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Dr. Whitehead:
I do not entirely go along with everything that my hon. Friend says about energy companies. However, we are moving into a new form of fuel economy
and a number of energy companies’ assumptions about how the market operates—and for their own benefit—need to be fundamentally reviewed. There were assumptions that worked apparently well in an era of very cheap energy, when people were not particularly concerned about the environmental consequences of their energy consumption and the role of energy companies was—provided that the lights stayed on—to provide as much energy as possible to people at the lowest possible cost. If they made a lot of money, there were no further issues to address. However, now the issues have all fundamentally changed, and the role of energy companies in addressing them and changing things becomes crucial. Energy companies that do not change are guilty of living in a different era of energy supply and making assumptions that are not acceptable in the current debate on energy supply.
Bob Spink (Castle Point) (Ind): I accept that the hon. Gentleman does not altogether subscribe to what the hon. Member for Walsall, North (Mr. Winnick) said about energy bosses, but I think that he would acknowledge that the energy companies have acted too slowly and not sufficiently to deal with the problems. Does he not think that one of the solutions is to put social tariffs on a statutory basis—standardise them across the companies so that the public can understand them, and make sure that we in the House, the Government and the companies themselves make the public aware of them? Currently, the public are simply not aware that social tariffs are available. Does the hon. Gentleman not think that what I have mentioned might be part of a good solution?
Dr. Whitehead: I thank the hon. Gentleman for that suggestion. Putting social tariffs on a statutory basis and making sure that they are not simply a device to shift responsibility for underwriting them to different forms of customers is important. However, I emphasised earlier that our world has changed; I also think that simply saying that we can shift notions about how people pay for electricity is not a sufficient answer to fuel poverty or energy supply problems.
I mentioned the problems of prepayment meters and those who pay by direct debit. Both those issues could be resolved instantly by the introduction of smart meters. Smart meters give people control of their energy supply and mean that readings can be made regularly, rather than there being estimated bills. Prepayment smart meters could be calibrated regularly and an accurate reading could be made of what is being paid. All that would make a big difference to how the energy is supplied and the consequences.
I hope that the programme enabled by the Energy Act 2008 to roll out smart meters is substantially truncated. As far as meters are concerned, we are living in a medieval world. There are still what are virtually wind-up meters in many houses, and a lot of the time those who clamber in to read the meters do not do so accurately. A lot of people are living in a world of estimates and possibly of substantial overpayments, whatever their tariff.
Lynne Jones (Birmingham, Selly Oak) (Lab):
My hon. Friend mentioned truncating the programme, which is expected to take as long as until 2020 to be implemented. What does he consider a reasonable length of time for
such a programme to be implemented nationwide? Does he agree that we need a programme such as the one that operated when there was household switchover from coal gas to natural gas?
Dr. Whitehead: Personally, I think it essential that smart meters are rolled out in the shortest time possible if we are to move into the new era of energy supply—particularly if we are to supply as little energy as we can, rather than as much as we can, to each household. Anything we can do to truncate the period as much as possible—perhaps by three to four years—is important. Measures suggesting that at any one stage the six major companies could visit the same street, to compete to put the smart meters in, are probably not the way to go. It is important for us to consider a roll-out area by area.
The change heralded in the recent pre-Budget report in how we look at energy is also important. There was £300 million for the community energy-saving programme—which, incidentally, is to be rolled out street by street and not as a patchy programme—and an additional £174 million for the Warm Front programme. There was also an increase in the carbon emissions reduction target over the next two years, a £3.7 million commitment. However, the process by which energy companies appear to have to search out the fuel-poor and vulnerable so that their properties can be made more energy-efficient will have to be considered again. Local authorities have a substantial role to play in that. If a further windfall tax on energy companies is being considered, such a levy needs to be placed firmly in the context of energy saving and controlling the use of energy. If we simply take a tax from energy companies that can be wholly recovered by them, we will not make any difference to what is happening to energy supply and we will have failed in terms of the imperatives that now exist as regards the energy market.
