With this it will be convenient to discuss the following:
Amendment 3, page 192, line 18, at end insert
‘unless one or more consumers have suffered loss or damage greater than this value.’.
Amendment 4, page 192, line 24, at end insert
‘unless one or more consumers have suffered loss or damage greater than this value.’.
Amendment 5, page 198, line 31, leave out subsection (4).
Amendment 6, page 198, line 40, at end insert
‘unless one or more consumers have suffered loss or damage greater than this value.’.
Amendment 7, page 198, line 46, at end insert
‘unless one or more consumers have suffered loss or damage greater than this value.’.
Amendments 2, 3 and 4 to part 1 of schedule 14 relate to gas customers. Amendments 5, 6 and 7 to part 2 cover electricity consumers. We are proposing these changes for a simple reason: we need to do everything we can to protect consumers who lose out when energy suppliers break the rules. I sincerely hope that Members on both sides of the House agree about that. My right hon. Friend the shadow Energy Secretary called for a system to guarantee compensation to customers who have been ripped off as far back as October 2011, which is a year and a half ago now, so it is nice to see that the Government are finally following our advice and doing something to give redress to consumers.
We therefore welcome the fact that the Bill gives Ofgem powers to compel energy companies to award compensation. At present the regulator can only try to negotiate voluntary agreements with suppliers. We have seen in the past that they do not always deliver the best deal for people who have lost out through no fault of their own. It is good that this wrong is being corrected. However, these new powers do not go far enough.
There are two important aspects of the Bill that need to be addressed. First, it places an arbitrary cap on the amount of compensation that can be paid to customers who have been treated unfairly. Secondly, it contains a crucial loophole.
On the arbitrary cap, I agree with what the hon. Lady has been saying, but it seems to me that the amendment would mean that a company faced unlimited liability for any consumer redress order that affected more than a single consumer, which could have serious implications, for instance for investment in any infrastructure that might be required. Will she address that point?
I am expecting to hear from the Government about that, and I intend to address the point later. After I have done so, I will be happy to respond to any further questions the hon. Gentleman might have.
As I was saying, the Bill also contains a crucial loophole. The new powers would not apply to current Ofgem investigations. That is why we raised concerns in Committee, and it is why we have brought back amendments addressing the point on Report. Before I address the specific issues, let me remind the Minister why this will matter a great deal to households across the country.
Over the last few years there have been far too many cases of people being mistreated or misled by their energy providers. In April last year EDF agreed to pay £4.5 million after an investigation found it had been mis-selling to customers, and in April this year SSE was given a record fine of £10.5 million for running a sales process where people were given information that simply was not true. There are other ongoing investigations into practices at E.ON, npower and ScottishPower, and overall Ofgem is currently carrying out 15 formal investigations into potential malpractice by energy suppliers. Its enforcement team is also informally reviewing an additional 12 cases.
That is why we agree that schedule 14 represents a step in the right direction. It gives the regulator the power to order companies to compensate customers who have been misled about their energy deal and tariffs and the arrangements by which they are put on those tariffs.
None of those ongoing investigations will be covered by the new powers now being introduced, however. That means that any company found guilty of wrongdoing in any inquiry that begins or concludes today, tomorrow, next week, next month or at any time before this Bill receives Royal Assent will escape the new penalties all together. Also, if in future the regulator finds that there have been other failings by suppliers that took place before the Bill became law, those companies will avoid sanction as well.
I wonder how the Minister can think that that is right. How will it be fair to consumers who have suffered bad practice by their suppliers that they are not to receive due compensation? Amendments 2 and 5 would close this loophole and make all energy firms that break the rules fully accountable both to their customers and the regulator. I hope the Minister will agree that that is the right thing to do and support these changes.
Does my hon. Friend agree that we have also not used the current rules properly? The fines that have been imposed of late do not even go back to the people who pay the bills. Does she agree that we should be looking to compensate the people who pay the bills, rather than give that money to the Treasury?
My hon. Friend raises an important point. Currently, the fines that are being raised are going into the Treasury, and many questions have been asked about where that money should go.
If the Minister does not support our amendments, will he tell us what indication he has had from Ofgem as to how many of its current 15 formal investigations will conclude before these new powers are introduced, and how many consumers could miss out on compensation as a result?
