Domestic Gas and Electricity (Tariff Cap) Bill

Lord Grantchester Excerpts

Report stage (Hansard): House of Lords
Wednesday 27th June 2018 Lords Chamber

Moved by

[Lord Grantchester]

11: After Clause 8, insert the following new Clause—
“Ongoing relative tariff differential
(1) The Authority must, during the term of the tariff cap conditions being in place, develop, ready for implementation, a relative tariff differential.(2) A relative tariff differential is a requirement on supply licence holders that the difference between the cheapest advertised rate and the most expensive standard variable or default rate shall be no more than a specified proportion of the cheapest advertised rate.(3) The Authority is responsible for setting the proportion referred to in subsection (2). (4) The relative tariff differential takes effect on the termination of the tariff cap conditions.”

[Lord Grantchester (Lab)]

My Lords, Amendment 11was previously moved in Committee. It may be the last but it is certainly not the least of those being debated today. Perhaps it is the most crucial, because it proposes an on-going condition in the energy market that the electricity and gas suppliers will always operate fairly and proportionately between customers and tariffs.

Labour is in favour of the Bill. The energy market has been broken for some time. My right honourable friend in the other place, Ed Miliband, first proposed that price caps should be in place to protect consumers from excessive gas and electricity prices. Customers have been paying on average up to £300 more than they would have paid if the market operated more competitively. The excess weighs more heavily on more vulnerable households—those less able to bear it.

While it is flattering to see our policies recognised and implemented by the Government, they have to be implemented right, and preferably right first time. While accepting and applauding what the Bill achieves, it is nevertheless not quite there. It does not tackle the scourge of “tease and squeeze” by the utility companies. This amendment calls out the behaviour of energy suppliers where they tease customers to nominate a cheaper, more attractive tariff in the first instance, only to move them slowly over time to a higher tariff when the customer will be squeezed again.

This feature of the market has been operating for some time. The effect is that those customers who do not ceaselessly monitor and challenge what is happening, once again move back to being in a more disadvantaged position vis-à-vis the more nimble and fleet of hand and foot customers. Those whom the Government call disengaged are protected by the price cap mechanism on the standard variable tariff and default tariffs of the Bill, while it is in operation. Once these mechanisms are withdrawn, ultimately no later than 2023, this protection will fall away. The loyalty penalty is a self-perpetuating dynamic of the market. This is perverse.

The Bill is only a short-term measure. It professes that whatever happens, however competitive the market may or may not be, the price cap will cease in 2023. Clause 8 provides for this to happen at an even earlier date should the Secretary of State be advised that effective competition has returned to the market. However, the default mechanism of 2023 does not mean that competitive conditions will be operating at that date. Indeed, under amendments proposed by the noble Baroness, Lady Neville-Rolfe, the default date would be sooner.

It would be risky and optimistic to expect competition to return. We do not know whether the Bill will be enough. Notwithstanding that, Labour wants to outlaw tease and squeeze from the market, which could generate a more competitive market altogether hereafter. Under Ofgem’s determination of a relative tariff cap operating in relation to the lowest price tariff, this behaviour can be removed from the market.

This measure does not indicate that Ofgem must look both ways. By this I mean it cannot be claimed, if it is determined that the market is operating competitively and therefore that the cap may be removed in 2020, 2021 or 2022, that the amendment is contradictory—that the market is operating competitively. There is no contradiction as the competitive market would be operating within a relative price differential: the more competitive, the narrower the differential would be. It would be up to Ofgem to determine that differential.

The market could look very different by 2023. The House has just passed the Smart Meters Act, in which the Government gave strong assurances that the UK’s infrastructure will have been transformed by that date. The Government are on notice to make those changes. Here, we have the means to outlaw tease and squeeze for all time without the need for new legislation at some later date. It is a priority now and we cannot be sure that it will remain a priority under whatever market conditions might pertain at a later date, or even should the market move away again and back towards a less competitive environment where this kind of behaviour thrives. Not only must it be clarified that Ofgem will have the power through the amendment; Ofgem must act to underline that tease and squeeze behaviour will not be tolerated. It is an open goal for the Government to score. I beg to move.

