Domestic Gas and Electricity (Tariff Cap) Bill

James Heappey Excerpts

Wednesday 18th July 2018 Commons Chamber

[Claire Perry]

The hon. Gentleman refers to the regrettable series of price increases that we have seen from all the major, big six energy companies. Prices will of course go up because, as the hon. Gentleman will know, the wholesale price of gas in particular doubled—I believe; I will make sure the record is correct—in the last six months. The regulator can always define price rises as excessive, but the point of this very welcome cap is that those who are particularly vulnerable and who are on standard variable and default tariffs—often people who are elderly, perhaps less well-educated and furthest from the digital market, in which we all compete to switch—will be protected without having to switch. Indeed, the work that Ofgem is currently undertaking to ensure that the cap is set at a fair level will be vital to making sure that those protections come forward.

Amendment (a) will ensure that the legacy of the Bill, of which we should be extremely proud, is not undone by a return to business as usual by those suppliers that have thought up or carry out additional practices, such as tease and squeeze. I thank Members of this House, including Members from the Opposition Front-Bench team, for helping to create the amendment, which we believe is the most appropriate response to the concerns raised by members in this House and in the other place. I am delighted to see my hon. Friend the Member for Weston-super-Mare (John Penrose) nodding during my speech. Along with the right hon. Member for Don Valley (Caroline Flint) and others, he has been vital in driving this issue up to the top of the Government’s agenda and making sure that we get the Bill and this amendment right. I offer huge thanks to my hon. Friend and the others who have been involved.

[James Heappey (Wells) (Con)]

Will the Minister confirm that while the Bill has had to take this unexpected second lap of this place, Ofgem has been hard at work on its preparations for enacting what is likely to be in the Bill when it is passed? Will she join me in advising any energy companies that are considering legal action over the summer that it would be rather inappropriate for them to get in the way of legislation passed in this place quite legitimately?

[Claire Perry]

I thank my hon. Friend for that intervention, because it enables me to say four things. First, I am grateful to the noble Members of the other House, because legislation is always better when it is scrutinised carefully. I think amendment 1 is helpful, so I am not unhappy to have the chance to talk about it.

Secondly, the new chair of Ofgem, Martin Cave, who will shortly take up his post, is a brilliant campaigner in support of the idea that customers should benefit from this regulated energy market. Indeed, I think he proposed the original idea of a tariff price cap. His appointment and the Bill will both help to strengthen Ofgem’s powers. Members will know that he wrote to the Chairman of the Business, Energy and Industrial Strategy Committee—I think it was only last week—setting out Ofgem’s determination to use its powers as widely as possible.

Thirdly, I reassure my hon. Friend that I have come to the House from a meeting with Ofgem, at which we discussed its progress on the price cap. That is well under way, and Ofgem has an extremely good team working on it. Ofgem has already published various technical papers setting out the methodology behind the cap calculation, and it intends to publish in full the details of that in very short order. That will give everybody a chance to scrutinise the cap and make sure that there is nothing untoward.

Fourthly, I wrote to the chairmen of the big six—I think they are all men—last week setting out that the Government would take an extremely dim view of companies that sought to frustrate the introduction of the cap, for which we have all worked so hard, by some sort of legal challenge; and that instead they should work with Government in this exciting time in the energy markets and look to their own activities to see how they can drive down costs, and drive up efficiency and customer service.

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[James Heappey]

Will the Minister reassure the House that she does not see this price cap as “job done” in terms of reducing people’s bills, and that she and her team in BEIS will continue to drive forward innovation in the energy markets so that new tariffs can come forward, and continue to focus on energy efficiency measures so that we can drive down people’s bills in those ways as well?

[Claire Perry]

My hon. Friend uses his great experience in this area to point to this being two halves of an equation in making sure, first, that energy is going into a property at the lowest possible price, and secondly, that consumption is as low as can be.

With ECO now at over £600 million, we are targeting that entirely at fuel poverty. The consultation has closed and we have the responses to come out. There is the whole challenge of getting energy efficiency levels up so that, overall, households are more energy-efficient. I am looking at the hon. Member for Neath (Christina Rees) on the Opposition Front Bench. I very much enjoyed a visit to her constituency to see an energy-positive home. That is an incredible innovation funded by her local excellent councillors, looking at how to design homes that return energy to the grid and are cool and lovely to live in. That is the kind of technology and innovation that we want to see.

I hope that we can all agree on this amendment, send it up to be agreed in the other place, and get on and pass the Bill before this place rises, because the regulator has told us that it will need up to five months to calculate the mechanism. It is absolutely vital, as my hon. Friend the Member for Wells (James Heappey) said, that that mechanism is absolutely watertight so that energy companies do not seek to frustrate further the introduction of this measure. We want it in place by the end of this year so that people can start saving on their energy bills this winter.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Labour Members are delighted that the Bill to institute an absolute price cap on energy costs is about to pass into law, mechanisms notwithstanding, this afternoon. We are delighted because of the parentage of the Bill, which emanates from the Labour Benches. If hon. Members are worried about the authenticity of the parentage, I can produce a birth certificate: the motion that was debated in this Chamber on a Wednesday afternoon, at exactly this time, on 6 November 2013. It said:

“That this House calls on the Government to freeze electricity and gas prices for 20 months whilst legislation is introduced to ring-fence the generation businesses of the vertically integrated energy companies from their supply businesses, to require all electricity generators and suppliers to trade their power via an open exchange, to establish a tough new regulator with the power to force energy suppliers to pass on price cuts when wholesale costs fall, and to put all over-75-year-olds on the cheapest tariff.”

That motion was in the name of my right hon. Friend the Member for Don Valley (Caroline Flint). When it was debated that afternoon, it did not, I have to say, receive a terribly positive response from the Government of the day.

[James Heappey]

How times have changed.

[Dr Whitehead]

Indeed.

Five and a half years later, we are almost there. I hope that the procedures on the market issues that we have discussed during the Bill’s progress ensure that while there is a price cap those issues are addressed so that we can, as the mechanism in the Bill suggests, come out of the price cap with market conditions resolved in a much better way for customers. Indeed, just as was suggested in that motion, the Bill provides for a procedure to declare the market in place, at which time the cap is ended. That could be about 20 months or perhaps three years, but nevertheless there is a mechanism for that.

What happens at the end of cap conditions is important, and that is what the amendments that have come from the other place at the end of the Bill process deal with, rather than the principle of the absolute cap—the central principle of the Bill—which, I am delighted to say, was received in the other place as warmly as in this House. On termination of the cap, the Lords amendment would put in place a relative tariff differential that would limit the price range between the highest and lowest tariff a company can charge—the so-called “tease and squeeze” problem that the Minister mentioned. That would be not within the absolute cap but part of the return to market conditions that would nevertheless shape how the market subsequently works for the benefit of customers.

I am delighted that the Government have responded positively in the shape of their amendment in lieu, which I am pleased to say the Opposition not only were given sight of but had the opportunity to work on in detail, to ensure that between us we had a resolution to the outstanding issue from the other place. We can endorse the amendment and recommend that their lordships consider it a worthy response to the message we received.

The amendment is slightly different, using an Ofgem mechanism to bring about a solution to tariff ratios, but from the amendment’s drafting I am confident that Ofgem would receive the message in no uncertain terms of how it should use its powers, should the report it is required to write before termination of the cap comes about demonstrate a continuing problem in tariff differentials.

The Bill has always had more than a tinge of Labour parentage to it and now its offspring has further elements of Labour input, which I, for one, very much welcome. It is now a Bill that all sides can agree does the right thing on energy prices and how the market works. That signal of unity from all sections of the House sends an important message to all those affected by the legislation—that this is a serious piece of work, which will work, and that we are all determined to make it happen. If the Bill can pass back to the other place for its final procedures on that basis, that will strengthen considerably the efforts that we are embarking on to ensure that prices are maintained in the interests of customers over the next period through the freeze mechanism.

I thank the Minister very much for the constructive and open way in which she has conducted discussions on the Bill hitherto, and I at least note in distinguished messages the input of the hon. Member for Weston-super-Mare (John Penrose), and of course my right hon. Friend the Member for Don Valley, who I mentioned at the beginning of my comments, whose role in the Bill’s parentage should be not underestimated at all; indeed, it should be written up in dispatches.

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[Stephen Kerr]

I join others in paying tribute to the work done by my right hon. Friend the Minister in leading the Bill through the House. I also pay tribute to the Opposition spokesman, the hon. Member for Southampton, Test (Dr Whitehead), and to my hon. Friend the Member for Weston-super-Mare (John Penrose). There has also been mention of the right hon. Member for Don Valley (Caroline Flint). I agree with much—indeed everything—of what I have heard, including from the Scottish National party spokesman, which is always noteworthy, as I think he would agree.

I want to take this opportunity to comment on the nature of the marketplace because, as my hon. Friend the Member for Weston-super-Mare rightly mentioned, this is a marketplace where consumers are punished, or at least treated as suckers, by the companies they are loyal to, and that surely cannot be allowed. I am therefore proud to stand in support of this Bill, and to see it progress quickly from this place to the other place and, very quickly after that, into law. A lot of significant issues have been discussed as the Bill has made progress through pre-scrutiny, Committee and back to the Floor of the House.

I genuinely cannot understand the justification for the Lords amendment. I agree with the hon. Member for Kilmarnock and Loudoun (Alan Brown). The idea that we could legislate in a temporary Bill for an energy market in 2023 seems to me to be quite absurd. Sitting here today, we have no idea what the energy market will even look like in 2023-24. Perhaps the noble Lords have a crystal ball that allows them foresight that we do not enjoy in this House, but somehow I doubt that they do. With the rate of change in the market being what it is, we can comfortably expect that, when we get to the sunset year, 2023-24, the landscape will be much changed from what it is today.

While we have debated many issues on the Bill, I would disappoint the Minister if I did not mention smart meters, as a sideline. I know that the Bill is a temporary measure to fix the energy market, which is badly broken, but it also gives consumers control. It should also give them the right to see how their energy usage is affected by their choice of appliance and how they use their appliances. One way we will do that is through the roll-out of smart meters. I support that but continue to have what I hope are felt to be genuine concerns about the nature of the roll-out and how it is being conducted.

The SMETS1 meters are a poor substitute for the real thing. We have not heard recently how many SMETS2 meters are installed and connected to the Data Communications Company but, bearing in mind the £11 billion cost and that this is a vital part of our national infrastructure for the energy networks of the future, I feel that it is appropriate to mention in passing that we need a stronger handle on where the SMETS2 programme is, its cost and all the issues surrounding it.

[James Heappey]

I very much agree with my hon. Friend. Rushing into the deployment of SMETS2 meters before the technology has been properly proven and the Data Communications Company is fully up and running might lead to a collapse in consumer confidence in smart meters generally, which would have an adverse effect on the smart programme.

[Stephen Kerr]

I agree, and that is why it is important to discuss the real-time issues surrounding the SMETS2 meter and the future smart meter network, which is so important to the future of our energy market.

In conclusion, at the heart of this issue is the need for lower energy prices, and helping consumers to understand how much energy they are using and how they can save money by changing supplier. I look forward to the day when through an app, or rather, with one click, it will be possible for consumers to make smart choices painlessly. If we do this right—and I think we are—this tariff cap measure can fall away in 2023 without causing any problem, and more consumers will be engaged and able to make the right decisions for their households. We will also be able to see the energy companies properly competing and creating the competitive market that the Bill seeks to create.

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[James Heappey]

What a joy it is to be in this Chamber when consensus abounds, after a couple of days of tearing strips off one other. It is really rather nice to be in here, all agreeing. That has rather characterised the progress of the Bill throughout its time in this place and in the Bill Committee, on which I had the privilege to serve. I think it is right that we seek to remove the amendment that the Lords have sent back, but I am glad that a compromise has been agreed between the two Front-Bench teams and I think that the amendment in lieu that we have proposed is very sensible.

Since the Bill has been delayed by this extra lap in Parliament, I think it is worth while to rehearse the arguments once again. The price cap is only a part of the challenge, so I want to add a few other things to the exhortation from my hon. Friend the Member for Stirling (Stephen Kerr) about smart meters. The Government must push on with those very urgently, because the savings from them will be far greater than the savings that we will achieve for our constituents from this Bill.

First, on decentralised generation, putting storage in behind the meter and aggregated demand-side response, I know that the Minister is looking at what comes after feed-in tariffs when they start to run out next year. I hope that she can see merit in finding a mechanism to replace them that really unlocks the market for people who want to install generation in their homes or businesses, storage, demand response and the capacity that comes from electric vehicles.

Secondly, I hope that we can send a strong signal to industry and the regulator over the delivery of heat as a service. Heat as a service is a huge opportunity for energy efficiency to become the responsibility of the supplier, not out of obligation, but because it sees an opportunity to make bigger margins by providing energy more cheaply and efficiently. If we can make that happen, we will secure huge savings for consumers. Thirdly, as we replace the green deal, let us allow storage to be a part of this so that again people can find savings. Fourthly, on replacing the ECO, the consultation has been completed and responses have been had, and I know that plenty of tech companies have made representations for smart thermostats and other clean tech to be included within the ECO catalogue. Let us make that the case.

We have put in an awful lot of time, in this place, the other place and in Committee, to deliver a saving to our constituents of around £100. That is not to be sniffed at, but we can prove to an awful lot of people that an enduring price cap is not the answer by getting all sorts of other things right at the same time. Energy efficiency, storage, the flexibility of demand response and decentralised generation have the potential to slash bills to a fraction of what they currently are. Let us not let this price cap distract us from the real prize, which is huge savings for our constituents from clean tech.

[Rebecca Pow]

I welcome the Bill, as it places consumers at its heart. That is really what we are talking about. In particular, I welcome the amendment in lieu, which is a tweak but a valuable tweak that makes the Bill really work. I also reiterate what my hon. Friend the Member for Wells (James Heappey) said. How wonderful it is to have unity in the Chamber after these last few days. It is welcome and a lovely feeling.

Domestic Gas and Electricity (Tariff Cap) Bill

James Heappey Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 30th April 2018 Commons Chamber

[Dr Whitehead]

I thank my hon. Friend for that important observation about what one might describe as one of the current market anomalies. It is not just about the differentials between the different ways that one can secure a tariff; it is about the issue of prepaid metering and the differential between the bills of people who are in fuel poverty or are vulnerable in other ways and the bills of those who have more resources. Indeed, some of the amendments that we have tabled—and one in particular—would secure firmly in the Bill matters that Ofgem and the Minister would be required to take into account when considering the introduction of the price cap and the period after which it ends.

Amendment 5 would start the process of strengthening the Bill by ensuring that the cap takes effect within no more than a known period that is stated in the Bill. That is because we want the cap in place for this winter. We know that the equivocation on the cap has lost valuable time. The Government introduced it as a manifesto item before the last election, but then apparently went cool on the idea, before suggesting that it was the administrative responsibility of Ofgem. Only then, after a pause of a number of months, was it actually introduced as legislation, and we are now rushing to get the Bill on the statute books so that the cap can be in place this winter.

[James Heappey (Wells) (Con)]

The shadow Minister has brought forward his definition of winter from 30 November in Committee to something that is hopefully a bit sooner. Does he still not agree, as we discussed in Committee, that setting a date for the Bill to be implemented may mean that we rush Ofgem in a way that may not prove to be helpful? Indeed, if Ofgem exceeds our expectations and gets this done quicker, we may be giving the energy companies a target by which to raise their prices. It might be better to let Ofgem go away and prepare the cap as quickly as possible, and act as soon as possible thereafter.

[Dr Whitehead]

Indeed, the hon. Gentleman has a point, which is why now—on Report—the amendment would put a maximum number of months, not a specific date, in the Bill. One might say that hon. Members listened to each other in Committee regarding possible future amendments, which is why I tabled amendment 5 in this manner. However, the fundamental point of the amendment is still to get the Bill working, so that the cap is in place before the winter. Ofgem has said that it thinks it can have a cap up and running in five months, as we have suggested in the amendment. We therefore want the maximum timeframe of five months to be reflected in the Bill, so that the cap is guaranteed at around the time when people get their winter fuel allowance, not when winter returns, as it seems to do these days, in the middle of next spring.

Amendment 6 seeks to quantify the saving that customers might expect as a result of the cap, but we do not wish to make up a figure in so doing. We want to take the Prime Minister’s word on this, when she specified that customers would save £100 as a result of the price cap that her Government were about to introduce. To be precise, The Sun of 27 February this year had the splendid headline “Millions of Brits in line for £100 as Theresa May delivers on energy price cap promise”. This was just one of a number of sources reporting the Prime Minister’s price save promise, but The Sun went further, stating:

“Government insiders say the cap should save at least £100, potentially rising to £300 a year with increased competition and faster switching.”

Now, I do not know whether there are any Government insiders in the Chamber—or, indeed, whether the Minister is one of those cited—but we can assure them that we will take the conservative route on this occasion and propose only that the Bill will do what the Prime Minister says it will.

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[Dr Whitehead]

The Bill says that what needs to be done to modify licences to bring the cap about, among other things, has to be done by Ofgem as part of its implementation process. The question of legal challenge to Ofgem concerns, at its heart, what Ofgem does over whatever period may be specified to ensure that the implementation of the cap does not deviate from what is set out in legislation. That is the clear basis on which the cap should be undertaken, and that is the responsibility of Ofgem.

The second issue is the time within which Ofgem considers that it can introduce that cap in the way that the right hon. Gentleman has described, given its workload and capacity to do so. Indeed, Ofgem is on the public record, through the evidence that it gave to the Committee—he will know that that has some weight through being a public statement in Hansard—as saying that it felt that it could do it within five months. The amendment merely tries to tidy up the process by putting that timeframe into the Bill, while not in any way detracting from the strength or otherwise of what Ofgem is required to do in acting to implement the cap in a way that is both effective and legally watertight.

I am not sure that I can go too much further with the right hon. Gentleman’s point. I am happy to take it up with him separately if he wishes. However, I have explained where we are in seeking a combination of watertightness in the Bill and clarity that the wishes of this House can be undertaken in through the price cap coming in during the period when it is supposed to come in.

Amendment 7 relates to the point made by my hon. Friend the Member for Harrow West (Gareth Thomas) about vulnerable customers and people who are not in a position to take advantage of all the devices that other, less vulnerable customers would be able to take advantage of—that is, customers protected by the existing tariff cap in particular. In our view, it is important that those who are protected by the tariff cap do not lose that protection as a result of the overall cap being introduced. It would be helpful if the Minister, even if she is not minded to accept the amendment, put it beyond doubt that that is the Government’s intention and that they will not seek to lose the current safeguard tariff as the overall tariff cap comes in.

[James Heappey]

Clearly amendments 7 and 9 both have real merit in getting the protection of vulnerable customers right, which is important, but why does the hon. Gentleman feel that his amendment is better than amendment 9?

[Dr Whitehead]

I am afraid that I cannot give the hon. Gentleman that assessment, because I think that both have equal merit in dealing with very similar issues.

[James Heappey]

In a slightly different way.

[Dr Whitehead]

Indeed, but both have equal merit, and I would not want to distinguish between them in what they would add to the Bill. They both have the central concern that vulnerable customers should not be treated adversely as a result of the overall tariff cap coming in. That is the point that I wish to pay attention to. I am sure that my hon. Friend the Member for Leeds West (Rachel Reeves) will also want to do so when she speaks to amendment 9.

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[John Penrose]

There is now a whole range of underlying pro-competitive reforms—I am not normally one to give Ofgem a vast amount of credit, but it really deserves some in this case—that are needed in this market. Renaming the default or standard variable tariff may not have a huge effect, but it might have a positive effect. There is a series of other things, some of which are even more important, that must happen. It is crucial—I agree with the Labour spokesman about this, as I think we all would—that we do not waste our time and that Ofgem continues to reform the market while this temporary price cap is in effect because, when the price cap comes off, we will want the market to have been sufficiently reformed that no further price caps are necessary, because it works like a normal market in which the customer is king. If we have not done that, we will have wasted our time and everybody else’s.

I was talking about the complications and the hideous complexity of Ofgem’s proposals, but if all that inflexibility and complexity has not put Members off already, they should have a look at the bureaucracy. Pretty much every free market economist will agree that the best way to discover a price is not through a committee that meets every couple of months, but with a genuinely competitive market in which supply and demand are matched from moment to moment all day, every day. Fortunately, we just happen to have one of those handy. The switching market is full of deals on which energy firms compete like mad for business. It is innovative; it has razor-sharp prices; and it takes changes in wholesale energy costs in its stride every day of every week. The customer is, in other words, genuinely king or queen.

