Energy Prices and Profits

Opposition Day — [6th Allotted Day] — Living Standards – in the House of Commons at 4:45 pm on 4 September 2013.

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Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change 4:45, 4 September 2013

I beg to move,

That this House
recognises the importance of the energy industry to the security and prosperity of the UK economy;
notes that the average household energy bill has increased by over £300 since the 2010 general election;
further notes that the big six energy companies have had a £3.3 billion uplift in profits over the same period;
welcomes the recent report on Energy Prices, Profits and Poverty from the Energy and Climate Change Committee (Fifth Report, HC 108) which found that Ofgem is failing consumers;
regrets that the Government has halved support for people in fuel poverty, and that as of 20 August 2013 only 132 households had signed up for a Green Deal plan;
further regrets the Prime Minister’s broken promise to legislate so that energy companies have to give the lowest tariff to their customers;
and calls on the Government to bring forward amendments to the Energy Bill to make the energy market more competitive and transparent by requiring energy companies to pool the power they generate and to make it available to any retailer, to create a tough new energy watchdog with the power to force energy companies to pass on price cuts when wholesale costs fall, and to put all over-75 year olds on the cheapest tariff.

Earlier this afternoon, we heard from my hon. Friends the Members for Leeds West (Rachel Reeves) and for Nottingham East (Chris Leslie) about the full scale of the cost-of-living crisis unfolding in Britain. For 37 of the 38 months in which this Government have been in power, real wages have fallen. At the same time that people have seen their incomes squeezed, the cost of living has also increased sharply. In the last three years alone, the average household energy bill has increased by over £300. It is no wonder that Which? research has shown that 79% of people now worry about how to pay their energy bills. With nearly four in 10 people saying they are likely to have to cut back on their energy spending in the coming months, and with warnings of more price rises coming later this year, I make no apologies for returning to a topic that we have debated a number of times in the last couple of years.

As we know, energy companies claim that there is a whole raft of reasons why energy bills are going up—wholesale costs, network charges and social and environmental obligations. With all those extra costs, one might think that profit margins would have come down, but quite the opposite. It is now clear that, regardless of those costs, these companies have seen a substantial increase in their profits. We know that because since 2009, energy companies have been required to publish information on their financial performance, including their profits. The information shows that in 2009, Britain’s big six energy companies made just over £2.2 billion in profit. In 2012, by contrast, they made more than £3.7 billion in profit—an increase of nearly 70%. Overall, over the last three years, Britain’s big six energy companies have seen a huge profits uplift of more than £3.3 billion. If anything, this is likely to be an underestimate because it excludes their profits on trading and from gas storage.

Photo of Peter Lilley Peter Lilley Conservative, Hitchin and Harpenden

I noticed that, among the factors affecting energy bills, the right hon. Lady did not mention the cost of moving from lower-priced fossil fuels to very expensive renewables. That is the only item that is directly under the control of this House. Was it not somewhat disingenuous not to mention it?

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

Actually, I mentioned “social and environmental obligations” in my opening statement, and part of those obligations mean moving to cleaner energy in the future. I think I have the support of Ministers in saying that if we stay stuck in the past in relation to fossil fuels, we will create an even bigger bill for the future. We need to move to cleaner, renewable energy and other low-carbon energy in order to achieve both security and fairer prices in the long term.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

In the interests of consensus, does the right hon. Lady accept that it is essential and urgent for Britain to increase investment in renewables, low carbon and energy infrastructure generally, and does she accept that we need to invest about £110 billion over the next 10 years?

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

Yes, I do accept that, and in view of the Secretary of State’s comments, let me be absolutely clear about one thing. The opening words of the motion before us today rightly recognise

“the importance of the energy industry to the security and prosperity” of the British economy. The companies that keep the hospitals warm, factories working and the lights on in 25 million homes are doing a pretty fundamental job for the British economy. They employ hundreds of thousands of people and create skilled apprenticeships right across the country. Over the next 10 years, we need these companies to invest in the UK—in new power stations, pipes and wires.

The idea, however, that the significant uplift in profits is all somehow to do with investment simply does not stack up. For one thing, if we look carefully at the profits and investment trends of the big six energy companies, as Bloomberg did last year, we see a very odd pattern emerge. The companies with the biggest profit margins have the lowest investment profiles, while the companies with the smallest margins are ploughing the most back in.

Moreover, at a time when the industry overall is enjoying unprecedented profits, we are not seeing anything like the investment that we need. Analysis by Bloomberg New Energy Finance shows that investment in clean energy has fallen by more than half since the last general election, and that under this Government just one new gas-fired power station, in Carrington in Manchester, is scheduled to open before the next election. Every other gas-fired power station that is coming on stream was commissioned, received planning permission and began to be constructed under the last Labour Government. In any case, the need for investment cannot mean allowing the energy market to fail consumers.

Photo of John Redwood John Redwood Conservative, Wokingham

Does the right hon. Lady not understand that if she backs the most expensive and least rewarding forms of energy investment, to the tune of £110 billion—which is what she wishes to do—profits of less than £4 billion a year will not pay for all that?

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

The choice that we face is between moving to the energy market that is best suited to the future and continuing to incur the additional costs of the past. The Energy and Climate Change Committee has produced information about the cost of decarbonising our power sector, but has also drawn attention to the cost of not doing anything. I believe that the cost of staying stuck in the past would far exceed the cost of investing the amount that we need to invest in renewable and low-carbon energy for the future.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

Does the right hon. Lady accept that investors will need to make profits on their investments? The Bloomberg report aside, does she agree that investors in energy companies can make profits?

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

Of course I agree that those companies should make profits. I do not want to become involved in a back-and-forth question session because I know that other Members wish to speak in the debate, but the Secretary of State has not answered my question. Is he not worried about the fact that some of the companies with the largest profit margins are investing the smallest amounts, while those with the smallest profit margins seem to be investing more? The need for investment cannot mean allowing the energy market to fail consumers. Today I shall explain not just how the Government are going wrong, but how the position could be improved.

Photo of Tom Clarke Tom Clarke Labour, Coatbridge, Chryston and Bellshill

Is my right hon. Friend as surprised as I am that none of the Members who have intervened so far have mentioned consumers? People such as my constituents have seen fuel poverty—extreme fuel poverty—double over the last 10 years. They have suffered attacks on their living standards and increases in gas and electricity prices, while the six big companies that the Government appear to be defending have made profits of £3.3 billion.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

In fact, that £3.3 billion is over and above those companies’ profits. It is not just their profit base; it is the uplift on what I would describe as, in itself, a pretty healthy profit.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

No. I am going to make some progress. I shall say more about consumers later, and there will be plenty of time for interventions then. Let me begin, however, by saying something about energy efficiency.

There is agreement on the fact that the best way in which to protect people from rising energy bills is to make their homes better insulated and more energy-efficient. The Government’s flagship programme is the green deal. It replaced the Warm Front programme, which helped more than 2 million families to insulate their homes under the last Labour Government.

Members may recall that the last Secretary of State said that the green deal would help to insulate 3.5 million homes. Clearly a great deal has happened since that statement, and it would be understandable if Members took those words with a pinch of salt. However, the Prime Minister told the House that the scheme would be “bigger and better” than any schemes that had preceded it. It would be groundbreaking, revolutionary, and the envy of countries all over the world. When it was launched earlier this year, the Minister of State, Department of Energy and Climate Change, Gregory Barker told Radio 4 that he would be having sleepless nights if fewer than 10,000 people had signed up for it by the end of the year.

Eight months in, how many people have actually signed up for a green deal package? Has the number hit 8,000, or 4,000? Can the Minister look forward to a good night’s sleep before the end of the year? I am afraid not, because so far just 132 people have signed up. Therefore, almost five out of six hon. Members in this House do not have a single constituent who has signed up for the green deal. The saddest thing is that this was all so predictable. For the last three years my hon. Friend Luciana Berger and I have warned that interest rates of 8% or even 9% would put people off, that hidden charges would put people off, that penalty payments would put people off, but this Government are not good at listening.

The Secretary of State will no doubt claim that it is still early days, and I really wish that were the case. On the latest count over 58,000 people have had assessments. That shows that the public are interested in making their homes more energy-efficient, but the problem is that once they have had their assessment, 99% of people say they do not think it is a good deal and are not signing up.

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

There is absolutely no factual basis for that assertion. The latest DECC polling shows that over 70% of people who have had a green deal assessment have said they either have work in progress or intend to or are likely to have work.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

The facts speak for themselves. There were 58,000 assessments, but only 132 people have signed up. I am sure Government Members will do their best to defend the green deal this afternoon, but they might want to ask themselves why their constituents do not want it if it is such a fantastic scheme.

Alongside the green deal is the energy company obligation, which is a successor scheme to the obligations on the energy companies that we put in place. Again, in principle it has our support. However, when support for people in fuel poverty has been cut by half, the help that is available should be targeted where it is most needed, yet under ECO 60% of the funding could go to households who can already afford to pay, not to people in fuel poverty. When times are tough and money is in short supply, that is simply indefensible.

Photo of Russell Brown Russell Brown Shadow Minister (Defence)

I spoke in the last debate. Some 41% of households in my constituency are in fuel poverty. What does my right hon. Friend have to say about what I believe is the sharp practice by some of the energy companies, who have customers on direct debit payments and come along and want to increase monthly direct payments by 15%, 20% or 25%, with no real rhyme or reason—when there is no justification for that as their customers are not using that increased amount?

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

Although some of the companies have reformed how they treat their customers, I am afraid that I receive information every day from members of the public including my own constituents—and also colleagues in this House who tell me about their experiences and those of their constituents—about what can only be described as sharp practices. Why should a customer who is paying a fair rate for their energy have to pay an uprated rate just to allow that money to sit in the coffers of the energy companies so they can benefit from any interest on it? That is just not fair and there is still a huge job of work to be done.

Photo of John Robertson John Robertson Labour, Glasgow North West

Some 56% of people are saying they have cut back on their use of electricity and gas yet their bills are going up. They ask, “What is the point of the green deal, when it does not matter how much I save because prices are going up anyway?” No wonder nobody wants to know about their green deal.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

My hon. Friend is right, and that lack of confidence and trust in the market and how it operates is at the heart of our motion.

I want to tackle this issue head-on by turning to the question of the retail energy market. It is nearly a year ago now that the Prime Minister promised to force the energy companies, by law, to put all their customers on the cheapest tariff. Let me remind the House of exactly what the Prime Minister said on 17 October last year:

“we will be legislating so that energy companies have to give the lowest tariff to their customers”.—[Hansard, 17 October 2012; Vol. 551, c. 316.]

He reaffirmed his proposal at Prime Minister’s questions earlier today, but the details show that it will not in fact apply to all customers; it will apply only to people on closed or dead tariffs, which is a tiny fraction of consumers as a whole.

Given the crucial difference between what the Prime Minister promised and what the proposals entail, it is reasonable to ask exactly how many people will benefit. Since then, I have asked one urgent question, six oral questions in the House and six written parliamentary questions to get to the bottom of this, but every time the Government have refused to answer.

This is meant to be their core offer to consumers, yet the Government cannot even tell me how many people will be moved to a better deal, when that will happen or how much they will expect to save. So I ask the Secretary of State again today: how many people will the energy companies be forced to move to the cheapest deal? Why is his Department so far refusing to answer my freedom of information request on this issue? Why has so much time and so many resources been wasted trying to shore up a policy announcement made off the cuff?

