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Energy Markets (Competition)

Volume 578: debated on Thursday 3 April 2014

From day one of the coalition we have worked to improve competition in energy markets. Deregulation stimulated growth in the number and size of small independent suppliers, competing with the big six we inherited, and we have taken action to encourage switching, including easier switching, faster switching and collective switching. Ofgem’s retail market reforms and market maker obligation are also improving competition in both wholesale and retail markets. However, because we believe more should be done, I asked Ofgem and the competition authorities to make an annual assessment and last week we backed its proposal for a market investigation reference.

I welcome the referral to the Competition Commission. In an article earlier this year the Secretary of State criticised Labour’s proposals to put up a ring fence between the generation and supply arms of the vertically integrated energy companies saying it would push up prices. Is he still ruling out the introduction of a ring fence?

What we need to do in these matters is to go on the evidence and recommendations of the competition experts. I would not prejudge the market reference—let us see what it says—and I am glad the hon. Lady welcomes that, but one of the things the Opposition have failed to recognise is that there may be problems in the gas market, where there is not vertical integration. The Opposition have been completely silent on this matter, and I am not surprised as I am afraid their competition policies in this area have been appalling.

Is the Secretary of State not embarrassed that despite his Government’s talk of market forces, competition, switching and incentives, it took the threat of intervention from a future Labour Prime Minister to bring about the prospect of some relief—[Laughter.] The Secretary of State laughs but it took that to bring about the prospect of some relief for hard-pressed energy consumers.

I think the hon. Lady ought to talk to the leader of her party because when he was doing my job he said, after many years of increases in gas and electricity prices that were higher and faster than they have been under this Government:

“As I have said before in the House, I am not in favour of referring these matters to the Competition Commission.”—[Official Report, 25 February 2010; Vol. 506, c. 444.]

When the Leader of the Opposition had the chance to take this measure, he did not.

May I draw the Secretary of State’s attention to the fact that the Institute for Public Policy Research has said that increasing competition in the energy market will produce efficiency savings which could mean £70 a year being knocked off the average bill? Why will he not back Labour’s plan to break the domination of the big six, require them to sell power into a pool, get new businesses into the market and cut bills for consumers and businesses?

Some Labour Members are suffering from amnesia. It was the Labour party that created the big six. It was this coalition that deregulated to enable new independent suppliers to come into the market—11 new suppliers coming in since 2010, and there has been a big increase in the number of customers for the smaller suppliers, who are taking on the big six. It is this party and this coalition Government who have been the force behind competition, while Labour Members are the friends of the big six.

The leader of my party has made a commitment to freeze energy prices. The coalition Government refused to do that. Why?

It is always interesting to hear about this because when the Leader of the Opposition talks about an energy price freeze, he is not absolutely clear that it will go ahead. When he was on the “Today” programme in September 2013, he was asked what would happen if wholesale prices were to rise, and he admitted that the price freeze might not go ahead, which is not something that the right hon. Member for Don Valley (Caroline Flint) is prepared to admit. I have to say that we need to read the small print of this price freeze because it might not happen. It is a con.

The Secretary of State wants to have his cake and eat it. Does he not see that the Ofgem report and the referral to the competition authorities makes it clear that the market is just not working in the interests of consumers? It is going to take at least 18 months for them to report, and then he is going to have to implement the recommendations. Why does he not just do the decent thing and introduce a price freeze now?

We have been reforming the energy markets since day one, but we were not happy enough with the results and we wanted to do more, because of the mess we had inherited. That is why we asked the competition authorities to look at this matter. They have proposed a market investigation reference, and we are completely behind that. Neither we nor Ofgem are going to stand still during that 18 months, however. We are going to be working on trying to improve the markets even before the market investigation reference reports. We are being really active on reducing switching times, for example. We also want to push the smart meter roll-out programme, which will help people, and the Ofgem retail market review will complete and implement its proposals, including taking customers off dead tariffs. We have acted, we are acting and we will continue to act on behalf of customers. The last Government failed to do so.

Will my right hon. Friend take this opportunity to examine the role of the regulator, Ofgem, in improving and increasing competition? How is it that above-inflation—sometimes double-digit—price increases have been allowed, when they are not allowed in other sectors, such as water?

Price controls were taken off this sector in 2002, so Ofgem does not have the power to control prices. Hon. Members should remind themselves that it was the Labour party that took the price controls off. We want to ensure that the regulatory framework and the policies are correct. That is one of the reasons we are pushing the policies that we have adopted. It is also interesting to remind colleagues of the record of the Labour party and its leader. When he was doing my job in 2009, the right hon. Gentleman talked about reforming Ofgem, saying that

“the regulator needs stronger powers to deal with abuse, and the Bill will specifically act to prevent the exploitation of market power by energy generators.”—[Official Report, 24 November 2009; Vol. 501, c. 412.]

