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I beg to move,
That this House
notes the policy of the Opposition to freeze energy prices until 2017, ensuring that prices can fall but not rise;
and calls on the Government to bring forward fast-track legislation immediately to put a statutory duty on the energy regulator for Great Britain to ensure that energy suppliers pass on price cuts to consumers when wholesale costs fall, if suppliers fail to act.
Last week, in a remarkable U-turn, the Chancellor complained that energy companies were not passing on falling wholesale costs. Of course, he did not say that he would actually do anything about it, but for the first time in nearly five years, he at least accepted there was a problem. Now, it is time for him and all Government Members to put their money where their mouths are, because today’s motion is a very simple one.
Wholesale prices have fallen substantially and over a sustained period. With the exception of those for people with E.ON, which reduced its gas price by 3.5% yesterday, consumer bills have not fallen. We think they should, and we want all consumers to see the full benefits of reductions in wholesale costs. Today’s motion thus proposes that if energy companies refuse to cut their prices, the Government should act by giving the regulator the power and a legal duty to force energy suppliers to cut their prices when wholesale costs fall.
I will give way shortly.
Before I set out my case, let me deal head-on with one issue raised by the Minister for Business and Enterprise, Matthew Hancock. He claims that the energy companies are refusing to pass on reductions in wholesale costs because of the prospect of an energy price freeze. Let me first thank him for the vote of confidence in our prospects at the election and tell him he is right about one thing. I absolutely believe there will be a Labour Government in May and we will freeze energy prices until 2017.
The substance of what that Minister says, like so much he comes out with, bears no connection to reality for one simple reason. From the day we announced our price freeze, which, as I have said many times, would stop suppliers from increasing their prices without preventing them from cutting them, we have been clear that the price freeze—[Interruption.] If Conservative Back Benchers wait and listen to what I have to say, I will provide the evidence of my words as they appeared in Hansard.
From the day we announced the price freeze, we have been clear that it goes hand in hand with our reforms to the energy market and the creation of a tough new regulator with the power to cut prices when costs fall. That is what the Green Paper we published in November
2013 says—at paragraph 2.25, for those hon. Members who have not yet found the time to read it. Let me remind Members of my exact words in a debate on energy prices in April last year, when I said that
“the Government should…intervene to require all suppliers to freeze their prices. As we have said many times before, that would not prevent companies from cutting prices, but it would stop them from increasing them.”—[Hansard, 2 April 2014; Vol. 578, c. 892.]
What could be clearer than that? I said the same in June last year, too, when I urged the House to back a motion to give the regulator the power to cut prices when costs fall, which Government Members defeated. Therefore, none of the energy companies and no hon. Members should be in any doubt about what we will do.
Yes, we will freeze prices until 2017, so that bills can fall, not rise, and we will also give the regulator the power to cut prices. Let me remind the House that the purpose of our price freeze is not just to give us time to reform the energy market for the future, but—crucially—to compensate consumers for the fall in wholesale prices in 2009, which was never passed back to them. If anyone is labouring under the illusion that the price freeze is, or will be, an excuse for not cutting prices to reflect falls in wholesale costs, let me disabuse of them of that idea today.
Under this Government, fuel duty was not just frozen but cut, and the fuel escalator was got rid of. That means that in tax terms, the average motorist is better off by 20p every time they fill up the family car, amounting to hundreds of pounds a year. Given that this debate is about energy prices, why did the right hon. Lady and her party vote against all those measures?
On the average energy bill, gas and electricity have gone up by about £260 since 2010. I shall say a little more about who has been hardest hit by that. If we look at the poorest people in our communities, we find that their price rises have gone up substantially more. On every occasion since I was given this job by my right hon. Friend the Leader of the Opposition, I have consistently raised concerns, as I think the hon. Gentleman will appreciate, not only about wholesale cost falls not being passed on, but about the sharp practices going on in the sector, which need to be attended to.
My right hon. Friend will know that, like all regulators, the energy regulator, Ofgem, has its functions set out in statute—originally, I think, in the Gas Act 1986 and the Electricity Act 1989, as amended by subsequent legislation. Its primary purpose is to protect the interests of the consumer. Consumers’ interests are not being protected because that legislation does not allow the passing on of the cost cuts that my right hon. Friend has highlighted. Is that not precisely why we need to change the law?
I agree with my hon. Friend. Every time we have debated the powers of Ofgem, the regulator, we have been told that it has the powers, but is not using them in a practical way to deal with the challenges and problems that consumers face. I believe that, if we make laws in this place, it is essential for us to make laws that make sense and are clear—what is on the tin should be what is in the tin—and to ensure that those laws are enforced.
What my right hon. Friend is saying about the energy companies is absolutely right. We need to intervene, as we do in the case of the fuel companies. Notwithstanding what was said by Robert Halfon, not only are the fuel companies not passing on price cuts at the pumps, but there is a growing disparity between diesel and petrol costs, which is harming many motorists all over the country, and also harming the haulage sector. Why is that happening? We need an inquiry urgently, and we need a regulator to intervene with the fuel companies as well as the gas and electricity companies.
My hon. Friend has made an important point. My hon. Friend Michael Dugher, the shadow Transport Secretary, has suggested that we should compare what happens in the energy markets that I cover and what happens when it comes to ensuring that our cars and buses can run, along with all other forms of transport that rely on diesel and petrol. At the heart of debates such as this is the issue of how markets work and whether they are competitive enough. I hope we all agree that, in a truly competitive market of any kind, when wholesale costs come down those reductions are passed on to the consumer, but—as others have pointed out—that is clearly not happening now, at least in the markets that I cover.
Does my hon. Friend agree that one of the Government’s total betrayals has been their failure even to consider requiring Ofgem to regulate oil prices in the first place? When they speak of rural communities they talk about bringing back fox hunting, but what most people in rural communities want are lower energy costs and lower oil prices.
I think that in a number of policy areas, the Government are—to put it in a not very academic way—all over the shop. When it comes to energy, they contradict themselves daily, and I can provide the House with evidence of that.
Our motion raises four questions. First, have wholesale costs fallen, and are they continuing to fall? The answer to both parts of that question is clearly yes. Ofgem—the independent regulator with access to market data—confirms that that is the case. Its most recent estimate suggests that contract prices for the delivery of gas and electricity this winter are, respectively, 17% and 7% lower than they were this time last year. The Government’s own figures also show a fall. In a written parliamentary answer that I was given on
There can be no doubt that the wholesale prices of both gas and electricity have fallen—not just a little, but quite a lot, and not just in the past few days or weeks, but for a sustained period of more than a year.
I will give way shortly.
That brings us to the second question that the House needs to consider today. Have those savings been passed on to consumers? Yesterday, E.ON announced a price cut of 3.5%. Of course, any cut to anyone’s energy bill is to be welcomed, but E.ON is just one company, and it has cut the price of only one fuel—gas. Electricity prices remain unchanged, and it just so happens that E.ON has more electricity customers than gas customers. Moreover, it has cut its gas price by only 3.5%, which must be set against falls of between 20% and 30% in wholesale gas prices. Even if we allow for the fact that wholesale costs make up only half the energy bill, that suggests that, after cutting its price, E.ON has still pocketed most of the savings from falling wholesale prices. The idea that we are
“winning the war on energy bills”,
as the Secretary of State told The Northern Echo last week, is about as far from reality as the right hon. Gentleman’s chances of becoming leader of his party—much though some of us relish the prospect.
Some of the energy companies collude with the Government in perpetuating the idea that bills are falling. According to a press release issued on Sunday by Energy UK, the trade association for the energy companies,
“Energy suppliers are already passing on price cuts to customers.”
Apart from E.ON, none of the suppliers—notably the big six, which have millions of “sticky” customers on expensive tariffs—have cut the price of their standard variable tariff, which is the tariff that most people are on. What they are doing is offering cheaper tariffs in order to acquire new customers, but offering cheaper deals to a small number of new customers is completely different from passing on savings to existing customers. The obvious question to be asked is this: if companies can afford to offer cheaper deals—often hundreds of pounds cheaper—to acquire new customers, what is preventing them from reducing bills for the rest of their customers? That is the second fact that we have established this afternoon: wholesale costs have fallen, and the savings have not been passed on to consumers.
On Sunday, on “The Andrew Marr Show”, the Leader of the Opposition told us that Labour wanted “fast track legislation” to ensure that Labour’s idea was implemented before the election. Can the right hon. Lady tell us which wholesale price Labour would use for its regulation? Would it be the daily price, the weekly price or the monthly price?
As I have said in the House before, we will give the regulator a power and a duty to ensure that when wholesale costs fall, it will make the decision—as is only right—to ensure that those reductions are passed on to consumers. I should have thought that the Secretary of State would welcome that. As was pointed out by my hon. Friend Andrew Gwynne, Ofgem—which I understand the Secretary of State supports—has a duty and a responsibility to protect consumers, and one way of protecting consumers is to ensure that they are paying a fair price for their energy. I see absolute clarity in our policy, but no clarity on the Government Benches.
That brings me to the third question. This is where things really begin to get interesting. Why have suppliers failed to pass on these savings? A number of different explanations—although they might more accurately be called excuses—have been provided, both by energy companies themselves and by their friends in the Government.
The first excuse that we have been given is that, because there is a gap between the point at which an energy company buys its energy and the point at which that energy is actually delivered, a company might be buying energy 18 months or a year ahead of time. That is true, but wholesale energy costs have been falling for over a year, so even if companies bought their energy a year or more in advance, bills should still be coming down by now. That explanation simply does not hold.
I was very disappointed by what the Secretary of State said a moment ago. Whenever I raise this issue in interventions with him, he hides behind the regulator and says, “We need a strong, independent regulator to ensure that consumers’ interests are protected.” I suggest that a review in the hands of a strong regulator is the way to protect their interests. I am sure that the Secretary of State agrees with that. He should not try to score silly party political points.
Labour Members certainly agree with that, as do others, including the CBI. Energy should be a managed market. It is different from other things that we may buy, because it is essential to life. It keeps our homes warm, it keeps the lights on, and it keeps our hospitals and our businesses going. In this area it is absolutely clear, and I would have thought there would be some agreement from those on the Government Benches about this, because they have welcomed the CMA review. Why would they welcome a review if they thought everything was hunky-dory? Clearly there is something wrong in the way this market has been working, and that is why we have risen to the challenge to do something about it.
The right hon. Lady is being extraordinarily generous in giving way to me. She said that the energy companies are only reducing prices to new customers, but under the Government’s regulations they have to offer the cheapest tariff. I know that because I regularly get letters from EDF, my energy provider, not only offering me a cheaper tariff but informing me of the cheaper tariffs on offer from other companies.
The hon. Gentleman has on a number of occasions stood up for consumers where he has concerns about how the energy sector is working. I say this to him: the energy companies have been asked to inform their customers of the cheapest tariff, which is okay, but the truth is that we have the enormous problem of the inherited legacy post-privatisation of a very sticky customer base. That is demonstrated by the fact that the number of people switching is falling, not increasing.
Let me give the hon. Gentleman an example of another practice that is happening at the moment. It is called white labels, and it is where an energy company—one of the big six—offers through another organisation, maybe a supermarket or another company, a cheaper tariff to people who decide to be customers of that organisation, when it is the energy company providing the staff in the call centres and doing the training behind it, but they do not let their existing customers know what is going on. That is a good example of how they get around the offer they should be making to their existing customers to reflect wholesale cost falls for everyone, not just those whose business they want to acquire.
Is my right hon. Friend as astonished as I am, and I am sure almost all my constituents will be, that the Government are trying to defend the energy companies and not trying to defend the poor consumer?
I do find that incredible, given that the Chancellor issued a stern warning to the energy companies only last week about their not passing on falls in wholesale cost. I do find it unbelievable that we cannot get a consensus in the House on this issue.
I have been listening carefully to what the right hon. Lady has been saying and I agree with most of it, but she mentioned the CMA, and one of the things that slightly concerns me is the length of time the investigations often take. What assurance can she give us that if this were to happen, it would be a prompt investigation with action taken on prices? The last thing we need is for this to be kicked into the long grass so that we get an answer only 18 months down the line when things may have changed completely.
I welcome the hon. Gentleman’s support for Labour’s policies in this area, and I hope we can persuade the Scottish National party that the price freeze is a good policy as well and that it should get behind it.
