Duncan Hames
Main Page: Duncan Hames (Liberal Democrat - Chippenham)Energy Price Freeze
Duncan Hames Excerpts(10 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text
Caroline Flint
I will make a little more progress.
At the outset I want to deal with a few of the myths that the Government have resorted to peddling in the absence of any credible policies of their own and because they are confused about how to respond to our proposals. The first myth is that the price freeze cannot or will not happen or that the idea is a con. Let me tell the House that there is only one situation in which this price freeze will not happen: if the Conservatives or Liberal Democrats win the next election. If we are elected, this price freeze will happen. The idea that a price freeze will not work if wholesale prices increase is complete and utter rubbish.
As the energy companies themselves admit, they are not buying today all the energy they need to supply their customers tomorrow. They buy their gas and electricity two, three or even four years before it is supplied, precisely in order to manage the risk of fluctuation in wholesale prices. The Secretary of State must know this, so the Government’s argument does not stand up.
The second myth is that companies will undermine the freeze either by hiking up their prices beforehand or by increasing them afterwards, but as I asked the Secretary of State at the last Energy and Climate Change questions, if companies collude to increase their prices beyond anything that can be justified before the next election, will he stop them? If he will not, let me be clear: we will take action. As for what happens after the price freeze ends, the reason it lasts for 20 months is that that is how long we think it will take to enact our reforms to overhaul this market. By that point, we will have a new regulator in place, with the power to force companies to cut their prices when wholesale costs fall, which will prevent the kind of mark-up and overcharging that we all know is happening. This price freeze will happen and it will work.
Duncan Hames (Chippenham) (LD)
Does the right hon. Lady agree that it would be in the interests of bill payers for all Governments to have an objective of keeping the cost of capital in the industry as low as possible so that bill payers may get their energy as cheaply as it can be produced?
Caroline Flint
I do agree. It is sad that in recent times so many people who want to invest in energy have said that the capital costs are going up because of the dithering and indecisiveness of this Government towards investment in energy.
The third myth is that our proposals will deter investment. Nothing could be further from the truth. As EDF’s decision on Hinkley Point C shows, what matters for investors is long-term certainty on returns, not short-term gains based on overcharging. That is why we have supported the Energy Bill and given our backing to the framework of contracts for difference and the capacity market. And we will put right this Government’s failure to set a decarbonisation target, in order to give low-carbon investors the certainty they need to invest throughout this decade and the next.
Caroline Flint
I will make some progress, because I want to get on to one of our other policies that could have an effect this winter.
A competitive, transparent energy market is our aim, but markets must have rules. The question is what those rules allow and what they encourage. Do they mend broken markets or do they allow some firms to take advantage at the expense of everybody else? The motion proposes two important changes to the rules.
First, we all think that there should be simpler and fewer tariffs, but we must also ensure that the market protects those who are less able to switch. The over-75s are the most likely to live in homes with poor energy efficiency and the most vulnerable to cold weather, but they are the least likely to switch supplier and the least able to access the cheapest deals, which are often online. As a result, they often pay more than they need to. The motion proposes that we make the energy companies put all over-75s on the cheapest tariff. The energy companies have told me that they can do that.
Secondly, the constant attacks on clean energy are short-sighted because investing in clean, home-grown energy and energy efficiency will improve our energy security, make us less reliant on imports and leave us less vulnerable to price shocks in world markets.
Caroline Flint
No, I will not give way.
We currently have the problem that when wholesale costs increase, bills go up like a rocket, but when wholesale costs fall, bills fall like a feather, if at all. In a properly competitive market, cost reductions would be passed on as quickly and as fully as cost increases. I urge the House to support the proposal in the motion to establish a new regulator with the power to force companies to cut prices when wholesale costs fall. I know that the president of the Liberal Democrats supports that proposal, because he said so to the audience and viewers of “Question Time” when I sat next to him on the panel a few weeks ago. I hope that the Secretary of State will confirm his party’s support for the proposal in his speech.