The sad thing is that there is agreement across the House and, to its credit, within industry that the proliferation of tariffs in the past few years has hindered, rather than helped, consumer choice and competition. Instead of focusing on that, the Department has wasted a year trying to dig the Prime Minister out of a policy hole entirely of his own making, creating unnecessary confusion for the public.

Photo of Stewart Jackson Stewart Jackson Conservative, Peterborough

Before the right hon. Lady gets too far along the road of critiquing the dysfunctional market, perhaps we ought to consider that the Labour Government inherited a dynamic and efficient market, geared to competition for consumers with 14 companies, and handed on to this Government an oligopoly of six companies, which she now criticises.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

It is fascinating how figures can be used. The briefing that Energy UK gave Members on both sides of the House says that 17 companies are operating in the market. The problem is market share; the big six control 98% of the market. I do not call that competition, and we will not get it until we get a fairer sharing out of the market—that will make a real difference.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

In response to the previous intervention, would my right hon. Friend simply care to draw the House’s attention to the fact that the previous Labour Government had to reform the market not once, but twice, through NETA and BETTA—the new electricity trading arrangements and the British electricity trading and transmission arrangements? They did so to ensure that, in what had been a dysfunctional market, something better and more competitive was created. That created the big six, which now, through the change in circumstances, have reached a different stage in their genesis and need reform as well. The idea that the Labour Government inherited a well-functioning market is nonsense, and Government Members know it.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

I absolutely agree with my hon. Friend. Just for the record, energy bills fell under my right hon. Friend the Leader of the Opposition. When he became Secretary of State for Energy and Climate Change the average bill was £1,215, and when he left it was £1,105. I am happy with that drop of more than £100, but since then there has been an increase of more than £300 in the past few years.

Alongside simpler tariffs, which we would all agree with, protections should be put in place for people less able or less inclined to switch. That is why our motion proposes to require the energy companies to put all those over the age of 75 on to the cheapest tariff. We know that the over-75s are the most likely to live in homes with poor energy efficiency and the most vulnerable to the cold weather, but the least likely to switch supplier, so they often pay more than they need to. That is sometimes simply because they do not have enough confidence to access the internet, where the information on the cheapest deals is available, or to operate an online account. I have discussed our proposal with suppliers, and they indicate that there is no reason why it cannot be done, so I hope that the Secretary of State will be able to give a more positive response than he has in the past.

Photo of Caroline Lucas Caroline Lucas Green, Brighton, Pavilion

Yesterday, Lord Stern dismissed claims that fracking could bring down the price of gas in the UK as “baseless economics”. Given the long list of experts explaining why shale gas will not help people who are struggling with high energy bills and will actually trash our climate commitments, will the right hon. Lady take this opportunity to rule out fracking in the UK under any future Labour Government?

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

I have been clear that our approach to fracking and what it could offer must be evidence-led. In the past few years, I have been disappointed by the fact that, for all sorts of reasons, the Government have chosen to up the ante on what gas from such exploration can provide. We do not really know the exact cost-benefits of fracking for gas. We do not know how much is there and whether those benefits will be realised when we get it out of the ground. I am afraid that I shall have to disappoint the hon. Lady by not ruling it out, but our approach must be evidence-based and pragmatic. I certainly do not believe that we should be offering tax breaks, given everything that is going on in this country, for something that might not happen for 10 years, if it happens at all.

The Government have harmed the reasonable debate that we should be having about fracking by trying to polarise the use of the gas against that of renewables. That has been incredibly unfortunate as regards having a practical, reasonable and evidence-led debate. That is what we will lead on in trying to debate the issue, which is important for our country.

As I have said, we can simplify the tariffs. We can take our proposal to put all those who are over 75 on the cheapest tariff. But before we even get to tariffs, we must ensure that the prices that make up bills are set fairly and openly in a properly competitive environment. That is crucial because wholesale costs are the single biggest component of domestic energy bills and make up more than half the prices consumers pay.

If we do not have a competitive wholesale market putting a downward pressure on prices, people might be on the cheapest tariff but might still not be getting a fair deal. The Government seem to say that they agree that the market is not as transparent or competitive as it should be, but what are they doing about it? Not very much.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

I just want to make a little progress.

The Energy Bill takes broadly based back-stop powers to improve liquidity, but the Government cannot even say in what circumstances or in what way they would use those powers. I am sure that the Secretary of State will pray in aid Ofgem’s work on liquidity. In our previous exchanges, he has defended the regulator against my criticisms, but I hope that he has read the Select Committee’s report, “Energy Prices, Profits and Poverty”, which was published over the summer. Its conclusion is stark. The very first page of the report states:

“Ofgem is failing consumers by not taking all possible steps to improve transparency and openness in the energy market.”

I am afraid Ofgem’s proposals on wholesale market liquidity do not go anywhere near addressing the two main problems with the market.

The first problem is that the market is dominated by six companies that both generate power and retail it to consumers with a market share of 98%. As Which? pointed out in its report over the summer, the obvious problem with the structure is that it provides little incentive for companies to keep wholesale prices efficient if the effect of doing so is to reduce the overall profitability of the company. Why would the supply arm of an energy company try to drive down profits on the generation arm if the outcome was to reduce the amount of money the company as a whole was making? Although the companies are right to say, as they frequently do, that their retail profits are only 5%, which is pretty healthy, their profit margins on generation are much more substantial. Which? suggests in its report that last year they were about 19%.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

I have given way quite a lot and I want to make a bit of progress. I will see whether I have time later to take another intervention from the Secretary of State.

I have set out the first problem. The second problem is that if energy problems can source most or all of the power that they need for their customers from their power stations, there is much less need to trade in the open market. According to one estimate from the London Energy Brokers Association, average daily market traded volumes were just 6% of total generation. For those reasons, we have proposed the pool to which the motion refers. A pool would be a single mechanism bringing all generators and suppliers together to buy and sell all their power.

To put it simply, in a pool—or an open exchange, or whatever else we might call it—all generators will be required to sell all the power that they generate on to an open market, and all suppliers will have to buy it from there, too. That would do two very important things: it would put a break between generation and supply; and it would result in much greater volumes being traded openly. Indeed, that is one reason why the markets in other countries where there is a more exchange-based trading system, such as Nord Pool, are more liquid, more transparent and have more market participants. I believe that such a market would be more attractive to invest in, particularly for independent generators or companies wishing to enter the supply market.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

Is my right hon. Friend aware of the recent report by the respected think-tank the Institute for Public Policy Research, which shows that the efficiency savings resulting from increased competition in the energy market could alone bring bills down by around £70?

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

That is absolutely right. I do not believe that the present situation encourages or incentivises efficiency within those companies. Importantly, it does not provide an open and transparent basis on which to judge the true cost of energy, which I think is vital if we are to move the debate on energy in this country forward.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

Today we have learnt that the right hon. Lady believes that we need investment in the energy sector and that investors will need profits. Given what she has just said, can she tell the House what level of profit she thinks is excessive and when she thinks profits become unfair to the consumer?

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

I think that the difficult thing here is for the country to understand why the Secretary of State has set his face against opening up the market and making it more transparent. This is not about companies not making a profit; it is about creating more competition. Every time we discuss the price of energy, we will have various voices, including the Government’s, defending how the companies operate. I want to create a more open and transparent market, so that we can all judge what is a fair price and, alongside that, what are fair profits. It is not fair if people cannot get to the bottom of how energy is bought and sold. It cannot be right for the market to be rigged in such a way that the vast majority of energy is sold within a company and then sold on to us. Other countries do it differently, and I think that we can, too.

Photo of John Penrose John Penrose Conservative, Weston-Super-Mare

Does the shadow Secretary of State not accept that even if her proposals were to introduce extra transparency and potentially yield some of the benefits that she is claiming, those benefits would be unlikely to be passed on to consumers unless we also reform switching and the information available to consumers, so that more are willing to vote with their feet by moving their business elsewhere? It is not just the over-75s who are less likely to switch; the entire market is insufficiently informed or able to switch conveniently to have that kind of consumer pressure on producers.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

I agree with the hon. Gentleman. We could look at lots of different policies to improve customer choice and the ability to move more flexibly between suppliers. My point is that, whatever we do to the retail side of the consumer offer, we must deal with how the market works. Even the best tariff that we have at the moment might still not be a good one, because of how the wholesale market works. When I met companies that are part of Nord Pool, they did not voice the concerns that the Secretary of State mentioned today about hampering investment. Actually, I am pleased to share with the House the fact that over the past 18 months I have seen some movement in a number of the energy companies in the UK as well. I think that they are beginning to realise that some openness and transparency in the market would serve them and the British public well.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

I will make some progress.

A pool or open exchange would have one other big advantage over the current market arrangements. The Energy Bill introduces contracts for difference to encourage investment in low-carbon sources of electricity. Those are essentially contracts with low-carbon electricity generators to pay a fixed price for the power that they produce. If the price that the generator receives in the market is less than the agreed strike price, consumers are liable to make up the difference. At the moment, with such little trading happening on the open market, there is no reliable way to work out what the market price actually is.

In August, the Secretary of State published more information on how contracts for difference will work, but what did it say on the question of how to work out market prices for baseload power? Let me quote from paragraph 15 of annex B of the draft operational framework, with which I am sure he is familiar. It states that

“indicating the precise source of prices, based on current price publications, in detail today would not be useful.”

Actually, I think that knowing how many billions of pounds of consumers’ money will be allocated would be pretty useful, but without a pool, I simply do not see how the Government will work it out.

Several hon. Members:


Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

I am going to make some progress.

Alongside our proposals for a more competitive open energy market, the motion calls for a much tougher regulator than we have had in the past. As I said earlier, in its report the Select Committee echoed many of our criticisms of Ofgem over the past year. I do not intend to rehearse all those criticisms, as it could take some time, but I want to urge the House to support one important change. In a properly competitive market, cost reductions should be passed on as quickly and as fully as cost increases. At the moment, when wholesale costs increase, bills go up like a rocket, but when wholesale costs fall, bills fall like a feather, if at all. That is why our motion calls on the House to support the establishment of a tough new regulator with a statutory duty to monitor the relationship between the prices that energy companies pay for their energy and the bills that the public pay and the power to force the companies to cut prices when wholesale costs fall.

Why is this all so important to the public? Rather than never having had it so good, as the Government try to tell them, rising energy bills are one of the main reasons why they are finding it harder and harder to make ends meet. Even in better times, though, the public deserve a fair deal. This problem is not confined to the poorest. Millions of people are facing real hardship because of a cost-of-living crisis reinforced, I am afraid, by the Government’s complacency over soaring energy prices, incompetence in helping the public to insulate their homes and indifference to the plight of our oldest citizens paying over the odds for the energy that they use. Last year, there were 24,000 excess winter deaths in our country. Even on the Government’s revised definition, well over 2 million households are in fuel poverty, and the gap between their bills and what they can afford to pay is growing ever wider.

