David Mowat
Main Page: David Mowat (Conservative - Warrington South)
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.
John Robertson
I apologise, Mr Speaker. Thank you for pointing out to anyone who might have thought I was talking to you that I was actually talking to the Secretary of State.
It is up to the Secretary of State to look at this problem. He has called the proposal from my right hon. Friend the Member for Don Valley a “con”, but I do not think it is a con if we try to do something. I believe that we need to fix the industry, because the big six are not doing the job that they should be doing. It is they who are conning people. It is a bit rich for the Secretary of State to say that we are conning the public, when it is the energy companies that are doing the conning. They are the ones putting up the bills, and the public have to respond by paying them their money.
So let us have a freeze. Let us look at the energy companies and see what they are doing, and if we have to fix the situation—as I believe we will—let us try to do it in a window lasting between 18 months and two years. If we can fix it in that time, and if the energy companies end up out of pocket, it will be up to the Government to fulfil the need that has been lost, rather than the general public, because the freeze will have been imposed by the Government of the day, which I hope will be a Labour Government. The most important thing is to look after the people in this country who are living in fuel poverty. In Scotland, 1 million people classify themselves as fuel poor. When we add that to the figure for England, it takes us well above the 2.4 million figure that we had years ago. We need to do something about that.
The energy companies have shown their true face recently. The chief executive officer of British Gas—a company that had a monopoly on gas supply for years—has said if a price freeze were imposed, there would be blackouts. If the Secretary of State believes that that is right, it will be up to him to sort out the problem, because it is the duty of the Government to ensure that the lights do not go out. The CEO might try to blame people for proposing a freeze, but I believe that a freeze would be helpful in sorting out the energy business in the long term.
The Secretary of State has not expressed the hatred for Ofgem that some of those on my Front Bench have done. I believe that it has got worse, rather than better, over the past two years, despite the discussions that the Select Committee and others have had with it. It has never worked quickly. Some might say that that is a good thing, because if it worked quickly, it might make mistakes. They would prefer that it took its time, in order to ensure that it did the right thing. However, I believe that it takes so long to act because it is frightened to make certain decisions and because it does not think it will have the backing of the Government.
David Mowat
On the hon. Gentleman’s point about the CEO of Centrica, what Sam Laidlaw actually said was that, if there was a possibility of his business being split into two halves in a couple of years, it would affect his propensity to invest in one of those halves until the matter had been sorted out. That seems quite a reasonable statement to make. He did not say that the lights would go out.
John Robertson
I thank the hon. Gentleman for his intervention. If he is right and I am wrong, I apologise, but that is not what it said in the newspapers. That is not how the CEO was quoted. He was quoted as saying that the lights could go out. To me, that sounded like the big bully threatening people in the playground: “I’m going to put your lights out.” That is basically what he was saying to us. Well, I know how to deal with bullies, and it is not my lights that will be going out. I say to the CEO of British Gas that if he and his company cannot do their job, there are plenty of other companies that would like to take it on. If that is the case, let us sell it off to other people who are willing to do the job. We do not need to listen to bullies telling us how they want to run the country. That is a matter for the Government, after all.
We have heard a lot about the green levies, which the Government have reduced. Some of us felt that that was not the right thing to do. Having said that, if people’s bills were to be reduced by £50 as a result, that would have been great. But their bills were not reduced by £50; they have gone up by £60. The energy companies are saying to our constituents, “Hey, good news! The Government have just saved you £50”, but a lady in my constituency could not even afford the bills before the £60 increase, so no credit is due to the Government there.
I ask the Government to look into this matter, and it would be much better to do this in a cross-party manner. I believe that this Secretary of State is doing his very best to stop the multi-party arrangements in energy, but in the past we have always got on well together. We ought to work together as a team to try to get the country back together again and to put an end to this point scoring.
Mr Yeo
I am coming on to deal with that specific point; if the hon. Lady waits for a moment, I will explain it. First, let me urge everyone to try for a bipartisan debate, as a good starting point, in the interests of helping the public to understand the issues better.
There is general agreement across all the parties that there are three principal aims of energy policy. The first is security of supply, which is fundamental. I do not think the public would tolerate the kind of cuts that occurred in the 1970s. Modern life, both domestically and in business, depends now on a continuous supply of electricity. The second aim is affordability, which is much in everyone’s minds right now. The third is reducing greenhouse gas emissions, which the latest Inter- governmental Panel on Climate Change report underlines should have equal priority to the other two.
Any proposed energy policy should be measured against those three aims, and I am sorry to say that, as my right hon. Friend the Secretary of State has eloquently pointed out, the proposed price freeze does not score terribly well on those three tests. On security, a price freeze will actively harm Britain’s interests. It will inevitably deter and discourage new investment in capacity, particularly in electricity generation capacity, just at the time when, as is universally accepted, Britain needs huge new investment—£110 billion is a commonly agreed figure for the level of new investment needed in the next few years. Of course, as we all know, we face a situation over the next two or three years where margins of spare capacity will be at historically low levels. A very severe winter in this country and in north-western Europe could mean that we face a risk—not a huge risk—of a black-out.