That is, as we have just discussed, exactly what we want to see in the rest of the market, so why are we ignoring it? Why go for a far less competitive version that is inflexible, hideously complicated, bureaucratic and committee-based when we could simply tie rip-off default tariffs firmly to the switching market and go down the pub for a drink? The mechanism, as we have heard, would be simplicity itself: a maximum mark-up between each energy firm’s best competitive price and its default tariff—we would cap the gap. Unlike with the arrangements in the Bill, there would be just one decision for regulators to take: the size of the gap. Everything else would be taken care of by the link to the competitive switching market.

[James Heappey]

I am grateful to my hon. Friend—my neighbour—for giving way. Has he given any thought to what a relative cap would do for time-of-use tariffs, the arrival of which we should surely be encouraging? They rely on a big differential from free or negative pricing to the most expensive prices, which disincentivises energy use at peak times. Is he concerned as I am that what he proposes might discourage the arrival of such tariffs?

[John Penrose]

Much would depend on the size of the cap on the gap proposed by Ofgem, and much would depend on the rest of the pricing structure of the energy firm in question with regard to where it chooses to put its default tariff. Many of these things are, as my hon. Friend points out, yet to arrive. They are starting to be introduced, but they are a relatively new innovation, with small but growing penetration. He is absolutely right that we need to make sure that we do not disincentivise such tariffs. They certainly will not be to everybody’s taste, but they may be to the taste of an increasingly large number of people.

I would prefer to start from a simple cap—capping the gap—and then have to make a couple of adjustments, rather than making even more complicated something that is, as I have described, already hideously complicated. If we manage to take care of all the complexity and bureaucracy by establishing a link to the competitive switching market—hey presto!—we will have driven a stake through the heart of the rip-off tariffs. Switching supplier would still be worth while, and there would be far fewer jobs for bureaucrats, lawyers and lobbyists. The customer would be king.

My amendments would make a relative cap either possible or required, depending on which version was chosen. I do not expect or intend to press the amendments to a Division, but I want everybody to realise that there is a more competitive, more flexible, less bureaucratic, more customer-friendly and generally better alternative, and that at the moment we are not taking it.

It is not just free market Tories such as myself who think that capping the gap is the right way to go. The Labour Front-Bench team, as we have heard, have tabled an amendment that proposes something similar. They might disagree with my description of it, and they have a fancy-schmancy name for it, but, broadly speaking—as my right hon. Friend the Member for West Dorset (Sir Oliver Letwin) pointed out earlier—the wording is very similar and the amendments would effectively do the same thing.

Labour Front Benchers and I disagree over timing, however. The effect of their proposal would be permanent, whereas ours would be temporary while we fixed the underlying anti-competitive problems in the market. There is, none the less, clear cross-party consensus on the principle, at the very least, so why does the Bill ignore this cross-party opportunity? Why are a notionally pro-competition Conservative Government choosing the less competitive, more bureaucratically inflexible and more complicated version instead? Why are we snatching defeat from the jaws of what ought to be a famous free market victory? I look forward to hearing the Minister’s answer.

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I hope that in most circumstances, good, competitive markets would work in the consumer interest, but energy is not like other products that we buy. It is essential to life. Frankly, ever since privatisation, the energy market has been a managed market. If the companies and their managements were doing what they say they should be doing, we would not be having this debate today. It is sad that it has come to this, but I hope that the fact that it has means that we can draw a line in the sand and that this will be my last appearance on this subject.

[James Heappey]

It is a pleasure to follow the right hon. Member for Don Valley (Caroline Flint), with whom I agree on the risk to green tariffs and on making sure that we do not perpetuate the belief that green tariffs are a premium product. We want them to become the universal norm.

Generally, the Bill is a necessary evil. Interference with the market is not our first choice of action, but it is the consequence of a market that has stopped working and is exploiting customers, especially those who are least engaged in it. The Bill’s key point is its temporariness. I know that the Minister shares my strong belief that temporary should be as temporary as it absolutely can be. It therefore becomes essential that once the Bill is passed—it is good to see the Opposition’s continued support—Ofgem moves very quickly not only to come up with a mechanism for price capping, but to consider what sort of market transformation it can deliver as it changes the regulatory framework in the market, so that we end up with something that is markedly better than what we have now. The big savings come not from a cap that cuts bills by £100 or more, but from the delivery of an energy market that is digitised and cheaper because we have facilitated the disruptive powers of all the new suppliers that are coming in, which in turn will encourage the current large suppliers to change their ways to do business better.

I intervened on the shadow Minister, the hon. Member for Southampton, Test (Dr Whitehead), about his amendment 5, so I will not say anything more about that. The purpose served by amendment 6, as we discussed in Committee, is to say to the energy companies that all they need to do is save customers £100—so they will just save customers £100. I passionately believe, therefore, that we should not tell them just to save customers £100. Instead, we should deliver the biggest saving that we reasonably can through whatever device Ofgem delivers, but the moment that we put a figure on it, lo and behold, that is exactly what all the energy companies will deliver.

The hon. Gentleman has made some changes to amendment 7 since Committee stage. He knows I share his concerns about vulnerable customers and possible unintended consequences from the Bill, and I know the Minister will be keen to reassure us that the Government have got this covered, but I prefer amendment 9, tabled by the hon. Member for Leeds West (Rachel Reeves), which has the support of many on the Select Committee and is well worth considering. The Government have looked at the vulnerable customer issue since Committee stage, and I wonder, given today’s very sensible amendments, if they might run one more lap on this between now and consideration in another place.

On amendment 8, which we also discussed in Committee and which the hon. Gentleman has also come back with, my concern is that the list could be much longer. If we are to specify all the circumstances, why not designate another dozen or two dozen things that we could legislate for, if we absolutely had to? I am not convinced it is necessary.

I also have a problem with new clause 1, because the Bill needs to be temporary. As I said either on Second Reading or in a Westminster Hall debate, it needs to be a raid into the energy market, not an occupation. New clause 1 is a raid with a few troops left behind thereafter, which I am not sure I like very much. We want to ensure that Mr Nolan and his team at Ofgem can, in delivering the price cap, facilitate a transformation in the market that makes such legislative provisions redundant. The consumer-friendly, disrupted, digitised market that awaits will be so much cheaper that we will be glad to have made this slightly un-Conservative, temporary raid into the market, to deliver something on the other side that is much better for consumers.

[Alan Brown]

The Bill is designed to intervene in the energy market and correct market failure, which is why it has cross-party support, but not surprisingly, because it is a reaction to market failure, there are nuanced differences in how people think that can best be dealt with. One good thing is that everybody seems keen to protect the most vulnerable customers. The question is: what do effective competition and a fairer market look like?

One fundamental still being debated is whether the cap should be a relative or an absolute cap. The hon. Member for Weston-super-Mare (John Penrose), who has been absolutely consistent in his belief that it should be a relative cap, should be commended for sticking by that, although obviously that does not mean I agree with him. As I mentioned in an intervention, one concern about a relative cap is that, because of the bunching effect, we might lose the competitive tariffs at the bottom end. We heard evidence of that in Committee. Some of the newer energy companies argue that they could deliver the lower tariffs even if there were a relative cap, but these companies appeal to those who switch regularly. He says the switching market works really well. Well, it does for those who switch regularly, but we are trying to protect those who do not switch and are stuck on these rip-off tariffs, which is why I agree with an absolute cap.

That brings me to new clause 1, tabled by the Labour Front Benchers. I am struggling to get my head around this. Labour says it does not believe in a relative cap but it believes in a relative tariff, and it would not be a cap but somehow it would work better being relative. It is too big a contradiction for me. I am not sure new clause 1 would work in the way suggested, and for that reason, if it goes to a Division, I will not support it, although I appreciate what the hon. Member for Southampton, Test (Dr Whitehead) is trying to achieve.

Let us look at who supports a relative cap versus an absolute cap. Ofgem, the regulator that will have to implement it and Citizens Advice are in favour of an absolute cap. Citizens Advice is a third sector organisation that works for the most vulnerable in society on a daily basis and often has to deal with those bearing the brunt of the Government’s austerity agenda, and if it says it is in favour of an absolute cap, I think we should listen. Now let us look at the company the hon. Member for Weston-super-Mare keeps. Signatories to his amendments include the hon. Member for North East Somerset (Mr Rees-Mogg) and the right hon. Member for Wokingham (John Redwood)—two of the most right-wing, free-market capitalists in this place. That helps me to make up my mind.

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[Patricia Gibson (North Ayrshire and Arran) (SNP)]

I am delighted to support the Bill, and I am glad to have worked with the hon. Member for Weston-super-Mare (John Penrose), who was instrumental in its introduction and in pushing for the cap. It is disappointing that Ofgem required five months in which to implement it, but at least we shall have it in time for winter 2018.

The amendments to support and protect vulnerable and domestic consumers during the cap’s implementation are of course welcome, and it is right for the Minister and Ofgem to take account of the distinct needs and circumstances of vulnerable consumers when setting the cap, but since entering the House I, like the hon. Gentleman, have developed a healthy scepticism in my opinion of the way in which regulators, including Ofgem, go about their business—or not, as the case may be.

More than a quarter of households that contain a disabled person—27%, or about 4.1 million—spend more than £1,500 a year on a year on energy, and 790,000 of those spend more than £2,500. In my constituency, consumers are overpaying for electricity by £5.5 million a year. There is no denying that high energy costs have a serious impact on disabled people’s financial resilience. They limit those people’s ability to access employment and training and savings, and their ability to participate fully in society. Vulnerable and disabled consumers face higher energy costs than any other consumers, and that must be factored into any consideration.

As we heard earlier, the amendments that are intended to establish either an ongoing tariff differential or a relative cap are simply not robust enough to ensure that consumers would ultimately benefit from them. There is a risk that both the relative tariff differential and the relative cap could trigger unintended consequences, such as energy companies’ raising their minimum tariffs to meet the required difference from their maximum tariffs. That poses a series of questions about consumers’ interests. Indeed, stakeholders such as Ofgem, the Government and Citizens Advice have warned that a relative cap would not prevent overcharging and might simply result in price increases for the best-value tariffs. There is widespread agreement that an absolute cap is the best option if overcharging is to be prevented. Moreover, a relative cap might decrease the number of people switching providers or tariffs, which would clearly not be in the interests of consumers.

We need to know more details of the criteria that Ofgem must follow when conducting its review of competition for domestic supply contracts under clause 7. Those criteria are set out in amendment 8. It is essential that the Minister and Ofgem are as transparent as possible when setting the targets, so that the price cap does what it says on the tin. The hon. Member for Wells (James Heappey) spoke about time of use tariffs. I am extremely suspicious of those, because they will inevitably penalise families with children, who have little flexibility when it comes to controlling when they use their energy. I do not think any of us want that.

[James Heappey]

The hon. Lady makes a good point, but I think that there will automatically be technology in white goods, for instance, that will allow people to shift their demand to take advantage of time of use tariffs. Most families will save significantly as a result.

[Patricia Gibson]

I thank the hon. Gentleman for that clarification. I appreciate that such tariffs will benefit some consumers—I do not think anyone would deny that—but I question whether the system would be flexible enough to benefit all families with children, and others whose energy use cannot be as flexible as they might like.

The amendment to ensure that customers must benefit from the cap by at least £100 seems very arbitrary and risks unintended consequences. I agree with the hon. Member for Wells about that, and with my hon. Friend the Member for Kilmarnock and Loudoun (Alan Brown). There is widespread concern that the big energy companies will use exemptions and green tariffs to ensure that they meet the target.

It is essential that the Bill delivers for consumers and that the period of the cap is used to deliver a fairer, more competitive market for consumers. It must deliver a change for consumers who have been overcharged for too long. There is consensus that the energy market is broken and needs to be fixed, which is why the Bill was introduced in the first place. It enables us to begin to do that, but we must ensure that we get it right and that there are no unintended consequences for the very consumers whom we seek to protect and assist. I know that the Minister will be mindful of that. We need to ensure that consumers benefit from action on this issue after the tariff is lifted in 2020 or 2023.

The launch of the independently chaired commission for customers in vulnerable circumstances by Energy UK in January will report on its findings and recommendations on energy companies, the Government, regulators and consumer groups towards the end of this year. I hope that the Minister or the Secretary of State will note that as we approach the end of the tariff cap, so that the voices of consumers can feed directly into the process of ensuring that they are offered as much protection as possible as the broken market is improved to become more fair and transparent.

Dieter Helm Energy Review

James Heappey Excerpts

Tuesday 24th April 2018 Westminster Hall

[James Heappey (Wells) (Con)]

It is a pleasure to serve under your chairmanship, Mr McCabe. I congratulate the hon. Member for Blackley and Broughton (Graham Stringer) on securing the debate.

I agree with much of what has been said. The Helm report is imperfect, although my copy is greatly improved by the artwork on the back of it contributed by my children. Such a report was always going to be imperfect. For the past 18 months, since the report was first discussed and commissioned, the whole industry and the Government have been holding their breath in anticipation of the response. It was always unlikely that the clouds would part and Professor Helm—as brilliant as he is—would provide the absolute solution for all future energy policy.

Professor Helm is right that the auction system we have been operating over the past decade or so is imperfect. It is complicated, and parts of it have given us the wrong result. Until recently, in the grid services markets, in particular, we ended up with lots of diesel coming through to meet that need. Clearly, that is not what the Government or anybody in the lobby in favour of decarbonisation hoped for. Clearly, it was not perfect. I accept Professor Helm’s criticism of the Government’s picking winners. More accurately, losers are very good at picking Governments. There is no doubt that some things we committed to in the past would not bear scrutiny today.

I do not accept that it is all doom and gloom. I accept the criticism from the hon. Member for Blackley and Broughton of the advertising that suggested that the cost of offshore wind had come down by 50%, but let that not hide the fact that the speed at which the cost of offshore wind has come down is a stunning success. Whatever the reduction is—we can debate that—there is no doubt that, only a few years ago, it was well over £100 per megawatt-hour, and it is now well below that. That is a consequence of the Government seeing the opportunity both from an energy perspective and for industrial strategy in the north-east of England. I think that is a good thing.

[Graham Stringer]

I appreciate the hon. Gentleman’s point, but does he agree that there has not been a huge technological advance in windmill technology over the past few years? The drop in costs probably represents how inefficient the energy market was previously, rather than an increase in wind turbines’ efficiency.

[James Heappey]

I do not have the evidence at hand to disagree with the hon. Gentleman absolutely, but my understanding from the industry—I accept that he is sceptical about the industry’s lobbying prowess—is that there have been some fairly significant improvements in the cost of manufacture and in the scale of the wind turbines that can be deployed. It may be that the cogs, wires and mechanisms within are no more efficient than they were—I honestly do not know—but if they can now be deployed much more cheaply because of the scale at which they are being manufactured, and if they can generate so much more electricity because of the size of these things, I think that those are cost reductions even if the underlying technology has not moved on. I suspect it has a little, but I do not have the evidence at hand to debate that point today.

Renewables have, I think, become the cheapest form of generation. Solar has been going gangbusters in the speed at which it has brought down its costs and so, too, has onshore wind, notwithstanding the political pressures against it in this place. It is increasingly hard to argue that the burning of hydrocarbon for the purpose of generating electricity is the cheapest way of providing electricity. More and more often, we can buy out the intermittency of renewables to deliver very cheap clean green energy, and it is no longer a choice between decarbonisation and cheap energy. It is just that the greener energy happens to be the cheapest as well. Crucially, what renewables also allow us to do, which will realise a big saving, is to decentralise the energy system. That will certainly bring with it significant reductions in the costs of transmission, and potentially even distribution as well.

I have said that our auction mechanism is imperfect, but it is worth noting that many other countries have sought to emulate what we have done with Government policy on the deployment of renewables. It has sped up our decarbonisation—spectacularly so—and has reduced the wholesale price of energy. I accept that that has been clouded by a combination of the energy companies not necessarily passing on the savings to consumers as quickly as they could and of the green taxes that the Government put on top of the wholesale price. That has meant that consumers do not see it, as some people in this room would, as the right thing, because, as the hon. Member for Blackley and Broughton said, they have not seen on their bill the translation of that change into their energy costs.

Professor Helm also rightly mentioned that there are other areas for decarbonisation where the Government have not yet made as much progress as they might. Some very good things are being talked about within the Minister’s Department and I know that she is a big champion of the decarbonisation of heat and how we do that better. I am a Parliamentary Private Secretary in the Department for Transport and I know that a lot of work is going on there to look at how we decarbonise transport and the future of mobility.

My right hon. Friend the Secretary of State for Environment, Food and Rural Affairs is doing great things on waste. I accept the criticism of Professor Helm and others in this place that agriculture has been lagging behind. Representing a farming constituency, I know exactly why that is the case. It will be very challenging when we have to start telling people that they need to reduce their consumption of meat, milk, cheese and everything else in the interest of decarbonisation, but that conversation is surely coming.

The issue is how we translate all the advances in technology in the power sector into reduced bills. The Domestic Gas and Electricity (Tariff Cap) Bill, which I spoke to on Second Reading—I also served on the Public Bill Committee—should not be regarded as the process by which we do that. I am reassured by my previous discussion with my right hon. Friend the Minister, and I hope that the Bill will not be a temporary raid on the market.

The analogy that I like to use is that the current market, the caterpillar, is going into the chrysalis and on the other side we will have the butterfly that is the wonderful, digitised, decentralised energy system of the future. It would be disastrous if the caterpillar went into the chrysalis and after an inordinate period of time what emerged on the other side was still a caterpillar. We need to give Ofgem the latitude to use this as an opportunity not just to introduce a price cap, but to transform the energy system so that all of the savings that clean tech undoubtedly will afford start to translate into reduced bills for consumers.

In this place, we have a job to keep ahead of what will undoubtedly be a change in the mindset of consumers. Electric vehicles are not gaining in popularity among the electorate because we in Parliament have told people they are a good thing. They are gaining in popularity because they are unquestionably the future of motoring. They are technologically advanced, better than normal cars and cheaper to run, and people will be going for such things as a result of that, not because they are motivated by decarbonisation. We need an energy system that is ready to give them not only the ability to motor effortlessly because the charging network is all there, but from which, with their electric vehicles, they can take full advantage of the fact that they now have a battery parked outside their home and can participate in the energy system to further reduce their bills.

Increasingly, people will start to get the internet of things within their home and businesses. They might not realise that that transition is happening because all that it might mean at the moment is a smart speaker in the corner of the room from which they invite Alexa to tell them the weather. Increasingly, people will find that as their homes become smart, they will be able to participate in the energy system and access services that will allow them to deliver their domestic energy much more cheaply because something like Alexa, Siri, Google Home or whoever else will be able to run their homes more cheaply and will work out when they need to perform various functions to take advantage of cheaper market prices.

In turn, as policy makers we need to ensure that everything is in place for storage to be fully unlocked both in catalysing the research and development for grid scale storage and making sure that the market is ready for people who have storage in their business, home or community. We need to make sure that the market is ready for storage to participate.

Demand-side response has been spoken about for so long, but I am not sure we have the policy levers quite right yet to make sure that demand responds on a meaningful scale, particularly when aggregated across lots of domestic users and small businesses. We have the big users signed up to it, but delivering it when it is aggregated across a large number of consumers is very important. We need to accelerate that transmission because I suspect that consumer demand for those things will start to take off quite quickly in the next five to 10 years. There is a danger that we will get caught out having not put in place policy and regulatory frameworks for the new energy system that people will realise they want, and it will not be delivered if we do not get that right.

The other thing it is tempting to do when talking about Professor Helm’s report, which focuses on the big stuff, is to forget that energy efficiency is far and away the best way to deliver savings to consumers. I know the Government have made some eye-catching announcements on this recently, and it is absolutely right that we continue to see small gains in people’s homes and businesses as just as important as the things that we talk about in the North sea or the big power stations that we build here in this country. They will deliver the biggest savings by far for consumers in the short and medium term.

I will wrap up simply by saying that the report is not perfect—we know that—but it raises interesting points that have stimulated a conversation in Parliament and helped to focus the Government on what could change. We are in danger of losing the argument with the bill payer if we do not start to show how all the clean technologies can and will translate into lower bills for users. The longer-term challenge is how we make sure that we fully decentralise and digitise the energy system. With that comes an opportunity to balance upwards from behind the meter through the community and then the region, rather than having the current system that is run rather inefficiently by a centralised system operator.

Last week BP announced some eye-catching policies for their internal decarbonisation goals over the next 10 to 15 years, but what was interesting was to hear Bob Dudley. When asked about the role BP might play in helping its customers decarbonise, he was clear that getting carbon pricing right is the thing that will move the dial most obviously, particularly for the big industrial users of energy. As policy makers we need to start considering urgently how we strike that balance between prompting the right behaviour from industry and not being punitive when it comes to increasing the price of energy. The opportunity for a future hydrogen economy requires decades of planning as we seek to transition, so starting that conversation now is very important indeed.

