Caroline Flint
Main Page: Caroline Flint (Labour - Don Valley)(11 years, 6 months ago)
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Caroline Flint (Don Valley) (Lab)
I beg to move,
That this House notes that annual energy bills have risen by more than £200 since May 2010, with further price rises on the way; calls on the Government to help families and pensioners with their energy bills this winter by requiring energy companies to put all people aged over 75 on their cheapest tariff; and further calls for it to reform the energy market to break the dominance of the Big Six by requiring them to sell power into a pool, and allowing new businesses to enter the market, thereby increasing competition and driving down energy bills for all, and to replace Ofgem with a tough new energy regulator with the power to force energy companies to pass on price cuts when wholesale costs fall.
Since this Government came to power, energy bills have gone up by more than £200, and last week three of the big energy companies announced another round of price hikes, adding a further £100 to people’s energy bills this winter. People worried about how they will afford to keep the lights on, heat their homes or have a hot meal deserve a Government who understand their challenges and have the ideas to provide the change that Britain needs and the strength to see them through, but all we get from this Government is another shambles from an out-of-touch Prime Minister who seems to make it up as he goes along. From the disgraceful conduct of the former Chief Whip to the incompetence on the west coast main line that has cost taxpayers millions, this is a Government who promised change but instead are delivering chaos.
Lorely Burt (Solihull) (LD)
I am grateful to the right hon. Lady for giving way so early on in her remarks. Labour was in government for 13 years and, indeed, the Leader of the Opposition was Energy Secretary for almost two years. Does she agree that if her party truly thought that Ofgem was ineffective, it should perhaps have done something about it in those 13 years?
Caroline Flint
Of course, my right hon. Friend the Leader of the Opposition did make some changes to Ofgem, but we have given more consideration to this over the past two years and, as I will explain later, we now feel that we need to take a more radical look at it.
On Tuesday last week, in response to a question from my noble Friend Lord Kennedy, Baroness Verma, a Minister in the Department for Energy and Climate Change, told the other place:
“What we cannot do, of course, is tell big energy companies what prices they should set.”—[Official Report, House of Lords, 16 October 2012; Vol. 739, c. 1368.]
On Wednesday, though, the Prime Minister directly contradicted her when he said:
“we will be legislating so that energy companies have to give the lowest tariff to their customers”.—[Official Report, 17 October 2012; Vol. 551, c. 316.]
By Wednesday evening, a spokesman for the Department had told the Financial Times that energy companies would not in fact be forced automatically to put all customers on cheaper tariffs. By Thursday morning, the Minister of State, the hon. Member for South Holland and The Deepings (Mr Hayes), was reduced to taking the ridiculous line that the Government did still want to use legislation to get people lower tariffs but could not explain how they were going to do it.
All the while, the Secretary of State, the man responsible for this country’s energy policy, had gone AWOL, leaving an empty chair on “Newsnight”, refusing to answer questions from the media, and sending his deputy to answer my urgent question. The Minister put in a valiant performance of which he should be proud; those of us who were there could say that it was parliamentary comedy gold. However, what did we actually learn from last week’s urgent question? We learned, in the words of the Minister, that
“DECC has a wonderful relationship with…the Treasury and No. 10”
which
“has improved since my arrival.”—[Official Report, 18 October 2012; Vol. 551, c. 493.]
Despite that wonderful relationship, we also learned that the Department of Energy and Climate Change is not told about announcements on energy policy until after they are made. We learned that one of the options being considered is a change to the law to require the energy companies to write to people to tell them what the cheapest deal is, even though the Government already announced that back in April and the Energy Act 2011 already gives the Secretary of State the power to force energy companies to provide information about the lowest tariff.
John Robertson (Glasgow North West) (Lab)
What kind of relationship does my right hon. Friend think that DECC has with the Treasury? When the Treasury was asked to give evidence to the Energy and Climate Change Committee, it refused to do so. Not only did it not give evidence; it did not inform DECC of the information required.
Caroline Flint
It was a very bad decision by the Treasury to refuse to attend the Committee. We know how important energy policy is for DECC, but it is also a cross-cutting issue for Government. Decisions and influence from the Treasury, and also the Department for Business, Innovation and Skills, for that matter, are essential to the perception of how our energy policy is being developed. That decision was a great shame, but I am afraid that it is just another example of a lack of joined-up government, which is to the detriment of such an important policy area.
We also learned that the Government have been working on the proposals for months and that we should expect them to feature prominently in the forthcoming Energy Bill, but there is no mention of them at all in the draft Bill, the White Paper, the technical updates or the impact assessments. Perhaps the only real thing that we learned last week was that when it comes to energy bills this Government are not just out of touch, but completely clueless.
Caroline Flint
I will give way shortly; I have taken two interventions already.
Such is the complete and utter confusion in Government, the Energy Bill has now attained near mythical status. Ministers talk as though it is the answer to every problem and the solution to every ill in Britain’s dysfunctional energy market. The Minister told the House last week that
“we will use the Energy Bill to get people lower tariffs.”—[Official Report, 18 October 2012; Vol. 551, c. 489.]
