Domestic Gas and Electricity (Tariff Cap) Bill – in a Public Bill Committee at 2:00 pm on 13th March 2018.
I beg to move amendment 3, in clause 1, page 1, line 3, leave out
“after this Act is passed” and insert
“and no later than
It is a pleasure to serve under your chairmanship, Ms McDonagh. Let me start us off this afternoon with what I hope will be the first of many amendments that the Minister and other Conservative Members think so reasonable and constructive that they feel impelled to accept them.
Amendment 3 relates to our consensus that an energy price cap needs to be agreed across the board and brought in as soon as possible. Without presuming to speak on behalf of all Committee members, I believe that we are all united in our support for a temporary cap to allow the market to be set right. We hope that by the time the cap comes to an end, we will be reasonably assured that the market is working much better and that the circumstances that led to the cap’s introduction will not be repeated further down the road.
The Committee is united on our endeavour this afternoon. We want to finish our deliberations, get the Bill passed as speedily as possible, and have it on the statute book by the summer—hopefully the early summer—so that Ofgem can execute it. We heard this morning from Ofgem’s chief executive, Dermot Nolan, about the processes that Ofgem will be required to undertake to ensure that the price cap is properly implemented. The Bill requires it to have regard to a number of concerns, which I am sure we will discuss in our deliberations.
Essentially, Ofgem has the task of ensuring that the provisions in the legislation for the implementation of the price cap are legally waterproof, that the measures in the Bill around Ofgem’s responsibility for having regard to those various pillars are properly carried out, and that Ofgem has the arrangements in place that it will need to look periodically at what is happening to wholesale prices and to produce reports and proposals for how those wholesale price changes can be taken into account under the umbrella of the cap. Ofgem has to get a whole range of things right before the cap is properly in place. It is proper and right that Ofgem takes a reasonable amount of time to ensure that happens.
We heard this morning that Ofgem already has some consultations and discussions under way in anticipation of the Bill shortly being on the statute books, but there are a number of statutory things that it has to do and a number of further consultations that it has to undertake. We were told this morning that all this is about five months’ work as far as Ofgem is concerned. In principle, if we assume that the Bill will be on the statute books by the end of June, the five-month timescale that Ofgem has set itself would mean that the cap could be effective by the end of November this year.
Pretty much everybody associated with this Committee and the passage of the Bill has said that they fervently want to see this legislation enacted and a proper price cap in place before winter this year. By that, I am sure they do not mean when a cold snap takes place next February and looks a bit like winter, but the onset of winter—about the time people get their winter fuel allowances. That will ensure that the price cap is in place and benefiting customers in advance of the bills they face over winter.
To get this price cap in place not just over winter but as winter comes in—absolutely on the nail, given the time that Ofgem says it will need to get this Bill into shape and to get an operational cap—we will clearly want to ensure that that timetable is adhered to as closely as possible. That is why I asked Dermot Nolan this morning whether he thought the five-month period was an exact period, a maximum period or an approximate period. What was his view? He said that they would do their best to ensure it was within that five-month period. However, I did not get the impression from that evidence this morning that Ofgem was saying to us, “We can absolutely stand by the idea that there is a maximum possible period of that amount of time for us to do our work.”
My reading of Mr Nolan’s evidence this morning was somewhat different. I thought that he very much felt this could be delivered within five months. The only note of caution he sounded was over a legal challenge. I am not sure that any timeline that we prescribe in legislation would prohibit such a legal challenge from one of the current large suppliers.
The hon. Gentleman is absolutely right. If there do turn out to be legal challenges, despite our best efforts in this Committee to ensure that the Bill is as watertight as it can be, it is conceivable that the whole timetable of a price cap could be seriously derailed—I think we have all understood that, as far as the process is concerned. Indeed, one reason there is legislation, rather than Ofgem going down the road of a price cap under its own steam, which it has been claimed at various times could have been the case, is to ensure that, as far as possible, the proposals and what Ofgem puts in place around them, are legally watertight. That comes in two parts. First, there is the question of ensuring that the legislation is as watertight as possible, but there is also a duty on Ofgem to ensure that, in translating the instruments in the legislation into a workable price cap, it takes measures that are also legally watertight, so that it does not slip up after we have done the good work in Committee of making the legislation as watertight as possible.
In the evidence session this morning, I clearly asked whether Ofgem would be ready for next winter, and Ofgem was not only clear that it would be ready for next winter, but outlined the very robust, transparent and deep process being undertaken to ensure that.
Yes, indeed. The hon. Lady will recall that, in answer to my question, Ofgem went through the processes it is statutorily required to undertake, together with an estimate of the time that that would take. Between us, we were able to get on record a pretty clear note of intention from Ofgem that, subject to the possibility that the whole thing could come off the rails because of an unexpected legal intervention, it would bend its efforts to ensure that the process of five months was adhered to.
The amendment seeks to go a small step further and to place on the face of the Bill an indicative time by which Ofgem should have done its business, to ensure that the working price cap becomes reality under the Act. The amendment does not seek to interfere with, foreshorten or undermine what Ofgem is trying to do, quite properly, to make the Bill a reality.
I am sorry, but I read the amendment completely differently. If we have all agreed that Ofgem has made it clear that it will go through the process to come up with the right level of cap—taking the right level of evidence—by next winter, and that the only thing that could delay it would be a legal judgment, why would we even suggest, through the amendment, that it may not be ready? That throws unnecessary doubt on the process, which would still be subject to a legal challenge were the amendment there. I think it would just add confusion and doubt.
I fully accept the hon. Lady’s reading of the amendment, but I assure her that that is not its purpose.