The discussion that we are having today is excellent. There is a lot that the Government need to do, and that Professor Helm will have prompted them to do through his report. It is not perfect, but the fact is that renewables are driving down the costs of energy. We need to be able to translate that into cheaper bills for the consumer. I know that the hon. Member for Blackley and Broughton is sceptical on such matters, but I passionately believe that the evidence shows that what we are doing is the right thing, and that we should keep our course.

Industrial Strategy

James Heappey Excerpts

Wednesday 18th April 2018 Commons Chamber

[Greg Clark]

I would not read too much into that. The defence industrial strategy is a very important part of our overall strategy. There are many references to industries—I mentioned aerospace—in which the innovation that comes from defence work can have important spillovers for the wider economy. We recognise that across the world that tends to be the case. The defence sector is very important to the strategy, and when some of the sector deals that I will come on to discuss are agreed, the hon. Gentleman will see that in abundance.

Drawing on input across the United Kingdom, we have an approach that is the distilled wisdom of many different contributors. It is a vision to help businesses raise their productivity performance, which is essential if we are to increase the country’s earning power. If we want to pay ourselves better as a nation and a society, we need to earn the way to do that by creating better-paid jobs and putting our country at the forefront of the industries of the future.

Let me introduce the four grand challenges that we have set out. I mentioned that we are uniquely well placed in this country, having leadership in some of the areas of the future, but we should not take that leadership for granted. We should have a deliberate plan and programme to reinforce that success. The four areas we have set out in the strategy, on advice, are artificial intelligence and the data-driven economy; clean growth; the future of mobility; and meeting the needs of an ageing society. Those challenges have been identified on the advice of our leading scientists and technologists, and they will be supported by investment from the new industrial strategy challenge fund and matched by commercial investment.

Let us take each of those briefly. We know that, whether in the Alan Turing Institute or in our companies throughout the UK, we have some of the most innovative thinkers and practitioners in AI and the use of data. We already have that reputation, but we need to keep at the forefront of those developments. A big part of the strategy is to recognise that, historically, as all Members know, we have been better at the “R” of R&D than the “D”. We have had brilliant ideas, but sometimes we have let them slip through our fingers and seen them implemented in industrial processes and investments in manufacturing in other countries. A big part of the challenge is therefore not just discovery but applying those discoveries in UK industry.

[James Heappey (Wells) (Con)]

When travelling overseas on parliamentary business and visiting universities, I have noticed, particularly in America, that people are much more entrepreneurial in their research projects and mapping out a route to a market. What might the Department do to encourage that sort of entrepreneurial spirit in our universities?

[Greg Clark]

We are getting better at it. Most colleagues will have experience of their local universities and others, and most research universities have active programmes to spin out discoveries and reap the benefits. Again, through the industrial strategy challenge fund, funding is available on a match basis to universities to pursue that implementation of good ideas. My hon. Friend is absolutely right.

Let us take the future of mobility. The hon. Member for Coventry South (Mr Cunningham) and I have had many conversations about this country’s reputation not only for the efficient manufacture of vehicles—that is a proud record—but for innovation, whether in the west midlands or the world-beating cluster of Formula 1 businesses around Oxfordshire and Northamptonshire. The world comes to the UK for the next generation of technologies. Forty-year veterans of the automotive industry say that this is the most exciting time in their career, when not only the powertrain but the way in which vehicles navigate is undergoing a revolution. Around the world, there is increasing demand for that set of technologies and we have a strong capability in them. Again, setting a grand challenge is crucial.

We have set the Faraday challenge to be a world leader in the development and application of new battery technology. It is already attracting great interest around the world, and the hon. Member for Coventry South will know that the national battery manufacturing development facility will be located in Warwickshire at the heart of our cluster there.

On the ageing society, whether in Glasgow and Edinburgh or Cambridge, we have some of the best researchers in the world looking at medical breakthroughs that will be in increasing demand around the world. I make it clear that now and long into the future, we will invest in the facilities and the people to make us the place to come to research new innovations. As Members from Scotland will know, the Glasgow city deal had a big medical component to build on our success there.

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[Rebecca Long Bailey]

I completely agree again.

Another issue that has been brought to my attention relates to sector deals. I understand that sectors are ready with proposals for such deals, but there is no clear structure or process in place for them to follow. For example, the rail industry has had a proposal for a sector deal ready since October, and the plan would deliver transformation across rail over the next 20 years, including new approaches that will cut the cost of digital signalling, addressing capacity issues and reliability. Perhaps the Minister will explain to the House what the delay is. How many proposals for sector deals has he received and how many have been agreed? Perhaps he will also commit to setting out in clear guidance, accessible to all businesses, how to go about pitching for a sector deal? Finally, will he update us on the implementation of the “Made Smarter” review? It was effectively ready to go, but I am sad to say that it received only a few cursory lines in the Government’s industrial strategy White Paper.

In short, Mr Deputy Speaker, as I am sure you have gleaned from my comments, the Government's industrial strategy, as drafted, is inadequate. While they now recognise the importance of an industrial strategy—well done—they are not prepared to use the full policy levers at their disposal to achieve it.

[James Heappey]

Following the shadow Secretary of State’s consultations with businesses around the country, will she name just one that agrees with Labour’s plans for nationalisation?

[Rebecca Long Bailey]

I would not want to put on the record in public the names of any specific companies without their consent, but there has been resounding support for Labour’s approach to the industrial strategy, because we are prepared to invest in our country’s future and to provide the support that businesses deserve. I am afraid that I hear time and again from businesses that the Conservative party simply does not listen anymore.

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[Drew Hendry]

Of course, in a discussion about the future of EU nationals, many of whom are very worried about their future, the hon. Gentleman tries to make a rather petty political point. What he should acknowledge is that Scotland is far from being a less attractive place. Thanks to the huge council tax hikes in England, which are the largest in 14 years—bills are up by some 5.1%—people are actually paying more tax in England than they are in Scotland.

There are roughly 181,000 EU nationals in Scotland. Half the welcome net increase in the Scottish population between 2000 and 2015 has come from people born in EU countries, yet the strategy overlooks the likely impact of immigration restrictions on UK industry. If there were a time to pause and think about the effects of immigration on people and industry, it should surely be this week, when we have seen the manifest failings of the UK Government’s current immigration strategy.

Some sectors in Scotland, such as the thriving food and drink sector, are particularly reliant on the employment of EU nationals. Many businesses across Scotland and the UK employ and rely on EU workers, but the UK Government’s regressive approach to immigration has failed to take proper account of that fact. It is simply not possible to replace straightforward access to the EU labour market with domestic recruitment, and replicating existing immigration rules for non-EU nationals would place significant and unnecessary costs and bureaucracy on business. As has been noted, we have had two very clear cases of people in my constituency of Inverness, Nairn, Badenoch and Strathspey who have been contributing to our local economy being booted out by the immigration policy of this Tory Government.

Let us now turn to the ambition of the industrial strategy. If we really want to deliver affordable energy and clean growth, it is astounding that the UK Government have failed properly to recognise renewable energy in the industrial strategy. The devastating predicted drop in renewable investment of 95% between 2017 and 2020 should be a wake-up call that urgent action should be taken to secure a thriving future for this dynamic sector. Of course, during that period, we have also seen the near decimation of the solar industry.

Scotland is proudly in the vanguard for the development of renewable energy projects and investment. The SNP Scottish Government have set out ambitious targets for a transition to a low-carbon economy. By contrast, the UK Government’s erratic energy approach and the UK’s decision to leave the European Union have created uncertainty in the sector. The UK Government have responsibility for the damaging effects that we have seen.

[James Heappey]

rose—

[Drew Hendry]

No, I will not give way. I did say earlier that I would limit the number of interventions. I have a lot to say on this subject, and I am wary about people taking too much time early in the debate.

Carbon capture and storage technology should play a leading role in tackling climate change, yet the UK Government have been complicit in stifling investment to develop this technology, as well as showing a lack of interest in developing and protecting jobs in Scotland. We wholly condemn the decision to cancel the CCS competition, which left Peterhead betrayed, resulting in a damaged relationship between the Government and industry as well as a negative legacy on investment and consumer confidence.

We have heard warm words about new investment in CCS, and I welcome that, but what I say constructively to the Secretary of State is that one 10th of the previous required investment will not cut it in terms of making the difference that needs to be made. Sustainable energy has been a success story for Scotland in recent years, and the Scottish Government have set out an ambitious strategy for renewable investment with the powers at their disposal. We firmly believe that supporting long-term energy security and environmental protection should be a key priority for any responsible Government. A robust and sustainable strategy for energy security would not only assist the creation of a low-carbon future, but boost productivity, which has largely flatlined in the UK for far too long.

Scotland’s oil and gas industry still has a prosperous future ahead of it, but support is needed to maximise the longevity and success of this dynamic industry. The industrial strategy has failed to mention any new developments in the oil and gas sector. Although I understand that work is ongoing to develop a sector deal, we remain in the dark about what this might look like. Furthermore, Brexit again poses a risk to the development of this vital sector. The Oil and Gas Institute at Robert Gordon University in Aberdeen has said that the departure from the EU bloc is likely to cost the North sea oil and gas supply chain another £200 million a year in tariffs and export taxes. It is time for the Secretary of State to show the same level of support for the oil and gas sector that has been mooted for the automotive and aviation sectors.

The UK Government have ploughed ahead with costly and ineffective investments in nuclear energy projects such as Hinkley Point C at the expense of the rest of the industry. The UK Government must halt the agenda of unexpected, cherry-picked and damaging announcements and policies in favour of making this a thorough industrial strategy for the supply and demand of energy.

I know that I will please the hon. Member for Spelthorne by saying that the UK Government must now invest more in science and in research and development. More than 50,000 international students study in Scotland, which is home to 19 educational institutions. The Scottish National party is incredibly proud of Scotland’s world-class university and higher education sector, and will support the necessary steps to ensure that it remains open, outward-looking and inclusive, yet the industrial strategy offers no assurances that this relationship will be protected. I again ask the Secretary of State to make his Government take the opportunity to do this.

Science, and research and development, have the potential to thrive further in Scotland. For example, the life sciences sector in Scotland could be worth £8 billion a year by 2025, according to industry groups. Although we welcome the sector deal for the life sciences, it is particularly worrying that it was agreed without any consultation with the SNP Government. That must not be replicated in any other sector deals.

On trade and inward investment, being a member of the EU means that Scotland’s businesses are operating within the world’s largest trading area of 500 million potential customers. The EU single market is eight times bigger than the UK’s alone. Moreover, trade with EU countries is becoming more important for Scotland. Since 2007, Scottish exports to the EU have grown by more than 25% to more than £12 billion in 2015. Although some steps are welcome, including the creation of an inward investment strategy, the mechanisms offered to overcome the challenges do not go far enough to alleviate the threat posed by the loss of EU single market membership and the trading partners that come with it. The Government must stop their reliance on rhetoric about trade and investment needs, take action to acknowledge the industry’s concerns and work constructively with the Scottish Government to maximise inward investment as part of a genuinely co-operative approach.

Members of the SNP have a shared goal: to make Scotland the best place to live, work and do business. Although the UK Government have overall responsibility for the economy, we will use all the powers that we can in Scotland to try to achieve this. The SNP has had a plan with trade and investment, manufacturing, innovation and employment at its heart for a number of years, and the recent enterprise and skills review aligns its agencies and resources behind those plans.

Since 2007, the Scottish Government’s central purpose has been to create a more successful country through increasing sustainable economic growth. That remains our ambition and is at the core of our single economic strategy, which was published in 2015. The strategy sets out the overarching economic approach of the Scottish Government and is backed by a series of policies to boost economic performance. We are supporting business and growing Scotland’s economy by focusing on investment, internationalisation, innovation and inclusive growth; building on the successes of our enterprise and skills agencies; and developing a system of support for Scottish businesses and the economy.

An overarching strategic board is now in place that will maximise the impact of the collective investment that we make in enterprise and skills development, and it will create the conditions for delivering inclusive growth. We have also created a new enterprise agency in the south of Scotland with an interim economic partnership in place, backed with £10 million of investment. We have appointed Benny Higgins to lead the work to establish a Scottish national investment bank to support investment growth, among many other measures.

I have a lot more to say, but I am going to cut my speech short to aid progress. On fairness, we have put in place progressive social policies in Scotland. With the cost of living rising, our commitment to our social contract with the people of Scotland is more important than ever and vital for economic prosperity for all. Conservative Members have referred to the changes to income tax. Indeed, this will make Scotland the fairest-taxed part of the UK, with the majority of taxpayers paying less than elsewhere in the UK. Compared with last year, everyone earning less than £33,000 will pay less tax in Scotland. By choosing a fairer path on taxation, we will protect Scotland’s cherished public services.

Given that the cost of living is rising, we will deliver a minimum 3% pay rise for public servants earning less than £36,500—75% of public sector workers—while those earning more than £36,500 will receive a 2% rise, and a cash cap will be put on increases for those earning more than £80,000. There is new investment to ensure that Scotland is the best place to do business and invest. We are investing an extra £100 million to deliver the best business rates package in the UK, increasing investment in business research and development by 70% and making a £4 billion investment in vital infrastructure—and doing much more to build a fairer Scotland.

Finally, I have some asks for the Secretary of State. Will he take on board Scotland’s concerns about Brexit and its industrial strategy? The risks are real, as he knows, and they threaten the economy and people’s incomes. With his overarching responsibility for the success or failure of the UK nations’ economies, will he acknowledge that Scotland’s economy, like those of the other nations of the UK, is unique, and will he engage in a meaningful way with the Scottish Government on the industrial strategy so that we can maximise the benefits for all and support some of the key sectors that I have outlined? Does he recognise that we need inclusive growth to prosper and will he ask the Government to put an end to austerity policies that are damaging the lives of thousands of families across all the nations of the UK?

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[James Heappey (Wells) (Con)]

It is good that we have an industrial strategy. It is not the command economy of past industrial strategies but an opportunity to put together a coherent plan to develop and support the industries that will underpin this country’s economy in the future, boost productivity and raise the skills needed.

In that sense, we should be very excited about what the Government have done. The four grand challenges within the strategy—artificial intelligence, clean growth, dealing with an ageing society and the concept of future mobility—are essential ingredients of that future economy, but of course each does not stand alone; all entwine with one another to deliver something that is quite exciting, not just from an industrial and economic perspective, but from a social perspective and in terms of how our communities and the future economy will operate.

Within that are the sector deals. It is right that the Government are seeking to reinforce the success of current industries that have done well for the UK, such as defence and aerospace and nuclear, and looking to use these sector deals to incubate our future economy too. To be clear, in putting together this industrial strategy, focusing on the areas as it does and in looking over the horizon—while not, I suspect, trying to pick winners but trying to understand what is likely to be the bedrock of a future economy—the Government must use the industrial strategy and everything around it to facilitate disruption as much as they can. I say that because, again and again, we see that the new businesses that really change the way we live, drive down costs for consumers and drive up customer service are the ones that have come in and disrupted old and lazy industries. These industries, often underpinned by exciting advances in automation, artificial intelligence and tech, are exactly the things we have the opportunity, through good policy making in the next few years, to unleash to the benefit of UK consumers.

If I may make a political point, such an approach is in stark contrast to the rather retrograde measures proposed by the Opposition, such as a return to nationalisation, as well as their outright fear of automation, suspicion of artificial intelligence and desire to regulate almost to the point of obsolescence the gig economy that underpins so many of the businesses particularly popular with the millennial age group. It is right that Conservative Members should champion this approach.

The way in which we will really unlock all those things is by recognising that the internet of things is a very exciting proposition for our nation’s economy. It will create smart homes, smart businesses and smart communities as the vehicles through which all disruptive businesses will undoubtedly succeed. There is a catch, because we need to lead on regulating for the data challenges that come with an internet-of-things economy, with data points all over the place bringing huge amounts of very personal data into the possession of private companies. From there, self-learning AI algorithms will be able to discern things about the way in which we live our lives that are really very intimate, and we need to protect consumers from that. However, that should not stop us being hugely excited about the opportunity for this future economy, and we should use the industrial strategy to let it off its leash.

Our colleagues in the Department for Business, Energy and Industrial Strategy should really look at the fact that the very many different funds they have brilliantly brought forward to address so many of the challenges for our future economy are all stand-alone ones. My final point is that I would very much like us to start to designate test towns in which we could trial such things at scale. When we are looking at the future of mobility, we will learn most only when we have, at scale, automated on-demand transport. When we are looking at how to support an ageing society, we will be able to do so only if we can see, at scale, how CivTech will actually support people in old age to live in their own homes for longer, with the savings that that will deliver to local health services. On clean growth, it is only when we can see, at scale, the advantages of a digitised, decentralised energy system—with storage, interconnected electric vehicles and demand-side response—that we will really understand such opportunities. I therefore hope that the Minister will look at the opportunity for test towns.

Domestic Gas and Electricity (Tariff Cap) Bill (Third sitting)

James Heappey Excerpts

Committee Debate: 3rd sitting: House of Commons
Thursday 15th March 2018 Public Bill Committees

[Dr Whitehead]

I thank my right hon. Friend for that encapsulation of how the pool works and for her important point that a pool system would allow independent generators to trade on exactly the same basis as those vertically integrated generators, and, equally importantly, independent retailers bidding into the market would be able to bid in transparently, on the basis that they would know what the price was at that particular point. There would be hands on the table and the price would be clear for everybody. The whole trading process would be thoroughly transparent, to the particular advantage of how the market works in its new incarnation as a large number of independent retailers and generators operating alongside the more integrated generators and those large inheritors of customers from, essentially, the days of the Central Electricity Generating Board.

[James Heappey (Wells) (Con)]

I am not sure that I am that enthusiastic about this idea for further intervention, on two grounds. First, the big six are increasingly separating out their supply and generation businesses, because it makes commercial sense for them to do so, and I am therefore not sure that we are tackling a problem that will continue to exist. Secondly and more importantly, in one of the most successful green finance models that is coming through the cheapest cost of capital tends to be when generation is built with a contract directly to a supplier. I wonder if the hon. Gentleman has considered what impact this measure might have on that very cheapest cost of capital that seems to be available for quite significant amounts of generation capacity coming onstream.

[Dr Whitehead]

I will make two points in response. I hope that the hon. Gentleman will be enthused by the merits of the pool when he looks into it—knowing, as I do, how deeply he does look into these matters on a regular basis. Although it is true that a number of companies are dividing themselves in different ways from the model that there used to be, it is by no means clear that in the complete vertical integration of those companies those divisions all face in one direction. In some instances, such as the recent merger of SSE and Innogy, retail has been put together in one company. In other instances, companies are breaking themselves up into what might be called a good company and a bad company, in terms of the different forms of generation, without distinguishing between vertical integration and generation. Indeed, there are further moves abroad. For example, E.ON in Germany has effectively taken over elements of Innogy, which may have effects back on SSE and Innogy in the UK. A variety of things are happening in the market, some of which point towards different forms of vertical integration and some of which, as the hon. Gentleman says, point in the direction of demerger.

That is not necessarily the central point about how a pool operates. Even if there are circumstances under which there is rather less vertical integration, the fact that the pool is bringing complete transparency on all trades to the table means that everybody in the market is absolutely on the same level as far as both those trades and the retail element, whereby people are bidding in, are concerned. As the hon. Gentleman knows, a number of newer companies will largely be bidding into the day-ahead market. They may be considerably disadvantaged in not knowing what has happened with trades down the curve when bidding into that market. Having that transparency right across the piece is, in principle, a very powerful lever to ensure that the market works well regarding retail trading.

Secondly, the pool system is not a fanciful notion that some people might think is a good idea but that has never worked in practice. Probably the most successful trading arrangement in Europe at the moment is Nord Pool, which does precisely this across the whole of Scandinavia. It does not have the negative effects that the hon. Member for Wells suggests it might in terms of cost of capital and investment, but stabilises that market across the whole of Scandinavia and produces transparency across borders.

In any event, a pool system is something that this we ought to look at for this country. What this amendment does is rather less than that. It asks whether the Minister thinks that, under circumstances in which it has not been possible to frank the market for returning to competitive purposes by 2023, other instruments should be introduced to get us beyond the end of the temporary pool and out of that temporary price cap, which is what we all want. That will be on the basis that we between us will have not just done a good job of running a cap but changed how the market works, so that the cap does not have to be in place subsequently and we do not need to return to the idea of one in the future.