Following the discussions we had in Committee, I suspect the Minister might argue that we are proposing retrospective legislation. Let me be very clear about why that is not the case. These amendments do not alter any of the regulations energy companies currently need to abide by. That is the crucial point. We are not seeking to penalise companies for something that was not against the rules at the time. Our proposals would simply ensure that customers whose providers are found to have broken the rules receive appropriate compensation, including for investigations that fall before the Bill receives Royal Assent. I hope the Minister will bear that in mind and support this change.
Turning to our other amendments, we seek to enshrine an important point of principle in the new powers: that customers who have been treated unfairly can, and always should be, fully compensated. As it is currently drafted, schedule 14 places a limit on compensation to 10% of an energy company’s annual turnover. I ask the Minister to explain what would happen if the losses suffered by customers were greater than that. How was that arbitrary figure reached—and why not 11% or 15%?
My hon. Friend raises a point we on the Opposition Benches have raised many times before about the challenges we face with our very opaque energy market, where we do not know the true cost of our energy and many of our generators are also our suppliers. We will wait for the secondary legislation to hear exactly what the Government mean by that term, but it is fair to say that we are dealing a lot in this Bill with a broken market, and it is a shame that the Government are not proposing legislation to fix it.
We accept that there is a relatively small chance of a compensation package exceeding 10%, but that is not an impossibility. If a case ever did exceed that amount, it is likely that an enormous number of consumers would have been affected. It would be irresponsible for the Government not to be prepared for that scenario. In Committee, the Minister said that if consumers suffer losses greater than the compensation they receive, they will still be able to seek further redress through the courts, but surely he acknowledges it would be better not to risk that happening in the first place by amending this Bill.
Surely that would be better than abandoning consumers and leaving them to endure a long and protracted court battle to get due recompense. We believe it makes more sense to guarantee that families will always receive pound-for-pound compensation when they have been mistreated, which is why our amendments specify that compensation would be allowed to exceed 10% of turnover if
“one or more consumers have suffered loss or damage greater than this value.”
The Department’s own impact assessment said that such a change would send a powerful signal to energy firms on consumer protection. That is our priority.
This Government claim that they are on the side of consumers and today they have the chance to prove it. Our amendments put consumers first, ensuring that mistreated families will not be short-changed, no matter when they were wronged or how much they are owed. Will the Government stand up for the many? The question for the Minister and his colleagues is simple today: whose side are they on?
The Opposition amendments seek to amend schedule 14 by removing restrictions on retrospective and unlimited liability. I understand the concerns and motivations of the Opposition, but I can assure them that this coalition is also committed not only to helping hard-working families and, indeed, all consumers with the rising cost of living, but to empowering consumers and protecting hard-working families from rip-offs and scams. So although I have some sympathy with the aim of amendments 2 and 5, which are intended to allow Ofgem to compel energy companies to pay redress for events that happened prior to the enactment of this Bill, I am troubled by the effect of setting a precedent by retrospectively applying powers in the energy market and by the impact that that would have on all consumers. There is a general principle that powers should not be applied by this House retrospectively. Beyond that principle, there is potential for very real, negative impacts on consumers.
The Government are committed to encouraging competitive pressure on the big energy market players, but the regulatory uncertainty these amendments would introduce would be likely to lead to an increase in the cost of capital for energy companies, and that, in turn, could push up bills for everyone. Furthermore, it could create investor uncertainty at the very time we are trying to encourage the necessary private sector investment required to move to a low-carbon economy and renew our energy infrastructure. More expensive finance would most heavily hit the smaller companies that are also covered by this legislation—the very small companies and entrepreneurs we want to attract into the sector. Under the previous Labour Government, competition in the electricity sector shrank to leave just six big supply companies dominating it. The last thing we want to do is accept amendments that could hinder new entrants to the market.
The amendments may also lead to increases in the cost of insurance premiums for companies, in order to cover the extension of liability for events that took place prior to the enactment of this legislation—again, that is likely to be proportionately higher for smaller energy companies. All these factors could push up the cost of living for hard-working families, at a time when, as we know, many can ill afford it. I understand the intention behind the amendments, but the unintended consequences could end up hitting the very people we are trying to protect, and so we cannot accept them.
Again, I have some sympathy with the intention of Opposition amendments 3, 4, 6 and 7, which seek to ensure that the amount of compensation that can be required through a consumer redress order is not limited. As I said at the outset, the coalition Government are absolutely committed to providing a fair deal to consumers. So when considering these amendments, we should look to balance the need for a redress mechanism that allows consumers timely and proportionate compensation, with an appeal mechanism that is proportionate to the potential liability faced by energy companies.
