Domestic Gas and Electricity (Tariff Cap) Bill - Report

Part of the debate – in the House of Lords at 5:00 pm on 27th June 2018.

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Photo of Baroness Kennedy of Cradley Baroness Kennedy of Cradley Labour 5:00 pm, 27th June 2018

My Lords, I wish to speak in favour of Amendment 11, in the name of my noble friend Lord Grantchester. Millions of people who stay with the same energy supplier are being overcharged, ripped off and paying hundreds of pounds more for the same gas and electricity because they are cross-subsidising deals for new customers. There are recent examples of companies charging new customers as little as £800 a year and existing customers more than £1,200 for exactly the same product. In this way, the energy market is not harnessing competition to bring about low prices for all customers, because suppliers are able to exploit and overcharge their existing customer base to subsidise time-limited, often loss-leading, tariffs designed to scoop up new customers. This “tease and squeeze” behaviour is becoming the standard business model for some energy companies and it means that the most reliable customers face a hefty loyalty penalty.

While the Bill marks an important first step in protecting customers from the worst excesses of this failing market, it is clear that political consensus is emerging that, until the cause of this detriment is addressed, it will be only a sticking plaster. It is also clear that there is growing support for a relative price cap as the only way truly to reform the market and harness competition to the benefit, and not the detriment, of customers. Indeed, the tease and squeeze dynamic will become only more pressing as society becomes more digital and customers more distant from the point of sale in consumer markets. As well as accepting this amendment, I ask the Government to meet those experts calling for a relative price cap to find a way truly to address the tease and squeeze dynamic in energy and build a regulatory structure that will be fit for purpose for all consumer markets.

It would be a wasted opportunity to allow this legislation to pass without also addressing the cause of the loyalty penalty, which is why I support Amendment 11, to bring in a relative price cap. Such a cap would force energy companies to link their teaser rates to their underlying default tariff. The Government’s solution is to encourage switching, but if 100% of customers switched every year, administration costs would go up and undoubtedly be passed on to the customer. Where is the incentive for companies to build quality relationships with their customers when they know that they will leave them in 12 months’ time?

In well-functioning consumer markets, such as groceries, loyal customers get low prices even when they do not switch, because new customers are offered the same price as loyal ones. Switching may have increased, but a recent YouGov poll found that 33% of people did not feel that they knew enough to select the right tariff or supplier for them. Data from the energy regulator, Ofgem, reveal that an even higher percentage of people, 42%, are not confident comparing the different energy deals available.

Only a relative price cap will bring an end to exploitative overcharging once and for all. It will give customers the choice to stay where they are without fear of being exploited and remove the need to hunt every year for a fair price. Introducing a fairness mechanism into the UK energy market is long overdue and will benefit everyone, from those who buy energy to the suppliers who are forced to improve efficiencies to compete. A relative price cap is a good idea for everyone. I hope that the Government will support the amendment and agree to meet those in the energy market who are confident about the benefits to consumers of a relative price cap.