The Opposition’s job is to scrutinise the Government and hold them to account, but it is also to develop alternative ideas to tackle the challenges that the country and its people face. The risk, of course, is that the Government pinch them. Today I tell the House that, with the Energy Bill still going through Parliament, if our proposals can help to restore people’s faith in the energy market and get people a fairer deal, I gladly offer them up. I commend the motion to the House.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change 5:16, 4 September 2013

I am grateful to the Opposition for providing this opportunity for me to set out the action that the Government are taking to help people and businesses keep their buildings as warm as possible and their bills as low as possible. We need to help hard-pressed people and businesses as much as possible. I will spend some time setting out how the Government are doing far more than the previous Government in helping consumers with the cost of living, especially energy bills. The debate has already been very instructive. We have begun to explore Labour’s energy policy in more depth, and it has been found wanting. Caroline Flint offered up her policy proposals and thinks that we may wish to take them. Let me tell the House that we shall not be doing so.

I asked the right hon. Lady whether she believes that we need more investment in the UK’s energy sector, and she said that she does. I asked whether she accepts that investors might wish to see a return on that investment—some profit—and she was commendably clear that she believes that profit is needed. But when I asked her what she thought excessive profit—unfair profit—was, there was no answer. Yet given her motion, her speech and her press release, one would be forgiven for thinking that she had a view on what prices were fair and what profit levels were right. The problem is that it is not clear whether she wants any more competition or regulation. At times, she seemed to be advocating a wholesale re-regulation of Britain’s energy markets, with price controls—perhaps profit controls. Is she advocating price and profit controls? We need to know. What exactly is Labour proposing? If she is not proposing those, as she sometimes appears to do, we need to know how she is planning to deal with the problems she raises. [Interruption.] I am coming to the issues in the motion. The problem is that they are so weak that we do not believe they are really what she is proposing.

Photo of Tom Clarke Tom Clarke Labour, Coatbridge, Chryston and Bellshill

The right hon. Gentleman briefly mentioned regulation. Given Ofgem’s record, is that really the sort of regulation he wants? We have seen reductions in wholesale prices withheld from consumers for a very long time and yet increases passed on to them, and a failure to ensure effective competition within the market.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

I will discuss Ofgem in detail later, so I ask the right hon. Gentleman to be patient. I do not accept his party’s position on Ofgem and I will say why not in some detail later.

Photo of Gloria De Piero Gloria De Piero Shadow Minister (Home Affairs)

The Secretary of State has mentioned profit levels. Is it not clear that it is not possible to talk about profit levels without also talking about the need for a regulator with teeth? What is the Secretary of State going to do about that?

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

Actually, when we talk about profit levels, we need to talk about competition. One of the core points of our policy is to increase competition, which the previous Government failed to do. Yes, regulation has a role, and I will discuss that, but competition has a much greater role.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

What proportion of the total investment that the departmental estimates claim will be needed for plants, transmission, grids and connections will come from the big six energy companies? Will it be most, some or a small proportion of it? Does the Secretary of State think that the big six may not be the only game in town as far as investment in our future energy supplies is concerned?

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

The hon. Gentleman makes a fair point in his usual informed way. The big six will be a big part of that investment profile, but as he will know, their balance sheets are weaker than they were in the past as a result of the recession, and there will be other investors. That means we will have to work harder to get that investment, but some of it will come from the big six.

Photo of Mark Spencer Mark Spencer Conservative, Sherwood

The Opposition’s suggestion of an energy pool is an interesting one. Which party was in power in 2001 when the energy pool was abolished?

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

My hon. Friend makes a very good point, which I will come to later. It was the Labour party.

The UK faces a huge challenge, which was made much worse by the failure of the Labour party when in government to even begin to tackle Britain’s energy and climate change problems—a lamentable Labour record, which I will return to shortly. The challenge that I as Secretary of State am tackling is the urgent need to attract massive investment while at the same time helping people with high energy bills. We are trying to attract that investment in a much more unfavourable economic and energy climate than Labour faced. The recession, and especially its impact on investors, has meant that people are less willing to invest, so we have to try harder to attract that essential investment.

We face global energy markets that are much tighter than they were during Labour’s time. International wholesale fossil fuel prices, which account for up to half of a typical household bill, have gone up by 50% over the past five years. The vast majority of countries are, like us, seeing energy bills go up, but unlike other countries whose recent Governments invested in energy, Britain faces another massive cost pressure on energy bills, all because Labour failed to invest. The synthetic anger and synthetic policies of the Opposition do not fool anybody.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

No. I want to make some more progress and then I will let the hon. Lady in.

We need a genuine debate. I pay tribute to the Energy and Climate Change Committee for its report “Energy Prices, Profits and Poverty”, which I welcomed on the day it was published. It is more balanced and informed than many contributions to this critical debate and we will respond formally to it soon. Essentially, the debate is about how to get the balance right between regulation and competition, the regulations we need and how we can boost competition.

To be fair to the right hon. Member for Don Valley, her motion and part of her speech covered those issues. Her problem is her party’s record and the inconsistent and, frankly, incoherent policies she seems to want to adopt. Let us consider her three-pronged policy package: abolishing Ofgem and replacing it with Ofgem 2; dropping Ofgem’s reforms of the wholesale market in favour of reintroducing a pool; and tackling, in some way, the big six.

It is a fascinating package, because it completely reverses some of the very few things Labour actually did on energy policy. You couldn’t make it up. Labour set up Ofgem in the first place in 1999. On Labour’s watch, Ofgem abolished retail price regulation. It gets worse for Labour because five years ago the Leader of the Opposition, when he did my job, said that he was strengthening Ofgem. If the Labour party wants to abolish Ofgem, which it set up and which was strengthened by the Leader of the Opposition, what on earth went wrong?

We are ensuring that Ofgem’s powers are increased. We have taken a far more measured approach to the independent regulator. We are ensuring that it and we are on the side of the consumer. We started with a review of Ofgem three years ago. We decided on some reforms and are implementing them. We are giving Ofgem tough powers to compensate consumers when an energy firm does something wrong—something that the Leader of the Opposition forgot to do when he was doing my job. Labour was not on the side of the consumer when it was in government. It is noteworthy how much tougher Ofgem has been since the coalition came to power in promoting competition in retail and wholesale markets, in which it has been strongly supported by us.

I will ask the right hon. Member for Don Valley another question—perhaps she will answer this one. Would she keep the tougher powers that we have given Ofgem? Given that it is improving competition in the wholesale and retail markets, would she abandon those reforms? I will give way to Barry Gardiner, because perhaps he will be able to answer.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

The Secretary of State knows full well that what he is saying is disingenuous. When Labour created the new electricity trading arrangements, we were moving from two major companies to six. When it created the British electricity trading and transmission arrangements, it expanded the transmission arrangements as well. When it introduced Ofgem, it was introducing a regulator into a competitive situation. He knows full well that in 2007 and 2008, when the Leader of the Opposition was the Secretary of State for Energy and Climate Change, energy prices were going down. It is in the last few years that they have rocketed by 41%. All the accusations that he has just made are phoney and he knows the reality.

Photo of Lindsay Hoyle Lindsay Hoyle Deputy Speaker and Chairman of Ways and Means, Chair, Panel of Chairs, Chairman of Ways and Means, Chair, Panel of Chairs

Order. The hon. Gentleman has been in this Chamber long enough to know that he should be asking a question rather than making a speech.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

I was not making phoney accusations, but giving the facts and the history. Labour may want to run away from its history, but we will hold it to its record.

Before I talk about the action that I and the Government are taking to help consumers, let me return to Labour’s three-point plan, having already demolished its first proposal to abolish Ofgem. The House might like to note that the abolition of Ofgem is not recommended by the Energy and Climate Change Committee.

Labour’s second proposal is to drop Ofgem’s long-awaited reforms of the wholesale energy market in favour of reintroducing the pool. It was Labour that abolished the pool just over 10 years ago, as my hon. Friend Mr Spencer reminded the House, at an estimated cost of £1.4 billion. Labour said that is was not working—wait for it!—in the interests of consumers. Apparently things have changed. However, under the policies that Labour put in place after it abolished the pool, things have not got much better. Labour’s abolition of the pool produced the vertically integrated energy markets that we see today. Independent generators find it tough to get into the wholesale market because of the changes that Labour made. Independent suppliers do not find the wholesale market competitive enough to supply their customers. Electricity prices are therefore likely to be higher than they should be.

The Government and Ofgem want to fix Labour’s mistake. We do not want to reintroduce the pool, because that would be an expensive distraction and would not tackle the real problem, which is liquidity in the forward markets. We are going to tackle that with a well thought through package that is designed to drive competition to help consumers. Ofgem’s “secure and promote” proposals include the idea of a market maker and mandating the six vertically integrated companies—the big six—to publish the prices at which they will buy and sell up to two years in advance. That will help independent suppliers and large power producers.

As Secretary of State, I want to be sure that such reforms by the regulator work and have teeth, so that they drive competition. That was why I introduced into the Energy Bill reserve powers to act should Ofgem’s reforms not work. In other words, whereas Labour wants to go back to a failed policy that it got rid of itself, we are taking the tough measures needed to boost competition and help the consumer.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

The Secretary of State said that he had improved and strengthened Ofgem. One issue that I have raised with him and his predecessor is extending its remit to cover customers who are not on the mains gas grid. Has he had a chance to look at that, and does he personally support giving it the strength to deal with those customers, as it does with those on mains gas? Yes or no?

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

The hon. Gentleman asked that question when I appeared before the Energy and Climate Change Committee, and I told him then that I would examine the matter. I am afraid that we have not come to any conclusions—he only asked me a month or two ago—but I am happy to look at that. The Minister of State, my right hon. Friend Michael Fallon, is extremely concerned about the high prices paid by consumers who are off the gas grid, as I am. When we examine the research on fuel poverty, we see that some of the worst is among those customers, so this Government will do something about it where the last Government did not.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

Is the Secretary of State aware that at least one of the big six energy companies forward-trades for only one week in this country? Trading beyond one week ahead is taken out of this country. Will he explain the impact that his proposals will have on that trading arrangement, so that it is made wholly transparent?

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

Let me be clear that we have an independent regulator, which the Labour party tends to forget. I should say to my colleagues that under the EU third package on energy, we have to have an independent regulator. The proposals that have been made are Ofgem’s, but I am on the record as supporting them strongly. As I have explained, Ofgem has proposed a market maker system, whereby the six vertically integrated companies will be mandated to sell power in the forward markets in the UK.

What about the third element of Labour’s package? It is a bit vague, talking about tackling the big six. The House should know from what I have said that we are already doing that through competition. What did Labour do in office? In 1998, there were 14 firms in the electricity supply market retailing electricity to customers. By 2010 there were just six, as my hon. Friend Mr Jackson said. Rather than promote competition to help consumers, Labour did the reverse, and it now promises to undo what it did. What a shambles the Opposition policy is, and what a shambles the last Labour Government were.

If Labour’s energy policy would really help consumers, will the right hon. Member for Don Valley tell the House by how much the average energy bill would fall under her party? She tells us that she is proposing radical changes, so what would the impact be for consumers? We published detailed analysis of the impact on people’s bills of our energy and climate change policies, and it showed our policies helping people by keeping their bills lower than they would have been. We need to know what the impact of her policies would be.

