Energy Prices

Mark Tami Excerpts

Wednesday 14th January 2015 Commons Chamber

[Caroline Flint]

I welcome the hon. Gentleman’s support for Labour’s policies in this area, and I hope we can persuade the Scottish National party that the price freeze is a good policy as well and that it should get behind it.

To inform the hon. Gentleman, the timetable is that the CMA report is due to be completed in December of this year, but an interim report should be forthcoming in June. Our view all along has been that when Labour is in government, we will freeze prices and introduce measures to make sure that the regulator can ensure that wholesale cost reductions are passed on. Also, in tandem with the CMA, we will be issuing further detail of our reforms, which I have to say in some respects the CMA has taken on board, which I welcome.

The second excuse we have been given is that wholesale costs are only one part of an energy bill. I heard a spokesman for E.ON yesterday refer to “non-energy costs” preventing reductions being passed on, but let us remember that even though there are other costs, wholesale costs are still, as we would expect, the single biggest component of a household energy bill. When the cost of the single biggest component falls by 20% or even 30%, I think the bill should come down, too.

Let us also not forget that one part of a typical energy bill has been increasing sharply: the profits of these companies. Ofgem’s latest supply market indicators suggest that profit just on the supply of energy—and there is another even bigger profit on generation—has more than doubled from £49 per household in 2013 to over £100 per household today. Energy companies do control that, so that argument does not stand up to scrutiny either.

[Mark Tami (Alyn and Deeside) (Lab)]

Does my right hon. Friend agree that the energy companies are also very quick to increase customers’ direct debit payments, but seem to be very slow to pay back money when people have over-paid?

[Caroline Flint]

I agree. I constantly hear complaints about roll-overs as well, when people suddenly find their tariffs have increased. There is a huge amount that still needs to be done, and in a number of areas I only wish we had had more of a consensus in this House.

So, what is happening? Why are our energy companies not passing on the benefits of falling wholesale costs? I think the answer is pretty simple. They are not passing on the savings for the same reason that they have never passed them on: they do not believe they will be made to. In part, that is because the normal competitive pressures we would expect to see in a functioning market do not exist in our energy market. If they did, we would all see bills falling, because in a competitive market there is no reason—none whatsoever—why falls in wholesale costs should not be passed on as quickly or fully as increases. However, it is also because they know that this Government will never make them—will never challenge them, never stand up to them, and never put ordinary families first. That is the single most important thing that the Chancellor’s letter and the Minister’s so-called summit tell us. Yes, of course, they are empty gestures. We know that, and the public know it, too, and if today’s Financial Times is right, the Secretary of State knows it as well—in his defence he did not even know about this so-called investigation until after it had been announced, which speaks volumes about his grip on energy policy in government. That is probably why the Minister for Business and Enterprise is not taking part in this debate. He does not need to, because all he has to do is pop over to the Treasury for a quick chat with his old boss to determine the Government’s energy policy.

None the less, this does reveal something fundamental about this Government’s refusal to tackle energy bills. We now have Government Ministers saying that wholesale costs are falling and pointing out that these have not been passed on to consumers, but nevertheless still saying that to actually force energy companies to cut their prices would spell disaster. What clearer message could there be to energy companies that they are free to do whatever they like, charge whatever they like, and treat their customers however they like? If the Government will not step in now, when Ministers themselves are admitting that customers are being ripped off—and that is what is happening if wholesale costs are falling and household bills are not—then they never will. That is what the Minister’s letter really is: it is a get-out-of-jail-free card—“Pass go, don’t pay £100 and don’t pass on savings to your customers.” [Interruption.] Don’t pay £200 then. So wholesale costs have fallen but consumers have not seen the benefit, and the reason is that competition is weak and the companies know that this Government will never do anything about it.

That brings me on to my fourth and final question for the House to consider: what should we do about it? We have had a few suggestions from the Government, and I want to deal with each of them in turn. The first idea we have had is another investigation. To be fair, it is not just an investigation: there is a strongly—strongly—worded letter too, and an invitation to a summit, which brings to mind that notoriously successful summit the Government held with the energy companies soon after I entered this job in 2011! I think it was dubbed “Click, switch and insulate to save”. Unfortunately, the energy companies put their prices up anyway. Indeed, such is the utter confusion within Government on energy policy that it looks as though we have come full circle and are back to the policies that they themselves know failed in the past.

And what could there possibly be to investigate? We know what the problem is. We have known about it since 2011 when Ofgem first identified it, and we can all see for ourselves that wholesale costs have fallen and consumers’ bills have not. What more is there to it than that? Why do we need another investigation, in addition to the one that the CMA is running? And what good will it do? How will it help a single family with their energy bills now?

The second idea is that we just have to wait. The argument goes that at some point some time in the future some of the companies might eventually cut their prices—or should we wait until the CMA reports in December? But why should we wait? Why should households wait a single day longer? Wholesale costs have been falling for more than a year; how much longer must people wait before their bills fall too? [Interruption.] The Secretary of State might be interested to hear that, as figures I published today show, the average family’s energy bill is £260 a year higher than it was in 2010. Behind those figures, however, is the fact that it is the poorest households who have been hit hardest. With electricity up by nearly 40%, gas bills having risen by more than 50% in the last three years alone, and for the first time on record more than 1 million families with children in England in fuel poverty, they cannot afford to wait.

The third idea we have been offered is to make the energy market more competitive—I am sure that is what the Secretary of State will argue in his speech today. No one would disagree that consumers would be better served if companies were hungrier and competed more to win, and retain, their customers by cutting prices and improving customer service. Indeed, we have set out and debated a number of our proposals which are designed to do exactly that. However, the fact remains that competition is not working; if it were, bills would have fallen and we would not be having this debate. Indeed, it is not merely not working, but the situation is getting worse. That is not just my view but that of the regulator, Ofgem, in last year’s state of the market assessment:

“There are indications that things are getting worse for consumers.”

On the question of companies not passing on falling costs, it said:

“We found that suppliers pass on cost increases more fully and more quickly than cost decreases. The asymmetry we found was greater than when Ofgem performed a similar exercise in 2011.”

So the idea that we should simply leave it to the market to correct itself perhaps some years down the road, when things have been getting worse, is not one we should seriously entertain.

If that is not the answer, that leaves us with one option. The Government must ensure that if consumers do not enjoy the benefits of competition, they are afforded the protection of regulation, and that is what today’s motion proposes.