That is what the amendment intends to do. I think it is a relatively modest ask of the Minister. I am sure that, if she is not promoted, she will be in her post in 2023—if there is a Conservative Government. At that point, she would simply have to produce a small report setting out how the pool system might work. Then we will look to see whether we can take that forward at that point as a key measure, to ensure that competition returns to the markets after the end of the temporary price cap.

Domestic Gas and Electricity (Tariff Cap) Bill (First sitting)

James Heappey Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 13th March 2018 Public Bill Committees

[Vicky Ford]

Q The approach of making sure that Ofgem, the regulator, has to consult before making the decision.

Juliet Davenport: I would agree on that.

Hayden Wood: This Committee has an opportunity to help 12 million homes that are currently languishing on standard variable tariffs and massively overpaying for their energy, and help them to reduce their bills. If we allow a loophole such as this into the legislation—let us say that it is Ofgem’s responsibility to manage that loophole and to keep it closed—we open it up to being manipulated or lobbied on or people working around it. We saw how the retail market review regulation years ago led to some unintended consequences in how the energy market is structured, and we now suffer from this “tease and squeeze” problem, which others on the panel have described. We would propose completely removing clause 3(2) of the Bill to eliminate any issues with unscrupulous suppliers introducing non-green tariffs and removing the effect of the cap.

[James Heappey (Wells) (Con)]

Q I wonder whether the panel shares my concern that this also allows green tariffs to be seen as a premium product. To achieve our decarbonisation goals, what we actually want is for green tariffs to be seen as the norm. Therefore, to allow them to be sold as a sort of premium rather defeats that long-term aim.

Hayden Wood: I completely agree with that. It perpetuates the myth.

Juliet Davenport: My view is that you can have cheap greenwash tariffs alongside genuine innovative tariffs and you can have a differentiation. You have to focus on the big six and make sure that there are not any loopholes, but most of these companies have had people come to them as a choice. What is great about this market is that we do have choice. We have the cheap greens, and we also have the more innovative products such as us. Why would you close that down? You can see that we have been leading this market and making changes in it. We support about 140,000 homes who generate power in their own house. Those are the kind of innovations that we want to continue to do. To be honest, if you price-cap us, we are going to have no investment left for that kind of innovation.

I completely agree that we should have a differentiation and we should have products that are cheaper green. I met one of Bulb’s customers at the rugby the other day who was very enthusiastic. She was so excited by the fact that she is going on a green journey. I think that is brilliant, and that is what we should embrace in this. We should not try to close it down to be one thing or another. We should allow innovation within the marketplace.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Q On the cap mechanism, there has been debate about absolute versus relative, and I think there are split views across the panel. Why would we go with one versus the other? Some models are clearly more favourable to a relative cap, and others to an absolute cap. Why choose one over the other? The Government have come down for an absolute. I think that has almost got the majority view, but is it possible to find a cap level that is fair to everybody? Is there any trade-off between short-term customer needs and the long-term competitive market that we are trying to achieve? I will just throw that open.

Greg Jackson: That is the most important issue to address during these conversations. An absolute cap, as per the Bill, will provide a decency level beyond which no default customer will be charged. That is a good thing. However, at the moment, a loyal customer of, for example, one of the big six is paying £250 a year more than the price that the same company advertises openly to new customers. When I say “openly”, of course, you still have to type in 25 sets of details to see that price, because energy is too complicated. Under an absolute cap, we think that might fall to £200. It is still not going to create an effective market in energy, where competition thrives, if we do not do something about those tremendous differentials. That loyalty penalty is by far the biggest barrier to true competition in the energy industry, so we would propose that, with the protection of an absolute cap, it is the perfect time to bring in a simple limit on the difference between the cheapest and most expensive tariff offered by a supplier, to prevent it hoodwinking its customers into overpaying for loyalty.

The only reasons given during the Select Committee hearings not to have a relative cap were a concern that large suppliers—existing former nationalised suppliers—would raise their prices to fit a relative cap. The absolute cap prevents that being a concern. Bringing in the absolute cap provides the perfect opportunity to generate real competition underneath it by a simple limit on the loyalty penalty. If you do that, I think we will find a price war among energy companies, equivalent to that in supermarkets, where everybody sees the same price. In supermarkets, you do not need to switch, because the threat of some people switching forces supermarkets to bring prices down for everybody. That will be the effect of a relative cap underneath an absolute cap. It is one line of additional rule in the statement of a price cap that would enable this. I think that what you would find, when you take away the absolute cap, which is defined to be a temporary measure, is that you would have a truly competitive market in energy for consumers.

It is worth noting that we are all challenger brands. We have to fight for every single customer from scratch. Eleven challenger brands favoured a price cap, and split roughly equally between absolute and relative, with a lot favouring the combination. We are one of those companies, and that is because we know that will generate the most competitive market for the benefit of consumers.

Juliet Davenport: This is not a position, so much as I just want to add in the risks that we need to be aware of with the absolute price cap, just to see whether there is anything else we can think about in terms of softening those risks.

One risk with an absolute price cap that I am concerned about is that Ofgem will be setting the prices. There is no downside to Ofgem with getting that wrong; if Ofgem sets that price incorrectly—I know you are seeing Dermot after this, so you can ask him the question—what are the sanctions against Ofgem for getting that price wrong?

And it is really difficult to set prices at the moment. I could ask my colleagues about the unidentified gas charges that we have just seen go from 0.6% to 2% of gas bills. This is a post-charge that we were not aware was coming. We knew there was some discussion of it, but it has been charged in arrears. How does Ofgem factor some of those things into its price? Does it put a risk in the price? That would be one question.

The other question is, because we set the price cap at a particular time of year, we will get everybody forward-contracting with their hedging position at the same time of year. The concern I have is that we might see some distortion within the wholesale market. Can we keep an eye on the wholesale market? I do not know whether that means that we have to ensure that there are extra powers to ensure that the wholesale market does not try to spike at exactly the time that everybody will be forward buying their power.

Those are the two risks that I am concerned about with the absolute cap. That is not to argue against it, but those risks are there and they need addressing whether in the Bill or in guidance from Ofgem.

--- Later in debate ---

[Bill Grant]

Thank you, we will leave it at that. It was my misinterpretation.

[James Heappey]

Q You have the Minister to your front and the regulator behind you. What does the end-state look like? Is this price cap to repair the current market, or to deliver something new. If new, what is it?

Greg Jackson: You now have a market of 70-odd companies, mainly vying it out in a 20% churning area. If we get this right, you will be able to let loose the competitive efforts of companies like ours and 68 or however many others to bring prices down for everyone. Getting it right involves the decency cap or the absolute cap and finding a way to tidy up the entirely unjustifiable hundreds of pounds of difference between the cheapest and most expensive tariffs from each supplier. At that point you can let loose our competitive efforts to bring prices down for everyone.

[The Chair]

Order. I am ever so sorry about what I am about to do, but I am required to do it. I am afraid that has brought us to the end of the allocated time to ask questions. I thank all the witnesses. It has been a very good session. Thank you very much. I now call the next panel.

Examination of Witnesses

Dermot Nolan and Rob Salter-Church gave evidence.

--- Later in debate ---

[Claire Perry]

In other words, reimburse customers who would otherwise be overcharged if for some reason the energy companies delayed the introduction of the cap through any form of legal challenge.

Dermot Nolan: First, before coming back to that, I want to reiterate again that we want the cap in as quickly as you do. There will be no drift; we will make sure that we meet that timeline. I absolutely say that as clearly as I possibly can. So we will bring in the cap.

At that point, the cap would apply to all energy suppliers. If they were in breach of it, they would be in breach of their licence obligations and potentially they would be subject to fines, and ultimately to losing their licence. So, it is almost inconceivable to me that, if the cap was in place, a supplier was not in compliance with it. We would obviously use every single power we had at that point in time.

[James Heappey]

Q On the last panel, Dermot, the price spike of two weeks ago come up. So, to follow on from Vicky’s questions, first, against your modelling, what event did we see two weeks ago? Was that a once-in-five-years event or a once-in-10-years event, in terms of the price spike it generated? Secondly, how do you model against the reality that there will occasionally be those price spikes, but at the same time that we will all urge you to take as much risk as you are willing to, in order to make the price cap a meaningful cap? It would be interesting to know how you strike that balance between the variability in the wholesale market, albeit that it happens very infrequently, versus our wish that you are as bold as possible with the cap.

Dermot Nolan: Absolutely. Two points on that. First, regarding, the events of last week, it is difficult to be precise. I would say they are more the type of once-in-five-years spikes. I will note that, if I may sound very gnomic, there are spikes and spikes. This was quite an acute spike in the gas price, and then there was a spike in the electricity price, but it was not that long-lived. Forward prices for four or five days did not change dramatically, so it was an abrupt spike but a short one.

The whole point of how to set the cap, and over what time period, is a fundamentally important one. The Bill suggests that the price cap must be updated every six months or less. There is an inherent trade-off. One of the things I particularly want to hear about from consumer bodies is over what period people want their prices to change. All the evidence we have in many ways suggests that people like smooth energy prices. They do not like spikes in their own bill. If the cap is set every six months, and a one-week spike is smoothed out over that six months, there is an appeal to that—you get relatively sure prices over a six-month period.

At the same time, you find that if there have been spikes of whatever form during a six-month period—if there has been, say, a fall in energy prices after two or three months—people say, “Why is this fall in wholesale prices not being reflected in my bill? Why do I have to wait six months for it? Why can I not have it after three months?” If we did a three-month price cap, that would ameliorate that issue, but we might be a little bit more vulnerable to spikes and changes in prices. How we balance that is not straightforward and is one of the things that we would particularly want to hear from consumer groups on during a consultation.

[Michelle Donelan (Chippenham) (Con)]

Q On that point, do you think six months is right? I know you have just described the trade-off between a three-month and a six-month period. Do you believe six months is the correct period? There are people that are concerned about flexibility and fluctuations. In the last panel, we heard that if everybody started buying their energy in advance, it could inadvertently cause a spike. What do you believe?

Dermot Nolan: I think six months is the maximum. If the Bill goes through as is, we will consult on it. I honestly cannot say what we would ultimately pick, because it would be an open consultation. Certainly, I cannot imagine, at this point in the way the energy market is, having prices change every week or month. I think it would be a consultation along the lines that I have already mentioned. There is no perfect number though. We would want to try to hear from consumers what they thought was best and what reflected their preferences.

--- Later in debate ---

[Stephen Kerr]

Q Tell us again how you will know that they are working. What are the features of a market to which you will say, “Yes, this is a competitive market.”?

Dermot Nolan: Last year we published a response to the Competition and Markets Authority—which, going forward, will form the core of our report to the Secretary of State, as envisaged under the Bill—that we called a state of the market. It was a detailed look at the state of competition in the retail sector. It will look at a number of indicators; it will be on the basis of this suite of indicators—there will not be one perfect one. It will include the numbers switching, but also survey evidence, levels of satisfaction in the market, whether people feel more trust in the market, and whether the vulnerable, in particular, feel empowered to switch or still feel disengaged. We will focus on and continue to develop a suite of indicators that will form the basis of a report to the Secretary of State, which, as envisaged in the Bill, we will make on a yearly basis.

[James Heappey]

Q I am keen to understand what you think a good market looks like. In a lot of other markets, we would consider happy customers who think that they are getting good customer service and a good deal to be a good thing. In the energy market we seem to be quite aggressively pursuing the absolute opposite. We seem to think that a good market looks like lots of people who are moving constantly to find a better deal.

I wonder how we do something in this price-capping process that, when energy companies go to war with one another over price, ensures that all of their consumers, including those who are loyal and seeing the benefits of good customer service, get rewarded, rather than simply perpetuating this view that a good energy market is one in which everybody is moving constantly and there is no incentive for companies to deliver good service.

Dermot Nolan: Absolutely. When I talked about a suite of indicators earlier, I think one should not over-concentrate on switching. It is perfectly possible, as James Heappey has said, to have a market that is functioning relatively well, but, actually, observed levels of switching are slow. What is important is that the customer must have the ability to switch if treated poorly.

In that sense, what we have seen, particularly in the energy market over the past two years, as we have seen in other markets, is a divergence of outcomes—£200 or £300 between people’s bills. Some—not all, because more than 20% of our domestic residential customers now come from small suppliers—have the disengaged feeling of, “I don’t feel comfortable switching and don’t feel protected.” The reforms that I mentioned in the last question are about trying to create a situation where we go back to the engaged customer—in some sense protecting the disengaged—with less variation between the engaged and the disengaged as a result and with people feeling, “I don’t need to switch, because I am not going to get charged £300 or £400 more by my own supplier if I don’t switch.” That is the kind of market that we would revert to. I think the reforms that we have set out will get us in that direction.

[James Heappey]

Q That is exactly the point. When Tesco and Sainsbury go to war with one another, they might compete over the price of Hobnobs, and that might make a small number of people switch their supermarket, but everybody who shops in those supermarkets gets the benefit of that price reduction. That surely must be the market that we are seeking to design.

Dermot Nolan: That must be the market we are seeking to design. I would say more generally that new technology, through which we are buying goods and services in many areas, is such that that old area is, to some extent, breaking down. I do not want to go beyond the topic, but you will see people paying different prices buying online, and that is good in many ways, but it also has public concerns more generally. One thing about the energy market is that it will clearly not be successful if we are still seeing observed differentials of £300 in two or three years’ time.

[Alan Brown]

Q You have already said that when the absolute cap ends, you still think there needs to be protection for vulnerable customers. Does that not suggest that the Bill is not doing enough to protect vulnerable customers? What protection do you think they need going forward?

Dermot Nolan: I think there are already 5 million people who are vulnerable under price cap protection. If the Bill was not going forward, we would have extended that, anyway, to another tranche of vulnerable customers. Regardless of whether there is a price cap or not market-wide, the regulator is likely to have price caps for vulnerable customers going forward. I might be wrong on that, but it will be an absolute priority for the regulator to do that, which we believe we can and already are doing under our own powers. Obviously, I want as much protection as possible for vulnerable customers. Any regulatory body, given the statutory duties that it has, will take on that itself. If it does not, it will be messing up. So I feel there will be protections there from the regulator in any case.

--- Later in debate ---

[Michelle Donelan]

Q You would say that getting this entire process put through simply will foster competition, and that is one of the goals you believe should be in the Bill.

Dermot Nolan: I think it will have an effect. We have a prepayment meter cap already. I said that switching is only one aspect of competition; I want to be clear on that. After the prepayment cap, we saw that some of the cheaper deals left the market, but not all of them did. Some stayed, including from existing suppliers, and there were still cheaper deals from some of the smaller suppliers. I think that is likely to occur. There might be a measured drop in switching for a period of time, but as long as the mechanisms are put in place, this can facilitate competition over the medium and long term.

[James Heappey]

Q This is similar to the question I asked at the end of the previous session. What does effective competition look like to you as the regulator? Are you looking at measuring this in terms of engagement within the market and net fall in the number of SVT customers? Is it based on some differential between SVTs and introductory or promotional prices? Alternatively, is this an opportunity for transformation? We bring in the price cap, but in the process we look at what has been wrong with our old energy system and what the innovation and disruption is likely to be that leads to something for the future, and whether this is your opportunity to deliver that.

Dermot Nolan: I think it is an opportunity for transformation. I have talked about some of the short to medium-term things we will do. Over the period of the price cap—this would probably be a legislative thing, working with the Department and ultimately with Parliament—it represents a chance to perhaps radically recast the supply market.

The supply market has become quite complex. I am not saying that the system of suppliers acting as vehicles for delivering the various obligations has not worked—in many ways, it has—but we see a situation in which a host of new suppliers will be entering the market in three to five years. These might be quite large ones that do not currently provide energy, and they could come in selling energy in a bundled product with other goods.

We will see electric vehicles being rolled out, and a price cap will have to deal with issues such as electric vehicle charging and how people are charged for them. I see a situation in four to five years’ time in which the energy market could have changed radically. The key point of the price cap is that it has to be flexible to any changes and fulfil its basic role of protecting consumers. With great respect to the suppliers in this room and suppliers already out there, I would hope that we could see radically different sets of people providing energy in five years’ time.

[Alex Norris]

Ofgem said to the Department for Business, Energy and Industrial Strategy Committee when this was being considered that the cap ought to be temporary. How do you feel about 2023 as the sunset clause? What should Members in 2023 have seen to be assured that the cap would be unnecessary?

Rob Salter-Church: It is right that everyone is focused on what happens at the end of the price cap. It is important to us that if the price cap is removed, then all consumers get to benefit from the new competitive market that we are seeking to create.

We are comfortable with how the Bill is currently drafted. It requires us to have a comprehensive report from 2020 on the state of competition, and whether we believe that the conditions for effective competition that benefit all consumers are in place. Every year, we will be providing recommendations to the Secretary of State.

We are confident that, as the Bill is drafted, there is sufficient opportunity for the Secretary of State to determine whether there is a future role for an overall price cap, or whether there are things within our powers that we should be doing. Earlier on, Dermot mentioned the likely ongoing need for vulnerable consumer price protection. More broadly, we will be able to report on the progress made by us in creating what is ultimately a more effective form of competition where everyone benefits, whether you choose to switch or whether you choose to stay with your current supplier.

--- Later in debate ---

[Alan Brown]

Q Are there any improvements needed to the Bill? I have a couple of suggestions and considerations. We have already heard the merits of trying to introduce what is called a relative cap to work underneath the absolute cap, and we have spoken about vulnerable customers. Are there any improvements that could be made to the Bill to protect vulnerable and disabled customers?

Peter Smith: I will try to be a bit more concise than I was earlier. Clause 2 needs to be amended specifically to ensure that the safeguard tariff is considered when setting the SVT-wide cap, and Ofgem needs to have a duty to consider that. In clauses 7 and 8, we need to include customer engagement, particularly vulnerable customer engagement, as part of that overall assessment of competition and of whether it is working effectively.

I could give you a couple of examples, but perhaps they are best fleshed out in some further written evidence. They would include online access. For instance, we know that households that are offline do not benefit from the considerable discounts for online deals and from paperless billing discounts, and they do not get to apply to the warm home discount scheme. Cumulatively that could be up to £300. Things like that need to be considered when we make that overall assessment.

Rich Hall: From our perspective, we are broadly comfortable with the Bill in its current form. In the area of providing enhanced assurance that vulnerable customers’ circumstances are being improved, we think that is something that should be captured within the annual assessment by Ofgem and by the Secretary of State. We are reasonably comfortable that that is implicitly delivered through the Bill, but I can understand that there are arguments that there might be benefits in it being explicitly delivered on the face of the Bill.

In terms of there potentially being a relative cap underneath the absolute cap, I have some similar views to Dermot on that, in that it is an idea that has been floated only really in the last few days and weeks, possibly by people who would prefer a relative cap and who are now trying to use absolute plus relative as an alternative vehicle to reintroduce that approach.

We have some concerns about the relative cap approach. Because the large incumbents have so many sticky customers, in comparison with the relatively small number of customers they could pick up through any promotional campaign, if they were to seek to hold their line on their acquisition prices, that would make the cost of acquiring new customers punitively expensive. Because of that, we think it is more likely that the large incumbents would simply exit the acquisition market, which would neither help their SVT customers, who would continue to pay the same prices, nor improve pressure in that market. There is a risk that a relative price cap could backfire and be worse than the status quo, so we see the decision on absolute versus relative as not simply a choice between a good model and an excellent model, but as a choice between a good model and an unworkable model.

Pete Moorey: I would not add anything to what Rich said, but in terms of other changes to the Bill, there could be some changes to ensure there is more transparency and accountability of Ofgem, in terms of setting the cap. We would like to see changes so that Ofgem are required to set out clear criteria for monitoring and evaluating the success of the cap. We wanted to see a requirement to review the price cap every six months. It may well be that the evidence you have just heard from Dermot Nolan suggests that they will be reviewing it anyway every six months and that the bar could be set lower. It may well be that that is unnecessary in the Bill itself, given that it seems likely from what he said this morning that we will have a consultation on that as well. I think Ofgem should be required to publish reports on the impact of the cap on a regular basis and on how they would take any action if the cap was having any negative impacts.

[James Heappey]

Q Some of the big six, in particular, have tried to head off this legislation by, apparently, removing people from their SVTs already. I wonder whether you have made any analysis of the sort of tariffs they have been transferring people on to and of whether that represents genuinely better behaviour, or are they just getting ripped off in a different way?