[Lord Redesdale (LD)]

My Lords, while I understand where the amendment is coming from, it is not one I can support. The problem is that while we are asking the authority, Ofgem, to set a maximum price, we are now also specifying that there must be a minimum price. It would then be almost impossible for the authority to have a competitive marketplace to operate with.

The second problem inherent in this—a problem with the whole Bill—is that, while I understand the problems the bigger companies have because they do not have some of the obligations of the small companies, it will be an issue for Ofgem to try to work out where the cap will be in the first place. That will cause problems. We are also in a period where wholesale prices are rising. Therefore, there might be a slight problem if the companies, for different financial reasons, have to raise their prices. Would Ofgem then have to set a date at which all the companies raise their prices at the same time so that they do not break the cap? At that date, would it also then say that the minimum price has to be raised at the same rate?

I understand the idea that vulnerable customers should be protected. However, we are ending up with a marketplace in which there will be one default tariff that every single supplier will have to put forward. If there is a vote, I will vote against this, which is very much against my views—obviously my Front Bench will have a different view on this. This, however, is an area where what we want to happen and the reality on the ground vary substantially.

I should also declare an interest as the CEO of the Energy Managers Association. We represent all energy managers. It is rather unfortunate that while we are looking to protect vulnerable customers, we are not doing the same to protect SMEs and micro-businesses. There is an enormous amount of bad practice in the industry, with TPIs that have no code of practice, and Ofgem failing to enforce or even to have the power to protect SMEs in this marketplace. We are looking at protecting one sector of the marketplace while non-domestic customers will be hammered under bad practice. I raise this as this is the tail end of the Bill, although I spoke at Second Reading. I hope the Government can bring forward a Bill further down the line to regulate the whole third party, intermediary and energy broker marketplace for the non-domestic, but obviously it might be beyond the Minister’s ability to bring that forward.

--- Later in debate ---

[Lord Grantchester]

I thank all noble Lords who have spoken on this amendment. I am very grateful for the support of my noble friend Lady Kennedy of Cradley, who has underlined most forcefully how egregious this behaviour is and how widespread it has become, with the effects landing on those least able to counter it.

I certainly understand the remarks of the noble Lord, Lord Hunt, that we must get the Bill right. However, I did rather think that his remarks might be more pertinent to the appeals section amendment that had already been debated. Nevertheless, I agree with him that we must get it right, which means, I take it, that he is looking for further improvements, such as this amendment, to be brought forward.

I suggest that the noble Lord, Lord Redesdale, has perhaps misunderstood the relative price mechanism, in that the relative price mechanism will not be applied across the piece; it applies only to the standard variable tariff and default tariffs, as the Bill does. Ofgem would not necessarily apply a minimum tariff; it is setting a differential that will apply between tariffs. In that regard, I am grateful to the noble Lord, Lord Teverson, for correcting his noble friend in his explanation of the amendment.

I also thank the Minister for his response, to which I have listened most carefully. However, I do not believe that it will cause any delay in the implementation of the Bill, as this proposal would come in only at the end of the price cap conditions.

I wanted to understand more how this tariff would operate in practice and how much work Ofgem had put into examining how it could be brought in. In this regard, I am very grateful to David Gray, chairman of Ofgem, who responded so promptly to our request for a meeting, following an invitation from my noble friend Lord Lennie. It is my understanding that Ofgem already has the power to set a relative cap mechanism via individual licences. It is often, though, perceived that in these licensing caps Ofgem fails to take action—to the dismay of so many, especially consumer bodies.

Britain’s consumer regulations are some of the best in the world, but here we have opaqueness that can be remedied immediately by this amendment. Not only must Ofgem be assured that it can do this, but it must implement it at the end of the price cap conditions, within which competition will thrive.

I stress once again that, the more competition there is, the narrower the gap will be. Against the charge that the market would move up in tandem, I suggest that the market is then not working competitively and that Ofgem would have the power, by this setting of the differential, to counteract that behaviour. I understand that Ofgem has begun to look at the various measures needed to be implemented.

I repeat again that, as the noble Lord, Lord Hunt, said, we must get this right. The Bill is before your Lordships’ House today, and I am very grateful to the Minister for the triple commitment he outlined in his remarks, but I stress that it is somewhat vague at this stage and nothing that could not have been done in any case. That being so, I beg leave to test the opinion of the House.