Under existing arrangements, consumers can obtain redress through the courts, but we recognise that the legal process is lengthier and does not offer a typically quick remedy for consumers who have been badly served or ripped off. That is largely because the courts offer recourse for consumers in cases where compensation may exceed the 10% limit set in this legislation. The legal process is necessarily equal to the potential sums at stake. The powers set out in schedule 14, however, contain appeal mechanisms, proportionate to the potential penalty, limited to 10% of an energy company’s annual turnover.
I will correct myself if I am wrong, but I believe we are talking about global turnover—we are talking about very significant sums. [Interruption.] This relates to the turnover of the company under investigation. [Interruption.] That was very helpful.
Just for clarification, is “the company under investigation” the mother company as well as the subsidiary company, or does it include all the companies that that company is part of?
The hon. Gentleman asks a fascinating and timely question, one which deserves a proper answer. He may have misheard me, because when I said “global turnover” what I actually meant was UK turnover. Nevertheless, that is clearly a very significant amount.
Our approach would allow for a relatively straightforward resolution of relatively simple cases. Accepting amendments to remove the cap would require us to make changes to the appeal mechanism, which could deny consumers access to the timely compensation they are due, as it could result in a far lengthier resolution of cases if the stakes are much higher. In considering whether such a trade-off is justifiable, we should take into account just how unlikely it would be for consumers to lose out on this scale. Exceeding a 10% cap of annual turnover would mean penalties and compensation of over a £1 billion for the very largest domestic energy supplier. The largest penalty imposed to date by Ofgem has been £15 million and under our legislation the cap for the largest would be set at £1 billion. A cap on redress is therefore unlikely to hinder Ofgem’s ability to impose appropriate redress orders.
In addition, there are unintended consequences of removing the 10% cap on penalty and redress, as that could also increase the costs of capital and insurance premiums for energy companies. Again, that would particularly affect the smaller companies—the very ones we are trying to attract into the sector—with all the adverse impacts on consumer bills that I mentioned earlier.
Energy companies should be in no doubt, however, that these powers are designed to ensure that consumers receive appropriate compensation. The combined 10% cap on penalties and redress will apply to each separate regulatory breach. If companies flout the rules on a number of occasions, they will therefore face correspondingly larger payouts. For the reasons I have set out, I hope that hon. Members will, on balance, agree not to press their amendments to a Division.
I find myself in the unusual position of agreeing with a lot of what those on both Front Benches have said. I have a lot of sympathy with the amendments and, unlike the Minister, I do not find any difficulties with amendments 2 and 5. If a company has been doing over consumers, whether it has been doing it the day before the Act comes into force or the day after does not seem to make any difference. If we are seriously considering making such companies pay such large sums for their misdemeanours, I would be happy to support those two amendments. That would send a clear message that we are fed up with some of the things that have been coming to light in recent years and with how the consumer has been mistreated, taken for granted and, frankly, milked, by some companies.
My hon. Friend John Robertson, if I may call him that, made very good points about turnover.
I am grateful to the hon. Gentleman for giving way, particularly as I have only just sat down. Let me be absolutely clear on this important point. For investigations by Ofgem that are already under way, Ofgem will continue to negotiate compensation on behalf of affected consumers. Companies that fail to negotiate and agree satisfactory redress can expect Ofgem to reflect that lack of co-operation in the penalty it sets.
I accept that, and I understand what the Minister is saying, but he said in his speech that the maximum penalty to date had been £15 million. Under the Bill he is talking about £1 billion. There is a massive difference between the two and my point stands: if consumers have been ripped off, it does not matter whether it happened just before the new system was introduced or just after that. The same should apply, in my view, and I do not have any great problem with that proposal.
However, I have a big problem with amendments 3, 4, 6 and 7. As I said in an intervention on Luciana Berger, I have a worry—the same sort of worry as the Minister—about the effect that the amendments would have on the company. It seems that one aspect of the Bill is about trying to get investment into the energy industry. For far too long there has been insufficient investment; a lot of modernisation and new investment is needed to get our energy system up to scratch. The figure is 10% of the turnover, whatever that turnover will be—I am still not clear what the word covers. That takes me back to the days when I served on the Select Committee on Energy and Climate Change with my hon. Friend the Member for Glasgow North West and we had the big six in one day and asked them about their profits. We asked whether they had made their profits selling to the consumer and they replied, “Oh no, we didn’t do that.” We asked whether they made them through generation, and heard, “Oh no, we didn’t make it from that.” We asked, “Where did you make those profits? You have large profits,” and no one could answer the question. There is great difficulty in pinning down what is meant by profit and turnover. In a time when we have six big energy companies, five of which are effectively multinational companies—we have seen in recent weeks what happens with the tax of multinational companies—we need a bit more clarity about what is meant by turnover.