Rich Hall: We do not have any analysis on that to hand, but it is a crucial issue, in that the problem with SVTs is not their name, but their characteristics; it is the fact that they are extremely poor value products that exploit consumer inertia. If the replacement products simply have the same characteristics, and they are benchmarked to a similar level of pricing, that is simply an attempt to get around the intent of the Bill rather than to reduce the detriment that those customers see. That is an area where we, Ofgem and others will need to improve our monitoring in the coming months, as we see more of those tariffs in the market. At the moment, it is still fairly soon after the launch of these approaches by three suppliers, so it is a bit too early to say, but it is a genuine issue.

[Vicky Ford]

Q Just to come in on this issue of reviewing every six months, that is of course in the Bill.

Pete Moorey: That is good news.

Domestic Gas and Electricity (Tariff Cap) Bill (Second sitting)

James Heappey Excerpts

Committee Debate: 2nd sitting: House of Commons
Tuesday 13th March 2018 Public Bill Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I beg to move amendment 3, in clause 1, page 1, line 3, leave out

“after this Act is passed”

and insert

“and no later than 30 November 2018”.

It is a pleasure to serve under your chairmanship, Ms McDonagh. Let me start us off this afternoon with what I hope will be the first of many amendments that the Minister and other Conservative Members think so reasonable and constructive that they feel impelled to accept them.

Amendment 3 relates to our consensus that an energy price cap needs to be agreed across the board and brought in as soon as possible. Without presuming to speak on behalf of all Committee members, I believe that we are all united in our support for a temporary cap to allow the market to be set right. We hope that by the time the cap comes to an end, we will be reasonably assured that the market is working much better and that the circumstances that led to the cap’s introduction will not be repeated further down the road.

The Committee is united on our endeavour this afternoon. We want to finish our deliberations, get the Bill passed as speedily as possible, and have it on the statute book by the summer—hopefully the early summer—so that Ofgem can execute it. We heard this morning from Ofgem’s chief executive, Dermot Nolan, about the processes that Ofgem will be required to undertake to ensure that the price cap is properly implemented. The Bill requires it to have regard to a number of concerns, which I am sure we will discuss in our deliberations.

Essentially, Ofgem has the task of ensuring that the provisions in the legislation for the implementation of the price cap are legally waterproof, that the measures in the Bill around Ofgem’s responsibility for having regard to those various pillars are properly carried out, and that Ofgem has the arrangements in place that it will need to look periodically at what is happening to wholesale prices and to produce reports and proposals for how those wholesale price changes can be taken into account under the umbrella of the cap. Ofgem has to get a whole range of things right before the cap is properly in place. It is proper and right that Ofgem takes a reasonable amount of time to ensure that happens.

We heard this morning that Ofgem already has some consultations and discussions under way in anticipation of the Bill shortly being on the statute books, but there are a number of statutory things that it has to do and a number of further consultations that it has to undertake. We were told this morning that all this is about five months’ work as far as Ofgem is concerned. In principle, if we assume that the Bill will be on the statute books by the end of June, the five-month timescale that Ofgem has set itself would mean that the cap could be effective by the end of November this year.

Pretty much everybody associated with this Committee and the passage of the Bill has said that they fervently want to see this legislation enacted and a proper price cap in place before winter this year. By that, I am sure they do not mean when a cold snap takes place next February and looks a bit like winter, but the onset of winter—about the time people get their winter fuel allowances. That will ensure that the price cap is in place and benefiting customers in advance of the bills they face over winter.

To get this price cap in place not just over winter but as winter comes in—absolutely on the nail, given the time that Ofgem says it will need to get this Bill into shape and to get an operational cap—we will clearly want to ensure that that timetable is adhered to as closely as possible. That is why I asked Dermot Nolan this morning whether he thought the five-month period was an exact period, a maximum period or an approximate period. What was his view? He said that they would do their best to ensure it was within that five-month period. However, I did not get the impression from that evidence this morning that Ofgem was saying to us, “We can absolutely stand by the idea that there is a maximum possible period of that amount of time for us to do our work.”

[James Heappey (Wells) (Con)]

My reading of Mr Nolan’s evidence this morning was somewhat different. I thought that he very much felt this could be delivered within five months. The only note of caution he sounded was over a legal challenge. I am not sure that any timeline that we prescribe in legislation would prohibit such a legal challenge from one of the current large suppliers.

[Dr Whitehead]

The hon. Gentleman is absolutely right. If there do turn out to be legal challenges, despite our best efforts in this Committee to ensure that the Bill is as watertight as it can be, it is conceivable that the whole timetable of a price cap could be seriously derailed—I think we have all understood that, as far as the process is concerned. Indeed, one reason there is legislation, rather than Ofgem going down the road of a price cap under its own steam, which it has been claimed at various times could have been the case, is to ensure that, as far as possible, the proposals and what Ofgem puts in place around them, are legally watertight. That comes in two parts. First, there is the question of ensuring that the legislation is as watertight as possible, but there is also a duty on Ofgem to ensure that, in translating the instruments in the legislation into a workable price cap, it takes measures that are also legally watertight, so that it does not slip up after we have done the good work in Committee of making the legislation as watertight as possible.

--- Later in debate ---

[Dr Whitehead]

My hon. Friend makes a powerful point. Today, thinking about the cap, we are not in such a position that we can look back with complete equanimity and say, “Actually, everything that could have been done to hasten the cap, once it was decided that there should be a cap, has been done over that period.” There has been quite a bit of equivocation since, for example, the suggestion at the time of the Conservative manifesto for the last election that there should be a cap. It made an appearance but then went through a period when there seemed to be some resiling from that particular commitment.

As hon. Members will recall, there were indeed suggestions and discussions that Ofgem, in its own right, could and should undertake a cap: a cap would need no legislation from Government, so Ofgem could go ahead and put one in place. Indeed, as I recall it, a letter to Ofgem from the Secretary of State during the summer in effect said that. At the time, as hon. Members will also recall, Ofgem came back fairly publicly to say, “We are not convinced that we have the powers to do this,” or rather, “We may technically have the power to do this, but we wouldn’t be proof against legal challenge were we to go ahead and introduce a price cap administratively without the back-up of legislation from Parliament.”

As hon. Members will again recall, it was at that point—I think it was at the Conservative party conference—that the Prime Minister reasserted the fact that she wanted a price cap. Perhaps we will come on to what she said about the consequences of that price cap in a moment, but she certainly said at Conservative party conference that she wanted a price cap and that, in effect, legislation was to be introduced to produce one. So, arguably, we could say that, had we got on with legislation from the moment that the idea that there should be a price cap was put forward, we would not be sitting here today. Instead, we would be contemplating a price cap having been introduced, probably this autumn.

[James Heappey]

The hon. Gentleman makes his case well, but I remain to be convinced that putting in a deadline makes a difference. The biggest pressure that Ofgem will be operating under once we clear the Bill through Parliament—surely the biggest variable in the whole process—is an enormous amount of political pressure. Given that the hon. Gentleman does not propose a sanction against Ofgem should it miss the deadline, one would imagine that the political pressure Ofgem will be under from both sides of the House to deliver the cap is more than enough to deliver it very quickly. He will remember that the last time that there was a notice of insufficient margin, with the price spike that it brought, was in the middle of November 2015, so a date of the end of November seems somewhat arbitrary. We want it done as quickly as possible.

[Dr Whitehead]

The hon. Gentleman’s point about the amendment not suggesting any sanctions on Ofgem is an interesting one. Were that suggestion put into operation, it would require about six more pages of amendments to secure a sanctions regime against Ofgem, but that is not how Ofgem works. In effect, Ofgem has a requirement to do things—in its charter of existence, in legislation—and it is instructed by legislation and not, by the way, in final and legal terms by what a Minister may or may not write to it on a daily basis. It is supposed to go along with what is in legislation. That was the problem that arose with the letter from the Secretary of State to Ofgem when the idea of a legislatively based price cap appeared to be up in the air.

Ofgem made the point that it would prefer, or that it thought it necessary, to have some kind of legislation on the statute book to guide and advise it—or, more than that, to be a framework for its carrying out of its responsibilities. The Bill requires Ofgem to do all sorts of things but contains no sanction. It does not set out what would happen to Ofgem—whether Dermot Nolan would be taken out, and something would be done to him—if it did not do all that is specified. The point is that there are requirements on Ofgem under its charter from Government.

--- Later in debate ---

[Dr Whitehead]

The hon. Lady has a point, but if hon. Members read amendment 4 and clause 1(6) reasonably carefully, they will see that

“the need to ensure that customers on standard variable and default rates have their annual expenditure on gas and electricity reduced by no less than £100 as a result of the tariff cap conditions”

would be a consideration—I emphasise the word “consideration”—that Ofgem needed to take into account.

[James Heappey]

I am afraid that I agree with my hon. Friend the Member for Chelmsford. A number of the larger supply companies have already sought to get ahead of the Bill by transferring their most loyal, or “sticky”, customers from what used to be called SVTs—standard variable tariffs—to other tariffs that are called something else but may be just as expensive. My concern is that the hon. Gentleman’s amendment is overly prescriptive and might allow the energy companies to get round what we seek to achieve.

[Dr Whitehead]

I do not think the amendment would allow energy companies to get round what we seek to achieve, although I accept the analysis that it may produce more work for Ofgem. I based amendment 4 on what the Prime Minister said. One could argue that she was being overly prescriptive—I do not know.

--- Later in debate ---

[Claire Perry]

That is a very important point, and the hon. Lady is extremely knowledgeable in this area. She brings me to the second part, when I will hopefully address her point.

The safeguarding tariff came into force in April 2017. That perhaps gives the lie to the idea that the previous Government did nothing; this was all part of the pressure that we put in place. The tariff initially affects people who are on prepayment meters, who are often exactly as the hon. Member for Kilmarnock and Loudoun described—perhaps living in fuel poverty. That tariff is put in place by the CMA—it is nothing to do with Ofgem—and it will run until 31 December 2020. We have seen Ofgem extend that to this additional group—those who have claimed warm home discount—as the hon. Lady quite rightly said. She raises an interesting point, and we should take a look at it to ensure the maximum number of people are capable of achieving that safeguarding discount.

I asked the team to look at the impact on the bills of customers on these tariffs. Before the safeguarding tariff came in, the PPM average standard variable tariff was about 5% more expensive than the average standard variable tariff. Now, those who are on the PPM and vulnerable tariff pay on average 8% less than those on standard variable tariffs. That is absolutely working, independently of the Bill, to deliver the savings that we want to see for vulnerable and disabled customers. Those caps will continue to be in place, and it is very important that both are in place and that the Bill does nothing to remove eligibility for them.

I want to talk about some of the other duties on Ofgem, which are already covered in clauses 1(6), 7 and 8. They require Ofgem to protect all existing and future domestic customers, including vulnerable and disabled customers, and to consider whether effective competition is in place for the domestic energy supply as a whole. When effective competition is considered, it has to apply for all customer groups, including vulnerable and disabled customers.

[James Heappey]

Before the Minister gets too far from the issue of vulnerable customers and the cap, I thought National Energy Action’s evidence this morning was interesting. It is probably premature to react to that evidence by enacting the Opposition’s amendments. Could the Minister confirm that she will go back and look at whether the evidence provided this morning warrants some action, perhaps before the Bill comes back on Report?

--- Later in debate ---

[Dr Whitehead]

Yes, I certainly do. If one first agrees that this particular provision should be made, the question of tightening it is quite an important aspect of the Bill.

I am sure that hon. Members will be aware that the draft Bill, when it first appeared, had a much wider and I think much less satisfactory definition of the circumstances under which an exemption could be made. The Select Committee that considered the draft Bill and produced its excellent report singled out this particular clause as one that should be strengthened, as my hon. Friend the Member for Enfield, Southgate has pointed out. It thought it should be strengthened on the basis that a number of stakeholders viewed the Bill as then drafted as allowing for

“unscrupulous suppliers to game the system and avoid the cap by moving customers on poor-value tariffs onto loosely-defined green tariffs.”

It recommended:

“The Government should work with Ofgem to strengthen the definition, standards and checks for electricity tariffs with environmental claims so the system cannot be gamed in this fashion and undermine the success of the cap.”

That concern was absolutely right. Regrettably, it is the case that throughout the present tariff offer a number of tariffs are in place that purport to be green tariffs, but when we drill down to what they consist of, they are pretty much not green tariffs. They may have a part of renewable energy in their make-up. It may be claimed that the company is advantageously purchasing renewable energy as part of its overall purchase arrangements, but of course we know in terms of today’s energy mix that it is fairly difficult to rigidly remove oneself from purchasing any renewable energy in the portfolio of purchases for tariff purposes.

[James Heappey]

I have huge sympathy with the point that the hon. Gentleman is making. My concern is that we risk letting the perfect be the enemy of the good. There may well be tariffs that are 95% or 99% green that really should be supported, but would not be under his amendment. The wider issue of greenwashing is a matter for the regulator more generally, rather than specifically a matter for this Bill.

[Dr Whitehead]

I take the hon. Gentleman’s point. I have tried to think about this point precisely on those sort of lines. It is difficult, in looking at such tariffs, to see the circumstances under which a company offering not a wholly renewable tariff is protected from a slippery slope—from going right down that slope and saying, “Well, as long as there is something in there that is renewable, we can call it a renewable tariff.”

I was about to make a point about the circumstances under which companies trade. Normally, because of the extent of renewable penetration into the energy system, most companies will come across a renewable supply as part of their trading arrangements. As I said, it is pretty difficult to avoid that, so we can imagine how relatively easy it is in principle for someone sitting in a company boardroom to say “How can we produce a tariff that looks like a green tariff but does not give us any sort of problem in producing it? Why don’t we just set aside what we have come across by chance, as far as our energy supply is concerned, say that it is our green purchase and put it in a tariff? Then we will have a green tariff and will be fine.” No work would have been done to distinguish that tariff from anything else, and the company would have no intention of doing anything within their tariff offer but trade in the ordinary way. That is a worry.

[Dr Whitehead]

The point that my right hon. Friend makes is, I think, taken into account by the circumstances that now apply across the board for energy sourcing. As she and I know, having talked about this for years, the process of the renewables obligation did impose a particular obligation for a proportion of energy purchased to be green. Then there was a system of trading those obligation certificates. Those people not directly purchasing green energy would have to purchase certificates, which could be traded from those who had actually traded in green energy in the first place, so that those involved had, in one way or another, carried out their obligation. The overall design of the renewables obligation system was to encourage the production of green energy, because the beneficiaries of the certificates when they were traded in cash would be the producers. That was a system that very much incorporated in it an incentive to trade in green energy in the first place.

Now, of course, the renewables obligation is no more. It continues as a ghost trade system and will continue on a declining basis, I think, until 2027, but as of March 2017 no more renewables obligation certificates are being issued. They are being replaced by the contracts for difference system, which does not impose an obligation to purchase green energy in the same way as the renewables obligation system did. The prospective system does not, as my right hon. Friend suggested, provide a universal underwriting of green energy production. She is right, of course, that the system overall encourages renewable energy production, but not in the same way as the renewables obligation.

I do not think that that particularly detracts from my right hon. Friend’s fundamental point, but it puts us in a position where we can properly consider the idea that a number of energy companies might accidentally, as it were, purchase green energy that does not, otherwise, have an obligation attached to it, and introduce it as part of a green tariff that is not really a green tariff. I suggest that companies wholly in the business of producing renewable energy, or those that produce it from their own sources or sources guaranteed through a power purchase agreement, or something similar, with the operator, are in a different category. I want to emphasise that difference with respect to the purpose of the amendment.

[James Heappey]

I think the point made by the right hon. Member for Don Valley was really about the existence of clause 3(2)(b) in the first place. I have a lot of sympathy with that. I think it is unhelpful to mark out green tariffs as a premium product—that is counter-intuitive to the wider effort we are making. However, if clause 3(2)(b) must remain, I am not convinced that the amendment tabled by the hon. Member for Southampton, Test is necessary. I encourage him to consider again whether where we all agree is that Ofgem might take a much more robust view on the practice of greenwashing and that that is the actual challenge that we want the regulator to close with, not necessarily an amendment to the legislation this afternoon.

[Dr Whitehead]

I would say that the essential point is how far up the beach and close to the walls the greenwashing actually goes. Can we conversely say that we can put greenwashing into a particular box and say “That looks like greenwashing”, but as we move up the scale of more and more renewables in the system, the greenwashing ceases and therefore can we say that this really is a renewable product and is something we can apply special exemption arrangements to? That is the nub of the debate.

--- Later in debate ---

[James Heappey]

It is useful that the Minister will go away and make an analysis of the green products that are already on the market. I wonder whether she might also, with the evidence from Octopus and Bulb ringing in her ears, go away and ask the Department to go for just one more lap on whether or not this exemption is necessary all together, or whether it might do more harm than good when it comes to promoting green energy and the way that consumers regard green tariffs.

[Claire Perry]

I am sympathetic to my hon. Friend’s point; he is extremely knowledgeable in this area. However, as we have been through, particularly in the draft scrutiny process, we genuinely do not want tariffs that customers actively choose to be on, and which support the welcome development of creating demand for the renewable market, to be captured, as it were. The hon. Member for Nottingham North made the point about unintended consequences, and that is why word-by-word scrutiny is so important. The BEIS Committee supported that view, and I think the legislation has been substantially improved by that process. I am therefore less inclined for the proposal to be withdrawn completely, but I want to talk a little more about the point that the hon. Member for Southampton, Test made. I have talked about publication transparency. To me, transparency—having Ofgem look at these tariffs, probably for the first time—is an important part of establishing that this is a credible part of the market.

--- Later in debate ---

[Claire Perry]

Again, the clause outlines the final part of the licence modification process that Ofgem must undertake to impose the tariff cap—this is the actual modification of the licence conditions and implementation. It, too, sets out the statutory steps that Ofgem must go through. Ofgem must set out how it has taken account of representations made during the consultation specified under clause 4. As we heard in the evidence session this morning, it must set a date that the modifications will take effect from, which must be after a period of 56 days beginning on the day when the notifications are published.

The clause also sets out that the appeal mechanism is via judicial review, rather than through an appeal to the Competition and Markets Authority. We have had a conversation about that—certainly during the very good Second Reading debate—which is primarily because we want nothing to get in the way of implementing the temporary price cap. The CMA’s powers are used exclusively where there is a permanent control mechanism, but we and the Select Committee have taken substantial evidence to suggest that judicial review gives all interested parties an adequate means of address. A court has sufficient expertise to hear an appeal. A court is likely to be able to hear a matter more quickly than the CMA, which reduces the possibility of the implementation route being delayed.

[James Heappey]

I am keen to ensure that I understand the measure correctly. There is a 56-day period ahead of any modification being published, but presumably there is also a 56-day period for the initial implementation of the cap. Are we clear that Ofgem is content about being able to publish its cap within the five months—actually, eight weeks ahead of that five months?

--- Later in debate ---

[Claire Perry]

The hon. Gentleman again puts forward a sensible probing amendment that it is a pleasure to think about and speak to, but I will chance my luck and try to persuade him to withdraw it.

The hon. Gentleman is right that the review is a crucial part of the Bill’s effectiveness. Is the cap set at the right level? Is the ability to change the cap clear? Have we set out the conditions under which the cap must apply? We will get on to the conditions as to what success looks like. Is the cap dynamic enough to make a difference in the market?

If I read clause 6 carefully, two words precede the hon. Gentleman’s one-number intervention. In terms of reviewing the cap, the clause uses the phrase:

“The Authority must, at least once every 6 months”.

When we had this conversation on Second Reading, I said, correctly, that the opportunity is there for Ofgem to review this cap more frequently than that, should it choose to do so. It can review it on a weekly basis or a three-monthly basis, but it must review the cap every six months. That is consistent with the reviews of the prepayment meter cap, which is already delivering savings of up to £120 a year, as we talked about, and which is what the excellent Business, Energy and Industrial Strategy Committee report recommended. I think that the flexibility the hon. Gentleman is seeking is covered by the words “at least”.

Yet the hon. Gentleman raises an important point: what happens if there are suddenly wild fluctuations in the energy market, which we want consumers to benefit from, and particularly if there is a sustained price fall? I have looked at this a bit. It is a bit like the mortgage market: unless someone is on a tracker rate, changes in the wholesale prices do not always feed into the retail prices. Indeed, these companies make an art, or a science, of hedging their supplies so that they bake in what their margins look like on a future basis. Any sustained price fall would take its time to feed through to those companies’ overall cost of energy provision.

Indeed, companies change their SVTs only once or twice a year, even though those are standard variable tariffs. We had a very interesting conversation this morning in Committee about whether that was a rather benign description—maybe we should be looking to tighten up the language a bit. These variable tariffs vary only once or twice a year. There is an argument that giving Ofgem a statutory duty to review this at least every six months provides an opportunity for the market movement to be greater than it is under the SVTs. I feel that with the words “at least” we have provided in the Bill for Ofgem to react to market movements or any other structural changes that would affect consumers. That flexibility is there.