Why is it that the draft Bill, which has been in preparation for two years, contains nothing to reform the way in which energy is bought and sold, or to make the energy market more competitive; nothing to open up the market or open up the books of the energy giants so that we can work out the true cost of energy; nothing on demand reduction to help families and businesses cut their energy use; nothing to protect vulnerable customers or stop everyone else being ripped off; and, whatever the Prime Minister claims, nothing to simplify tariffs or make it easier for people to switch, or anything remotely close to what he promised last week? If the Government are as concerned about energy bills as they claim to be, why does their flagship Energy Bill do absolutely nothing to help people struggling to make ends meet?
Over the past two years, we have had countless White Papers, consultations, updates and even a draft Bill, but not once have we seen anything that recognises the need for urgent reform, that challenges the prices and practices of the big companies, or that lives up to its name and genuinely reforms the energy market. The House will forgive me if I am a little sceptical of this Government’s sudden conversion to the cause of reforming this market, to make it more competitive, more transparent and fairer for consumers. I am afraid that, on the evidence so far, this is a Government who back business as usual in an energy market that is not working.
Mr Marcus Jones
I thank the right hon. Lady for giving way. A back to the future-type approach to energy pooling has already been proven to have failed. Will she explain why her party is now pursuing energy pooling so vigorously when the Blair Government with whom she served were opposed to the policy on the basis of the cost to the consumer?
Caroline Flint
We went into the last general election with a manifesto commitment to introduce a pool. That put our cards on the table. According to the Government’s own statistics, 1.7 million people were brought out of poverty during our time in government.
Mark Tami (Alyn and Deeside) (Lab)
Does my right hon. Friend agree that, while it is all very well for the Government to have a mythical lowest-tariff policy, until they have a coherent energy policy that ensures security of supply, prices will continue to go up and uncertainty will remain?
Caroline Flint
Security of supply is key, and the Energy Bill has to address that with regard to where we source our energy from and for how much. That is part of the Energy Bill, but what is so disappointing is that none of the matters that the Prime Minister gave such prominence to last week has featured in any of the discussions about the draft Bill.
People are worried about how they are going to pay their bills this winter and are sick and tired of this ridiculous soap opera in Government. This time last year the Government promised action at their infamous energy summit. What was the result? It was a campaign telling people to click, switch and insulate to save. It is fair to say that, one year on, the time has come to review that. When it comes to clicking and switching, the Government’s campaign has been an abject failure. Information that I have obtained through parliamentary questions reveals that the number of people switching energy supplier has fallen to the lowest level on record. In the quarter before the energy summit, nearly 1.2 million people switched electricity supplier and nearly 1 million more switched gas supplier, but in the quarter after the energy summit, fewer than 750,000 people switched electricity supplier and only half a million switched gas supplier.
How have the Government got on in the other area that they are keen to promote: insulating to save? Labour’s Warm Front grants helped more than 2 million households, which means that, on average, more than 200,000 people were helped each and every year. Last year, however, according to more information obtained through parliamentary questions, just 43,585 households received help from the Warm Front scheme. That is down 80% compared with our last year in government. To add insult to injury, nearly 30,000 applications for help were turned down by the Government, even though the Warm Front budget underspent by more than £50 million.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
Does my right hon. Friend not feel that this is a bit like groundhog day? When prices went up a year ago, the Secretary of State had meetings with energy companies and there was a lot of sound and fury promising action, but nothing happened, because this Government do not care about the pound in the pocket of constituents in my constituency and elsewhere, and are fiddling while the energy companies keep putting their prices up.
Caroline Flint
My hon. Friend is absolutely right. She was the shadow Secretary of State before me and I pay credit to her and to my hon. Friend the Member for Liverpool, Wavertree (Luciana Berger), who was part of her team. Ever since the general election, the shadow DECC team has been pointing out concerns about rising prices. This is not new and each year there is some stunt telling us that things will get better, but I am afraid that they are not getting better at all.
Caroline Flint
I want to make more progress.
When this House last debated energy efficiency in May, I used information that I had once again obtained through parliamentary questions to warn that the energy companies were on course to miss their targets. The Minister of State, Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker), complacently told the House that
“we fully expect them to deliver their obligations and we will make sure that they do.”—[Official Report, 16 May 2012; Vol. 545, c. 554.]
Now, with the schemes due to end in less than 10 weeks, Ofgem is warning that the companies will not meet their targets, and families across the country will miss out and be left facing a cold winter with poorly insulated homes. Why have the Government failed to get a grip on this situation? Why have they failed to tackle the energy companies’ lack of activity and joined-up activity with local people to deliver? We have 10 weeks left and it looks like we are not going to meet the targets that the Minister said we would in May.
We should not worry, however, because we are told that everything will be okay as a result of the green deal. The Government originally said that this scheme would reach 14 million households by 2020, so why is it that when the scheme was launched earlier this month there were just two registered providers? Why would anyone want to take up the green deal when they will end up paying more in interest rates and charges than for the actual energy efficiency measures? Support on energy company obligations for the fuel poor and low-income households will be cut by half next year, and the end of the Warm Front scheme means that this will be the first Administration since the 1970s not to have a Government-funded energy efficiency programme.