Although the sums involved in 10% of turnover are significant, my bigger worry is that a company could be under investigation for an alleged breach for a considerable time. If there is a set limit, whether it is 10%, 20% or whatever, anyone thinking of lending that company money for infrastructure projects—most of them borrow from large financial institutions or other lenders—will know the contingent liability and what they are dealing with. I grant that if the liability is absolutely unlimited the sums involved are unlikely greatly to affect the big companies, given their size, but the uncertainty might well affect them. As we all know, those lending sums of money of such magnitude will consider the state of the company. A potential unlimited liability going into many billions of pounds, if there has been such an incident, could seriously undermine the company’s ability to borrow the money for much-needed infrastructure in our energy supply system.
I have a great deal of sympathy with those four amendments and understand what the hon. Member for Liverpool, Wavertree is trying to do, but I have a difficulty with them. Perhaps when she winds up she could expand on them and reassure me on the points I have made.
We must also remember that the provision would affect not only the big six energy companies but all regulated persons. If I understand correctly, that would include the small companies that are trying to get into the market. The Government say that they want to bring new entrants into the market, including the smaller companies that are beginning to nibble away at the edges of the big companies. If they were faced with such a penalty—let us hope that none of them would be—it would be the death knell for them.
The hon. Gentleman makes a very good argument and I had not thought of going down that road. Does he accept that those small companies could, through no fault of their own, follow what the large companies are doing and get themselves into bother that they did not really think about when they first started doing whatever it was that they did?
My hon. Friend makes an excellent point. Whereas the big six would be able to take that financial hit, many of the smaller companies would not be able to do so. These proposals would take us down a road that could have serious repercussions. Many small companies are beginning to break into the market. Many of them are particularly strong in renewables, for example, and that is one way in which much of our renewables investment might be generated in the future.
I ask the shadow Minister to think about my points. I have sympathy with the amendments and understand what they want to do. We all want to ensure that any energy company that has been mistreating consumers is dealt with severely. There are two sides to this, however, so let us not rush into doing something that could have profound and unforeseen results.
It is a pleasure to follow Mr Weir. He was an excellent member of the Energy and Climate Change Committee when it was first put together and I am very sorry that he is not still a part of it—but there is time for him yet, as they say.
I agree with a lot of what the Minister said—I do not pick holes in things just for the sake of it—but it is not my place to worry about whether the big six have financial difficulties or whatever else. Personally, I could not give one jot about any of those companies. They are big enough to look after themselves and they certainly know the rules, because they know how to break them and get away with it.
I support every one of the amendments tabled by my colleagues on the Front Bench. I have no problems with them whatsoever. The only thing I have to say to the Minister is that I was slightly disappointed by his speech. He talked about hard-working families and, yes, I believe that hard-working families should always be looked at and looked after as best we can. My constituency has more than its fair share of elderly people and it has the highest percentage of single women in any constituency in the country, which probably means that most of them will be elderly. That means that they might have some difficulties that other people do not have. There are also quite a number of people who are disabled. We have found over the years that those are the people who do not complain, because they are frightened to, and who do not get the help they probably should get. Once again, we are getting to a stage when people think that their biggest bill is their electricity bill, their gas bill or both. According to some newspaper articles, people will be more worried about how they will pay their fuel bills than how they will pay their mortgage.
I do not worry about the big six, because they are making plenty of money, but we have to nail down what we mean by profit and turnover. Let us take EDF, a large multinational company that is to build a new nuclear power station, from which it will make a lot of money. It also has other power stations in the United Kingdom on which it makes money, and of course it is involved in retail as well, where it says it makes 2% profit. It makes some 17% to 19% profit from generation.
It puts that 19% alongside the 2% when it comes to giving shareholders a dividend, but it tells Government that it is making only 2% profit. The company may therefore put up its prices—SSE did so only last October—yet these same companies are making enormous profits. They are telling people, “Invest in our company because you can get a return for your money.” That is not right.
That brings me to the point that I really want to make about being in default. The Bill is the end or start of a process. The Minister said that 19 cases are going on. Some of them will continue beyond the introduction of the Bill. Will they be judged under the old system, or will there be a “get out of jail free” card as the new Bill takes over? Will there be two different kinds of penalties running side by side?