As I have made clear, we have policies to help hard-pressed consumers and to help improve competition in the retail electricity market, including policies with Ofgem to help consumers. On the supply side, we have deregulated to make it easier for smaller suppliers to enter the market. We now have our “offtake of last resort” mechanism through an amendment that I introduced into the Energy Bill in the other place, and we are supporting Ofgem’s reforms to the retail market to deliver tariff simplification and get a better deal for more consumers. Labour failed to do that even when pushed to do so in the House. The confusing array of tariffs—there were a huge number—got to such a point that it was hindering competition and hurting consumers, not helping them and driving competition. We are right to back Ofgem with more reserve powers so that we can ensure that vulnerable people are not left being fleeced on so-called dead tariffs, and so that people find it easier to choose and switch.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

The Secretary of State talks about providing Ofgem with more powers. Does it not concern him that we and the Energy and Climate Change Committee have identified that it has not been using the powers that it already has? How the regulator sees its role in relation to the energy market is at the heart of the problem. Following the recent report, which was a forensic examination of how the market works, it disregarded the recommendations of the independent consultant, and the Select Committee says that it should reconsider the matter. A regulator not using the powers that it already has is worrying, and that is at the heart of some of the problems that we face.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

On the Committee’s proposals about whether Ofgem should pursue the BDO recommendations on accounting transparency, the right hon. Lady will have to wait until we publish our response to the Committee.

However, I disagree strongly with her that Ofgem is not using its powers. It is certainly using its powers under us, which is why we have the retail market review delivering the tariff simplification that Labour failed to introduce, and why we are seeing reform proposals for the wholesale market, which Labour failed to do.

Photo of John Robertson John Robertson Labour, Glasgow North West

This reinvention of history is an absolute disgrace and you do this place no favours whatsoever. You have stated in front of the Committee that Ofgem is not doing the job it should be doing, and said that you were going to do something about it. We are still waiting.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

I always find the hon. Gentleman to be an interesting colleague when I come before the Committee, and with interesting questions. We will respond to the Committee’s report. Of course it is right for colleagues to have criticisms of Ofgem, but the question is what they are going to do about it. Do they want to spend lots of time abolishing the regulator completely, or do they want what we want, which is to make it stronger and give it tougher powers? We have a much better record. We have not just relied on the regulator. Through our collective switching pilot, which we will report on in the autumn, we are trying new ways to help get customers and consumers—especially the most vulnerable consumers—a better deal.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

Will the right hon. Gentleman give way?

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

No, I want to make some progress. Fuel poverty has been rightly mentioned, and ours is a comprehensive approach on which we have consulted fully and on which we will continue to work with all stakeholders. Having published our fuel poverty strategic framework, we are planning to publish our full fuel poverty strategy early next year, and it will be a marked improvement on the past for several reasons.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

This will have to be the last intervention because I need to complete my remarks.

Photo of Luciana Berger Luciana Berger Shadow Minister (Energy and Climate Change)

This House was anticipating the fuel poverty strategy by the end of this year. Will the Secretary of State confirm what he just said, which was that we should now expect it to be delayed into the new year?

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

I said it would be published early in the new year. First, with our low-income, high-cost measure, and also by measuring the depth of fuel poverty—something never done by the previous Government—we will have a much better handle on this worrying and difficult problem. Secondly, by linking fuel poverty far more closely to the energy efficiency of homes of those in fuel poverty, we will target resources better and more effectively. Thirdly, I want to look at new ways to ensure fuel poverty is prioritised, for example by examining and emphasising links with poor health.

To me the evidence is clear. If we beat fuel poverty, we can improve the health of hundreds of thousands of our citizens, and we will continue to give people direct help with their bills, whether through our warm home discount, the winter fuel allowance, or our higher cold weather payments. We want to get real help—money off—for the most vulnerable, and we want to do more for energy efficiency and help people save energy, save money and keep warm.

I am pleased with the huge and maintained demand for green deal assessments, with nearly 60,000 completed. I am also pleased to see how the supply chain continues to grow, and to hear about new schemes that new players continue to launch. Along with the success of the energy company obligation, with almost 150,000 installations completed, I believe the infant market of the green deal will grow and grow and bring the major change we want. With our emphasis on competition and helping vulnerable consumers directly, and with our energy efficiency policies, the coalition is delivering for people in difficult times. Labour failed to deliver in easy times.

Several hon. Members:


Photo of John Robertson John Robertson Labour, Glasgow North West 5:39, 4 September 2013

It is a pleasure to be in the Chamber under your leadership, Mr Deputy Speaker. I apologise for using the dreaded “you” word earlier. Of course, I was not referring to you, but addressing the Secretary of State.

I have never been as disgusted by a contribution from a member of the Opposition as I have today—[Laughter.] I meant to say “member of the Government.” I do not think this is funny; it is a serious subject. We are talking about people’s lives. If hon. Members want to have a laugh, they can go somewhere else and do it.

The Secretary of State and the Minister of State, Department of Energy and Climate Change, Gregory Barker, know that the Secretary of State’s performance broke something the House used to have—hon. Members working together on energy. We know there are problems, many of which are outwith our control. The previous Government had the support of Her Majesty’s Opposition. He was not a member of that Government.

The Opposition have supported the Government in trying to move forward to ensure that the lights stay on and that people have the money to switch their lights and heating on, and to cook their food. However, come this winter, people in my constituency will have to decide whether to eat, heat or pay their rent. Government Members might think that is funny, but I do not. It is important and we should work together to ensure that people do not have to make such decisions, and to ensure that they can eat, heat and pay their rent. Sadly, I do not believe that will be the case.

The Government’s report—the Hills report—said that tens of thousands of people will die because of Government policy, no matter which party was in government. The fact is that the current Government asked for the report, but they have done virtually nothing about trying to relieve people’s problems in paying for their heating, eating and rent. I want to work with the Government to ensure that people do not have those problems, but on today’s performance, it would appear that the Government want to draw battle lines because there will be an election in a few years’ time. So be it. The Secretary of State’s performance today was a disgrace. He had no ideas. All he could talk about was what happened 10 years ago—he could not look forward to what his Government should be doing or ask the Opposition to help them to get there. He did not want to do it. I am sorry about that, but if we want to fight about where we are going, let’s do it.

I must tell the Secretary of State—he knows—that the Energy and Climate Change Committee’s report said that there was a lack of transparency in the Government and Ofgem. I do not necessarily want to get rid of Ofgem. It has a job to do, but I want it to be able to do its job without being frightened. I see a bullying tactic from the Secretary of State, which leads me to believe that there is a good reason why Ofgem has not been doing its job properly and not doing what it should be doing. It is too frightened of repercussions from the Government. I hope I am wrong, but I see something today that I did not think I would see from a Secretary of State. To treat my right hon. Friend Caroline Flint as he did was, to say the very least, not gentlemanly. At least he could pay credit to the fact that the Opposition have put ideas forward. He might not like the ideas, but the fact is that ideas were put forward. If he wants to stymie them and ensure that we have a shouting match between Government and Opposition, he has drawn the battle lines.

Photo of Alan Reid Alan Reid Liberal Democrat, Argyll and Bute

The hon. Gentleman is right that the Opposition should put forward ideas. One of their ideas in the motion was to reintroduce the pool, which Labour abolished in government. What is different about the arrangements Labour proposes from the ones they abolished 12 years ago?

Photo of John Robertson John Robertson Labour, Glasgow North West

That is a ludicrous question. Way back then, things were completely different. Prices for electricity and gas were so much lower than they are today. We have moved on. We talked about it back then, but nobody listened. We knew there would be a shortage in delivery of electricity and gas, and that we would run out of North sea gas and oil, but we did not look at how to go forward. We understood that we were not going to build any nuclear power stations, but we have gone back on that as well, because we have realised that we have to have a base load so that people can keep their lights on. If we do not do that, business will go down the tubes, people will not be able to heat their houses and we will have neglected the job that we were put here to do—to look after the people of this country.

It is important that we work together to make sure that we build these power stations. Caroline Lucas, who is no longer in her place, does not like nuclear power stations, and nor does Mr Weir, but it is important that we have them. We must have a power base that ensures that we can keep the country running, with a security of supply that we can depend on.

Photo of Charles Hendry Charles Hendry Conservative, Wealden

Does the hon. Gentleman therefore regret the years from 1997 to 2007 when nuclear was off the agenda completely, and would we be in a better position if nuclear had been able to advance during that period?

Photo of John Robertson John Robertson Labour, Glasgow North West

The short answer is yes, I do regret it. But I also regret what happened before that, because in the 1980s and early 1990s we knew that we had to build new power stations, but we did not do a lot about it. We built some gas-powered stations, but we knew that we would run out of gas unless we went to the middle east or Africa to get it. The one issue that struck home with everyone was security of supply. When Tony Blair stood up and said that in this Chamber, people asked, “What has happened? He has changed his mind.” But he understood that something had happened in the world that meant that we had to ensure we had security of supply.

The hon. Gentleman did an excellent job as a Minister, but he will remember that it was support from him and his colleagues that helped us to get to where we are today. The Secretary of State would not be a Minister if it had not been for what happened in those days because there would not have been an Energy and Climate Change Department or Committee. We did that together, and we have to go forward together. I hate this fighting and having a go at each other—“Your policy was wrong, our policy is right.” That is a portrayal of history that I do not recognise. What was done at the time was right for the time. We have moved on and we need to make things better.

If the Secretary of State wants my support, he needs to have a better attitude. If he wants my help, he should at least listen to what we have to say. He does not have to follow it, but he should at least look as if he is listening.

Photo of Peter Lilley Peter Lilley Conservative, Hitchin and Harpenden 5:47, 4 September 2013

It is a privilege to follow my colleague on the Select Committee, whose passion for the concerns of his constituents about their energy bills I share, both because my constituents also rate this the most important issue in their cost of living and because I had the privilege of visiting his constituency at his invitation and meeting many people there. Their incomes are lower—temperatures are lower too—and so it is even more important for him to get the costs down. That is why we have to address these issues objectively and honestly.

The motion is disgraceful in two respects. First, it does not mention the one item of energy bills that is within the control and discretion of the House—the additional costs that we impose on people through the switch from fossil fuels to renewables. It is the only factor that we directly control, but the Opposition ignore it. We know that the least costly renewable, onshore wind, is at least twice as expensive as fossil fuels in generating electricity. Offshore wind is three times as expensive. I suspect that photovoltaics are a multiple of that. Already, the cost of renewables adds 5% to gas bills, 14% to electricity bills and 9% overall. That is a lot and it is expected to rise, but people might be surprised that it is not even higher still, given that wind is so much more expensive than fossil fuels. The reason for that is that the figures hugely understate the extra costs that every household in the country is bearing because of the switch to renewables. I have a letter from the Secretary of State in which he acknowledges that only a third of the cost of renewables falls directly on households’ energy bills, while two thirds falls on the non-domestic sector. In other words, that two thirds leads to a rise in the cost of all the other products that we consume because of the rise in the cost of electricity.

Photo of Edward Davey Edward Davey The Secretary of State for Energy and Climate Change

My right hon. Friend is not correct when he talks about 9% of bills resulting from support for renewables. The majority of that is made up of support for tackling fuel poverty, dealing with energy efficiency, the warm home discount and the carbon price floor. A much smaller part is due to support for renewables.

