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5 Feb 2008 : Column 202WH—continued

Clearly, problems exist for consumers. Energy prices are quick to rise when gas and oil prices go up, but they do not seem to drop when prices come down. May I refer to the point that was made by the hon. Member for Carmarthen, East and Dinefwr (Adam Price)? The Western Mail today reported that energy prices in Wales were between 15 and 20 per cent. higher than from the
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same supplier in England. By referring the matter to the Competition Commission, I want to ensure that the issue of regional pricing disparities is addressed. In my constituency, some of the ex-mining villages do not have mains gas and have to rely on oil and electricity, which is an expensive form of heating. Therefore, this disparity in pricing really must be tackled.

Ofgem claims that the level of competition can be calculated by the number of people who switch energy suppliers during a given year. We have heard that about 4 million domestic users out of a total of 36 million have switched. As the right hon. Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) said, many of those switched because they were encouraged to do so, and did not necessarily secure a good deal.

In conclusion, a number of issues relating to competition need to be addressed. Fuel poverty is a scourge from which this country suffers. I thought that the Minister was very measured in his response to the interview on Radio 4 this morning. He clearly understood the problems. The Government’s energy policy is that prices should be reduced through competition. We can see that that is not happening for a number of reasons, including limited supplies and the consolidation of the industry itself. The Minister will know that although some of the Warm Front schemes have been very successful, the Government are now reducing their investment in them.

To sum up, are the major companies being really competitive? I am not alleging that an overt cartel exists. So, are there any ways in which companies are co-ordinating prices by means other than overt cartel making? We must look at the social tariff, which was raised by the hon. Member for Selby, whose early-day motion will probably be signed by many of us. We need to look at meter payment, the associated high tariffs, and the difficulty of those on meters to switch supplier. We also want to look at regional differences in supplies. The liquid natural gas pipeline has come through my constituency, but not a single constituent will be able to tap into it. Despite all that disruption, prices are still higher in Wales. Will the Minister address the liquid petroleum gas issue and tell us when people in isolated villages and homes can benefit from true competition?

12.5 pm

Mr. John Baron (Billericay) (Con): I congratulate the hon. Member for Twickenham (Dr. Cable) on securing this debate, and other hon. Members on their excellent contributions. A great deal of consensus exists on this issue. Rising energy prices and fuel poverty are a concern for all our constituents. It is essential that we have the right regulatory framework in place to deliver a competitive market and to try to secure the best possible prices for all our citizens. In fairness, we should recognise that Ofgem has provided the UK with one of Europe’s most competitive markets. Arguably, we have the fifth cheapest market for electricity and the cheapest for gas. Energy prices for consumers remain lower than before market deregulation. However, we must recognise that international and economic forces and global trends are driving up prices. The question is whether the Government are doing all that they can to help people with those price increases. Serious questions have been asked by hon.
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Members, and I want to focus on two or three other issues as well. I hope that the Minister will have plenty of time to answer my specific questions.

Since 2003, the price of gas has risen by 82 per cent., and the price of electricity by more than 60 per cent. Cost increases are taking their toll on all households, especially those of the elderly and the vulnerable. I make no apology for repeating that point. We have all had letters from constituents raising those issues. I recently received correspondence from a local gentleman in his 60s explaining how, with council tax increases and rising food bills, increases in energy prices are causing a real difficulty. I hope you will forgive me, Miss Begg, if I read out a couple of sentences from his e-mail. He states:

He goes on:

I fear that there are many others in the same situation.

According to some estimates, the number of fuel-poor households has doubled since 2005 alone despite a Government target to eradicate fuel poverty from vulnerable households by 2010. Picking up on an earlier point, will the Minister explain why there has been a cut in the budget for the Warm Front scheme, which is the main mechanism for assisting households in fuel poverty?

We have also heard figures relating to fuel poverty deaths. Apparently, in the winter of 2006-07, about 25,000 people over the age of 65 died as a result of cold-related illnesses. Those figures are far in excess of countries on the continent with even more severe weather conditions. The disparity in the figures between those who die in the winter and those who die in the summer is far greater in this country than on the continent. Will the Minister address that issue because it suggests that the Government’s strategy and policies are not having the desired effect?

Fuel poverty, as we have heard, impedes competition. As many as 2 million customers cannot switch suppliers because they are already in debt to their existing suppliers. In light of that worrying trend, I hope that the Minister will use his winding-up speech to explain how he proposes to meet his target to eradicate fuel poverty and say whether he believes that the time has come for Ofgem to have a specific mandate to ensure that fuel poverty is driven down, which has been touched on by a number of hon. Members.

We have also touched on social tariffs. I do not wish to re-explore the debate about social tariffs, but they could be part of the solution. Some suppliers are keen to develop them. Indeed, there have already been calls for the Secretary of State to take powers to direct suppliers to provide social tariffs. I would welcome the Minister’s response and opinion on that.

