Caroline Flint
Main Page: Caroline Flint (Labour - Don Valley)
Caroline Flint (Don Valley) (Lab)
I beg to move,
That this House welcomes the decision to refer the energy market to the Competition and Markets Authority (CMA) for investigation; believes that this confirms that the energy market is broken; notes that this investigation could take up to 18 months and will not report until late 2015; further notes the decision by Scottish and Southern Energy to freeze electricity and gas prices until 2016; further believes that all households and businesses should be protected from any more unfair price rises while the CMA investigation is ongoing; and calls on the Government to freeze electricity and gas prices whilst the energy market is reformed to improve transparency, competition and accountability.
Last week, the House had a brief opportunity to debate the decision to refer the energy market for a full market investigation by the Competition and Markets Authority. That decision was confirmation, if ever it was needed, that Britain’s energy market is broken and that radical action is required. If it helps get to the bottom of exactly what has gone wrong with the market and goes some way towards restoring consumers’ trust, it is to be welcomed.
However, Ministers should be honest with the House today that a market investigation alone offers little comfort to consumers who are struggling now, because it leaves them in the bizarre position of being told that competition in the market is not working and the prices that they pay are not fair, but that nothing will be done about it for two years. First, Ofgem has to consult on whether it should refer the energy market to the CMA. That will take two months. It will then have to consider all the responses and publish a final decision. That could take another month. Only then, which is likely to be the end of June at the very earliest, will Ofgem refer the matter formally to the CMA. The CMA investigation will then begin and that could take another 18 months.
Today, therefore, I present to the House a simple motion with a simple proposal: while the investigation is ongoing, and while the energy market is being reformed, consumers should be protected from any more unfair price rises—not a voluntary price freeze by one company that benefits only some customers, but a price freeze for all households and small businesses.
Time after time we have seen that voluntary approaches do not work. Consider the way that companies failed to pass on reductions in wholesale costs, and the way they sat on hundreds of millions of pounds of direct debit overpayments. Those companies have only ever changed their behaviour when forced to do so, and the Government should learn the lessons of those experiences and intervene to require all suppliers to freeze their prices. As we have said many times before, that would not prevent companies from cutting prices, but it would stop them from increasing them. The Government have the power to do that, and if they did so they would have our support. Although SSE’s decision to freeze its prices until 2016 may not go far enough and may exclude small businesses, it is clear evidence from within the industry that a price freeze is possible.
Stephen Mosley (City of Chester) (Con)
The right hon. Lady says that she supports a price freeze, but the Government have announced a £50 cut to energy bills. Would Labour reverse that?
Caroline Flint
I am afraid that despite the Government’s tampering, bills have gone up by an average of £60. Furthermore, as a result of the Government’s tinkering, according to their impact assessment some 400,000 homes will not receive energy insulation. That is not something to stand up and crow about.
Hon. Members may recall that there were those who said that a price freeze was unworkable and impossible to deliver. It is not normally in my nature to name and shame people when their arguments have been well and truly demolished—[Hon. Members: “Go on!”] Okay. On this occasion, in the interests of openness and transparency, I am obliged to remind the House of what the Secretary of State said. This is the man who told the House last week:
“We have never said that the big six could not have a price freeze.”,—[Official Report, 27 March 2014; Vol. 578, c. 479.]
However, on the day my right hon. Friend the Leader of the Opposition made his speech to the Labour party conference, the Secretary of State said:
“Fixing prices in this way risks blackouts, jeopardises jobs and puts investment in clean, green technology in doubt”.
Last week, he said that SSE’s decision to fix prices was “good news”. He added:
“Let’s hope”
—I emphasise hope—
“some of the other companies now follow.”
It may be in the Secretary of State’s nature to follow, but it is in mine to lead. If he wants energy companies to freeze their prices, as he told the public last week, he should not wait for them: he should do it now.
I take the security of our energy supply seriously. That is why the collapse in investment under this Government is so worrying and why there has been so much concern about the length of time it took to get contracts for difference in place, and how long it is still taking to get the capacity market up and running—policies we have supported. That is why in government we will establish a dedicated energy security board. However, a Labour Government will not be held to ransom, and neither must the Secretary of State.
