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

Kerry McCarthy Excerpts

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

[Bill Grant]

Q Is it 53 million installations? I think that is the target by—

Peter Smith: It would be slightly less than that, but it depends whether you think you need to put in SMETS2 meters, once they are ready, and replace the SMETS1 meters. We recognise the value of smart meters, particularly for low-income and vulnerable households, given the fear of an unknown bill. Estimated bills are the biggest concern that these guys get, so we recognise that they can have sufficient benefits. The trouble is we are so back-loaded now, the care and attention and extra help that we thought was going to be possible with smart meter roll-out is now going to be compromised, as everybody, as you say, is just going for volume.

[Kerry McCarthy (Bristol East) (Lab)]

Q This question is for NEA; I think you have already covered quite a bit of this. Obviously your remit is to look at issues of fuel poverty. You have already spoken about the warm home discount scheme and the safeguarding tariff, and the need for more engagement to make more people aware of those. You have just mentioned that smart meters have a role to play in fuel poverty as well. Do you think this Bill will help to address fuel poverty? Do you think there is enough in it? Do you think it really gets to the heart of it, or is it just about consumers being overpriced at the top end of the market and people being perhaps neglected at the bottom?

Peter Smith: First things first: it was reflected in my comments to the Business, Energy and Industrial Strategy Committee as well that NEA believes we must also tackle the vicious overlap between the households with the lowest incomes living in the least efficient homes. That needs to continue to be a priority, and, sadly, we have seen a dramatic drop-off recently in home energy efficiency delivery rates. You could build that into one condition by which Ofgem could make an assessment about whether we are now pulling on that lever as hard as can, maybe as part of an ambitious energy efficiency infrastructure programme.

The second thing relates particularly to the Bill. As I have described, there is a risk that we are assuming that the same people are covered through the SVT-wide cap as benefit currently—or would do in a few months’ time, with the extension of data-sharing powers—in the safeguard tariff. There is a difference between the people that it covers, so not everybody that will be protected by the SVT-wide cap will be protected by the safeguard tariff currently; and the values are very different—or could potentially be very different—in terms of the value of the safeguard tariff currently in place. That is about £100.

Given the drivers on Ofgem to create headroom to encourage competition and so on, that headroom might be significantly reduced. Therefore the general value that the two relative caps present might be very different. So in simple terms we cannot assure ourselves that the provisions in the Bill are consistent with the value that the safeguard tariff is currently providing. Ofgem need to consider that issue in relation to clause 2. It should be written into the Bill.

[Kerry McCarthy]

Q That was going to be my question. How should those things be done in clause 2?

Peter Smith: Clause 2 needs to say that there should be specific regard to customers that currently benefit from the safeguard tariff, and that the value of those relative price protections should be considered, to make sure that vulnerable customers benefit from the most attractive option.

[Kerry McCarthy]

Q Do you think the pool of people that currently are eligible for the safeguarding tariff is wide enough, or, in an ideal world, that it ought to be extended?

Peter Smith: Currently, the safeguarding tariff only targets those households that receive the warm home discount scheme. Those are typically poorer pensioners who automatically receive the warm home discount scheme, and some households in what is called the “border group”, which have to apply for support. Some households apply and are eligible, but miss out on the assistance because the programme is a first come, first served programme. Therefore we have been urging—and there were encouraging signs recently that this was going to be acted upon—that that should be extended to all households that were eligible for the warm home discount scheme, so it would cover those people who apply but maybe miss out on support.

[Kerry McCarthy]

Q At the moment, you have to be first in the queue to get the tariff. There is no reason why—

Peter Smith: You are either doubly benefited or doubly negatively impacted, because you do not receive the warm home discount scheme and therefore miss out on the safeguard cap, or you get the warm home discount scheme and the safeguard cap. We can reconcile all of that without these provisions. It was encouraging to hear Dermot Nolan say that he is minded to have due consideration of those issues when he sets the cap—because we could get into a situation where we look to preserve the extended safeguard cap at the same time as continuing with this endeavour. That would make sure that some of the issues I have spoken to are addressed. We would welcome that approach.

[Dr Whitehead]

Q Pete Moorey, your submission to the pre-legislative scrutiny of the BEIS Select Committee raised issues about the extent to which the remedies put forward by the CMA as far as market restitution was concerned were not, in your view, sufficient. Bearing in mind that it is going to be down to Ofgem to declare that the market is now functioning reasonably well and that the cap can now be taken off, what sort of remedies, in addition to those suggested by the CMA, might you have in mind to get the market working again? Do you think those should be introduced during the price cap or after it? Should they run after the price cap is over or concurrent with it?