We have heard about Ofgem’s future role. It could have an important role to play in promoting sustainable development and reducing our national carbon footprint. As the Minister will be aware, the Sustainable Development Commission has made five key recommendations about Ofgem’s responsibilities, including changing the market
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arrangements to make it easier for small and low-carbon generators and suppliers to compete—a point touched on by the hon. Member for Twickenham. It would be useful to know whether the Minister has considered the options proposed by the commission and what views he has been able to form.

One of the commission’s recommendations was for consumers to have better information through smart metering and billing to help them to make decisions about energy consumption. The Government have been slow off the mark in that area. I suggest that they have committed themselves to the technologically inferior electricity display device over the smart meter, despite industry consensus that EDDs may be a waste of time and money and will not help to deliver favourable reductions in fuel poverty. The beauty of smart meters, as I understand them, is that they offer the opportunity for varied and innovative tariffs that will encourage those on tight budgets to use electrical appliances such as washing machines in off-peak hours. EDDs, however, simply tell people how much electricity they are using and perhaps dissuade them from using their appliances at all. In addition, EDDs work only for electricity, not gas, despite gas being the main heat source for most UK households—the figure that we heard was 69 or 70 per cent. of all households.

The use of smart meters in all homes would lead to the removal from use of often expensive pre-payment meters, which statistics suggest are a much more expensive way of using energy. Many of the customers who use pre-payment meters are fuel poor and in debt to energy companies. Smart meters would also allow many people who are prevented from moving supplier to take advantage of market liberalisation. Will the Minister explain why he decided to opt for EDDs over smart meters? What beneficial effects are they likely to have on fuel poverty?

Finally, I want to touch on how to ensure true competitiveness in the UK market—the point that I raised with the hon. Member for Twickenham. In assessing competitiveness, we must consider not only the UK market, but the wider European context. I have already posed the question in this debate about the EU treaty, which fails to usher in a truly competitive EU market. Liberal Democrat Members and Government Back-Benchers must ask why the treaty is not ushering in a more competitive market. For example, the phrase “free competition” was apparently removed from the draft treaty at the behest of the French. Some of our continental allies appear to take a far less liberal approach to these matters than we do, and the consequence not only for British business but for British consumers is very serious. Whereas 20 million British consumers use French or German gas suppliers, none in France or Germany uses UK ones, so we have to consider the issue in a European context.

For evidence of the different attitude taken by our neighbours, we need look no further than France’s €70 billion merger of energy giants Gaz de France—already Europe’s largest natural gas operator—and Suez to create what will become the world’s fourth-largest energy company, with the French Government keeping a one-third share of the new company. That is, as I have suggested, economic nationalism on the march. The French Prime Minister has gone on the radio and said, “We have control. We control strategy.” That is creating national champions and that cannot be good for competition.
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The merger was approved by the European Commission in 2006, subject to conditions, but how different that approach is from our national experience of breaking up monopolies and not consolidating national champions.

Meanwhile, European watchdogs have been busy probing continental energy firms over claims of anti-competitive practices, but many of the results have proved inconclusive. There does not seem to be the political will to sort that problem out. I suggest to all hon. Members that if we are truly serious about trying to help our citizens in achieving or gaining the best possible prices, we have to grasp that nettle and try to ensure greater competition across Europe as a whole. I ask every hon. Member to examine the EU treaty carefully, because it falls well short of trying to introduce a more competitive market across Europe as a whole. One is not looking for favours or anything like that, but one does want far greater competition and this EU treaty is not delivering it. The treaty shies away from bringing in a more truly competitive market. Will the Minister say what the Government will do to try to put that right? What pressure will the Government bring to bear with their European counterparts in bringing into effect a much more liberalised energy market on the continent? We are failing to do that at the moment.

I do not intend to say much more because I want to leave the Minister plenty of time to respond to the points that we have all made, but I ask him in all earnestness and honesty to address the concerns that we have raised, particularly with regard to smart meters, Ofgem’s future remit and how we can best create a truly competitive European market.

12.16 pm

The Minister for Energy (Malcolm Wicks): I congratulate the hon. Member for Twickenham (Dr. Cable) on the measured and thoughtful way in which he introduced the debate. I hope that I shall have time to respond to some of his key points. We heard a very fine speech from my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke), who has been a long-term advocate of doing more for the fuel-poor. My hon. Friend the Member for Selby (Mr. Grogan) made an important speech.

We also heard some important Front-Bench contributions. I was impressed that the hon. Member for Brecon and Radnorshire (Mr. Williams) is so diligent that he even continues his research when in an establishment that he called “The Old Cognac”. The price of an old cognac would be more than a new cognac, so I hope that that helps with some of the energy costs involved. I congratulate his nation on a remarkable comeback in the rugby over the weekend.

I hope that the hon. Member for Billericay (Mr. Baron) will forgive me if I do not go too far down the European treaty road, because I vaguely recall that in the main Chamber we have spent a few hours debating that issue; indeed, we debated the energy aspects only the other day. However, I will say something about market liberalisation. I do not think that he is a supporter of the European treaty, but at one stage he almost seemed to be calling for more European powers to override national policies when it comes to energy nationalism. I am not sure whether that is a new Conservative party policy.

