Domestic Gas and Electricity (Tariff Cap) Bill - Report

Part of the debate – in the House of Lords at 4:34 pm on 27th June 2018.

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Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy) 4:34 pm, 27th June 2018

I think my noble and learned friend would like me at least to respond before he seeks to withdraw his amendment. I echo his congratulations to the noble Lord, Lord Carlile, on his last appearance in the courts after many years. I hope that as a result we will see him in this House—but perhaps speaking to amendments where he might want to support the Government.

I hope that I can set out the Government’s arguments in responding to my noble and learned friend and that in doing so it will be useful to the House to get our views on the record. As we discussed in Committee, Amendment 3 would insert a right of appeal regarding the price cap to the Competition and Markets Authority. As I said in Committee, we believe—as did the BEIS Select Committee when it looked at this, and others—that judicial review provides a sufficient means of challenge to ensure the provision of a fair and public hearing within a reasonable time by an independent and impartial body established by law. As I understand it, the belief is that the decision of Ofgem when it puts the cap in place should be reviewed by another body of experts—specifically the CMA—because Ofgem could get something wrong.

As my noble and learned friend made clear, in Committee I undertook to write to the CMA to seek its views on his amendment. I felt that it would be prudent to see what the CMA had to say about creating what would be a new right of appeal to that body relating to a decision taken in exercise of Ofgem’s powers under the Bill.

The CMA’s chief executive has been kind enough to respond with a letter, which I have already shared with some noble Lords, and I would be more than happy to make it available to your Lordships more widely if necessary. The letter makes three things clear. First, the CMA shares the Government’s view that judicial review is an appropriate means of holding Ofgem to account and providing parties with a right to challenge. Secondly, the CMA shares the Government’s view that judicial review is the appropriate means of holding Ofgem to account and providing parties with a right to challenge. Thirdly, the CMA makes it clear that it does not consider itself best placed to conduct such a review and questions whether doing so would benefit consumers.

I have the greatest respect for the views expressed by my noble and learned friend and note that on the first point—that judicial review is an appropriate route of challenge in this context—there is no argument between us. However, where we differ is on the second point: whether judicial review is the appropriate route of challenge. The Government’s view, shared by the CMA, is that judicial review is the most appropriate form of judicial scrutiny in these circumstances. The price cap under the Bill is not the same as the existing long-term price controls, to which it is often compared. The price cap will be a temporary measure that stems from a government decision—a manifesto commitment —and not from the regulator’s assessment. That is what distinguishes it from the price controls on regulated monopolies.

That subtlety is highlighted by the CMA when it says that the price cap Bill reflects,

“a policy intervention by the Government … to protect consumers, where there is no statutory or regulatory monopoly, and where the decision does not result directly from a market power assessment”.

The CMA notes that,

“this distinguishes the Price Cap Bill from the existing price control regimes where the CMA is the appeal body”.

As such, this price cap is very similar to the Government’s intervention via the FCA in the payday loan market, which does not provide for an appeal to the CMA. My noble and learned friend’s amendment would therefore make this price cap the exception, not the rule. Following on from that point, the CMA’s letter makes it clear that, as a government intervention, it would be inappropriate for the CMA to reassess any issues already considered by the Government in developing the price cap policy.

Let us not forget that many of the key issues to which Ofgem should have regard under Clause 1(6) have already been reviewed and approved both here and in another place. Ultimately, it will be for Ofgem to consider those factors, bringing to bear the full weight of its experience as the regulator in this field. The courts will be able to assess whether Ofgem has got it so seriously wrong that it should reconsider its decision. It would not be right for the CMA to be introduced into the process to second-guess or fine-tune Ofgem’s decision. That, ultimately, is what the suppliers who strongly advocate this approach would want. I cannot imagine that the suppliers who support the approach set out in the amendment would advocate that if they thought it would make it more difficult for them to challenge Ofgem’s decision.

The Government note that Ofgem has a complaints procedure in place for suppliers to make representations to the regulator to address concerns or errors. The regulator, in turn, has the powers under the Bill to change the licence conditions, should such change be necessary. All this may take place without recourse to legal means.

The third point in the CMA’s letter concerns the expertise of the CMA. The letter states:

“While … the CMA agrees that the Judicial Review route is the most appropriate form of judicial scrutiny for any interim price cap decisions made by Ofgem, it does not consider itself to be any better placed than the courts or specialist tribunals to conduct such a judicial review”.

The letter goes on to declare:

“The CMA does not consider that a review role for it in this regard would benefit energy consumers”.

Although presented with a series of complex legal issues—on which, I am sure your Lordships’ are not surprised to hear, there is obviously room for lawyers to disagree—this boils down to a relatively straightforward question of policy: what is the preferred standard of review and who should conduct that review? I have made clear the Government’s position, with which the CMA agrees.

I am grateful to my noble and learned friend for moving the amendment—on which we have had useful discussions—and to the CMA for writing in response to my request and making its views clear. My noble and learned friend brought forward his amendment to hear again for the record what the Government’s position was, and I am grateful to him for making it clear that he does not intend to press it.