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Westminster Hall

Tuesday 23 January 2007

[Mr. David Amess in the Chair]

Energy Costs

Motion made, and Question proposed, That the sitting be now adjourned.—[Claire Ward.]

9.30 am

Mr. Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab): My objective today is perfectly straightforward —to discourage energy companies from using the fluctuations in wholesale prices as an excuse for unacceptably high domestic energy bills. The issue affects every household in my constituency, particularly pensioners and families on low incomes with young children, and it causes financial misery to consumers. Today, I shall focus on two key themes: the lag between wholesale prices and retail prices, and low-income families suffering high energy costs, including families in which there are disabled adults or disabled children.

It is my intention to explore every avenue with all relevant bodies. I have written to Ofgem—the Office of Gas and Electricity Markets—which has a duty to consumers, and to the Office of Fair Trading, which has a duty to ensure that, frankly, a cartel is not operating against the public interest. The problem that I am discussing will not simply go away, and my activity will continue until pressure is brought to bear on energy suppliers to reduce the inflated prices unfairly charged to all households. In that spirit, I very much welcome the debate and the presence of my hon. Friend the Minister.

Last summer, as I travelled around my constituency, the issue uppermost in the minds of constituents was the rocketing prices for gas and electricity. The price of both had gone up substantially, leaving those consumers helpless or in debt from dealing with the problem. Of course, they had the option of moving from one supplier to another, but they were not exactly imbued with confidence in doing so. No sooner had they moved supplier than they discovered that the price had gone up again. That was a recurring story.

I carried out some research on the industry and discovered that energy companies were simply leapfrogging one another with increases. The information available to me at the time showed that average annual gas bills had risen by 63.3 per cent. and average annual electricity bills had risen by 44.2 per cent. since 2003. No other product or commodity has risen in price so steeply during that period, and energy is not a luxury; it is a necessity.

At the time, I was completely focused on how to achieve the lowest possible gas and electricity prices for all households in my constituency. I was to conclude that there was more likelihood of achieving something much more meaningful on a Lanarkshire-wide basis than in one parliamentary constituency. I contacted all my Lanarkshire MP colleagues on 13 June, seeking their agreement that the matter should be further explored, with the possibility of producing a broad
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strategic approach that would benefit every household throughout Lanarkshire. Only a couple of weeks after the consultations began with my colleagues, Scottish Power announced higher prices effective from 10 July 2006, which saw electricity prices rise by an average of 10 per cent., while gas prices rose by a staggering average of 17 per cent. I shall return to the current figures later; at this point, I want to develop my remarks on the outstanding role played by my parliamentary colleagues in Lanarkshire.

Numerous factors motivated us to write to all energy suppliers. Domestic energy costs are a consumer issue, and we had received complaints from constituents. There had been intolerable increases in gas and electricity bills between 2003 and 2006. Last but not least, we wanted the best consumer energy price for our constituents in Lanarkshire.

Mr. Brian H. Donohoe (Central Ayrshire) (Lab): When my right hon. Friend wrote to the energy companies, did he ask them about back charging, which is the most scandalous aspect of the problem in that it affects the poorest in our society and in our constituencies? Although British Gas has capitulated to the pressure on that issue, three companies—npower, Powergen and Scottish Power—are still not complying and are continuing that scandalous practice.

Mr. Clarke: My hon. Friend makes an excellent point. I discussed it with Energywatch yesterday and it is clearly ongoing. I hope to refer to it later, but my hon. Friend is right to be as concerned as he is. Again, the issue will not simply go away, and nor should it.

I am proud to state that the winter fuel payment was introduced by a Labour Government. Last winter, about 11.5 million people in more than 8 million households benefited from that payment, and the total expenditure was estimated at £1.994 billion. Total expenditure this winter is forecast to be more than £2 billion. There was a considerable sum for our constituent in Lanarkshire; it was just short of £20 million. The effort involved in providing such outstanding financial assistance to households has, however, become increasingly futile in the face of the extraordinary energy cost increases being imposed on consumers. There are genuine concerns about households on low incomes. Again, despite benefits such as pension credit, working tax credit, income support and jobseeker’s allowance, real poverty is now being inflicted on families with medium to low incomes.