Does my hon. Friend agree that it is quite useful to discuss this at the start of our Bill consideration, because our constituents will want to know that, in truth and earnest, we are going to push, in whatever way we can, to ensure—let us hope we do not have as bad a winter as we have had in recent weeks—that we get this cap into place? It is worth while to have this discussion. I hope the Minister can give reassurance in her response that it is up to all our endeavours to ensure that the cap is in time for when those winter bills drop on our mats.
I thank my right hon. Friend for that intervention underlining the thrust of what I have to say. Although we may take serious account of Ofgem’s earnest intentions, which we heard about this morning, we are not legislating for the good side of earnest intentions, but for what we want to happen in the end with the Bill. To put in the Bill what we actually want to happen clarifies matters for the future, rather than spreading confusion. We will have declared—I use that word because we cannot entirely proof ourselves against the possibility of an unexpected legal challenge, although, if I can be congratulatory to the Bill’s constructors for a moment, they have done a good job of ensuring that it is as legally unchallengeable as it can be—
I perfectly understand where the hon. Gentleman is coming from, because Ofgem’s performance over the last few years has been less than inspiring. Having said that, both sides of the House have said, and we heard it again from Ofgem today, that we know what our destination is with the Bill. I cannot understand what we gain by putting a date in it, beyond what we have already amassed in terms of collective evidence and collective will that we have to see this enacted before next winter.
I fully accept that there are different interpretations of the best way forward within the overall agreed framework of where we want to go. Perhaps hon. Members take the perfectly reasonable, honourable and thought-out view that we have got what we want to say in the Bill, we have heard what Ofgem thinks it can do and we are happy to leave it there. My view is that it would be helpful to properly encapsulate our position on the Bill by saying in it what we want to happen—by setting an out-date for the considerations that Ofgem has to undertake before the cap becomes real.
Although I do not doubt for a moment the bona fides of Ofgem, or the sincerity of what Dermot Nolan said this morning, nevertheless, if we are not as clear as we can be about what we want to put forward in the Bill, it is conceivable—no more than conceivable—that someone could say, “Actually, we said five months, but some unexpected circumstances have cropped up—not a legal challenge, but other things—so we can push that further down the line. We’ll have to say that we are a bit sorry about that, but that’s how it is.” I do not want that circumstance to be even remotely in the minds of anyone at Ofgem over the next few months.
Is it not also a fact that in 2012, under the last Government, the then Prime Minister promised that he would force companies to switch customers to the lowest tariff? When he was talking about the “green crap” on energy bills, he also promised to use regulatory measures to reduce energy bills for consumers. As we have already heard, if we had introduced measures after last year’s election, when there was a manifesto commitment to do it, customers would have been protected in the cold weather we have just had. So I think it is only fair that people have some concerns about whether this is actually going to happen, when there have been so many false promises in the past.
My hon. Friend makes a powerful point. Today, thinking about the cap, we are not in such a position that we can look back with complete equanimity and say, “Actually, everything that could have been done to hasten the cap, once it was decided that there should be a cap, has been done over that period.” There has been quite a bit of equivocation since, for example, the suggestion at the time of the Conservative manifesto for the last election that there should be a cap. It made an appearance but then went through a period when there seemed to be some resiling from that particular commitment.
As hon. Members will recall, there were indeed suggestions and discussions that Ofgem, in its own right, could and should undertake a cap: a cap would need no legislation from Government, so Ofgem could go ahead and put one in place. Indeed, as I recall it, a letter to Ofgem from the Secretary of State during the summer in effect said that. At the time, as hon. Members will also recall, Ofgem came back fairly publicly to say, “We are not convinced that we have the powers to do this,” or rather, “We may technically have the power to do this, but we wouldn’t be proof against legal challenge were we to go ahead and introduce a price cap administratively without the back-up of legislation from Parliament.”
As hon. Members will again recall, it was at that point—I think it was at the Conservative party conference—that the Prime Minister reasserted the fact that she wanted a price cap. Perhaps we will come on to what she said about the consequences of that price cap in a moment, but she certainly said at Conservative party conference that she wanted a price cap and that, in effect, legislation was to be introduced to produce one. So, arguably, we could say that, had we got on with legislation from the moment that the idea that there should be a price cap was put forward, we would not be sitting here today. Instead, we would be contemplating a price cap having been introduced, probably this autumn.
The hon. Gentleman makes his case well, but I remain to be convinced that putting in a deadline makes a difference. The biggest pressure that Ofgem will be operating under once we clear the Bill through Parliament—surely the biggest variable in the whole process—is an enormous amount of political pressure. Given that the hon. Gentleman does not propose a sanction against Ofgem should it miss the deadline, one would imagine that the political pressure Ofgem will be under from both sides of the House to deliver the cap is more than enough to deliver it very quickly. He will remember that the last time that there was a notice of insufficient margin, with the price spike that it brought, was in the middle of November 2015, so a date of the end of November seems somewhat arbitrary. We want it done as quickly as possible.
The hon. Gentleman’s point about the amendment not suggesting any sanctions on Ofgem is an interesting one. Were that suggestion put into operation, it would require about six more pages of amendments to secure a sanctions regime against Ofgem, but that is not how Ofgem works. In effect, Ofgem has a requirement to do things—in its charter of existence, in legislation—and it is instructed by legislation and not, by the way, in final and legal terms by what a Minister may or may not write to it on a daily basis. It is supposed to go along with what is in legislation. That was the problem that arose with the letter from the Secretary of State to Ofgem when the idea of a legislatively based price cap appeared to be up in the air.
Ofgem made the point that it would prefer, or that it thought it necessary, to have some kind of legislation on the statute book to guide and advise it—or, more than that, to be a framework for its carrying out of its responsibilities. The Bill requires Ofgem to do all sorts of things but contains no sanction. It does not set out what would happen to Ofgem—whether Dermot Nolan would be taken out, and something would be done to him—if it did not do all that is specified. The point is that there are requirements on Ofgem under its charter from Government.
