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5 Feb 2008 : Column 196WH—continued
Yesterday we received information about the publication of a poll by Save the Children. Its findings were very disturbing. It showed that nearly one in five families with kids cannot afford to heat their homes. It also showed that 19 per cent. of families could not keep their homes warm because of the cost. It indicated that 15 per cent. of households cut back on food, and the same number on clothes. If we are to be led to believe that the answer to all that is switching—I do not want to discourage anyone who is free to do it from doing just that—my response is that there are very few facts to support that view. For example, npower announced an increase this January. Even if people wanted to switch that would take six to eight weeks, by which time it will be almost
spring, and those people will have had no help with the severe winter conditions that many parts of the United Kingdom have had.
Adam Price: Does the right hon. Gentleman accept that switching is more likely to be attractive to the young than the old, and to those with internet access, because that is where most switching information is? Indeed, Ofgem’s figures show that two thirds of pensioners have never switched. For the people who most need help, switching is not the solution. Given the negative experiences that pensioners often have when they switch, as pointed out by the hon. Member for Twickenham, it is hardly surprising that so many of them are reluctant to go down that route.
Mr. Clarke: I repeat that I do not want to discourage those who are free to switch from doing so. None of us would. But the hon. Gentleman has a point. The suggestion, in the midst of all the problems that people are dealing with, that switching is the whole answer, and Ofgem’s devotion of so many resources to that answer alone, is not something I find convincing. Many people have switched more than once, only to find that prices have gone up again. All the evidence is that no sooner do people move, but the energy company they have joined raises its prices, too. The hon. Member for Twickenham mentioned evidence from the university of East Anglia showing that about a third—1.3 million people—switched to a tariff that was worse than their previous one.
Mr. Roger Williams (Brecon and Radnorshire) (LD): Will the right hon. Gentleman give way?
Mr. Clarke: I am watching the time, so I shall give way for the last time, and try to conclude, because I know others want to speak.
Mr. Williams: The right hon. Gentleman is making valuable points about switching. I thought at one time that I was the only person who had not switched, until I heard that my hon. Friend the Member for Twickenham had not either. It is difficult to compare different companies on the internet, because they use different tariffs, and people do not know whether the tariff that they are on is equivalent to the one being offered by another company.
Mr. Clarke: The hon. Gentleman makes another solid point. It is very difficult to switch. The plain simple fact is that many people are prevented from switching by debt, prepayment meters that make switching harder, or outdated radio meters that simply will not allow it. Ofgem should have a second look at the view that switching alone should be the highest priority.
I promise to wind up my contribution because I know that many hon. Members want to speak. The Minister knows that I have the highest regard for him and I know that, given the challenges he faces, he will do the best job he can. However, it is extremely worrying that yesterday Peter Lehman, the Government’s own adviser on fuel poverty, said in a press release that the big six energy companies
“have raised their prices, especially electricity prices, by more than their cost increases (with variations between companies) and Ofgem has done far too little even to investigate this”.
I think that that is the case. We know that there is a problem and we expect more from the regulators. If the powers do not exist, there is huge anxiety among all hon. Members that we should consider creating those powers. That is one reason why I shall conclude by saying to my hon. Friend the Member for Selby (Mr. Grogan) that he was right to table his early-day motion, which I have signed. If the companies and Ofgem think that their case is so good, why are they worried about going to the competition commissioner? Let them do so and undergo an examination, and let us go back to the people and explain what we have sought to do on their behalf to remove such a serious problem.
11.41 am
Mr. John Grogan (Selby) (Lab): It is a pleasure to make a brief contribution to this debate. I think that there is a television show called “Before They Were Famous” and those of us who are regulars in Westminster Hall debates listened to the hon. Member for Twickenham (Dr. Cable) before he was famous. We are used to his analysis and sharpness and were not at all surprised that in many people’s opinion he was judged to be the parliamentarian of recent months and the past year. I am pleased that he has initiated this debate. It is also a great pleasure to follow my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke).
As I said, I shall make a brief contribution in support of the hon. Member for Twickenham and the three essential points that he made. The Government should at least consider three regulatory interventions in the energy market: first, a reference to the Competition Commission of the big six; secondly, consideration of whether the Energy Bill should contain a provision on a minimum social tariff for the energy companies; and thirdly, examination of whether the Government have done enough in relation to the boast of the former Chancellor, now the Prime Minister, that on the issue of gas storage and pipelines the companies will have to use it or lose it. I think that the former Chancellor used that phrase in a Budget a couple of years ago. I want to examine those issues briefly and I will try not to go over the ground that has already been covered.
In referring to the European energy market a few years ago, one commentator talked about the seven brothers—the seven big energy companies—that dominate the energy market. We have six, not seven, brothers who dominate our energy market. It is worth listing them for the record: RWE npower, EDF Energy, British Gas, Scottish and Southern Energy, E.ON UK, and Scottish Power—which is being taken over by Iberdrola, a Spanish company. In recent weeks there has been confusion about the precise allegations that are being made about those six companies. For example, The Sunday Times ran a story about the Energy Retail Association and suggested that there had been meetings between energy companies, and that collusion and price fixing might be happening. I have seen no evidence of that. If there is evidence, it is a serious matter for the Office of Fair Trading. However, the fact that there is no proof has been used by some to say that there is no problem. The hon. Member for Twickenham referred to the Chancellor summoning the Ofgem regulator, who assured him that the market was competitive, in response to which the Chancellor said, “That’s all right then.”