As always, the hon. Gentleman has thought about these things carefully. As he alluded to, there is a risk that by specifying every three months, given that this is a short-term cap—it will apply for a minimum of just over two years and a maximum of just over five years—we would perhaps create an unnecessary process burden. We want Ofgem to continue to regulate this market well; we want it to continue to bring forward initiatives such as the cancellation of billing backwards for more than 12 months and the work it has announced it wants to do in the wholesale energy markets to ensure that returns are proportionate. I am persuaded that by changing the period to three months, we would create a potentially unnecessary burden that does not deliver anything more than we have already allowed for with the wording of clause 6(1).

[James Heappey]

I got there in the nick of time. While the Minister has been speaking, I have been looking at Ofgem’s tracker for wholesale energy prices. It is clear to me that in the first quarter of each calendar year, prices are particularly volatile and disproportionately higher than in the remainder of the year. In his evidence, Dermot Nolan said that, over six months, those midwinter peaks are ridden out. That means we should defer to his judgment that six months is the right unit, not quarterly.

[Claire Perry]

My hon. Friend again brings assiduous online research, which is marvellous, and his knowledge of this market, to support the point that Ofgem believes that six months is a proportionate time. The Bill does allow Ofgem—should it be required to do so by market movements, and that volatility persists over a period of time—to make the necessary adjustments. I know that I am on a winning trend, which may not last, but on that basis, I hope the hon. Gentleman is persuaded once again to withdraw the amendment.

--- Later in debate ---

I hope to receive an explanation as to why everything is all right in the world of the Bill as far as Ofgem is concerned and to hear that my fears are entirely imaginary and that the out arrangements for the cap are in perfectly good hands, so I need not worry myself at all. However, I fear I may not. I hope the Minister will have a very good attempt at persuading me. This matter is really important, and we ought to take it seriously.

[James Heappey]

I rise to speak briefly. I know exactly what the shadow Minister is trying to achieve with the amendment, and I agree with him that the cap must be a temporary measure. On Second Reading, I answered an intervention by saying that this should be a raid into the market, not an occupation. It is very necessary indeed to set out clearly the terms on which the cap will come to an end.

Having said that, my concern with the amendment is that whereas the Bill as drafted refers explicitly simply to progress with smart meter deployment—it quite reasonably leaves the regulator and the Minister to work out what progress is being made on the remainder—the hon. Gentleman’s list is so lengthy as to be overly prescriptive. Some measures in his list, such as improving efficiency in suppliers’ business models, are not the business of the regulator at all. I rather think that suppliers will be driven to find efficiency by the creation of competition, rather than needing to have it required of them. That is what the market does.

The hon. Gentleman is an enthusiastic fellow traveller on the route to a decentralised, digitised, dynamic energy system, so I wonder why his list does not include half-hourly settlement or the universal application of demand-side response, why he does not require the market to be electric vehicle-ready, why he is not concerned about transmission costs as well as distribution costs, why he does not seek signals from the regulator about the readiness of the market to manage a decentralised energy system given all the price advantages that might bring, and why he is not enthusiastic about a code review or embedded benefits, or about looking at what energy-efficiency measures have been made or at whether we are ready for a data-heavy digitised market.

As well as all those things, there is the unknown scale of the renewable deployment that might come our way, alongside the flexibility that storage and demand-side response will bring with them, and what impact that might have on price variability over the course of a year. There are so many unknowns, and the pace of change in the energy system is such that being as prescriptive as the hon. Gentleman desires at this stage would risk hindering progress in the system. It would shape the way the market worked towards achieving the end of the price cap, rather than allowing it to be disrupted in the way that I know he and I genuinely hope it will be.

[Alan Brown]

Will the hon. Gentleman give way?

[James Heappey]

I was done, but I am happy to give way.

[Alan Brown]

I understand the hon. Gentleman’s point about other factors that may ultimately influence the retail energy market, but why should progress with smart meter installation be the one thing we tell Ofgem it must measure in its review? It seems to me a bit strange to specify that criterion but say that we do not want all the other important criteria that the hon. Member for Southampton, Test laid out.

--- Later in debate ---

[James Heappey]

I suspect that the Minister is much better placed to answer that than I am, but I guess—I would support this wholly if it were the case—that we have done a lot of work with carrots when it comes to smart meters and we are starting to get into stick territory. If we want the new digitised market to really work—I know that almost everyone here is passionate about achieving that—smart meters are no longer optional: they are a necessity. To use that as a metric of success seems very reasonable to me.

[Claire Perry]

I want to try to address two of the main points that came up: what “good” looks like, the conditions for success and how far we should specify them in the Bill, and why progress with installing smart meters is the only explicit condition. Ultimately, this is the nub of the whole Bill. We are all here because we believe that the conditions for effective competition are not in place and that the Bill will assist the market towards that evolution. I suspect that we all believe in well regulated, competitive markets delivering the best value and service for consumers, and if we see a regulatory gap—a place where the regulator needs new powers to deliver that—it is only right that we fill it. That is what we are doing.

Once again, I have great sympathy with what the hon. Member for Southampton, Test set out. I feel sometimes that we are a bit like Eeyore and Tigger: he is always looking for the very worst outcome and I am always very optimistic about the future. Perhaps it is good that we often meet in the middle. The challenge, as my hon. Friend the Member for Wells set out, is that the list that the hon. Gentleman has put forward is very sensible. I am sure that we could all come up with further factors that we thought would indicate that the market was acting more competitively.

Energy Efficiency and the Clean Growth Strategy

James Heappey Excerpts

Thursday 8th March 2018 Westminster Hall

[Antoinette Sandbach (Eddisbury) (Con)]

I beg to move,

That this House has considered energy efficiency and the clean growth strategy.

It is a pleasure to serve under your chairmanship, Mr Walker. I am grateful to the many of my colleagues from both sides of the House who helped me to secure this debate, not least to the hon. Member for Birmingham, Selly Oak (Steve McCabe).

This is an important debate, and I hope that it will spur Members to action, not just today but in the future. This is the first debate of its kind in several years, and it is important to ensure that we keep energy efficiency at the top of the political agenda. This week the energy price cap Bill, the Domestic Gas and Electricity (Tariff Cap) Bill, received its Second Reading. The Bill is a vital step to protect consumers while we reform the market in the short to medium term.

I want to propose a long-term solution for energy efficiency improvements and suggest how to make best use of the time we will have bought with the energy price cap Bill to address energy efficiency. In my remarks, I will outline how far we have come and discuss the challenges we face, before proposing a couple of solutions to return us to a better low-carbon path. I plan to talk generally about the state of energy efficiency, but where I am more specific I shall be addressing domestic energy efficiency. Other Members, I am sure, will focus on other areas, but I shall leave that contribution to them.

It is important to outline how far we have come in building a low-carbon economy and in improving energy efficiency over the long term. That is testament to the commitment of successive Governments, and I am proud to say that we are now a world leader in the green economy. Since 1990 we have cut emissions by 42%, faster than any other G7 nation. We have outperformed the first carbon budget, of 2008 to 2012, by 1%, and we are on course to outperform the second and third carbon budgets by 5% and 4%, respectively.

All that achievement has not come at the cost of economic growth. Emissions dropped by 42%, but the economy grew by 67%. In 2016, 47% of electricity came from low-carbon sources, which was twice the rate of 2010. Household energy consumption has fallen by 17% since 1990, despite a rise in the number of home appliances. More than 430,000 people work in low-carbon businesses and the supply chain. All that work has resulted in bills being roughly £490 lower than they would have been without the energy efficiency improvements made since 2004.

Clearly, significant progress has been made over the past three decades. I applaud Ministers and Members of all parties for their commitment to tackling climate. What is more, we have taken those steps without damaging our economy, the idea of which was originally dismissed by some as simply not possible.

Despite such progress, there is still more to do. Progress on energy efficiency has slowed. Between 2012 and 2015 the annual investment in energy efficiency fell by 53%; and in the same period there was an 80% reduction in improvement measures, with the Committee on Climate Change warning us that that will decline even further by 2020. Fuel poverty remains a stubborn problem that we must continue to address. It is all very well giving assistance with bills, but a long-term solution—insulating houses—is surely the way forward.

As of 2014, 2.3 million households in England were in fuel poverty and 41% of the households in the lowest income decile were fuel poor; 56% of fuel-poor households lived in properties built before 1944. To my mind, those issues make it an urgent requirement of the Government to do a housing survey in England: 60% of fuel-poor households lived in inefficient properties with an E, F or G energy performance certificate rating, and 14% of households in rural areas were in fuel poverty, which is higher than the national average. Those rural households cannot access the efficiencies of dual fuel billing, and that is important, because many are off grid. Many cannot access the warm home scheme measures, which often involve whole streets. The low-hanging fruit has been picked, but the more challenging households, in particular in rural communities, have not been addressed.

The clean growth strategy is a welcome addition to the debate. I support its proposals to combat fuel poverty and to promote energy efficiency, but I hope that the Minister can be more specific about the Government’s plans today than they were six months ago. The Committee on Climate Change assessment of the clean growth strategy found that three actions were expected to deliver, six actions had delivery risks, or were rated amber, and seven proposals were without firm plans, or rated red.

It has never been more important to tackle climate change and to decarbonise the economy. However, the potential rewards have never been so great. A building energy performance programme could save households £270 a year on bills. Over the long term that would save even more than the current proposed cap on energy bills, and it would also make a large contribution to hitting our climate change goals. Bringing every household up to an EPC band C by 2035 would save 25% of the energy used by the UK, which is the equivalent of six nuclear power stations the size of Hinkley Point C. The net economic benefit of such a programme would be between £7.5 billion and £8.7 billion, according to macro- economic analysis by the UK Energy Research Centre, and that figure does not include the wider secondary benefits in growth, jobs or health. With cold homes in England costing the NHS an estimated £1.36 billion, such a programme would have a considerable impact on health budgets, as well as on the wider economy.

The economic and social case for increased energy efficiency measures seems unarguable. We must focus on how to deliver them. Throughout recent history, we have seen that the fight against climate change is most effective when Government and private industry work together. The Government can lead the charge, but we need to harness the innovation and energy of the private sector to truly succeed. That is why I want to suggest one way in which the private sector can step up. It is one way for the Government to make a change that can expedite energy efficiency improvements. Mortgage providers should give people more incentives to purchase energy efficient homes.

In essence, if people make savings on their energy bills they will have more money to service a larger mortgage, and that should be taken into consideration when banks make their lending decisions. We know that in 2014, 51% of fuel-poor households were owner-occupiers, with only 33% in the private rented sector. Were the EPC rating of a house to be included in a lender’s affordability calculation, people could borrow up to £4,000 more in many cases. Under such a system, an EPC A rating would allow people to borrow £11,500 more than an EPC G-rated house. I recommend to hon. Members who are interested in this proposal a report by the Lenders group, which said that energy bills were a sizeable part of borrowers’ essential expenditure, and were therefore a component of the affordability calculation that warranted being made more sophisticated.

[James Heappey (Wells) (Con)]

My hon. Friend is making such a good point about how we can challenge mortgage lenders to revisit affordability, based on how much it costs to live in a house. Crucially, it demonstrates to developers who have pushed back against higher energy efficiency building standards on the basis of affordability that lenders understand that reduced operation costs are a good thing, because borrowers can borrow more to pay more for a house that costs less to live in. It slays the developers’ argument against more stringent building regulations.

[Antoinette Sandbach]

I completely agree, and those houses would be more easily resold, too. The energy efficiency measures that had been introduced in a property would have a market value, and that would be taken into account in the ability to resell—particularly the increased borrowing capability. Furthermore, it would give real value when looking at the EPC rating for the future. It is a simple step that could be taken with relatively little Government interference—a simple statutory instrument so that energy efficiency could be considered as part of the mortgage affordability criteria would be very persuasive, particularly for those companies specialising in green finance.

Despite that, I also agree with my hon. Friend that we have to look at the criteria that we impose on house builders. It is simply not acceptable that in this day and age we are building houses that are likely to need retrofitting in future. By increasing the build standard, people would learn how an energy efficient home can have an impact on their life. I sat and shivered in my own home in London during the freeze last week; I found myself sitting in my sitting room in my coat because the house was so cold and inefficient. I now realise that I have a relatively fuel efficient home where I live in Cheshire, which makes a difference mentally, to comfort levels and to bills. Merely including the energy efficiency measures in affordability calculations would be enough to drive people towards more energy-efficient homes even if buyers do not borrow extra money, because they would be attracted by the perception of value implied by the higher borrowing limits.

My second suggestion is one that the Minister may be able to assist with more directly. When Members talk about infrastructure spending, one is put in mind of boys with their toys: big trains, roads, railways and power stations. However, I suggest that the Minister designate energy efficiency measures as infrastructure spending, bringing it under the purview of the National Infrastructure Commission. The rationale for that is simple: energy efficiency spending is a one-off cost, so it is closer to capital than revenue expenditure. By reducing energy consumption, those investments free up energy sector capacity. That reduces, or at least delays, the need for new capacity to come online. That new capacity—in the form of generation plants, networks and energy storage—would be considered infrastructure spending by the Government, and potentially would involve a large amount of Government expenditure.

Why invest in the big plant if we can roll out energy efficiency measures across the country, as part of an infrastructure project? Energy efficiency measures provide a public service: they insulate consumers—literally—against the volatility of energy markets. Likewise, they provide health and wellbeing benefits, by enabling consumers to heat buildings more effectively, and they have the knock-on consequences of reducing our carbon emissions and contributing towards our overall aim of clean, green growth.

Research by Frontier Economics found that a building energy performance programme would meet the Treasury’s criteria for determining the top 40 infrastructure priorities. The National Infrastructure Commission has said that it will consider

“an ambitious programme of energy efficiency improvements”

and that it

“is examining ways to make the UK’s building stock fit for the future.”

I hope that Ministers will pave the way by committing £1.1 billion to a programme of energy efficiency improvements, under the auspices of the National Infrastructure Commission. It is estimated that that would leverage £3.9 billion of private investment by 2035. That additional capital spending, alongside the £0.6 billion already spent, would dramatically improve energy efficiency, bringing all the benefits I have outlined.

With the £1.3 billion of savings that have been highlighted in the health budget, these measures would effectively fund themselves out of savings to other parts of the Government’s expenditure. The starting step is to recognise that this is capital spending on infrastructure—not revenue spending. Members might like to look at the Energy Efficiency Infrastructure Group report, “Affordable Warmth, Clean Growth”, where they will see a detailed plan to take forward this suggestion.

I look forward to hearing suggestions from other hon. Members of how to renew our energy efficiency drive. The case for pushing forward seems indisputable: it would make significant inroads into fuel poverty and carbon emissions, as well as create jobs and secure clean, green growth for the future. Mine are just two suggestions of how to approach that, but I hope that the Minister and her Department will take them on board. I am also keen to hear the suggestions that the Minister has brought with her; there is a lot of potential in the clean growth strategy, and I know that she is as keen as I am to see that potential realised.

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[James Heappey (Wells) (Con)]

It is a pleasure to serve under your chairmanship, Mr Walker. I congratulate my hon. Friend the Member for Eddisbury (Antoinette Sandbach), who has become the leading champion in this place for energy efficiency. She is at risk of being overtaken by the Minister, who is celebrated in all quarters of the energy industry. That is very welcome indeed.

This is a very important debate. I chuckled to myself at my hon. Friend’s reference to infrastructure projects being like boys with their toys. It is tempting when talking about energy policy to start with the wind turbines the size of the Eiffel tower in the North sea, the big nuclear power plants we are building or the transmission system. It is much less glamorous but no less important to talk about the other end of the system, where we can make huge differences in the amount of energy we use.

I happen to believe that six networks drive productivity in this country: road, rail, air, broadband, mobile and the energy system. The first five are discussed all the time in this place, but the energy system is talked about very rarely indeed. Energy got a rare outing this week, but in a consumer-focused debate about capping bills rather than in a debate about the wider energy system and potential productivity advantages.

A more energy-efficient system is important to our energy security. It was grimly predictable that, when National Grid released its warning about a squeeze on the gas supply last week, the headlines would scream stuff like, “Blackout Britain!”, and that the proposed solution would be more thermal generation from coal and gas. I argue that the solution is actually a more efficient energy system that allows demand to be shifted when those sorts of times come.

[The Minister for Energy and Clean Growth (Claire Perry)]

Let me clarify for the record what happened last week. I was extremely concerned that consumers might be alarmed and worry about whether to cook their tea or turn their heating on. What happened was an entirely normal signalling: “Can anyone who is consuming lots of gas sell it back? We’ve got a spike, because we’ve got the coldest weather for a decade.” That system worked. Sufficient gas was provided. That is a tribute to our very flexible energy system.

At no point was domestic supply under threat. I have worked closely with National Grid to ensure that, should that ever happen again, those messages are put out much more quickly, because I do not want people to be worried about making those choices in their homes.

[James Heappey]

My right hon. Friend is absolutely right, and she knows that she has my full, enthusiastic support on that point. The answer to what happened last week is not that we need more gas: actually, the system worked and demonstrated that there is flexibility. That more efficient, more flexible system brings with it energy security, and we should make that point robustly.

We should also be clear that a more efficient energy system brings with it reduced costs for consumers. Transmission and distribution costs are a not insignificant part of energy bills, so designing a more efficient system should be a priority. I will come back to that point shortly. It is not just price capping that can bring down bills for consumers: we could also find pretty significant savings in the costs of operating the energy system.

The other reason why we need a more efficient system is that, over the next 15 years or so, we will increase by an order of magnitude the demand we place on our electricity system. As we decarbonise heat and electricity, we will find ourselves significantly increasing the load, and the answer to that increased load cannot exclusively be more generation. We must seize the opportunity to create a more efficient energy system to meet that increased demand. For that, we must recognise that all of the clean tech coming along that allows for decentralised generation allows us to generate locally and use locally.

Rather than conceiving the national energy system as we see it at the National Grid control room in Wokingham, with its big map of the UK and its worrying about getting power from Hinkley Point to someone’s toaster, we should start to see it in terms of: what the net energy use is in someone’s home and whether they are putting energy back into the system or drawing down; and whether a community can service its energy needs and whether it is drawing from or exporting to the system.

The system would constantly balance upwards and, crucially, the distribution network operators would become distribution system operators, balancing the flows within their region. The national grid—if we need one in the future—would be left simply to balance the net flows of energy between the regions. If energy is generated and consumed locally, that must bring a significant reduction in distribution and transmission costs.

Of course, I recognise there will always be a requirement to socialise among all consumers the underpinning energy security that comes from a system that backs up when local systems fail. Such a system would bring huge reductions in bills and huge reductions in carbon—and frankly it would be an embracing of progress, given that all of this clean technology is coming down the tracks.

There is another area in which we could make the energy system more efficient: we should recognise that we waste a huge amount of energy in the form of heat. Remarkably few organisations that produce huge amounts of heat as a waste by-product yet understand their ability to monetise that heat. There are some brilliant pilot schemes that should inspire. London Underground has huge amounts of heat moving around its tunnel system underneath our capital city, and there are examples of it trying to get that heat out of the system and into heat networks on the surface. That is great, but such examples are relatively few and far between.

There are examples from heavy industry, where waste heat is being put into a heat network. Also, and this is a shameless plug: the shadow Minister and I—I will also demonstrate the non-partisan nature of the debate by referring to him as my hon. Friend—are both vice-presidents of the Association for Decentralised Energy, which told me the other week about a sugar factory in East Anglia, where waste heat and carbon is taken from the factory to greenhouses, where a prodigious amount of tomatoes are grown. That understanding of the value of the waste product and making energy usage more efficient should be an inspiration to companies all over the place.

There is also the electricity system itself. I understand from some of the distribution networks that the waste heat from the transformers when energy comes from the national grid into a distribution system is huge, and at the moment it goes out into the ether. Surely there is an opportunity to look at how that could be connected into heat systems.

At the Conservative party conference in Birmingham last year, a number of us were invited to go down to a combined heat and power plant beneath the library in Birmingham city centre. What is amazing in Birmingham is there is a network of CHPs—one underneath the library, one under New Street station and a couple of others in the city centre—that generate heat that is sold commercially to the hotels concentrated around the city centre at a cheaper rate than the hotels could get for themselves. The hotels therefore get a good deal and Birmingham business gets a good deal. However, Birmingham City Council, which put the network in place, also gets to sell cheap heat into the social housing immediately beyond the city centre. What I love is that the system is not just more efficient and therefore bringing down costs for business, but allowing for social justice by delivering far cheaper heating into the homes of those who can least afford to heat themselves.