Guy Opperman (Hexham) (Con)
Does the right hon. Lady accept that an externally imposed price freeze does not control overseas supply or energy prices?
Caroline Flint
The price freeze we have suggested is in recognition of the dodgy dealing that has been going on, and we have proof of the fact that when wholesale prices have gone down, they have not been passed on to the consumer. If the hon. Gentleman does not get that, he will not win at the next general election.
The Government were wrong about our price freeze, and today is their chance to atone for their error. They have been wrong about much else besides. The Secretary of State likes to claim that Labour created the big six, but who botched the privatisation of our utilities, sold off our country’s assets for much less than they were worth, and removed the restriction on vertical integration? It was not us; it was the previous Conservative Government. As this week’s revelations about Royal Mail remind us, they are the same old Tories. They might think they know how to run a business, but they are not fit to govern.
The Secretary of State for Energy and Climate Change (Mr Edward Davey)
It is not normally that I come to some colleagues’ defences, but since the right hon. Lady is talking about privatisation, which party lifted price controls on energy markets, and when?
Caroline Flint
It was a recommendation from Ofgem that we want to abolish. It was wrong and it did not work, and I will get to that point. Unlike the Secretary of State, I came to this job to look seriously at what has gone wrong in the energy market, and since privatisation over 30 years ago, mistakes have been made. Mistakes are being made now that could be put right if the Secretary of State had the gumption to do it, but he does not.
Andrew Gwynne (Denton and Reddish) (Lab)
The price freeze that my right hon. Friend is proposing is not an end in itself. Is not the fundamental problem that the big six supply energy to 97% of homes and control 70% of power generation in this country? That means that people cannot shop around and often get overcharged. Do we need the price freeze so that we can begin the process of resetting the market?
Caroline Flint
My hon. Friend is right. It is a temporary price freeze while we reform the market and restore faith and trust. That is absolutely necessary for the journey we are asking the British public to continue with us in relation to energy.
Eric Ollerenshaw (Lancaster and Fleetwood) (Con)
Will the right hon. Lady give way?
Caroline Flint
I will give way shortly but I want to make a little progress.
The Secretary of State lauds the days when there were 15 energy suppliers, as if it were some nirvana of competition where consumers had choice, customer service was great, and bills were low. He does not mention that the reason there were 15 suppliers was that there were 14 regional electricity suppliers, each with a complete monopoly in their own area, and only one gas supplier, which had a monopoly across the entire country. Consumers had no choice at all; nobody could switch, and that was that. Who gave ordinary consumers the power to choose who supplied their electricity, and who tried to open up the energy market to full retail competition? It was the previous Labour Government.
Caroline Flint
I will give way shortly but I want to make this point. The Secretary of State also boasts that on his watch 18 new entrants are challenging the dominance of the big six. He is right: 18 other suppliers are in the domestic market, but when did they enter it? When did companies such as Good Energy, First Utility, and Ovo Energy enter the market? Was it under this Government? No, it was not—it was under the previous Labour Government.
Caroline Flint
I will finish this point. Good Energy: 2003; First Utility: 2008; OVO: 2009. In total, there were not just six suppliers in 2010, as the Secretary of State likes to say, there were 14, and in recent years the growth of those companies has begun to erode the market share of the big six.
Yes, there are more suppliers out there challenging the incumbents, and the market share of the big six is down from a huge 99% to a still pretty massive 95%, but that is no thanks to the Secretary of State. If he does not even understand the problems with our energy market, why should anybody trust him to fix it? Let us not forget that the only reason we are having this debate, and the only reason the energy market has been referred to the Competition and Markets Authority, is the way in which Labour, along with others, has stood up for customers and refused to be silenced.
Eric Ollerenshaw
Clearly, the right hon. Lady has thought carefully about the implications of a price freeze. What discussions has she had with trade unions and the energy industry about the possibility, should there be a price freeze, of a demand for a wages and salary freeze in the energy industry?
