Consideration of Bill, not amended in the Public Bill Committee
New Clause 1
Ongoing relative tariff differential
“(1) The Secretary of State may, 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 will be responsible for setting the proportion referred to in subsection (2).
(4) The relative tariff differential shall take effect on the termination of the tariff cap conditions.” —(Dr Whitehead.)
This new clause would allow the Secretary of State to develop requirements in relation to a differential between the cheapest and most expensive rates offered by suppliers, to be put into effect after the termination of the tariff cap.
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss the following:
Amendment 5, in clause 1, page 1, line 3, leave out “after this Act is” and insert
“, and within five months of this Act being”.
This amendment would require the Authority to insert the standard supply licence conditions within five months of Royal Assent.
Amendment 2, page 1, line 9, at end insert—
“(1A) A cap imposed by tariff cap conditions shall be calculated so as to require that the difference between the cheapest advertised tariff and the most expensive standard variable or default tariff offered by a holder of a supply licence is no more than a specified proportion of the cheapest advertised tariff.
(1B) The proportion under subsection (1A) shall be specified by the tariff cap conditions.”
This amendment would require the tariff cap to be calculated with reference to the difference between supplier’s cheapest tariff and most expensive variable or default rate.
Amendment 3, page 1, line 24, at end insert—
“(c) “cheapest advertised rate” means the lowest rate or amount charged for, or in relation to, the supply of gas or electricity under any contract available to the customer.”
This amendment is consequential to Amendment 2 and provides a definition of “cheapest advertised rate”.
Amendment 4, page 2, line 15, at end insert—
“(e) the ability of the Authority to accurately forecast and model wholesale energy prices, and the need to minimise the impact of inaccuracies on domestic customers and holders of supply licences in the future.
(f) the difference between the cheapest advertised rate and the most expensive standard variable or default rate offered by a holder of a supply licence.”
This amendment would extend the matters Ofgem is required to consider when setting the tariff cap to include the matters listed in the amendment.
Amendment 6, page 2, line 15, at end insert—
“(e) the need to ensure that customers on standard variable and default rates have their annual expenditure on gas and electricity reduced by no less than £100 as a result of the tariff cap conditions”
This amendment would require the Authority to ensure that the tariff cap conditions result in customers on standard variable and default rates having their annual expenditure reduced by no less than £100.
Amendment 7, page 2, line 15, at end insert—
“(e) the need to ensure that adequate protection exists for vulnerable domestic customers, including ensuring those customers who currently benefit under a cap imposed by the Authority on rates or amounts charged for, or in relation to, the supply of gas or electricity because they appear to the Authority to be vulnerable, retain those benefits.”
This amendment would require the Authority to have regard to the protection of vulnerable customers, including ensuring those who currently benefit under a safeguard tariff continue to do so.
Amendment 9, page 2, line 15, at end insert—
“(e) the need to ensure that adequate protection exists for—
(i) customers who benefit from a cap imposed by the Authority on rates or amounts charged for, or in relation to, the supply of gas or electricity on the basis that they appear to the Authority to be vulnerable;
(ii) in circumstances where a cap described in sub-paragraph (i) has been withdrawn, customers who would have benefited from such a cap had it still been in force; and
(iii) other vulnerable domestic customers.”
This amendment would ensure that when exercising its functions under this section, the Authority must have regard to protection for vulnerable customers, including those who are protected or (in circumstances where it is no longer in force) would have been protected by a safeguard tariff.
Amendment 8, in clause 7, page 4, line 39, leave out from “must” to end of line 40 and insert “have regard to the extent to which—
(a) progress has been made in installing smart meters for use by domestic customers,
(b) incentives for holders of energy supply licences to improve their efficiency have been created,
(c) holders of energy supply licences are able to compete effectively for domestic supply contracts,
(d) incentives for domestic customers to switch to different supply contracts are in place,
(e) the barriers which prevent the customers from switching from different supply contracts quickly and easily are addressed,
(f) holders of supply licences who operate efficiently are able to finance activities authorised by the licence,
(g) holders of supply licences have eliminated practices that are to the detriment of customers in their tariff structures,
(h) District Network Operator costs and dividends are proportionate to expectations and the impact of that on domestic supply contracts, and
(i) vulnerable and disabled customers are adequately protected.”
This amendment sets out additional matters that the Authority must have regard to when conducting a review of competition for domestic supply contracts.
Amendment 1, page 4, line 39, leave out from “which” to the end of line 40 and insert “—
(a) progress has been made in installing smart meters for use by domestic customers; and
(b) holders of supply licences are using available data, whether collected through smart meters or through other means, to—
(i) assess the energy consumption patterns of domestic customers; and
(ii) use such data to identify, and move domestic customers onto, the most competitive tariff.”
This amendment requires Ofgem to consider the progress made by energy companies in offering domestic customers the cheapest available rate based on their individual consumption patterns when determining whether there is an effective market.
We support the Government’s aim to introduce a temporary absolute price cap as set out in the Bill. We claim some intellectual property rights in this, in that Labour proposed a temporary price cap before the 2015 election, which was famously denounced by the then Prime Minister as
“wanting to live in some sort of Marxist universe.”
It is good to see that the Government have not flinched at the possibility of the apparition of its former leader returning to denounce this price cap in the same terms, but then we live in interesting times.
It is necessary to introduce an absolute cap, not a relative price cap, as soon as possible and for a limited period beginning no later than this winter. We have noted the continuing anomalies in the market, the continuing opportunities to game the market, and indeed, the report by the Competition and Markets Authority that customers were being overcharged by £1.2 billion over the recent period as a result of those anomalies. Therefore a price cap and a pause in price increases, other than those agreed by Ofgem and relating to wholesale price movements, is the right thing to do now providing, as we have always said and as we said when we introduced the idea of a price cap previously, that action is taken to correct those anomalies during the period of the cap, so that the market resumes at the end of it under circumstances that do not just result in prices running away again and our all being here a little further down the road, finding that nothing has changed and that perhaps a further cap is necessary.
We want to ensure that the Bill does just that—that the terms under which Ofgem operates the price cap give due attention to the current market problems; that the basis on which the cap is ended is clear in the legislation; and that, subsequent to the cap ending, there are measures in places to ensure that some of the more egregious problems of the present market arrangements are not repeated in the future. That is the basis on which we are judging the Bill and on which we are suggesting amendments, as we did in Committee. We do not want to overthrow or weaken the Bill, and we understand that it needs to be robust against possible challenges. Our amendments would therefore have the sole effect of strengthening the Bill and its purpose, and would ensure that its architecture fully reflects that purpose.
I will talk briefly to our amendments in the order in which they would sit in the text of the Bill. I hope that this will demonstrate to hon. Members that there is a narrative behind them that is about putting further steel into the Bill, and clarifying its purpose during and after the period of the price cap as set out in the Bill.
I draw to my hon. Friend’s attention the comments of Miss Burdett from Rayners Lane in my constituency, who notes that online rates for energy bills are often cheaper than the standard rate, potentially leaving elderly and vulnerable people who cannot go online for whatever reason at a significant disadvantage compared with the rest of us. Would my hon. Friend’s amendments help people such as Miss Burdett, in the situation that I have described?
I thank my hon. Friend for that important observation about what one might describe as one of the current market anomalies. It is not just about the differentials between the different ways that one can secure a tariff; it is about the issue of prepaid metering, and the differential between the bills of people who are in fuel poverty or are vulnerable in other ways and the bills of those who have more resources. Indeed, some of the amendments that we have tabled—and one in particular—would secure firmly in the Bill matters that Ofgem and the Minister would be required to take into account when considering the introduction of the price cap and the period after which it ends.
Amendment 5 would start the process of strengthening the Bill by ensuring that the cap takes effect within no more than a known period that is stated on the face of the Bill. That is because we want the cap in place for this winter. We know that the equivocation on the cap has lost valuable time. The Government introduced it as a manifesto item before the last election, but then apparently went cool on the idea, before suggesting that it was the administrative responsibility of Ofgem. Only then, after a pause of a number of months, was it actually introduced as legislation, and we are now rushing to get the Bill on the statute books so that the cap can be in place this winter.
The shadow Minister has brought forward his definition of winter from 30 November in Committee to something that is hopefully a bit sooner. Does he still not agree, as we discussed in Committee, that setting a date for the Bill to be implemented may mean that we rush Ofgem in a way that may not prove to be helpful? Indeed, if Ofgem exceeds our expectations and gets this done quicker, we may be giving the energy companies a target by which to raise their prices. It might be better to let Ofgem go away and prepare the cap as quickly as possible, and act as soon as possible thereafter.
Indeed, the hon. Gentleman has a point, which is why now—on Report—the amendment would put a maximum number of months, not a specific date, in the Bill. One might say that hon. Members listened to each other in Committee regarding possible future amendments, which is why I tabled amendment 5 in this manner. However, the fundamental point of the amendment is still to get the Bill working, so that the cap is in place before the winter. Ofgem has said that it thinks it can have a cap up and running in five months, as we have suggested in the amendment. We therefore want the maximum timeframe of five months to be reflected the Bill, so that the cap is guaranteed at around the time when people get their winter fuel allowance, not when winter returns, as it seems to do these days, in the middle of next spring.
Amendment 6 seeks to quantify the saving that customers might expect as a result of the cap, but we do not wish to make up a figure in so doing. We want to take the Prime Minister’s word on this, when she specified that customers would save £100 as a result of the price cap that her Government were about to introduce. To be precise, The Sun of 27 February this year had the splendid headline:
“Millions of Brits in line for £100 as Theresa May delivers on energy price cap promise”.
This was just one of a number of sources reporting the Prime Minister’s price save promise, but The Sun went further, stating:
“Government insiders say the cap should save at least £100, potentially rising to £300 a year with increased competition and faster switching.”
Now, I do not know whether there are any Government insiders in the Chamber—or, indeed, whether the Minister is one of those cited—but we can assure them that we will take the conservative route on this occasion and propose only that the Bill will do what the Prime Minister says it will.
I am slightly perturbed that the hon. Gentleman is quoting The Sun as the authority by which we make legislation in this House.
On reflection, I can join the hon. Gentleman in being slightly perturbed that I am quoting The Sun in this context. I assure him that although I quoted The Sun, a range of authorities from the Daily Mail —getting better?—up to the BBC’s website suggested that the Prime Minister did actually say that people would save £100. If the hon. Gentleman thinks that quoting The Sun was not entirely appropriate under all the other circumstances, I can do nothing other than agree with him.
Amendment 7 would ensure that vulnerable customers, including those already protected by a tariff cap, do not lose that protection as a result of the overall cap being introduced.