Guy Opperman (Hexham) (Con)
The hon. Member for Wansbeck (Ian Lavery) and I inherited in excess of 20% fuel poverty in the north-east when we were elected in Northumberland in May 2010—but I will leave aside the past. Does the right hon. Lady not accept that these plans for, to use her own words, more competitiveness, more transparency and a fairer way forward are, at the very least, a step in the right direction?
Caroline Flint
We are going to make three propositions today that we think will help boost the market and make it more competitive, and I look forward to receiving support from the Government’s Front-Bench representatives. I know that the hon. Gentleman has raised on many occasions the issues faced by his constituents who are off-grid. Part of our proposals for a new energy watchdog is to bring those who are off-grid back under the arrangements that everybody else benefits from by being under one regulator. That is one of the ways in which we would reform Ofgem.
We want to help people do the right thing. We believe that, even in opposition, we can help people make their homes more efficient and find the cheapest deal, which is why we have launched our own collective switching campaign, “Switch Together”. When it comes to it, that is the big difference between us and the Government. They think that the public are to blame, because when they tell people to shop around, what they are actually saying is, “It’s down to you. You’re on your own.” We do not think that the public are to blame for rocketing energy prices. The problem is the way in which our energy market works.
Let us look, therefore, at the dominance of the big six energy companies, which between them supply about 99% of the homes in Britain. By itself, that does not necessarily mean that competition in the market is ineffective. However, the fact that no new entrant has achieved anything like the scale of operations that would challenge the big six shows that there are barriers to newcomers trying to break in.
Secondly, let us look at the market shares of the big six energy companies in their former monopoly areas, which The Independent on Sunday exposed using information that I obtained through parliamentary questions. Privatisation was meant to lead to greater competition and a better deal for consumers, but in every part of the country, the company that used to run the regional electricity board still has a stranglehold over the market.
Thirdly, energy companies like to tell us that electricity and gas prices in the UK are among the lowest in Europe. However, when tax is taken out of the equation, which is an instrument of Government policy, not an indication of market efficiency, electricity and gas prices in the UK are among the highest in Europe, not the lowest. Tax on energy is lower than that on most goods only because Labour defeated the last Tory Government’s plans to increase the VAT on domestic fuel in 1994.
Fourthly—this is perhaps the most damning point of all—whenever the energy companies announce their latest round of price hikes, they tell us that they are only passing on their costs. However, if pricing is competitive and the market is functioning properly, falls in the wholesale cost should be passed on as quickly as increases. So why is it that when prices rise, bills go up like a rocket, but when prices come down, they fall like a feather, if at all? The only reason for that is that the market is not functioning in a proper, competitive way.
Of course the energy companies dispute that, but in 2011, Ofgem found evidence that energy suppliers were slower in passing on reductions in wholesale energy costs than in passing on increases. Its report stated:
“We have found some evidence that customer energy bills respond more rapidly to rising supplier costs compared with falling costs.”
That is what Consumer Focus thinks too. It found a gap between the price at which energy companies buy electricity and gas, and what they sell them to the public for. Its research shows that even though the wholesale prices for both electricity and gas have fallen since 2008, retail prices for both are significantly higher today than four years ago.
David Mowat (Warrington South) (Con)
I was particularly interested in the point that the shadow Secretary of State made about the relative prices here and in Europe. I have in front of me information from the EU website which shows that we have the 26th lowest gas prices in Europe. I take her point that that is to do with tax, but our gas is 60% cheaper than gas in France or Germany. If our companies are operating a cartel, it would seem that they are not very good at it.
Caroline Flint
I am just presenting the facts as they have been presented to me. The energy companies and parliamentary colleagues often say that our prices are among the cheapest in Europe, but the truth is that when tax is taken off, we are not among the cheapest in Europe. In fact, in some areas, our prices are considerably higher.
Alex Cunningham (Stockton North) (Lab)
GoWarm, a community interest company, and Stockton-on-Tees borough council have developed an innovative and effective programme to insulate externally hundreds of homes, which gives people in the poorest households in my constituency a better deal from their energy bills. That could be done for even more homes if it was not for the fact that BT would charge them an absolute fortune to refix bolts to the sides of their properties. Does my right hon. Friend agree that that is another large utility that needs to be brought to book?
Caroline Flint
That is another bit of casework to look into. The obstructions to energy plans are numerous. At our party conference, we launched the “Power Book”, which is a collection of ideas and articles on ways to decentralise energy through energy generation and energy efficiency. It looks at ways in which community groups can be supported, rather than hindered, in doing the right thing. In many ways, that could be far more cost-effective.
Simon Hughes (Bermondsey and Old Southwark) (LD)
When I did the right hon. Lady’s job at the end of the last Parliament and shadowed the current leader of the Labour party, who was then the Secretary of State for Energy and Climate Change, I tried to get Labour and Ofgem to reduce the number of tariffs from a ridiculous number to a small number. That was not done. Secondly, I tried to get them to legislate to persuade Ofgem that there should be an obligation to reduce the price to the consumer when the wholesale price went down, and not to leave it for six, nine or twelve months. None of those things was delivered. I welcome the conversion, but does the right hon. Lady not recognise that it has come several years later than it could have done?