Yes, I am happy to accept your guidance, Ms McDonagh. I am being enticed down the road I have taken by hon. Friends and colleagues, and of course as far as I am able I will not give way to temptation.
The central point, on which I want to end, is that we do not need a lot of sanctions to get Ofgem to do what it is supposed to do under legislation; but if something is in legislation it is pretty sure that it will get done, because that is how it works. An out date in the Bill would be a little further help in making sure that Ofgem would do what it has said it will do to put the measure into practice. Hon. Members will have a view on how important or necessary that approach is, but I do not think it can be gainsaid that putting the date into the Bill would provide a little further assurance.
That is the basis for the amendment. I hope that Members will support it, if they decide they want that further assurance, but I am sure that the Minister will come up with persuasive reasons why another view could be taken. We will listen with interest.
It is a pleasure to serve under your chairmanship, Ms McDonagh. I thank all members of the Committee. We have a highly qualified Committee here to deliver, over the next few days, what we all want: a legally watertight price cap Bill that enables some of the more egregious pricing structures in the energy market to be addressed.
The amendment moved by the hon. Member for Southampton, Test is intended, as he said, to put a hard-stop deadline on the implementation of the Bill. I understand his reasons exactly. We have discussed the Bill and are broadly in agreement about what we are trying to achieve. I agree that it is imperative for the measure to be in place before the end of the year. People say “before next winter”, and that somehow rolls into 2019. I want it on the statute book and implemented by the end of the year—ideally well before
Something else that is refreshing is that all parties have committed to getting the Bill through. I do not suggest that there will not be strenuous attempts to amend it, but I intend that it should be sent up to the other place in good order, so that it can go through the Lords effectively and we can get what we want, which is for the Bill to be in place and in good shape by the summer recess.
It was helpful to have the witness sitting this morning. We heard Ofgem say that, once we have given the go-ahead on Royal Assent, it will have to take a whole series of statutory measures, including developing the cap. Of course, some of that work has already started, quite rightly. We do not need to do this sequentially; we can do it in parallel. We are then going through a fairly transparent consultation process to make sure that any possible objections or concerns about the tests we have set out in the Bill on competition, switching and maintaining investment are met. There is a statutory duty to have a consultation period. We heard this morning that that will take five months, albeit with some things starting already and processes going on in parallel.
I am concerned that we make the cap as robust and watertight as possible. I am not sure that we have amendments on possible alternative routes of appeal, but we can certainly talk about that. We need to shut down routes by which this cap could be seen off. My concern is that if we put a date on the face of the Bill and for some reason a process of challenge is brought forward by the suppliers over the Ofgem methodology, or somehow the price cap implementation deadline proposed by the hon. Gentleman is missed—then what? I do not know; but we would certainly be back in unknown legal territory where we had not met the deadline, and therefore our strong desire to get pedal to the metal and get the cap implemented would take a real setback.
I think we all share the aspiration that this Bill should be passed quickly. We want to get it through both Houses of Parliament in as good a shape as possible. However, I am concerned, first, that by putting a hard stop date in the Bill, we may constrain the critical process that Ofgem has to go through to set the cap at the right level, and secondly, that we potentially increase the risk of a successful challenge to the cap once it is structured and put in place. So I was reassured to have heard from Ofgem again this morning. Ofgem wrote to the Chair of the Select Committee, who did an excellent job in pre-legislative scrutiny, setting out its strong belief that it understands the need to do this and can complete the necessary analytical processes. Although I strongly share the hon. Gentleman’s desire, I feel there is nothing to be gained by making this a statutory deadline. That potentially creates implementation risks which would mean this long-awaited price cap could not be put in place. With that explanation I hope I have persuaded the hon. Gentleman to withdraw his amendment —though I appreciate that his amendments are tabled in the spirit of trying to improve the legislation.
It is a pleasure to serve under your chairmanship, Ms McDonagh. I was not originally going to talk, but 25 minutes into the Bill Committee my frustrations kicked in. It felt like 25 minutes of almost agreeing with the amendment. We have got an amendment with a date and everybody agrees that it is a reasonable deadline and timeframe. We are seeming to agree that Ofgem has committed to doing this in five months. I thought that Dermot was absolutely resolute in the evidence session in saying “We will do it in five months”, but his colleague had slightly more caveats and was slightly more restrained.
I cannot see any problem in getting a deadline that puts a marker down: humans work better to a deadline. It sends a message to our constituents and the people out there that we have this clear deadline. I listened to the comments from the Minister and I understand that she is saying that she wants to minimise any risks going forward in getting the Bill implemented. What if there is a legal challenge and then the deadline becomes a possible issue? But given that we have already agreed that we think this is a robust Bill that has been well written and well crafted, I think we have got to have confidence that it is robust. Having a date on the face of the Bill will make it that bit more robust and watertight.
I appreciate the hon. Gentleman’s support, and I am delighted that we have cross-party support. I think we are all agreed that this is a robust Bill. I thank the hon. Gentleman for sharing his tribute to the parliamentary team, who have done a good job drafting it.
I would like to pick up on the comments made by the hon. Member for Kilmarnock and Loudoun about the robust performance that we saw from Ofgem this morning. Frankly, that could be, in part, because when Ofgem appeared before the Select Committee scrutinising the legislation, it was less than robust—the witness was less than robust. I think he has got the message: he cannot be neutral on this; he has to be robust. We saw that today and that gives me great confidence that we will see this Bill enacted in the way we envisage.