If we put together the hon. Gentleman’s remarks about amendments 5 and 6—the general gist of which I have no quarrel with—and if Ofgem were subject to legal challenge as a result of trying to impose a cap of this size on that timetable, what does he suggest would be the effect of his amendments if they had entered law? How would Ofgem deal with the conflict between the courts and an Act of Parliament?
My understanding is that the question of a timeframe for implementation of the cap would be strengthened considerably regarding a potential legal challenge by providing for a maximum period for the introduction of the cap, rather than a specified date. I think that we accept the principle that there should be some indication on the face of the Bill of when the cap is to arise; certainly, in previous discussions of the Bill, there has been a real concern about the body responsible for implementing a cap after the legislation has been passed through the House taking any or no specified period to prepare the cap for its actual execution. The preparation of the cap will also be part of the process by which it is strengthened against legal challenge. That therefore needs to be done carefully and properly so that it is implemented it in a way that is proofed against such legal challenges. Ofgem indicated in its evidence to the Committee the period that it thought reasonable for it to be required to take forward the implementation of the cap. Placing that period in the Bill therefore seems, at least to the Opposition, to be adding to the proof against legal action rather than detracting from it.
I completely accept that it is advantageous to give Ofgem a push to do this on the timescale that the hon. Gentleman is describing. However, clause 1(1) says that
“the Authority…must modify the standard supply licence conditions”,
and under his amendments, it would have to have done that by a given date, yet the court may be preventing it from doing so. I still do not understand how he deals with that legal conflict.
The Bill says that what needs to be done in order to modify licences to bring the cap about, among other things, has to be done by Ofgem as part of its implementation process. The question of legal challenge to Ofgem concerns, at its heart, what Ofgem does over whatever period may be specified to ensure that the implementation of the cap does not deviate from what is set out in legislation. That is the clear basis on which the cap should be undertaken, and that is the responsibility of Ofgem.
The second issue is the time within which Ofgem considers that it can introduce that cap in the way that the right hon. Gentleman has described, given its workload and capacity to do so. Indeed, Ofgem is on the public record, through the evidence that it gave to the Committee—he will know that that has some weight through being a public statement in Hansard—as saying that it felt that it could do it within five months. The amendment merely tries to tidy up the process by putting that timeframe into the Bill, while not in any way detracting from the strength or otherwise of what Ofgem is required to do in acting to implement the cap in a way that is both effective and legally watertight.
I am not sure that I can go too much further with the right hon. Gentleman’s point. I am happy to take it up with him separately if he wishes. However, I have explained where we are in seeking a combination of watertightness in the Bill and clarity that the wishes of this House can be undertaken in through the price cap coming in during the period when it is supposed to come in.
Amendment 7 relates to the point made by my hon. Friend the Member for Harrow West (Gareth Thomas) about vulnerable customers and people who are not in a position to take advantage of all the devices that other, less vulnerable customers would be able to take advantage of—that is, customers protected by the existing tariff cap in particular. In our view, it is important that those who are protected by the tariff cap do not lose that protection as a result of the overall cap being introduced. It would be helpful if the Minister, even if she is not minded to accept the amendment, could put it beyond doubt that that is be the Government’s intention and that they will not seek to lose the current safeguard tariff as the overall tariff cap comes in.
Clearly amendments 7 and 9 both have real merit in getting the protection of vulnerable customers right, which is important, but why does the hon. Gentleman feel that his amendment is better than amendment 9?
I am afraid that I cannot give the hon. Gentleman that assessment, because I think that both have equal merit in dealing with very similar issues.
In a slightly different way.
Indeed, but both have equal merit, and I would not want to distinguish between them in what they would add to the Bill. They both have the central concern that vulnerable customers should not be treated adversely as a result of the overall tariff cap coming in. That is the point that I wish to pay attention to. I am sure that my hon. Friend the Member for Leeds West (Rachel Reeves) will also want to do so when she speaks to amendment 9.
Without wanting to enter into a beauty contest regarding whose amendment is best, will not my amendment 1 be quite consistent with what the Government wish to achieve, which is to require Ofsted—I mean Ofcom—[Hon. Members: “Ofgem.”] Yes, Ofgem—or Ofcap, perhaps. The Government wish to require Ofgem to write to companies to ensure that those who are poorest and least likely to change have been offered the best deal by their provider. I promise that by the time I speak to my amendment, Madam Deputy Speaker, I will know which regulatory body it is.
Yes, there is certainly merit in that idea. It is true that some of the amendments take some of the specific actions that may be taken a little further than is suggested in amendment 7. However, whichever of the amendments one wishes to pin the first-place rosette on to, as it were, the key point is that vulnerable customers need to have proper protection as the tariff cap comes forward.
It is in the Government’s interests, I think, to clarify exactly what they intend the Bill to do regarding that protection. That can easily be done by the Minister clearly stating today, as I hope she will, that vulnerable customers will not lose the current safeguard tariff as the overall tariff cap comes in. Indeed, if the overall price cap consumes the safeguard tariff, vulnerable customers could see their prices could go up by more than £30 as a result of the difference between the safeguard and the absolute tariff. That would, as I am sure she will agree, be a perverse outcome that she would be anxious to disavow.
That means that the Minister will have to clarify for us that the Bill means that Ofgem can bring forward the extended safeguard tariff at the same time as the standard variable tariff cap; that the extended safeguard tariff can continue after the absolute cap has ended; and that she will bring forward the necessary secondary legislation before the summer to enable the data sharing needed to extend the safeguard tariff. I am sure that she will be able to reassure us on these points. I look forward to what she has to say about all the amendments before us.
Amendment 8 seeks to introduce to the Bill the symmetry in architecture that appears to be missing from what Ofgem must consider in introducing the cap. As hon. Members can see, the Bill lists a number of matters to which Ofgem should have regard in setting the cap, which relate to
“protecting existing and future domestic customers who pay standard variable and default rates”.
However, when we cast our eyes forward in the Bill, we see that those conditions are wholly absent from the matters that Often is required to consider when it reports to Government on whether circumstances exist that allow the cap to be terminated, as it is required to do by clauses 7 and 8.
Indeed, there is no guidance in the Bill at all as to what Ofgem will have to take into account, except, alarmingly, for one consideration: the extent to which progress has been made in installing smart meters, a provision that, if taken too literally, might mean that the cap will be with us until the end of 2023. Our amendment essentially seeks to place in the outbox—the point at which Ofgem reviews the expiry of the cap—the same considerations that it is required to pay attention to in its inbox when it sets the cap.
Finally, we seek in new clause 1 to start the process of introducing what needs to be in place to ensure that the market works well for customers and does not recreate the anomalies that have led us to where we are today. I have no doubt that there will be a number of such provisions, but in our view one of them should be that the arrangement of tariffs by energy companies should not continue as it is.
That is also the substance of amendment 2, tabled by the hon. Member for Weston-super-Mare (John Penrose), whom I salute for his unflagging work in bringing the idea of a price cap to this point. He introduces in his amendment the suggestion that tariffs should, as it were, have a piece of elastic on them for each company, to prevent companies from introducing customers to apparently low tariffs initially, only to place them on much higher tariffs when the first offer expires and relying on their loyalty to gain a lot of profit and cause an unfair outcome for customers. That is essentially the instrument that his amendment would introduce, but it is cast as a relative price cap. We do not think it is a satisfactory mechanism for a price cap, but he will no doubt argue his corner. The relative nature of a tariff range restriction means that it can be introduced at any price and is not therefore a cap as such. It is, however, a vital means of keeping prices and fair dealings with customers on a steady trajectory.
The Business, Energy and Industrial Strategy Committee heard an overwhelming amount of evidence opposed to a relative price cap. Can the hon. Gentleman explain why he rejects that evidence and has tabled this new clause?
The hon. Lady is, I think, under the impression that the new clause seeks to introduce a relative price cap. It does not seek to do that at all, or indeed during the period when an absolute price cap is in place. When the absolute price cap has come to an end, which could happen on various dates, there should be a mechanism in place to ensure that tariff differentiation is within certain bounds—I mentioned having a piece of elastic on tariffs—so that companies cannot return to the practice that unfortunately exists today whereby they can take people on board on one particular tariff, and even introduce a discount tariff for a certain period to entice people on to it, and then place people on one of their highest tariffs when that one comes to an end. It is a long piece of elastic in that case. That disadvantages the customer and is not what they thought would happen when they first went on to that tariff, and it seems thoroughly laudable to prevent that.
We need to ensure that market mechanisms are in place to prevent us from returning to where we are at present and to the situation that got us into this position in the first place. We believe that the mechanism for a relative tariff differential has a different function entirely from the relative price cap being suggested in some quarters. I think we would all agree that a relative tariff differential is not a price cap in its own right, as the Select Committee concluded strongly, but a strong mechanism for ensuring that the market works better in future.
One concern about a relative cap is that there could be a bit of floor-raising, with some of the cheaper tariffs disappearing. Although there might not be a cap in future, what is to stop the same thing happening with a relative tariff system, where we lose the bottom tariffs in the market?
The hon. Gentleman makes an important point about the possibility that within a relative tariff range arrangement, a company could put forward a very high tariff as a starting point and then put customers on an even higher tariff subsequently, if that tariff is within the piece of elastic keeping the tariffs within reach of each other. If an energy company were to do that outside a price cap, it would be a sure way of losing a large number of customers, because it would have put its initial tariff way above that of any competitors. If it was agreed that market circumstances were such that those sorts of arrangements should be able to return, companies would have to be kamikaze-inclined to pursue that way of doing things.
I appreciate what the hon. Gentleman is saying, but is that not why we are introducing an energy tariff Bill in the first place—because people have been on standard variable tariffs that are too expensive, but they are not moving? It is the same with a relative tariff differential; people will not necessarily move, and that is what we really need to sort out in the market.
We have to bear in mind that people will be introduced to a new tariff. Indeed, we hope that by the time the market returns, the issue of people remaining on SVTs for years and not switching will be a thing of the past and there will not be SVTs in the system, but also that there will be other tariff arrangements that effectively prevent SVTs from playing the role they have played before.
In amendment 6, the hon. Gentleman is trying to ensure that people get money off, which we would all like to see, but would it not be necessary to include some kind of rider so that it applies only if people are burning the same amount of energy year after year? If we went from a warm winter to a very cold one, presumably he would not think we could guarantee the same amount.
Amendment 6, as I recall, would simply place the Prime Minister’s words into legislation. It was estimated that a saving of at least £100 would result from the measures, and one aim of the legislation was to bring that saving about. It does not mean that the amount would be exactly £100—indeed, had the Prime Minister not reported that to The Sun, we might have got a rather more complex version of that price promise. We are merely reflecting what was heard on that occasion, and I hope the right hon. Gentleman will take the amendment in the spirit in which it is intended.