Martin Horwood (Cheltenham) (LD): Does the hon. Gentleman agree that one of the fundamental changes that must one day take place is the breaking of the link between energy companies making greater profits and supplying more of the essential resource? Until that fundamental market link is broken, all these things will have a limited impact.
Dr. Whitehead: The hon. Gentleman uncannily anticipates what I am about to say.
A corollary of this change in how we deal with the energy market and energy supply is the extent to which the regulator has the ability to regulate structural changes in the energy market and ensure that it moves from a market in which energy companies are regulated on charging but not on supply, regardless of how much is supplied, to one where incentives and regulation are directed at the efficient supply of energy and efficient use of energy supply. I am not convinced that Ofgem, in its current incarnation, can perform that role. I remain concerned that its main weapon appears to be switching, yet more than 30 per cent. of people switch to a higher priced tariff in any event. Even if everybody switched, there would not be a lower supply of energy to any particular household as a result.
Mr. Paul Truswell (Pudsey) (Lab):
Will my hon. Friend condemn the practice of suppliers who impose a financial penalty on customers who want to switch tariff with them or to move to another supplier? Does
not that militate against the ability of consumers, particularly low-income families, to operate the market in the way Ofgem suggests?
Dr. Whitehead: My hon. Friend makes an important point. There are a variety of problems with switching, in the extent to which evidence suggests that a number of impediments are put in the path of switching and the extent to which people have usable information about what switching means for their future tariffs. However, that has to sit with the overall point that switching is not the answer in its own right, by any stretch of the imagination. Although it may be an important element of how the current market operates, it is ultimately a zero sum game as regards the imperative of reducing the total amount of energy going roundthe system.
One small structural change that we might pursue is to consider the methods whereby we deliver insulation and renewable, sustainable devices into the domestic environment and into small and medium-sized enterprises. The Treasury rules about what one can and cannot lease could be changed very slightly to make it possible to align the leasing arrangements in SMEs or the ability of energy companies to supply renewable products and insulation to homes. That would enable devices to be leased rather than purchased and therefore enable those leases to be paid for by the savings that people make in the energy supply that the devices then supply to their homes and buildings. At the moment, the Treasury rules say, “If you can wheel it out of the door you can lease it; if you can’t, you can’t.” Even if it can be unbolted from the wall and moved away, it cannot be leased. A change in leasing arrangements, like other aspects we have discussed—smart meters, switching and other devices that do not look fundamentally significant in their own right—could make a substantial difference to how people manage their energy supplies and how energy companies deliver those devices and services to people. Over the next decade, we should try to achieve the aim of a low-carbon energy economy that nevertheless supplies energy at an affordable price.
6.55 pm
Steve Webb (Northavon) (LD): In the limited time that we have available, I want to focus on fuel poverty and the role of Ofgem. I echo the comments made by the hon. Member for Mid-Worcestershire (Peter Luff); given the importance of the topic that we are debating, it is nonsense to have less than a couple of hours to do so. There clearly should have been some sort of injury time.
The official figures tell us that there are 3.5 million households in fuel poverty, that earlier this year there was an estimate of more than 4 million and that the latest estimate by the Government’s own Fuel Poverty Advisory Group puts the number at between 5 million and 5.5 million households. That is astonishing. Will the Minister discuss with his officials why we have official statistics on this subject that are two years out of date? I understand that the reason is partly that the English house conditions survey has to be done and processed, individual consumption has to be applied to that and the numbers crunched. However, we could surely have a broad estimate of what has happened since the survey was done. We know what has happened to the prices of the main suppliers and to benefit levels,
and it would not be too difficult to get an up-to-date figure. That is important, because the changes that go on in the market have a different impact on different people. We are almost trying to make policy with a blindfold on. If we are using the fuel poverty statistics to inform policy, we should not be using two-year old statistics. If some estimate were made of what has happened since then, it could inform us as to whether, for example, people using the gas main, pensioners or people living in particular areas had been prejudiced.