Caroline Flint
On the basis of the right hon. Gentleman’s contribution, I look forward to our being in the same Lobby for the vote. Our proposals would tackle some of the issues that gradual reform has not tackled. The energy market has changed a lot since it has been privatised. Efforts were made to enable Ofgem to be stronger, but on the evidence of the past few years, it has not been. That is why we believe that our proposals, which are now on the stocks, are the best ones to take us towards a market that is more competitive and more use to consumers.
Caroline Flint
I will come to Ofgem a little later in my speech, and I will give way to the Secretary of State.
The Secretary of State for Energy and Climate Change (Mr Edward Davey)
The right hon. Lady has said quite a few times that the energy market has changed. Will she confirm that in 1998 there were 14 of the original 15 incumbent energy suppliers, but that by the time Labour had finished, that had gone down to six? That is a consolidation in the energy market, does she not agree?
Caroline Flint
That is exactly why this needs to be tackled. [Laughter.] No, this is being grown-up. I will repeat what I said earlier. I hope that the Secretary of State heard me. I do not know what commitments the Liberal Democrats made in their manifesto, but the manifesto that was written by the current leader of the Labour party before the last election said that we needed to reform the energy market more radically. That is why we have said that we need to have a pool into which all the energy would be put to open up the market. We were very clear about that.
When Ofgem, as the independent authority, took away some of the price caps, it was meant to be on the basis that the market was mature and competitive enough to be able to deliver the consumer choice and competition that were needed. That did not happen and the number of companies reduced. As I said earlier, when we look at the situation regionally, rather than just nationally, we see that it is not only about the big six—in some areas, there is just the big one.
As I said, it was our manifesto commitment radically to reform the market and we have been saying every single day since that we need to do more. Unfortunately, the Government have not been open to that discussion. I hope that that will change when we debate the Energy Bill in a few weeks’ time. We have propositions in today’s motion that, having listened to the comments today, I hope will get support from a number of quarters, and not only from our own Back Benchers.
Caroline Flint
I have allowed a lot of interventions. The Secretary of State is asking me to give way, and I think that I should give way to him.
Mr Davey
The right hon. Lady is right to say that there has not been enough competition in the generating side of the market. I will speak at length about competition in both the retail and wholesale markets. The real issue between us is whether we should get extra competition in the generating side of the market through pooling, as she proposes, or by addressing the lack of liquidity in forward markets, which we believe to be the real problem. Does she want to compare and contrast her approach with ours?
Caroline Flint
There are a number of measures that we should be taking to tackle liquidity. Pooling is just one of them. No doubt there will be more detail on this matter and amendments when we have the Energy Bill before us. The issue is that there has so far been nothing in the draft Bill that has opened up that debate. After the Prime Minister’s intervention last week, it seems that we will now have a debate that he did not realise would be forthcoming.
I will make some progress, because we only have a half day on this issue and colleagues from across the House want to speak. We had a shambles last week. We can only imagine that civil servants in the Department of Energy and Climate Change are now busily rewriting the Energy Bill. If they are, we would like to put forward three clear proposals that could help people now and reform the energy market for the long term.
First, there is a proposal on which we think there could be action for this winter if there were unity, but on which we might need to legislate somewhere down the road. It is about targeting help where it is needed most this winter, not next year once the Energy Bill is passed, and not when Ofgem finishes the consultation on its retail market review in 2013. We all know that something like 75% to 80% of people are not on the cheapest tariff. Ministers say that it is possible for households to save up to £200 on an annual dual fuel bill by shopping around for the lowest online rate, but elderly customers, who are most vulnerable to the cold weather and most at risk of fuel poverty, are among the least likely to be able to access the cheapest online deals or switch supplier.
In January, we proposed putting all over-75s on the cheapest gas and electricity tariff, which would save as many as 4 million pensioners, including 8,000 in the Secretary of State’s constituency, as much as £200 a year. The Government rejected our proposals, but given what the Prime Minister said last week, their position now appears to have changed somewhat. If it genuinely has, can we come together today and send this clear message to the energy companies: “If you don’t put the over-75s on the cheapest tariff, we will legislate to make you”? That is our first proposal—getting help to those who need it most.
We also want everyone to benefit from a more competitive and responsible energy market, which means wholesale reform to how energy is bought and sold, so here is our second proposal. At the moment, no one really knows what the true cost of energy is. The way the market is structured means that the big energy companies are allowed to generate power, buy it from themselves and sell it on to the public. We believe that has to end. The time has come to open up the energy giants’ books, stop the backroom deals and end the secret contracts. If the energy companies were forced to sell the power that they generate into an open and transparent pool, anyone could bid to retail energy. That would encourage new entrants, increase competition and ease the upward pressure on prices.
Barry Gardiner (Brent North) (Lab)
Does my right hon. Friend recall that when the Select Committee on Energy and Climate Change discussed vertical integration, one energy company chief executive was asked why a company such as EDF, which generates most of its electricity from nuclear power, should benefit from the high price of gas, which sets the market rate for the sale of the wholesale supply into the retail market. The answer, of course, was that Ofgem would not allow cross-subsidising from one side of that barrier to the other. Is that not why the tough new regulatory powers that we have called for are exactly what the Secretary of State should introduce?