I just want to be clear, because I have got very confused about these propositions on a relative cap. On the face of it, the words of new clause 1 are strikingly similar to those of amendment 2. Is the hon. Gentleman proposing that after the absolute cap, there should be a relative cap?
It can be interpreted in that way. We are fully in accord with the Government’s idea of an absolute cap, as opposed to the relative cap proposed in the amendments. We suggest that what has been characterised as a relative price cap plays an entirely different function, which is to narrow the gap between tariffs after an absolute price cap has been in place so that companies cannot game the market by switching tariffs in the way I have described. That is nothing to do, at that point, with a price cap; it is about tariff stability over a period and, indeed, an assurance for customers that they are not going to be ripped off as a result of entering on a particular tariff and subsequently being placed on a very high tariff once that initial tariff has come to an end.
We hope that the Government will see the wisdom of and accept the new clause and all the amendments, but if the Minister does not set out a satisfactory explanation of why they cannot agree to new clause 1, we may have to test that principle by means of a Division. Overall we wish the Bill well, as we have shown in our positive stance towards it in our debates so far. We trust that the Government will, in taking on board our assurances about the positive nature of these amendments, produce from this House an amended Bill that will be strengthened by the full support we all give it as it moves to the other place for consideration.
I rise to speak to amendments 2 to 4, which stand in my name and those of a variety of Conservative colleagues, including two members of the Business, Energy and Industrial Strategy Committee as well as former Ministers and Cabinet Ministers.
I should pause to say that I am not arguing against the Bill overall—I spoke and voted in favour of it in principle on Second Reading—and I hope that everyone involved in the campaign I have headed in this area for the past year and a half appreciates that I believe an energy price cap is much needed. I pay tribute to the 214 cross-party MPs who signed up to the idea, plus the Prime Minister and the Minister, who have all been vital in getting us to this point today.
My concern is about not the principles but the detail—the type of price cap envisaged under the Bill—because, to put it bluntly, a fair number of free market Tories are pretty concerned that we are choosing the most anti-competitive, complicated, bureaucratic and inflexible cap on offer. It is inflexible because the Bill specifies an absolute cap that will be set by an all-knowing committee of Ofgem regulators every few months. However, the international price of energy moves around every day, and it is impossible to know what the price will be in the next six minutes, let alone six months, so the cap price will be out of date in moments and will stay out of date until it is reset again months later. That means that it will not protect customers in the way we all want and, because it will be officially blessed by Ofgem, it will embed and legitimise high prices. It is not just me who is worried. Which? says it is
“not certain that customers on a capped default tariff will benefit as market conditions change in future”.
The proposed cap is also complicated—hideously complicated. Why? The assiduous folk at Ofgem have already started publishing details of how they might go ahead and they are warming to their task. It would not be just a single cap, they say; it would be 42 different ones to cover gas and electricity, different meter types and different parts of the country. There would be more than 42 different caps, however, because each one may be split into several different versions depending on whether people pay by direct debit or in some other way, and each will have a fixed standing charge and a variable element—oh, and there is headroom, too. Each of those three items can be calculated in a marvellously technical and complicated variety of ways. For example, the variable element could use a basket of market tariffs, an updated competitive reference price, or a bottom-up cost assessment. Those things might be calculated using a periodical review of realised costs, or third-party data with pre-specified allowances for certain cost items, and so on and—turgidly, complicatedly—on.
My hon. Friend and I have had an engaging conversation about this for many months, but given all the things he reports Ofgem as planning, surely that means we will have not a single point tariff that rapidly becomes outdated, but rather a tariff that will respond—for example to input costs?
As my right hon. Friend says, he and I have had many conversations about this over many months. I can only say to him that if his argument is that Ofgem might come up with a version of an absolute cap that is a bit less absolute and a bit closer to what I am proposing—in effect, one that caps the gap: a relative cap—I would agree with him that that is a good thing, but if that is the case, as a source of advantage for the cap, why would it not be even better to go the whole hog and have a relative cap in the first place?
Does my hon. Friend think that a relative cap is more likely to deliver a better deal for the customer than an absolute cap?
Yes, absolutely. We heard from the hon. Member for Southampton, Test (Dr Whitehead) what I thought was actually rather a good explanation about why such a cap is so wonderful. The Opposition disagree about the purpose, but the fundamental reason why we are all in the Chamber is that we agree about the injustice in the way the energy market works at the moment, which is that people can start off on one tariff and then get secretively pushed on to a much higher one. It is the clandestine mark-up that riles everybody and really upsets people. By definition, a relative cap would affect what is hacking everybody off, and it would be precisely targeted on dealing with the mischief that is the reason behind the Bill in the first place.
I want to put to my hon. Friend something that has been said by MoneySavingExpert, which is that a relative cap would simply result in firms withdrawing the cheapest deals—the shadow Minister mentioned that—and create the “worst of both worlds”. We do not want to fall into such a trap, as some consumers on expensive tariffs would still be paying more than they need to while many firms would not offer the cheap deals they currently offer.
That argument has been advanced for both a relative cap and for an absolute cap; some people argue that it applies to both. We heard earlier a rather good explanation of why the argument does not really apply, which is that it would be commercial suicide, or a commercial kamikaze effort, for anybody to try to raise their prices in the switching market, which is highly competitive, because they would very rapidly start losing customers hand over fist. I understand that argument, but I do not think it would be relevant in practice.
Just to underline the delicate nature of the balance that we are talking about in terms of caps, the majority view of the Competition and Markets Authority in its report was that a standard variable tariff cap would
“run excessive risks of undermining the competitive process”.
This would be likely to result in worse outcomes for consumers in the long run by
“reducing the incentives of suppliers to compete”
“reducing the incentives of customers to engage”,
so a delicate balance needs to be struck.
That is absolutely bang on the money. For goodness’ sake, the Competition and Markets Authority is suggesting such a thing, and that is after all its business.
Will my hon. Friend give way?
I will take one more intervention, but then I must make some progress.
My hon. Friend is talking about people moving from a competitive rate to the default, which he describes as the standard variable tariff. Does he think that people would be less inclined to put up with the higher rate if it had an alternative name, such as an “emergency tariff”?
There is now a whole range of underlying pro-competitive reforms—I am not normally one to give Ofgem a vast amount of credit, but it really deserves some in this case—that are needed in this market. Renaming the default or standard variable tariff may not have a huge effect, but it might have a positive effect. There is a series of other things, some of which are even more important, that must happen. It is crucial—I agree with the Labour spokesman about this, as I think we all would—that we do not waste our time and that Ofgem continues to reform the market while this temporary price cap is in effect because, when the price cap comes off, we will want the market to have been sufficiently reformed that no further price caps are necessary, because it works like a normal market in which the customer is king. If we have not done that, we will have wasted our time and everybody else’s.
I was talking about the complications and the hideous complexity of Ofgem’s proposals, but if all that inflexibility and complexity has not put Members off already, they should have a look at the bureaucracy. Pretty much every free market economist will agree that the best way to discover a price is not through a committee that meets every couple of months, but with a genuinely competitive market in which supply and demand are matched from moment to moment all day, every day. Fortunately, we just happen to have one of those handy. The switching market is full of deals on which energy firms compete like mad for business. It is innovative, it has razor-sharp prices and it takes changes in wholesale energy costs in its stride every day of every week. The customer is, in other words, genuinely king or queen.
That is, as we have just discussed, exactly what we want to see in the rest of the market, so why are we ignoring it? Why go for a far less competitive version that is inflexible, hideously complicated, bureaucratic and committee-based when we could simply tie rip-off default tariffs firmly to the switching market and go down the pub for a drink? The mechanism, as we have heard, would be simplicity itself: a maximum mark-up between each energy firm’s best competitive price and its default tariff—we would cap the gap. Unlike with the arrangements in the Bill, there would be just one decision for regulators to take: the size of the gap. Everything else would be taken care of by the link to the competitive switching market.
I am grateful to my hon. Friend—my neighbour—for giving way. Has he given any thought to what a relative cap would do for time-of-use tariffs, the arrival of which we should surely be encouraging? They rely on a big differential from free or negative pricing to the most expensive prices, which disincentivises energy use at peak times. Is he as concerned as I am that what he proposes might discourage the arrival of such tariffs?
Much would depend on the size of the cap on the gap proposed by Ofgem, and much would depend on the rest of the pricing structure of the energy firm in question with regard to where it chooses to put its default tariff. Many of these things are, as my hon. Friend points out, yet to arrive. They are starting to be introduced, but they are a relatively new innovation, with small but growing penetration. He is absolutely right that we need to make sure that we do not disincentivise such tariffs. They certainly will not be to everybody’s taste, but they may be to the taste of an increasingly large number of people.
I would prefer to start from a simple cap—capping the gap—and then have to make a couple of adjustments, rather than making even more complicated something that is, as I have described, already hideously complicated. If we manage to take care of all the complexity and bureaucracy by establishing a link to the competitive switching market—hey presto!—we will have driven a stake through the heart of the rip-off tariffs. Switching supplier would still be worth while, and there would be far fewer jobs for bureaucrats, lawyers and lobbyists. The customer would be king.
My amendments would make a relative cap either possible or required, depending on which version was chosen. I do not expect or intend to press the amendments to a Division, but I want everybody to realise that there is a more competitive, more flexible, less bureaucratic, more customer-friendly and generally better alternative, and that at the moment we are not taking it.
It is not just free market Tories such as myself who think that capping the gap is the right way to go. The Labour Front-Bench team, as we have heard, have tabled an amendment that proposes something similar. They might disagree with my description of it, and they have a fancy-schmancy name for it, but, broadly speaking—as my right hon. Friend the Member for West Dorset (Sir Oliver Letwin) pointed out earlier—the wording is very similar and the amendments would effectively do the same thing.
Labour Front Benchers and I disagree over timing, however. The effect of their proposal would be permanent, whereas ours would be temporary while we fixed the underlying anti-competitive problems in the market. There is, none the less, clear cross-party consensus on the principle, at the very least, so why does the Bill ignore this cross-party opportunity? Why are a notionally pro-competition Conservative Government choosing the less competitive, more bureaucratically inflexible and more complicated version instead? Why are we snatching defeat from the jaws of what ought to be a famous free market victory? I look forward to hearing the Minister’s answer.
I will not press my amendment to a Division either, but I am very happy to speak to it for 30 seconds. It is designed to request an undertaking from the Minister that she will ask Ofgem to look at the poorest consumers on which it has data and offer them an automatic switch to the lowest rate that suits their expenditure pattern. On that happy note, because I am sure the Minister will give way later, I shall sit down.