The Minister of State, Department of Energy and Climate Change (Mr. Mike O’Brien): The hon. Gentleman will understand in the light of current controversies why I might hesitate to rush out statistics without their going through the full and proper process.
Steve Webb: I think that we will let the Minister off in this case. All I can say is that I strongly suspect that he would not be rushing out bad news early. To be serious, I point out that informed policy making needs up-to-date data, and that is a problem in this area.
I recently wrote to the big six energy companies and asked them for an up-to-date and comprehensive account of their social tariff structures. They all wrote back quickly and gave me a full account, which I will publish shortly. One or two interesting things came out of that, which I was not aware of and want to raise with the Minister. First, the Government have legislated to allow the companies to know which of their customers receive pension credit. The companies have told us in the past that one of the problems that they face is finding their poor customers—knowing who they are. The Government are now going to enable them to know who those customers are, at least as far as pension credit is concerned. The companies tell me that they are concerned about the assumption that once they know, they will have to do something about it. There are millions of people on pension credit, but only 600,000 people on social tariffs, and the Minister will know that there is a big difference between the two groups. What can he tell us about his expectations of the energy companies now that taxpayers’ money is going to be spent on telling them which of their customers are on pension credit? Does he expect them to do anything about it? It would be interesting to know what the Government’s position is on that.
Secondly, I found out about how breathtakingly complex social tariffs are; perhaps that was already well known to everybody else. I discovered that depending on which company someone is with, their eligibility for a social tariff might depend on how many bedrooms they have, whether they are over 60 or over 80, which benefit they are on or how long they have been with the company, so that they may have to switch to a company and stay with it for a year before they are eligible. I find that most consumers do not have a clue; in fact, many do not even know that their company has anything called a social tariff. I recently contacted a power company because I had met a very elderly lady who was struggling financially; I said, “Can you help her?”, and it said, “Now we know that she is very elderly and struggling, we will switch her on to such and such a tariff, and that will save her a lot of money.” She did not know, and if I had not contacted
the company it would never have happened. That is laughably—or it would be laughable if it were not so serious—hit and miss.
That raises a serious question about mandating national standards on social tariffs. Given that the fuel-poor are the least likely to switch anyway, we cannot rely on them to shop around between all these different companies, with all these totally confusing social tariffs, all of which have different and changing rules, names and eligibility criteria.
Mr. Weir: Does the hon. Gentleman not agree that there is actually a slightly worse problem, because all the companies’ tariffs are different? The tariff that someone is on might not be the best one, but that does not necessarily mean that they will switch to another company with a better tariff just because they are found to be fuel poor.
Steve Webb: The hon. Gentleman is right. Not only might someone be better off with another company or on a different social tariff; they might not even be on the best tariff of the company that they are with. Fuel poverty is important. I do not know when the figures for excess winter deaths will next be published—the Minister might be able to tell us—but they are truly shocking. One excess winter death is truly shocking, especially when we think of the cold countries that do not have that problem. One can only fear that this winter will be a bad winter. The fact that consumers are not accessing the best prices for which they could qualify is simply unacceptable.
There is a danger of comparing the companies in an unfair way. One company will tell the House that it offers more social tariffs than any other by a long chalk. That company may have closed its social tariffs temporarily, however, because it is waiting for the others to catch up. However, it can turn out that when the company applies its social tariff, it charges more than some other companies charge on their normal tariffs. The consumer is baffled by all this. Again, that is an argument for regularising the situation and giving people an entitlement, rather than just hoping that everything will work out.
The role of Ofgem is important. I woke up this morning to the sound of Alistair Buchanan—a bad move that has coloured the rest of my day. I have no idea whether he timed his announcement because we are debating Ofgem today—I am not a cynic—but he was boasting about the hundreds of millions of pounds that Ofgem had saved consumers. I did a bit of mental arithmetic over my cornflakes and worked out that if he has saved, to take some round numbers, £200 million in 20 million households, that works out at £10 a year or 20p a week on average. His proud boast this morning, therefore, was of having achieved an average gain for households of perhaps 10 or 15p a week—I accept that that is not averaged out over everybody, but the figures are not that great if we put them in context.