The danger that the price freeze will discourage new investment has already been shown by some of the reactions. My hon. Friend the Member for Warrington South (David Mowat) referred to Centrica. It is all very well for Sam Laidlaw to say that, in the event of vertical integration coming to an end, Centrica would stop investment, but the truth is that in the UK it has already stopped investing. [Laughter.] It pulled out of a nuclear consortium last year. The company is investing heavily in other countries—in markets where it can see better returns than at home. This should not be a cause for laughter by the Opposition; it is very serious, because one of our biggest energy companies is deciding that Britain is no longer a market in which it wishes to participate.
David Mowat
My hon. Friend’s observation is pertinent. Was he as concerned as I was when SSE announced its freeze two weeks ago and simultaneously pulled out of three of the four offshore wind farms in which it was involved?
Mr Yeo
My hon. Friend is right in what he says. I was going to deal with that point in response to the hon. Member for East Lothian (Fiona O'Donnell), but I will bring it forward. One of the other damaging effects of a proposed price freeze is shown exactly by SSE’s actions in its voluntary price freeze—it introduced that having raised its prices to a level it thought would be acceptable for the next two years. It actually brought forward a price increase, at the expense of consumers, in order to be able to announce this headline-grabbing freeze, and at the same time, as my hon. Friend mentioned, it announced that it was pulling out of three very substantial low-carbon investments. The freeze that SSE announced had two directly damaging effects.
David Mowat (Warrington South) (Con)
Everybody in this House is concerned about fuel poverty on behalf of our constituents. It is a big issue and it matters. We are also concerned about the 900,000 people in our country who work in energy-intensive industries, many of them in the north-west and the north-east. We need to get our bills lower.
There is a second issue that we should talk about, which was touched on by the Chairman of the Select Committee, my hon. Friend the Member for South Suffolk (Mr Yeo). Uniquely in our country we have to replace 25% of our generating capacity by the end of this decade and I contend that the way in which we address the first question will influence how effective we are in addressing the second. If we do not address the second properly, there will be blackouts—they might not happen in this decade, but they will happen.
I, like everybody, welcome the referral. Let me make a couple of points for completeness. The DECC website today gives an analysis of gas prices across Europe in table 5.9.1. The UK is the fourth cheapest out of the 15 that use the gas balancing hub in Europe. If that is a manifestation of a cartel in action, it is not a very good cartel. To be clear, that excludes taxes rather than including them. We are the fourth cheapest out of the 15 according to the DECC website and the EU energy portal, so that suggests a pretty mediocre cartel.
We have heard a lot about the concentration of the industry in this country, with the big six representing 95% or 96% of it. Arguably that is concentrated, but it is much less concentrated than any other gas or electricity market in Europe with the possible exception of that in Austria. I will just say, as the competition authorities are considering the matter, that Germany has two gas and three electricity companies and France and Italy have similar numbers.
We are going ahead with the process and that is right, as anything we can do to bring prices down is right. Parties on both sides of the House have a three-part plan to achieve that. The Government believe in competition working as well as it can, and there are examples of it not working brilliantly. We need to make switching easier and tariffs simpler. The industry has been slow on that and perhaps Ofgem has, too. We need to go further.
The second part of the Government’s plan is that we must be careful about how we apply green charges and green levies to bills. We need to be circumspect. Occasionally, that means doing what we did recently with the renewables obligation certificates and what we did two or three years ago with solar power levies. We will come back to that point.
The third element of what we are trying to achieve concerns the need for more new entrants. Everybody knows that new entrants give competition. We have heard that about nine or so are coming in now and we need to encourage them.
How does that plan contrast with the Opposition’s policies? As we have heard, the centrepiece is the price freeze. I thought that the Chairman of the Select Committee made a good point about how the freeze will impact on the various components of decarbonisation and security. I also thought that the Secretary of State made some good points about how the freeze would work in action as regards tariff levels as well as to which tariffs it would apply and for how long.
Secondly, the Opposition do something every time we vote on how quickly to apply green levies and on what is appropriate. For example, two or three years ago we reduced the tariffs on solar from about six times grid parity to three or four times grid parity—subsequent to that reduction the solar industry has continued to expand at a huge rate—and Labour voted against that. Even three months ago, Labour voted for a Lords amendment to the Energy Bill to accelerate the rate at which coal power stations would be switched off. Today is an epiphanic day for that policy; some Labour Members might want to reflect on that. Those are extraordinary actions of unilateral damage to what we are doing in this country, a country that has lower carbon emissions than the EU average. To act in that way while talking about fuel poverty in the way the Opposition do is not consistent.