I rise to speak in support of amendment 9, which is in the name of the Chair and some of the members of the Business, Innovation and Skills Committee; I know that the Chair of the Committee is also going to speak to the amendment. Its purpose is to ensure that there is adequate protection for vulnerable people while the cap is in force and beyond, and to probe the Government and the Minister on the matter.
During the prelegislative scrutiny of this Bill in January, the Committee heard evidence from the chief executive of Ofgem. When I asked him about the need to protect vulnerable customers, he conceded that
“there is likely to always be a need to protect customers who would not be fully able to engage even in a…more competitive market.”
What is more, Mr Nolan admitted that Ofgem had
“not done as well as we could have”
when it came to its statutory duty to protect vulnerable customers. In fact, he apologised to the Committee for Ofgem’s failure to act appropriately to protect vulnerable customers.
The sheer number of people on standard variable tariffs was quite shocking to the Committee, and many of those people will be vulnerable customers. I note that the Minister agreed, saying that
“the regulator also needs to change. It also needs to use the powers it has more effectively.”
That evidence session did not fill me with confidence about Ofgem’s effectiveness at protecting vulnerable customers. I believe that the amendment will act as the necessary encouragement to the regulator to do just that. The amendment will also ensure that in the longer term, those who are least able to afford high bills get greater protection. That is because the amendment continues the requirement for due regard beyond the length of a cap.
I want to push the Minister on working with DWP colleagues and others to mitigate the impact of the general data protection regulation. Although the amendment targets the regulator, the Government are well equipped to handle this area. They need to ensure that the required data exchange can take place, so that vulnerable customers can be identified and offered the support that the Government want to make available to them. I am sure that the Government agree with the principle behind the amendment, and I hope that the Minister will address my concerns in full.
It is a privilege to follow the hon. Member for Eddisbury (Antoinette Sandbach) in this debate. I want to speak to amendment 9, which is in my name and those of hon. Members from across the House who are members of the Business, Innovation and Skills Committee. As the Minister knows, the Committee did a large amount of work on the prelegislative scrutiny of the Bill, and we are all pleased that it has reached Report and Third Reading in time to ensure that the energy price cap is in place for next winter.
During prelegislative scrutiny, the Select Committee proposed several changes, all of which were either accepted by means of amendments to the Bill or accepted in principle. We welcome the collaborative approach of the Minister and her team. Amendment 9 addresses an outstanding concern relating to vulnerable customers that I know the Minister shares. As she knows, 83% of people in social housing, 75% of people on low incomes and 74% of disabled customers are on standard variable tariffs. The aim of the Bill is to ensure not only that everybody has a price cap, but that it will help the most vulnerable, who are predominantly on the standard variable tariffs.
One million vulnerable customers are already on Ofgem’s safeguarding tariff. The Select Committee’s first recommendation, as part of its prelegislative scrutiny, was for the Government to provide details on plans to protect vulnerable customers from overcharging when Ofgem’s safeguarding tariff and the Government’s price cap are lifted. My concern, and the concern of other members of the Committee, is what happens when the whole-of-market price cap comes in for standard variable tariffs. Will Ofgem continue with the safeguarding tariff at the same time?
In response to that recommendation, the Government gave a long list of laudable policies that are today in place for vulnerable customers. We of course welcome that list of policies, but concerns linger. Ofgem has been clear, including in a decision letter on 7 December last year, that it plans to do away with the safeguarding tariff when the whole-of-market price cap on standard variable and default tariffs comes in. Ofgem has said that the warm home discount safeguarding tariff will end in December 2019 if it has not already been replaced by other price protection—that is, the price cap we are debating and voting on this evening.
Some might say that that is fine, because the new price cap will replace the safeguarding tariff for customers on the warm home discount. That will only be the case, however, if the new price cap is at the same level or lower than the safeguarding tariff already in existence today. If it is not, then energy bills will rise for the 1 million most vulnerable customers when the price cap comes in. That would mean that the very legislation to protect consumers may hurt those who most need protection, and I know that the Minister, along with Members across the House, does not want that to happen.
My hon. Friend knows very well that in Leeds we have set up White Rose Energy, a municipal energy company. Its main mission is to protect those vulnerable consumers. When consumers move away from the cheapest tariff, it informs them repeatedly to ensure that vulnerable consumers are protected. Is that not a model of good practice for all energy companies?
I am pleased that my hon. Friend and fellow Leeds MP mentions White Rose Energy, which is doing fantastic work. It ensures that customers in Yorkshire have a greater choice of energy companies and genuinely puts customers first. During prelegislative scrutiny, we heard from other small companies, including Bulb and Bristol Energy who are also trying to support their customers.
No one in this House wants a situation where the most vulnerable customers see their prices rise because of the price cap. Perhaps Ofgem could operate the safeguarding tariff and the price cap we are debating today simultaneously. That seems entirely possible and desirable to try to avoid the issues that National Energy Action and others have raised from coming into effect.
I hope we will receive assurances from the Minister this evening that these risks will not be allowed to materialise. In that case, I will not press this amendment to a Division. Let me urge the Minister, however, to ensure that the Bill does its job of protecting customers, and that energy companies are not able to use any loopholes that would mean prices rising for the most vulnerable customers: those we have the greatest duty to protect.
It is a great privilege to follow the hon. Member for Leeds West (Rachel Reeves), the Chair of the Business, Energy and Industrial Strategy Committee.
There was no shortage of energy—or capping of energy—at yesterday’s Stirling Scottish marathon. There was, however, a lot of evidence of determination, particularly as competitors approached the finishing line despite the agonies that some were obviously going through. There was a great deal of grit on display. In addressing amendment 9, it is a lack of grit and determination—almost supine passiveness—that is causing me to have grave concerns about how Ofgem goes about its business.
During prelegislative scrutiny of the Bill, the Select Committee held an evidence session, to which my hon. Friend the Member for Eddisbury (Antoinette Sandbach) referred earlier. I am sorry to have to say this, but I was unimpressed by the evidence presented in January by Dermot Nolan, the chief executive of Ofgem. He did not come across as a person with an appetite for what I feel needs to be done. He lacked that grit and determination. He admitted to my hon. Friend that, in respect of Ofgem’s statutory duty to protect vulnerable customers,
“I accept the point that we could and should have done better on vulnerable customers. We have relatively recently put in place principles for vulnerability, which will give a stronger level of protection.”
When the hon. Member for Hove (Peter Kyle), who is not in his place, challenged Dermot Nolan on what was in effect an admission of failure on his part to fulfil his statutory responsibility towards the protection of those who are vulnerable, he answered:
“We have not done as well as we could have. I fully accept that.”
This perturbs me. It perturbed me then and it perturbs me now. The hon. Gentleman, who is an esteemed member of the Select Committee, seemed to me to hit the nail firmly on the head when he said to Dermot Nolan:
“If you do not mind me saying, throughout the testimony here and before, you have been describing what is happening in the market; you are the single most important player in the market, because you have the most extraordinary powers as a regulator, yet your testimony sounds so incredibly passive. Do you ever just roll your sleeves up and get stuck in? I do not really see the evidence of that.”
I share the concerns expressed so vividly by the hon. Gentleman.
Since becoming a Member of this House last year and having the privilege of being appointed to the Business, Energy and Industrial Strategy Committee, I have had the opportunity to hear first-hand evidence and testimony from a number of regulators. I have, in all honesty, been underwhelmed by every one of them.
My hon. Friend is giving an account of the evidence given by Ofgem to the Select Committee. Does he share my concern that the Bill would give that very body the powers to set the energy price cap?
I am grateful to my hon. Friend for his intervention. I share the concerns—I think they are shared across the whole House—about the performance of Ofgem as a regulator. I have broader concerns about the general performance of regulators full stop. Frankly, we seem to have a collection of regulators who either have powers but do not seem to be prepared to use them, or who do not feel they have adequate powers but are not prepared to ask for them. That seems incredible to me. I am very wary of leaving the issue of vulnerable energy customers to the discretion of Ofgem, because I am fearful that the discretion of Ofgem will mean that it will continue, by its own admission, to fail vulnerable customers.
This is an important issue that needs to be aired here and now on Report. Ofgem needs to sit up and take note. It is also important that we hear from the Minister, from the Dispatch Box, what change in the pattern of behaviour we should expect to see from Dermot Nolan and Ofgem. Will they have the determination and grit of the marathon runners in Stirling yesterday? Will they do something with the powers they currently have and the powers they will have when the Bill is passed? Above all, I want the Government to fulfil the promise of our Prime Minister who, on behalf of the Conservative party, said:
“Our party did not end the unjust and inefficient monopolies of the old nationalised energy corporations only to replace them with a system that traps the poorest customers on the worst deals”.
I am fearful that that is what we could do. I look for reassurance from the Minister.
I welcome back to the House this unfinished business. It has been a long-running saga and I have appeared in pretty much every episode for the past six years. I am hoping tonight will be my final appearance on this particular matter, with no repeats to follow.
I welcome the proposed absolute price cap. We have arrived at a place where there is much cross-party agreement, but it comes at a price. That price has been borne by consumers. The Competition and Markets Authority confirmed in 2016 that between, 2012 and 2015, the average detriment to the consumer—overcharging, in plain English—was £1.4 billion a year. The CMA found that the scale of overcharging, far from diminishing, was rising, reaching £2 billion a year by 2015.
In some ways, it is quite surprising that nowhere in this Bill or discussion has there been any mention of recompense. Given that we have all pretty much come to the same conclusion regarding the overcharging of those on standard variable tariffs, it is interesting that we have not discussed the case for compensation, repaid through bills or a windfall tax, on profits that the companies did not deserve and the CMA says they should not have charged. That makes it all the more essential that Ofgem is set a tight timetable to complete its work and set the tariff cap in time for the winter.
I signed the amendment tabled by the shadow Minister, my hon. Friend the Member for Southampton, Test (Dr Whitehead), and I understand the debate we have had in the House so far—that we do not want to create a situation in which, through some judicial review, we could lose the whole essence of the Bill if we did not meet the timespan in five months. However, it is worth having a debate to send a very strong message from the House today that we expect this absolute price cap to be in place in time for next winter. Nothing more and nothing less will be acceptable, because as the Minister knows only too well—I read her comments at the time —between our Bill Committee sittings and our being here today, British Gas/Centrica have already increased their prices for the year ahead by 6%, as my right hon. Friend the Member for Birkenhead (Frank Field), who is sitting alongside me, mentions.
We have to make sure that there is no gaming. Ofgem has already gone through a process once in relation to those on prepayment meters and other vulnerable customers, so we know what we are talking about—we have been talking about these issues in one form or another for the last six years. Even though the amendment may not be pushed to a vote, I hope that the Minister will firmly assure us that she expects all hands will be to the pump on this, so that we make sure we get the price cap and give full support to Ofgem to complete the consultation in good time to enable that to happen.