To inform the hon. Gentleman, the timetable is that the CMA report is due to be completed in December of this year, but an interim report should be forthcoming in June. Our view all along has been that when Labour is in government, we will freeze prices and introduce measures to make sure that the regulator can ensure that wholesale cost reductions are passed on. Also, in tandem with the CMA, we will be issuing further detail of our reforms, which I have to say in some respects the CMA has taken on board, which I welcome.
The second excuse we have been given is that wholesale costs are only one part of an energy bill. I heard a spokesman for E.ON yesterday refer to “non-energy costs” preventing reductions being passed on, but let us remember that even though there are other costs, wholesale costs are still, as we would expect, the single biggest component of a household energy bill. When the cost of the single biggest component falls by 20% or even 30%, I think the bill should come down, too.
Let us also not forget that one part of a typical energy bill has been increasing sharply: the profits of these companies. Ofgem’s latest supply market indicators suggest that profit just on the supply of energy—and there is another even bigger profit on generation—has more than doubled from £49 per household in 2013 to over £100 per household today. Energy companies do control that, so that argument does not stand up to scrutiny either.
Does my right hon. Friend agree that the energy companies are also very quick to increase customers’ direct debit payments, but seem to be very slow to pay back money when people have over-paid?
I agree. I constantly hear complaints about roll-overs as well, when people suddenly find their tariffs have increased. There is a huge amount that still needs to be done, and in a number of areas I only wish we had had more of a consensus in this House.
So, what is happening? Why are our energy companies not passing on the benefits of falling wholesale costs? I think the answer is pretty simple. They are not passing on the savings for the same reason that they have never passed them on: they do not believe they will be made to. In part, that is because the normal competitive pressures we would expect to see in a functioning market do not exist in our energy market. If they did, we would all see bills falling, because in a competitive market there is no reason—none whatsoever—why falls in wholesale costs should not be passed on as quickly or fully as increases. However, it is also because they know that this Government will never make them—will never challenge them, never stand up to them, and never put ordinary families first. That is the single most important thing that the Chancellor’s letter and the Minister’s so-called summit tell us. Yes, of course, they are empty gestures. We know that, and the public know it, too, and if today’s Financial Times is right, the Secretary of State knows it as well—in his defence he did not even know about this so-called investigation until after it had been announced, which speaks volumes about his grip on energy policy in government. That is probably why the Minister for Business and Enterprise is not taking part in this debate. He does not need to, because all he has to do is pop over to the Treasury for a quick chat with his old boss to determine the Government’s energy policy.
None the less, this does reveal something fundamental about this Government’s refusal to tackle energy bills. We now have Government Ministers saying that wholesale costs are falling and pointing out that these have not been passed on to consumers, but nevertheless still saying that to actually force energy companies to cut their prices would spell disaster. What clearer message could there be to energy companies that they are free to do whatever they like, charge whatever they like, and treat their customers however they like? If the Government will not step in now, when Ministers themselves are admitting that customers are being ripped off—and that is what is happening if wholesale costs are falling and household bills are not—then they never will. That is what the Minister’s letter really is: it is a get-out-of-jail-free card—“Pass go, don’t pay £100 and don’t pass on savings to your customers.”
Don’t pay £200 then. So wholesale costs have fallen but consumers have not seen the benefit, and the reason is that competition is weak and the companies know that this Government will never do anything about it.
That brings me on to my fourth and final question for the House to consider: what should we do about it? We have had a few suggestions from the Government, and I want to deal with each of them in turn. The first idea we have had is another investigation. To be fair, it is not just an investigation: there is a strongly—strongly—worded letter too, and an invitation to a summit, which brings to mind that notoriously successful summit the Government held with the energy companies soon after I entered this job in 2011! I think it was dubbed “Click, switch and insulate to save”. Unfortunately, the energy companies put their prices up anyway. Indeed, such is the utter confusion within Government on energy policy that it looks as though we have come full circle and are back to the policies that they themselves know failed in the past.
And what could there possibly be to investigate? We know what the problem is. We have known about it since 2011 when Ofgem first identified it, and we can all see for ourselves that wholesale costs have fallen and consumers’ bills have not. What more is there to it than that? Why do we need another investigation, in addition to the one that the CMA is running? And what good will it do? How will it help a single family with their energy bills now?
The second idea is that we just have to wait. The argument goes that at some point some time in the future some of the companies might eventually cut their prices—or should we wait until the CMA reports in December? But why should we wait? Why should households wait a single day longer? Wholesale costs have been falling for more than a year; how much longer must people wait before their bills fall too? [Interruption.] The Secretary of State might be interested to hear that, as figures I published today show, the average family’s energy bill is £260 a year higher than it was in 2010. Behind those figures, however, is the fact that it is the poorest households who have been hit hardest. With electricity up by nearly 40%, gas bills having risen by more than 50% in the last three years alone, and for the first time on record more than 1 million families with children in England in fuel poverty, they cannot afford to wait.
The third idea we have been offered is to make the energy market more competitive—I am sure that is what the Secretary of State will argue in his speech today. No one would disagree that consumers would be better served if companies were hungrier and competed more to win, and retain, their customers by cutting prices and improving customer service. Indeed, we have set out and debated a number of our proposals which are designed to do exactly that. However, the fact remains that competition is not working; if it were, bills would have fallen and we would not be having this debate. Indeed, it is not merely not working, but the situation is getting worse. That is not just my view but that of the regulator, Ofgem, in last year’s state of the market assessment:
“There are indications that things are getting worse for consumers.”
On the question of companies not passing on falling costs, it said:
“We found that suppliers pass on cost increases more fully and more quickly than cost decreases. The asymmetry we found was greater than when Ofgem performed a similar exercise in 2011.”
So the idea that we should simply leave it to the market to correct itself perhaps some years down the road, when things have been getting worse, is not one we should seriously entertain.
If that is not the answer, that leaves us with one option. The Government must ensure that if consumers do not enjoy the benefits of competition, they are afforded the protection of regulation, and that is what today’s motion proposes.
The shadow Secretary of State is outlining some serious statistics and I agree with the points she is making. However, does she not agree one of the most effective ways of addressing fuel poverty is to sharply increase infrastructure investment in home energy efficiency? That would create green jobs, boost economic growth, cut carbon emissions and address pressures on the NHS such as respiratory diseases. Why is the Labour party not making the case for sharply increasing infrastructure investment in Wales?
We are making the case, and I refer the hon. Gentleman to the Green Paper we published just before Christmas, in which we made three points in that regard. First, we would make sure that the money levied from the energy companies to help with insulation went to the fuel-poor, taking a bottom-up rather than top-down approach to delivering energy efficiency in our communities. We have said that we should have higher ambitions for the private rented sector in order to make such homes fit for purpose, and that we should get a better deal for those who can afford to pay something, by providing 1 million zero-interest loans during the next Parliament. We have also said that energy efficiency should be a national infrastructure priority. I hope that that clarifies the position for the hon. Gentleman.
This is about ensuring that we have a policy that is fit for purpose: not just a new power for the regulator, but a new duty to ensure that bills are fair and that reductions in wholesale costs are passed on to consumers. There should also be a price freeze until 2017, so that energy companies cannot simply whack their prices back up after being forced to cut them. We know that wholesale costs have fallen, and that energy companies will not pass on the full saving to all consumers unless they are forced to, so let us give the regulator that power. Let it do the job that people expect it to do, and let us put in a place a framework that can begin the process of restoring trust in the broken energy market.
That is the choice before the House today. Do we carry on with business as usual, with more families with children than ever before unable to afford to heat their homes, and just let the energy companies get away with their usual tactics; or do we call time on the sharp practices and rip-off prices? Do we draw a line in the sand and say “No more”? That is the decision Members will have to make, and account for to their constituents.
Government Members have had the chance before to take action on energy bills—and have refused to do so. They will not be able to vote against action to make energy companies cut their bills today, and then complain tomorrow that falls in wholesale costs are not being passed on. Let me warn them: much though they might wish it, this debate is not going away. I have it on good authority that the Prime Minister does not want to talk about energy between now and the election, but let me say to him and to the House that that is exactly what this election is about. It is about more than energy prices; it is about how our country is run and whom it is run for. The first, last and most important test to judge any Government by is the level of success for working people in our country—for the many, not the few.
I thank Caroline Flint for bringing her policy ideas to the House again. Some colleagues will remember the last time we debated a similar motion, on
People out there—from pensioners to families—need our help with energy bills, and whether it is competition or regulation, energy efficiency or direct payments such as the warm home discount, I am determined that they get it. Indeed, I am open to any policy that genuinely helps people to pay their energy bills. However, the Labour party’s proposal would actually make things worse. My argument to the House today is as follows. First, when it comes to delivering lower gas and electricity prices for consumers, competitive markets are more effective than Government price fixing and heavy-handed regulation. Moreover, I will show not only that this Government have successfully acted to make these markets more competitive, but that we are not complacent—that we know more needs to be done for consumers—and that we will continue to work to improve competition further. Above all, I will show that, thanks to our policies on competition, consumers can now get the benefits of lower energy bills.
How can the Government justify not passing on the fall in oil prices to customers? Some 8,000 households in my constituency are in fuel poverty, and nearly 3,000 people are accessing food banks. People are choosing between heating and eating. How can the Secretary of State justify not doing anything?
The hon. Lady refers to oil prices but we are talking about gas and electricity prices. Oil prices relate mainly to transport—to petrol and diesel. However, assuming that she meant gas and electricity prices, thanks to competition, some of these price falls are coming through, and I want to give the House more detail about that.
Consumers can get the benefits not just of lower wholesale prices; many can get even greater savings, often more than double the savings from lower wholesale prices. Again, however, we need to do more to help consumers know that they can cut their energy bills today.
I am grateful to my right hon. Friend for what he is saying, and for the fact that the Government have taken £50 off energy bills. Further to the point that was made earlier, will he look at the issue of direct debits? The millions of people who do not pay by direct debit face a premium on their energy bills. I know the Government are looking at this, but it seems incredibly unjust and they could address it in order to help keep bills down.
We have indeed looked at this issue, as my hon. Friend says, and tried to make sure that any differences relate only to the costs associated with the payment method, and that there is no exploitation.
No, I want to make some progress; I will give way later.
Secondly, I will demonstrate that the Opposition’s proposed new regulations would be bad regulations, resulting in higher prices for consumers, not lower. I am not against regulations where they work better than competition, but Labour’s proposed regulations, involving wholesale-retail price links, would produce yo-yo pricing and higher pricing, and consumers do not want either.
The first part of my argument is that consumers benefit most from increasing competition in energy markets, and not from introducing bad regulation. It is interesting to note that Labour used to agree with competitive energy markets. Back in 2002, under Labour, all gas and electricity price controls were abolished. The argument supported by the Labour Government at the time was that the gas and electricity markets had become more competitive and that regulation was no longer needed. When the present Leader of the Opposition became Energy Secretary of State in 2008, he continued to back a policy of no additional price regulation, even though it was already becoming clear that the big six energy firms created under Labour were not producing the competitive outcomes that Labour had said it wanted. So clear were the problems in the market that there were calls for an investigation of that market by the independent competition authorities. Those calls for an inquiry were rejected by Labour—specifically by the present Leader of the Opposition. Worse still, not only did he reject a competition inquiry, but he took no significant action to improve competition for consumers. Interestingly, he also took no action to reintroduce price regulation. He just did nothing.
My hon. Friend is right to suggest that gas and electricity prices rose faster in the last Parliament than they have done in this one. Similarly, fuel poverty went up dramatically under the last Labour Government, so he is right to make those points.
The right hon. Gentleman talked about problems in the market. May I draw to his attention a problem that I have already raised with his Department, when Michael Fallon was a Minister there? In the islands of Scotland, we pay a higher price per unit of electricity than people on the mainland and in London. We are also penalised by the locational charging for renewable energy. The right hon. Member for Sevenoaks was going to look into whether renewable energy produced in the islands could be considered as consumption in the local domestic market, and into the possibility of reducing the charging either way.
I am aware of some of the problems that the hon. Gentleman has raised. He knows that the rest of Great Britain helps with some of those prices, through subsidy schemes paid for by every consumer in the rest of the United Kingdom. We have helped to support those schemes. He might be interested to know that I am going to Edinburgh tomorrow to talk about how we can help with wind power on the islands. We have to get the power there first, before we can take up the policy that he is proposing.