That is what real action looks like. That is what a Government who put the interests of ordinary people ahead of the energy companies would look like. What a contrast it is with this Government: a Government who pretend to put everyone on the cheapest tariff, even though 90% of people will see no benefit, but who refuse to put all over-75s on the lowest deal; a Government whose only answer is to tell people to shop around, even though switching levels have fallen to an all-time low, as people have lost faith with the market; and a Government who want to roll back the very measures that will insure us against rising prices in the future because they are too weak to stand up to the energy companies today.
Let us remember that 60% of the levies that the Government are rushing to blame were introduced by them. It was the Chancellor of the Exchequer who introduced the carbon floor price, which leaves British consumers and industry paying over and above what is paid by our European neighbours for energy. They talk about value for money, but it is they who designed the energy company obligation—a scheme that requires 53 pieces of information to be submitted for one measure to be installed. When they talk about moving policy costs from people’s bills to people’s taxes, let us remember that it was this Government who abolished Warm Front and now have the unenviable record of being the first Administration since the 1970s not to have a publicly funded energy efficiency scheme.
Today’s motion might refer only to energy prices, but it is about much more than that. It is about who our country is run for. Is it a country that works for hard-working people or are we settling for a country where only a few at the top do well and everyone else struggles? The Opposition know that the first and last test of economic policy is whether living standards are rising for ordinary people. Today, the House faces a choice: a choice between whether it is people’s bills that will be frozen this winter or their homes; a choice between whether we reform broken markets or defend them; a choice between whether we stand up for the 60 million people who live in this country or the big six energy companies, for the 2.4 million businesses or the big six energy companies. The reality is that if we do not fix this broken market, nobody else is going to. Today, in this House, we have it within our power to provide real help now to millions of people who are facing the cost of living crisis and to reform the energy market to deliver fairer prices in the future. I commend the motion to the House.
Mr Davey
I believe that competition is the way to sort that out, and I thought the right hon. Lady was saying that in her speech. I thought the point of her speech was to say that the markets are not working, and that in order to tackle overcharging she wants the markets to work. Is she saying that that is not her position and that she will bring in profit caps and stop companies overcharging, or is it competition? Competition or regulation—let the right hon. Lady come to the Dispatch Box and tell us. She cannot.
Mr Davey
I will make some progress and then I will let my hon. Friend in.
Labour’s price freeze is a con. It damages competition and, as we have heard, it damages investment. That contrasts with what the Government are offering, which is direct help to the poorest in society, radical energy efficiency programmes, and a focus on competition that the Labour party never had. That direct help, the warm home discount—£135 off the bills of 2 million of the poorest people—was never offered by the Labour party. We are taking forward the winter fuel payment and we have tripled the cold weather payment. That is direct help to the poorest people, and we are proud of that.
Duncan Hames
For those of us who want more competition, is not the problem that the price freeze and the forward purchase of energy, which the right hon. Member for Don Valley (Caroline Flint) has described, is much more difficult for the smaller suppliers than for the bigger ones? The price freeze will do nothing to support a competitive market when it comes to an end.
Anas Sarwar
The hon. Gentleman highlights the need to fix a broken market across the UK. The bizarre thing is that he wants to leave the UK, but stay in the UK energy market. That is against the interests of the people of Scotland. I will come on to the wider policy of the Scottish nationalists in a moment.
Given that we have had price hikes of more than £300 since the last election, and at the same time more than £7 billion of profits have gone to the shareholders of the big energy companies, does that not highlight the case for breaking the monopoly of the big six companies?
Anas Sarwar
I am sorry, but I have given way twice already.
Last week, we saw the big six sit before the Select Committee on Energy and Climate Change and claim that prices in the past few years have been driven by wholesale costs, when it has already been demonstrated that that is not the case. That was confirmed by some of the smaller companies, one of which told the Committee:
“I can’t explain any of these price rises… I have been somewhat confused by looking at the explanations for the price rises that we’ve seen in the past three or four weeks.”
There have been billions of pounds’ worth of profit while pensioners in my constituency face the impossible choice of heating or eating this winter. What could be more indicative of a broken market than one that leaves our most vulnerable citizens unprotected at a time of greatest need, solely in the name of higher profits?