I want to touch on where the cap will apply. Some have questioned whether the cap should apply to those on green tariffs, some of which—let us be honest—are greener than others. Given everything that we know about the energy market and how long it has taken to reach the action in the Bill today, would it not be a nightmare for consumers and all of us if energy companies could find some sort of loophole, using a form of greenwashing and gaming the system, to avoid the cap being applied? That is why I believe that the scope of the tariff cap has to apply to all standard variable tariffs.
The Climate Change Act 2008, which was passed under the last Labour Government, underpins the targets that we have today to tackle emissions and global warming. It was used to encourage a debate and, to incentivise the renewables sector, subsidies were provided through all our Bills. However, the debate across the sector is increasingly focused on becoming subsidy-free, so I question whether green tariffs should automatically be more expensive than other tariffs and whether they should be exempt from the tariff cap.
The theory goes that the more people who sign up to a green energy tariff, the bigger the percentage of green energy in the national supply. As it stands, around 25% of the UK’s energy is from renewable green sources, and that is great, but for each of those investments in renewable energy, generators were paid an ongoing subsidy to grow the market and to ensure that that investment was worth while. I have not heard much from large-scale energy producers such as E.ON complaining that their wind farms are a loss-maker, or that they risk bringing down the company because the subsidies are inefficient. Indeed, companies are keen to show how the costs of providing renewable energy are falling. That is confirmed by the Office for Budget Responsibility Green Book: the total subsidy from bill payers to renewable energy was £8.6 billion in 2017-18, and it is set to rise to £13.3 billion by 2022-23. Despite that, the Government have indicated that public subsidy is on a downward trajectory.
The Minister has suggested that it may be right for smaller firms that invest in renewables, such as Good Energy and Ecotricity, to be exempted because they encourage consumers to effectively pay over the odds to invest in new renewable capacity. I respond to that in two ways: first, relatively few customers in these companies are on standard variable tariffs, because these companies’ customers tend to be the most savvy and switched-on to switching. Secondly, they claim that their customers are often proactively choosing these companies because of their green offer—so in that case, why not offer a bond or a share in new projects, rather than a crude percentage on their bills to fund company investments? Given the existing subsidies, any supplier making this pitch is really asking consumers to pay twice without any return.
The Bill is not the mechanism to do this, but clauses in it ask Ofgem to look into the matter as part of its consultation. I do not think that it will be easy for Ofgem to draw a nice, neat line between green tariffs offered by one firm and green tariffs offered by one of the big six. The danger is that if we concede the ground to Green Energy and Ecotricity, the big six will come in on the back of that and demand equal treatment. I am sure that they have their brand consultants working right now on new, eco-friendly names to replace their discredited standard variable tariffs.
It is clear to me that we have not come this far to let energy bill payers down again, so let us make sure that as well as the clauses and the amendments, whatever happens to them this evening, we make it very clear through this debate that the Bill will not weaken Ofgem’s consultation by allowing companies to create a green-shaped loophole or to claim to be abolishing all SVTs but still place customers on an equally unfair tariff. I hope that the Minister will respond to that in her remarks.
I hope that in most circumstances, good, competitive markets would work in the consumer interest, but energy is not like other products that we buy. It is essential to life. Frankly, ever since privatisation, the energy market has been a managed market. If the companies and their managements were doing what they say they should be doing, we would not be having this debate today. It is sad that it has come to this, but I hope that the fact that it has means that we can draw a line in the sand and that this will be my last appearance on this subject.
It is a pleasure to follow the right hon. Member for Don Valley (Caroline Flint), with whom I agree on the risk to green tariffs and on making sure that we do not perpetuate the belief that green tariffs are a premium product. We want them to become the universal norm.
Generally, the Bill is a necessary evil. Interference with the market is not our first choice of action, but it is the consequence of a market that has stopped working and is exploiting customers, especially those who are least engaged in it. The Bill’s key point is its temporariness. I know that the Minister shares my strong belief that temporary should be as temporary as it absolutely can be. It therefore becomes essential that once the Bill is passed—it is good to see the Opposition’s continued support—Ofgem moves very quickly not only to come up with a mechanism for price capping, but to consider what sort of market transformation it can deliver as it changes the regulatory framework in the market, so that we end up with something that is markedly better than what we have now. The big savings come not from a cap that cuts bills by £100 or more, but from the delivery of an energy market that is digitised and cheaper because we have facilitated the disruptive powers of all the new suppliers that are coming in, which in turn will encourage the current large suppliers to change their ways to do business better.
I intervened on the shadow Minister, the hon. Member for Southampton, Test (Dr Whitehead), about his amendment 5, so I will not say anything more about that. The purpose served by amendment 6, as we discussed in Committee, is to say to the energy companies that all they need to do is save customers £100—so they will just save customers £100. I passionately believe, therefore, that we should not tell them just to save customers £100. Instead, we should deliver the biggest saving that we reasonably can through whatever device Ofgem delivers, but the moment that we put a figure on it, lo and behold, that is exactly what all the energy companies will deliver.
The hon. Gentleman has made some changes to amendment 7 since Committee stage. He knows I share his concerns about vulnerable customers and possible unintended consequences from the Bill, and I know the Minister will be keen to reassure us that the Government have got this covered, but I prefer amendment 9, tabled by the hon. Member for Leeds West (Rachel Reeves), which has the support of many on the Select Committee and is well worth considering. The Government have looked at the vulnerable customer issue since Committee stage, and I wonder, given today’s very sensible amendments, if they might run one more lap on this between now and consideration in another place.
On amendment 8, which we also discussed in Committee and which the hon. Gentleman has also come back with, my concern is that the list could be much longer. If we are to specify all the circumstances, why not designate another dozen or two dozen things that we could legislate for, if we absolutely had to? I am not convinced it is necessary.
I also have a problem with new clause 1, because the Bill needs to be temporary. As I said either on Second Reading or in a Westminster Hall debate, it needs to be a raid into the energy market, not an occupation. New clause 1 is a raid with a few troops left behind thereafter, which I am not sure I like very much. We want to ensure that Mr Nolan and his team at Ofgem can, in delivering the price cap, facilitate a transformation in the market that makes such legislative provisions redundant. The consumer-friendly, disrupted, digitised market that awaits will be so much cheaper that we will be glad to have made this slightly un-Conservative, temporary raid into the market in order to deliver something on the other side that is much better for consumers.
The Bill is designed to intervene in the energy market and correct market failure, which is why it has cross-party support, but not surprisingly, because it is a reaction to market failure, there are nuanced differences in how people think that can best be dealt with. One good thing is that everybody seems keen to protect the most vulnerable customers. The question is: what do effective competition and a fairer market look like?
One fundamental still being debated is whether the cap should be a relative or an absolute cap. The hon. Member for Weston-super-Mare (John Penrose), who has been absolutely consistent in his belief that it should be a relative cap, should be commended for sticking by that, although obviously that does not mean I agree with him. As I mentioned in an intervention, one concern about a relative cap is that, because of the bunching effect, we might lose the competitive tariffs at the bottom end. We heard evidence of that in Committee. Some of the newer energy companies argue that they could deliver the lower tariffs even if there were a relative cap, but these companies appeal to those who switch regularly. He says the switching market works really well. Well, it does for those who switch regularly, but we are trying to protect those who do not switch and are stuck on these rip-off tariffs, which is why I agree with an absolute cap.
That brings me to new clause 1, tabled by the Labour Front Benchers. I am struggling to get my head around this. Labour says it does not believe in a relative cap but it believes in a relative tariff, and it would not be a cap but somehow it would work better being relative. It is too big a contradiction for me. I am not sure new clause 1 would work in the way suggested, and for that reason, if it goes to a Division, I will not support it, although I appreciate what the hon. Member for Southampton, Test (Dr Whitehead) is trying to achieve.
Let us look at who supports a relative cap versus an absolute cap. Ofgem, the regulator that will have to implement it, and Citizens Advice are in favour of an absolute cap. Citizens Advice is a third sector organisation that works for the most vulnerable in society on a daily basis and often has to deal with those bearing the brunt of the Government’s austerity agenda, and if it says it is in favour of an absolute cap, I think we should listen. Now let us look at the company the hon. Member for Weston-super-Mare keeps. Signatories to his amendments include the hon. Member for North East Somerset (Mr Rees-Mogg) and the right hon. Member for Wokingham (John Redwood)—two of the most right-wing, free-market capitalists in this place. That helps me to make up my mind.
I do not think that amendment 6, tabled by the shadow Minister, works either. Despite the talk of soundbites in The Sun and other political soundbites, I do not think that putting an arbitrary figure into primary legislation is the way to address the problem, and so I do not think amendment 6 would work properly. Amendments 7 and 9, both tabled by Labour Members, show a disjointed approach, but the good thing is that both would protect vulnerable customers, so in principle I would support either. That said, amendment 9 has cross-party support, including from my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), so if that were to be pushed to a vote, I would be more than happy to vote for it to provide those safeguards for vulnerable customers.
If we believe the market is broken, we need in principle to define what a successful market looks like, and Labour’s amendment 8 sets out quite well what criteria Ofgem should use when considering whether the market is realigning itself much more fairly. I therefore support the principle of that amendment. I tabled my own amendment in Committee, but this one is much clearer and provides a better description.
The final amendment on the Order Paper is amendment 1. The right hon. Member for Birkenhead (Frank Field) did not speak to it for long, but I empathise with his arguments. My only concern is that, for it to work properly, we would need the roll-out of SMETS 2 meters, as the SMETS 1 meters, which are currently being rolled out, do not enable what the amendment seeks to achieve in terms of automatically providing better tariffs for customers. None the less, I certainly agree with the principle of the amendment.
I welcome the opportunity to speak on the Bill and the amendments. Millions of consumers in the UK are facing challenges with their energy bills, and I find it outrageous that loyalty is punished by some energy companies. It is counterproductive, especially for those speaking up for the free market. We must be careful, however, not to commit the politician’s syllogism from “Yes, Minister”. There is a problem. Something must be done. This is something, so let’s do this. The amendments seek to ameliorate that.
I am not a great believer in the idea that the gentlemen in Whitehall know best when it comes to running energy, and I worry that the idea that said proverbial gentlemen in a panel are best placed to determine energy prices gives succour to Labour ideas that it, as the state, is best placed to run the whole sector. The fact that Labour does believe that is precisely why I would not support any of its amendments but will stick with a Government who, notwithstanding their occasional prices and incomes board-type moments, represent a strong—indeed, the best—bulwark against socialism.
I will not go into huge technical details other than to praise the work and determination of my hon. Friend the Member for Weston-super-Mare (John Penrose), who has argued for a more dynamic solution to this problem, proposing a maximum mark-up between the ultra-competitive, consumer-friendly deals and the default tariffs that loyal customers pay. I supported his amendments and the intention to point out a better way of stimulating the market towards greater fairness via relative cap mechanisms.