Those developments have occurred over recent weeks, but the essential point is the structure of the market and vertical integration, to which the hon. Gentleman referred. No one has mentioned Energywatch so far in this debate. It has done an in-depth analysis to support some of the studies that have already been mentioned. Those studies discuss vertical integration—a market where a large number of the players are not just producing electricity and gas but retailing it, and are involved in every part of the process. In a short paper, which I recommend to the Minister, Energywatch mentions various anti-competitive practices that a vertical structure introduces.
Mr. Tom Clarke: Energywatch has done an outstanding job and it is a great pity that it will not be with us for very long.
Mr. Grogan: I thank my right hon. Friend for his intervention. We will miss Energywatch because it has led the debate. In a moment, I shall reflect on why Ofgem might not be keen on a reference, but Energywatch has played an exemplary role in dealing with the issues of fuel poverty and competition in the market.
David Taylor: And in terms of social responsibility.
Mr. Grogan: It has also played a key role in terms of the social responsibility of the companies. I will not mention all the different criticisms that Energywatch makes of the energy markets. There are well over 20 criticisms, and they break down into different themes. One feature of any market that is competitive is the flow of information and ensuring that people know what is happening. Energywatch criticises upstream long-term gas sales agreements, which account for more than 85 per cent. of source gas supplies to the UK. It states:
“These have the effect of withdrawing from the open market, information on prices and volumes which is necessary to make open markets work”.
There are many criticisms of price transparency and Energywatch goes into great detail about what it calls market foreclosure, which I understand relates to the great difficulty that any company has in breaking into the big six. From 20 down to six has already been referred to as the number of effective entrants in the market. That situation is quite remarkable. The hon. Member for Twickenham referred to British Energy, which is by no means a small player. It has complained to Ofgem that
“the access of the ‘big six’ to their own power stations and gas supplies undermines competition by restricting energy sales on the open market.”
“increasingly forecloses the market to new entrants”.
Average UK consumer gas prices between 2004 and 2006 rose by 64 per cent. as opposed to 19.5 per cent. across six peer nations in Europe, in which there are apparently much less competitive and deregulated markets.
So, what are we asking for? We are asking for a reference, which is quite a simple request. Why is Ofgem not making a reference and why do regulators generally not make references about the markets that they are in charge of to the Competition Commission? I suggest
that it is because of pride. Ofgem got rid of price controls some years ago and it is reluctant to admit that it is not capable of giving both the business and the residential consumer the best possible deal because of the structure of the market. That is why Ministers were given the power to make a reference in the legislation. I understand that doing so is difficult because many of the businesses concerned are the same ones that are building new power stations, upon which the nation relies. However, overall in business terms, I think that the Government would be incredibly popular if they made such a reference to the Competition Commission. For example, manufacturing industry is very critical of energy prices and the influence of the big six. I realise that it would take political courage to make such a reference, but I would like to think that the Chancellor was serious when he summoned Ofgem the other week and that when he studies the documents from Energywatch and others, he will realise that an examination of the issues is essential so that the energy companies and the critics can both make their case as we move forward.
The issue of social tariffs has been well covered. We last spoke about the subject in a debate on fuel poverty in the House a couple of weeks ago, and I was particularly critical of npower and the chief executive of npower retail, David Threlfall. It is interesting that in recent weeks even Ofgem has picked out npower as having the most to do to improve its social responsibility and tariffs.
David Taylor: The debate pack that the Library has helpfully supplied lists my question to the Minister on 22 November 2007, column 1315 of Hansard. In relation to social tariffs, I urged the Minister to give Ofgem reserved powers to insert a minimum floor to the tariffs. The Minister said then that some companies are doing well, and others are now moving in the right direction. Will my hon. Friend indicate which companies he thinks the Minister had in mind, and what the right direction is, because that is not immediately obvious to the outside observer?
Mr. Grogan: I shall let the Minister speak for himself on how he would rank the various companies. It is interesting that when npower was criticised by the regulator a few weeks ago, rather than putting its hand up and saying that it needed to do better, it rebutted the regulator’s claims and said that it had a range of practical solutions. Incidentally, it was found that it had disconnected seven in 1,000 gas users last year, which was twice as many as its nearest rival, EDF Energy, which disconnected three and a half in 1,000.
David Heyes (Ashton-under-Lyne) (Lab): It is futile to try to rank the companies, because they are all woefully inadequate by any measure, so legislation to force action on a minimum floor is the right way forward. Does my hon. Friend agree that the existing arrangements are largely a sham, and a pretext for corporate responsibility that is not real?