Caroline Flint
The energy companies have clearly been making profits that have not been reflected in efficiencies in their organisations or a fair trade off between what they should spend on getting bills down and investment. I believe in this sector and that its potential growth is enormous. The truth, however, is that staff in those organisations are not served well by a management that refuses to faces up to its responsibilities to provide good customer service and efficient services in which everyone can gain. The only people gaining at the moment are the big six chief executives and their management boards, and those who benefit from the profits they have made—unfair profits that have not been passed on and shared with consumers and investment.
Mr Davey
I am pleased that the Labour party now supports the market investigation reference. Will the right hon. Lady confirm that that was not the case a few months ago, and that when the Leader of the Opposition was doing my job and had a chance to take such action, he did not?
Caroline Flint
In 2011, Labour, under my right hon. Friend the Member for Doncaster North (Edward Miliband), a previous Secretary of State for Energy and Climate Change, supported a full market investigation. The former Secretary of State opposed that. [Interruption.] No, I am sorry, but this is a very important point. Labour supported an investigation two and a half years ago and the Government opposed it. Labour then looked at ways of reforming the market, short of a CMA. The truth is that we welcome the CMA, but we also know that we should not allow this issue to be kicked into the long grass. We should be planning our reforms now. The Secretary of State cannot ignore that.
The Secretary of State told the House in a statement last week that the energy market has improved since 2010. Ofgem’s assessment shows precisely the opposite: things have got worse since 2010, not better. Apart from a spike in switching in a couple of months at the end of 2013—which I have to say had more to do with the Leader of the Opposition’s speech at the Labour conference than anything the Government did—the number of people switching has fallen. The latest statistics, published by the Government last week, show that 2013 was the second-worst year on record for the level of switching. The spike at the end of 2013 appears to have been completely reversed.
Small suppliers have been gaining customers and their market share has been growing, but paragraph 5.16 of Ofgem’s assessment is clear that last year, for example, half the so-called growth in market share for smaller suppliers actually resulted from npower selling Telecom Plus, which just so happens to have a 20-year contract with npower for its energy supply. In any case, as figures 28 and 29 show, the overall rate at which suppliers have been winning customers has fallen. Figure 39 of Ofgem’s assessment also clearly shows that the total amount of energy being traded has fallen in each year since the general election, as has the churn rate.
The only things that have increased on this Government’s watch are people’s bills and the profits of the big energy companies, which, paragraph 6.10 of the report notes, have increased five-fold in the last three years—up from just £200 million in 2009 to £1.2 billion in 2012. Let us not forget the increase in households in fuel poverty, and the growing queue of people who cannot get their home insulated after the Government’s tinkering with bills last autumn. The Secretary of State must be so proud.
The notion that the energy market is, as the Secretary of State puts it, “improving”, is very obviously wrong. What the report shows, and again I quote directly from section 4, is that
“things are getting worse for consumers.”
That is the conclusion of the report; and that is a verdict on this Government’s record.
Martin Horwood
The right hon. Lady mentioned Good Energy. I met Good Energy this morning and it is quite clear that Labour’s policy would cause it real problems as a small green supplier. Is not the truth that this would be bad for competition, and, as it wrote to the right hon. Lady, that it treats the symptom not the cause?
Caroline Flint
I am not surprised that energy suppliers, big or small, do not like having their prices frozen. I would be surprised if they did support it. However, when Stephen Fitzpatrick, the chief executive of Ovo, was asked whether it would affect his company model, he said:
“No I don’t think so, we set up our business to make sure that we are able to pass on the greatest amount of savings possible to energy customers.”
When asked, “Will you be affected?” he replied:
“No I think it will probably be great for our business to see any kind of pressure put on the big six.”
The same goes for Co-operative Energy. The big prize for Good Energy, Co-operative Energy, Ovo and the others is a reforming of the market to ensure that they have greater access to the products they wish to sell. There is a big prize for them that many of them support through our reforms.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I hesitate to interrupt a very good speech. Those of us who support the reference to the CMA worry that there will be another 18 months—there will be a new Government, which will obviously be a Labour Government—when we still will not have tackled the deep disaster of the mess that the Conservative party made of the privatisation of the energy sector. We need a fundamental look at energy, root and branch.