The problem is not simply the behaviour of the energy giants. My constituents are literally paying the price of being trapped between an uncaring, out-of-touch Tory-Government pursuing cuts and profit at any cost, and a distracted Scottish Government desperately trying to frame any and every problem as a reason for independence—two Governments more interested in electoral dividing lines and narrow ideology than in improving the lives of the Scottish people. They are choosing to stand up for the vested interests of the big six energy companies and boost their profits while Scottish families struggle to pay their bills. It is indeed a sad day when Governments become a cheerleader for the energy companies, instead of putting struggling people first.
Scots are now faced with a crippling combination of rising living costs and frozen wages that have created a cost of living crisis that both Governments are failing to address. Disappointingly, however, Alex Salmond wishes only to talk about the powers he wants rather than getting on and using the powers he has to make a difference. There is now an interesting coalition in the context of the constitutional debate in Scotland. We have a coalition of the Scottish National party, the Tories, the Liberal Democrats and the big six energy companies all standing up for their own interests, not the interests of the people of Scotland. The Prime Minister’s policy was not announced first by him: the first person to announce the Prime Minister’s policy on energy prices was the Deputy First Minister of Scotland, Nicola Sturgeon, at the SNP conference. She said that the SNP wanted to take the cost off the energy bill and instead put it on the tax bill, meaning that people who are working hard will continue to have to pay the price while big energy companies will get away scot-free. Those are the wrong priorities, and they are damaging.
What else have we heard from the nationalists? They want not just to let energy companies off meeting their responsibilities for renewables, but give them a massive tax cut. They want to cut corporation tax, which will mean that after independence they will have more, not less, profits. What is even more confusing is that they say—we have heard it already from the hon. Member for Na h-Eileanan an Iar (Mr MacNeil)—that the UK energy market is broken and that is why we need independence. Their policy, however, is to say, “Let’s break away from the United Kingdom, but let’s share the UK energy market.” That is not in the best interests of Scotland. Scotland makes up 8% of the UK population, yet one third of spending on renewables is spent in Scotland, so the whole of the UK is contributing, through their energy bills, to supporting the renewables industry. Do we honestly think that one third of renewables spending will continue to be spent in Scotland after independence? I do not think so. Independence would break the historic pooling of resources across the UK for the benefit of all.
Neil Carmichael
That is a good point, and I will deal with it later. I thank the right hon. Gentleman for reminding me to mention it.
Secondly, we cannot talk sensibly about this subject unless or until we understand the economic circumstances in which we live. A lot of people would say that we want lower energy prices, and absolutely we do—the Government are right to emphasise that—but we have to produce some economic growth to help to drive down prices and to drive up wages and salaries where appropriate. We have to get that on the table and well understood.
Thirdly, it is a bit rich for Labour Members to claim that this is all our fault when during 13 years they did not build one single nuclear power station. [Interruption.] They did not, and we have got on with the job. The Government are absolutely right about that.
My main points are these: first, commodity prices are global, and we cannot influence them globally but must respond to them sensibly and locally; secondly, we must consider the economic circumstances; and thirdly, we have the history of failure by the previous Labour Government.
We have to increase capacity, and that is why the Energy Bill is so important. We talk about the big six, but in my constituency we have a large number of small companies and one fairly big one that is not a member of the big six but is a powerful beast nevertheless—Ecotricity, which is busy taking new customers from the big six because of the price rises. That is an example of effective competition being driven, and quite right too, by the arrival of more capacity.
Duncan Hames
I have a small competitor in the electricity supply market in my constituency as well. Does the hon. Gentleman recognise that these smaller competitors would be disadvantaged during a price freeze because in trying to buy energy on the forward market they lack the collateral that the big six have, and therefore, during that period, the big six would be advantaged over the competition?
Neil Carmichael
The hon. Gentleman is right—that is a perfectly good point.
Duncan Hames (Chippenham) (LD)
I did not anticipate having the opportunity to speak, so I am grateful to you, Madam Deputy Speaker, for calling me and to colleagues whose speeches I have heard.