Photo of Peter Lilley Peter Lilley Conservative, Hitchin and Harpenden

That is the total impact of Government policies. Whatever the figure is, my constituents and the constituents of John Robertson are paying it. Overall, if one third of the cost of renewables is falling on households directly, the other two thirds also falls on households. There is no such thing as industry in this case. All costs are borne by individuals: by consumers and employees, and by pensioners through the impact on the value of shares and profits that are held largely by pension funds. We should not allow the costs we are imposing on people to be ignored or understated.

The second disgraceful aspect of the Opposition motion is the pretence that the rise in energy bills we have experienced in recent years is largely or entirely due to a rise in profits. I wish that were true. If it were true that the rise in profits accounted for the 41% rise in gas prices and the 20% rise in electricity prices, undoubtedly those profits would be excessive and we could bring down profits and prices by greater competition or better regulation. Sadly, however, it is not true. Table 6 of the Select Committee’s report records that the average profit margin of the big six is 7.6%, which cannot account for the massive 20% and 41% increase in prices.

Photo of Caroline Flint Caroline Flint Shadow Secretary of State for Energy and Climate Change

Will the right hon. Gentleman clarify what aspect of the profit margins he is basing those figures on?

Photo of Peter Lilley Peter Lilley Conservative, Hitchin and Harpenden

That is the average of both generating profits and distributions profits. It is in table 6 of the report, which I am sure the right hon. Lady has read assiduously. She can check it if she wishes.

The right hon. Lady refused to answer a question about what a correct level of profit would be, but I cannot believe that she thinks profits are more than twice as high as they need to be. Even if we were to halve the profit level from 7.6% to 3.8%, the effect on prices would be very small compared with the huge increase we have seen. As we all know, the increase is largely the result of the increase in fuel prices, which is outside the control of Governments.

The suggestion that all energy companies have seen massive rises in profits is also dispelled by table 4, on page 27 of the report. Indeed, the Committee referred to the figure given in the Labour party’s motion of an increase in profits of £3 billion, which I think comes from Consumer Focus. The report states:

“Table 4, however, doesn’t appear to support this.”

Table 4 shows what has happened to companies’ profit margins from 2007 to 2011. For EDF, the average profit margin was 15.7% and went down to 8.5%. For SSE, it went from 4.2% to just 0.8%. For British Gas Centrica, it has gone down from 7.3% to 5.6%. For Scottish Power, it has come down from 11% to 4.4%. For E.ON, it has come down from 6.8% to minus 2.2%. For npower, it has come down from 12.2% to minus 5.5%. Therefore, the idea that there is huge scope for us to bring down excess profits, and thereby prices, through regulation or improved competition is sadly not correct, and it is dishonest to pretend that it is.

Photo of David Mowat David Mowat Conservative, Warrington South

I think we are using the term “profit” quite loosely, particularly the Opposition. What matters in judging the profitability or effectiveness of these companies is return on capital employed. That is how they measure themselves for the investments they make and the returns they get. I do not believe there is any evidence that the return on capital employed has increased in the last five or six years. If it had, those on the Opposition Front Bench would put that to the House.

Photo of Peter Lilley Peter Lilley Conservative, Hitchin and Harpenden

My hon. Friend, as always, is absolutely correct. People would do well to note what he has said.

The most important issue to our constituents is the cost of living, and within the cost of living it is energy prices. Energy prices have largely been driven up by factors outside our control. The one factor within our control is the cost of renewables. We are hypocritical if we shed salt tears for our constituents while we, through the only area where we have discretion, are driving those costs up higher and are set to do so much further still in future.

Photo of Albert Owen Albert Owen Labour, Ynys Môn 5:56, 4 September 2013

It is a pleasure to follow Mr Lilley, my colleague on the Select Committee on Energy and Climate Change with whom I have many discussions. I do not agree with him on many issues, but we have great discussions. His speech today was not an attack on our motion—I did not identify anything in the motion that he was referring to—but a critique of the Government, as well as previous Governments. I stand by social tariffs. It is right to help the poorest in our society, who are suffering. That is important. The Secretary of State was right in his intervention on the right hon. Gentleman to point out that he was not talking about just renewables; rather he was talking about many of the social tariffs that successive Governments have supported and that I think we should support into the future.

The right hon. Gentleman was right to point out that energy prices remain a big issue for all our constituents; they have risen by some 20% in real terms since 2007, while average bills have risen by a staggering £300 since 2010, as the motion says. The motion rightly refers to the Energy and Climate Change Committee report on prices, profits and poverty. The inquiry discovered the complexities of the current, vertically integrated system and found it difficult to establish the profits and losses on the companies’ balance sheets. It is not that the companies do not have small or large margins—the right hon. Gentleman referred to that—but that we do not have clarity. We cannot really see what profits are made in which parts of their businesses. That is why the report called for a simpler methodology agreed between the regulator and the energy companies, so that we can identify clearly what profits and losses are made by the companies.

Photo of David Mowat David Mowat Conservative, Warrington South

The hon. Gentleman is right to ask for more transparency in the way that we judge this issue. One way of judging whether any market abuse is taking place is to look at the end price. I have a list from the EU Portal—this is from page 2 of 8—of gas prices in 27 European countries, which shows that the UK is the 26th most expensive. That does not imply that there is abusive behaviour here, or if there is, there is a lot more in other places.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

I am grateful to the hon. Gentleman; I am sticking to the report and the evidence base that we were given.

Our report identified—this is important—poor communications between the energy companies and the public. It is fair to say that some companies are now getting it, because of strong lobbying from consumer groups and the work done by the Select Committee in identifying the complexity of tariffs and how many there are.

Photo of John Robertson John Robertson Labour, Glasgow North West

Was not part of the problem the fact that we did not know how much profit was made on the generation side? It was estimated to be something like 20% of turnover, which, when added to the profits that everyone has been talking about, starts to become excessive. The other thing that was wrong was that the companies refused to turn over their books, so unless someone had a good degree in accountancy, they would not know where the money was spent.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

My hon. Friend is absolutely right; it was complex. I recall a conversation that I had with the new chief executive of E.ON, who has a master’s degree in mathematics. He told me—he has also said this in public—that he could not understand an E.ON bill because it was so complex. He has now taken steps to simplify the bills.

Energy markets are not delivering the low, stable prices that we were promised at the time of privatisation. The short-term profits that are said to have resulted from the privatisation of gas have meant long-term pain for many of our constituents, who have been paying higher prices for their gas and electricity in recent years. Switching is not an option for everyone, and it has not been taken up by the majority of people. We are paying high prices for our gas and electricity and the switching of tariffs is not working.

There is also mistrust between the public and the energy companies, as we have discussed in a number of debates. It remains a concern that prices are rising quickly, and that the price to the consumer goes up considerably when the global price of oil increases but does not go down nearly so quickly when the global price is reduced. I believe that there is consensus between the Government and the Opposition that we should examine that issue with the regulator, to establish how best to deal with it. Ofgem has done some good work on that already. However, I have to take issue with the Secretary of State’s comment that he was putting pressure on the regulator and that all the good results were coming from that Government pressure. When things do not work out quite so well for the consumer, the regulator is described as independent. The Secretary of State cannot have it both ways. The regulator is independent, and I believe that it needs more teeth. It also needs to use some of the powers that it already has.

In the time that I have left, I want to talk about the possibility of giving Ofgem a wider remit in regard to people who are not on mains gas, of whom there is a considerable number. I have been campaigning for them since about 2007, when gas prices became a real issue. The prices went up, but for those who are not on the grid, they went up considerably more. That has become a huge issue. The alternatives to mains gas are oil and other forms of gas.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

I will not, if the hon. Gentleman does not mind. I do not have much time left, and I want to develop this important point. I have raised it with the Secretary of State and with the Ministers who have appeared before the Select Committee. They have always tried to push the subject away by saying that it is a matter for Ofgem. In the Select Committee, however, I have put questions to the chief executive of the regulator, and he says that it is a matter for the Government. It is time for us all to sit down and look at this together, because the rise in prices is causing great anxiety and hardship for many of our constituents.

I want to see the establishment of a champion for those customers who do not have mains gas or electricity, as well as for those who do. Those customers do not benefit from dual fuel deals. We can talk about an average price for a household, but they will be paying more. I would appreciate a straight response from the Secretary of State on this. A Back-Bench Committee and an all-party group have looked into it and made recommendations. I am sure that he has seen their report on the off grid, and I believe that we can work together to establish that champion.

I want to make a few more brief points. We talk about the domestic customers who have been severely hit by the uprating in prices, but businesses, including small businesses, are also affected. I would like businesses to be able to compare prices in the same way that domestic customers can. When small businesses are set up, they are hit by rates and start-up costs, and they then get hit by high energy bills. However, it is difficult for them to switch from one company to another. To be fair, the Government are looking at this issue and trying to do something to help, but I believe that if those businesses could use a price comparison—instead of receiving bespoke prices from each individual energy company, as they do at present—they would have a greater choice. Businesses are telling me loud and clear that excessively high energy bills are resulting in a lack of investment in their business.

My final point is on the cost and impact of the transmission of electricity and gas to the regions. The National Grid Company is a private, American-owned company that passes all its profits to shareholders.

It passes any extra costs on to its customers via the generator. I would like to see National Grid acting in the British national interest, not in shareholders’ interests; I would like to see a not-for-profit organisation distributing our electricity. We could then have a bigger impact and reduce the transmission costs, which are considerable—about 16% of the energy prices that customers pay.

Another problem is that people pay more for gas and electricity on peripheries and in rural areas, yet many of those areas produce that gas and electricity, which is unfair. I would like us to help customers in these areas more by looking at the cost of the transmission and distribution of electricity and gas.

Photo of Christopher Pincher Christopher Pincher Conservative, Tamworth 6:05, 4 September 2013

At risk of continuing the Select Committee love-in, may I also say that it is a great pleasure to follow Albert Owen—a fellow member of the Energy and Climate Change Committee? I am pleased to speak in this Opposition debate, which is important to our constituents.

Let me gently chide Caroline Flint on her motion and her speech for revelling in past glories, without recognising the last Labour Government’s errors of omission and commission with respect to energy policy. If we look at energy policy in the long view, its impact on energy prices and the effect of those prices on fuel poverty, we will remember that between 2004 and 2009, fuel poverty effectively trebled as a direct consequence of the energy price increases—largely gas prices, which went up by 42% in the Blair years between 2003 and 2007, and by a whopping 74% by 2009. The Leader of the Opposition, who tabled today’s motion, should be somewhat embarrassed to remember that for some of that time he was Secretary of State for Energy and Climate Change, so that happened partly on his watch, as he watched and saw 2.8 million more people being trapped by the scourge of fuel poverty.

In the first decade of this century, Labour, with laudable intent, spent £25 billion on measures to alleviate fuel poverty, but those measures were swamped by the increase in energy prices—not a description that I chose to use, but one chosen by the Library. Labour’s solution, which was to spend more and more money to try to alleviate fuel poverty was like sticking a plaster on a gaping wound, or like giving Angiers junior aspirin to a pneumonia patient: it dealt with the symptoms, not with the problem itself.