Caroline Flint
My hon. Friend is right. In the statement last week, I thought he made a very fair contribution, saying, “Look, there are real problems here that we all have to acknowledge, address and deal with.” I welcome the reference to the CMA, but we cannot allow the silence that some Government Members would now like to follow on this issue of public importance. That is why we have to draw a line in the sand and have a freeze. It is also why we should get on with some of the other ways in which we can address the reforms that are necessary in this market. I have been very open that there may be aspects of the CMA investigation into this murky world that will find other issues that Labour has yet to look at and that might be helpful to our reform programme. I very much welcome that, but we cannot allow this issue to be kicked into the long grass.
The report clearly highlights the need for reform in our energy market, as we have made clear for the last three years. It identifies five significant problems that are preventing consumers from enjoying the full benefits of competition. None of them is new.
Jim Shannon (Strangford) (DUP)
In Northern Ireland, there are just two electricity companies: Power NI and Airtricity. Last year, Power NI put up its prices by 14%. Does the right hon. Lady feel that it is time we had a more open market with more suppliers, so that the price can come down, and that the sooner that happens, the sooner we can take advantage of that?
Caroline Flint
I absolutely agree, which is why one of our proposals is to create an electricity pool or power exchange whereby all energy for that sector is put into a pool, enabling anybody to come in and compete on price to retail. Small suppliers, and, I have to say, increasingly some of the bigger players, recognise that this idea is making some headway in the discussions on what the future should offer. We look to Northern Ireland and other countries to learn from their experiences. We do not operate in a bubble; it is worth looking elsewhere for ideas.
The report identifies five significant problems. Many of them were things that Labour Members raised in the eight previous Opposition day debates on this issue and that feature in our Green Paper. The first problem is weak competition. Companies are able to increase their profit margins at will, without any obvious efficiencies or improvement in customer service. They are simply getting away with passing on cost increases, but not cost reductions.
The second problem is market segmentation: suppliers enjoying big market shares in their old monopoly areas, and companies charging some customers, particularly loyal customers, significantly more than others, even though they are providing them with an identical product. Thirdly, there is tacit co-ordination between suppliers: price announcements, normally increases of similar amounts, being announced at the same time and with growing lead-in times. Fourthly, there are barriers to entry and expansion for new players in the market. In particular, the lack of liquidity in the wholesale market makes it difficult for non-integrated players to access power at competitive prices. The fifth problem is weak customer pressure: low and declining levels of customer trust in this market.
That is the final reason a price freeze is so important. Yes, it is about compensating consumers for overcharging in the past. Yes, it is about protecting them from any more unfair price rises while the market is being reformed for the future, but it is also a line in the sand. It tells the companies that their days of overcharging are over, and it tells consumers that the rules of the game have changed for good. It tells them that the rules are no longer set by six giant companies, but by one Government acting for the many not the mighty few.
Kerry McCarthy (Bristol East) (Lab)
Did not Ofgem identify—in, I think 2008—16 things it thought was wrong with the energy market? It admitted, in 2011, that 12 of them had got worse or had stayed the same. Is it not key to have an energy watchdog that stands up for consumers, takes on the big six and rectifies the issues my right hon. Friend has identified?
Caroline Flint
My hon. Friend is right to draw attention to recent Ofgem investigations. In fact, in the past six years I think it has had three major investigations: on supply, the retail market and the wholesale market. It has failed to get to grips with the real problem. We have seen piecemeal changes that are just not having any impact. Even when there were recommendations about the market and how it could be reformed, it did not take them on board. It is only recently that it seems to be waking up to that.
Ultimately, competition will work only if companies are constrained by the fear of losing customers if they increase their prices too much. Consumers will be prepared to engage in the market, to invest their time and effort to secure the best deal, only if they believe the market is fair and if there are proper rules in place to prevent them from being ripped-off. We should be honest, too, that switching cannot be the only metric of a healthy market. There will always be those for whom regular switching is not a reality, either because they do not have the confidence to switch, even in a simplified system, or because they may have the confidence, but are time-poor and seem to spend their whole life switching from one thing to another. A healthy market must be a managed market, and that is why the price freeze is so important.
Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)
My hon. Friend the Member for Bristol East (Kerry McCarthy) mentioned Ofgem a moment ago. In its report on energy prices, profits and fuel poverty, the Select Committee said that Ofgem was “failing consumers”, and had not been properly using the powers at its disposal. Last December, the Secretary of State said that Ofgem was “fit for purpose”. Does my hon. Friend agree?
Caroline Flint
I agree with the Select Committee, and I do not agree with the Secretary of State. I shall come to the question of why the role of Ofgem has been omitted from the market investigation, because it is a very important part of the future reform of the sector.
As my hon. Friends have pointed out, our motion makes it clear that the price freeze would be only a temporary measure during the reform of the energy market. However, the House should be in no doubt about the fact that the public have heard Labour’s case for reform, and they want change. The companies have heard our case as well. Alistair Phillips-Davies, chief executive of SSE, said last week that the Leader of the Opposition had
“changed the way people look at the energy market”.
That is why, last week, SSE announced not just a price freeze until 2016 but that it would legally separate its supply business from its generation businesses, which is what we had called for. At least two other firms claim that they already operate in that way.
What we cannot have is companies going away—perhaps in an attempt to pre-empt reforms that they know are coming—and leaving the public with six versions of what reform looks like. These reforms need to be consistent, led by the Government, and backed up by proper powers of enforcement. Our Green Paper proposes a number of significant reforms, namely a ring fence between generation and supply, an end to secret trades and self-supply, the introduction of a pool in which all generators and all suppliers can compete openly and on price, new powers to penalise anti-competitive behaviour and protect consumers, new protections for off-grid customers and small businesses—2 million rural customers and millions of businesses will be properly protected for the first time—and simpler and fairer tariffs.
Caroline Flint
No. I have already given way quite generously, and others wish to speak.
Last week’s report and the decision to initiate a full market investigation only serve to highlight how important and urgent the process of reform is. Of course the CMA will undertake its independent investigation and reach its own conclusions, but if there are measures that we could take now to improve the market and make it work better for consumers, we should take them.
There was one subject on which Ofgem’s report was—perhaps unsurprisingly— silent: the role and performance of Ofgem itself. In recent months, much attention has rightly been focused on the behaviour of the energy companies: the prices they have charged, and the way in which they have mistreated their customers. However, companies operate only within the framework set by the regulator. When we challenge these companies over their behaviour, it is only right for us to assess the responsibility of the regulator itself for allowing the very market conditions that it now laments to come to pass in the first place.
I have challenged the Secretary of State on that point many times in the past, and so far he has been a steadfast defender of Ofgem. As was mentioned earlier by my hon. Friend the Member for Washington and Sunderland West (Mrs Hodgson), on 2 December last year he told the House:
“Ofgem is fit for purpose.”—[Official Report, 2 December 2013; Vol. 571, c. 634.]
On 4 September, he said that he disagreed with my statement that Ofgem was not using its powers. However, the very fact that Ofgem has chosen to refer the market to the CMA represents a clear admission that it has not been able to regulate the market properly and protect consumers. Had it been able to do so, there would have been no need for a full market investigation.
Let me put my question to the Secretary of State again. Does he feel that Ofgem should remain as it is, or does he agree with me that we need to abolish it and establish a new, tougher regulator? Markets must have rules, and if we are undertaking a proper market investigation, surely it is necessary to consider carefully the process by which those rules are set and how they are enforced. If we win the next election, we will scrap Ofgem and create a tough new regulator, but even those who take a different view must surely now accept that the performance of Ofgem is a legitimate matter for the CMA itself to investigate.
I care about this sector. I want it to do well, to serve its customers well, and to treat its staff well. Given the transition to a smarter, lower-carbon economy, it has the potential to be a massive success story for our country, but if we are to take the country with us on that journey, people must have faith in the market and the regulation that underpins it. There are those who say that politicians should not interfere, but they are wrong. I did not come to this brief with a prepared agenda, but what I discovered about the way in which the energy market works, and the history of its botched privatisation, shocked me. Yes, the energy market is a free market, but a free market works only when there are proper rules to ensure competition and fair play, and it falls to us, as politicians, to set those rules.