Alistair Buchanan told Nicky Campbell that he would stamp his regulatory hobnailed boots all over the companies if they did not play ball, but what has he been doing all this time, while the companies have been leaving vulnerable customers in fuel poverty, failing to alert people to the social tariffs and overcharging on direct debits? In many cases the companies’ behaviour has been disgraceful, and the regulator has been pathetic. He wants us to
think that he is a tiger, but he is a pussycat. Will the Minister tell us what he thinks of Ofgem’s performance? I hope that he will be candid and tell us whether he thinks the chief executive of Ofgem should still be in a job at Christmas.
Lynne Jones: Will the hon. Gentleman give way?
Steve Webb: I will, although I will also happily give way to the Minister if he wants to answer that one.
Lynne Jones: Does the hon. Gentleman agree that it is disgraceful that Ofgem is requiring the energy companies to release accounts on the separate wholesale and retail markets only now, after the most recent probe? Surely it should have done that years ago.
Steve Webb: Absolutely. As the Chairman of the Select Committee said, there is a litany of things on which the Committee has had to prompt Ofgem to do its job properly. That is totally unacceptable.
Ofgem identified three ways in which the companies were exploiting their market dominance. The first is through pre-payment meter premiums. I take the point that there has been some progress, but we have still not eliminated excessive penalties on prepayment meters. I also take the Chairman of the Committee’s point that there is no straight corollary between prepayment meter usage and fuel poverty. We need to ensure that the fuel poor in particular are not being overcharged for their energy. The second way relates to people who are off the gas main and who cannot access dual-fuel benefits. Some action there is necessary; indeed, it is good to see some.
The third way in which the companies exploiting their market dominance, on which I have seen no evidence of progress, is through local monopolies. It has been put to me that companies such as—I do not mean to single this company out specifically—London Electricity, which became EDF, make all their profits from their legacy customers; that is, from inertia and from the people who have not swapped to an out-of-area supplier. That is a classic example of a market not working. Where a company has a huge base of inherited customers, many of whom would be better off switching, but who have stuck it out because they do not know how to switch, cannot be bothered to switch or whatever, that company can cream off millions. Ofgem says that there is a problem, but does not seem to be changing much. We need to give a kick—with a hobnailed boot, I suppose—up the backside of Ofgem, so that it really gets serious with the companies.
The House would not expect me to reserve all my criticisms for Ofgem, and the Minister would be disappointed if I did not direct some at the Government, so I will balance things up. Ofgem and the Government are like Tweedledum and Tweedledee, because they both say exactly the same thing: “If you don’t behave, we’ll get tough.” I have noticed that when I threaten my children with discipline but then fail to deliver it, they continue to misbehave. If the Minister thinks of himself as a slightly grumpy parent, I hope that he will realise that when he threatens discipline but does not deliver it, the children will go on misbehaving. My children have learnt—such behaviour is called learnt behaviour—and I am afraid that the energy companies have also continued
to behave as they do. They have been told that they are in the last-chance saloon, but they have been ordering extra rounds over and over again.
Somebody has to draw a line. Somebody—I do not much care whether it is the Government, Ofgem or both—has to tell the energy companies. The fuel-poor and our constituents more broadly are fed up with people threatening to get tough. That has gone on long enough. The fuel companies have been given enough rope to hang themselves and that is what they have done. Now someone has to pull it a bit tighter. Of course they have a right to trade and make a profit. Indeed, we need them to make a profit to invest. I understand all those things. However, the energy companies are not making a profit through economic efficiency in a dynamic market; they are exploiting a quasi-monopoly, and the most vulnerable people in our society are losing out as a result. That has gone on for too long; it has to stop.
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