As I was saying, when Edward Miliband was doing my job, he did nothing. That is in sharp contrast with what has happened since the coalition came to power. We have been hyperactive in reforming our retail energy markets with a whole host of initiatives from deregulation to Ofgem’s retail review, from making energy bills simpler to making switching faster, from the MyData initiative to regulating for quick response codes on bills, and from collective switching to the Big Energy Saving Network. The result of our reforming actions is that competition has improved. Indeed, it has increased quite dramatically and I shall give the House the figures.
Is my right hon. Friend aware that, even in opposition, the right hon. Member for Doncaster North is managing to increase bills for our constituents? The chief executive of E.ON has commented that the reason that prices have not fallen faster across the market is the threat of an energy price freeze from the incompetents on the Benches opposite.
My hon. Friend is absolutely right. I shall come to that point and quote the chief executive, Tony Cocker, in a moment.
I was about to give the figures to show that competition had increased dramatically since 2010. Back then, there were just seven small energy suppliers, with a total market share of less than 1%. That is what we inherited from the right hon. Member for Doncaster North. Today, there are 20 energy independents taking on Labour’s big six. They have a market share of more than 10%, and that share is growing fast. In other words, millions of consumers have switched from Labour’s big six to the coalition’s small independents, and many have cut their energy bills as a result.
In the Secretary of State’s paean to the coalition’s activities to reduce prices and increase competition, he appears to have forgotten what he has just done in regard to capacity auctions. Will he confirm that the capacity auction that he has just carried out will give £1 billion a year mostly to the big six, and will raise prices to consumers by about 11p? Is he proud of that, in the light of the undertaking to reduce prices that he has given today?
I am surprised by the hon. Gentleman’s question, because he is an real expert in this area. He sits on the Select Committee and he also served on the Bill that became the Energy Act 2013, so he will know that the capacity market that we created in that legislation had the support of the Opposition. It was needed because the objectives of energy policy are not confined to lowering prices; they also involve energy security. That is where the capacity market plays a role. He will also know that the results of the capacity auctions were far better than we had predicted. The closing price—the clearing price—was significantly lower than we predicted, so there will be a lower impact on consumer bills. That is good news for consumers, because it means that energy security has been achieved at a lower cost. He is wrong to say that all that money is going to the big six; a plethora of energy generators will benefit from it.
Let me be frank with the House. It has taken some time to turn around the mess in the energy markets that we inherited. We cannot switch competition on and off like a light bulb. We know that, until recently, energy bills have been rising over the course of this Parliament. The fact that they have risen more slowly during this Parliament, compared with the last Parliament, is frankly irrelevant to the consumer who still has to pay a higher bill. So, although we have increased competition and although that is working, I am determined to go further still. That is why, back in 2013, I commissioned the first annual competition assessment of our energy markets and why I strongly backed Ofgem’s referral last year of our gas and electricity markets to the Competition and Markets Authority.
The past 12 months have seen the first big test of the extra competition that we have introduced. Have consumers been able to benefit as wholesale prices have fallen? The answer is yes. Not all consumers have benefited, of course, but several million have switched to new suppliers and to new deals in which the fall in wholesale prices has been passed on. They have seen the benefit of our extra competition. Indeed, many people who have switched have seen savings far bigger than the fall in wholesale prices alone would produce. Our latest estimate suggests that many people could save about £300 a year by switching.
Would the Secretary of State admit that Ofgem believes the situation to be getting worse? Even if people are switching, which is welcome, their numbers are falling. Does he agree that it is only those who switch who are getting the benefit of new tariffs? What does he say to the many more customers who are on tariffs that provide no benefit as a result of the fall in wholesale prices?
I think I counted three questions in there, and I shall try to answer all three, if I can remember them. The right hon. Lady said that Ofgem believed the situation to be getting worse. Certainly, its 2013 report compared the situation to the one outlined in its previous report and said that there were reasons for concern. That is why we supported its referral to the Competition and Markets Authority of our gas and electricity markets. She then talked about switching, and she was right to say that switching rates fell a little bit in recent years. The reason for that is that we have got rid of doorstep mis-selling. Doorstep mis-selling was responsible for a big boost in switching figures, but people were switching from one big six supplier to another, and often getting a very bad deal as a result. I am delighted that it has now been got rid of, even if that means that overall switching figures are down. Now, because we have made switching easier and faster—through collective switching and so on—we are seeing that situation turn around. This time, people are not switching between big six companies and getting a poor deal; they are switching away from the big six into the small suppliers and getting a much better deal. That is something that never happened under Labour.
Indeed. I was going on to respond to the right hon. Lady’s third question, because a host of deals are available across the country. I would have thought Labour Front Benchers wanted to support these deals and tell people about them and how people can switch and save money—if they really cared. For example, a year ago in London there was not a single deal in the market where the average household could get its annual supply of electricity and gas for less than £1,000, whereas today, because prices have been coming down, 13 deals offer the average household an annual dual fuel bill of less than £1,000.
I still want to do more. I am going to continue to fight for consumers every day that I hold this office, in stark contrast to the record of the Leader of the Opposition when he was Energy and Climate Change Secretary. The exciting news is that our competition from the smaller suppliers, which is taking huge numbers of customers from the big six, is now forcing the big six to act, too. Last autumn, the time when energy prices are normally put up, the big six froze them—without any regulation and without Labour’s price freeze. Yesterday, E.ON went further, cutting its variable gas tariff by 3.5%. Some have dismissed that cut as being only 3.5%, noting that gas wholesale prices fell by nearly 18% across 2014 and saying that the cut is too small. Let us look at what E.ON said. First, it notes that wholesale costs are 46% of the bill, so of course retail costs will not go down as fast as wholesale costs in any case, unless all costs, such as network and administration costs also fell by the same as wholesale costs—this observation is called arithmetic. Secondly, Tony Cocker, E.ON’s chief executive officer, has said:
“Given the possibility of a price freeze, we are undoubtedly taking a risk today”.
So we have to ask: if E.ON did not face the risk of Labour’s price freeze, would it have cut its prices even more?
Perhaps the Labour party does not want to listen to industry leaders, even the ones who are cutting prices, but the same point is being made by consumer champions.
For example, Martin Lewis of MoneySavingExpert.com has warned that energy firms are not cutting their prices, even though they would like to, because they fear being locked in by a Labour price freeze that would make them suffer losses. Consumer champion
Not a vested interest. Consumer champion Ann Robinson of uSwitch has speculated that the prospect of Labour’s price freeze could be to blame for the big six delaying cuts in standard prices.
Of course, there may be other explanations for the delay in the big six passing on the costs. When the Leader of the Opposition was doing my job, he explained that it was about energy companies buying their electricity and gas forward—hedging—to protect consumers. After a summit with energy firms—he was very good at having summits, after which no policy changes were announced—he said:
“We have recently seen big falls in wholesale gas and electricity prices, but I understand that because energy companies tend to buy in advance they won't be passed on immediately.”
One is tempted to ask: what has changed? Why did he do nothing when he could but now, months before an election, claim he has found an answer?
Whatever the cause, I welcome the fact that E.ON has not only cut its standard variable gas tariff, but is offering a fixed-price deal at just £923 for the average household. I want the other big energy firms to follow suit, but we will not need a regulation for that to happen. I confidently predict that competition will force the other large energy firms to cut prices, or they will continue to lose customers in droves to competitors—that is competition. Indeed, I am very confident that we will soon see more energy firms cutting their prices and offering even better deals.
I am grateful to the Secretary of State for being very generous. He has talked about fighting for consumers. What will he do for consumers in rural and island areas, who are paying more per unit of electricity than those in big cities and doing so in areas that also have higher fuel poverty? He is in power at the moment, so what can he do?
The hon. Gentleman rightly says that it is clear that there is a lot more fuel poverty in rural areas than was previously known about. When we redid the way we analyse fuel poverty figures, because the measures we inherited from the previous Government were not measuring fuel poverty very well—the Queen was in fuel poverty under their approach—we discovered that those in rural areas were suffering some of the worst fuel poverty. That is why we are changing some of our policies. I have some good news for him, because the falling oil prices have meant heating oil prices have dropped, too. That is good news for some people in rural areas who depend on heating oil, as it is at prices last seen in 2009. I know that that is not the full answer, but I hope it at least shows some welcome signs.
Let us just examine why our extra competition appears to be resulting in better deals and lower prices from the new entrants. There is now greater diversity in how firms buy forward, and with many different firms we are seeing different hedging strategies, new business models, new purchasing strategies and innovation. It looks like that is enabling many people to benefit from lower wholesale prices now. But despite that progress, the Opposition have turned their back on successful competition.
There is no difference between me and the Chancellor here: of course we want to see price cuts go through to consumers. The question is: what is the best way of doing it? Is it through heavy-handed regulation, which has to be changed? As we have heard today, the price freeze has had to be changed because bills are coming down. If that regulation had been put in place, consumers would have seen higher bills now, not lower ones. That is why regulation is not—
On a point of order, Madam Deputy Speaker. As I said in the House on
I will try my best not to be unparliamentary, Madam Deputy Speaker. For the benefit of the House let me quote what Rachel Reeves, a shadow Cabinet colleague of the right hon. Member for Don Valley, has been reported as saying on Andrew Neil’s programme this morning: She said:
“We didn't use the word ‘cap’.”
I can show the House the Labour advert for the price freeze. I see a block of ice, and I see the words “frozen” and “freeze” but I do not see a picture of a cap. There is no cap on that advert. So, as for the idea that there has not been a change and that the Opposition are not in complete confusion, it is clear.
Let me put on record that I am grateful for the support of the right hon. Member for Don Valley—she has supported, rather belatedly, our support for the deepest ever investigation of energy markets by the Competition and Markets Authority, which is now under way. However, there is one major caveat. Labour’s support for the CMA would be more credible—Labour would be more credible—if Labour was prepared to wait until just later this year to see the report; Labour could wait for the independent advice of the CMA before anyone regulates. If the CMA says that new regulations are needed to protect the consumer, I, for one, will back that. I doubt that new regulations will be its main recommendation, but I am sure of one thing: any regulation the CMA comes up with will be far more effective, far better thought out and far more likely to work than the frankly daft regulations Labour continues to propose. The fact that Labour will not wait for the independent CMA exposes its policy for what it is: a cheap political gimmick.
That is my second argument: Labour’s regulation would be bad for consumers and would put up prices. The first issue is the utter incoherence and inconsistency of Labour’s proposed regulations. Labour wants to freeze prices and, at the same time, force retail prices to go up and down with wholesale prices. As we saw earlier, the right hon. Member for Don Valley cannot explain which policy Labour now prefers: a freeze or yo-yo bills. Worse still, it now seems that Labour’s price freeze is not really a price freeze. She keeps on trying to deny it, but I have quoted the hon. Member for Leeds West and shown the figures. I can also quote The Sun. Under the headline, “Mili may ditch price freeze vow”, a senior Labour source is quoted as saying:
“If bills are coming down there will have to be a rebranding to make it a cap.”
Clearly, Labour’s high command is worried: it knows that its price freeze would mean higher bills, as some of us have warned all along.
Perhaps, as we are quoting from journalists in the press, the Secretary of State will want to comment on what the energy editor of The Daily Telegraph tweeted today. She said:
“To be fair to Labour, heard them say energy ‘freeze’ is ‘cap’ many times.”
This morning, the Financial Times stated that
“the Government is still in disarray over how to respond to Labour’s campaign for lower energy prices.”
Perhaps the Secretary of State would like to comment on those reports.
Did Members note that there was no quote from a source? The right hon. Lady was trying to compare a quote from a Labour source with a quote from a journalist—not terribly good.
We have always known that the freeze would be a bad idea. If wholesale prices rose during the freeze, small firms would go bust, damaging competition. If wholesale prices fall, energy firms would just make massive profits. If the freeze has become a cap, then that raises more questions. A cap implies that Labour’s regulation would work only one way. Wholesale price cuts would have to be passed on, but not price rises. Energy firms could only lose from such a regulation.