That brings me to the domestic energy efficiency market, and first to those who are fuel-poor and unable to pay. Clearly, when it comes to our intervention, we must look at two types of energy efficiency to support those who are fuel-poor: barrier technology to avoid waste, putting stuff into windows, walls and roofs so that less electricity is required; and putting clean tech into homes, so that they have more efficient boilers and smart appliances, which also use less power. This is a completely non-partisan debate, but I adore the scheme in Scotland—and not just because it is called HEEPS, which was my school nickname. All power to the Scottish Government, who have one of the world’s leading domestic energy efficiency mechanisms—the home energy efficiency programmes for Scotland—in place. I hope we can be inspired by learning about what has been done north of the border.

There are opportunities to intervene. Yes, we can make the point that it is socially just to do so, but I hope the Treasury realises that it is financially sound, too. In the eight weeks of 2018 thus far, the Treasury has shelled out £56,282,500—roughly—in cold weather payments to those who live in fuel poverty. If we were to intervene aggressively to make those in fuel poverty live in better insulated, more energy-efficient homes, arguably that 56 million quid could have been reduced significantly. As my hon. Friend the Member for Eddisbury said, there are huge savings to be passed across to the NHS system and adult social care by ensuring that those who are fuel-poor, those most vulnerable and those living on the lowest incomes are in homes that are comfortable.

There are productivity gains to be had, too. If people live somewhere they can heat and they do not have to choose between heating and eating, they will be much more able to go out and get work, be motivated to be productive and get promotion, which will stop them being in a position where they are fuel-poor.

I have three more suggestions. The first is about the winter fuel allowance. I am aware that it is probably a bad idea to talk in the House of Commons about a universal benefit to pensioners, especially when as a result of this suggestion there is a chance that some will not get a payment any more. However, we might start to look at whether to set aside those who we class as being fuel-poor—those who have qualified for cold weather payments in the past couple of weeks, for example—and make sure they still get a winter fuel payment.

For the remainder, however, instead of giving cash to be used against an energy bill, could we start to give vouchers for that value with which they can improve their homes with energy efficiency measures? They would get the same amount, and I would argue passionately that over time they would be delivered a saving from their energy bills far in excess of what they currently get with the extra cash of the winter fuel allowance. More importantly still, whereas that allowance is given, spent and gone, with vouchers we would upgrade the housing stock of all the houses currently lived in by pensioners that, at some point in the future, will be lived in by people who are not pensioners. We would make an intervention using the existing universal benefit in an ever-so-slightly different way, which would stimulate economic activity—all these people would move into the supply chain to deliver those energy efficiency measures—and upgrade our housing stock permanently. We should consider that.

We also need to look at how we do EPCs and the standards we set for new homes. In hindsight, I think we on the Government side made a mistake in reducing the carbon standards for new built homes. However, even if we leave the standards as they are for the moment, please let us ensure that developers are building houses at the EPC level they say they are. There is too much discussion in this place of charities worrying about energy efficiency—they say that developers can say, “Everything we build that is ‘The James’ is an EPC band C. Therefore, wherever we build it, it is an EPC band C, even if we cannot guarantee those properties were built to the exact same standards as the type tested.”

We need to ensure that all of the hundreds of thousands of homes that the Government are commendably committed to building are built to the very highest standards—at the very least, to the standard it says they are built to in the brochure the developer provides at the point of sale.

Instead of EPCs simply being a mechanism for judging how efficient a property is in terms of its barrier technologies, or how well insulated the walls, windows, doors and roofs are, I wonder whether the Government might also consider how we might start to value the clean tech that might also have been put into the home. Clearly, some clean tech is removable; smart appliances may well be moved with the owner when they move house. But we have asked the energy companies to commit to having offered every consumer in the UK a smart meter by the early part of next decade, and by 2025, I think, we want all properties to be at band C. I wonder whether a requirement for reaching band C by 2025 should be that a band C house has a smart meter within it. That would catalyse the uptake of smart meters quite quickly.

My hon. Friend the Member for Eddisbury has already mentioned the importance of getting energy efficiency, and therefore operation costs, factored into the affordability studies done by mortgage companies. Nothing will bring the value of energy efficiency to the attention of homeowners more. I declare an interest here, insomuch as I am on the phone to my mortgage broker quite often at the moment and spend a lot of time scouring Rightmove, but nothing motivates homeowners more than when they are going through the affordability study and the mortgage company or broker is asking about the bills.

There is a hugely frustrating moment when the mortgage broker asks, “And what do you spend on your household utilities at the moment?” and the homeowner says, “Probably about £200 a month, but within the house I am building there are solar panels on the roof, or solar PV on the roof, or I want to put those things on to the roof or to put in a heat pump,” and the mortgage broker just moves on to the next question and shows no interest whatever in what they have just been told.

[Antoinette Sandbach]

I have been converted, having installed an air source heat pump in a very old property in north Wales, with 75 mm of internal insulation. I can virtually heat the house on a candle—it is not quite that efficient, but it is close. What is more, I get money back in renewable heat incentive payments, which means that my total energy cost has gone from approximately £1,200 a year to about £600 a year. It is extraordinary. It is comfortable to live in; I know that if I walk through the door, it will be warm. It is incredibly efficient. There is a gas boiler that gives hot water on demand with no wastage and no heating up water unnecessarily. It makes a huge difference.

[James Heappey]

My hon. Friend is absolutely right. I suspect that we need collectively to convince our colleagues in the Ministry of Housing, Communities and Local Government that we can value energy efficiency and clean tech within buildings in a much better way. We must shift them away from an analysis that says that the affordability of a property is exclusively about what that property costs to own or rent. It is not; it is what that property costs to own, rent and then live in during the month that follows. With energy efficiency measures, we can significantly bring down what it costs to live in a house, and therefore make it more affordable, by more than the smaller savings we might have got from cutting a few corners with energy efficiency when the place was constructed in the first place.

I have now unloaded all my bright ideas into Hansard. I believe that we must embrace this agenda and see that the renewal of our energy system is about not just building big zero-carbon generation, but making an energy system that is more efficient, that sees the value in waste heat and looks at how we use that more efficiently, and that is re-geared so that it is localised and decentralised and we are balancing upward rather than downward.

We must see domestic energy efficiency as an opportunity to save consumers money in a far more meaningful, lasting and organic way than the price cap intervention, which we necessarily had to make this week, but which must only be short term. If we do all those things, we create economic activity and save money for both the Exchequer and, crucially, bill payers too.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Walker. I congratulate the hon. Member for Eddisbury (Antoinette Sandbach) on her efforts to secure the debate. I find myself in agreement with many things that she and the hon. Member for Wells (James Heappey) have said.

We can hardly claim that our country has been a model of consistency in its approach to energy policy and energy efficiency over recent years. Changes from one Government to the next, and even significant changes within Governments, have come thick and fast, all of which has led to a rather unsettling period in our approach to the subject. I recall a series of parliamentary questions that I tabled only to try to ascertain when and how the Government would publish and then respond to the Bonfield review. It was as if I was trying to get blood out of a stone.

The review was finally published in December 2016. While I acknowledge that this Government seem set to embark on a particular course of action on energy efficiency and clean growth, there has been a lot of time lost and it is still not clear to me how the Government will achieve some of their ambitions. To the best of my knowledge, there has not yet been any real opportunity properly to scrutinise the proposals set out in the clean growth strategy. That is one reason today’s debate is so welcome.

The recent report by the independent climate change think tank E3G has highlighted the fact that public investment in energy-efficient homes in England has fallen; I think the figure I saw was that it had fallen by about 58% since 2012. That seems to flow from the coalition Government’s decision to end the Labour Government’s Warm Front scheme, which offered support to poorer households for better insulation and things such as boiler upgrades. Of course, we also experienced what I can safely call the disaster that was the green deal. According to E3G, Wales now spends twice as much as England per person on insulation, Northern Ireland three times as much and Scotland four times as much.

In my own region of the west midlands, fuel poverty is particularly acute. We have the highest level of fuel poverty in England, with about 13.7% of households—roughly 315,000 homes—classified as fuel-poor. The newly appointed Metro Mayor for the West Midlands combined authority has recognised the importance of carbon emission reductions and clean growth in his aims and objectives for the area. I am interested to see what he will do, when he comes forward with his plans, to translate those into tangible results.

My understanding—I am grateful to the Sustainable Housing Action Partnership for a very helpful briefing—is that there are a number of encouraging activities, especially at local authority level, attempting to build on previous initiatives in the west midlands, with the aim of achieving a breakthrough in demand for wholesale investment in high energy-efficient housing stock and other energy improvement and retrofitting schemes. I think the hon. Member for Wells referred to some of the things he had seen in Birmingham on his recent visit. However, SHAP is clear that, for real progress to be made in this area, there needs to be a strong promotion of housing as infrastructure, which is the very point that the hon. Member for Eddisbury made in her fine speech.

Indeed, SHAP actually looks favourably on some of the things that the hon. Member for Wells said he had seen in Scotland that had impressed him. It points out that that is exactly what they do in Scotland: energy efficiency is considered as infrastructure. A long-term commitment to energy efficiency schemes there seems to be leading to improved, high-quality planning, design and delivery schemes. There are things around that we could learn from, but they require some obvious courses of action: clear messages from the Government, access to investment, a long-term commitment and the seeing of these projects as infrastructure projects.

Energy efficiency is obviously a key part of the Government’s wider decarbonisation plans, as well as being one of the better ways to tackle fuel poverty. I hate to think what will happen when fuel bills land after the recent cold snap, and I wonder what we will learn in the coming months about the people who suffered during that period because of their fears over fuel poverty. I was grateful to the Minister for her clarification on the gas scare story, but one thing it exposed is how reliant we in this country have become on gas and how much of a need there is for greater diversity in our energy supply.

Other hon. Members and I are pleased to see the Government reaffirm their support for the EPC band C target for fuel-poor homes, and indeed their proposals to extend that to all rented homes. It is also good to know that the energy company obligation—ECO—will continue until 2028. However, we would all be helped immensely if the Minister put a little more meat on the bones. Is there an implementation plan to ensure that the band C target for all homes by 2035 will actually be achieved? What particular steps will the Minister take to achieve the band C target for social housing and private rented homes? What are her thoughts on phasing out high-carbon heating systems in homes? I would also like to know what is to be done to incentivise able-to-pay homeowners to make the necessary energy efficiency improvements to their homes; other Members have mentioned that issue.

[James Heappey]

I did not talk about the able-to-pay market, but I wonder whether the hon. Gentleman has heard about companies that are starting to look at providing heat as a service? The consumer defines comfort, and the company then delivers that comfort, but the company takes responsibility for delivering energy efficiency into the consumer’s home because that is how it makes its margin when providing heat as a service.

[Steve McCabe]

I have heard about a scheme of that nature, but I have to confess that I do not know very much about it; I would be interested to learn a bit more. We definitely need to think about how we both improve energy efficiency and make it affordable for people who can afford it on paper, but who we know in practice can often find it difficult.

--- Later in debate ---

[Drew Hendry]

I thank the Minister for that intervention. I understand that she wants to create solutions, but the proof will be in the pudding. I look forward to seeing what tangible measures come forward.

The hon. Member for Wells also talked about comfortable homes improving productivity. It is absolutely true. Studies have shown that in cold homes, children’s educational attainment is held back. He is right to point out that people are more productive when they have reasonable places to live in, and we give our children the best possible start in life when we give them warm homes to live in and have their education in.

The hon. Gentleman made very salient points, which I was delighted to hear. The voucher scheme for fuel-poor households is a really good thing to follow up—it is another idea that has merit and deserves further investigation. If something could be produced on that level, it could help a number of people and, as he said, improve housing stock. A measure that could improve things right away is the rapid acceleration of the programme to put the latest generation of smart meters into homes. A lot more needs to be put in to ensure that that happens much more quickly.

[James Heappey]

The key to getting smart meters into people’s homes is not only that the technology will allow all sorts of smart solutions that will bring down energy bills for people who are using less, but that the new tariffs being brought forward by the insurgent energy companies and based around half-hourly settlement will allow people to access cheaper bills because they will be in a better market. The more that we can all, on both sides of the House, encourage smart meter deployment, the better job we will be doing for our constituents.

[Drew Hendry]

The hon. Gentleman makes a very salient point. It is important that we encourage these measures, especially for people living in poor households, because they are less likely to take this up off their own backs. A focused programme and looking at how we incentivise this rapid uptake for poor households is very important.

--- Later in debate ---

[Drew Hendry]

I will come in a moment or two to what the Scottish Government are doing.

The hon. Member for Birmingham, Selly Oak (Steve McCabe) talked about energy efficiency schemes, and in Scotland some of those are changing the housing landscape. I want to point out one of the commercial companies, a private developer from the north of Scotland: Springfield Properties. It is not only looking at more energy efficiency measures in its buildings, but in Perthshire, where it has a new development of thousands of homes, it is putting in electric vehicle charging points for every single house. That is a very innovative thing for a private developer to be doing, adding to the fact that Scotland is leading the way in electric charging for vehicles.

[James Heappey]

The hon. Gentleman is making another important point. At the moment, when new houses are built in England, I think they are being built with 2 kV or 3 kV fuse boards, but an EV requires an 11 kV fuse board. I do not understand why we are building hundreds of thousands of houses with electrical connectivity that is insufficient to charge at full flow cars that are very likely to dominate the market in future. I hope that our friends at the Ministry of Housing, Communities and Local Government will amend that part of housing policy quickly.

--- Later in debate ---

[Claire Perry]

Indeed. I have met my hon. Friend the Member for Basildon and Billericay (Mr Baron) and some of those who support the Bill. I think it is an extremely interesting suggestion. I was able to reassure my hon. Friend that, given the work we are doing on ECO—I will come to that—and other measures, we will get there without legislation. That is always the preferred route, although having the overarching legislation of the Climate Change Act 2008 has meant that we have to deliver on these promises right across the economy.

I started to have the conversation with my hon. Friend the Member for Ochil and South Perthshire about it ultimately being a win-win to upgrade people’s homes or buildings because it saves money. Someone upgrades their home and they save money on their bill. There is a commercial proposition there. I served on the Energy Bill Committee—the Bill provided for the green deal—and I had great hopes for it, but it did not deliver. There is an economic value to doing those upgrades, however. Some of it may flow straight to the homeowner. Some may flow to a landlord, in which case there is the opportunity to rent the flat at a higher rate or to have a different sort of tenant who has a bit more money. There are opportunities there.

We talked a little about the co-benefits of better health for the country from warmer homes. We do not cost those things, and we cannot necessarily capture the money in the silo of BEIS, but we all know that they intrinsically make sense. As well as supporting what is already happening through spending, which I will talk about, we are focused on trying to build a better market for long-term delivery of much better solutions. That is absolutely where we want to go.

[James Heappey]

I know that my right hon. Friend the Minister will certainly not make such a commitment immediately today, but may I check whether she will take away the suggestion I made about smart meters becoming a requirement for band C and above EPC ratings? Perhaps she and I and colleagues might discuss that as an option at a later date.

[Claire Perry]

It was an excellent suggestion, and I have already clocked it as one to take away. Indeed, I will be attempting to turbocharge the smart meters roll-out later this year, because we have done some excellent work that needs to be continued.

I reassure colleagues that the money we are spending on ECO, where we aim to improve more than 1 million homes, the money we are spending on the warm home discount and the money that we are already putting into the problem of fuel poverty will be spent in a way that tries to drive more effective solutions. One of the things I want to do with the ECO project is targeted at fuel poverty, which is a hugely important aspiration for all of us. I also want to try to have much more of it targeted at research and development and innovation. Technologies qualify in a very formulaic way, and I think we could do a lot more on that.

To reassure colleagues who have said the clean growth strategy is just warm words—I know they have far better things to do—on pages 132 and 133 of the document I have clearly set out the next series of things that we will do. People say that just bringing consultation forward is not action. I want to make decisions that stick over the long term because they have been widely thought through and bottomed out analytically. On pages 132 and 133 is a long list of things we have already done, are doing or are planning to do this year—so I am not getting away with a long target—to drive forward the ambitions on the band C rating.

We are also working hard with business and industry. While we have a real challenge in our homes, the biggest pool of emissions in the UK come from—it fluctuates a little bit between them—industry and transport. We have always found it difficult to decarbonise businesses. Part of that is process decarbonisation—as the hon. Member for Redcar knows, that is difficult to do without fundamentally changing the feedstock or heat source for a particular manufacturing sector—but a lot is just business premises. All the same issues we have in the homes sector absolutely apply to business premises.

Domestic Gas and Electricity (Tariff Cap) Bill

James Heappey Excerpts

2nd reading: House of Commons
Tuesday 6th March 2018 Commons Chamber

[Greg Clark]

The hon. Lady makes a very important point. The statutory instrument that will allow that data sharing will be tabled shortly, before this Bill, which we hope will make rapid progress, receives Royal Assent. She is absolutely right.

I was explaining that the original RPI minus X model, which required annual reductions in prices by incumbents, was followed around the world, but with new developments in technology and practice, it is vital to keep our regulatory system up-to-date. In recent years, it has become more and more possible for suppliers to have extensive information on the habits and behaviour of individual consumers—often more information than the consumers know about their own habits, which are studied so minutely. Incumbent suppliers can identify which of their consumers do not respond to higher prices and instead display loyalty to what they might think of as a long-standing and trusted supplier. They can then penalise those customers with ever higher prices.

The CMA identified the problem and recommended that certain consumers, those on prepayment meters, should be protected from such pricing behaviour. It also recommended measures to drive up the rates of switching. The roll-out of smart meters in particular can make information that is currently only available to the incumbent supplier available to other potential suppliers, with the customer’s permission, which is what everyone wants to be able to drive up competition.

In its report, the CMA was in two minds about whether that action was sufficient, and a minority report thought that such remedies, including smart meters, would not come soon enough to eradicate this detriment quickly enough. The minority report said:

“The harm which is presently inflicted on households…is very severe…the remedies proposed for the large majority of households will take some time to come into effect. That is why…they must be supplemented by a wider price control designed to give household customers adequate and timely protection from very high current levels of overcharging”.

[James Heappey (Wells) (Con)]

I agree with the report that the march of technology was not correcting the market quickly enough, but there is no doubt that the arrival of all this technology in the energy system is creating a market that will benefit consumers in the future. Can the Secretary of State reassure us that while the Bill provides a temporary measure to correct the current market, it will in no way impede the arrival of the digitised market that will be so greatly to consumers’ advantage in the future?

[Greg Clark]

My hon. Friend has captured the position very succinctly. That is exactly the point. These remedies will introduce more competition based on technology, allowing consumers to have access to the data that will drive it. However, it will take a few years for that to come into effect, so the Bill is doing what my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) advocated—it is addressing the current problem with greater agility than the regulator has shown.

In 2016, the CMA’s minority report stated:

“These customers are exposed to the prospect of excessive prices on a scale which might amount of many billions of pounds of harm over the next four years”.

Experience has shown that the CMA was right. In the last few years, prices for customers on the standard variable and default tariffs have not declined; in fact, they have continued to increase, in some cases by double digits. There has certainly been no change in the behaviour of many of the companies.

--- Later in debate ---

[Greg Clark]

The capacity auction arrangements that have been pursued over the last few years have been very successful. We have had a higher margin this winter than last, and the prices of securing that capacity for future years have fallen in successive auctions. My right hon. Friend is right to raise the question, but the framework is actually delivering more resilience than has been delivered in the past.

[James Heappey]

My right hon. Friend the Member for Wokingham (John Redwood) made a good point, but does the Secretary of State agree that it is not just additional capacity that is required, but more flexibility in the system so that we can make existing capacity work better?

[Greg Clark]

My hon. Friend is absolutely right. We have already had the pleasure of debating that issue. The hon. Member for Southampton, Test (Dr Whitehead) has spent many hours in Committee scrutinising the Smart Meters Bill, which will contribute to making the energy system more interactive and therefore more resilient.

The Bill follows precisely the advice to set a non-renewable price cap for a short period while competition increases. Address the problem was one of the commitments made by the Prime Minister when she entered Downing Street. I recognise the important campaigning work done by my hon. Friend the Member for Weston-super-Mare (John Penrose) and, indeed, by the right hon. Member for Don Valley (Caroline Flint).

The Bill comes to us today having been scrutinised in draft by the Select Committee on Business, Energy and Industrial Strategy. I am very grateful to the Committee, and to its Chair and members, for their swift yet thorough scrutiny. The Committee took evidence from a wide range of stakeholders and produced a well-considered report. It agreed with the CMA’s minority report and with the Government’s proposed approach.