Nevertheless, the fact is we are facing an urgent problem for which we need an urgent solution. To this end, I will support the Bill with—and, indeed, because of—the added sunset clauses, for which I thank the Minister, and which make this a temporary measure up until 2020. I hope that comments from me and others will point the way ahead at that time.
I am delighted to support the Bill, and I am glad to have worked with the hon. Member for Weston-super-Mare (John Penrose), who was instrumental in its introduction and in pushing for the cap. It is disappointing that Ofgem required five months in which to implement it, but at least we shall have it in time for winter 2018.
The amendments to support and protect vulnerable and domestic consumers during the cap’s implementation are of course welcome, and it is right for the Minister and Ofgem to take account of the distinct needs and circumstances of vulnerable consumers when setting the cap, but since entering the House I, like the hon. Gentleman, have developed a healthy scepticism in my opinion of the way in which regulators, including Ofgem, go about their business—or not, as the case may be.
More than a quarter of households that contain a disabled person—27%, or about 4.1 million—spend more than £1,500 a year on a year on energy, and 790,000 of those spend more than £2,500. In my constituency, consumers are overpaying for electricity by £5.5 million a year. There is no denying that high energy costs have a serious impact on disabled people’s financial resilience. They limit those people’s ability to access employment and training and savings, and their ability to participate fully in society. Vulnerable and disabled consumers face higher energy costs than any other consumers, and that must be factored into any consideration.
As we heard earlier, the amendments that are intended to establish either an ongoing tariff differential or a relative cap are simply not robust enough to ensure that consumers would ultimately benefit from them. There is a risk that both the relative tariff differential and the relative cap could trigger unintended consequences, such as energy companies’ raising their minimum tariffs to meet the required difference from their maximum tariffs. That poses a series of questions about consumers’ interests. Indeed, stakeholders such as Ofgem, the Government and Citizens Advice have warned that a relative cap would not prevent overcharging and might simply result in price increases for the best-value tariffs. There is widespread agreement that an absolute cap is the best option if overcharging is to be prevented. Moreover, a relative cap might decrease the number of people switching providers or tariffs, which would clearly not be in the interests of consumers.
We need to know more details of the criteria that Ofgem must follow when conducting its review of competition for domestic supply contracts under clause 7. Those criteria are set out in amendment 8. It is essential that the Minister and Ofgem are as transparent as possible when setting the targets, so that the price cap does what it says on the tin. The hon. Member for Wells (James Heappey) spoke about time of use tariffs. I am extremely suspicious of those, because they will inevitably penalise families with children, who have little flexibility when it comes to controlling when they use their energy. I do not think any of us want that.
The hon. Lady makes a good point, but I think that there will automatically be technology in white goods, for instance, that will allow people to shift their demand to take advantage of time of use tariffs. Most families will save significantly as a result.
I thank the hon. Gentleman for that clarification. I appreciate that such tariffs will benefit some consumers—I do not think anyone would deny that—but I question whether the system would flexible enough to benefit all families with children, and others whose energy use cannot be as flexible as they might like.
The amendment to ensure that customers must benefit from the cap by at least £100 seems very arbitrary, and risks unintended consequences. I agree with the hon. Member for Wells about that, and with my hon. Friend the Member for Kilmarnock and Loudoun (Alan Brown). There is widespread concern that the big energy companies will use exemptions and green tariffs to ensure that they meet the target.
It is essential that the Bill delivers for consumers, and that the period of the cap is used to deliver a fairer, more competitive market for consumers. It must deliver a change for consumers who have been overcharged for too long. There is consensus that the energy market is broken and needs to be fixed, which is why the Bill was introduced in the first place. It enables us to begin to do that, but we must ensure that we get it right, and that there are no unintended consequences for the very consumers whom we seek to protect and assist. I know that the Minister will be mindful of that. We need to ensure that consumers benefit from action on this issue after the tariff is lifted in 2020 or 2023.
The launch of the independently chaired commission for customers in vulnerable circumstances by Energy UK in January will report on its findings and recommendations on energy companies, the Government, regulators and consumer groups towards the end of this year. I hope that the Minister or the Secretary of State will note that as we approach the end of the tariff cap, so that the voices of consumers can feed directly into the process of ensuring that they are offered as much protection as possible as the broken market is improved to become more fair and transparent.
It is a pleasure to follow the hon. Member for North Ayrshire and Arran (Patricia Gibson).
It is clear that the energy market is not working for the consumer, and with that in mind, I am pleased to support the Bill. However, I firmly believe that these additional measures must be temporary. Permanent Government intervention in the energy market of the kind that is proposed in new clause 1 is, I believe, unnecessary. Indeed, things are already changing. As recently as 2010, there were only 13 energy suppliers in the United Kingdom; now there are well over 60. Independent suppliers are growing and, rightly, posing new challenges for the big six. They already account for some 20% of the dual fuel market.
The basis of healthy competition is enabling consumers to go elsewhere with relative ease if they find a better deal. Nearly 20% of households a year already switch suppliers. By making switching quicker and easier, we can make that figure even higher, and force big suppliers to stop taking long-standing customers for granted as they have done for many years.
There are now about 10 million first-generation smart meters in operation in the United Kingdom. While the roll-out is progressing, there is a long way to go to meet the ambitious target of 53 million by 2020. In the context of the Bill, a key element is the roll-out of the SMETS 2 meters, which is due to begin this year. SMETS 2 consumers will benefit from quick and easy switching, and the meters should be intelligent enough to identify the lowest tariff. They have the potential to be a real force for competition in the energy market. At that point, there will be no need for the price cap, which is why it would not be prudent to introduce a permanent relative cap. It would be bad for customers, and would work against the positive changes that will be made over the next few years.
New clause 1 is the product of a belief that markets simply do not work. As a Conservative, I believe that they can work. I note the progress that we have made, and the progress that we will make in the coming years. I acknowledge that the market needs the temporary cap, and I support the Bill as a means of protecting consumers, not only in my constituency but throughout Scotland and throughout the United Kingdom. I am sure that it will contribute to a reduction in the very real fuel poverty that some people endure.
I am delighted to speak about the Bill, having supported it throughout this Parliament and having been a member of the Bill Committee. I think it important that, when considering the new clauses and amendments, we consider the fundamental aim of the Bill, which is to guarantee protection for the 11 million households that are currently on the highest energy tariffs—as well as the 5 million vulnerable households that are already protected by Ofgem’s prepayment meter safeguard tariff cap—by introducing a measured temporary intervention to correct a market that is currently letting down and ripping off thousands of people in my constituency, and millions throughout the country.
New clause 1 would allow the Secretary of State to make requirements in relation to a differential between the cheapest and the most expensive rates offered by suppliers: in other words, a relative price cap. In practice, that would mean that once effective competition was in place in the market—or by the end of 2023 at the latest —and that tariff cap was removed, a maximum differential between the most expensive and the cheapest tariffs would be introduced. That goes against the principle of the Bill, which is to ensure that it is temporary. This should be a temporary measure to correct the market, and should not allow Government intervention to remain permanent. This Bill is based on a mandate that came out of the Conservative manifesto, which set out a temporary intervention.
Amendments 2, 3 and 4 would also mean that a relative cap was introduced, but instead of an absolute cap. I am sympathetic to the reasons for wanting a relative cap and its intentions; however, I am concerned that a relative cap on its own would offer little protection to people on poor-value single, variable and default tariffs. I believe an absolute tariff cap would better protect all consumers on single variable tariffs.
Ofgem said in its evidence that a relative cap would be gamed by larger suppliers, as they would be more likely to remove their cheapest tariffs than to reduce the most expensive ones, and MoneySavingExpert said in its evidence that a relative price cap would lead to the loss of the cheapest deals and therefore disincentivise switchers from continuing to switch.
The aim of the price cap is to protect consumers in the market without removing the incentives to switch. There is a risk in these amendments that consumers will not be protected and there will be no limit for the price of single variable tariffs, and also that there will be less of an incentive to switch. There is therefore a significant risk that introducing a relative cap, instead of an absolute one, could lead to increased prices for many consumers, and I am not prepared to vote for, or support, a measure that could risk my constituents’ pockets.
I believe in a free market, but I also believe in a fair one, which is why I support this Bill as it seeks to put the interests of the consumers in my constituency and the country first, and repair a broken market through a temporary and intelligent measure. I understand and appreciate the concerns of other Members supporting a relative cap, but I am supporting an absolute one, and I shall conclude by echoing the sentiment expressed by the chief executive of Good Energy, a company in my constituency, when appearing before the Bill Committee, who said:
“If you have an absolute price cap, you will obviously see that the affordability of the lower tariffs for the big six will be less: you will see some shrinkage between the highest price and the lowest price. That is what we are trying to do.”––[Official Report, Domestic Gas and Electricity (Tariff Cap) Public Bill Committee, 13 March 2018; c. 5.]
I call Rebecca Pow.
Thank you, Mr Deputy Speaker; I am bringing up the rear, as they say.
I was not going to ignore you.
I am delighted to speak in support of this Bill. It focuses on a temporary managing of the energy market, which has not been managed well enough, which is why we are talking about the whole concept of this Bill. I will speak briefly, and only to amendments 7 and 9. I do not disagree with the sentiment of, and intention behind, these amendments, and above all it is, of course, vitally important that we look after the vulnerable in society, in particular in terms of energy, and especially when the market is deemed not to be functioning properly.
It is crucial that people can keep warm and cook the right food, and that they are comfortable and well, but this Bill already addresses that. It places a new set of duties and powers on Ofgem to protect consumers on variable and default tariffs, and Ofgem already has a duty under the electricity and gas Acts to have regard to the need to protect vulnerable customers. We should also remember that in 2016 the Competition and Markets Authority made an order, following its energy market review, to put in place a safeguard tariff for customers on prepayment meters, and about 4 million people have benefited from that. Last year, Ofgem took the decision under its principal duties in the electricity and gas Acts to extend the safeguard tariff to customers in receipt of the warm home discount.
Ofgem must have regard to the need to protect vulnerable customers when exercising its functions under these Acts, and I would argue that that is already being done. However, I agree with my hon. Friend the Member for Stirling (Stephen Kerr) that it is crucial that Ofgem uses its powers and uses them well, and that its feet are held to the fire in this respect—to use an energy term. It also introduced an enforceable vulnerability principle into the domestic standards of conduct, making it clear that suppliers must do more to treat vulnerable customers fairly, and this must be done.