Pete Moorey: We supported many of the remedies of the CMA, so while we did not believe that they would take us far enough to deliver effective competition, it was absolutely right that the CMA recommended that we would be testing and trialling new ways of engaging people in the energy market. We were disappointed that the energy industry did not respond effectively enough to that. We said to the industry immediately after the CMA inquiry, “Start getting on with it. Test and trial new ways of engaging particularly the most disengaged people with the energy market.” I think that a lot of that work should continue. The good news from Dermot Nolan this morning, and from other statements Ofgem have made over time, is that they are going to continue to do work on that, which is welcome.

We are not necessarily suggesting that there are other remedies such as that that could be trialled. It is more that we should be spending time considering what transformational changes can be made to the market along the lines that Dermot Nolan was talking about, particularly in his responses to James Heappey, to ensure that we have much more innovation in the market through new suppliers who can be tapping into the benefits that smart and other changes in the energy market will make. That is likely to be the transformation that will lead to a new kind of energy market where consumers are more engaged. That is the critical element, alongside all the key factors around switching levels—particularly engagement of more vulnerable consumers, energy satisfaction, trust in the market and so on—that we should be looking at.

As I say, simply removing the cap in 2023, and the market looking effectively as it is now, will not, I think, be the kind of change that we all want to see in the energy industry, and certainly will not deliver the kind of change that consumers need.

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

Kerry McCarthy Excerpts

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

[Dr Whitehead]

I fully accept that there are different interpretations of the best way forward within the overall agreed framework of where we want to go. Perhaps hon. Members take the perfectly reasonable, honourable and thought-out view that we have got what we want to say in the Bill, we have heard what Ofgem thinks it can do and we are happy to leave it there. My view is that it would be helpful to properly encapsulate our position on the Bill by saying in it what we want to happen—by setting an out-date for the considerations that Ofgem has to undertake before the cap becomes real.

Although I do not doubt for a moment the bona fides of Ofgem, or the sincerity of what Dermot Nolan said this morning, nevertheless, if we are not as clear as we can be about what we want to put forward in the Bill, it is conceivable—no more than conceivable—that someone could say, “Actually, we said five months, but some unexpected circumstances have cropped up—not a legal challenge, but other things—so we can push that further down the line. We’ll have to say that we are a bit sorry about that, but that’s how it is.” I do not want that circumstance to be even remotely in the minds of anyone at Ofgem over the next few months.

[Kerry McCarthy (Bristol East) (Lab)]

Is it not also a fact that in 2012, under the last Government, the then Prime Minister promised that he would force companies to switch customers to the lowest tariff? When he was talking about the “green crap” on energy bills, he also promised to use regulatory measures to reduce energy bills for consumers. As we have already heard, if we had introduced measures after last year’s election, when there was a manifesto commitment to do it, customers would have been protected in the cold weather we have just had. So I think it is only fair that people have some concerns about whether this is actually going to happen, when there have been so many false promises in the past.

[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.

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[Claire Perry]

I am sure the hon. Gentleman listened to the Prime Minister talking about the Labour party as being divided, divisive, tolerating anti-Semitism and supporting voices of hate. He probably does not want to trade quotes the Prime Minister has given.

However, let me move back to what we discussed in relation to the previous amendment. We talked extensively about how Ofgem needed to set the level of the cap to avoid crowding out investment, to encourage switching and, importantly, to set the cap at a level that does not facilitate strong legal challenges. That is why it is so important that we let Ofgem—which I think we all now believe does have the capability, and does share our commitment, to get this done by year end—get on and set the cap.

My hon. Friend the Member for Chelmsford made the point about setting an arbitrary figure. The problem with that is that this is not an average figure. We all know that we tend to work in averages, so just having that as the target would lead to all sorts of gaming.

The three things we all want are for the cap to come in, for it to be set at the right level and for it to be proportionate—once again, I wish we were not worrying about legal challenges, but we have to make sure. This is absolutely vital.

The hon. Member for Southampton, Test and I have discussed at length the difference between a cap and a freeze. We do want this cap to move over time. We know that prices go up as well as down. We know that the wholesale cost changes. We want to have the most efficient energy system we can, but the cost may increase. Having this number in the Bill would, in effect, bind Ofgem into setting a number that had no relation to the underlying costs.