I defer to my hon. Friend’s experience. He sat through this process, doing an excellent job on the Business, Energy and Industrial Strategy Committee, and has seen the evolution of this robustness.
In response to the hon. Member for Kilmarnock and Loudoun, I think the Bill is absolutely robust. We are agreed: we have a tight, well-drafted Bill that does not allow for random amendments. The challenge is that the actual job of setting the price cap has, quite rightly, been given to the independent regulator. We have to go through a process of transparency and confidence building, if you like, with participants in the market, so that the number is set at the level we want to deliver maximum benefits to consumers without the dis-benefits of driving investment out of the industry, or indeed providing a less competitive environment. That is why I have been persuaded that Ofgem gets the deadline, believes it has the right to do it, but has asked for a period in which, quite rightly, it can go through a very transparent process. The more transparency the better, because that will head off any possible legal challenge. I wish we did not have to be in the world of worrying about future legal challenges, but I think we are all convinced that we need to make the whole process as robust as possible.
In responding to the hon. Gentleman from north of the border, Kilmarnock and Loudoun, I hope I have persuaded the hon. Gentleman from a long way south of there to withdraw his amendment.
I would not say that I am wholly convinced but, as I mentioned in my opening remarks, to some extent it is a matter of how one views what has been said so far and the degree to which one thinks that this really is going to work as well as it could. Having been in this place for some while, I must admit that I am of a mind that one ought to legislate for things being as terrible as they possibly can be, and make sure that one moves upwards from there. Obviously, that view is not entirely shared but, on the other hand, it is also not a particularly big deal. We have heard from Ofgem that it is pretty committed to that five-month period. As I said, if all goes well with this Bill getting on the statute books when we think it will, that just about gets us to the right time. I am happy to withdraw this amendment on that basis, but I hope that I will not have to say I told you so come
I beg to move amendment 4, in clause 1, page 2, line 15, at end insert—
“(e) the need to ensure that customers on standard variable and default rates have their annual expenditure on gas and electricity reduced by no less than £100 as a result of the tariff cap conditions, and
(f) the need to ensure that adequate protection exists for vulnerable and domestic customers, including those customers protected by the safeguard tariff.”
With this it will be convenient to discuss the following:
Amendment 8, in clause 8, page 5, line 21, leave out from beginning of line to end of line 24 and insert “—
(a) the statement published by the Secretary of State in that year under section 7 is to the effect that the conditions are not yet in place for effective competition for domestic supply contracts, or
(b) effective competition does not exist for vulnerable or disabled domestic customers,
‘(none) in which case the tariff cap conditions have effect for the year 2021.”
Amendment 9, in clause 8, page 5, line 26, leave out from “unless” to end of line 29 and insert “—
(a) the statement published by the Secretary of State in that year under section 7 is to the effect that the conditions are not yet in place for effective competition for domestic supply contracts, or
(b) effective competition does not exist for vulnerable or disabled domestic customers,
‘(none) in which case the tariff cap conditions have effect for the year 2022.”
Amendment 10, in clause 8, page 5, line 31, leave out from “unless” to second “in” in line 33 and insert “—
(a) the statement published by the Secretary of State in that year under section 7 is to the effect that the conditions are not yet in place for effective competition for domestic supply contracts, or
(b) effective competition does not exist for vulnerable or disabled domestic customers,”
New clause 1—Duty to consider the needs of vulnerable and disabled domestic customers—
‘(1) When exercising its duties under section 1, the Authority must have regard to—
(a) the need to protect vulnerable and disabled domestic customers, and
(b) the needs of domestic customers protected by the Authority’s safeguard tariff at the date the cap outlined in section 1 comes into force.
(2) When exercising their duties under sections 7 and 8, the Authority and the Secretary of State must have regard to—
(a) whether effective competition exists for vulnerable and disabled customers, and
(b) additional protection in place for vulnerable and disabled customers.”
This new clause requires the Secretary of State and the Authority to have regard for vulnerable and disabled customers when exercising their powers in setting, reviewing and terminating the cap.
The amendments and new clause 1 are grouped together because they refer to the pillars of consideration that Ofgem—the authority—must have regard to when drawing up the process of turning our legislation into a practical price cap. That is essentially the subject matter of clause 1(6), which sets out the four pillars instructing the authority about its considerations. They include incentives for holders of supply licences to improve their efficiency; setting the cap at a level that enables holders of supply licences to compete effectively; the need to maintain incentives for domestic customers; and the need to ensure that holders of supply licences who operate efficiently are able to finance activity, as authorised by the licence.
The amendments essentially agree that those pillars should be in place, and it is right that Ofgem should have clear guidance in the legislation about how to go about their business. We suggest that further pillars be added to the considerations that Ofgem should have in mind when it is doing its work after we have done ours. Amendment 4 has two further pillars: one relates to further amendments to enforce that. As stated in the amendment, it refers to
“the need to ensure that adequate protection exists for vulnerable and domestic customers, including those customers protected by the safeguard tariff.”
We know that a number of customers are protected by a safeguard tariff. Effective price caps relating to those ranges of customers are already under way and, as far as this Bill is concerned, the price cap that will be introduced will add to those protections, placing a much wider tariff cap on to SVT customers in particular, whether or not they are vulnerable. It also substantially widens the scope.
We suggest that it would be a good idea to put in the pillars relating to Ofgem’s work; the fact that they should have consideration, particularly for those vulnerable domestic customers and those protected by the safeguard tariff, should relate to this wider tariff. That seems a reasonable addition, as a reminder to Ofgem that it ought to be considering that issue during its discussions about making the price cap a reality.