It is important first to set out our objectives for energy policy, on which, even in this heated debate, a large majority of the House can reach a consensus. We want energy that is affordable and reliably available to businesses and households. We want to meet our energy needs in a way that also meets our commitments in the carbon budget to reduce carbon emissions and take responsibility for the consequences of our choices for the rest of the world. It is worth bearing in mind, in seeking to do all those things, that the question of affordability can be addressed not only through energy-specific policies but through wider economic policy.
I suspect that energy is not going to get any cheaper, so it is important that we look to other mechanisms to make our energy more affordable. Above all, I would certainly agree with those who have spoken today about the need to become more efficient in our energy use in order to get the bills down. I also hope that we can support economic policies that will provide for growing incomes, so that people’s ability to pay their energy bills will be improved. That should be an objective of this Government and any other.
My main interest in speaking in the debate is to elicit more detail from those on the Opposition Front Bench about the proposals that they want MPs to vote for this afternoon. The “deep structural reforms” that the right hon. Member for Don Valley (Caroline Flint) talked about introducing after a 20-month price freeze are worthy of closer scrutiny by Members on both sides of the House, but I lack any confidence that the interim measure of a price freeze would actually work. I want to ask some questions about that, and I hope that the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) will be able to answer them when he sums up.
How long would it take to bring about a price freeze, once a Government Minister had decided to introduce one? Could he or she do it under their own executive authority? Would they need to put it to the Cabinet, or get a Government write-round to support the proposal first? Could it be done through regulations, or would it need to pass through this House? Would it require primary or even emergency legislation?
I would be interested to hear how long it would take to implement such a freeze, regardless of which party was in power, if a Minister was minded to do so. That would also tell us how long the energy companies would have to respond to the situation before the Government were able to implement the freeze. Would it be possible for the energy companies, either under this Government or a future Government, to get price rises in before a freeze came into effect?
What would be the consequences of a price freeze while it was in place? The right hon. Lady said that, even if wholesale prices were changed during a freeze, electricity suppliers would not feel the effect or need to increase their prices because they would already have purchased their energy on the forward markets. As I have tried to explain in earlier interventions, that will present a particular challenge to the very companies that I hope all Members want to have a greater presence in the electricity market, because those smaller companies are at a disadvantage compared with the big six when trying to buy electricity on the forward markets.
It is not difficult to understand. An independent electricity generator entering into a contract to sell its electricity some time in the future to a supplier of electricity to businesses and other customers is giving up the opportunity to sell it to anyone else. It will therefore have to be extremely confident that the supplier will still have the financial strength to pay for that electricity later on. Generators look for collateral in those circumstances, and the big six clearly have the necessary collateral to see them through that process. It is much harder for the smaller, challenger companies.
Dr Whitehead
The hon. Gentleman talks essentially about the security of long-term bilateral deals. Does he accept that the effect of a pool, particularly a full purchase-in and a full buy-out pool, removes a number of the issues he has raised about the uncertainty of whether we can get a buyer and whether the person who is buying ultimately has the wherewithal to do so?
Duncan Hames
I thank the hon. Gentleman for that intervention. I said that I was interested in the long-term proposals outlined by the right hon. Member for Don Valley. However, I am talking about what happens during the period of the price freeze, before some of the changes she proposed come into effect; and I was highlighting the difficult position in which the small suppliers are left during that period.
This issue relates not just to wholesale prices, as other increases in costs that suppliers will experience during this price-freeze period are relevant, too. Suppliers will experience regular increases in costs for distribution and transmission, and unless they are in a position to change their prices before the freeze comes into effect, that will be a direct hit. Although some Labour Members may believe that the big six can take that hit, it is a much bigger challenge for smaller competitors to be able to absorb it. In fact, a market in which losses need to be absorbed for a period of time before it is possible to break even acts as a barrier to entry. If we want a more competitive market, introducing a new barrier to entry and to the viability of new entrants will clearly not help bring about competition. In order to be able to grow market share, new entrants rely on people having an incentive to switch. I would be interested to hear what the Opposition think will be the practice of competition during the 20-month freeze. How possible do they believe it will be for the smaller competitors to challenge the big six during this period, or will it just be one of entrenchment for the big six companies?