Opposition Members may not care about that, but they should remember that that means that consumers lose. For if the risk is only one way—lose—the energy firms will have to price in that risk in the prices that they charge, which means higher prices. Indeed, they will also have to price in extra regulatory uncertainty from Labour’s wholesale return to regulated prices. This will, therefore, be disastrous for consumers. Clearly, Labour’s policy would end up raising prices, but what about its proposal to force, by regulation, wholesale price cuts to be passed on to consumers? How would that work? First, there would have to be a wholesale price—the reference wholesale price—used for the purpose. Last June, I asked the right hon. Lady whether that wholesale price would be priced daily, weekly or monthly and she did not answer. I have asked her again and she still has not answered. That is strange, because the Leader of the Opposition told Andrew Marr this Sunday that he wanted to fast-track regulation, so one would assume that he had worked this out. We can only guess. Will consumer energy prices yo-yo up and down every day, every week or every month with wholesale prices? We just do not know.
One of the main purposes of energy firms buying ahead and hedging is to protect consumers from yo-yo prices. Forward buying smoothes prices for consumers. Let me explain this rather fatal problem with the Opposition’s proposal another way. Let me use data from last year to show how Labour’s policy would work—or actually not work. Over the whole year, day-ahead wholesale gas prices fell by almost 18%. But that fall over the whole year masked significant ups and downs during the year. For example, between March and July, gas prices fell by almost 40% before rising again by nearly 50% by December. If Ofgem had forced suppliers to drop retail prices to consumers to reflect the lows in wholesale gas prices in July, would it have had to force companies to raise retail prices to reflect the highs of December? Or would the right hon. Lady expect the firms simply to bear that loss? No answer cometh. What a lot of nonsense this is.
Does my right hon. Friend not agree that having that yo-yo system would massively impact on continuity of supply, because we would not be able to have long-term contracts to guarantee the delivery and supply of gas to this nation?
Indeed. The danger is that the Government—some sort of Gosplan regulator—would effectively have to decide the purchasing strategies of all energy companies. Clearly, Labour has found someone who is much better than all the market participants. I do not know who that individual is; he has not been identified. Not only is this a lot of nonsense, but it will be very costly. Firms will face higher administrative costs. They will have to notify customers of price changes far more regularly, and the customer will have to pay for that.
Order. The Secretary of State will not be giving way. The right hon. Gentleman joined the debate late. He has not been in the Chamber very long. It is a timed debate that has to end at 4.30 at the latest, and I have 13 speakers. After nearly an hour into the debate, we still have not completed the opening speeches. The Secretary of State will resume.
I will take your stricture, Madam Deputy Speaker, as you are the regulator.
My final point on the right hon. Lady’s proposal is that it would damage fixed-price deals. They are the leading deals on the market and would almost certainly go in her model of regulation. I do not believe that consumers want Labour’s yo-yo prices or to pay the extra costs for the privilege of having yo-yo prices.
We have two different policy options on offer. A policy of increasing competition, which is working, has seen energy bills frozen and cut. It is a competition policy that we want to see pushed further still to get more benefit for every bill payer, not least with the CMA investigation. That approach stands against a policy of ill-conceived regulation that even in the most charitable light will increase risk, uncertainty and volatility and, as night follows day, mean higher prices for consumers. Lower energy bills from the Government and higher energy bills from Labour. I look forward to putting that choice to the electorate.
Order. I am afraid that it will be necessary to impose a time limit on all speeches. The Front-Bench teams require 10 minutes each. Therefore, the time limit on Back Benchers, of whom 13 gave notice in writing before the start of this debate that they wish to speak, will be five minutes starting now. The first speaker is Peter Hain.
I thank the Secretary of State for his revelation that The Sun is now the house journal of the Liberal Democrats. It does him and the Government no credit that their attitude to Labour’s price freeze has veered wildly, initially denouncing it as Marxist, which was a revelation to all Marxist disciples, and now misrepresenting it with a patronising approach that belies the fact that my right hon. Friend Caroline Flint and the leader of the Labour party have been proved right all along on this policy, as they will be proved right in the future.
One of the best vehicles for keeping energy prices low is the Severn barrage. This huge infrastructure investment boost makes the Severn barrage a no brainer, not least because it requires no Treasury funding. The £25 billion construction cost will be financed entirely privately, mainly from sovereign wealth funds and other large-scale institutional investors, because they would have a guaranteed revenue stream over a period of 120 years or more. The project will create 20,000 jobs during its nine-year build, and with multiplier effects another 30,000 jobs, making a total of 50,000 jobs and a £70 billion boost to the economy. Many of the jobs will be located in communities in south Wales and the south-west of England, which are crying out for such a boost of investment and high-skilled jobs. Some 80% of the spend will be in the United Kingdom, unlike wind power where 80% is spent abroad because countries such as Germany and Norway have stolen the lead on wind turbine manufacture.
The scheme would harness one of the world’s largest potential sources of renewable energy: the huge tidal range of the Severn estuary—the second highest in the world. Building an 18-kilometre barrage between Brean in England and Lavernock Point in Wales would be one of the world’s largest privately funded global engineering projects.
Order. I must reluctantly intervene on the right hon. Gentleman. This debate is about energy prices, not energy generation from things like the barrage. He needs to relate his comments to the impact on energy prices and passing on reductions to the consumer.
I was about to do that, but I need—obviously with your permission, Madam Deputy Speaker—to describe the project in order to do so.
Most importantly, the barrage would produce the cheapest electricity in the United Kingdom—half the cost of alternative sources such as gas, nuclear and coal, as well as other renewables. Previous consortia interested in the project have looked to a period of consumer subsidy lasting less than 25% of its life—very small compared with other renewables. After that initial subsidy period, promoted by previous consortia backing the barrage, it would generate electricity at £20 per MWh for at least a century, less than half the wholesale market price that the economy has been used to.
The latest project backer does not want the consumer subsidy of contracts for difference, a point which I hope the Secretary of State will note. In meetings with him, I have discussed support for the barrage, which he has not been able to give. The barrage has attracted widespread criticism from wildlife groups, but it has considerable other benefits, including low electricity prices over its entire life if the current project is taken forward in this way. In addition, it would have other important effects on the economy. The 1,026 turbines required, each the weight of a jumbo jet, would be built at two factories in the region, most probably at Port Talbot and Bristol. The planned caisson-casting yard at Port Talbot deep-water docks could afterwards be converted into a port for ultra-large container ships. It would also enable us not just to keep prices low, but to export the technology and expertise in tidal barrage construction around the world. So it would keep prices low, which consumers desperately need, and it would support flood protection. Some 90,000 properties and 500 square kilometres of Wales and the south-west, including the Somerset levels, would be supported, and it would act as a barrier against storm surges. Therefore, prices would be kept low and there would be many other benefits from the project.
In conclusion, this is the biggest single investment project coming from the private sector, needing no consumer subsidy at all in contracts for difference, according to the latest backer of the project, which I hope the Government will meet. I hope that people will see this as something that should have been backed already, and that now all parties will back it as a—
It is a pleasure to follow Mr Hain, but he will understand if I do not go down the path of his argument. He knows my views about the enormous cost of electricity generated from the Severn barrage, which were set out in the report of the Energy and Climate Change Committee, which I chair, a couple of years ago.
The Opposition’s proposed price freeze is one of those rare policies the mere announcement of which causes even more harm than its implementation would do. My right hon. Friend the Secretary of State comprehensively demolished the price freeze and its complete lack of intellectual coherence, which, incidentally, makes it astonishing that it is proposed by a former Secretary of State for Energy and Climate Change. I will not repeat the case against the price freeze, but simply emphasise that the only absolutely certain consequence of a freeze announced months in advance of its implementation would be to raise prices substantially above where they otherwise would be and to discourage, and possibly destroy the prospect of, much needed investment—two totally perverse outcomes that would substantially damage the interests of consumers.
Instead of repeating my right hon. Friend’s effective attack, I want to suggest four ways in which energy costs could be cut. We must focus on costs not prices. It is false for anyone to claim that Government can control energy prices when the biggest factor in determining those prices is totally outside their control, namely the wholesale price of gas.
The first way to cut energy bills is to pay more attention to transmission and distribution, the costs of which account for almost a fifth of the average bill. They are provided by largely unscrutinised monopolies, or quasi-monopolies. Distribution has been neglected, because most consumers do not have a clue who supplies the power to their homes. The tabloid media regularly attack the big six, whose names appear on the electricity bills, but they ignore the distribution companies, which face little or no competition—even less than the big six experience. For that reason, the distribution companies should face not less but more scrutiny from the regulator. Regrettably, in the past Ofgem has rather let them off the hook. However, I make it clear that I exempt the current team at Ofgem from that criticism. It is recently arrived and it has shown some signs of escaping the torpor that used to overcome its predecessors whenever there were signs that consumers were being ripped off.
Transmission is a natural monopoly, and National Grid does a reasonable job, but it, too, is far too leniently treated by Ofgem, and generously—perhaps over-generously—rewarded for running its monopolies. I hope that the Government will give top priority to bearing down on the costs of transmission and distribution.
Is my hon. Friend not also concerned about the monopoly on connections to new developments, which sometimes inflates the costs of new developments and housing? That also requires further regulation.
I am extremely concerned about that. It has a big effect in the area that my hon. Friend and I represent.
The second way to cut costs is to embrace enthusiastically the opportunity of demand-side response. Few people understand the enormous potential benefits of this. It is sometimes wrongly characterised as a way of cutting power off from consumers. It is in fact a chance for consumers to earn some money back by agreeing voluntarily, sometimes at short notice, to reduce their consumption. The evidence from America is that this new technology, developed in the last few years, is unlocking a considerable potential for reducing demand for electricity at peak times. This has two big advantages: it cuts the need to maintain large amounts of expensive surplus capacity, most of which is used only for a very small amount of time each year, and eliminating that surplus would reduce the bill of every consumer. It is also one of the cheapest and most cost-effective ways to cut greenhouse gas emissions. At present, providers of genuine demand-side response, as opposed to the operators of diesel farms, are not being sufficiently encouraged by the capacity market. I urge my right hon. Friend to look carefully at the ways in which next year’s capacity market auction can be tweaked to ensure that genuine demand-side response providers get a bigger share of the market than the 1% that was achieved last month.
The third way to cut energy costs is to seize the opportunity provided by the deployment of smart technology to promote energy efficiency. To get the maximum benefit from this, we need to establish a true market in energy consumption where time of use pricing encourages consumers to move their consumption of gas and electricity away from the hours of peak demand towards low consumption periods. Smart technology makes this easy. Indeed, much of it can be done automatically by ensuring that appliances, such as freezers, switch themselves off whenever prices are high, and warn their users that if they are opened the power needed to operate them will be expensive. That is just a tiny example of the myriad ways in which consumers can save money and the cost of maintaining the system can be reduced. We should accept time of use pricing in the energy market as being as normal as when we buy an airline or a train ticket. I hope that the Government will commit to introducing that.
Fourthly and lastly, regardless of the outcome of last year’s CMA reference, ending vertical integration in the electricity industry must be considered. When the immensely successful privatisation of the electricity industry took place, generation was separated from retail supply. After a few years, a consensus emerged that allowed these functions to be merged within single businesses. When energy prices were low this did not seem to matter, but today the lack of transparency in the operations of the integrated companies in the wholesale markets has destroyed consumer trust. More importantly, it is no longer obvious that vertical integration benefits consumers. There will of course be protests from the industries, but this is an issue that we need to tackle.
The harmful effects on consumers in particular of a price freeze announced months in advance of its implementation are plain to see. Instead of political gimmicks whose consequences are perverse, the next Government should take practical steps to cut energy bills, cut the cost of transmission and distribution, nurture demand-side response, use smart technology to introduce time of use pricing and review whether vertical integration is really still in consumers’ interests. I commend these ideas to the House.
It is a pleasure to follow my Chairman of the Energy and Climate Change Committee. I do not necessarily agree with everything he said, but I agree with quite a lot of it.
The Secretary of State should know that a yo-yo goes up and down. It usually goes up the same as it goes down. Perhaps he should have a look at how gravity affects it. Prices, however, just seem to go up. We are still waiting for them to come down, so I look forward to the yo-yo effect on prices filtering through to my constituents.