I have listened carefully to the debate. Is there not in my hon. Friend’s mind, as there is in mine, a concern that we are putting on companies a financial penalty that will ultimately be borne by consumers? Should we not instead address the real problem, which is directors’ liability? It was noticeable in the recent SSE case that no criminal prosecution for fraud was brought, even though the maximum penalty was imposed. Would it not be better to impose a strict liability on the directors of the companies, so that it is not the consumer who ends up paying the fines?
My hon. Friend makes a very good point, which brings me to the next issue that I wanted to raise: what happens to the money? If we get £1 billion off a company—not that that is likely, because it would be a lot more than we get at present—or even £100 million, surely that company should have to pay that back to its consumers. It should not give it to the Treasury to spend, though I am sure it would spend it in a very nice manner. It should go towards what it was designed for: paying for electricity. That £100 million or £1 billion should go back to the customers of that company. I ask the Minister to look at that.
The Bill is a great deal better than it was when we scrutinised it on the Select Committee. Everything else about the Bill has been rushed. Look at the number of amendments tabled today, and the number of things that we are not being told—the strike price and so on. We are basically being given a promise that it will be all right on the night. We need to know what the Bill is. The Select Committee had five weeks’ scrutiny of the Bill, when normally the period is 12 weeks. Then we waited an inordinate amount of time for the Bill to come back to us. When we got it, we sent it back to the Minister and told him that it was a dog’s breakfast; it was terrible. We then got something else. It has been through Committee, and we have improved it. I implore the Minister to consider the amendments that hon. Members on both sides of the House are putting forward, and seriously look at using the best bits to improve the Bill further, because this is an okay Bill, but that is all it is; it is not good. It is probably slightly better than what we had at the start, but we still have a long way to go. I ask the Minister to consider that.
I also ask the Minister to look at the issue of people paying their taxes. We see that npower has admitted that it does not pay corporation tax. Another three of the major companies say that they do not pay much corporation tax. I am pleased to say that the two companies with Scottish links say that they do pay their corporation tax, although I would still like to look at the books.
There lies the biggest problem that we have with energy: looking at the books. What are the books? I have talked to Ofgem and to the Minister. What do the books cover? That goes back to the definition of cost and the definition of turnover. Where does the generation element come in and where does the retail element end? What happens to all the money that is made on either side of the box in the middle? That is a real problem. When billions of pounds of profit are made on one side and appear not to be counted, and billions of pounds are missing on the other side so the companies put the prices up, they keep making money but the consumers—the poor, the elderly, the disabled, the hard-working families that the Minister likes to talk about—are all suffering, and it appears that our Government do not care.
We should be doing more. We have even got to the stage where HMRC hired a gentleman called Volker Beckers, who was the chief executive of RWE npower. I bet he knows how to deal with tax for those energy companies. I hope he uses the same skill as he used for RWE not to pay corporation tax to get the same money out of the same company for HMRC.
There is much that is good in the Bill. I hope the Minister will consider the amendments moved by my hon. Friend Luciana Berger and listen to what my friend Mr Weir said. Between us all, we will make the Bill better, but we must remember that at the end of the day it is the people who put us here that we should be looking after.
I have been listening carefully for almost an hour to the debate, and I listened carefully to what the Minister said. We on the Opposition Benches still intend to divide the House on amendments 2 and 3. Let me explain why.
I reiterate the point that I made about the number of investigations currently under way. Ofgem is carrying out 15 formal investigations into potential malpractice by energy suppliers, and its enforcement team is informally reviewing an additional 12 cases. On that basis we consider it crucial that consumer redress orders be issued in respect of contraventions that might occur before the Bill comes into force. I reiterate that that is not retrospective legislation; it just means that consumers can get the redress they deserve.
Amendment 3 protects an important point of principle. Instead of a cap on the amount of compensation that consumers can receive, customers who have been treated poorly should be entitled to receive what they are rightly due. If the Government are convinced, as I heard the Minister say, that the level of compensation would never reach 10% of turnover, whatever that definition of turnover might be, the amendments should not present much difficulty. They would take effect only if the harm to consumers was above the 10% threshold. If it is unlikely ever to reach that threshold, the cost of that risk would be relatively small, and if the level of damages were to exceed that level, surely the Government would want to ensure that customers who had been treated unfairly were properly protected.