At the start of the debate, I asked whether the right hon. Member for Don Valley agreed with me—and she did—that it was in the long-term interest of consumers for Government policy to seek to reduce the cost of capital to businesses in the industry. If we enjoy in the future a very competitive energy market—after whichever Government have been busy reforming the electricity market—the lower the cost of capital, the lower the prices will be that consumers pay.
It seems to me incontrovertible that an industry experiencing a Government intervention which forces a price freeze for a period of 20 months will have the effect of raising the cost of capital. Investors do not have to invest in the sector if they do not wish to do so; they can invest elsewhere. If they know that the Government have frozen prices, that will be a reason for the cost of capital to increase. Ultimately, that would push up prices for consumers, even after all the reforms that the shadow Secretary of State outlined. That would not be in the best interests of consumers. I do not believe that this idea is going to work.
Tom Greatrex
I will not, because I am short of time, and I need to be able to respond to comments from other hon. Members.
My hon. Friend the Member for Glasgow Central (Anas Sarwar) highlighted a reluctance to address these issues and to challenge the fact that they exist in Edinburgh as much as in Whitehall. The hon. Member for Wealden referred to the rather ridiculous claims about blackouts, which were made immediately after the proposals were first outlined, and he will be interested to know that every single energy company that I have since spoken to has dissociated itself from those comments made by the trade body and, indeed, from the comments of the Secretary of State and the Minister on Twitter immediately afterwards. I am sure that he will heed the warning on Twitter that the Prime Minister issued some months ago.
The problem also exists in Edinburgh, where the only person sticking with those comments and repeating the ridiculous comparison with California in 2000 is the Scottish National party energy spokesman in the Scottish Parliament. We will stand up to those issues, because we want a market that works. My hon. Friend and constituency neighbour, the Member for Lanark and Hamilton East (Mr Hood), made an important point about the duties of government and discussed the legacy of the former Prime Minister, Margaret Thatcher. Another aspect of her legacy, Sir John Major, said a couple of weeks ago that if markets did not work and companies behaved badly, Governments stepped in. That is precisely what we are outlining in the policies that we are debating.
Another legacy of John Major was the system where the companies could integrate. Government Members referred to Labour’s big six. The Minister, the right hon. Member for Sevenoaks—I know that he was on a career break at the time, but was a Minister in John Major’s Government and has been around for a considerable time—will know that the first of those acquisitions was Scottish Power acquiring Manweb in 1995. The hon. Member for Warrington South (David Mowat), who is unable to be in his place, could not describe, when challenged, why prices have gone up. My hon. Friend the Member for Blaydon (Mr Anderson) made a related point. That is precisely why we need transparency in the market.
When SSE put up its prices recently, it tried to quantify the cause of the increase. It attributed 4% to wholesale costs, 10% to network costs, 13% to Government policy costs, 8% to VAT, which adds up to 80%, leaving 20%. That additional 20%, which was not in SSE’s press statement but was in the small print and in conversations with the markets afterwards, was to increase its profit margin. That is what is happening in the market, and not just in the case of SSE—npower did something similar. I recommend that Members who want to see just how complicated and opaque the market is read the most recent edition of Private Eye, in the City column, about the structures around Centrica and particularly the trading arm of Centrica and the way in which profits are moved around different parts of what is essentially the same company.
My hon. Friend the Member for Ynys Môn (Albert Owen), a distinguished member of the Select Committee, made the important point about ensuring that off-grid customers are protected. The hon. Member for Wells (Tessa Munt) repeated the comment from First Utility, but she neglected to mention that when interviewed on “You and Yours” a couple of weeks ago, Ian McCaig, the chief executive of First Utility, said that the most important reform needed was openness and transparency in the market. That is exactly the reform that we propose in the motion before the House.
My right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr Clarke) has a distinguished record in the House of campaigning for the fuel poor, and indicated how long he has been campaigning. My hon. Friend the Member for Rochdale (Simon Danczuk), as well as mentioning some of the issues that he has encountered in dealing with energy companies, made the important point that the proposed measure would save small businesses £5,500 and medium-sized businesses £32,900 based on their previous bills.