The other pillar suggested in amendment 4 is that Ofgem should bear in mind what sort of saving—it cannot be exact, obviously—should be considered as being possible as a result of those tariff cap conditions. I have a view on what that figure ought to be—not because I put the figure forward, but because the Prime Minister did. I will not ask hon. Members about their reading habits, but some of them may have seen a piece in The Sun newspaper on
The hon. Gentleman shakes his head. I cannot possibly comment on that. I got this on the internet, by the way. The headline was “Millions of Brits in line for £100 as Theresa May delivers on energy price cap promise”. Underneath, it said:
“The price cap on 11 million gas and electricity bills is to come in by end of the year as The Sun’s Power to the People campaign pays off”.
It is worth saying that that fine newspaper The Sun has campaigned for an end to various aspects of rip-off energy tariffs, and it is great that it was celebrating the fact that we had finally launched this Bill and got the provisions in. In this case we should all say, “Power to the people!”
I understand the thinking behind amendment 4. At first glance, one might almost be persuaded by it—until one looks at the clause in its entirety. The first sentence of clause 1(6), which governs all its paragraphs, states that functions must be exercised
“with a view to protecting existing and future domestic customers”.
That consideration is already in the legal framework.
With respect to the hon. Gentleman’s second pillar, the reference to £100 in his proposed new paragraph (e) is very prescriptive. It would make Ofgem’s already pretty difficult job—setting the cap at a level that satisfies all the conditions—even harder.
I appreciate the hon. Gentleman’s point. Paragraph (e) would, conceivably, make life more difficult for Ofgem with respect to what it has to consider. As he correctly points out, it is required first to take a very general view
“to protecting existing and future domestic customers who pay standard variable and default rates”,
“in so doing it must have regard to the following matters”— those listed in the following paragraphs. In other words, if my reading is correct, after Ofgem has undertaken its initial consideration, it has a number of specific further considerations to take into account. All our amendment says is, “Here are two more to add to the list.”
The way I read amendment 4, it suggests that all customers on standard variable and default rates will get a £100 reduction, whereas the Prime Minister’s statement was that the millions of consumers who are on unacceptably high default rates would get a reduction. In the statement this morning, there was a suggestion that at least two of the big six do not have unacceptably high rates. I am rather concerned about the one-size-fits-all nature of the amendment.
The hon. Lady has a point, but if hon. Members read amendment 4 and clause 1(6) reasonably carefully, they will see that
“the need to ensure that customers on standard variable and default rates have their annual expenditure on gas and electricity reduced by no less than £100 as a result of the tariff cap conditions” would be a consideration—I emphasise the word “consideration”—that Ofgem needed to take into account.
I am afraid that I agree with my hon. Friend the Member for Chelmsford. A number of the larger supply companies have already sought to get ahead of the Bill by transferring their most loyal, or “sticky”, customers from what used to be called SVTs—standard variable tariffs—to other tariffs that are called something else but may be just as expensive. My concern is that the hon. Gentleman’s amendment is overly prescriptive and might allow the energy companies to get round what we seek to achieve.
I do not think the amendment would allow energy companies to get round what we seek to achieve, although I accept the analysis that it may produce more work for Ofgem. I based amendment 4 on what the Prime Minister said. One could argue that she was being overly prescriptive—I do not know.
I am glad the hon. Gentleman has explained that the £100 is not arbitrary, but a figure from the Prime Minister. Equally, I assume the Prime Minister’s £100 was arbitrary as well, so I must admit that I have concerns about stipulating a figure in the Bill. When I asked about it earlier, Ofgem said that there would be unintended consequences.
Presumably, concerns have been expressed about the big energy companies gaming in terms of exemptions and green tariffs. I am concerned that they will use this as a way to do gaming, so that they provide savings on paper by dodging and changing rates before the legislation kicks in. Could he address that?
The hon. Gentleman makes an important point about what could happen prior to the cap coming in. Energy companies could be gaming ahead of the game with their prices, so what would savings look like after that? I am not sure that we can do anything about that right now. As Ofgem mentioned, if energy companies are too blatant in their price rises over the next period, they will be in breach of their obligations to Ofgem anyway.
We have seen several instances of small price rises recently. We heard about one—a comparative gas price—this morning. Bulb, one of the witnesses this morning, put up its rate by £24 just a few weeks ago. That was for particular purposes, but one could argue that it was a gaming price rise ahead of the legislation. Bulb was very clear that it was not, and that it was for other purposes, but we clearly have to be alert to that possibility.
If that does happen, what anyone has said about what savings would result from this price cap would have to be taken relative to whatever that price was at the point when the price cap was introduced. It would be possible for consumers to say at that point, “Actually, we were promised a £100 price saving. It does not look like a £100 saving to me, because it is a saving against a price rise that will end up increasing my bills.” In wishing to place this in the legislation, I am indicating that we in this Committee do not wish to let the public down regarding what might happen with this price cap.
The Prime Minister has already said that there will be a £100 saving. Indeed, I do not know whether this applies to anyone present, but interestingly The Sun article states:
“Government insiders say the cap should save at least £100, potentially rising to £300 a year with increased competition and faster switching.”
Government insiders, whoever they are, are suggesting that the £100 is a minimum and it could be considerably more.
More important than any quotation from The Sun, the number that really counts is the £1.4 billion of detriment that was identified in the CMA report. That is the number we should be going on. Confusing the issue by coming up with arbitrary numbers in the Bill means taking our eye off the ball of the £1.4 billion.
The hon. Gentleman is right to draw attention to the CMA figure. Customers were, in effect, being overcharged by that over a considerable period. Indeed, that was a substantial precursor to the idea that there should be a price cap in legislation in the first place. A regime was in place that allowed overcharging by a variety of devices, a number of which were identified by CMA in its report. We want not only to cap the price for a certain period of time, but to ensure that the behaviour that allowed more than £1 billion to be overcharged is not repeated. We do not want to be back here in a few years’ time, saying “That is terrible—now we have to implement another price cap.”