Let me make a prediction. The energy market will change: it will be reformed. The public will pay a fair price for their energy, and after that painful process of reform, some of the energy companies will thank us for restoring the public’s trust in their industry. The question before the House, however, is this: will the Government help to make that happen, or will they stand on the sidelines doing nothing? Will they vacillate, play for time, and hope that the problem is kicked into the long grass before the next election, so that fixing it will become the job of another Minister? This is decision time. Will the Government act decisively in the consumer’s interest, or will they fail the test again, as they have done so many times before?
Today we can send a clear message that the days of rip-off energy bills are over. Should we freeze bills until the market is fixed for the future? That is the decision that we now face. There must be no more running away. It is time for the Government to do their job: it is time for them to govern. I urge all Members who care about the unfairness of energy bills to join us in the Lobby this afternoon, and I commend the motion to the House.
Mr Davey
I am glad that the hon. Lady has mentioned the Energy Act 2013, because she voted for it. If she looks at the detail, she will see that not only did it reform Ofgem by giving it more powers to grant compensation to consumers who were badly treated, but it supported Ofgem’s retail and wholesale market reforms by having reserved powers to make sure they went through. Those powers are in place and are making sure those reforms go through.
I was talking about Labour’s bad energy policy, and let us look at its record in government on energy markets and prices. In the retail markets, Labour allowed the big companies to choke off proper competition—the very competition that privatised markets need in order to operate in the interests of consumers. It created Labour’s big six—the big six that dominate retail and wholesale markets.
Caroline Flint
As I said in my speech, when we left government there were 18 suppliers including the big six, and also it was under Labour that we gave the first opportunity for people to switch. Is it not the case that there were more than just six suppliers when we left government? Is it not also the case, as confirmed by the House of Commons Library, that energy bills have risen three times faster under this Government than under the last Government?
Mr Davey
I will come to that point in a second because I do not believe that is true; I have got completely different figures. The right hon. Lady is right to say, however, that it was not just the big six who were competing in the retail market. There were at that time eight other independent suppliers—there are more now, as we have increased the number. However, the critical figure is not the number of energy suppliers, it is how many customers they have. Under Labour, the small suppliers were not able to grow. Very few—only one, I think—had more than 100,000 customers, and they were not able to expand. What we did very early in our time was deregulate, and because we deregulated, those independent suppliers were able to grow their customer base. So it has been the actions of this Government that have increased the competitive pressure on the big six—it is nothing to do with the last Government.
Mr Davey
My hon. Friend is right: the licence lite introduced under the last Government has not been working very well. However, the Greater London authority has been talking to Ofgem to see if it can get a licence lite for London in order to help community generators and act as a sort of enabler. When we were drawing up the community energy strategy—which has not been mentioned in a single question from Opposition Members—we sat around the table and looked at this issue and we realised that this needs to continue further. So if my hon. Friend looks at the community energy strategy, he will see that we are taking action. We have set up a working group to look at it—not just to take on the licence lite issue, which was so badly handled under the last Government, but to see what else we can do to help precisely the people my hon. Friend is talking about. [Interruption.] The right hon. Member for Don Valley says from a sedentary position that Ofgem is failing again. Let us remind the House who set up Ofgem: it was Labour. Let us remind Labour and the rest of the House that when the Leader of the Opposition was doing my job, he reformed Ofgem to make it function more in the interests of the consumer. That was just a few years ago, so perhaps the right hon. Lady will tell us what went wrong with Ofgem under Labour.
Caroline Flint
As everybody knows, Ofgem was a merger of the gas and electricity regulators. The difference between the Secretary of State and me is that I am prepared to acknowledge when things are not working, and he is not. When is he going to stop defending a regulator that has not been doing its job?
Mr Davey
This is good—let us examine what the right hon. Lady wants to do. She wants to abolish a regulator quango and replace it with another one. She promises lots of tougher powers but never tells us what they are. We have legislated in the Energy Act 2013 to increase the powers. She needs to tell us why, under this Government, Ofgem has been far more proactive on competition. Why was it that under this Government, Ofgem undertook the retail market review? Why was it that under this Government, it addressed the wholesale market, and when we debated its reforms the right hon. Lady had to admit that she had not even read its paper?
