Energy Prices

Kerry McCarthy Excerpts

Thursday 16th March 2017 Commons Chamber

[Kerry McCarthy (Bristol East) (Lab)]

It is a pleasure to follow my right hon. Friend the Member for Don Valley (Caroline Flint), if a little daunting to speak after such a tour de force. As has been said, she is second to none in her knowledge of this issue. I congratulate the hon. Members for Weston-super-Mare (John Penrose) and for North Ayrshire and Arran (Patricia Gibson) on their support in securing this timely debate, which comes in the wake of the most recent excessive price rises by the big six energy companies. It is good to join this cross-party platform to urge the Government to do something to stop those companies ripping their customers off. The companies have been getting away with it for far too long.

My right hon. Friend has campaigned for fair energy prices for the past six years. If dogged determination were enough to secure victory, it would have paid off long before now, but very little has changed during that time, as we have heard. Despite talking big on energy reform, the Government have failed to act where the market is failing. They quietly dropped a promise made by the Prime Minister in 2012 to force companies to switch customers to their lowest tariff; and, despite the rhetoric about cutting the green crap, they failed to ensure that the reductions they made to environmental and other obligations resulted in lower energy bills.

Ofgem’s capping of prices for customers on prepayment meters on the recommendation of the Competition and Markets Authority is welcome, but I agree that we need action for all standard variable tariff customers. In recent weeks, npower and SSE have raised their electricity prices by an eye-watering 15%, and another three of the large companies have increased their bills by nearly 10% on dual fuel standard variable tariffs. That is despite Ofgem saying that it saw no reason for price increases, given that wholesale prices are only just starting to increase from a low base. It has not gone unnoticed that many of those rises have been piled on to electricity, no doubt to ensure that as people start turning their heating off, bills remain high over the summer.

As has been said, it is grotesquely unfair that the current structure penalises the most long-standing and loyal customers, as well as the most vulnerable. The difference between a company’s cheapest tariffs and its SVTs is almost £200, and customers on SVTs pay 11% more for their electricity and 15% more for their gas than customers on other tariffs. In 2015, consumers overpaid by a staggering £2 billion; The Observer estimated that that was the equivalent of a halfpenny rise on income tax. With 70% of big six customers on SVTs, these tariffs are clearly helping to support record profits; the profits of the big six increased tenfold between 2007 and 2013.

As we have heard, rising energy prices are putting a real strain on household budgets and hitting the poorest households, which are far less likely than others to switch, particularly hard. Energy bills now account for 10% of spending in the poorest households, compared with just 5.5% in 2004. Citizens Advice estimates that 2 million low-income families pay £141 extra every year.

I want to talk for a moment about my own constituency and the city of Bristol, which I am proud to represent. We have some of the worst incidence of fuel poverty in England. People always think of Bristol as an affluent place, but, as I am sure the hon. Member for Weston-super-Mare will confirm, the fact that parts of a city or town are thriving does not mean that people in other parts of it are not living in poverty. More than 25,000 people in Bristol—13% of the city—are living in fuel poverty, against a national average of just under 10%. Variations within the city are particularly stark. In some neighbourhoods, nearly a quarter—more than 23%—of households are in fuel poverty. Those areas are within a mile of neighbourhoods in which the figure is only 5%. Local food banks increasingly have to help people who self-disconnect or who ration their energy use, as well as their food consumption, to save money. People too often have to choose between heating and eating—fuel or food—as we have heard.

For those who suffer from long-term health conditions, living in a cold home can cause considerable suffering and even early death. Last year in my constituency there were 30 excess winter deaths, of which around a third are estimated to have been caused simply by cold homes. Over the years, I have heard some shocking stories from constituents. I was contacted a while ago by one woman whose husband was extremely ill. Their cold home was not only making her husband’s health condition worse, but denying them the most basic of comforts. In her email to me, she said,

“all we would like is to be warm in our home”.

I do not think that that is too much for anyone to ask in this day and age.

Other MPs will have in their localities the new breed of municipal energy providers, which provide a very different offer from that of the big six, with fairer rates and cleaner energy. Bristol Energy was set up fairly recently by Bristol City Council. Bristol Energy is a national company, so anyone can switch to it, but there is a special tariff for people with a Bristol postcode. It was set up to help local people, as well as people from outside the city who want to join in, to pay less for their energy and to provide a new way to raise funds for the city, as all the profits will be reinvested back into Bristol. Its standard variable tariff is significantly cheaper than that of the big six—on average, £105 cheaper—and it keeps its fixed deals fair, too. It is currently trialling a warm homes plus tariff, to bring households in Bristol out of fuel poverty. This non-profit-making tariff is only available by referral, and Bristol Energy is working with the citizens advice bureau, the council and Bristol’s Centre for Sustainable Energy on those referrals. It is looking for 1,000 people to put on this tariff to start with, limited to a year, to help lift them out of fuel poverty. As I have said, the profits will be invested back into the city. In the longer term, we want to be really ambitious in tying energy in with the waste sector. I was told on one visit to a waste plant on the outskirts of the city that it is reckoned that Bristol’s waste alone could generate enough energy to heat 250,000 homes. That has absolutely to be the way forward: a local solution to a local problem.

However welcome new entrants such as Bristol Energy are to the energy market, they seem to have had little impact so far in putting pressure on the big six to reduce their prices. Despite better practices by some companies, pushing people to switch or telling them that that option is available is clearly not enough. Ann Robinson, an independent energy expert, said in The Observer at the weekend:

“Although I believe in competition—because when it works it can result in fairer prices—we have to face the fact that not everyone can and will engage in the market.”

A spokesman for the Department for Business, Energy and Industrial Strategy has said that Ministers are ready to act when the market is failing. Those words are encouraging, but it is absolutely clear that the market is failing for the majority of people. I am not sure when the Department will decide that it is time to act, but if it had not been made before this debate, the case has certainly been made very powerfully on both sides of the Chamber today that the market is failing and it is now time for the Government to act.

Just 15% of households are regular switchers, and 66% of the remainder are customers who have never switched supplier—the so-called sticky 66%. As proposed in the motion, we need an approach that keeps open the option of full switching, but ensures the sticky customer does not become disadvantaged by remaining on an uncompetitive tariff. I very much support the proposals from Labour’s Front-Bench team and my right hon. Friend the Member for Don Valley for tariff reform, which is fairer and much more transparent.

Much greater transparency—as a first step, the inclusion of a breakdown of costs behind each of the tariffs, as well as the wholesale energy and transmission costs, and add-ons, including green energy—with an improved annual renewal notice along the lines of motor insurance, would encourage more switching, but I believe we need to go further still. We also need some kind of price controls for those on standard variable tariffs, and I urge the Government to pick up my right hon. Friend’s proposals for capping these tariffs.

My concern is that if we wait for the completion of the consultation on the Green Paper on when the Government should intervene in markets—it is due in the spring—it will be too late to affect energy prices next winter, and people will again suffer from having to pay above the odds with extortionate energy bills. The Observer said in an editorial:

“The government must reinstate price regulation until there is convincing evidence that market forces will provide value for consumers rather than unfairly enriching corporate profits.”

Consumers have been exploited for too long, and it is now time for the Government to act.