The issue is not just about the price cap, but about what happens afterwards. We need to do what we can, both during the passage of the Bill and during the price cap, to ensure that circumstances in the market prevent such overcharging from happening again. One of the underlying aims of the Prime Minister’s statement about the savings that would arise was that the price cap should be more than just a temporary punishment for certain energy companies; it should be an attempt to reset the market so that things work differently. The proposal for the £100 saving derives from that.
In May 2017, the BBC site—I do watch the BBC—reported that the
“Prime Minister…said 17 million households would benefit by up to £100 from the cap on poor value standard variable tariffs.”
What has been in the papers recently is slightly different, but it is clear that the original plan was a £100 saving for customers paying standard variable tariffs. That is the public’s expectation, as franked by the Prime Minister, of the consequences of the price cap; committing to it in the Bill would show that our intention is in line with the results they expect. Including the £100 saving as a consideration for Ofgem would complete the circle. As I say, it was a suggestion not from any Opposition Member, but from the Prime Minister, about how the Bill should work. We merely seek to enshrine her words in the Bill.
Our other amendments serve essentially the same purpose but relate to later clauses, especially clause 8, which sets out a clear mechanism for the circumstances in which the cap can be terminated, describing subsection by subsection what will happen at the end of each year from 2020 until 2023, when the sunset clause has effect. In each year, the trigger for rolling over the tariff cap conditions for another year is that
“the statement published by the Secretary of State in that year under section 7 is to the effect that the conditions are not yet in place for effective competition for domestic supply contracts”.
Our amendments would insert an additional condition for effective competition in each year, based on whether the Secretary of State thinks that
“effective competition does not exist for vulnerable or disabled domestic customers”.
Vulnerable or disabled domestic customers are in a different position with their energy bills from a lot of other people who would previously have been on standard variable tariffs. Disabled people routinely face much higher energy bills than non-disabled people. Estimates from the charity Scope suggest that more than a quarter of households with a disabled person—roughly 4.1 million households—spend more than £1,500 a year on energy. Of those, 790,000 households spend more than £2,500 a year on energy. That is the circumstance they find themselves in with regard to household expenses and living costs. Compared with the average tariff of just over £1,000, that is a considerable additional burden of energy costs on those households.
The purpose of the amendment is to ensure that the Minister is sure that effective competition exists for those households with higher bills, so that they are open to the benefits of competition in the same way as those people who are paying lower bills. If the Minister does not think that competition exists for that subset of the population, the Secretary of State would be required to say that the conditions were not in place for the termination of the energy price cap that year.
That is what those amendments do. They are a sensible addition to the Bill—to what Ofgem should consider in the first place and to what the Secretary of State should consider in the last place, as it were, as the price cap moves through its life up to 2023. I hope the Minister will see a way to accept some or all of the amendments. Their intention is certainly to strengthen the Bill and the Minister’s consideration of it, and not anything else.
I rise to speak to new clause 1, which is tabled in my name. It replicates or mirrors amendments 8, 9 and 10 in trying to provide explicit support for vulnerable and disabled consumers.
In the Minister’s opening remarks this morning—in private and in the evidence session—she expressed her concern to ensure that vulnerable customers are protected in future. Clearly, part of the Bill’s aim is to protect the vulnerable and those who have been getting ripped off. When I asked one of the panels about improving the Bill, and I specifically mentioned vulnerable and disabled people, the representative from Citizens Advice said that the protections are implicit in the Bill, but not explicit. Ofgem agreed that the protection of vulnerable people needs to be considered, although it believes that some measures are already in place. New clause 1 would explicitly ensure that vulnerable and disabled consumers have that protection and consideration in terms of effective market competition for the grouping they sit within.
New clause 1 effectively mirrors a clause proposed by Scope—a charity whose strapline claims that it exists
“to make this country a place where disabled people have the same opportunities as everyone else.”
Given that Scope are expert advocates and campaigners, I was happy to move this new clause.
As Scope rightly observes, people with disabilities are often high consumers of energy due to their impairment or condition. The hon. Member for Southampton, Test highlighted that a quarter of the households in which a disabled person resides—4.1 million households—spend more than £1,500 per year on energy, and nearly 800,000 households spend over £2,500 a year. That is a huge, significant sum and clearly has a huge impact on their expenditure. In terms of market regulation, it therefore makes absolute sense to make specific provision for vulnerable and disabled consumers.
We heard that some disabled people are protected under current schemes, but not all disabled people are automatically eligible for the warm home discount, and nor do they automatically get registered on the priority services register. That, again, reinforces why the Bill needs to make explicit provision for vulnerable and disabled people when setting, implementing and reviewing the cap, particularly in terms of whether conditions for effective competition are in place and whether the cap should be lifted.
We have already heard that, as predicted, additional protections will need to remain in place post cap. I want to conclude with an example from Scope. This is from someone called Lynley:
“Before I became disabled, I never gave heating a second thought. But now, as I’m home every day, things are very different. I find it hard to stay warm as I can’t move around to generate any heat. I need the heating on pretty much constantly. I also use an electric heat pad to help manage my pain and an electric powerchair to go outside. This equipment requires charging frequently. My energy bills are much higher than before, and—coupled with the loss of my income as a teacher—have made getting by very difficult.”
There is cross-party support for the Bill as a whole, and we all agree that it is about doing the right thing to protect consumers from getting ripped off in what has been a market failure to date. But let us do this absolutely properly and make sure that the rights of the vulnerable and the disabled are explicitly protected in the Bill as well.