In line with a feeling of consensus, we certainly need to find some new solutions. There are more, but I shall mention four of them, some already mentioned today. The first is to deal with the complexity of energy bills; we all agree that they are far too complex. Many consumers—possibly the poorest and the least educated —do not feel confident about switching their bills. About 75% of consumers have not switched their energy provider in the past two years, while 55% have not even looked to try. We certainly need to make the bills much simpler, so that consumers become more confident about switching. Tariffs, too, need to be made simpler, and we need to ensure that people are put on the lowest tariff that is best for them. The Energy Bill commits to that, and the Prime Minister is committed to it. I am sure that it will happen.

The hon. Member for Ynys Môn—I would like to call him my hon. Friend—mentioned the difficulties energy companies seem to have in communicating with their consumers. That is true. I am a consumer. Nine months ago, I inherited a supply from RWE npower, but I have still not received a bill. The company has been unable to put me on a direct debit, and it does not call back when it says it will, leading me to wonder what confidence I can have in being able to deal sensibly with that company. We need Ofgem to make sure that these companies deal clearly, transparently and effectively with their customers.

Photo of Christopher Pincher Christopher Pincher Conservative, Tamworth

I will, because giving way will earn me an extra minute.

Photo of Tom Clarke Tom Clarke Labour, Coatbridge, Chryston and Bellshill

I hope that my intervention will be helpful.

Some of what the hon. Gentleman has been saying is very relevant. Now that he has referred to the role of the regulator, let me ask him this. At a time when wholesale prices were falling rapidly but that fall in prices was not being passed on to the consumer, the best that Ofgem could say on Hogmanay—which is before new year’s eve—was that if the six companies continued to operate in the same way, they would have jam on their fingers. Does he think that that was enough?

Photo of Christopher Pincher Christopher Pincher Conservative, Tamworth

I can certainly tell the right hon. Gentleman that the Select Committee is concerned about Ofgem’s performance, and I think that the Government are as well. The Government must ensure that Ofgem acts more effectively to represent consumers.

The fourth way in which I think we can help consumers to pay less and can deal with fuel poverty is by reducing our over-reliance on imported gas and oil, and hence our exposure to the fluctuations in international hydrocarbon prices, which is one of the reasons why bills have gone up like rockets, causing so many consumers so much pain.

There is no easy solution to the problem of developing home-grown energy, much as its proponents may like to think that there is. Wind is not the solution in either the short or the long term, because it is intermittent. In the short term, nuclear is not the answer, because building it takes so long and is so costly. However, we could profit from proper exploration of the 200 trillion cubic feet of shale gas that is buried beneath our feet—some 60 years’ worth of supply according to the current trajectory—to help to reduce our exposure to international prices and the cost that that implies.

In the United States, which I realise is not a perfect mirror image of our country, the shale gas revolution has cut wholesale energy prices in half. Gas in the US now trades at a price five times lower than the price in Europe, and seven times lower than the price in Asia. That is of massive benefit to American industry. It gives it a competitive edge, so it can create more jobs and the people who become employed have the income with which to pay their power bills. It also reduces the cost to hard-pressed consumers. I therefore hope that we will pursue shale gas with a vengeance. I commend the Government for what they have already done in ending the moratorium, increasing the number of licences and—I hope, for only a short period—reducing the tax on start-ups, because this is one way in which we can ensure that energy costs are reduced.

I hope that the Government will take those four points on board, and I look forward to their being addressed by my right hon. Friend the Secretary of State in, probably, a very short time.

Several hon. Members:


Photo of John Bercow John Bercow Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Speaker of the House of Commons, Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Chair, Speaker's Committee on the Electoral Commission

Order. I intend to call the first Front Bencher to wind-up at 6.40 pm. No fewer than seven Members are now seeking to catch my eye, as a consequence of which, I am afraid, in a bid to accommodate each and every one of them, it is necessary for me to reduce the speaking time limit to four minutes, with immediate effect.

Photo of Sammy Wilson Sammy Wilson Shadow DUP Spokesperson (Treasury) 6:13, 4 September 2013

This is an important debate. Many of our constituents are affected by the increase in fuel bills and by fuel poverty, and businesses throughout the United Kingdom are affected by the fact that they are up against competition from those in countries with lower energy costs and are unable to compete with them. We have lost thousands of jobs as a result of high energy prices in the United Kingdom.

Some of the measures proposed in the motion are, of course, desirable. If we can redistribute the costs to help those who are in the greatest fuel poverty, we should of course do so. If an industry which is not totally competitive can be better regulated, that should of course happen—although regulation that is inconsistent or changes the rules too often will add to costs. A huge amount of investment that is needed, but capital markets will not make money available for investment if the rules are continually changing, so we must be very careful when we talk about the degree of regulation that should be applied.

Like Mr Lilley, I want to make some comments about the element of our energy costs that is not dealt with in the motion. That part is the cost of decarbonising—as it is now called—our energy supply. Despite what people have said, it has added costs to the consumer and is going to continue to do so. We cannot be schizophrenic about this by on the one hand condemning the increase in energy prices and on the other hand supporting policies that are contributing to that.

Let us look at the costs. Because renewable energy is so expensive, there is a compulsion to purchase electricity under the renewables obligation at much higher prices than fossil fuels. The figures have been quoted today. Offshore wind is now the favoured option. It is three and a half times more expensive than gas, and that will probably change further, especially as gas prices will come down with fracking.

There are also the increased costs of distribution to link up all the diverse sources. The National Grid recently published a consultation document, “Demand Side Balancing Reserve and Supplemental Balancing Reserve”, in which it talks about linking into generators across the country which could lead to electricity being bought at 30 times the cost of that generated by gas.

There is the question of all the back-up and infrastructure that will be required for when wind drops off, too. All those things need to be addressed, which means that many Members will have to tackle their prejudices on some of the issues around climate change and carbon in the atmosphere.

The question of what to do about the energy reserve that we still have under the ground has been dodged today as well. What will our attitude be towards fracking? It has changed the energy market in America. Can it do the same here? That will be fiercely debated from both sides of the House.

These issues need to be tackled, but they were not addressed in the motion, and it is therefore defective.

Photo of Mark Spencer Mark Spencer Conservative, Sherwood 6:17, 4 September 2013

I am delighted to have the opportunity to speak in this debate, which is very important for my constituents. When the energy bills land on their doormats, the impact on their household budgets is enormous. All Members will therefore recognise how high up the agenda this subject has to be.

We should take a moment to look at how we got into this position. GCSE economics tells us that demand and supply drive prices. If there is low supply and high demand, prices inevitably go up, and electricity prices have been rising by more than inflation for a long time now. That is because we as a nation have not addressed our electricity supply. We did not go to the trouble of building power stations when we should have done, but we cannot build a power station overnight. It takes a long time to get it through the planning process and to put the funding in place, and that process should have begun under the last Labour Government. We should now have been turning on nuclear power stations that could supply the base load to keep the lights on in this nation. We are having to pick up that difficult position and try to deal with it.

At the same time that was happening, our coal-fired power stations have been going downhill. They have not been upgraded and repaired. We are therefore now in a situation in which the renewables sector is not growing fast enough, the nuclear power stations have not been built, and our coal-fired power stations are about to come to the end of their natural life. Dealing with that will be an enormous problem, and the impact on consumers will be massive.

What are we going to do to deal with that? Credit is due to this Minister for starting to deal with some of the problems. He is trying to get the green deal moving so people can insulate their homes. He is trying to reduce their energy bills and educate them about how they can reduce their energy bills and consumption, and he is working with Ofgem to try to put pressure on the energy companies to reduce the tariffs so people’s bills can be squeezed lower. He has also addressed the need to build new power stations to get new electricity supplies on stream. This is not easy, because not only are energy bills increasing, but some of those new technologies are not very popular, certainly with my constituents. Some new technologies, such as anaerobic digestion, are palatable and people will tolerate them. However, people are not as enthused about wind turbines and they are certainly not enthused about energy recovery plants, such as the one proposed in my constituency at Bilsthorpe; people do not want incineration. I hope that the Minister will talk to his colleagues in the Department for Communities and Local Government and ask them to consider what they build and where they build it.

Lastly, I wish to mention one thing that will have a big impact on some specific constituencies: the loss of concessionary coal for consumers who used to work in the coal industry. The collapse of UK Coal means that they will lose their right to free coal. I hope that the Minister will take that on board and talk to the Treasury to try to support those people, because that will have a big impact on them as the winter draws in.

Photo of Michael Weir Michael Weir Shadow SNP Spokesperson (Business), Shadow SNP Spokesperson (Energy and Climate Change) 6:21, 4 September 2013

We must never forget that it has been estimated that for every 5% rise in energy prices a further 46,000 households go into fuel poverty. The Department’s own figures show that between 2010 and 2012 average domestic energy bills rose by an average of £250, with 78% of that increase resulting from higher gas prices and 22% from higher electricity prices. The escalation in energy prices cannot be looked at in isolation: just as energy bills are rising, so is the cost of road fuel, food and another essentials. Clearly, that has a serious impact on families, who cannot continue to absorb such large increases at a time when wages are, at best, static. I accept what the Secretary of State said about the energy companies having to make profits, but the issue is the amount of these profits and their substantial rise at a time when everybody else is having to tighten their belt. That needs to be examined more closely.

In the Energy Bill, the Government sought to take powers to implement the Prime Minister’s promise to put everyone on the lowest tariff, but, unfortunately, as I have said many times, the Bill does not seem to have that effect. The wording does not require the energy companies to put people on the lowest tariff, but only to make an offer, which may be lost in the mass of paper we receive from them already. I suspect that many people are still not on the cheapest tariff. Even these changes fail to do anything to help some of the poorest in our society, who have to rely on pre-payment meters. Someone on a direct debit tariff may be fine, but someone on a pre-payment meter will still be stuck on a higher tariff, as meters are generally on a higher tariff than someone paying by direct debit. If the Government are truly intent on ensuring that everyone has the lowest possible bills, they need to ensure not only that that applies within the type of contract that people already have, which is what is happening at the moment, but that people can move to a cheaper type of contract.

Particular problems are faced by those with pre-payment meters. It has always seemed to me slightly perverse that such meters are one of the few examples where consumers end up paying much more by paying cash in advance. The issue is important, and the Minister and I have debated it previously. Citizens Advice Scotland issued a report on energy recently, which showed that it had dealt with a massive number of people who had different energy issues. It said:

“The cases highlighted by bureaux regarding difficulty paying are more commonly with regards to prepayment meters recouping an unaffordable amount for arrears every time the consumer tops up”.

The problem is that not only does the tariff tend to be higher—to be fair, many companies now fix it at their standard tariff—but it is higher than the tariffs that can be achieved by, for example, direct debit. That is coupled with the fact that many, but not all, of these people on pre-payment meters are put on them because they have a debt, part of which is recouped every time they top up the meter. Because this debt is added on, they are, in effect, pushed further into debt. The report cites the case of a single parent with two children who currently loses £7 towards the arrears every time she puts £10 in the meter—the remaining £3 is simply insufficient. That situation has to be dealt with.

The motion talks about putting those over 75 on the lowest tariff available, but Caroline Flint talked about the difference in tariffs between companies and it seems to me that that will not really hit the problem. We used to have a higher winter fuel allowance for more elderly people. We cannot go back to that, but perhaps we should be telling the energy companies that we should have a standard tariff across all the companies especially for elderly people to ensure that every one of them gets the lowest tariff irrespective of the company they are with, without their having to go through them all and having to switch. That would be the simplest way to do it.