It is difficult to gauge the importance of a debate such as this. Fuel poverty has increased over the years. About 4.5 million households throughout the country are living in fuel poverty. Meanwhile energy costs have gone through the roof and the energy companies are recording soaring profits. Oil and gas prices have been affected in the past few weeks, and unfortunately because of that there will be a loss of jobs, possibly only temporarily, but it could be for a lot longer—years, I am told, before we manage to get jobs in the north-east of Scotland back to where they should be.
I am sure that over the next few months we will hear a great deal about the cost of living crisis from colleagues in all parts of the House, and it is right that we talk about stagnating wages, our national health service and the bedroom tax; but it is also right to talk about making the energy market work for ordinary people and addressing the scourge of fuel poverty.
When we think of fuel poverty, we often think of the frail and elderly who have to choose whether they can afford to eat or to heat their homes. Heating or eating should not be a choice for the British people in the 21st century, but the reality is that half of English households that are classed as fuel-poor are in work—1.1 million households in fuel poverty are in employment but still cannot afford to heat their homes. The single largest group affected are couples with children, who make up 30% of the total. In Scotland between 2012 and 2013 100,000 more households fell into poverty, bringing the total to almost 1 million homes. Since 2003, consumer gas prices have risen 128% in real terms, and since 2010 wages have fallen in real terms, which does not help.
There are many ways to combat fuel poverty, including investing to make homes more energy efficient. To their credit, the Government are trying to do that, but they should realise that it takes a lot more than dealing with 2,500 homes to solve the problem. I urge that we also consider how energy companies treat their customers. Energy companies are in the unique position of being able to identify vulnerable customers and temporarily vulnerable customers, and we need to use that information to protect those customers better. I am looking forward to receiving the letter from the Secretary of State, which he told me last week he would send me. I am still waiting, and I look forward to his support for looking after such people.
Some energy companies have to pay back 1.5 million customers who were overcharged on their gas bills. Is that enough? I say no and I would be interested to hear what the Minister thinks. Does he think that is enough? A poll in The Sunday Post demonstrated that 88% of people thought the energy companies did not act in their interest. Looking at the figures, that does not surprise me. The same poll showed that 81% thought those same companies kept their prices artificially high. I think they are right. I would be interested to hear what the Minister thinks.
We cannot ignore the impact that the broken energy market has on millions of energy bills. Last year the profits of the big six energy companies cost £102 per customer, although the cost of buying wholesale energy fell. That is ridiculous. A 70-year-old living in my constituency should not have to make a choice between heating and eating. A couple with a young daughter should not struggle through Christmas and new year worrying about whether can buy a present, heat their home or eat. We should put people before the energy companies. It appears that the Government think otherwise.
Populist posturing is a sick and cheap form of politics, and the motion pretends that if only Labour were elected, there is a quick and easy way of reducing energy prices. The Opposition are promising something that will not be delivered and they know it, and they are promising something which simply cannot be delivered in the way they say.
The policy of the Opposition is the worst conceivable combination of ignorance and deceit, and it labels them as ill equipped to look after the economy. Their ignorance of markets and their Canute-like pretence that they can control prices in the way they propose is pitiful in its fantasy and it is irresponsible. The Labour party is saying that the tide can go out, but that it has the power to stop it coming in.
Energy markets are complicated and multifaceted. None of them enjoys the direct, simple, linear relationship described in the Labour party’s policy and motion. Any such correlation is not the way of the real world. I have been involved on and off in the energy markets, principally in oil, for 35 years. Oil, gas and coal in their pricing are interrelated. They tend to move similarly. The only sector that enjoys a modicum of economic independence and segregation is nuclear, to which one might add, to a lesser extent, wind. But the dominant marker for these major providers of the source of energy, and hence utility bills, is oil. It determines in broad terms the cost of energy for power generation, heating and transport.
Since I started in the business over 30 years ago, we now have the free market in oil that we did not use to have. When that changed, the nature of pricing also changed. Our own North sea oil Brent became a marker crude for contract pricing, so instead of fixed prices—30 bucks for everybody, going from one company all the way through that company to the end—we got a free market. That market means that here we are in January, but Brent crude is priced for March and April, and if it is a barrel of oil it has to be shipped and refined, so it takes time—perhaps four months—for prices to work their way through from the wellhead to the pump.
My first job was as a galley boy on an oil tanker in the middle east, so I know a little bit about oil from a different perspective from that of the right hon. Gentleman. He says people are ignorant of the facts. Does he agree with the Prime Minister, who said that the best way to deal with the issue is to
“give the regulator the teeth to order that those reductions are made”?
I totally agree with the Prime Minister. What we want is a competitive market—I agree with him—not the control of prices by a regulator, whom Caroline Flint seems to want to be able to write every commercial contract throughout the industry.
Let me say to the right hon. Lady that in the case of gas, the stupidity of the motion is that there is no such thing as a straightforward wholesale price. When I put my question to her, she lamentably failed to answer it. There is no such thing as a straightforward wholesale price whose movement should be fully and simply reflected like that in retail prices. That is the fantasy and the ignorance of this proposal, because life is more complicated.
Let us take gas contracts. Some gas contracts have pricing formulae which do not simply follow the headline daily market price. They may be based on various averages or regional weightings. They may have locked themselves into a one-year or a six-month fixed price. They may face maximum and minimum parameters. Their costs may have been hedged to eliminate the risk of massive fluctuations and guard against another idiotic policy from the Labour party. This is a complicated business, within which suppliers and generators may be locked into various different pricing structures, so the idea that a regulator can suddenly say, “Oh, there’s the wholesale price, therefore there is the retail price,” is total lunacy and ignorance, of which the right hon. Lady should be ashamed.
Even if there were some sort of unshackled easy link to daily prices, the Opposition do not understand the distinction between price and volume. The price might fall in a so-called wholesale market, but if there is no business of any volume in the market, how can that price, as a tiny example of one day’s price, then be used as the determinant of retail prices under the right hon. Lady’s policy? This is folly of such total lunacy and ignorance that I am ashamed that anyone in this Chamber should want to stand up and pretend that it makes any logical, decent sense.
Labour Members started by proposing a freeze—it then became a cap, although they have got very muddled, but the leader of the Labour party called it a freeze—after which all the companies’ share prices fell and their pricing policies had to change to guard against this idiocy. Labour’s policy announcement hit share prices and utilities and was detrimental to the consumer, and its cost of living campaign is in shreds.
The clear point in this debate is that we have a regulator to oversee and police the dangers of collusion and uncompetitive conduct. That is where we should all agree, and that is where the influence of Government should lie. It is foolhardy for the right hon. Lady to pretend like King Canute, or rather Queen Canute, that she can stop the natural movement of prices. It is deceit and delusion of which Labour Members should consider themselves ashamed.
Listening to this debate, it is amazing that Government Members have suggested that this motion is a gimmick. It is far from being a gimmick. Sir Alan Duncan said that it is “populist posturing”. It is about reducing energy bills for millions of people in the UK, so of course it is populist, because people want that to happen. The Government are in a spin because the popular price freeze that Labour announced has become known throughout the country. People are absolutely delighted to see a political party standing behind them rather than the shareholders of the big six who seek a dividend.
Consumers feel as though they are getting a raw deal, and they are getting a raw deal. There is a lack of trust in energy companies—in particular, the big six—and understandably so. Yesterday it was revealed that British Gas could rake in an extra 60% in profits if it continues to refuse to cut prices. Whether it is in billing, information, tariff rates or overpayments, the British public believe they are being ripped off, and rightly, because they are being ripped off. Last year, UK gas prices went up by 1.9%, while the average price across the EU dropped by 5.7%. While electricity prices rose by 1.9% in the EU, UK households were hit by a rise of 6.7%. Wholesale gas costs have dropped by 28% and wholesale electricity costs have dropped by 14%. Of course people believe that they are being ripped off, because they are being ripped off.
The issue of the regulator is extremely important, and the Labour motion refers to it clearly. Put simply, Ofgem has a principal objective, which it says on its website is this:
“To protect the interests of existing and future consumers”.
That is what this motion is about. It is about making sure that instead of standing back and hiding around the corner from the big energy companies—the big six and others—Ofgem does what it is supposed to be doing in protecting people who are suffering greatly in this country. Year on year, we have heard debates in this Chamber about the number of people who are dying. My hon. Friend John Robertson mentioned the scourge of fuel poverty. About 30,000 people are dying, annually, because they cannot afford energy. This is 2015, and we allow that to happen.
That is why the motion calls clearly for the regulator to be given powers to ensure that when the wholesale price drops, the consumer benefits immediately. I have heard the poppycock from the business men on the Government Benches whose main interests are the interests of the big six, not the interests of the people who cannot afford both to heat and to eat. We should be very concerned about the situation that we face here in the UK. There are a million statistics showing the problems that are facing people who are disabled or looking for employment but cannot afford to heat their homes.
This motion is very simple. It builds on the guarantee that the Labour party is giving with regard to a price freeze in 2017 if elected. It builds on something that people in the UK were absolutely delighted with—the fact that we were looking after people who were struggling. This motion will go to show, even more, that the Labour party is on the side of the people while the Government are on the side of big business.
It is a pleasure to follow Ian Lavery. I agree with him that there has been, and is, an issue about the cost of energy for people’s homes, but I disagree with him about what we do about that. We need to ensure that we can get the best prices passed down to the consumer, not only in the short term but the long term. The Government have brought in measures to get rid of the tariffs that were adding unnecessary taxes to energy bills, increase the number of independent suppliers threefold, and reduce the 400 similar tariffs that existed to just a few. Those are all going towards protecting the consumer and getting prices down.
The hon. Gentleman is right that the cost of energy is a large proportion of the cost of living and the money that goes out of people’s homes. However, it is wrong to offer people the false hope that through just a simple black-and-white policy they will see their energy prices reduced. For the past two or three years, the Labour party has run campaigns in my constituency, and in many other constituencies, trumpeting Labour’s price freeze. There was a great big inflatable ice cube on the high street, which, I hasten to add, did not have an image of a cap on top of it. The Labour party put out leaflets in my constituency saying, “People tell me on the doorstep that they want an energy price freeze.” Of course people want an energy price freeze, but what they are telling me on the doorstep is that they want the lowest possible energy prices. If we had had that freeze, the price would have been stuck at that level. Now, at the very last minute, Labour is changing its policy around. Whatever words are used in points of order or in the debate by Caroline Flint, the fact is that people’s perception of what has been said to them on the doorstep is that there would be a price freeze. Indeed, this very lunch time Rachel Reeves said on television that it is not a cap, but a price freeze.
Have not Labour Members trapped themselves by gambling that prices would continue to rise? They announced a freeze, but, sadly, global markets are falling.
As my right hon. Friend will know, Labour Members would make very poor oil traders. If they were in the business, the consequence would be losses that would eventually be passed on to the consumer in higher prices.
The hon. Member for Wansbeck is right: this debate is not flippant, but one about the costs of the energy that people need to live. The Government should do all they can to try to reduce those costs, but they cannot do it with gimmicks, or by coming up with a hare-brained scheme for prices that is immediately altered by a change in world markets. The Opposition have called this debate purely to clarify points that they did not advertise or make to people on the doorstep. They are offering false hope, and they are wrong to do so.
People are suffering from high energy costs, but those costs are now starting to come down. Notably, energy companies are offering deals to fix prices for the next few years. They would not do so if they thought that energy prices were about to rise; they are doing so because they can foresee that their costs will drop on energy markets. Some people like to control their finances by entering into a deal with set prices, and they may achieve a better deal, but others want to ride the market—just as people do with mortgages—and see where it takes them. The fact is that we have increased competition in the sector. Competition decreased under the now
Leader of the Opposition when he was the Energy Secretary and, for all their trumpeting, the big six gained their power during that period.
My point is that we must not be flippant in this debate. This important debate means something to people in their homes. Those watching this debate to see what will happen to energy prices do not want flashy gimmicks that, in reality, would not lower their energy prices or give them a better standard of living. It is disingenuous to say that to people who want something to be done. We need to do what has been outlined by this Government—[Interruption.]—with whom I am glad to have voted in the Division Lobby to reduce the cost of energy bills.