It was agreed by my parliamentary colleagues that the aim of the Lanarkshire project was to encourage the lowest possible gas and electricity prices for all households in Lanarkshire. Lanarkshire is an interesting microcosm of the Scottish market. The area falls neatly under the control of two local authorities and contains 10 per cent. of the households in Scotland. Its economy is a representative mix of service and manufacturing, urban and rural. Poverty levels are broadly in line with Scottish averages.

In the event, we decided to write to the key energy suppliers and request each of them to submit proposals on how they could start providing lower energy prices. The timing of our letter, which was dated 23 October 2006, coincided with further sharp reductions in wholesale prices. In fact, wholesale gas prices had fallen by 25 per cent. and electricity prices by 30 per
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cent., so there could be no excuses for the energy companies’ failure to respond reasonably or to pass on their savings to consumers. All we asked was that they should compete on lower prices just as keenly as they had been competing in raising prices. Our role as MPs was to facilitate a transparent process. The stakeholder representatives of the people of Lanarkshire would make the decision and recommend the best offer. As MPs, we would have backed their decision on the marketing, and we were committed to an energetically pursued campaign to encourage householders to sign up to any company that was willing to make its customers a fairer offer.

However, the energy companies refused to consider our proposals or to come up with any of their own—the truth is that they simply did not want to know about price reductions. Allow me briefly to run through the responses that we received, starting with the most positive. Scottish and Southern Energy said:

Scottish Power’s representative said:

EDF Energy said:

Powergen’s representative said:

Centrica said:

It added that

Well, we had certainly noticed that, had we not? Those replies are all very similar and depend on blaming wholesale prices for tying companies’ hands and preventing them from demonstrating any convincing social concern, despite their warm words for the less well-off.

Today, I can reveal the up-to-date figures, which have been provided courtesy of Energywatch. They show that domestic electricity prices have risen by a further 16 per cent. since the summer of last year and that gas prices have risen by 27 per cent. That means that, since 2003, the price of electricity has risen by a staggering 60 per cent. and the price of gas has risen by an outrageous 94 per cent. The problem by no means affects only my constituency, and worries across Britain are reflected by the fact that 64 of my colleagues have signed an EDM that I tabled on the issue only last week.

While I am on the subject, let me turn to the detail of wholesale and retail prices. Wholesale gas prices declined for most of 2006, beginning in March and April, and there was a dramatic drop in September, which led to a front-page article in the Financial Times. Ofgem, the
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industry regulator, said that it expected price cuts to be passed on to consumers six to 12 months after wholesale prices started coming down. Obviously, we are now into that time frame, but still nothing has been done.

On 15 November 2006, the Daily Record's front page screamed: “Watt an outrage”. It continued:

The article continued:

Writing to us as MPs, Philip Bowman then berated the Government by suggesting that we should encourage the further use of public money to prop up those profits. He blamed the lack of take-up of benefits and

for the fact that people were struggling to meet his company’s high bills.

At the time, Karen Darby, spokesperson for the energy comparison website, uSwitch.com, said:

The Scotland spokesman of consumer watchdog Energywatch, Graham Kerr, said:

A spokesman for Age Concern said:

On 6 January, a headline article in The Times said: “Spending power is squeezed as bills bite”. It continued:

It added that the

A few weeks ago, on 31 December, The Sunday Telegraph reported that Ofgem, the energy regulator, had warned Britain’s gas suppliers about failing to pass on to consumers the recent drop in the cost of wholesale gas. Its chief executive, Alistair Buchanan, said:

Ofgem was warning companies that

He added:

I have to say that the expression “jam on their fingers” is far too polite and does not reflect the fuel poverty suffered by low-income pensioners, low-income families with children and people with special needs.


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Dr. Alan Whitehead (Southampton, Test) (Lab): Does my right hon. Friend accept that the £103 more for gas and electricity supplies paid by those on pre-payment meters is additional jam on the fingers of a number of electricity companies? That is despite the security of payment implied by such meters and despite the fact that the users of such meters are predominantly people in the lower income brackets. Does my right hon. Friend accept that action should also be taken to deal with that jam on the fingers of energy companies and that such charges should be equalised?