Photo of Chris Heaton-Harris Chris Heaton-Harris Conservative, Daventry 6:25, 4 September 2013

I found myself in an interesting position—and one that I am not used to—as I agreed with just about every word the Secretary of State said, probably because he veered well away from the thorny subject of renewables. That is the point that I shall concentrate on, following on from the speeches made by my right hon. Friend Mr Lilley and Sammy Wilson.

Before I do, let me say one thing about people’s bills. I received a bill from EDF a few weeks ago and it was possibly the most complex document I have ever received through the post—it had day tariffs, night tariffs and prices that were so much per kilowatt-hour for this and for the first 20 of that. If people are to be expected to understand their electricity bills, simplification is required. I would welcome anything that points us in that direction.

Renewables, as my right hon. Friend the Member for Hitchin and Harpenden said, are the part of the debate that we in this House can affect. RWE npower issued a report in July on what will happen to energy prices in the United Kingdom in the coming years. It predicted all sorts of interesting things, but the commodity and production costs that make up 45% of an average bill will reduce by 2020 to 35% of an average bill as rising policy and transportation costs become more significant. Supplier costs—their cut, their profit—will remain about 16%, so where is the big increase? Transportation costs and the costs of updating the UK’s network of infrastructure to accommodate lower carbon and more distributed generation technologies are expected to add an extra £114 to the average domestic bill by 2020—a 124% increase on 2007 prices. That is the money for connecting turbines and other dispersed energy to the grid.

Policy and regulation costs are expected to rise by 78% between 2013 and 2020. That is meant to pay for the low-carbon economy and significantly improve energy efficiency, as we have heard. Those are worthy aims but have huge costs attached. There are also huge costs for the consumer, who will end up paying for all those things. In 2011, National Grid produced a report entitled “Operating the Electricity Transmission Networks in 2020”. It talked about wind turbines and said that during periods of demand renewable generation output is likely not to be enough, but because it is a must-take resource, wind power will need to be constrained in some way.

The Daily Telegraph took a snapshot of energy produced by wind farms on a still day this summer. It showed that a host of payments had been made by National Grid to shut down wind turbines so that they would not overload the electricity supply system.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

Will the hon. Gentleman give way?

Photo of Chris Heaton-Harris Chris Heaton-Harris Conservative, Daventry

I will not give way; Mr Speaker would scowl at me like Speaker FitzRoy in the 1920s and ’30s. I do not want that to happen.

The constraint payments reached £7.5 million for the first three weeks of August. If people are really concerned about fuel poverty, they should think about this: the increased cost of electricity due to the renewables obligation in 2009 may have pushed about 100,000 households into fuel poverty, and the wind element was responsible for 40,000 to 50,000. That information is from the fuel poverty dataset for 2009 produced by DECC.

Photo of Mark Lazarowicz Mark Lazarowicz Labour, Edinburgh North and Leith 6:29, 4 September 2013

Mr Weir made the point that when the Prime Minister announced the Energy Bill policies on the hoof at Prime Minister’s Question Time, he told us that he would legislate to put customers on the cheapest tariff. That promise was reduced to a promise to simplify the tariffs that energy companies offered. I am sure that everyone would welcome simplification as an important tool in enabling customers to make a choice between different companies, but simplification by itself does not reduce energy prices.

The simplification process now underway has in some cases led to people having to pay more for their energy, rather than less. I want to draw attention to those low users of energy, often those on low incomes, who are now worse off because of the insistence, as a result of the Ofgem review, on companies having both a standing charge and a unit rate. After years of trying to get standing charges reduced or abolished because they are particularly damaging for those on low incomes, we are now seeing pressure on companies to bring them back.

A constituent who contracted me was told by npower—this applies to other companies and is more the fault of Ofgem trying to implement Government policies—that if he spent less than £27 on gas and £12 on electricity a month, he would see an increase in his overall costs. Indeed, he has worked out his energy costs and found that his bill would rise by between 50% and 60% as a result. That is an example of how, bluntly, inventing policy on the hoof, not thinking it through and then attempting to deliver it is damaging constituents. That is just one example of where I think the Government have to monitor carefully the effects of the policies to standardise tariffs that are being implemented. They must also ensure that companies do not end up profiting as a result of the way the tariffs have been introduced.

As I said at the start of my speech, standardisation does not cut energy prices. There are clear examples—npower is not the only one—of customers now being worse off as a result of the way simplification has been put into effect. The Government need to review that straight away. We need to look at that to ensure that low energy users, particularly those on low incomes, do not lose out as a result of the Government’s policies.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Health), Shadow DUP Spokesperson (Transport), Shadow DUP Spokesperson (Human Rights) 6:32, 4 September 2013

I congratulate the Opposition on bringing this matter before the House for consideration. In the minutes available, I want to focus on the latter part of the motion, specifically the reference to putting

“all over-75 year olds on the cheapest tariff.”

I suggest that we should go further and have a lower tariff for the over-75s. Everyday in my constituency office I see clearly the importance of addressing those issues, as other Members have indicated. I also see that the elderly people who come to my office have a clear decision to make between a bit of heat or something to eat. It is as simple as that.

I want to offer a Northern Ireland perspective. Northern Ireland’s biggest energy company, Power NI, increased its household electricity bills in July by 17.8%, which means that every household will have to pay, on average, an extra £90 a year. That might be an inconvenience for some, but the reality for some of our elderly people is that it will mean sacrificing a luxury or a basic item to cover the difference. It will mean a bit of heat or something to eat. That will be the clear decision for them.

I was horrified to learn from a press release on Age Sector Platform’s recent Belfast Pensioners Parliament that in 2012 the number of excess winter deaths in Northern Ireland was 496. All those people were over 65 years of age. The last time all excess winter deaths were older people was 14 years ago. It was high then, but in 2012 it was higher still. It is clear that older people are being hit hardest by the rising cost of energy and the reduction in their incomes. As other hon. Members have suggested, energy providers must ensure that our elderly are on the cheapest tariffs possible. Let us do something for those elderly people. By the way, I say for the benefit of all parties here that the elderly are consistently the people who vote. If they want to do something for their voters, I suggest they do something for the elderly.

Age UK estimates that 1.5 million people aged over 65 and living in rural areas in England are reliant on oil. In other parts of the UK reliance on oil is even higher: it accounts for 11% of households in Wales and 70% in Northern Ireland. The price of oil is prohibitive. Few elderly people can afford to fill their tanks, even with the winter fuel allowance, and therefore cannot heat their homes. It is little wonder, as the shadow Secretary of State said, that 24,000 people in the UK have died as a result of cold-related illnesses over the past year.

We should contrast that with the profits shown over the latest period. I am not against a company making a profit—not for one second—but let us do something for the people who are hardest hit and need the money more. I saw in the Metro newspaper that the profits of the big six energy companies have shot up by 74% since 2009, dwarfing the 13% rise in inflation. British Gas, E.ON, EDF Energy, npower, Scottish Power and SSE have enjoyed a £3.3 billion surge in profits as households have been hit by a 29% rise in bills. Profits from these groups, which provide energy to 98% of homes, rose from £2.15 billion in 2009 to £2.2 billion in 2010, £3.87 billion in 2011 and £3.74 billion in 2012. Against that, the typical domestic dual fuel bill has risen to £1,420 a year compared with £1,100 in May 2010, according to the regulator Ofgem. Surely it is past time that we did the right thing by the most vulnerable—the elderly—and used some of the companies’ profit margins to provide affordable heating. The time has come for the Government to act.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East 6:35, 4 September 2013

During much of this debate, the consumer, particularly the consumer in fuel poverty, has not always had the attention they need.

Some of the systems that have been set up seem unduly complicated. When I first heard about the concept of the green deal, which preceded this Government—it was discussed under the previous Government—I wondered how we encourage people to put in the kind of long-term investment that will radically improve the energy efficiency of their homes. For many people, the pay-back time seemed too long. They took the view that they would probably be moving on and that their home might not be a permanent one—even if it eventually turned out to be so. The idea that people could get help through loans that could be secured to the property and pass from one household to another seemed to tackle some of those difficult problems.

One can always come up with a good concept, but the implementation is often where it becomes difficult. In this case, a good idea has been let down by a great deal of the detail. The interest rates are extremely high compared with other means that people might have of borrowing money. A lot of people appear to have been interested enough to seek an assessment, but having done so, concluded that the deal was not good enough and would not give them the kind of pay-back that would make it all worth while, and thought, therefore, “I won’t bother with it after all.” Unless there is yet to be a dramatic level of take-up, that is the pattern that has occurred. It is a pity that a good idea has been let down in this way. We should be looking at ways to improve things.

People are also finding it increasingly difficult to find out how to get their home better insulated and how to find out what sort of help is available. While it is absolutely right that energy companies should be expected to contribute to all that, whether the systems that are put in place actually work is another matter. Often the local authority is best placed to know where the problems are in their areas—where the types of housing are that need the most help. That is not just because councils are landlords. They know about all the other properties in the private rented sector where the problems are at their worst and where the difficulties lie. In my constituency, where a large proportion of the properties are tenements and flats, people face difficult issues about how to improve insulation.

We need to be able to reach such people directly. People are getting phone calls from organisations and are not even sure what they are, although some are quite legitimate. Residents have told me that when they get these phone calls they think that it is somebody trying to sell them something they do not need so they put the phone down. That is not the right way to do this. Local authorities should be getting the funding they need to help people, even if some of it comes from the energy companies. That will be the way to really engage people in this process.

Photo of Luciana Berger Luciana Berger Shadow Minister (Energy and Climate Change) 6:39, 4 September 2013

This has been a very important debate at a time when a cost-of-living crisis is hitting households all over our country. There have been many eloquent and powerful contributions and what we have heard paints a damning picture. We have heard that energy bills are soaring, profits for the big energy companies are sky-rocketing, energy efficiency is stalling and fuel poverty is deepening.

The Secretary of State, who, sadly, is no longer in his place, was more concerned with defending Ofgem and the energy companies, which is reflective of an out-of-touch Government who are failing to stand up for hard-working families who are struggling up and down this country.

I am not surprised that so many hon. Members have spoken about how their constituents are struggling to keep up with spiralling energy costs. My hon. Friend John Robertson spoke passionately about the choice some of his constituents might face between heating, eating and paying rent. Mr Spencer mentioned his constituents’ anxiety when an energy bill drops through their letter box.

The average dual fuel bill has shot up by more than £300 since the Prime Minister entered Downing street. Back in May 2010 a typical household paid £1,105 a year; the figure now stands at £1,420—a 29% increase in a little over three years. The cost of gas and electricity is a serious concern for too many families, regardless of whether or not they are technically in fuel poverty. According to the consumer watchdog Which? 80% of people are worried about the rising cost of energy and rank it among their top financial headaches.

As people struggle to heat their homes, the energy giants are reaping ever greater profits. We saw over the summer how the big six energy companies have enjoyed a windfall of £3.3 billion in additional profits over the past three years, on top of the £2.2 billion profits they were already making. Of course, companies are allowed to make a profit. As the shadow Energy Secretary, my right hon. Friend Caroline Flint, has said, the energy industry plays a tremendous and vital role in our economy and in keeping the lights on, but that does not mean that we should ignore the need to reform how our energy market works. We need real reform to break the dominance of the energy giants, create transparency and openness, and protect the public from being ripped off.