From a sedentary position, the right hon. Member for Don Valley asks, “What is it?” I will tell her what the Government have outlined. It is the reduction to single figures of the number of tariffs, which under her Government expanded ridiculously, confused the market and prevented people from being able to find the best deals. It is the trebling of the number of independent market suppliers, making the best energy deals available to people, such as my hon. Friend Charlie Elphicke, who said he has reduced his energy costs by 25%. It is the reduction in the number of silly tariffs brought in by the Labour party. All those factors are having an impact. [Interruption.]
Labour Members are chuntering from a sedentary position because they do not like the truth. They want to pull the wool over the eyes of the British public by saying that they will sort out the mess that they in many ways created. Once again, they have come up with stupid, silly gimmicks, which, to be quite frank, the public can see through. This is a serious debate, and it needs to be taken seriously.
It is a pleasure to follow Alec Shelbrooke, although he seems a bit out of touch with what is actually happening.
I welcome this debate, which further highlights problems with energy costs across the country. Energy demand by consumers must be met with reasonable prices for energy. Prices should reflect any reductions in the cost of energy as soon as possible. Labour has asked for the energy regulator to be given the power to take immediate action to ensure that reductions in wholesale costs are passed on to consumers immediately.
Only last week, the Government accepted that the energy market was broken. That should not come as news to them. It is certainly not new, because they were told about the practice in a report by the energy regulator in 2011. In stark contrast to what the Secretary of State said about his hyperactive approach, the Government seem to prefer to sit back and trust the large energy companies to do the right thing on pricing. We want big changes in our energy market. As Opposition Members have said, we want a price freeze until 2017—to allow energy prices to fall, but not rise—and we can then fix the market.
As we know, hard-working families are now struggling to meet their energy costs, especially at this time of year. Remembering that the next bill will cover the winter period, they fear that it will again be difficult to pay for their energy. At this time of year, families see their energy consumption rise. It will rise dramatically for families up and down the country this year if the weather that we have suffered in Scotland over the past few weeks is anything to go by. Families especially use the basics of life, such as washing machines, more regularly in the winter months, and tumble dryers will be on constantly day in and day out, which will run up their energy bills dramatically. Energy companies are fully aware of that, I am afraid, and are taking full advantage. The cost of energy is now one of the largest demands on household income.
We have touched on the direct debit payments that never seem to be adjusted down. Energy companies continue to take the same direct debit payment month after month, only for people to discover that they have overpaid by quite a sum. However, it never seems to be returned unless people demand it.
In the time I have left, I will speak about the new i.HEAT project in my constituency, which has been set up to tackle fuel poverty in communities across Inverclyde, where we are seeing a dramatic increase in fuel poverty. The project assists householders not only to access hard measures such as insulation, but to make changes in their energy consumption through behavioural changes. It provides step-by-step guidance on changing suppliers. Anyone who has tried to change suppliers knows that it is not an easy process. Some elderly households and families need to be taken through the process step-by-step to ensure that they get the best deal. Community participation is vital in engaging with householders and building links with registered social landlords. Community groups are brought into the equation to identify vulnerable households and offer them assistance with energy-related issues.
The project offers free impartial advice and advocacy support to anyone across Inverclyde. It has had a significant effect. In its brief few months, it has already pulled almost £1 million into my community to tackle fuel poverty. It is going a great deal of the way towards ensuring that households have energy-efficient homes and the benefits that they bring, as well as the support that they need to meet their increasing fuel bills. I am always amazed at the lack of energy efficiency that is built into new homes. That is an ongoing problem.
Equally, businesses suffer from high energy costs. Low energy costs will attract businesses and jobs to the area. It is like back to the future in Inverclyde, where we are looking at hydro projects to support businesses and subsidise their energy costs.
Today, Labour is challenging the Government to back our plans—
My colleagues have done a very good job of rubbishing the economics behind this ludicrous Labour policy. I do not need to add much, except to say that we have heard some deprecating comments about shareholders. Opposition Members tend to forget that shareholders are not toffs walking around the City in top hats. Shareholders are millions and millions of ordinary working people who do not have the luxury of a public sector pension. Private sector pension funds rely heavily on companies, including energy companies, to ensure that working people have decent and fair pensions at the end of their working lives. It is about time that Opposition Members realised that shareholders are millions of ordinary people.
I welcome this debate—I really and truly do—because although what the Opposition are suggesting is ludicrous, it is very interesting that the shadow Secretary of State for Energy and Climate Change has chosen to use her Opposition day debate to talk all about energy and to forget all about climate change. She has realised one thing that I could have told her and some Government Members many years ago, which is that people are far more worried about rising energy bills than about so-called global warming.
I should declare an interest at this point, because I do not buy the consensus at all. Unfortunately, I do not have time to point out the obvious flaws in the argument, but suffice it to say that even those who buy the idea, hook, line and sinker, that the climate only started changing 200 years ago—actually, what the Intergovernmental Panel on Climate Change says is very different from what the environmentalists say—must surely be aware that the UK emits only 2% of the world’s carbon emissions. Therefore, the policies that we have implemented, which have pushed up energy prices, are having no impact whatsoever on the climate, and it is about time that we threw them overboard.
If Members of all parties are interested in reducing energy bills—I hope they are, because I certainly am—they need to look at the fundamental point of how much that energy costs to produce. I have recently seen figures that suggest, and I think at least one Member who is present will correct me if I am wrong, that it costs about £20 per megawatt-hour to generate our electricity from coal, about £40 per megawatt-hour to do so from gas, about £95 per megawatt-hour with subsidies to do so from nuclear or onshore wind and a lot more to do so from offshore wind and other renewables. It is a fundamental economic fact that if we want to reduce electricity prices, we need to ensure that as much electricity as possible is generated from coal and gas, not from expensive renewables. That is one sure fire way to bring prices down.
The hon. Gentleman presents a bit of a puzzle. How does he explain his own Government’s recently rolled out policy of putting 11p on everybody’s bills precisely to generate more power for consumers from gas and coal? It has nothing to do with climate change; it is just an 11p increase in people’s bills.
The hon. Gentleman would have to ask a member of the Government about Government policies. I have always taken a rather different view on energy, as he will be well aware—that we ought to generate it from the cheapest sources possible, which at the moment are coal and gas. That would bring prices down.
Of course, there is more that we could do to bring down prices. Currently, about 40% of our electricity—actually 47%, I see from my notes—comes from gas. It is worrying that Opposition Members are so quick to rule out the possibility of hydraulic fracturing as a means of getting our own gas out of the ground. That energy technology could generate thousands of well-paid jobs and deliver cheaper prices to consumers. It certainly will not do any harm, and provided that all the environmental safeguards are put in place, to which we are absolutely committed, we should explore that technology.
Finally, I turn to smart meters. Like many people, I have a smartphone. Nobody forced me to buy one; they were out there in the shops and somebody else bought one, and it looked like good technology so I went out and bought one. I have absolutely nothing against smart meters. If somebody wants to produce one and put it on sale in Currys, I might think about it. What I object to strongly is the idea—an anti-conservative one, in my opinion—that we will all be forced to have them.
The latest report I have seen on smart meters, from June, suggests that the price of putting them in has gone up to £11 billion, and there is a possibility of its going much higher if people are not as enthusiastic about them as the Government think. I am certainly not enthusiastic about them. That £11 billion will simply be added to our energy bills, but we are told that it does not matter because there will be £17.1 billion of benefits. Of course, if we look at the report carefully it is clear that those benefits, if they ever arise, will not come through until about 2030. One of those benefits is that people will be using less electricity, which will presumably be because their prices have gone up because they have a smart meter. Some of the benefit calculations have been derived from the fact that the Government will be paying less of the taxes that they are effectively imposing on themselves for carbon emissions. It is all smoke and mirrors, and a return of £17 billion on a risky £11 billion investment over 15 years is frankly a pretty poor one anyway. I suggest that the Government might want to think again about that.
It is great news that the shadow Secretary of State has used her Opposition day debate for this subject. Let us talk about energy prices and getting them down as low as possible. People have a right to cheap energy. I knock on thousands of doors—I am up for election in a few months, like everyone else, so I am putting my money where my mouth is—and people in my constituency are more worried about rising fuel prices than about the non-existent rise in temperatures. No rise has taken place since 1997. It is the economic climate we should be worrying about, not the geographical climate.
For those of us who have taken part in a few of these debates, there seems to be a depressing familiarity to the arguments that are put forward. Today, the Secretary of State has told us that switching is the answer. To my mind, and based on my experience, switching supplier is subject to the law of diminishing returns. Someone might get a better deal the first time they switch, but they will not get a much better deal the second or third time. Switching is a limited answer to some of those problems.
The right hon. Gentleman mentioned new entrants to the market. Yes, there are new entrants, but many are internet based and depend on direct debit, and the very people whom we most need to help with lower fuel prices are those least able to take advantage of those deals. Many perhaps do not have a bank account or may already have a debt with an existing supplier that means new suppliers will not take them on. The idea is a fallacy. Switching to new entrants in the market will not address the problems that we face with energy prices. As the hon. Members for Glasgow North West (John Robertson) and for Wansbeck (Ian Lavery) mentioned, fuel poverty is at the root of this issue, and we must do something about it.
I talk about Scotland because that is what I know best. The Scottish Government have invested £300 million since 2009 on a raft of fuel poverty and energy efficiency programmes, and they will spend a further £94 million this year and next. Figures from Energy Action Scotland show that in 2013-14 an average of £36.48 central Government funding was invested in energy efficiency programmes for low-income households in Scotland, compared with £31.31 in Wales, £27.55 in Northern Ireland, and a paltry £3.52 in England.
The number of households in fuel poverty continues to be a disgrace. The 2013 Scottish house condition survey shows that 39.1% of Scottish households were in fuel poverty. Last year, despite the many schemes aimed at reducing fuel poverty, that number increased by 100,000 to reach 940,000. That increase is appalling, and it is almost entirely down to the rise in fuel prices. Indeed, it has been estimated that the fuel poverty rate for 2013 would have been 11% rather than 39%, if fuel prices had risen in line with inflation between 2002 and 2013. That demonstrates a fundamental failure of the UK regulated energy market.
The UK Government’s approach is to give lectures on switching, but that will not fix the problem. In Scotland there is a more determined attempt to approach the issue through home energy efficiency programmes, which also helps combat climate change—I do not accept anything said by David T. C. Davies on that issue. However, all that is being wiped out by the inexorable rise in fuel prices, and the changes made by the UK Government to the energy companies obligation have impacted Scotland adversely.
I understand Labour’s position on a freeze or cap, or whatever it now wishes to call it, but there may be difficulties with that approach. Having said that, I am prepared to ask my colleagues to support the motion since I am becoming fed up with the actions of energy companies. I have often said that energy companies offering deals for insulating homes and so on is perhaps not the best approach, because people no longer trust energy suppliers—hardly surprising, given what is happening with some of them. We must do all we can to assist vulnerable customers, but wholesale prices are falling and that has not been adequately reflected in the retail price of energy.
The motions wishes to put a statutory duty on the regulator, but as I said in an intervention, my experience of regulators does not fill me with confidence that that would happen quickly, even with a statutory duty. Indeed, I fear that it would end up being kicked into the long grass as the regulator takes its time, holds an endless investigation into the matter, considers the factors leading to increases, analyses price movements and so on—we all know what Ofgem and the Competition and Markets Authority are like. We might all have retired before we have a decision, and matters will have moved on to a new price cycle by then. If we are going to impose such a duty, we must ensure a strict and short time limit for considering the issue and coming to a decision, so that people get the benefit—
I congratulate Caroline Flint on the élan, and not a little brass neck, with which she outlined her case. There is no disguising the fact, try as she might, that Labour’s energy policy is in chaos. If she takes the trouble to read her leader’s speech at the party conference—the one that Edward Miliband wrote down and therefore remembered—she will see that he said time after time after time that he would introduce an energy price freeze: never a mention of a cap and never a mention of prices going down, only a price freeze. It was only after Labour realised it made that schoolboy error that it morphed its policy into a price cap. It now seems to have transmuted even further. It is a policy in chaos.