Caroline Flint
Honestly, the Secretary of State is just living inside his own thought bubble. We have made very clear on countless occasions some of the changes we would expect to see under a tough new regulator, as I reiterated today. One significant power would be that if our regulator saw that reductions in wholesale costs were not being passed on to the customer, there would be a statutory power to enable it to force them to be passed on if the energy companies do not play ball. Does the right hon. Gentleman agree with that?
Mr Davey
I agree with the market investigation reference looking at all those issues. Not only is the Labour party’s policy position behind the curve, as I will explain in a second; it wants to pre-judge the outcome of the conclusion reached by the competition authorities. We have expert, independent competition authorities that will look at these issues in a considered way, but Labour wants to pre-judge them. That is not surprising, however, because its policies in this area are so hopeless.
The right hon. Lady talks about a pool. She does not know that the day-ahead market, which is very much like a pool and was trading only 5% of electricity when Labour was in power, is now trading over 50% of electricity—a massive increase in liquidity in the day-ahead market. Moreover, the Ofgem analysis, which the right hon. Lady clearly still has not read, shows that the small independent generators that would benefit from more liquidity said that the problem is not in the day-ahead market, and that the pool would not help; rather, the real problem is with the liquidity in the forward market, and that is exactly what Ofgem is dealing with. As of this month, the market maker obligation will create far greater transparency than ever existed in the markets under the last Government. Whether it is through Ofgem or this Government, we are taking action—real action—to bring in competition where Labour did nothing.
Mr Davey
That is simply not true. I have talked about the powers to back up Ofgem on the retail market and wholesale market review, which clearly the hon. Gentleman either does not understand or did not notice. For example, there is the power of the off-taker of last resort to promote greater competition in the generating market. I do not know where Labour Members have been, but they certainly have not been focusing on the debate.
The right hon. Member for Don Valley asked me about energy prices under the last Government and this one, so let us go through them. We should not fall into the trap of simply blaming the energy markets and Labour’s big six for higher energy bills. Let us be honest: everyone in this House knows that the main driver of energy price rises in recent years has been rising wholesale costs. The average wholesale gas price in 2013 was more than double that of 2007. [Interruption.] I will say that again, because the right hon. Lady was not listening. The average wholesale gas price in 2013 was more than double that of 2007. The wholesale electricity price was up by almost two thirds. According to DECC statistics, in almost every year under Labour, energy bills rose. Under Labour in 2005, energy bills went up by 12%. In 2006 under Labour, energy bills went up by 20%. In 2008 under Labour, energy bills went up by 16%. In the last Parliament under Labour, energy bills rose by a whopping 63%. In this Parliament, yes, they have risen, but at a significantly lower rate than in the last Parliament, when the current Leader of the Opposition was Energy Secretary—8% a year in this Parliament compared with 11% a year in the last.
Caroline Flint
I asked the House of Commons Library to look into this issue on Monday, and it confirmed that energy bills are rising more than three times faster under this Government than they did under the last Government. The Office for Budget Responsibility has shown that prices are rising at twice the rate of inflation. We can bandy around figures all we like—the truth is that people want fair prices. They are prepared to pay a fair price if they think the market is not fixed, and the Secretary of State has failed to attempt to deal with that situation, which is of great concern to the British public.
Mr Davey
The problem with the right hon. Lady’s analysis is that she fails to understand that the wholesale gas market drives the vast majority of the bill. I set out that history to show that when wholesale gas and electricity prices were going up—actually, faster under the last Government than this one—we were not saying that it was all the fault of the energy companies; a lot of the fault lay with wholesale gas and raw energy costs. Frankly, the right hon. Lady’s unwillingness to recognise that demeans her, because it shows that she is not dealing with the real problem and could not really do the job.
Caroline Flint
Does the Secretary of State acknowledge that four years-worth of data show that in 2009, wholesale gas and electricity prices fell by some 46% but that reduction was never passed on to the consumer in the following years?
Mr Davey
The right hon. Lady is absolutely right in that, as the recession took place there was a period when wholesale gas prices plummeted, because the economy was in such a mess that the demand for energy was reduced. However, she ought to be careful about going too far on this issue.