As my hon. Friend Albert Owen has said, it is a real problem that we do not know exactly what the energy companies are making in profits. My right hon. Friend the Member for Don Valley has referred to certain reports that show that the profits made on the supply side and those made on the generation side are massively different and we do not always see what they are.

The second of two Energy Bills is currently making its way through Parliament without any significant Government proposals to help bill payers. All that has been offered is a broken promise, repeated by the Prime Minister today, to put everyone on the cheapest tariff, which has proved impossible to deliver. When my right hon. Friend raised this issue in her speech, we heard lots of chuntering from Government Front Benchers but no interventions to share with the House exactly what the Government are doing. It simply will not pass as a real answer for how to reform our energy market. Even the cheapest tariff in an uncompetitive market will not be a good deal.

By contrast, today we have heard loudly and clearly what a Labour Government would do to fix our energy market. There are three key differences. We would open up the market and make it more transparent, and we would require energy companies to pool the power they generate and make it available to any retailer.

At this point it is important that I highlight the crucial differences between a pool that we would seek to introduce and that which was in operation previously. When the old pool was put in place, there were just two generators, which meant that they were able to exert disproportionate influence on the pool price. Today there are many more generators, so it would be much more difficult to do that. The old pool was also a one-way pool, which meant that only generators could place bids for how much they were prepared to sell their power for.

There is no reason why a new pool could not be a two-way pool, whereby both generators and suppliers place bids. That is how the Nord Pool works. The UK currently has two power exchanges where trades can take place: N2PX and APX. The volumes that are traded on the day-ahead exchanges are already increasing. If all generators and suppliers were required to trade 100% of their output and supply via those exchanges, it would have the same effect as introducing a pool.

We need a tough new watchdog that has the power to pass on price cuts to consumers when the wholesale cost of energy falls. That has been underlined by the report of the Energy and Climate Change Committee, “Energy Prices, Profits and Poverty”, which states clearly that “Ofgem is failing consumers”. It also states that it has proved

“unwilling to use the teeth it has.”

As my hon. Friend the Member for Ynys Môn highlighted, there are many problems for customers who are off grid. We believe that the new regulator should assume responsibility for off-grid customers.

The Select Committee report also points out that

“rising prices are exacerbating fuel poverty.”

Under the Government’s new definition, there are still nearly 2.4 million fuel-poor households. According to the Government’s own figures that were published last month, the gap between people’s fuel bills and what they can afford to pay has grown by £200 million over the past two years. That is an average of £494 for households that are struggling to meet their energy costs.

Mr Weir highlighted the problems for customers who have prepayment meters and Jim Shannon highlighted the problems faced by his constituents, particularly older people, and the increase in excess winter deaths.

Ministers have admitted that the number of people in fuel poverty is expected to rise over the next two years. That is why it is such a scandal that the Government have halved the support for people in fuel poverty. The Labour party would help those who are most in need. That is why we would require companies to put all pensioners who are aged over 75 on to the cheapest tariff. That is the right thing to do because it is the oldest in our society who are the most vulnerable in cold winters.

We all know that if we get household energy efficiency right, it can reduce energy costs, create thousands of jobs and cut carbon emissions. However, the Government’s efforts to make our homes more energy-efficient are failing. I was not reassured by what the Secretary of State reportedly said at an event in the House last night. He told an audience that he knew the green deal would work because he could feel it in his bones. I do not know whether Members can recall any other Minister extolling the virtues of bones-based policy making, but the Opposition prefer to deal with the facts.

The most recent figures show that just 132 households have signed on the dotted line for a green deal plan since the scheme went live. That is disappointing enough, but the real wake-up call for Ministers should be the number of green deal assessments. The Opposition desperately want to see better insulated homes in our country. As my hon. Friend Sheila Gilmore said, the green deal is not good enough. The green deal will not achieve the ambition that we all want to see unless the Government stop being so complacent, listen to what industry leaders are saying and tackle the problems with the scheme.

In conclusion, this is a motion for consumers. It speaks to the concerns of families across our country and clearly lays out what action we should be taking to make energy more affordable. It stands up for the people this Government like to claim they are on the side of. Today, they have an opportunity to prove it. I urge the Government and all Members to support our motion, and I commend it to the House.

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change 6:49, 4 September 2013

This has been an interesting and timely debate. As we head into the autumn, I know that colleagues across the Chamber share their constituents’ worries about the rising cost of living and the strain that energy costs in particular can put on tight family budgets. That is why the coalition is determined to do everything it can to help hard-working families with their energy bills.

Sitting here this afternoon listening to the Opposition Front Benchers, I could not help but recall the words of Marshal Talleyrand 200 years ago. When the ancien régime was briefly restored to the French throne after the defeat of Napoleon, Talleyrand famously said of the old, backward-looking, clapped out Bourbon royal family, “They learned nothing, and they have forgotten nothing.” Put another way, the old regime singularly failed to understand why they had been deposed by the people in the first place, or to learn from any of their previous mistakes.

Is that not just old Labour all over? Labour, which saw heating bills more than double during its time in government. Labour, which in 13 years of government allowed real competition in the market to shrivel. Labour, which in 1997 inherited a diverse range of 14 competing companies and turned them into the big six. Labour, which drove British energy into the ground and failed to build a single nuclear power station. Its record on renewables was little better. After 13 years in office, Labour left Britain third from the bottom of the European league table for deployed renewable energy. It was Labour that allowed the cost of its green energy programmes to spiral out of control but failed to take real steps to decarbonise the sector; Labour that, after 13 years in power, left office with nearly 5 million vulnerable people living in fuel poverty; and Labour that, in the last Parliament, saw fuel poverty rise in every single year of the now Leader of the Opposition’s tenure as Energy Secretary.

So what is the big idea that Labour has brought forward to the debate to help hard-pressed consumers? It has three ideas—hardly an energy revolution, but let me remind the House what they are. The first is to abolish the regulator that Labour created in 2000 and replace it with—yes, you’ve guessed it—another quango. It also wants to bring back the electricity pool, the same pool that it abolished back in 2001, and put all over-75s on the cheapest tariff—hardly a groundbreaking idea when we are already acting to do that, but for all consumers, not just the oldest 8%, so that all our constituents can benefit from a better deal.

I will not pretend to the House that there are easy answers, simple solutions or quick fixes to driving down fuel poverty, driving up competition in the sector or delivering a better, fairer deal for hard-pressed consumers. However, unlike the Labour Government’s drift, inertia and failure to deliver, the coalition has rolled up its sleeves and is making a real difference.

I want to spell out some of the bold, practical measures that the coalition is taking to help hard-working families, but before I do that I will address some of the important points that colleagues have made. We have heard from the hon. Members for Edinburgh North and Leith (Mark Lazarowicz) and for Strangford (Jim Shannon), my hon. Friend Chris Heaton-Harris, Mr Weir, my hon. Friend Mr Spencer, Albert Owen, my hon. Friend Christopher Pincher, the hon. Members for East Antrim (Sammy Wilson) and for Glasgow North West (John Robertson), my right hon. Friend Mr Lilley and Sheila Gilmore.

It was striking that not a single Labour Member spoke in favour of the Opposition’s proposal to abolish Ofgem, but two clearly disagreed with it. It was notable that my hon. Friend the Member for Sherwood made a thoughtful and constructive speech, and he was right to address both the causes of, and possible solutions to, our energy challenges. The hon. Member for Angus was also thoughtful, and I assure him that our simplification of tariffs is already having an impact. I also take on board his important points about prepaid meters.

I wholeheartedly agree with my hon. Friend the Member for Daventry about the need for bill simplification. We get it, and we are on it, but our entire grid is crumbling and requires big investment, whatever energy source we put into it. This year, onshore wind added just £9 to consumer energy bills. The hon. Member for Ynys Môn, the second Labour Member to disagree with Labour Front Benchers about abolishing Ofgem, made sound points about off-grid customers. We are looking carefully at the Committee report to which he contributed. My hon. Friend Christopher Pincher spoke with great authority and gave a balanced approach to the complex issues we face.

The coalition does not have a magic wand, and Labour’s legacy of debt, deficit and economic failure casts a long shadow over all Departments. Despite the imperative of dealing with Labour’s debts, we are taking action and setting a new radical and ambitious energy agenda. Unlike under the previous Government, there have been two energy Bills in three years. The green deal might be in its infancy—I listened to the hon. Member for Edinburgh East—but it is already building a new market in energy efficiency, and bringing far greater competition to the market and new choices for consumers.

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

The hon. Lady was not actually here for the debate. We are taking action to give more teeth to the regulator and compensate energy consumers who have been badly treated. We have embarked on radical market reform to unleash investment in modern clean energy, building our energy security that was so perilously ignored by Labour. We are also offering immediate help for our constituents. For example, Labour put the whole cost of the renewable heat incentive on to consumer bills. We have removed it, saving consumers £120 million a year collectively. Labour refused to cut solar feed-in tariffs, despite fixing them far too high. We took the tough decision to cut those tariffs. We were right, they were wrong. Solar deployment is up, costs are coming down, and the consumer is better off.

Photo of Luciana Berger Luciana Berger Shadow Minister (Energy and Climate Change)

Will the Minister tell the House what the additional amount will be on all our bills from the Government’s miscalculation of the energy company obligation?

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

We have not miscalculated the ECO. It is coming very close indeed to the impact assessment that we published last year. I am happy to tell the House that costs of the ECO are continuing to come down, and we are seeing a number of technologies deployed far more cost effectively than under the poor Warm Front scheme that the Labour party put together, and which so many Members from around the House wrote to me to complain about. We are doing other things to help consumers. Our warm home discount means £135 this winter for more than 2 million poorer households.

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

No, I will not.

The winter fuel allowance is helping 12 million pensioners with up to £300 this winter. Cold weather payments have been permanently uprated to £25 per week, and the green deal ECO programme has already made more than 100,000 homes warmer and cheaper to heat and run. The first proper, independent, thoughtful review of our fuel poverty strategy for decades was completed this year. We are targeting finite resources at the most in need in the fairest, most cost-effective responsible way.

Where Labour shrunk the domestic energy market and presided over massive corporate consolidation, we are unleashing a decentralised energy revolution on new distributors of energy on an unprecedented scale— 2.5 GW of solar alone under this coalition. Community energy, distributed energy and heat networks—all are on the up. At the same time we have begun the first new nuclear programme in a generation. Our Green Investment Bank, created by this coalition, is now up and running and transforming the energy investment landscape. No wonder Ernst and Young last week moved the UK from fifth to fourth in the global league table for renewables, and called the UK the best place in the world to invest in onshore wind.

Photo of Alan Campbell Alan Campbell Opposition Deputy Chief Whip (Commons)

claimed to move the closure (Standing Order No. 36).

Question put forthwith, That the Question be now put.

Question agreed to.

Main Questions accordingly put.

The House divided:

Ayes 220, Noes 290.

Division number 75 Opposition Day — [6th Allotted Day] — Living Standards — Energy Prices and Profits

Aye: 220 MPs

No: 290 MPs

Aye: A-Z by last name


No: A-Z by last name


Question accordingly negatived.