I absolutely support the hon. Gentleman’s intentions. He and I both want to see these sorts of savings. In fact, the average spread between the cheapest tariffs in the market and the average of the standard variable tariffs is more like £300, so we would both confidently expect the savings to be greater than this. I will turn to the prepayment meter cap—the safeguarding cap—in a second in relation to the specific regard for vulnerable customers, but it is notable that the average saving after the April increase will be north of £100. Customers who are on that tariff are more than £100 better off than they would have been if that tariff had not come into place, so there is evidence that more than that amount could be achieved.

I will turn now to the second part of amendment 4, plus amendments 8 to 10 and new clause 1, which was tabled by the hon. Member for Kilmarnock and Loudoun.

[Kerry McCarthy]

If I heard correctly, the Minister was saying that people on the safeguarding tariff would be better off. However, in evidence this morning we heard that people will be eligible for it only if they have successfully applied for the warm home discount. Is that right? There is a waiting list and money runs out before time, so would she give consideration to the notion that it should be people who are eligible for the warm home discount and not just the people who have actually managed to get it?

[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.

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[Claire Perry]

Yes. Again, I want to thank my hon. Friend and the Select Committee for bringing forward a series of recommendations, which we have accepted. He refers to a statutory instrument that is being started in the Cabinet Office, which I am assured will receive assent—or whatever the right word is—during the passage of this Bill, subject, of course, to cross-party support. That opens up the opportunity for much better data sharing to support vulnerable and disabled consumers.

It is extremely important that we continue to look at this group. We heard today that some of those we might consider most vulnerable are also the most assiduous switchers, because they simply do not have a penny to spare. I guess the issue I have, which is why we are here, is that we do not want people to have to invest the time in shopping around to feel that they are always getting the best deal.

Households that are receiving the warm home discount, in addition to qualifying for the safeguarding tariff, get £140 a year. Of course, we protect our pensioners, with up to £300 a year for winter fuel payments. Sadly, the cold weather payment was also triggered in the last couple of weeks, and that was another £25 during the cold snap. There is also the priority services register, which is a free service provided by suppliers for people of pensionable age who are disabled or chronically sick, have a long-term medical condition or are in a vulnerable situation. Those people go to the front of the queue should an emergency—a supply interruption—interrupt their heating or cooking facilities.

Finally, I want to mention the ECO consultation, which we will bring forward shortly. It is my intention, as far as possible, to pivot the whole of ECO to focussing on the challenge of fuel poverty and trying to make sure that those in the greatest poverty receive the greatest benefit, but also to use the programme to support more innovation and more targeting. I live in an off-grid area, and I am fed up of getting ECO leaflets through my door. It does not feel like the best targeted scheme to me, and I would like it to be targeted at those who are perhaps time-poor and need the help the most.

[Kerry McCarthy]

In the NEA’s evidence this morning, it said that one of the additional things needed for a package for the most vulnerable customers was energy efficiency measures. I know the Government are consulting on energy efficiency programmes, and particularly on amending the energy efficiency standards for rented homes. May I urge the Minister to make sure that that is brought forward quickly as well, because it will take a while to implement these measures in people’s homes? This is not just about lowering the bills; it is about making sure that people are not using huge amounts of electricity and gas in the first place.

[Claire Perry]

The hon. Lady is quite right: the great thing about energy efficiency in the home is that it cuts both carbon emissions and bills, so it is a win-win situation, and that is why we have set an ambitious target. She is right that we have started with homes in the rented sector and the social rented sector, and our intention is to make sure that progress is delivered as soon as possible.

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[Claire Perry]

One little word has provoked a substantial and excellent debate. There is a genuine sense in the Committee that we all want to achieve the same thing: companies not being able to game the system, and tariffs that deliver for consumers and do what they say on the tin, so that if they say they are renewable, they are actually renewable, not just a package of greenwash. That is why I genuinely feel that the crowdsourced approach to legislation can be very good. I pay tribute to the Select Committee process, once again ably represented by my hon. Friend the Member for Stirling, who helped us to focus on the issue. I was pleased to hear several hon. Members comment that we have tightened up the wording accordingly.

We are wrestling with questions around gaming and what a green tariff looks like, and this question of “wholly” or “in part”. All those will be addressed by two processes, which I will talk briefly about. First, as the right hon. Member for Don Valley said, we have quite properly tasked Ofgem with looking at the whole issue. I think I am right in saying that it has never been asked to review the whole suite of green tariffs in the market and opine on whether they are any such thing.