I would like to speak to amendments 4, 8, 9 and 10 and new clause 1. I will start with the first part of amendment 4, which requires a hard estimate on the face of the Bill as to what the saving might be. I was delighted to hear the hon. Member for Southampton, Test quoting our Prime Minister so extensively. I could quote some of the things she has said about the Labour party, but I would not like to challenge the spirit of cross-party consensus. [Interruption.] The hon. Gentleman really does not want to tempt me on that.
We can all sit and make estimates of what the savings ought to be, but all of that will depend on the level at which Ofgem chooses to set the cap.
Does the Minister think that it is regrettable that, in the newspaper with the biggest circulation in the nation, a legitimate expectation may now be created that the saving will be at £100 or greater?
I am sure the hon. Gentleman listened to the Prime Minister talking about the Labour party as being divided, divisive, tolerating anti-Semitism and supporting voices of hate. He probably does not want to trade quotes the Prime Minister has given.
However, let me move back to what we discussed in relation to the previous amendment. We talked extensively about how Ofgem needed to set the level of the cap to avoid crowding out investment, to encourage switching and, importantly, to set the cap at a level that does not facilitate strong legal challenges. That is why it is so important that we let Ofgem—which I think we all now believe does have the capability, and does share our commitment, to get this done by year end—get on and set the cap.
My hon. Friend the Member for Chelmsford made the point about setting an arbitrary figure. The problem with that is that this is not an average figure. We all know that we tend to work in averages, so just having that as the target would lead to all sorts of gaming.
The three things we all want are for the cap to come in, for it to be set at the right level and for it to be proportionate—once again, I wish we were not worrying about legal challenges, but we have to make sure. This is absolutely vital.
The hon. Member for Southampton, Test and I have discussed at length the difference between a cap and a freeze. We do want this cap to move over time. We know that prices go up as well as down. We know that the wholesale cost changes. We want to have the most efficient energy system we can, but the cost may increase. Having this number in the Bill would, in effect, bind Ofgem into setting a number that had no relation to the underlying costs.
I absolutely support the hon. Gentleman’s intentions. He and I both want to see these sorts of savings. In fact, the average spread between the cheapest tariffs in the market and the average of the standard variable tariffs is more like £300, so we would both confidently expect the savings to be greater than this. I will turn to the prepayment meter cap—the safeguarding cap—in a second in relation to the specific regard for vulnerable customers, but it is notable that the average saving after the April increase will be north of £100. Customers who are on that tariff are more than £100 better off than they would have been if that tariff had not come into place, so there is evidence that more than that amount could be achieved.
I will turn now to the second part of amendment 4, plus amendments 8 to 10 and new clause 1, which was tabled by the hon. Member for Kilmarnock and Loudoun.
If I heard correctly, the Minister was saying that people on the safeguarding tariff would be better off. However, in evidence this morning we heard that people will be eligible for it only if they have successfully applied for the warm home discount. Is that right? There is a waiting list and money runs out before time, so would she give consideration to the notion that it should be people who are eligible for the warm home discount and not just the people who have actually managed to get it?
That is a very important point, and the hon. Lady is extremely knowledgeable in this area. She brings me to the second part, when I will hopefully address her point.
The safeguarding tariff came into force in April 2017. That perhaps gives the lie to the idea that the previous Government did nothing; this was all part of the pressure that we put in place. The tariff initially affects people who are on prepayment meters, who are often exactly as the hon. Member for Kilmarnock and Loudoun described—perhaps living in fuel poverty. That tariff is put in place by the CMA—it is nothing to do with Ofgem—and it will run until
I asked the team to look at the impact on the bills of customers on these tariffs. Before the safeguarding tariff came in, the PPM average standard variable tariff was about 5% more expensive than the average standard variable tariff. Now, those who are on the PPM and vulnerable tariff pay on average 8% less than those on standard variable tariffs. That is absolutely working, independently of the Bill, to deliver the savings that we want to see for vulnerable and disabled customers. Those caps will continue to be in place, and it is very important that both are in place and that the Bill does nothing to remove eligibility for them.
I want to talk about some of the other duties on Ofgem, which are already covered in clauses 1(6), 7 and 8. They require Ofgem to protect all existing and future domestic customers, including vulnerable and disabled customers, and to consider whether effective competition is in place for the domestic energy supply as a whole. When effective competition is considered, it has to apply for all customer groups, including vulnerable and disabled customers.
Before the Minister gets too far from the issue of vulnerable customers and the cap, I thought National Energy Action’s evidence this morning was interesting. It is probably premature to react to that evidence by enacting the Opposition’s amendments. Could the Minister confirm that she will go back and look at whether the evidence provided this morning warrants some action, perhaps before the Bill comes back on Report?
Again, it was a very effective evidence session this morning. I was just going to come on to some of the other support we are looking to provide, in particular through the Energy Company Obligation, where we may be looking to help a broader group of people than is currently eligible.
I want to touch on some of the other duties that Ofgem already has in relation to protection of this customer group. The original gas and electricity Acts place a duty on Ofgem to protect the interests of existing and future customers. In carrying out this duty, Ofgem should have regard to the interests of individuals who are disabled or chronically sick, individuals of pensionable age, individuals with low income and individuals residing in rural areas. So I would argue that Ofgem already has these duties in place as part of its conditions. Indeed, the Bill, in which we make it explicit that we need Ofgem to consider all customers and all competition in setting the cap, makes the amendment surplus to requirements.
I just have a brief question. I know the Minister has acknowledged the Select Committee’s work on pre-legislative scrutiny. One of the recommendations in its report was about amending the Digital Economy Act 2017 to allow data to be shared with energy companies. That is a huge impediment right now to getting help to the most vulnerable—particularly those who are on SVTs.