The Bill has been supported by consumer groups and, indeed, by many energy suppliers. Citizens Advice has said:

“We welcome the…Bill, which will prevent loyal customers being ripped-off”.

Octopus Energy, one of the newer and more innovative entrants to the market, has called the Bill:

“A crucial step towards a fair energy market in which energy suppliers compete to offer their customers the best value and service”.

The Bill constitutes a sensible intervention to address a specific problem in the market. The Government are not setting prices, and this is not a price freeze. Such a freeze could disadvantage consumers by leaving them stuck on high prices when underlying costs fall, or force energy suppliers to face the entire risk of international commodity markets. Subject to parliamentary approval, the Bill will require Ofgem to cap domestic standard variable and default tariffs until 2020. It will be for Ofgem to decide the methodology and the level of the cap, as appropriate. The cap will stay in place until the end of 2020. Ofgem will then be required to assess the conditions for effective competition in the market and make a report and recommendation to the Government, which I am sure the House and its Select Committees will consider as well.

The price cap can be continued for one year at a time up to the end of 2023, when a sunset clause will come into effect. The Government have no wish for the price cap to become a permanent feature of the landscape. The inclusion of the sunset clause relates directly to the point made by my hon. Friend the Member for Taunton Deane (Rebecca Pow) that we need to address the problem by increasing competition. Ofgem currently has the power to impose a cap for vulnerable consumers, and is taking steps to do that. When consumers make an active choice to opt for green standard variable or default tariffs, they will be able to continue to pay extra for such tariffs if they choose, to prevent unintended consequences. That was a very helpful recommendation from the Select Committee, and I can confirm that all of its recommendations have been accepted in full and are reflected in the Bill before the House today.

The Government want the market to thrive. We continue to promote competition as the best driver of value and services for consumers.

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[Rebecca Long Bailey (Salford and Eccles) (Lab)]

I am pleased that the Bill is before the House today, but I must express my exasperation that it has taken so long to get to this point. The 2017 Conservative manifesto committed to implementing an energy price cap that would protect 17 million households. The Government then repeatedly rowed back on that promise, passing responsibility to Ofgem, which made it clear that legislation was required. After months of to-ing and fro-ing, the Prime Minister reintroduced her commitment in her conference speech, and finally, on 11 October, a draft Bill was published. That Bill was then passed to the Business, Energy and Industrial Strategy Committee for pre-legislative scrutiny, which, due to the thorough work rightly done by colleagues, was not completed until mid-February. At the same time, a leaked conversation between the civil service and an energy investor seemed to suggest that the Government had no intention of seeing through the legislation. So yes, I was relieved last week to finally see the Bill introduced to Parliament, and I welcome the Government’s foray into a policy that they previously denounced as Marxist, but it remains the case that, as a result of this Government’s inaction, millions of households have been left to scrape through the winter facing a choice between cold homes or astronomical bills.

As all hon. Members will be aware, the UK experienced one of its coldest periods for decades over the past week, with the Met Office reporting that the UK had officially broken its record for the lowest March temperatures in a 24-hour period on Friday. As a result of this Government’s dithering and delay, the 4 million households currently living in fuel poverty, 1 million of which include a disabled person, will be receiving whopping bills at the end of the month. Startlingly, the latest figures from National Energy Action for the winter of 2016-17 show that excess winter deaths were 39.5% higher than in the year before, with an estimated 34,300 excess winter deaths in England and Wales.

[James Heappey]

The hon. Lady underlines the fact that the harshness of the recent weather will have increased energy bills for millions of people. Was she therefore as impressed as I was by the speed at which emergency payments were made to the most vulnerable to help them with their additional heating costs?

[Rebecca Long Bailey]

The emergency payments were certainly welcome—I thank the hon. Gentleman for his comment—but the fact remains that this price cap should have been in place this winter and it was not.

National Energy Action also found that each year an average of 9,700 people die due to living in a cold home. That equates to 80 people per day, the same number of people who die from breast or prostate cancer each year. It has been Labour party policy since 2013 to introduce a price cap on consumer energy bills, and although the principle of this Bill is positive, I remain concerned that, as drafted, it does not go far enough.

--- Later in debate ---

[Rebecca Long Bailey]

The hon. Gentleman makes an important point, and I will refer to this later in my submission. The Bill does not provide an answer to the broken energy market; it is simply a sticking plaster while the energy market is reformed. We would not expect the provision to be in place for a prolonged period. We are not openly against sunset provisions, although we might dispute how they are drafted, which we will explore in Committee.

In considering the cap removal, I must raise an issue that was highlighted recently by the Business, Energy and Industrial Strategy Committee. It found that vulnerable and low-income people were especially affected by poor-value tariffs, with 83% of those living in social rented housing, 75% of those on low incomes, 73% of those with no qualifications and 74% of disabled customers on a standard variable contract. It was clear from the Committee’s findings that, even with the advent of smart meters, those groups will still require protection from overcharging. I therefore urge the Government to consider representations by charities such as Scope, which has called for clause 7 to be amended to ensure that Ofgem, when it considers “effective competition”, has regard to the impact of removing or extending the cap in relation to vulnerable and disabled customers.

Finally on the drafting of the Bill, I am concerned that there is no guarantee that the price cap will be in place this winter, despite the Secretary of State’s earlier assertions. The Bill states that Ofgem must introduce a cap “as soon as practicable” after it is passed, but Ofgem has already said that it would take around five months after a Bill receives Royal Assent to enact a price cap because it has a statutory duty to consult power companies. This morning Ofgem has said that it

“will look to set the level of the cap over the autumn and bring the cap into effect at the end of this year”.

It therefore seems that the cap will not even be in place when the weather turns in autumn this year. I think that the Bill would be greatly improved by the inclusion of a hard deadline by which the cap must be in place, and Labour will be seeking to include such a deadline in Committee.

Given that the Government have already set the date for Committee consideration as 15 March, it would be encouraging if they provided a clear date for cap implementation because, even accounting for the relevant consultation periods set out in the Bill, it would be possible to introduce the cap earlier than next winter. Indeed, my advice is that including such a date might even lay to rest suggestions in some press reports that the big six, and indeed some members of the Cabinet, have been lobbying the Secretary of State to procrastinate or even drop the Bill entirely.

[James Heappey]

The shadow Secretary of State is kind to give way to me a second time. Does she agree that another option she might consider to help to introduce the cap as quickly as possible would be for her party to pledge its full support in helping to get the Bill through the House and the other place as quickly as possible?

[Rebecca Long Bailey]

I thank the hon. Gentleman for that very helpful comment. I have not opposed the Bill in any of my comments so far; I am providing helpful advice. We support the principle of a price cap and want it to be introduced in the most efficient and detailed way possible.

I think that there is consensus across the House that the energy price cap is no more than a sticking plaster, and that much deeper problems within the UK’s energy market need to be addressed. The market is fundamentally broken. Electricity bills soared by 20% between 2007 and 2013, while in the past year alone, every household in the UK paid £120 for dividends to energy company shareholders. Over the past few months, report after report and news story after news story have detailed the unfairness of the current system, but it must be noted that the final bills that consumers face are not simply a consequence of manipulation by some supply companies. As the Business, Energy and Industrial Strategy Committee has highlighted, network costs make up the second highest element of a duel fuel energy bill.

The Energy and Climate Intelligence Unit found last year that the six distribution network operators made an average profit margin after tax of 32% a year between 2010 and 2015, equating to £10 billion over six years. At the same time, shareholders received £5.1 billion in dividends. In a subsequent report, the ECIU calculated that electricity network companies’ exceptionally high profits are set to add £20 to household energy bills this year. Moreover, analysis by Citizens Advice last year calculated that network operators, including National Grid, had made £7.5 billion in unjustified profits, which it thinks should be returned to consumers. Quite frankly, that is the exploitation of a natural monopoly. It is not a market and there is no effective competition, and I want to hear how the Minister will deal with competition within this element of the energy market.

--- Later in debate ---

[James Heappey (Wells) (Con)]

This is an important Bill that comes from a very good manifesto commitment. Our energy market is undoubtedly broken, with millions of consumers stuck on the most expensive tariffs. Many are taken for granted and, arguably, even exploited for their loyalty, and it is right that the Government have intervened to protect them.

In many ways, in delivering this cap we have accepted that we failed over the last few decades to create the culture of switching that we hoped for. That is not to say that impressive progress has not been made; it has been, and we have seen further progress in the last few months, but even if that recent improvement in progress were to continue, we would still have far too many people—disproportionately concentrated among the most vulnerable and the lowest income consumers—left on the most expensive tariffs.

We should also note that some of the biggest energy suppliers have changed the way they operate SVT-type products over the past nine months, which is very welcome. One suspects that they saw what was coming down the tracks. None the less, I know that they will feel aggrieved by the Bill after voluntarily acting to tackle the problem of those stuck on rip-off SVTs.

The progress on switching and the improved behaviour of the big suppliers underlines why the cap need only be temporary. My hope is that the Secretary of State will encourage the industry to respond quickly to the cap so that tariff structures become fairer for the most loyal consumers. Clear criteria for ending the cap would be most welcome. While the cap is in force, let us not take our foot off the accelerator in encouraging more people to start switching. In short, the cap must be regarded as a means to an end, not—I suspect this is the view of some Opposition Members—as an end in itself.

[Bim Afolami]

Does not the Bill show the Government’s general approach to intervention in markets, which we have heard a lot about this afternoon, which is about markets not as a means in themselves, but as a means to an end, which is good, cheap and reliable energy for the British people?

[James Heappey]

My hon. Friend is indeed right. To resort to my former career as a soldier, I hope that the Government see this as a raid into the energy market, rather than an occupation.

In her opening remarks, the shadow Secretary of State made the important point that an amazing energy future is emerging in the margins of our current broken market, although I disagree with her analysis that the Government are not embracing that, because the clean growth strategy is a passionate embrace of those opportunities. Insurgent companies such as Octopus Energy are relishing bringing the new time-of-use tariffs to the market, giving consumers the benefits of fluctuating wholesale energy prices. Others are looking at how localised generation or aggregated shifts in demand might allow consumers to access cheaper energy or monetise their flexibility. Others still are looking at delivering heat and power as a service, often enabled by clean tech provided by the supplier for free, with the supplier then monetising the customer’s flexibility in order to make their margin. These and countless other innovations are accelerating our decarbonisation, increasing system flexibility—and therefore our energy security—and will mean lower bills for consumers.

We must also create an energy system that allows the full price-reducing power of clean technologies to bring down prices for the consumer. This will require significant regulatory change in order properly to unlock storage, demand-side response and the advantages of generating and consuming energy locally. We must also encourage the deployment of more renewables, no longer because they are the cleanest method of generation, although they still are, but because they are now so obviously the cheapest.

[Rebecca Pow]

My hon. Friend has great knowledge of this subject. Will he comment on the fact that we need to concentrate not only on energy efficiency, but on cutting energy waste, particularly in our domestic systems, because there is a lot of great new technology that could be harnessed?

--- Later in debate ---

[James Heappey]

I very much agree. Let us be clear that energy efficiency measures are no longer simply barrier technologies—in windows, walls and roofs—but digital technologies that ensure that we use less energy, or that devices immediately stop working when we no longer need them, rather than being left on unnecessarily.

Ofgem has a key role in delivering the Bill, but that work must be no more of a priority for it than ensuring the much-needed regulatory change that will be delivered through the unlocking of wholesale disruption of our energy system and market. Let us be clear that the real prize is not the correction of the old, analogue, broken market system of today, but the arrival of a digitised, decentralised, dynamic and disrupted energy system with a market that allows consumers to benefit fully from the price reduction that these technologies will deliver. A cap that saves consumers £100 or £200 is very welcome, so I support the Bill wholeheartedly, but not at the expense of the much greater savings that await consumers with the green, clean energy system of tomorrow.

Nuclear Safeguards Bill

James Heappey Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 23rd January 2018 Commons Chamber

[Dr Whitehead]

The hon. Lady makes the case for our new clause. If the Government are going about their business in a sensible and coherent way—I note the Secretary of State’s statement on 11 January on how the Government intend to go about conducting relationships with Euratom—it would be a good idea to place that procedure into the Bill, so that we can be clear about what we are about, what we want to achieve and how we will do so.

After all, it has been stated that this is a contingency Bill. We want to know what it is a contingency against and therefore how it should be framed in terms of what we should be doing in contemplating whether to bring it into operation. If we had either membership of Euratom or an associate form of membership, which might be fairly similar to that enjoyed currently by Ukraine but with a number of additional factors, this Bill would not be needed. The arrangements with Euratom would continue to be in place, rendering the Bill superfluous. We need to be clear about what we are debating.

[James Heappey (Wells) (Con)]

The shadow Minister knows that he and I often agree on stuff, but I wonder whether today he might concede this point. At worst, his new clauses would merely render the Bill superfluous if we manage to achieve associate membership of Euratom, but at best we are providing the contingency plan that gives industry the certainty that it says that it so much wants. The Bill is therefore relevant and necessary in that sense, even if it may ultimately prove to be superfluous because we achieve Euratom membership.

[Dr Whitehead]

Yes, indeed. I suspect that the hon. Gentleman and I are going to agree substantially on this. We regard the Bill as necessary in the context of the possibility that, after Brexit, no arrangements can be brought about with Euratom, either associate membership or full membership. The Bill will then ensure that the nuclear industry is clear about its future and that the arrangements for our international obligations can be properly carried out in the absence of those arrangements. We have indeed been constructive and helpful during the Bill’s whole passage through Parliament. However, that does not detract from our thinking that a number of its procedural elements should be strengthened in relation to what we do while it is gestating and coming to potential fruition after the point at which the things that we are doing may not have had any success.

The hon. Gentleman will see that in some of our amendments we are also trying to make sure that Parliament is fully informed of what processes are under way while we get to the position that the Bill could, or could not, come into operation. That is important for Parliament’s sake. After all, we are in new territory with regard to this Bill, and we therefore have to do a number of new things in legislation that fit the bill for our future arrangements. That is essentially the beginning and end of what we are trying to do through this group of amendments.

--- Later in debate ---

[Albert Owen]

The Government say that we need a transitional period for EU withdrawal, and it is obvious to me that we also need one for Euratom. The Government have said that we need to leave Euratom at the same time as we leave the European Union, but I stress again—I hope that the Minister will clarify the position—that nobody other than the Government has seen the legal advice that tells us that we need to exit Euratom. My hon. Friend the Member for Southampton, Test (Dr Whitehead) was absolutely right to say that there is universal support for the idea of our having associate membership. I have not met anyone who works in the industry who says that we should move away from Euratom. If we do, they—the workers; Prospect, the union; many of the experts who gave evidence to us; and the Nuclear Industry Association, which is the umbrella body—feel that we should have associate membership. The new clause therefore speaks on behalf of the industry in the first instance, and we as legislators should listen to what the industry is saying; we should not listen to the Government’s ideological grounds. The only reason why the Government want to leave Euratom is that they do not want to be under the European Court of Justice—that is the crux of it.

[James Heappey]

The hon. Gentleman, like me, will have received the briefing from the Nuclear Industry Association. Paragraph 5, on legal implications, clearly says that the treaties are entwined—that is the EU’s position and the UK Government’s position—and that it is not possible to remain a member of Euratom while leaving the EU.

[Albert Owen]

Well, let us clear this up now. I invite the Minister to say on behalf of the Government whether it is his intention—or their intention, if he is not in his post at the time—to negotiate associate membership. Yes or no? Otherwise, we are just guessing that the Government will negotiate some form of associate or third-party membership. I need to know these things from the Government, because we do not have anything in front of us. What we have today is a group of new clauses and amendments that would give us the certainty that we need. The industry is crying out for that, so I want to hear from the Minister.

--- Later in debate ---

[Albert Owen]

That is an important point. However, let me repeat that it is not Labour Back Benchers who are asking for this; it is the industry itself. We need to listen to the industry. Its members are not stupid. They know the technical and legal differences between associate membership and part-associate membership. What they want is certainty. If someone is in a position of strength, they do not go into negotiations, one against the rest, and say, “What are you going to give us?” We have to go to the negotiations with a firm belief that we want a strong associate membership, but I have not heard the Government say that, even in the Minister’s intervention.

[James Heappey]

I think that we are all pulling in the same direction, but we need to be careful about the language. There is not an on-the-shelf associate membership that we can just pick up and run with. There are associated countries, and there are countries that have associate arrangements, but those are bespoke, and thus far all of them have required the free movement of people and a contribution to the EU budget. It is therefore likely that whatever our associated membership might be, it will be different from that of countries that already have an associated membership. However, those countries are not “associate members”, in the sense that there is an associate membership class.

--- Later in debate ---

[James Heappey]

I sense that the Bill is accelerating towards the other place, so I will not speak for long. I congratulate Front Benchers on both sides of the House and all who have spoken in our debates. As with so many debates on energy in this place, there has been broad consensus, with disagreement about small details around the edges. It is pleasing to be part of such a constructive approach to an important area of policy without partisan divides getting in the way, as they sometimes do in other areas of policy.

The nuclear industry has cultivated a small but perfectly formed and enthusiastic band of representatives in this place. Colleagues on both sides of the House have enjoyed the industry’s hospitality and benefited from its briefing in order that we might understand the issue, which is important for the industry, and have scrutinised the legislation in the House to ensure that it meets the industry’s aims.

I am glad that the Bill has not been amended today, because I think it does exactly what it should be doing in the first place. It is vital that we maintain the safeguards and reputation of the nuclear industry. It is an industry in which even the smallest mistake is unacceptable, and we in this country have a fine reputation for delivering almost immaculate standards of safety, so it is right that Members on both sides of the House want to be reassured that, when dealing with the important issue of our membership of Euratom, absolutely no compromises are made over safeguarding and the safety of the industry.

The Government have been clear, as has the EU, that the treaties of the EU and Euratom are so intertwined that it is impossible to remain a member of Euratom while leaving the EU. Some Opposition Members, who are no longer in their places, made the point earlier that we should at least seek to remain in Euratom. I do not disagree—I think that would be the best possible outcome—but what I do disagree with is the idea that, in amending the Bill to secure that commitment, we should take a bit of a long shot on what has been unachievable for many other countries that are not within the EU, at the cost of providing the industry with what it has been so clear with us that it wants. I am glad that we have not done that, and I have every confidence that the Secretary of State and his team will seek, if not full membership, the closest possible thing to it that is allowable while meeting the terms of our wider Brexit ambitions. I am also glad that, since I spoke on Second Reading, when there was a great deal of rather unfortunate debate about things such as medical isotopes, such fake news has disappeared from the debate and we are all now much clearer about what the Bill does and does not impact on.

The nuclear industry is of huge importance to this country and my constituency. My hon. Friend the Member for North East Hampshire (Mr Jayawardena), in his lengthy remarks earlier, mentioned the importance of nuclear to our energy mix. He is not in the Chamber to hear the answer to his question, but I believe that about 25% of our energy needs today are provided by nuclear, either within the United Kingdom or through our interconnection with France. That is an important contribution, and until we can fully unlock the potential of energy storage, demand response and other flexibility measures, that provision of base-load is absolutely essential to the industrial powerhouse of our nation, so we should support the industry.

We must also ensure—this is the one constituency point I want to cheekily make on Third Reading, Madam Deputy Speaker—that the industrial opportunity of the new nuclear programme genuinely benefits the places in which that nuclear fleet is being built. We must ensure that not just things such as catering companies, accommodation and transport, but meaningful engineering, technology and high skills-based industries, are included in the supply chain for the construction of the new nuclear fleet. Somerset needs more than a fantastic caterer as a legacy of the construction of Hinkley.

The only other point that has come out today that needs to be underlined is that the chairwoman of the Business, Energy and Industrial Strategy Committee and other Opposition Members said that there was some debate about whether the ONR would be ready on day one to deliver the standards that Euratom has required of our industry. My response to their concern is not that we should legislate to mitigate the threat, but that we should encourage those on the Front Bench to lean on the ONR and support it in every way possible to ensure that it has the capacity to deliver such safeguarding on the first day of its responsibilities.

That is all that I wish to say, apart from congratulating Ministers on their stewardship of the Bill. The Secretary of State, who I am delighted is still in the Chamber, the Minister for Energy and Clean Growth and the Under-Secretary are enthusiastic fellow travellers on our route to a zero-carbon energy system. I am glad that they have brought this important piece of legislation through the House, and I am glad that it will not be opposed on Third Reading. I look forward to working with Front Benchers and colleagues on both sides of the House on other energy policy Bills in the future.