The hon. Member for Angus (Mr Weir) talked about the reviews. He will know that the one announced by the Government is the 18th review since 2001. He spoke about the measures announced at the Scottish National party conference for a separate Scotland to reduce bills by £70 by moving ECO from consumer bills on to the tax bill. He neglected to mention that the pooled support for renewable energy for Scotland, which is paid across the whole of Britain, would not exist in the same form. Scotland has 8% of the population and more than a third of that support, which is spread across all the bill payers in Britain, as he well knows.
The hon. Member for Chippenham (Duncan Hames) asked me a number of questions, first about how the measures would be introduced and whether emergency legislation would be used. I am not sure whether he was present for the speech from my right hon. Friend the Member for Don Valley at the start of the debate. She made it clear that we would introduce specific legislation quickly—he might call it rapid or emergency legislation—to do one simple thing: to enable the Secretary of State for a fixed period to amend the licence conditions to allow the freeze to take place while we make the wider reforms.
Tom Greatrex
I shall respond to the other points that the hon. Gentleman made during the debate, and I am conscious of time. He referred to the issues for small companies. I say again that every small supplier that I have spoken to in the past few weeks has made it clear that what is needed most of all is an open, fair and transparent market where energy is traded openly and suppliers can compete and get a better share of that market in order to build their customer base. That is what Labour’s reforms would deliver. The price freeze would enable those reforms to be put in place.
My hon. Friend the Member for Southampton, Test (Dr Whitehead) shot a number of ducks and set out cogently and coherently the point of resetting the market. With his expertise and as a member of the Select Committee and the Bill Committee, he will know that we have been talking about these issues for a considerable time, and to suggest that they are something new or emerging today, as the Secretary of State implied, is utter nonsense.
My hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) talked about the impact on health. My hon. Friend the Member for Chesterfield (Toby Perkins) referred to the Prime Minister’s announcement on green levies, The Prime Minister made his announcement. The Energy Minister, who is in his place, told the Environmental Audit Committee a couple of weeks ago that the Government were looking at each of those levies. I asked a parliamentary question on which levies they were looking at and received a response today from the Secretary of State. It stated that they are looking at investment incentives, but not for the renewables obligation, contracts for difference or feed-in tariffs. The Prime Minister said earlier today that they were looking at every subsidy and every levy. There is complete confusion at the heart of the Government about what is and is not in scope for the review. If they are concerned about the impact on confidence and investment, they need to look at the shambles of their own policy over the past couple of weeks.
My hon. Friend the Member for Washington and Sunderland West (Mrs Hodgson) made a heartfelt speech detailing her own experience of growing up in fuel poverty and her concerns about her constituents and others in the same situation. My hon. Friend the Member for Blaydon (Mr Anderson) made a similar case. My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) also dealt with the reality of the cost of living crisis, of which energy costs are just one aspect. My hon. Friend the Member for Wansbeck (Ian Lavery) talked about the issues facing ordinary people. All those contributions made it clear why we need complete change in the market, and we need a price freeze to enable that change.
The motion before us is about a price freeze, but it is also about ensuring that there is a level playing field for other companies and that companies cannot abuse their position in future. It is about fixing a broken market and standing up for consumers and businesses. It is about making the market fair, clear and transparent in the interests of consumers, industry and the country. I commend the motion to the House.
Gregory Barker
The hon. Gentleman did not actually speak in the debate.
The net impact would be to hurt the fuel-poor, to hit hard-working people, and to clobber families and pensioners on tight budgets. We are not in this for 20 months; we are in it for the long term. For the first time in 13 years, we have a Government who are planning and taking decisions in the long-term interests of British consumers.
Duncan Hames
We have heard from the Opposition that they believe that legislation would be necessary to introduce this price freeze. Even if this Government were to table such legislation tomorrow, what would stop energy companies hiking their prices before it became law?
Gregory Barker
They have hiked them before and they could hike them afterwards.
The long-term impact of the freeze would be to decimate investment and to drive away consumers. The very-long-term secure energy supply we are trying to build would vanish at a stroke, and the poorest and the most vulnerable would pick up the price tag. We know that Labour Members cannot freeze prices—it is a con to suggest that they can—but, as we heard again and again today, they would succeed in freezing out competition, choice and investment.