Does it matter that Labour’s policy is in chaos? Yes it does. Tony Cocker, the chief executive of E.ON, a company the right hon. Lady praised a short time ago, said in evidence to the Energy and Climate Change Committee that every time the Leader of the Opposition opens his mouth the cost of its capital goes up. Whatever we may think of the big six, we need those companies to invest in our energy infrastructure. In the past five years, each of the big six has invested about £5 billion. We all accept, even the right hon. Lady does not demur, that we need to invest about £110 billion in the next 10 years in our infrastructure—the pipes, pylons and the power stations—to keep the lights switched on. At the current rate of spend, the big six are going to invest about £70 billion only, which is an investment gap of £40 billion. Unless we can encourage those firms and others to invest more, the shortfall will have to be made up by the consumer through higher bills or the taxpayer in higher taxes, or we will have to borrow the money, meaning that market interest rates may go up and everyone’s mortgages go up as well.
The Labour party’s proposal has a very real negative effect on people’s energy prices and on their lives. Just at the time when we are discouraging investment from the big six, Labour’s proposal will entrench their position. As Ovo Energy and First Utility—the provider of choice for the Leader of the Opposition—have said, the proposal for a price freeze will drive them out of the marketplace. It will reduce competition, so there will be even fewer companies to invest and fewer companies to buy energy from. The best, simplest and right approach to deal with the cost of energy for our constituents is to reduce the number of the confusing array of tariffs that have discouraged people from switching.
I will not give way. I will let the hon. Gentleman make his speech later on, if he so wishes.
The best and simplest proposals to reduce energy prices are to reduce tariffs so that people know what the prices are; put people on the lowest tariff that is best for them; and roll back green levies, which will save in total £250 to £300 a year for our constituents. They are not an ill-conceived sham, which is what Labour’s proposal is. Labour’s proposal is no way to run an energy policy and no way to run a Government.
It is a pleasure to the follow Christopher Pincher, but I think he misrepresents the words of the chief executive of E.ON in the Select Committee. I certainly never heard him saying those words about the Leader of the Opposition and his energy policy. I can understand energy companies feeling uncomfortable when we have a reset proposal for the energy market and closer scrutiny, but I make no apologies. If it is in the interests of the consumer, we should move forward as soon as possible.
The important thing is to be concerned about current consumers and their energy bills being as low as possible. However, we must also think about future consumers and ensuring investment in supply and in networks. The lesson from when Labour was in Government and we faced high gas prices is that it did not intervene in the market, but allowed the market to bring forward new investment that brought new supply and prices down.
I thank the hon. Gentleman for his intervention. I think he was complementing the previous Labour Government on their handling of energy matters. If we get a new Labour Government, we will do exactly the same thing: create the stability that has not been there. [Interruption.] I am pleased that Sir Alan Duncan has returned to the Chamber. When gas and oil prices rise, the suppliers rush to pass on the costs to us, yet when we read in the papers that the oil price has collapsed and gas prices are falling, we have to wait a long time before it comes through on our bills.
The first thing we need to do is
“give the regulator the teeth to order that those reductions are made”— not my word, but the words of the Prime Minister before the election. I cannot accuse him of being consistent between what he said before the election and what he has said since taking office, but he should be in the Lobby with Labour today, supporting our proposals.
I have long felt that our constituents’ concerns have not been put forward. However, I praise the Energy and Climate Change Committee for producing a number of reports on this subject, including one on prices, profits and poverty in the 2012-13 session. The big issue then—and rightly so—was the confusion and complexity of bills, to which many Members have referred. The outcome was good. We recommended that the Government give extra powers and responsibilities to the regulator to act in the interests of consumers, and the Government enacted just that. We are asking for the same today, and if the Government could do it then, they can do it now. At the time, consumer groups highlighted how, when the price of oil and gas fell, it did not follow through to bills, and Ofgem cited evidence that
“bills respond more rapidly to rising supplier costs compared with falling costs.”
As has been said, the regulator’s remit is to protect consumers. It could intervene sensibly, conduct reviews in its own time—it does not have to wait—and ensure that the consumer gets a better deal. That is what it is there for.
I am pleased with Labour’s policy on energy prices and strengthening the regulator. Like other Members, I have concerns about those off the gas grid. As part of its market reset, Labour will be looking to regulate that area. My constituents who are not on the gas grid are paying considerably more in their unregulated areas—they do not have dual fuel, and their prices have been rising steadily—so I am pleased about the reset and the price freeze, or cap. Whatever hon. Members want to call it, the point is we are going to look at the energy market. It is fractured, and a fracture takes an awful long time to heal, unless immediate action is taken.
We should be taking that immediate action. Government Members have the opportunity today to stop standing up for the big companies and the industry and instead stand up for their constituents. If they are knocking on doors, they will be hearing how consumers are being hurt by rising energy prices. I have seen the bills of my constituents, very recently, which show not a fall but an increase in the cost of energy since last year—and in that period we had a relatively hot summer and a relatively mild autumn and winter. What is coming will be even harder for people. Yes, there will be a slight drop in prices, and I do welcome E.ON taking the lead, but why has it done it just for gas? When gas prices were rising, the big six told us it had an immediate effect on electricity prices, yet they are not now reducing their electricity prices.
In the last year, the wholesale price of gas has dropped by 20%, but the consumer has seen just a 3.5% drop—from one energy company. We need to rebalance the energy market. We need to stand up, and be proud to stand up, for our constituents. The motion gives us the opportunity to follow the Prime Minister’s wise words. Instead of playing King Canute, instead of being ridiculous—he has been ridiculed by Members of his own party—the Prime Minister, as well as all Government Members, should stand up for our constituents, join us in the Lobby to support our constituents, who send us here to protect their interests, and get the regulator to do its job.
The longer this debate goes on, the clearer one can see why, under Labour, gas bills doubled, electricity bills went up by 15% and fuel poverty trebled. Labour Members like to talk the game when it comes to lower prices, populism and easy answers, but the reality, as we saw when they were in office, is that their measures are ineffective and often counter-productive.
Let us take their current price freeze idea. If Labour’s policy had been implemented when it was announced, energy consumers would have lost out. Today’s consumers are better off with the Conservative/coalition policy that has been pursued. It is clear that Labour sources realise this and provide quotes that admit it. A Labour source spoke to
The Sun and “Mail Online”, so let me acquaint Labour Members with this for the better understanding of their own policy. This Labour source said, and Labour Members should listen carefully:
“The freeze was announced at a time when energy prices were rising inexorably—nobody was talking about prices coming down, or even thinking about it. Obviously, if bills are coming down at the election there may have to be a bit of rebranding to make it clear it will operate as a price cap instead.”
What we are seeing, and what this debate is all about, is the screeching of brakes and the squeal of tyres as the Labour bandwagon puts into effect another mad U-turn that is ill thought out and entirely chaotic, as the freeze is rebranded as a cap to take advantage of the reality that petrol, fuel and energy prices are now falling.
I am proud that this Government have rolled back the green levies by £50, and I note that, not so long ago, the shadow Secretary of State was talking about green taxes as being “only” £113. I note, too, that the Leader of the Opposition wants to increase green levies and put more greenery in our electricity bills, driving up the cost of power. We know that the Opposition have set out that policy and that we have taken action to safeguard the interests and position of consumers. [Interruption.] If the shadow Secretary of State wants to make an intervention, I would welcome it.
Is the hon. Gentleman aware that when the Government let the energy companies off the hook, this meant 400,000 fewer households got insulation, and that a huge amount of the benefits going to the energy companies was never passed on to their customers?
It is pity to hear that from the shadow Secretary of State who served in a Government who allowed the sort of integration in the energy market that permitted generators to integrate vertically so that providers at the downstream end were able to have an unnecessary and wrongful monopolistic position.
That brings me to the key point that switching is a really important part of a competitive market. It is a real shame that the Opposition have sneered at switching and mocked its importance. They seem to want some kind of monopolistic Leviathan of energy oligopolies that they had when they were in office. I think that is wrong and that we need to encourage competition and switching. When I switched, I made a substantial saving and all Members should encourage people to do the same. We should be there for our constituents as consumers, helping them by urging them to be aware of how to get the best possible deal.
What we have seen in today’s debate is complete chaos in the Labour party’s position on the energy market, just as we have seen complete chaos when it comes to their economic policy. Time and again, and so close to an election, the Labour party is simply all over the place when it comes to the kind of policies that go to the heart of how our consumers, our constituents and our people will live. That underlines the fact that we need a long-term economic plan, which Government Members have, and that this Government’s longer-term planning on the energy market is clearly the right way forward, getting consumers the best deal.
Listening to Charlie Elphicke was a rather curious experience, given that more or less the entire policy of the Department of Energy and Climate Change under the current Government, particularly as it relates to such matters as contracts for difference and the levy control framework, is based on the assumption of inexorably rising energy prices. In fact, the policy is rather falling to bits, because the Department can no longer make that assumption. The Opposition’s proposal, on the other hand, is based on the reality of the regulator as we now find it, and the reality of what will continue to be a volatile energy market over the coming period.
I smile a little at some of the assumptions made by Members about what the regulator actually is. It has always been the case—or, at least, it has been the case during recent periods—that the regulator has done a great deal more than Sir Alan Duncan believes that it has. As he said, he believes that the regulator simply prevents collusion, but it performs a number of other functions, relating to, for instance, the close of market, cash-out and balancing, which are integral to the energy market as it stands. At present, however, the regulator is itself regulated asymmetrically when it comes to its ability to intervene in that volatile market. Our proposal, which is very simple, is to remove some of that asymmetricalness, if such a word exists—
I thank the right hon. Gentleman. We propose to remove some of that asymmetry. While we would not expect a regulator to have a knee-jerk reaction to every change in a volatile market, we would, in the event of a considerable drift between those changes and what energy companies are doing, expect the regulator to be able to do what the public would expect it to do: we would expect it to be able to intervene on behalf of the consumer and bring those arrangements into line. That seems to me to be a straightforward and laudable proposal, not only from the point of view of the consumer, but because it constitutes a recognition of the reality of markets.
The objections to the proposal that have been expressed also make me smile a little. We are told that hedging and purchasing strategies would not put up with it. On the basis of what I have heard from the Secretary of State this afternoon, I think that he has done for utility hedging roughly what Edward Scissorhands did for real hedging.
The operation of hedging in energy and utility markets is not the same as it is in a number of other areas. That hedging, those purchases and that trading must take account of factors such as securing the right amount of energy for the customer—not too much and not too little—at the time when the customer needs it, at the time of gate closure. If the outcome of that hedging turns out to be wrong, the regulator will fine those who are undertaking the process. On such occasions, hedgers will weigh the cost of the cash-out fine against the cost of getting the balance wrong. So a range of other factors are involved in that hedging, over and above the simple question of buying long and hoping that some money can be made out of it.
One of the strategies of the larger energy companies will, in fact, be to buy long—rather more than they can conceivably hope to provide for their customers—and shape the amount as gate closure approaches. If the markets are volatile, they will adopt strategies which get that right. The ability of the regulator to undertake those changes is compatible with the process leading up to gate closure, notwithstanding what has been suggested this afternoon.
Finally, I smiled a little at the haste with which the Secretary of State, in particular, talked of reducing energy prices, given that, as I said earlier, the recent capacity auctions have potentially raised prices by £11 per customer. I may have inadvertently said 11p in an intervention. The sum is in fact £11 per customer—I thank Tim Probert for that proper figure—and that gives the lie to the idea that this is all about price reduction. It is about disguising price increases in the context of regulation which should be in place to ensure that these things work properly in the future.
We have, as is customary, had an interesting and wide-ranging debate, and we have been able to establish beyond peradventure three important facts, mostly through the contribution of the Secretary of State, I have to say, who is, characteristically, not in his place for the end of the debate; that happens frequently. The first of them is that over the past 12 months as wholesale energy costs have fallen, consumer bills from the largest suppliers have not followed. Secondly, as my right hon. Friend Caroline Flint said and Mr Weir also made clear, the least well-off—those with the lowest disposable incomes—have had the highest increase in their bills and have the lowest rates of switching. Thirdly, as has become typical in these debates, the Energy Secretary made a lengthy and confused speech, and four years into his job he is neither in control of energy policy nor intends to do anything about the issues we are debating. Constituents in all parts of the UK will find that an extraordinary and unacceptable state of affairs.