Caroline Flint
I absolutely agree, and I commend the Select Committee for its fantastic work over the past year. Since I have been in my post, it has been most useful to my discussions and thoughts about how policy should develop.
Thirdly—this takes me on to Ofgem’s role—I am afraid that too often in the past, Ofgem has ducked the opportunity to get tough with the energy giants. I believe that we therefore need to create a tough new regulator that people can trust. I can tell the House that we seriously considered whether it would be better to reform Ofgem or start again from scratch. In the end, I do not believe that just giving Ofgem new powers is the answer, because it is not using the powers that it already has. It has failed to enforce its own rules, and time after time it has let the energy companies get away with ripping off hard-pressed families and pensioners.
As I said earlier, when Ofgem removed price controls a decade ago, it did so in the belief that competition had developed sufficiently, and that privatisation had delivered a functioning competitive market. It is now clear that that was a mistake. Almost every indicator, such as consumer engagement and market share pricing, gives us cause for concern. The answer is not to go back to nationalisation but to reform the energy market to make it more open, transparent and competitive. Until that happens, we must ensure that the regulator has the power and authority that it needs to protect consumers.
That was why, at the Labour party conference, I announced that the next Labour Government would abolish Ofgem and create a tough new regulator with a statutory duty to monitor the relationship between the prices that energy companies pay for their energy and the bills that the public pay. It would have the power to force companies to pass on price cuts when wholesale costs fall. It would be a new watchdog with new powers, new responsibilities—including for small businesses and off-grid customers—a new focus and new leadership.
Caroline Flint
I have given way to the right hon. Gentleman already. I am sure he will want to make a speech, and I will be very interested to hear any other policy ideas.
The Government promised change, but nothing is changing. Energy bills are up by more than £200 on their watch and fewer people than ever are engaging with the energy market, which is untransparent, uncompetitive and unfair. People need real help now and a more responsible energy market for the future, which is simpler, works in the public interest and protects the most vulnerable. Real action, not warm words—that is Labour’s promise, as shown in today’s motion, which I really do commend to Members of all parties.
Mr Davey
The hon. Gentleman may or may not be aware that two or three months into my time as Secretary of State, I secured a voluntary agreement with the big six. I negotiated it and the Deputy Prime Minister announced it in April. The agreement was clear, and the big six are delivering on the promise that they made to us, namely that they will inform people of the lowest tariff available to them. That was part of a range of policies that we have agreed with them. For example, there is the warm home discount, which is often forgotten in this debate. We legislated for that discount to ensure that £130 will go straight off the bills of the poorest pensioners and the poorest people in our society next year. That will get money to the people who really need it and help them with their energy bills.
Caroline Flint
The Secretary of State may not be aware of this, but I understand that research by Which? indicated that there was some confusion about whether energy companies were informing customers of the cheapest deal when they wrote to them.
The point about the over-75s is that a lot of them are not online. If they ring up their energy company and say, “I would like to go on to that online deal”, the company will say that they cannot do it in that way. We say that not being online should not be a barrier to that group of people getting access to the cheapest deal.
Mr Davey
I could not agree more. We want to ensure that all people can access the best deal, whether or not they are online. That is why we have made the voluntary agreement and why we will take powers in the forthcoming Energy Bill to ensure that the energy companies have to inform people of the best deal. As I will set out in my speech, we want to enable the poorest people in our society to get the help they need, whether about switching, competition or energy insulation.
Mr Davey
No, I will make some progress and give way later.
When we consider competition in energy markets we must first separate the retail side from the wholesale side—or, in English, competition between firms that sell us energy and firms that generate it. There are, of course, many firms that are on both sides of that equation, just as there are policies to help on both sides.
Let me start with the suppliers, the retailers, the people to whom we pay our bills. We can drive competition in that area in two ways: by making the existing bigger players compete harder to keep their customers, and by enabling more firms to enter the market and grow—something on which the right hon. for Don Valley is rightly keen. Switching has, of course, been the principal way to do both those things, which is what happened by letting customers choose their supplier and forcing energy firms to offer better deals to hold on to customers. As the right hon. Lady rightly said, however, that system has not been working well, and switching has not helped the vast majority of people. In fact, it seems that switching rates have been falling just as prices have been rising. That bizarre finding seems to be the result of the virtual end of door-to-door selling which, as many of us know from our constituencies, was fraught with problems. Switching rates appear to have fallen in recent years, and those who continue to switch tend to be the internet savvy and often the more well-heeled, leaving the less well-heeled and less internet savvy out in the cold when it comes to getting the best deals. In essence, it is a very unsatisfactory situation.
The policy question is about whether we can promote competition through switching in other ways, or whether switching is simply not the way to go. I am delighted because it seems from the right hon. Lady’s speech that the Opposition have not given up on switching, and in fact they seem to be copying some of the policies that I first articulated. Since imitation is the sincerest form of flattery, I take that as a vote of confidence. For Members who may have missed that neat trick from the Labour Front Benches let me explain. The right hon. Lady talked about her commitment to collective switching, and she mentioned Labour’s “Switch Together” scheme. The Government support collective switching because we talked about it first. The right hon. Lady knows that the Labour party could have pushed that idea when in government, but it did not, and it was this coalition Government who got it.