Mr. Grogan: I agree that the time has come to have a minimum floor for social tariffs. I have great hopes of the Minister, and he gave a thoughtful interview on the “Today” programme this morning. If he looks back at the White Paper, he will see the comment:
“If no further action is undertaken by the companies”
“will consider whether to take the opportunity for legislation to enable the Secretary of State to require companies to have an adequate programme of support for their most vulnerable customers. In this context, we may consider the role of mandated minimum standards for social tariffs”.
The Energy Bill provides the opportunity to do more than just consider; it provides the opportunity to put that into effect.
I was almost moved during the Minister’s interview this morning when he replied to the claim that we have 22,000 more deaths among the elderly population in winter than in summer. The reason for that can only be energy prices. In Scandinavia, there is no significant difference between the number of winter and summer deaths. We have a chance to make a difference on our own watch as MPs and as a Government. We have a target of eliminating fuel poverty by 2016, so I hope that the Minister will take further steps in the Energy Bill.
I said that I would say a few words about gas storage and pipelines. The matter was dominant in the news 12 or 18 months ago when wholesale gas prices were high, but went off the political agenda during a short period when there was rather less pressure on wholesale gas prices. I understand that about a year ago, Ofgem consulted on the operation of the gas storage market, gas pipelines and so on. I would be interested if the Minister briefed us on the conclusions of the Ofgem inquiry, his response to it, and whether there is a case for instituting in law third-party access to gas storage and gas pipelines, which the hon. Member for Twickenham mentioned.
11.53 am
Mr. Roger Williams (Brecon and Radnorshire) (LD): It is always a great pleasure to speak in debates under your chairmanship, Mr. Amess.
I congratulate my hon. Friend the Member for Twickenham (Dr. Cable) on securing this debate. He has great expertise as an economist, particularly of energy and oil companies, and has been able to relate complicated Competition Commission issues to the fate and experience of vulnerable people who are finding it more and more difficult to keep their houses warm, and to survive the winter. However, he represents Twickenham, so he was remiss in not mentioning the great energy surge there during the second half of the Wales and England game last Saturday. That was one of the last great class battles and for once we had the result that we often deserve, but rarely achieve.
Fuel, food, water and air are essential commodities for life, and we must pay for three of them at the moment. The hon. Member for Selby (Mr. Grogan) mentioned that there are 22,000 more deaths during the winter, which could be avoided if we had properly insulated houses and fuel that people could afford. That is a testament to our inability to address the fuel poverty issue, and brings into question whether we are such a civilised country as we claim and hope to be.
My hon. Friend focused on competition issues, and it is important to reflect on them again. Fossil fuels, which are the mainstay of heating and lighting our homes, are a finite resource. Many of us are aware of the concept
of peak oil and peak gas, and there is competition in that also, because that finite resource is coming to an end, and exploration and exploitation to produce that resource are becoming more difficult and expensive. It is sometimes said that the best cure for high prices is high prices, because higher prices encourage investment in exploration, exploitation and so on. However, we are approaching the stage at which wherever we look for such resources, they will cost more, and some of those issues will be reflected in the price.
Another competition issue to which a number of hon. Members referred is consolidation. The number of energy companies has fallen from 20 to six, and that has been mentioned often during the debate. There has been a similar experience with supermarkets. Morrisons recently bought Safeway, which reduced competition. When there is consolidation, even if the remaining companies try to remain within the spirit of competition law, it is sometimes difficult. Indeed, an inquiry by the Competition Commission into supermarkets has established that there was uncompetitive practice in the grocery trade, particularly the dairy trade. A number of supermarkets have admitted to that breach of competition law and been fined, while others refuse to accept that and are contesting the issue.
When a small number of companies are vertically integrated, it is more difficult for them not to be uncompetitive than in the supermarket trade where at least vertical competition has not reached the same scale as in the energy sector. Ofgem must look at that, and consider whether there should be a referral. The market is huge and domestic energy accounts for 27 per cent. of total UK consumption, of which gas makes up 69 per cent., electricity 22 per cent., petrol products 7 per cent., and coal 1 per cent. The problem is not restricted to domestic supplies; small businesses also find it difficult.
When I was having a pre-match drink on Saturday in the Old Cognac, which is an excellent pub and provides excellent food, the landlady told me that her fuel bill is now £3,000 a quarter for that very small but high-quality establishment. The problem affects domestic consumers, but also small businesses. I remind the Minister that it would not be new for the Competition Commission to investigate the fuel industry. At the instigation of my predecessor, the noble Lord Livsey, and following continued pressure from me, there has been an inquiry into liquid petroleum gas, on which a number of people who are not on mains gas have to rely. That fuel is much more expensive per unit of energy than mains gas or electricity.
In the inquiry, the Competition Commission uncovered some uncompetitive practices, and we are still waiting for it to make its recommendations on how to deal with the problem. I understand that the park home owners have put in an objection to the recommendations. I ask the Minister to accelerate the outcome of that inquiry because vulnerable people such as park home owners and pensioners, who are not on mains gas, suffer from the very high prices of liquid petroleum gas.
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