Caroline Flint

Standing up for Don Valley.

The Energy Price Cap - by latest speech

CF_energy_price_cap_head_tilt_300418.JPGThe Government's Domestic Gas and Electricity (Tariff Cap) Bill came back to complete its Report Stage and Third Reading in the Commons this week.  See my speech HERE or click on the photo.

Caroline Flint (Don Valley) (Lab)

I welcome back to the House this unfinished business. It has been a long-running saga and I have appeared in pretty much every episode for the past six years. I am hoping tonight will be my final appearance on this particular matter, with no repeats to follow.
I welcome the proposed absolute price cap. We have arrived at a place where there is much cross-party agreement, but it comes at a price. That price has been borne by consumers. The Competition and Markets Authority confirmed in 2016 that between, 2012 and 2015, the average detriment to the consumer—overcharging, in plain English—was £1.4 billion a year. The CMA found that the scale of overcharging, far from diminishing, was rising, reaching £2 billion a year by 2015.

In some ways, it is quite surprising that nowhere in this Bill or discussion has there been any mention of recompense. Given that we have all pretty much come to the same conclusion regarding the overcharging of those on standard variable tariffs, it is interesting that we have not discussed the case for compensation, repaid through bills or a windfall tax, on profits that the companies did not deserve and the CMA says they should not have charged. That makes it all the more essential that Ofgem is set a tight timetable to complete its work and set the tariff cap in time for the winter.

I signed the amendment tabled by the shadow Minister, my hon. Friend the Member for Southampton, Test (Dr Whitehead), and I understand the debate we have had in the House so far—that we do not want to create a situation in which, through some judicial review, we could lose the whole essence of the Bill if we did not meet the timespan in five months. However, it is worth having a debate to send a very strong message from the House today that we expect this absolute price cap to be in place in time for next winter. Nothing more and nothing less will be acceptable, because as the Minister knows only too well—I read her comments at the time —between our Bill Committee sittings and our being here today, British Gas/Centrica have already increased their prices for the year ahead by 6%, as my right hon. Friend the Member for Birkenhead (Frank Field), who is sitting alongside me, mentions.
We have to make sure that there is no gaming. Ofgem has already gone through a process once in relation to those on prepayment meters and other vulnerable customers, so we know what we are talking about—we have been talking about these issues in one form or another for the last six years. Even though the amendment may not be pushed to a vote, I hope that the Minister will firmly assure us that she expects all hands will be to the pump on this, so that we make sure we get the price cap and give full support to Ofgem to complete the consultation in good time to enable that to happen.

I want to touch on where the cap will apply. Some have questioned whether the cap should apply to those on green tariffs, some of which—let us be honest—are greener than others. Given everything that we know about the energy market and how long it has taken to reach the action in the Bill today, would it not be a nightmare for consumers and all of us if energy companies could find some sort of loophole, using a form of greenwashing and gaming the system, to avoid the cap being applied? That is why I believe that the scope of the tariff cap has to apply to all standard variable tariffs.

The Climate Change Act 2008, which was passed under the last Labour Government, underpins the targets that we have today to tackle emissions and global warming. It was used to encourage a debate and, to incentivise the renewables sector, subsidies were provided through all our Bills. However, the debate across the sector is increasingly focused on becoming subsidy-free, so I question whether green tariffs should automatically be more expensive than other tariffs and whether they should be exempt from the tariff cap.

The theory goes that the more people who sign up to a green energy tariff, the bigger the percentage of green energy in the national supply. As it stands, around 25% of the UK’s energy is from renewable green sources, and that is great, but for each of those investments in renewable energy, generators were paid an ongoing subsidy to grow the market and to ensure that that investment was worth while. I have not heard much from large-scale energy producers such as E.ON complaining that their wind farms are a loss-maker, or that they risk bringing down the company because the subsidies are inefficient. Indeed, companies are keen to show how the costs of providing renewable energy are falling. That is confirmed by the Office for Budget Responsibility Green Book: the total subsidy from bill payers to renewable energy was £8.6 billion in 2017-18, and it is set to rise to £13.3 billion by 2022-23. Despite that, the Government have indicated that public subsidy is on a downward trajectory.

The Minister has suggested that it may be right for smaller firms that invest in renewables, such as Good Energy and Ecotricity, to be exempted because they encourage consumers to effectively pay over the odds to invest in new renewable capacity. I respond to that in two ways: first, relatively few customers in these companies are on standard variable tariffs, because these companies’ customers tend to be the most savvy and switched-on to switching. Secondly, they claim that their customers are often proactively choosing these companies because of their green offer—so in that case, why not offer a bond or a share in new projects, rather than a crude percentage on their bills to fund company investments? Given the existing subsidies, any supplier making this pitch is really asking consumers to pay twice without any return.

The Bill is not the mechanism to do this, but clauses in it ask Ofgem to look into the matter as part of its consultation. I do not think that it will be easy for Ofgem to draw a nice, neat line between green tariffs offered by one firm and green tariffs offered by one of the big six. The danger is that if we concede the ground to Green Energy and Ecotricity, the big six will come in on the back of that and demand equal treatment. I am sure that they have their brand consultants working right now on new, eco-friendly names to replace their discredited standard variable tariffs.

It is clear to me that we have not come this far to let energy bill payers down again, so let us make sure that as well as the clauses and the amendments, whatever happens to them this evening, we make it very clear through this debate that the Bill will not weaken Ofgem’s consultation by allowing companies to create a green-shaped loophole or to claim to be abolishing all SVTs but still place customers on an equally unfair tariff. I hope that the Minister will respond to that in her remarks.

I hope that in most circumstances, good, competitive markets would work in the consumer interest, but energy is not like other products that we buy. It is essential to life. Frankly, ever since privatisation, the energy market has been a managed market. If the companies and their managements were doing what they say they should be doing, we would not be having this debate today. It is sad that it has come to this, but I hope that the fact that it has means that we can draw a line in the sand and that this will be my last appearance on this subject.

END

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