The final point about the Opposition’s energy policy concerns their tendency, which, in fairness, we have not heard today, to refer to the directors of the big six using phrases such as “operating a cartel”, “price fixing” and “dodgy deals”. Those are criminal activities and if evidence of such things exists it should be laid before the competition authorities and people should go to prison. In fairness, we did not hear that today from the shadow Secretary of State or Labour Back Benchers, but we have in the past. If the Labour party wishes to be the custodian of the £110 billion process by which we replace energy in this country over the next decade, its members must ask whether such language is appropriate.
I think we have a significant problem with the energy gap in this country. Arguably, we have a significant problem under the Government’s policies and the price freeze will make it worse. In the last two years we have closed or mothballed Oldbury, Wylfa I, Kingsnorth, Grain, Cockenzie, Didcot, Fawley, Teesside and Keadby, but we have not seen the investment to replace them. We have the SSE announcement and we are building very little. As a consequence there is a predicted 2% energy margin three years from now. That means that we will be mothballing—
Paul Flynn (Newport West) (Lab)
The elephant in the room in this debate is the future of shale gas. The Secretary of State told me that it would make no difference. However, the likelihood is that we will repeat the experience of America when it starts exporting vast quantities of shale gas. We will not see a price freeze; we will see a price collapse. America has been jerked out of its economic crisis by abundant cheap energy becoming available for industry, which has brought prices down and made it far more competitive. That will happen here. There is no purpose in closing our minds and pretending that it will not, because it will affect the whole market.
The Chair of the Select Committee talked about the reluctance of British investors to invest in Hinkley Point, but what is British about Hinkley Point? Did Members read the French newspapers when the deal was announced? They regarded it as the deal of the century. It will create 10,000 jobs—not at Hinckley Point, but in France. It is an extraordinary deal. For Britain, it is the rip-off of the century. We have agreed to buy energy—this is hard to believe—at £92 per megawatt-hour, which is twice the going rate at present, and that is the minimum rate. We have indexed linked that price and guaranteed it for 35 years. We do not know what energy prices will be in 35 months.
The chief executive of Ineos, a man who is a great importer of energy and will be importing shale gas into Grangemouth, said that British companies would not go anywhere near that price. At present he is buying energy from the same company, EDF in France, at £37 per megawatt-hour. That is the going rate. For reasons that are beyond us—inertia, or because they are tied to a nuclear future—we have gone into this terrible deal. People will look back, possibly when you and I are still in the House, Madam Deputy Speaker, at this terrible deal that has been struck. It is irrational.
We are buying a European pressurised water reactor. They have been around for a little while, but they have not yet produced enough electricity to power a bicycle lamp. The first one was in Finland. According to the deal, it was going to start generating electricity in 2009. The original cost was €3 billion—it is now reckoned to be €8.5 billion—and it is not expected to be generating until 2019, 10 years late. The other one is Flamanville. It had a very similar original cost and is now also expected to cost nearly three times that—€8.5 billion. It is not expected to be completed for four years after the year when it was supposed to be generating electricity, which was last year. The right hon. Member for Bermondsey and Old Southwark (Simon Hughes) used to start his speeches by announcing that no nuclear power station in the world has ever been built on time or on budget. Of course, the Liberal Democrats are now singing from a different hymn sheet because they have a Lib Dem Secretary of State.
We are waltzing into a future that is not well informed by science but based on forecasts. In 2007, the Labour Government’s policy was that nuclear power was an economically unattractive proposition. David King went along to Downing street, showed his slide show, and said that there would be a gap in energy in a few years’ time. The Labour Government changed their policy. Then we heard that the lives of the AGRs—advanced gas-cooled reactors—were to be extended, and the fuel gap did not occur.
I suggest to the Government that we do not build on a system that has always proved expensive and has never delivered on its promised targets, but go into the areas of marine power whereby we can have an abundance of electricity from the great cliffs of water that flow around our shores 24 hours a day. An example of that is La Rance in France. It has been there for nearly 50 years, it paid for all its capital costs decades ago, and it is producing the cheapest electricity in the world. Around our coast, particularly in the Severn estuary but also in other places, there is huge potential for using this great, wasted resource that is natural, immensely powerful, freely available to us, and benign to the environment. Sadly, however, we go on thinking along tram lines. I believe we will find that the EU decides that the £17.5 billion subsidy we intend to pay for Hinkley Point—for one power station—is against European rules because such subsidies are not allowed. My nightmare is that if we have a true—
David Mowat
Is the hon. Gentleman aware that under the energy market reforms the contract for difference price for tidal power is four times that paid for nuclear?
Paul Flynn
I am aware of the high costs that are put in for all renewables, but at least renewables provide a power source for the future that is free, and has other benefits. The site at Hinkley Point is based on an estuary where there was a tsunami a while ago.