Yes. Again, I want to thank my hon. Friend and the Select Committee for bringing forward a series of recommendations, which we have accepted. He refers to a statutory instrument that is being started in the Cabinet Office, which I am assured will receive assent—or whatever the right word is—during the passage of this Bill, subject, of course, to cross-party support. That opens up the opportunity for much better data sharing to support vulnerable and disabled consumers.
It is extremely important that we continue to look at this group. We heard today that some of those we might consider most vulnerable are also the most assiduous switchers, because they simply do not have a penny to spare. I guess the issue I have, which is why we are here, is that we do not want people to have to invest the time in shopping around to feel that they are always getting the best deal.
Households that are receiving the warm home discount, in addition to qualifying for the safeguarding tariff, get £140 a year. Of course, we protect our pensioners, with up to £300 a year for winter fuel payments. Sadly, the cold weather payment was also triggered in the last couple of weeks, and that was another £25 during the cold snap. There is also the priority services register, which is a free service provided by suppliers for people of pensionable age who are disabled or chronically sick, have a long-term medical condition or are in a vulnerable situation. Those people go to the front of the queue should an emergency—a supply interruption—interrupt their heating or cooking facilities.
Finally, I want to mention the ECO consultation, which we will bring forward shortly. It is my intention, as far as possible, to pivot the whole of ECO to focussing on the challenge of fuel poverty and trying to make sure that those in the greatest poverty receive the greatest benefit, but also to use the programme to support more innovation and more targeting. I live in an off-grid area, and I am fed up of getting ECO leaflets through my door. It does not feel like the best targeted scheme to me, and I would like it to be targeted at those who are perhaps time-poor and need the help the most.
In the NEA’s evidence this morning, it said that one of the additional things needed for a package for the most vulnerable customers was energy efficiency measures. I know the Government are consulting on energy efficiency programmes, and particularly on amending the energy efficiency standards for rented homes. May I urge the Minister to make sure that that is brought forward quickly as well, because it will take a while to implement these measures in people’s homes? This is not just about lowering the bills; it is about making sure that people are not using huge amounts of electricity and gas in the first place.
The hon. Lady is quite right: the great thing about energy efficiency in the home is that it cuts both carbon emissions and bills, so it is a win-win situation, and that is why we have set an ambitious target. She is right that we have started with homes in the rented sector and the social rented sector, and our intention is to make sure that progress is delivered as soon as possible.
I am grateful to the Minister for not exactly spilling the beans but giving us a little preview of what the Government will come up with in response to the consultation on ECO. If there is to be much more concentration on those in fuel poverty, regardless of one’s view on whether the total sum on ECO is sufficient to do what we want on energy efficiency, that is a positive step.
Will the Minister also say a word or two about the regulations that I think are still not yet with us on the responsibilities of landlords to raise the energy efficiency of their properties? I am sure the Minister will know that overwhelmingly those who are vulnerable and in fuel poverty are concentrated in that private rented sector—
Substantially, I think we can agree. Does the Minister have any idea whether the regulations will turn up shortly? Secondly, if they do turn up, will they have within them the requisite amount of money that landlords should spend on bringing their properties up to band E, so that we can have reasonable assurance that will help vulnerable and fuel-poor customers?
At the risk of being ruled out of order, I will write to the hon. Gentleman. He is quite right that we want to make sure that people are not living in private rented accommodation with poor quality safety or energy efficiency. We intend to introduce those regulations—indeed, they are already on the statute book. We intend to make sure of the maximum amount of cash that is required.
The other question on this is that the vast majority of landlords are small: they are people owning one or two properties that they rent out. As the hon. Gentleman will know, the whole scheme was based on the green deal. It was a Bill Committee that I was proud to sit on; we thought that was going to provide a financing mechanism, but it has not. That is why the work of the Green Finance Taskforce, which we will be bringing forward to assist in financing mechanisms, will be helpful. I will write to him with those details.
Turning to amendments 4, 8, 9 and 10 and new clause 1, I hope I have persuaded the Committee, first, that to put an arbitrary number for savings in the Bill would not be appropriate. It would not be an average number and is not necessary, because we can see from the safeguarding tariff that bills have fallen. Also, we would all expect that number to be greater. Secondly, I think we are all seized of the need to protect and improve services for vulnerable customers. That is part of Ofgem’s duty and is part of the tariff cap conditions and the conditions for competition. There is a lot of support already. I take the point made by my hon. Friend the Member for Wells that more needs to be done. That is why we would like to bring in ECO, to make sure that that customer group is paying the least possible for their energy and getting the best possible service.
On that basis I invite the hon. Member for Southampton, Test, to withdraw his amendments.
As I have mentioned, our amendments are requirements on Ofgem to take these matters into account. It may be that, as a result of what we have discussed in Committee—after all, it will be on the record—that Ofgem might consider itself to be rather better instructed.
I want to emphasise that this is exactly why this process is so incredibly helpful. The signalling that collectively we can give about the need to consider the conditions that might be there—albeit perhaps buried in a statute book somewhere—is vital. That is why it is a pleasure to have these conversations.
I think the Minister for giving that additional weight to the points we made this afternoon, which will amplify our intentions for those reading our deliberations. It is clear that the intention behind the amendment—what Ofgem should have regard to in setting the tariff cap—is shared across the Committee.
I also take the point in practice that the first part of amendment 4 would give Ofgem additional work and could be a little problematic as far as getting the amount right before the price cap comes in is concerned. It might have been prudent for the Prime Minister to put those caveats in what she said a little while ago about how the Bill was to proceed, but on the basis of our discussion this afternoon, I do not wish to proceed further and I beg to ask leave to withdraw the amendment.