition made his pledge and that is why the Opposition are suggesting policies. We are talking not just about a freeze, but about fixing the regulator, which has some powers it does not use and needs more powers to intervene.
The Government say that they are instructing Ofgem to do things, but that is just a reaction to what is happening. When the Select Committee conducted inquiries, the Government said that everything was hunky-dory and that switching would resolve the problems. That is wrong, which is why a responsible Government are needed to stand up for consumers and create credibility and certainty for energy companies to invest. The market is not perfect and it needs to change. We need stronger regulations.
Finally, transmission and distribution make up a quarter of our bills. There is no competition in those areas. We need some competition or, indeed, a not-for-profit organisation to enable bills to come down so that our consumers can have a fair deal in the future. If this Government will not do it, we can at least send a message today by voting for this motion, and a future Labour Government will do it.