What went wrong with Labour’s plans when it was in government?

If we are to improve the energy markets, we must also increase capacity, as this Government have rightly noted. Does the Secretary of State welcome the fact that my local enterprise partnership is launching a plan for a skills centre in Berkeley, so that we will have the skills to deliver the extra capacity that we need?

My hon. Friend is absolutely right. We need to see a big investment in the skills and expertise of our young people, as well as in the existing work force. This is a great opportunity, given the massive investment taking place in our energy sector, and we are going to need all the young people that the skills centre in his constituency can deliver.

Does the Secretary of State agree that increasing competition in the energy market, as in any other market, requires the Government to remove red tape and regulation and the barriers to entry so as to increase the number of new entrants to the market?

I am grateful to my hon. Friend for that question; that is exactly what we did in 2010. Since then, we have seen a boom in the number and size of independent suppliers taking on the big six that Labour created. As Ofgem and the competition authorities’ assessment makes clear, however, we need to see more progress. That is why I am strongly behind the market investigation reference.

There is already a cash gap between what the big six are planning to spend on infrastructure and the amount that needs to be spent. Does my right hon. Friend agree that a price freeze would serve only to discourage competition, which would reduce investment and place a greater burden on the taxpayer and the consumer?

My hon. Friend is absolutely right, and this point is not discussed enough. When we talk to the industry, and to investors in the UK and internationally, they tell us that one of the things they fear most from Labour’s price freeze is that it would prevent them from going ahead with the investments that they want to make. A price freeze would undermine investment; it would represent a lurch back to the ’70s. Let us look around Europe to see what has happened when price freezes have been implemented. Hungary implemented a price freeze—indeed, a price cut—recently, and investment there has plummeted. All that is needed is a grasp of standard economics, but the Labour party does not appear to have even that.

As the Secretary of State is well aware, competition in our energy markets is partly governed by EU regulations, particularly those relating to state aid. In the light of the announcement by UK Coal yesterday, will he confirm what the trade unions learned in talks with the Commission this week—namely, that the attitude to Government support to prevent the immediate closure of the two deep pits at Kellingley and Thoresby is much more flexible than his officials’ interpretation seems to suggest? Given that the amount of support required would be less than one tenth of the £700 million that the miners’ pension scheme paid to the Government last month, does he agree that he and his officials should be taking urgent action to prevent immediate job losses?

The energy Minister, my right hon. Friend the Member for Sevenoaks (Michael Fallon), has been working tirelessly on this matter with our officials. I hope the Opposition will recognise the huge efforts that officials in my Department, under his leadership, have been putting into it. We have been talking to all parties, including the Commission, to make sure that interpretations are based on the law, and we will do whatever we can to help.

For competition to work best, domestic consumers have to be able to switch their suppliers easily. Residents in Kettering want to pay the lowest prices for their electricity and gas, but many constituents, especially those who are elderly or not online, find the complexity of bills overwhelming and far too confusing. What can the Secretary of State do to take the hassle out of switching supplier?

My hon. Friend makes a good point. One aim of the retail market review put forward by Ofgem was to reduce the complexity and confusion in the amount of tariffs, which many people thought was a barrier to competition and switching—the previous Government refused to do this. But I do not think we can rest there, and one reason I have been so supportive of things such as collective switching and engaging with the third sector—Age Concern, Citizens Advice and National Energy Action—to develop the big energy saving network is to ensure that we are reaching out to those people who find switching, even when the tariffs are more simplified, a difficult process and a hassle. We are doing everything we can to make sure that the benefits of switching and competition can be enjoyed by all.

Yes, have your conversation with the man who is dealing with coal, because this is very important. The Secretary of State referred to lurching back to the ’70s, but this is about the fact that we are reaching the end of an era. There will be one pit left if this decision goes through and it is all about some money. An idea has been put forward from those on the Labour Front Bench regarding the pension fund, but another solution could also be used. Why is it that the oil companies are being encouraged to take tax breaks in order to exploit those narrow seams of oil which are uneconomic? We have more than 100 million tonnes of coal beneath our soil, so surely he could use the same sort of system, with the EU and anybody else, to stop the demise and the closure of the last three remaining pits.

We are working tirelessly on this. We have to make sure that we get a solution that all parties can sign up to, that provides value for money and that will actually work. We are trying our best, but the hon. Gentleman should know that there are genuine economic and geological issues, and other difficulties, involved. My right hon. Friend the energy Minister is trying to resolve this, working with everybody involved.