When I was the Minister responsible for consumer affairs in the Department for Business, Innovation and Skills, I pushed the general notion of rekindling the spirit of co-operatives into different retail markets, and, in league with Co-operatives UK, I set up a competition to stimulate new ways for communities to buy things together. From that work, energy co-operatives emerged as among the most promising. That is because gas and electricity are pretty similar commodities, wherever and however people buy them, and because people are increasingly worried about their bills. However—this is crucial—many people find it too difficult to switch by themselves, and I have been addressing that problem. I have talked to a range of people about the barriers to collective switching, and I have got people—including Ofgem, the large energy companies or firms, and organisations capable of managing a collective switch—round the table where we have made real progress.
Regulatory barriers are coming down. Last week, we announced a nationwide competition, in which the winners, whether councils, community groups or others, will get seedcorn cash to help them get going. That national competition—not a Labour party competition—is called Cheaper Energy Together and should provide a boost to awareness and learning that could transform switching in the UK, not least because winning bids must show how they would involve the fuel poor in their schemes. If we are to see a revolution in switching, with collective switching, I will insist that the most vulnerable are part of that.
It must be slightly embarrassing for Labour Members to know that when they were in government, they did not use the collective principle to help people. It must be embarrassing because, although the current Government are using the collective principle to tackle fuel poverty, the Labour party did not. I am, however, genuinely delighted that the Opposition have overcome their embarrassment, and taken up our idea.
Caroline Flint
The Labour party was the first political party in British history to organise a collective switch, and we are proud of that. I am not sure what the Liberal Democrats might do—it might be switch apart rather than switch together.
Switching is important, but in truth, even if people are on the cheapest deal, it does not mean they are getting value for money and a fair price. That is why we must reform the way the energy market works, and tackle the dominance by certain companies that both generate and retail energy, and do not let others get a look in.
Mr Davey
I will come to that point, but I remind the right hon. Lady of what I said earlier. Under her party’s watch, the number of companies went down from 14 to six, so we will not listen to her too much.
Let me finish my point about switching and say why it is so important. Collective switching got going in Belgium just a few years ago, and we have now seen live, successful switches in the UK. The Consumers Association, Which?, led the way with its big switch earlier this year. It helped around 37,000 people to switch and get an average saving of £223. We have also seen smaller collective switches. Last month, South Lakeland district council was the first local authority to run a switch. Nearly 1,700 residents signed up, and early indications suggest savings that range between £60 and more than £200.
Yesterday, Oldham borough council launched its collective switch, which I attended. I did not see the right hon. Lady; perhaps she was there at a different time. That collective switch is called “Power to the people”—Citizen Smith would be proud. A wide variety of schemes are coming forward. I am already aware of eight, perhaps the most ambitious of which is Cornwall Together, in which the council, the NHS, the trade union Unison, the third sector, and St Austell brewery have come together to organise a collective switch.
Collective switching is not a silver bullet or panacea, but people are seeing how it can be part of the answer and reform the way switching works. Switching does not just force existing firms to compete more vigorously to keep customers, it enables smaller suppliers to grow their customer base faster. We know that customer inertia can be a barrier to competition, preventing new companies from getting market share, and collective switching reduces that barrier for small companies. Co-operative Energy won the big switch organised by Which?, and doubled its customer base overnight. Collective switching has the potential to be part of the way that we reshape the market.
Mr Davey
I am disappointed that the companies did not respond more positively when the right hon. Gentleman wrote to them. I do not know whether he wrote to them under the Labour Government. The voluntary agreement that we managed to secure after two months in office included a commitment from the energy companies to take part in collective switching proposals. A number of the big six took part in the Which? big switch, so we have moved them and we are changing things.
A key barrier to collective switching and ordinary switching is individual bill payers getting their details to the third party organising the switch, the switching website or the new supplier. In principle, that should not be too difficult, but the evidence we have found is that it is. We have therefore started to tackle the problem. In the voluntary agreement I negotiated, the companies agreed to put quick response codes on their bills. “What,” hon. Members may ask, “is a QR code?” It is a bit like a bar code, but smarter. The QR code should make it much easier for people to provide the energy bill details needed for switching, reducing the effort people must make. I can announce to the House that we will be consulting on that and a number of other measures when we introduce our consultation on consumer bills.
The Government have gone further to reduce the hassle of switching. In another consumer project I worked on at the Department for Business, Innovation and Skills—it was called midata—we looked at other ways in which an energy company could provide the customer with the customer’s data, for example, in easy-to-use or easy-to-pass-on electronic formats. BIS is now consulting on making the midata ideas a statutory requirement. Coupled with the work of Ofgem on simpler bills, that could be a huge catalyst for helping many more people to switch.
Caroline Flint
An Energy Bill is imminent. We have had pre-legislative scrutiny, white papers and impact assessment. Has it only just occurred to Department of Energy and Climate Change Ministers, including the Secretary of State, who took over at the beginning of this year, that they should consult in the run-up to a Bill that will be before the House in the next few weeks? Labour did a lot in government: 1.7 million fewer people were in fuel poverty when it left government.