We know that the regulator is concerned. It made that clear in its state of the market assessment, and there is an asymmetrical approach between cost increases and decreases in consumer bills—the rockets and feathers argument. We know it thinks that that is worse than it was the last time it looked at it in 2011. We also know as of today that Ofgem thinks that the E.ON change is a small step in the right direction, rather than some demonstration, as the Secretary of State seems complacently to believe, of a dynamic market working in the interests of consumers. We know from the figures that Ofgem has access to that over the course of the last 12 months the profit margin on the retail part of the businesses of the largest companies has increased from 4% to 8%, and that is without taking into account the generation businesses and the margins achieved by the integrated companies in that area.
The Secretary of State gave away his real attitude, probably inadvertently. He claimed that people could, if they really cared, get a better deal. They might not care in Kingston or Surbiton, but in many communities around the country represented by Members of all parties they do care. They do care that they have had higher bills—£260 higher since 2010. They do care that they see wholesale prices reducing but their standard tariffs not following, and they do care that they have heard this afternoon from the Secretary of State a litany of excuses, distortions and complacent disinterest in doing anything at all about the situation we find ourselves in.
I agreed with much that Mr Yeo said—that will probably not do him any good with his own party, but given his recent experience with it, I doubt he cares very much, frankly. I think it is disgraceful that demand-side management was less than 1% in the recent capacity market auction, and that case was made prior to those auctions. I also agree with his points on vertical integration. He knows, unlike other Members who have tried to demonstrate their expertise in these areas, that the proposals we set out in November 2013 included looking at, and making sure there was, a proper ring fence between the supply and generation arms of the companies precisely for the reason he gave in relation to transparency. Where I disagree with him—and Christopher Pincher made a similar case—is on the impact on investment. I think both of them will recall, if the hon. Member for Tamworth was present on that day, that when Andrew Buglass from the Royal Bank of Scotland, one of the biggest investors in clean energy, came before the Energy and Climate Change Committee, he was explicitly asked whether he thought the Labour party policy on energy prices was affecting investment decisions, and he made it clear that the investors he talked to
“take a lot of comfort from the cross-party support that has been shown through the EMR process”,
in terms of supporting contracts for difference and the framework, if not the detail, of the capacity market mechanism. That is what is most important in relation to investment, and I am sure the hon. Member for South Suffolk knows and understands that.
My hon. Friends the Members for Glasgow North West (John Robertson) and for Wansbeck (Ian Lavery) helpfully reminded us with both passion and precision—as they frequently do in such debates, and on the Select Committee of which they are both members—of the impact of high fuel prices on consumers. My hon. Friend the Member for Glasgow North West reflected on the power of big suppliers who could, with the will, do so much more.
Sir Alan Duncan gave a spirited lecture on posturing—a subject he appears to have great expertise in. He seemed not to be aware that Ofgem has access to market data and can therefore observe trends. This is not just about one market, but the combination of the day-ahead and forward markets over a sustained period. Over that period, wholesale costs are down and that has not been reflected in consumers’ bills.
Alec Shelbrooke is a less frequent speaker in these debates, although he is an habitual sedentary chunterer. We have all become used to that—it is part of his charm. He will know that he voted back in June against the regulator being able to take action for consumers. His constituents will find that difficult to understand, and I am sure they will be reminded of that fact between now and May. Because he did not take part in previous such debates, he seemed unaware that, as my right hon. Friend the Member for Don Valley made clear, the policy we have had since autumn 2013 has been transparently set out in this House. She and I have been asked a number of times about the price freeze, and we have made it clear that the policy is to prevent increases in bills, not reductions. The first time I did so was during a speech at an afternoon fringe meeting at the September 2013 party conference, which was recorded by the BBC, so the record is absolutely clear, as reflected in the comments of the energy correspondent of The Daily Telegraph.
I have a quick question on the price freeze—or price thaw, as it now is. In the event that prices fall during the time of the price freeze, will companies be permitted to increase them subsequently, and if so, to what level: the previous level, the new level—or will some pronouncement be made on that subject?
I am slightly surprised at the hon. Gentleman. In the conversations we have from time to time, he usually demonstrates a much better grasp of the issues. He knows that our policy is a freeze on price increases, which does not prevent decreases. That policy is in place because of the increased margin that was made between 2008 and 2009, when the same problem occurred: wholesale prices went down by 45% but that reduction was not passed on to consumers. That is the reality, which has affected his constituents, mine and those of every Member of this House. The Government should ensure that the regulator addresses that, in line with the motion before us.
I will not give way again because I want to respond to more of the contributions that were made.
My hon. Friend Mr McKenzie made clear the importance of taking action on fuel poverty. My hon. Friend Albert Owen, in a telling contribution, helpfully reminded us of what the Prime Minister said about the importance of the regulator being able to take action when the fairness principle is not applied—an important point that we should all be aware of. My hon. Friend also touched on the issue of off-grid customers.
Charlie Elphicke quoted from an anonymous Labour source in his speech, which effectively defended energy companies rather than standing up for his constituents. A named Labour source—me—can tell him that that will not go down well with his constituents in the 113 days we have left until the general election. My hon. Friend Dr Whitehead made some important points about the regulator’s role in standing up for consumers when it is clear that the competition in the market that we would like to see is demonstrably failing.
This is a simple, straightforward and compelling proposition before the House: where there is a failure of the competitive market dynamics—we have seen precious little evidence of those in recent months—that the Secretary of State and others are proposing, the regulator can help to focus the attention of suppliers through the use of a back-stop power to ensure that the relationship between wholesale prices and the retail prices consumers pay is properly applied. If the suppliers do not act, the regulator will be able to step in and make good the situation. The Secretary of State has demonstrated again today that he is out of touch, out of his depth and, unfortunately, almost out of time. I am a generous-spirited individual, however, and as he seeks to secure a lasting legacy as his tenure in his job comes to an end, I will give him one last chance. He can now vote for the motion and act to ensure that energy cost reductions are passed on to consumers. I strongly advise him to do so, and I commend the motion to the House.
This has been a welcome opportunity to debate one of the biggest issues in British politics, and there have been some lively contributions from both sides of the Chamber. Helping households to stay warmer for less has been the No. 1 priority for this Government. That is why, since coming into office, we have been working hard to make the energy market more competitive and to break the stranglehold of Labour’s big six.
We have taken action to encourage switching, to reduce policy costs on bills and to support the first competition inquiry since privatisation. Indeed, since 2010, the number of independent suppliers has nearly trebled, to 19, and their market share is now the highest on record, at 10.5%. We have slashed the number of energy tariffs and ensured that suppliers are putting people on the cheapest variable tariff, helping consumers to save up to £200. New figures suggest that the savings could be up to £300. We supported the first competition inquiry since privatisation. The Labour Government did none of those things when they had the chance.
Yesterday, E.ON announced that it was cutting its standard variable gas price by 3.5%. That is very welcome news for households, and energy suppliers must continue to pass on savings from lower gas prices. Yet the chief executive officer of E.ON has admitted that, given the possibility of a price freeze, the company was “undoubtedly taking a risk”. We should be clear that this reduction would not have happened under the Opposition’s ludicrous price freeze policy, which would have resulted in high bills being frozen until 2017 and families being unable to feel the benefit of falling global gas prices.
I am sorry to interrupt the Minister’s party political speech—[Laughter.] Conservative Members may laugh, but they are on the wrong side of the argument when it comes to consumers. On the 3.5% reduction in the price of E.ON’s gas, is she as confused as I am about why there has been no throughput to the company’s electricity price, which is not being reduced? When gas prices go up, it is the companies, not the Secretary of State, that tell us they have to follow suit and increase electricity prices.
Electricity prices have not fallen at that rate. I must gently tell the hon. Gentleman off for suggesting that I might be trying to “weaponise” this important subject. That is something we should never do.
We know that the cheapest tariff currently on the market is £100 cheaper than the cheapest tariff a year ago, and that if Labour had been able to freeze prices in October 2013, customers would already be £100 a year worse off. Labour’s price freeze proposal is preventing bills from falling further. I know that Caroline Flint likes to take comments such as these as confirmation of an expectation of another Labour Government, but the frisson of fear from the market at the prospect of the chaos that would ensue under a Labour Government is resulting in suppliers being unsure about making price reductions.
Labour does not understand that we need to fix the market for good, not freeze it. That means taking policy costs off bills, forcing suppliers to be transparent about their costs and profits, and getting behind the independent inquiry, which reports in June and has the power to break up Labour’s big six. Unfortunately, the Labour party appears to think that it can make up for its total failure to reform the energy market during its 13 years in office by advocating short-term gimmicks. This goes to the heart of the debate on the future of the energy market and the debate that we have heard today.
Let us consider for a moment what regulating to require that suppliers pass on reductions in wholesale costs would mean in practice. For a start, it is likely to mean more volatile prices for customers. Gas wholesale prices can change significantly and unexpectedly. If companies have to put prices down immediately following a reduction in wholesale prices, they will have to put them up immediately after a rise. So I think we can see from the contributions we have heard and from the comments from people in the market that that would not work.
Let me address some of the comments made in this afternoon’s enthusiastic debate. Mr Hain told us about the Severn barrage project and his view about the opportunities for cheap electricity from it. We all listened carefully and I thank him for his contribution. My hon. Friend Mr Yeo, the chair of the Energy and Climate Change Committee, highlighted other areas where we could bear down on costs and the action that Ofgem needed to take. The hon. Members for Glasgow North West (John Robertson), for Ynys Môn (Albert Owen) and for Rutherglen and Hamilton West (Tom Greatrex) spoke about fuel poverty. I wish to remind the House of this Government’s absolute commitment to reducing fuel poverty. We have made that central to our policies since we came to office. We recognise that vulnerable consumers need more action to help them take action to save money.
One point made by the hon. Members for Ynys Môn and for Inverclyde (Mr McKenzie) is that not everybody is able to take action to switch, and they questioned the value of switching. That is why we have committed nearly £2 million over two years to fund community and voluntary organisations through the big energy saving network; our network provides specially trained volunteers to help consumers in communities across the country to get better deals from energy suppliers and reduce their energy bills—this helped more than 90,000 people last winter. We know that there are people out there who need our help and we are determined to make sure that they get it, so that the most vulnerable are never left behind.
My right hon. Friend Sir Alan Duncan gave us an excellent talk on Labour party policy, saying that the tide can go out but the Opposition think, extraordinarily and Canute-like, that they can bring it back. I was grateful for the contribution from Ian Lavery, who chose to characterise this debate as being about big business versus people. He is quite wrong. This is not an example of that; it is an example of an energy market that needs to be regulated well. I urge Opposition Members not always to think of businesses, which provide investment and employment, and which are vital to our economy, as somehow being wicked.
My hon. Friend Alec Shelbrooke made his usual excellent contribution, commenting on behalf of his constituents. He stressed that not only is Labour’s proposal wrong, but it could cost constituents money. May I say what a pleasure it was to visit him in Kippax in his constituency to see the excellent work being done for home efficiencies in his area? The hon. Member for Inverclyde raised issues on behalf of consumers, specifically referring to direct debits. May I point out to him that this Government have regulated for money accumulated by energy companies under direct debit always to be returned by the end of the year? I was interested to hear of the project he mentioned, whereby there was local working with his vulnerable constituents.
My hon. Friend David T. C. Davies pointed out that shareholders of these energy companies play an important part in our community, too. It was good to hear of his enthusiasm for shale, although less so for smart meters—let me reassure him that they will not be compulsory. Mr Weir spoke about fuel poverty and he should be in no doubt of our efforts to help people out of fuel poverty—we will continue to do that. I should point out to him that switching is an important part of not only delivering lower bills on a one-off basis, as he described, but stimulating other independent companies to join the market. Competition is the way to reduce the costs. My hon. Friend Christopher Pincher highlighted the chaos of the Labour party and the need for energy companies to generate funds to invest—he is quite right.
My hon. Friend Charlie Elphicke contrasted the chaos of Labour’s policies, both in this area and more generally, with the competence and careful planning, which is needed for a stable economy, under this Government. The hon. Member for Southampton, Test (Dr Whitehead) made the case for the regulator to regulate hedging policies, which is, I think, a little ambitious.
We have had an excellent debate, which, as always, has raised a lot of interest from fellow Members. But let me make the point that it is only by providing the right competitive framework that we will help to ensure that investment in our energy markets continues to flow, that industry can grow and that the markets deliver for consumers. Only through fixing the market for good—not interesting, temporary, short-term gimmicks—can we truly help consumers to stay warmer for less. I urge the House to reject the motion.