Realistically, therefore, these amendments seem to be overkill, placing new obligations on Ofgem that are not necessary; however, it must use the powers it has. Also, as many Members have said, the powers in this Bill are only temporary: the price cap operated by Ofgem is not intended to last beyond 2023, and I fully support that. In contrast, Ofgem’s powers to protect vulnerable customers under the electricity and gas Acts are not limited.
It is necessary to bring in the fairness that this Bill has right at its heart. Its main aim is to place a new set of duties and powers on Ofgem to protect customers on standard variable tariffs. That is what this is really all about; far too many people have been taken for a ride. In 2016, about 11 million people were paying a total of £2 billion over the odds for their energy; that is simply not right. Individuals are said to be paying about £300 too much. Many people falling into this category are the elderly, and I am speaking on this Bill in part because Somerset has a particularly ageing population, and they have been taken advantage of, as indeed have many young people who are in rental accommodation because they are tied to one form or another of payment.
We must not mess about any further with this Bill. We must be able to see the wood for the trees; we do not want to bring in another lot of suggestions and regulations that delay the Bill, because it is more important than ever that its measures come into operation this winter. It is essential that we protect the vulnerable, but it is not necessary to legislate further on vulnerability, as suggested by amendments 7 and 9. I hope that on this basis the amendments will be withdrawn.
I thank all colleagues here this afternoon for their intelligent and sensible contributions to a debate that has run for several years. We are now within striking distance of bringing this Bill to a conclusion and sending it off in good order to the other place. I particularly thank my relatively close—geographically speaking—party colleague, my hon. Friend the Member for Weston-super-Mare (John Penrose), whose dogged and intelligent scrutiny, along with that of his colleagues, has made this a much better Bill, and I pay the same compliment to the hon. Member for Leeds West (Rachel Reeves) and her Select Committee. This shows that when we work together we can deliver good legislation. I will respond to the amendments discussed today and my hope is that in doing so no Member feels obliged to press their amendments to a vote.
New clause 1, which we discussed at length in Committee and again today, seeks to introduce an ongoing, almost perpetual, relative price cap once the absolute price cap is removed. Like the Member speaking for the Scottish National party, the hon. Member for Kilmarnock and Loudoun (Alan Brown), I am a little perplexed by this amendment, as I said in Committee. The hon. Member for Southampton, Test (Dr Whitehead) has spoken so powerfully on many occasions against a relative cap and in favour of an absolute cap, and yet this new clause suggests bringing in the opposite: a relative cap on a perpetual basis. I will talk more about the issues we have with relative caps, but this is a little counterintuitive. It would also mean—this will be anathema to many colleagues who have spoken passionately today in support of a relative cap—effectively perpetual Government intervention in the energy market. There is strong agreement across the House in favour of competitive markets delivering the best for consumers. When those markets are broken, or regulation slips out of date, it is right to improve the powers of regulators, but perpetual Government intervention, particularly in setting prices, is not the way to deliver the best outcomes. Therefore, the new clause is not necessary.
Moving on to the comments on relative caps, Ofgem said in its evidence, which others strongly supported, that a relative cap will be gamed by the largest suppliers. If we introduce this hypothesis, it will be gamed. As my hon. Friend the Member for Eddisbury (Antoinette Sandbach) also pointed out, we also heard in Select Committee evidence sessions that there was overwhelming support for an absolute cap—now and then.
My hon. Friend wishes to intervene, and I will of course give way.
I hesitate to pray the Labour Front Benchers in aid of my argument, but the Minister has just quoted Ofgem in favour of hers, so perhaps it will make sense. Does she not agree that it would be commercial suicide for a supplier to raise its tariffs in the competitive market in order to protect its position, were a relative cap to be introduced? I think the shadow Minister said earlier that it would be commercially suicidal or a kamikaze move.
I am afraid that I have to disagree with my hon. Friend and reject that point. That is what has been happening for many years to the most vulnerable customers, who have seen price rises recently and who are not switching for a variety of reasons. We are trying to deal with that customer group today. I hope that the hon. Member for Southampton, Test will withdraw the new clause on the basis that it is not rational and not needed.
Amendment 5 proposes that a set period of five months be placed on the face of the Bill. We debated that at length in Committee, and I believe that we are all seized of the need to bring the Bill into force in good order as quickly as possible—we do not want to wait any longer. We want the Bill to be in place by the time we rise for the summer recess, and obviously it has to go through the other place first. We want the caps to be transparent and to be applied in time for this winter, 2018, so that people can start to benefit and make savings on their energy bills immediately.
We heard from Back Benchers why they felt the five months provision would be difficult, and I will add my concern that if Ofgem were to go over a legal limit such as that, even by a couple of days, it could inhibit its ability legally to bring forward the cap. We must do nothing to reduce Ofgem’s ability to consult on the cap and put it in place. It is worth emphasising again—I am sure the regulators and others are listening—that we want and expect the cap to be in place by the end of the year. I do not think the proposal in amendment 5 is either legally permissible or necessary.
Amendments 2, 3 and 4 were tabled by my hon. Friend the Member for Weston-super-Mare and supported by many Members who have thought carefully about this issue. We have refined the Bill through the course of our discussions and made it into a better piece of legislation, and I am grateful for that. We have heard again today many of the arguments that we have heard during the Bill’s passage. We are talking about a theoretical position in talking about a relative cap, because the only cap we currently have is the safeguard tariff, which is an absolute cap and which appears to be working to save customers money.
Our concern is that with a relative cap, we could see suppliers lifting their skirts on their cheaper tariffs, and that there could be an inhibiting effect on some of the innovations that my hon. Friend the Member for Wells (James Heappey) mentioned, with companies charging extremely low prices for time of use tariffs. We heard overwhelming evidence during the evidence sessions chaired by the hon. Member for Leeds West, and also in the Public Bill Committee, that absolute caps were considered a much better way of bringing forward the protections that we all want. That is the view of Ofgem, the Select Committee, Citizens Advice, moneysupermarket.com and some of the new energy companies, and I am persuaded that those organisations have the interests of the customers we are trying to help at heart.
I am also concerned that if we had relative caps, there could be a lot of gaming going on and a lot less transparency. We have talked about what would happen if suppliers lifted their prices. We know that the trouble we have is with a group of customers that we refer to as disengaged. They are not digitally enabled, they tend to be older, on lower incomes and more vulnerable, and they are not as susceptible or sensitive to the price elasticity that would perhaps persuade others to switch. The aim of this price cap Bill is to protect those customers, so I do not believe that it is necessary to accept those amendments.
I just want to point out that the criticism that the relative cap can result in an increase in switching rates and tariffs has equally been applied to the absolute cap. There has been criticism of both kinds of cap, not just of the relative cap.
There has been a lot of criticism of both kinds of cap, but if we look at the one sort of cap that we have—the prepayment meter cap that is extended to vulnerable customers—we see that those customers have saved between £60 and £120 on the basis of that cap. It has actually worked to reduce their prices. I am pleased that my hon. Friend is not intending to press his amendment to a vote.
Amendment 6 seeks to ensure that we have a stated amount of the savings that might accrue. I think that is perhaps slightly mischievous, and it does not really reflect the consensual spirit that we have had throughout the passage of the Bill. I can imagine that the people coming up with these numbers were looking at the savings that we have discussed in relation to the prepayment cap, or indeed the £300 average difference between the most expensive and the cheapest tariffs in the market. However, as my right hon. Friend the Member for Wokingham (John Redwood) said, we need to calculate volume as well as price in order to estimate the service, and we do not yet know what cap Ofgem will set. We also do not want to constrain Ofgem’s ability to set the cap or to create targets for the big six to work towards as the maximum saving. I hope that, on the basis of that explanation, the hon. Member for Southampton, Test will be content not to press his amendment.
Amendments 1, 7 and 9 bring us to the extremely important point of how we ensure that the cap does not in any way reduce price protection for the most vulnerable customers. I am proud to say that those customers have, over the past few years, been protected through the prepayment meter cap and through the extension of that price to customers in receipt of the warm home discount. We all believe that that is absolutely vital. Indeed, as the hon. Member for Leeds West said, it would be perverse for the cap to come in and for prices to go up for those customers. The requirements in the Bill for Ofgem to pay attention to its existing powers, which of course include a duty to protect the most vulnerable, are sufficient, and the Bill is in addition to and does not replace or replicate those duties. I am extremely keen to examine the point further without amending the Bill, so I will take it away and consider it to see whether there are other messages that we might convey to Ofgem to ensure that this extremely valuable point is not missed.
Might the Minister meet people to discuss amendment 1 further?
There has been a huge amount of scrutiny, and I am hoping that we can get the legislation through to the other place, but my door is open. We want a well-functioning energy market that works for everybody and provides competitively priced energy.
I was asked an important question about the statutory instrument, which is also going through the House, that enables data sharing between the DWP and others. It has completed its pre-legislative scrutiny and will be introduced during the passage of this Bill. It is a vital and necessary part of ensuring that the powers in the Bill work.
Will the Minister be clear with us tonight that the safeguard tariff and the absolute cap do not contradict each other and that they can be introduced together, so that the protections can continue? Is she convinced that that is the way forward?
There is nothing in the Bill that interferes with Ofgem’s ability to extend the safeguard tariff, which is part of an existing separate set of powers. By having this discussion, we are sending a clear message that we expect Ofgem to retain adequate protections for the most vulnerable consumers once the Bill is passed. I thank colleagues for putting that matter forward for debate today, because it is an absolutely vital point that we must get across. However, on the basis of my responses, I hope that the hon. Member for Leeds West will not feel the need to move amendment 9.
Amendment 8 essentially sets out the conditions that would determine success when we consider whether the price cap should be removed. As we discussed in Committee, it is not the job of Ministers to prejudge the regulator’s work on what a good market will look like in two years’ time. This country has seen some of the most rapid evolution in energy innovation, and in the future there may well be factors that are no longer considered relevant in establishing competition or factors that do not best address consumers’ needs. I do not want to put anything on the face of the Bill that would give energy companies something to target. The Bill is supposed to be about giving the regulator broad powers to ensure that companies deliver a better price for consumers, not try to engineer a particular outcome. I hope that the hon. Member for Southampton, Test considers that a sufficient explanation and will not move amendment 8.
It has been great to have so much cross-party conversation and discussion on this important piece of legislation. I forgot to mention the vital point made by the right hon. Member for Don Valley (Caroline Flint) about green tariffs, but the process of setting such tariffs will be scrutinised as never before and we will have better, more transparent tariffs as a result. I hope that all Members are satisfied with the explanations I have provided and that we will not need to trouble the Lobby Clerks this evening.
On the basis of the explanations that have been put forward, we will be happy not to move our amendments, but we will wish to press new clause 1, which has not been properly understood or responded to this evening.
Question put, That the clause be read a Second time.