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We are all concerned about rising energy costs, particularly as they affect vulnerable people such as the frail elderly and poorer families with children. It is important that we are as clear as we can be about the evidence base, and the hon. Member for Twickenham was very measured in his introduction. Wholesale price rises in the past year have hit hard. Wholesale gas forward prices—the prices that our supply companies have themselves to pay—have increased by 50 per cent. for gas and 85 per cent. for coal since January 2007, so in just a year there has been a dramatic increase in wholesale prices. I am advised that wholesale prices tend to make up about 50 and 45 per cent. of retail prices for domestic gas and electricity customers respectively. Wholesale prices make up roughly 70 and 90 per cent. of prices for average-sized industrial gas and electricity consumers. UK gas prices are of course linked to continental prices because of interconnectors—increasingly so, because of the importance of liquefied natural gas, the price of which is strongly influenced by the price of oil. Fossil fuel prices have been on an upward trend in the past 12 months, pushed by global supply and demand pressures, which we all understand.

The European Commission’s third package of legislation on the internal market and action by the EU competition authorities aim to develop transparent, better- functioning EU gas markets. In response in particular to the hon. Member for Billericay, but also to the hon. Member for Twickenham, we can proudly say that the UK has been in the lead of the charge for greater market liberalisation in Europe. That is central to the concept of the single market. We are working hard on the matter and I am pleased that Commissioners are now taking it very seriously.

I shall not say too much about the emissions trading scheme but, in response to the hon. Member for Billericay, we will see far higher rates in phase 3 of the scheme—very high rates—of auctioning of the allowances. We back that as a policy.

Mr. Baron: I accept that the Government have tried to make the case in Europe for a more liberal market. The problem is that they are not having much effect. When we look at the merger in which the French Government will keep a 35 to 40 per cent. stake, we will see that economic nationalism seems to be on the march on the continent. What more will the Minister do to try to get the French Government to change their mind?

Malcolm Wicks: We continue to push for that in the Energy Council of Ministers, of which I am a member, and we work closely with the Commission. The Commission’s action on competition was significant—it launched dawn raids some while ago on the offices of major European energy companies. We are very much engaged in that process.

We are not alone in having to pay more for our energy, but our domestic gas prices are still significantly lower than domestic prices in France or Germany. For more than a decade, our market has consistently delivered lower prices to UK domestic customers than the vast majority of other EU countries. I am conscious that that will bring no comfort to some of the vulnerable people in this country who are having to pay higher
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bills, but European comparisons are important. Even following the latest price increases, there will be opportunities for customers to save by switching suppliers. I shall say more about that because I am not far from the analysis of the hon. Member for Twickenham on switching.

Alongside the great increase in wholesale prices, which is down to global factors such as the great demand for energy in China and India and so on, our environmental policies—we all support tackling climate change and global warming—are pushing up prices quite considerably. We need to understand that we will not save the planet on the cheap—such things are expensive. Our policies to protect the environment, be that through the EU’s emissions trading scheme, the new carbon emissions reduction target, which is the successor to the energy efficiency commitment, and our renewables obligation which, as the hon. Member for Twickenham reminded us, will be worth £1 billion in investment by 2010, inevitably have an impact on price. The cost of CERT, which funds installation of energy efficiency measures in households to save energy and to reduce carbon emissions, particularly lower-income households, has doubled on both gas and electricity. We estimate that the combined impact of the renewables obligation, CERT and the EU ETS counts for about 16 per cent. of annual electricity bills, which is a significant amount. In an estimated average bill, those costs will be a total of £60 for electricity and £19 for gas, and they will rise as we pursue our climate change policies.

Contrary to what the hon. Member for Billericay said, we are committed to smart meters. There is a debate about whether the clip-on devices are helpful for energy inefficiency—they probably are—but we are committed to driving forward the development of smart meters. That is not inexpensive, but we think that it is important for a variety of reasons, about which we will say more in the weeks to come.

Ofgem’s primary role is to promote competition in the interests of gas and electricity customers. I have no doubt that if Ofgem was to see evidence of anti-competitive behaviour, it would not hesitate to investigate formally—it has a record of doing so. Ofgem states that ongoing market surveillance shows that the market remains competitive, and its June 2007 domestic retail market report showed vigorous price competition between the six major suppliers. I always urge Energywatch and other critics to put the evidence to Ofgem so that it can remain ever vigilant. The hon. Member for Twickenham cited an interesting study that I shall look at further.

Is the market competitive? According to independent research—the latest figures from Oxera—the UK’s energy market remains the most competitive in the EU and G7. We need our commitment to open and transparent markets to be replicated throughout the rest of Europe. Suppliers face similar costs when procuring energy wholesale. When those costs change, they face similar pressures on their margins. Despite the popular rhetoric, there is much evidence to show that we have a competitive market.

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