Mr Davey
Unlike the right hon. Lady, this Government respect an independent regulator. Ofgem has been conducting its retail market review. It would have been completely inappropriate for the Government to publish a consultation before the independent regulator completed its work. She ought to know that. We have been waiting for the report and got it just last week. As a result of receiving that work, we will take forward our consultation, which will enable us to introduce new legislation in the Energy Bill.
Mr Davey
My right hon. Friend is absolutely right, and the Government will do just that.
I pay tribute to Ofgem’s work on simpler bills—the retail market review it published last week is an excellent piece of work. I was disappointed that the right hon. Lady did not welcome it. That might be something to do with her policy of abolishing Ofgem, which I should like briefly to turn to as my right hon. Friend has raised the matter. We want to understand why the right hon. Lady believes that abolishing one regulator and replacing it with another will make any difference whatever. That is a recipe for delay and chaos and for letting the energy companies get away with it while the Opposition mess around moving the deckchairs on the Titanic.
The right hon. Lady said that the previous Government looked at whether reforming the regulator would be better than creating a new one. She gave no good reason why we could not reform Ofgem, which is what this Government will do. It is interesting that she wants to spend time rebranding public bodies. I do not know whether she believes that is a good use of taxpayers’ money, but, interestingly, her proposal is rather disloyal to the Leader of the Opposition. I am sure she is aware that he legislated on Ofgem when he was Secretary of State for Energy and Climate Change. Just two and a half years ago, he told the House that the purpose of his Energy Act 2010 was
“precisely to strengthen Ofgem's powers in a number of respects and to make it a more proactive regulator”—[Official Report, 7 January 2010; Vol. 503, c. 254.]
Will the right hon. Lady come to the Dispatch Box to suggest that the Leader of the Opposition got it wrong just two and a half years ago?
Caroline Flint
The truth is that despite the powers extended to Ofgem, it is just not delivering. Four years ago, it found that some customers were charged different prices for using the same amount of energy, but energy companies are still using predatory pricing tactics. In 2008, Ofgem launched reforms aimed at supporting consumers, but according to its own evaluation in 2011, the reforms failed. In August 2011, Ofgem commissioned BDO to undertake a forensic investigation of how to improve transparency in the market, but by May 2012, Ofgem had quietly dropped six of the eight BDO recommendations and varied the remaining two. It is not delivering; it is not doing its job.
Mr Davey
I am extremely disappointed that that is the position the right hon. Lady has arrived at. The retail market review last week proposed to reduce and limit the number of tariffs from the massive number that exist at the moment to just four core tariffs. As my right hon. Friend reminded us, he asked the Labour Government to do that just a few years ago, but they did not. Ofgem has acted where the Labour Government did not. It will help to tackle the complexity of multiple tariffs, which have not helped transparency or competition. I am delighted that its plans allow collective switch tariffs to emerge in addition to the core tariffs. I am surprised that she wants to abolish a body that, under this Government, is taking the action that the previous Government failed to take.
Mr Davey
As a former competition Minister, I know that commenting on such things is extremely tricky, so I will leave that to my right hon. Friend the Secretary of State for Business, Innovation and Skills.
I want to focus on how we can tackle the real problems in the energy market. I think we all agree that there is a problem with competition. When we compare the UK market with overseas markets, a key observation is that our markets are less liquid, especially the forward market. To get a good, competitive energy market, firms should be buying and selling electricity three, six, 12 or more months in advance. If they were, and if we had greater market liquidity, it would be much easier for independent generators to enter the market and invest in generating plant confident that they can buy and sell electricity and manage their risks.
Faced with the might of large, vertically integrated energy companies supplying their own power, independent generators find it difficult to enter the market. I think we agree on that. The question is: how do we deal with that? The problem is with liquidity, not the pool. The right hon. Member for Don Valley, who clearly dislikes Ofgem, has not noticed that by threatening to take action Ofgem has, to some extent, already made progress on liquidity. As we have seen, large volumes are now being traded in the day-ahead market, which has improved price transparency. That is a good start.
Mr Davey
No, there is more than one company, as I think the right hon. Lady will find when she checks.
Ofgem and my Department agree that Ofgem’s voluntary measures do not go far enough, so the latter has been working on a mandatory auction, and it might well be that some sort of trading obligation is the way forward. I can confirm that I have been considering this matter intensively for some time, and that I will bring forward measures in the Bill to address it. At the very least, these will be back-stop powers in case the efforts of industry and the regulator prove insufficient. If we are to drive competition in the generating side of the electricity market to help people and firms struggling with bills, we must address the liquidity problem. The right hon. Lady’s policy does not do that, but ours does.
Mr Davey
That is one reason why I welcome the retail market review, and we will be consulting on measures and introducing them in the Energy Bill to address those and other matters.
I want to talk briefly about energy efficiency, although I am conscious of the time. On the social tariffs that the hon. Member for Luton South (Gavin Shuker) talked about, and on energy policy across the board, it is important to see both sides of the equation and understand what we are trying to do with clean energy. By 2020, all the energy and renewable subsidies combined will add £95 to bills, yet those same bills will fall by about £220, thanks to the energy efficiency improvements that our policies are bringing forward. Our green policies are about lower bills, not higher, and we are delivering on that.