30 April 2018
The House divided:
Question accordingly negatived.View Details
I beg to move, That the Bill be now read the Third time.
Creating a more affordable and competitive energy market that works for British families was a central pillar of the Government’s manifesto last year. Every household in the country depends on gas or electricity, or both—they are essential services on which we all rely. On average, each household spends about £1,250 a year on energy at home. It is one of our biggest household bills, and for the poorest 10% of households, energy is about 10% of their annual household expenditure. Yet in the past few years, prices for customers on standard variable and default tariffs have not declined; they have continued to increase. The further price hikes we have witnessed in recent weeks from a number of the big six suppliers are consistent with the analysis of the Competition and Markets Authority that that part of the market is not operating competitively.
The Government’s ambition is to make sure that Britain has an innovative, competitive, productive and prosperous economy. To underpin that, we need an energy market that works to the benefit of consumers, workers, investors and, of course, the environment. This Government recognised, as did the CMA, that for 11 million customers on standard variable tariffs, the market is not working. In many cases, prices are above what they would be in a competitive market.
The Bill therefore focuses narrowly on a problem that has been exposed as highly significant: overpricing for consumers who have remained loyal to their energy providers. This segment of the market has displayed weak competition. Such behaviour on the part of the energy companies must come to an end, and the Bill, along with other measures, will help to end the abuse. The Bill requires Ofgem to introduce a temporary absolute tariff cap on SVTs—default rates—that will protect consumers. That will go alongside complementary measures enacted by this Government, including the roll-out of smart meters, together with other reforms that Ofgem is making to the market. This has been welcomed by new entrants in the market, which are providing more choice for consumers that ever before. A number of them provided evidence during the Bill’s scrutiny.
I would like to take a moment to express my gratitude to hon. Members for the way in which they have engaged with the Bill throughout its passage. I thank Members on both sides of the House who have contributed to its development, especially those who served on the Select Committee, which gave the Bill valuable pre-legislative scrutiny, and those who served on the Public Bill Committee. The discussions were excellent and forensic, and the Bill has been strengthened during its passage through the House. I pay particular tribute to and thank my right hon. Friend the Minister for Energy and Clean Growth. I also thank the Clerks, the House authorities, the experts who gave oral evidence to the Committee, the organisations that took time to provide expert written evidence and my superb officials, who will continue their tireless efforts as the Bill proceeds.
I thank the Opposition Front-Bench team. In characteristic style, the hon. Member for Southampton, Test (Dr Whitehead) brought to bear his long-standing interest in and deep knowledge of these matters. Members have offered challenges and insight throughout the Bill’s passage, and their contributions will benefit the legislation. The debates have thrown light on important issues, such as the need for Ofgem to ensure that there is transparency when setting and reviewing the cap, and to consider all customers, especially the vulnerable and the disabled, when doing so.
Our debates have resulted in a productive discussion on the important issue of the need for the exemption of green tariffs, about which my right hon. Friend the Minister for Energy and Clean Growth has written to members of the Bill Committee. My right hon. Friend is a passionate champion of green issues in the House and that, combined with her advocacy for the consumer, has made this an ideal first Bill for her to take forward in her current role. We are grateful to her for that.
The debates have sent a clear and consistent message from the House that its expectation is that Ofgem should implement a robust price cap to be in place for the winter. The Bill will require Ofgem to protect consumers on standard variable tariffs. It will ensure that loyalty is no longer penalised while also ensuring that efficient suppliers can continue to do business.
As the House knows, the Government are committed to reforming the energy market. The Smart Meters Bill, which is progressing through the House of Lords as we speak, represents another important stepping stone towards a more competitive market. The Domestic Gas and Electricity (Tariff Cap) Bill will ensure that British families are protected as we correct an intolerable situation in which, according to the independent competition authorities, consumers have been exposed to paying £1.4 billion a year more than they would in a competitive market. That abuse should end. The Bill will not only give Ofgem the powers to achieve that, but introduce the requirement that it should do so, and I commend it to the House.
You will be pleased to hear, Mr Deputy Speaker, that I will be brief.
I thank all Members who have contributed to proceedings on the Bill and all members of the Public Bill Committee, who worked diligently and in such a consensual way. I particularly congratulate my hon. Friend the Member for Southampton, Test (Dr Whitehead), who over the past weeks and months has spent many hours working on not only this Bill, but a great many pieces of legislation. I thank the Public Bill Office and the Clerks for their tremendous support, as always.
Somewhat unusually, I am delighted that we are here to send a Bill to the other place in a speedy fashion. The Opposition will support the Bill’s Third Reading. However, the Minister and the Secretary of State, diligent as they are, may share some of my exasperation that wider Government inaction—shall we say?—and delay at the beginning of this Parliament has meant that millions of people are still suffering with big energy bills as the winter comes to a close.
The 2017 Conservative manifesto committed to implementing an energy price cap that would protect 17 million households. On 9 May 2017, the Prime Minister herself wrote of the cap in The Sun:
“I expect it to save families on poor value tariffs as much as £100.”
Yet the policy was thrown into doubt when the Queen’s Speech said merely that the Government would introduce
“measures to help tackle unfair practices in the energy market to help reduce energy bills.”
That was followed by numerous letters between Ofgem and the Secretary of State in which it was made clear that legislation was required, but the Government still did not introduce a draft Bill.
It was not until mid-October that we saw evidence of the Government’s commitment coming to fruition, but even then there were reports that some in the Cabinet had no intention of seeing legislation on the statute book. Thankfully, pressure from the Opposition, and indeed from Government Members, has ensured that the Bill has made progress. A price cap will therefore eventually be in place, but the fact sadly remains that in nine days’ time it will have been exactly a year since the Prime Minister wrote her commitment to energy customers in The Sun.
I am happy that we are here today—I commend the Minister and the Secretary of State—but it is disappointing to say the least that a year has passed and the cap is still some way from implementation. As a result, energy customers have not been protected during a winter in which we have seen some of the coldest weather on record. Prices have continued to rise, and in the past couple of weeks, British Gas has announced a 5.5% price rise, while EDF has announced a 2.7% rise.
My hon. Friend the Member for Southampton, Test and other hon. Members attempted to improve this Bill and help the Government to ensure that their own commitments were met. Sadly, although the Minister was very amiable, the Government did not accept many of the amendments.
May I add another couple of dates to help Members to understand how long it has taken to get us here today? I think that, as I get older, collective memory becomes an even more important asset. It was in October 2011 when the then Prime Minister, David Cameron, held a summit to tackle rising energy prices, and it was in October last year—six years later—when we finally heard talk of a Bill.
My right hon. Friend is correct. I share her exasperation and that of many Members on both sides of the House about how long it has taken to tackle this very serious issue.
Briefly, let me turn to some of the amendments that were discussed—Members will be pleased to hear that I will not go through all of them. Amendment 6 would have required Ofgem to ensure that the tariff cap conditions resulted in customers on standard variable and default rates having their annual expenditure reduced by no less than £100, as per the Prime Minister’s election promise. If the Government had accepted that amendment, it would have given energy customers confidence that the Government were serious about their commitment significantly to reduce the bills of millions of customers. However, the Minister said that she felt that the Opposition had been mischievous in trying to place a Government policy within a piece of Government legislation. I do not think that I need to say any more about that—we will not try to do so again.
After our discussions in Committee, we redrafted an amendment that we had previously tabled. Rather than proposing a hard stop date, amendment 5 would have simply ensured that the cap would be in place within five months of Royal Assent. Ofgem has stated that it will take five months from Royal Assent to implement the cap. It indicated that placing such a deadline in the Bill would not cause it a problem or hinder its process so, again, it was sad that our amendment was not accepted.
Similarly, new clause 1 would have developed requirements for a differential between a supplier’s cheapest and most expensive rates after the termination of the cap. That would have offered a degree of ongoing protection for consumers while wider market reform could take place.
I wish to pick the Secretary of State up on a statement that he made on Second Reading. He said:
“Britain has long been a pioneer in not only the privatisation and liberalisation of industries but the regulation of these utility industries, too.”—[Official Report, 6 March 2018; Vol. 637, c. 206.]
I am afraid that I have to take issue with him. Although I am pleased that the Bill is completing its final stages today, the necessity of the Bill in itself demonstrates the Government’s abject failure adequately to ensure that our UK utilities have been regulated. In the past year alone, £120 has been paid by every household in the UK for dividends to energy company shareholders. As I have said before, the six distribution network operators had an average profit margin after tax of 32% a year between 2010 and 2015, which equates to £10 billion over six years. During that time, shareholders received £5.1 billion in dividends, or half the net profit generated. In the past 10 years, water companies paid 1,000 times more in dividends than in tax. Three of them paid more in dividends than they made in profit in that period, which means that they were borrowing on the back of household bills to pay their shareholders. Radical reform of our energy market is needed—it is not optional, but necessary.
We are yet to see any response to Dieter Helm’s consultation on the cost of energy, which included many proposals for reform. Perhaps the Secretary of State will confirm when a response to that consultation will be published. It is urgent that we have such a response if effective competition is to be achieved by the end of 2020, or indeed by 2023, when the energy price cap will definitely be lifted.
I support the Bill and I welcome this Government action but, as I have said, the cap is simply a sticking plaster. I hope that the Government will now act speedily and listen to the comments of Members about the wider reforms that our energy market requires.
I will be really brief. Clearly we all support the Bill, so there is no point in over-debating it and delaying things much further. As the Secretary of State said, an overpayment of £1.4 billion was collected from customers in 2016. Some £650 million of that was effectively excess profits that customers were paying to the energy companies. That proves the need for the Bill. We can argue that it should have been introduced before, but at least it is here now, so let us get on with it.
I welcome the Secretary of State’s comments about ensuring that there are safeguards for vulnerable customers. That is really important—it is the whole ethos of the Bill. I hope that vulnerable customers get the protection that they need. I know that the Conservative party and the Government really hope that the provision will be temporary and that there will be no further state interventions in the market. It would be fantastic if that were the case, but I am not sure whether that will happen—we will wait and see. That is the whole point of Ofgem having the correct measures, and of ensuring that we understand how the markets and the companies work. It was interesting that the mere threat of the Bill was enough to make companies change their behaviour and start reviewing their standard variable tariffs. At the very least, we need to be willing to threaten further state intervention if the market is not working as it should.
If we really want customers’ bills to come down, we will need further state intervention, including home energy efficiency schemes. I will finish with my usual plea about getting onshore renewables back on to the market because they are the cheapest form of energy at the moment. We know how successful the bidding process has been for offshore renewables, so let us get the cheapest form of energy back to market and help to bring down customers’ bills. I commend the Bill and look forward to its implementation.
Question put and agreed to.
Bill accordingly read the Third time and passed.