Whatever the price rises are, there is a problem for consumers. We know that incomes have fallen as we have emerged from Labour’s great recession, and the fact that price rises have been slowing will be of little comfort. I can, therefore, understand why a promise of a blanket, Government-imposed energy price freeze might seem popular, but as I will demonstrate, it is not a price freeze but a con.
At no point have the Opposition explained how their proposal would actually work, so let us try to get to the bottom of their thinking with a few questions. Are they proposing to freeze all current tariffs in their existing state, in real cash terms? Would people be able to switch back from a higher but longer fixed-rate tariff to a lower, variable-rate tariff before that variable rate became fixed by law? If a cut-price deal was set to end during the freeze, would suppliers be forced to continue it until the freeze ends, penalising firms who try to help their customers?
We know the problem for smaller competitors if wholesale prices rise. They tell us that they would go bust under Labour’s energy price freeze. But what if wholesale prices fall during the freeze? Is Labour proposing to prevent firms from passing on that price fall? [Interruption.] I am delighted that the right hon. Lady said that, because it is clear that Labour will not prevent bills being cut. Instead, would Labour legislate to force companies to pass on each and every cut in wholesale prices, and how would that work? It is a reasonable question. Would Labour legislate to force price cuts during the freeze, or would companies be able to hold on? If a company has bought its gas 18 months ahead, paying a higher price on the wholesale markets, would Labour still force it to cut or freeze its prices, bankrupting it?
The Opposition want to intervene in the markets to control prices and second-guess global price changes, so they must have the answers to these questions. Would smaller suppliers be exempt from the price freeze? How would the price freeze be applied to new entrants? Alternatively, is Labour happy to see a return to the big six, with just a smaller number of suppliers?
This is a gimmick, not a policy. It is a shambles, and it is back to the 1970s. Given that it clearly will not work for consumers, might it work for businesses? Typically, large non-domestic customers have bespoke sophisticated fixed-term contracts which pass through each element of third-party costs. How would the price freeze work for them? What would happen to a contract whose term ended during the freeze? Alternatively, will comrades on the Opposition Benches decree that contracts need to be renegotiated ahead of a freeze? Will the comrades stop at energy price freezes? Are there plans to freeze rail fares or water charges? In the past six years butter and margarine prices have gone up faster than energy prices. What is the plan for butter and margarine prices?
The right hon. Lady tries very hard to paint her party out of the picture and to blame others for the problems we face, but after 13 years of Labour rule, it was not just a wrecked economy that the coalition inherited four years ago. We inherited an energy infrastructure future with a huge multibillion-pound black hole at its heart, the result of years of underinvestment, dithering and delay, and we inherited a retail energy market which, over 13 years of a Labour Government, had been stripped of proper competition and had become hugely complex and confusing for consumers, with prices rocketing and no avenue of escape from the clutches of the big six.
In both these areas—in investment in infrastructure and in reforming the markets—this coalition Government have had to clear up the mess that Labour left behind. Look at the investment figures. The Office for National Statistics figures show that from 2005 to 2009, average investment in the electricity sector was around £5 billion a year. That was far too low for the country’s needs. We had to work tirelessly to turn it around, and we have. Since 2010 investment has continued to rise. On average in this Parliament it has risen by almost £8 billion a year. In 2012 investment exceeded £10 billion—the highest figure on record—and we have a pipeline worth £187 billion, including the first nuclear power station in a generation.
There have been record levels of investment in renewables. Bloomberg estimates that average annual investment in renewables has more than doubled in this Parliament, compared with the previous one. Last year electricity generated by onshore wind rose by 36%. Offshore wind is up 45%. Solar is up by almost 70%. Low-carbon generation now makes up more than 35% of the electricity mix. Emissions are coming down, the share of clean power is going up and investment in new infrastructure is booming. Under this coalition the lights will stay on, and we will go green.
When it comes to their policy detail, we have learned nothing today about what the Opposition are proposing. It is a slogan, not a policy. This Government are getting on with the complex task of mending the markets to serve the best interests of consumers. We have transformed the retail market, increasing competition, challenging the power of the big six and putting customers more firmly in the driving seat. We have minimised the impact of Government policy on bills while protecting help to the poorest, protecting investment in low carbon and maintaining emissions reductions.