Mr. Clarke: I entirely agree with my hon. Friend, and the point has been drawn to my notice again and again. By the nature of things, those with pre-payment meters are probably the most impoverished and the least able to pay, but they are being asked to pay more. We must focus on that, and I hope to do so later. My hon. Friend is right to raise the issue.

Like my colleagues here this morning, I am in constant touch with ordinary decent people in my constituency who are struggling against extraordinary energy price increases. Consumers need energy to keep themselves warm and to cook meals, and they need hot water. Despite the fact that the wholesale price has fallen, consumers are still faced with the sheer brutality of the power that is exercised by energy companies. If my finger is on the pulse of the public mood, as I believe, I am right to go further than Ofgem’s comment about energy companies having jam on their fingers: it is far more appropriate to accuse them of draining the lifeblood of every low-income household in Britain. Indeed, it is worse than that given the facts on hypothermia in Britain. It is wholly unacceptable that lives are being put at risk as people are forced to choose between eating and heating.

Wholesale price fluctuations have largely been blamed on the energy supply from the continent. A European Commission investigation recently found that customers in the UK and Europe are suffering because of a lack of competition between the large European energy companies that control the supply. In a recent statement, the EU’s Commissioner for Competition, Neelie Kroes, said that the report would make “uncomfortable reading” for some firms, and suggested that she will use her powers under anti-competition legislation to act against them. That threat means that certain companies may face large fines.

Ofgem welcomed the Commission’s report. Alistair Buchanan said:

Of course, I welcome measures that will ease the strain on customers’ back pockets, but I believe that the role of wholesale prices in domestic energy bills is being enormously overplayed. One company tried to tell us how generous it is because its prices have been only doubled while the wholesale price has tripled, but wholesale prices do not make up the whole of companies’ costs despite what they would have us believe. The entire strain of that increase is being borne by the consumer. Indeed, it would not surprise me if the increases demanded of consumers peak even higher than the costs faced by companies. That is why their
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profits have rocketed unacceptably despite the increased costs that they have faced in the past few years.

Clearly, we need to ask whether competition is working as it should. Are companies becoming too comfortable in this small sector in which the price-setter, British Gas, seems more keen to keep up its prices than keep its customers? I am not especially concerned with the profits that those companies are making—obscene though they are. Nor am I concerned whether they should face competition inquiries or fines, because fines will be of no use whatever to low-income families in my constituency. My concern is that those people should get a fairer deal.

So, what can be done? In their blustering replies to us companies claim to be aware of their social responsibilities, but for the most part they show no signs of following their words with actions. The Government have made huge strides to combat fuel poverty through the winter fuel payment and other measures such as the pension credit. The tragedy is that those efforts are being undermined and devalued by the scandalous energy prices that consumers are being charged. I welcome the Chancellor’s recent efforts to encourage companies to give discounts to elderly customers and people on low incomes. I welcome also the suggestion that some form of social tariff might be included in the Government’s forthcoming energy White Paper.

Energywatch published a document on these matters last November. I hope that some of its ideas will be accommodated, particularly the one about streamlining proposals with existing Government initiatives such as Fuel Direct and Warm Front, while remaining aware that some of the low-income consumers who most need assistance might be in low-paid work. There might also be potential to extend winter fuel payments to the non-elderly poor. That was suggested in a report by MPs last October, for which I was the Chairman, on families caring for disabled children.

Another area that I would dearly like to be resolved is the increased charges that customers with pre-payment meters often pay. Those people are often among the most disadvantaged in our society, and it is deeply unfair to expect them to pay more than everybody else. There are similar problems with disconnections and back-charging. I am pleased that this point has already been raised, quite eloquently. Will the Government consider my arguments about social responsibility and include a raft of measures such as those that I have suggested—or, as I am sure the Minister will, propose even more effective ones—in the soon-to-be-published energy White Paper?


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