A co-benefit of the whole process will be understanding what is out there, whether it is wholly, partially or not at all green, and what the price premium for some of those products is. I was a very early Good Energy customer, over 10 years ago, and—

[Kerry McCarthy]

So was I!

[Claire Perry]

I am afraid that, unlike the hon. Lady, I came off it, because it was so expensive—I apologise if she thought we were going to have a nice bonding moment over our green tariff. By the way, having heard the evidence, particularly from some of the more nimble companies coming in, I have every intention of looking very closely at changing my tariff again. However, the point is that the world has moved on. As the right hon. Member for Don Valley pointed out, prices have dropped and there is a question as to why we should be paying a premium tariff.

I would like the amendment to be withdrawn today—albeit on the basis that we do not yet have a brilliant fact base—but the offer I would make to every member of the Committee is for my team to put together a list of all the green tariffs in the market already and perhaps to ask for some evidence for to what the price premium is, so that when we look at this issue again on Report we will perhaps all feel a little bit better informed about this part of the market structure.

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[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.

[Kerry McCarthy]

I should say that although I have been a Good Energy customer for some time, we now have Bristol Energy—there is that conflict between being green and giving support locally; I think it has now introduced a green tariff. Another west country electricity company, Ecotricity—which has made a submission to this Committee very late in the day—is concerned that if the cap is introduced across the board before the green exemptions are looked at, its customers might find their bills having to go down when the cap comes in, only for Ecotricity to have to turn round and say, “Actually, we’ve got this exemption now. We want to put your bills up.” At the risk of delaying the introduction of the cap, I urge the Minister to make sure that the green exemption issue is sorted out at the same time that the cap comes in.

[Claire Perry]

In standing up for her local enterprise, the hon. Lady pre-empts the second point I was about to make, which is that we will use transparency, but we will also use the Ofgem consultation process to do exactly that. Ofgem has to consult—it has to review the existence of these tariffs and understand what they mean—and it will have to do that as part of creating the cap, because it is a condition of introducing the cap that those exemptions are also carefully defined.

There is an interesting question. There is the transparency issue, there is the consultation issue, but the third thing is this: is it zero, 100 or somewhere in between? It will be explicit, I think, in conducting that analysis that Ofgem has chosen a level of what it thinks this level will be. I totally understand the point that the hon. Member for Southampton, Test made about us all wanting a world in which renewable energy is not intermittent. Indeed, I opened Clayhill solar farm, the country’s first subsidy-free solar farm, partly because it has managed to achieve on-site storage, providing both a better economic return and overcoming the problem of intermittency. That is all absolutely correct.

However, we are not there yet, and I was very struck by what my hon. Friends the Members for Wells and for Chelmsford and the right hon. Member for Don Valley said. They said that we want to be in a world where we are not stifling that evolution, but instead creating a demand for those tariffs in the future. It may be that, in setting out its view on what constitutes the tariff, Ofgem will say that it is 75%, or 95%, or 50%, and we will all have a chance to respond at that point. I absolutely accept the spirit in which the hon. Member for Southampton, Test tabled the amendment, but I fear, as we talked about, that it would have the unintended consequences of driving some tariffs out of the market and creating other perverse incentives.

I would like to put on record that the issue of gaming exercises us all. I have said this to the energy companies and I will say it face to face: if they think they should be spending their energies working out ways to game the tariff, as opposed to delivering better consumer value and service, we will put them on notice that that is exactly what none of us wants to see. That is a strong message that we have all delivered.

I am happy to provide more information to inform the debate. I have listened carefully to the excellent contributions, but I hope that the hon. Gentleman sees that this one tiny word creates a series of unintended consequences that perhaps weaken the cap and that he is therefore content to withdraw the amendment.

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[Claire Perry]

You are sat in front of the iPad queen.

[Kerry McCarthy]

Mine has died.

[Dr Whitehead]

There you are—I am on my own now.

At the heart of this proposal is the rocket and feathers issue that my right hon. Friend the Member for Don Valley is famed for in her past interventions in this area, which is about the extent to which, when wholesale prices go up, energy companies put prices up pretty assiduously to compensate for the additional costs, but when wholesale prices come down, the same picture is not quite so much in evidence. For various reasons—buying along the curve, hedging in the medium term and various other things—the energy companies all say, “Oh no, we can’t possibly put our prices down, because of the positions we have taken.” It seems to work one way rather than the other.