Domestic Gas and Electricity (Tariff Cap) Bill

Part of the debate – in the House of Commons at 6:34 pm on 6th March 2018.

Alert me about debates like this

Photo of Alan Whitehead Alan Whitehead Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change) 6:34 pm, 6th March 2018

This afternoon we have witnessed the House at its best. I think it is fair to say that we have had not a single stupid contribution to this debate. [Hon. Members: “Yet!”] We are getting there. On the contrary, we have had a series of informed and thoughtful speeches, which, as Richard Graham said, have been overwhelmingly supportive of the Bill.

I particularly emphasise the contribution of my hon. Friend Rachel Reeves, who informed us that loyal customers are not rewarded but punished with high-price tariffs, and that energy companies have effectively brought this event on themselves with their discriminatory pricing—a theme that a number of hon. Members echoed. We heard a number of first-rate speeches by members of the BEIS Committee, which my hon. Friend chairs and of which Antoinette Sandbach, Drew Hendry, my hon. Friend Albert Owen and Stephen Kerr are all members. The quality of the Committee’s report is underlined by the quality of its members, who have so informed our debate. I congratulate the Committee on its report, which was really illuminating in the context of the Bill and what Committee members have said about their work.

My hon. Friend Gareth Thomas pointed out that the price cap itself is not going to change the nature of the market, that other forms of ownership are available, and that a lot more has to be done on changing how the market works in the longer term. I salute my right hon. Friend Caroline Flint for her long campaigning on and intense interest in the price cap. In her view, we are at the end, not the beginning, of a long campaign to get action taken. My hon. Friend Alex Sobel reminded us particularly of the transition that we are making towards a locally disseminated energy economy and the importance of fair pricing to the longer-term issues. If I have missed out other hon. Members’ contributions, it is merely for the sake of time rather than a lack of estimation for what they have said. Overall, we have had a high-quality debate.

Because the contributions were as supportive of the Bill as they were, it would be particularly churlish of me to spoil the atmosphere by saying anything other than that we will not oppose the Second Reading of this Bill. We agree with the important points that have been made about the reasons for the cap, the consideration that has gone into it and what we need to reflect on with regard to its future.

Indeed, why should we oppose the Bill’s Second Reading? After all, if we look closely at the Labour party’s 2013 proposal for a price cap, we see an almost identical proposal: a temporary cap lasting a specified period and then removable based on an understanding of how the market was working. I am afraid to say that, as my right hon. Friend the Member for Don Valley pointed out, when that cap was put forward in 2013, it was roundly condemned by the Conservative party in trenchant terms. In that light, it is not surprising that the Government did nothing about a price cap for an extended period, during which action could have been taken to sort out energy market prices and create a fairer deal for customers—which, in the end, this is all about.

We have now had the Government’s conversion to the idea of a price cap. As Adam Smith famously said, I think in “The Wealth of Nations”:

“On the road from the City of Skepticism, I had to pass through the Valley of Ambiguity.”

I cannot give you a page reference for that, Mr Speaker, but that is what Adam Smith had to say about his route, and I think it rather sums up what the Government have gone through to get to this point.

A price cap was suggested in the last Conservative manifesto, then apparently reneged upon by the incoming Government, then rather weakly pushed away by the Department as the responsibility of Ofgem, then once again affirmed as a target idea at the last Conservative party conference, and then finally introduced as draft legislation. It is now being pursued in a hurry, in order to get the necessary legislation through in time for a cap to come into force by next winter.

That is quite a daunting timetable, but it is one for which we can have only limited sympathy, bearing in mind the time that the Government have wasted by opposition, then vacillation, then confusion and finally some degree of determination to introduce a price cap, which I applaud, and to do so in a way that is reasonably proofed against judicial review and other devices that displeased energy companies might decide to throw against it.

We have limited sympathy for the Government in the difficulty they have got themselves into with the timetable ahead, but I give a clear understanding that we will not oppose the Bill on Second Reading or be party to any slowing of the legislative timetable if it means a price cap is not in place before winter 2018. Indeed, as my hon. Friend Rebecca Long Bailey confirmed, we want to see that cap in place well before the winter, if possible, and are minded to seek to place an absolute start date on the face of the Bill.

It should be clear that we want this price cap to come in. We believe it should be an absolute and not a relative price cap, and we broadly support the cap’s mechanisms, particularly the reference arrangements relating to changes in wholesale prices. However, there are a number of points in the Bill that we want to see amended, and we will pursue those amendments in Committee with a central purpose of strengthening the Bill and not weakening or disabling it.

We want to see a clearer definition of the circumstances in which Ofgem might lay a report indicating that market circumstances suggest that the cap can be lifted. We want to see a better definition of which tariffs can be exempted from the cap—for example, those for supplying green electricity to customers.

We believe that a price cap is necessary now, rather than, say, an intensification of switching as a remedy for unfair price treatment by suppliers, because as hon. Members have said, we know that 65% of customers simply do not and probably will not switch. They deserve better protection for their tariffs—particularly the large number who are on standard variable tariffs—than being told that they are somehow bad customers if they do not switch and that they have to put up with whatever comes their way if they stick with their energy companies.

We want to see better arrangements in the Bill for what comes next, after the cap has ended, when people will continue not to switch and will need continued protection for their position as customers. We were clear in 2015 and are clear today that a price cap should not just be introduced for, as it were, punishment purposes, and then when it is lifted business as usual carries on until someone else suggests that the market distortions and failures require another temporary cap.

Instead, the cap needs to function as a carapace under which work is undertaken to put in place checks and systems to ensure that these circumstances do not recur, that we subsequently have a supply market that is fair to the customer and the supplier at the same time and works well to ensure fair competition, and that customers of energy companies have reasonable and firm expectations of how their energy supply company should deal with them over and above the recourse of switching. We remain to be convinced that the Government really have a set of measures, prepared and ready for implementation as the cap progresses, to produce such a long-lasting result for energy markets, and we certainly intend to seek amendments to the Bill that will allow the process to happen better.

It is in that context that we want to cast the proposals we have heard about today from, among other Members, John Penrose. I commend him for his long battle to make sure that we now have a Bill before us. He has proposed a relative price cap, rather than the absolute price cap set out in the Bill. We do not support the introduction of a relative tariff range limiter as the instrument of a relative price cap. Among other reasons, it would not necessarily be a price cap at all.

However, such a cap would or could be an important device to ensure that customers who we hope will come off SVTs are not subject to equally disadvantageous practices in the long term through being placed initially on a low tariff, only to find themselves subsequently hoisted on to a very disadvantageous tariff, perhaps at levels similar to those of SVT customers, as soon as their initial contract has ended. Placing a piece of elastic between the best tariff and the highest tariff would substantially address such a practice, which is, as we know and have heard today, an area of bad behaviour by some energy companies now, and may well be in the future if we do not act to ensure that it does not happen.

At the beginning of my remarks, I gave the game away about whether we would support or oppose the Bill to provide some clarity of purpose about where the Bill should go not just tonight, but in its whole passage through the House. We already feel that we own the legislation, albeit in a form that has taken a mightily long time in arriving. We hope the Government will think carefully about our proposals to strengthen the Bill as it goes through Committee. If they want to introduce amendments that further reflect both those proposals and the commendable work of the BEIS Committee in carrying out pre-legislative scrutiny, I will not be precious about whose idea they were.

I want a legally watertight, effective price cap arrangement on our statute book as early as possible, with an equally effective regime in place to ensure that we will not be here doing exactly the same thing in a few years’ time. If between all of us in this Chamber we can achieve such an outcome, I will be well satisfied with our endeavours as we start out on that road today.