As part of our policy, energy efficiency is a top priority for me, because reducing demand saves consumers money now and reduces future pressure on supply. I will give just two examples, although I am sure that Members across the House could give many more. Installing solid wall insulation saves about £270 a year on the average energy bill, while upgrading an old, G-rated boiler to a modern, A-rated one can save £200 a year. Our flagship green deal scheme will make it easier for home owners and tenants to improve the energy efficiency of their homes, paying for those improvements through savings on their fuel bills. I hope that we will continue to have the Opposition’s support, but I am not always clear where they stand on the green deal.
Caroline Flint
The Deputy Prime Minister suggested in a speech last year that he would tackle the concern about the high interest rate associated with the green deal. It will be about 7%. What progress has been made on bringing it down?
Mr Davey
The right hon. Lady ought to know that the interest rate will be set by the market, and that this—I say this as a former consumer credit Minister—is actually a great deal. People would not get an unsecured loan of this nature at the interest rates in the green deal. This will be a good deal for people on low incomes, in particular.
Through the energy company obligation, which will be introduced with the green deal, we will be requiring energy companies to provide an estimated £1.3 billion a year of support for energy efficiency in our homes, including £540 million to fund energy saving improvements to around 230,000 low-income, vulnerable households every year. Whether through reform of the energy market, our proposals on competition or our proposals on energy efficiency, the Government are taking action that will help people with their bills. The right hon. Lady’s motion would do the reverse—her proposals are fundamentally flawed—so I invite my colleagues to join me in the Division Lobby and defeat her motion.
Gordon Birtwistle (Burnley) (LD)
The problem is that electricity suppliers buy the fuel that produces the electricity from the world markets. Gas, oil and other fuel supplies are bought on the open market: the gas supplied in Russia, for example, can be sold to the United Kingdom, or indeed to any country, at a price. When the price of gas rises, the end result is that the price of electricity also rises, and the same applies to oil.
Chris Evans (Islwyn) (Lab/Co-op)
I declare an interest as a Co-operative Member of Parliament. A year ago we stood here, had the same debate and heard the same stories. We heard that energy companies were always putting their prices up. This year we are back, but what has changed? I read this morning that, last year, 13 pensioners died every hour of cold-related diseases and illnesses. There are about 20 hon. Members present—the equivalent number of pensioners die every two hours.
I am fed up of hearing those on the Government Benches blame the Labour Government for everything. They play the blame game over and over again, yet tonight, in my constituency of Islwyn and in constituencies represented by Government Members, somebody will be wearing their coat to watch television, thinking about going to bed early and not putting an extra bar on their fire because they cannot afford it. That is the reality that they face. They look to this House—to us—to stand up to the energy companies.
I have received e-mails all week as a result of what the Prime Minister said last week. I am afraid that, again, he is offering false hope to all those people who are struggling. It is a crying shame that, when privatisation of the energy markets was first mooted, Members of this House, including Baroness Thatcher, talked grandly about rolling back the frontiers of the state. When she did so, I do not think she expected that one company—a monopoly—would be replaced by an oligopoly of six companies, or that the Government would stand back, without teeth.
I have heard Government Members say, “Oh, but we had the energy companies round to 10 Downing street and we told them in no uncertain terms that they have to help the most vulnerable in society.” After 18 individual investigations—by Ofgem, Committees of this House and the European Parliament—does anybody actually believe that the energy companies will listen? Their attitude will be just like that of the boy called into the headmaster’s study at the public school I never went to, who says, “Yes, sir, I promise I’ll never do it again,” and then, when he walks out the door, says, “Don’t worry about him; what’s he going to do to me? Absolutely nothing.”
Chris Evans
Yes, that does sound like him.
There has to be a radical reform of our energy market. It is no good going on with only six companies buying in and selling energy. I have talked before about having a central energy supplier to buy energy at a fixed rate and then to sell it to whichever companies want to buy it, so that we can bring more people into the market.
We must talk in the here and now, and we have the draft Energy Bill. Co-operative and community energy programmes have raised massive concerns about the Bill, and I hope that the Government will listen to them. Which? has said that the big switch campaign was the best of its type, but there is still more that we need to do.
A constituent came to see me last Friday and produced a bill from SWALEC. I looked at it and could not understand it. A member of my staff who worked for SWALEC for a number of years looked at it, and he said he could not understand it. Other people looked at it, and they could not understand it. I have read in Which? that a chartered accountant has looked at his own energy bill and not been able to understand it. What chance do elderly people and the most vulnerable in our society have of switching when they cannot understand their bills? I spoke to my member of staff who had worked for SWALEC and said that I would have just offered it a £50 ex gratia payment to go away. That seems to be the way forward for the energy companies. When I looked at that bill, the most amazing thing that I saw was a £15 charge for being a low user. SWALEC was charging my constituent for using less energy. It is crazy.
We have heard that there are 400 tariffs, and the most basic economic argument that anybody could put to the energy companies is that people cannot buy luxury energy. If I go to Currys wanting to buy a television, I might buy one with an LCD, LED or plasma screen, or I might even want an old-fashioned box in my living room. The thing is, I have a choice, because some of them are better-quality products. There is no luxury gas or other energy. We can only use one type to heat our homes, and we have to remember that. People are being ripped off, and it is up to the Government to stand up for them.