Domestic Gas and Electricity (Tariff Cap) Bill

Rebecca Pow Excerpts

Wednesday 18th July 2018 Commons Chamber

[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.

[Rebecca Pow (Taunton Deane) (Con)]

On that note, does the Minister believe that the Bill will narrow down competition, and thereby affect prices, or increase it? Competition is generally viewed as good for a market, because one tends to get lower prices as companies try to attract customers.

[Claire Perry]

I strongly believe in competitive, well-regulated free markets. Indeed, in this market there are now more than 60 energy suppliers, all bidding for our business. I have recently switched again to a company that appears to be offering a very good green tariff. However, the problem, and the reason for the Bill, is that there is a very large group of customers who are sticky—who stay on expensive standard variable and default tariffs because they do not know how to switch, or they are not aware that they can. We can all think of grandparents, parents and others who fall into that category—it also includes young people who are renting accommodation—and they tend to be the furthest from the white heat of the switching market.

Understanding what the Bill does to the economic conditions in the market is, of course, an important part of Ofgem’s role. To go back to the original CMA report, however, we also know that the current pricing practices result in £1.3 billion of what it described as “excessive” returns, and we expect that number to come down. If you will indulge me, Madam Deputy Speaker, I wanted to make sure that the House was aware of that.

It is important that we have a level playing field for companies in the market. I have received representations stating that the customer accounts threshold for offering warm home discounts and ECO should be dropped to ensure that more companies can offer them to customers. We introduced legislation recently to reduce that threshold from 200,000 to 150,000, in increments of 50,000. Customers in receipt of warm home discounts will have a lower chance of losing them if they switch.[Official Report, 4 September 2018, Vol. 646, c. 2MC]

I hope the House agrees that amendment (a) is the most appropriate response to the concerns that have been raised, and that it will be welcomed by Members in this place and the other place. I hope that we will be able to move swiftly on this issue and keep our remarkable outbreak of cross-party consensus going, because I think the Bill is an absolutely vital piece of legislation.

--- Later in debate ---

[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.

[Alex Chalk (Cheltenham) (Con)]

It’s quite unsettling.

--- Later in debate ---

[Rebecca Pow]

Quite unsettling, yes.

I believe that pressing for an absolute cap over a relative one is the right way to go. As the Business, Energy and Industrial Strategy Select Committee stated, a relative cap could force cheaper energy tariffs to disappear, harming consumers, not protecting them. That would run counter to the sentiment of the Bill. As we have heard, Ofgem will be given the task of making the cap work effectively with its formula and will be responsible for setting the cap and reviewing it every six months. As outlined by my hon. Friend the Member for Weston-super-Mare (John Penrose), it is beholden on Ofgem to get this right and hold people to account, otherwise it will not have been worth while. It is vital that energy companies do not take advantage of any price cap and lift their tariffs to the maximum allowed. As I mentioned earlier, the energy sector needs more price competition to encourage lower prices, and an absolute cap can help to achieve this.

I am delighted that the Government will require the Gas and Electricity Markets Authority to protect consumers beyond the end of the energy price cap. Energy companies must not slip back into their old habits as soon as the cap is lifted, putting ordinary people back in the position they were in before the cap and leaving them paying over the odds. The Bill will ensure better value for money for many people who, frankly, have been taken for a ride and been paying over the odds for the self same energy that the person down the road has been getting cheaper.

As the Minister stated, it cannot be fair that between 2012 and 2015 customers paid £1.4 billion more than they ought to have done. In 2016, this escalated to an incredible £2 billion. As I have said before, many of these people fall into the “vulnerable” category. Many are elderly. My constituency and wider Somerset have a great many elderly people. The number of over-75s is set to double in the next 10 years and they could be the people who would have been adversely affected. The Bill will help them. They are the people who do not switch very often, as are younger people and tenants. My children, in their 20s, have raised this with me. The Bill will help them. It is right that the cap system should be temporary. It is an artificial lever to control the market for a short while and is being applied in the interests of consumers. This is the right way to go, as it will still enable competitiveness in the market, which is essential. We want the market to work better for everybody.

As other Members have said, it is essential for us to engage all the different methods in the energy market, such as smart meters—we must get them right—and technology, including data-driven technology. What has not been mentioned before, however, is the need to encourage people to use less energy. There are now many devices on the market that we can put in our homes to ensure that we do not waste so much of it, and I shall be presenting a ten-minute rule Bill on that subject fairly soon. We also need even more investment in renewables. If we are to hit our clean growth strategy targets, we must do all those things, and I am delighted to say that the Government are indeed doing them. We are going in absolutely the right direction.