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10 Jun 2009 : Column 246WH—continued
I think that all hon. Members can agree that bills do not give enough information on comparisons between different types of residences, as my hon. Friend suggested, or about what should be the cheapest tariff. We could go further. During the passage of the Energy Bill, we said that energy bills should tell the householder what CO2 emissions relate to their usage, as the hon. Gentleman
suggested. If we want consumers to change, they must have information. As the hon. Member for Castle Point said, people only get real choice if they have real information. We should assume that, if they are given the information, consumers will have the ability and the common sense to make those choices.
We have suggested that consumers should be told what the environmental charges are. At the moment, typically, £70 or £80 of a £1,000 bill relates to the environmental charges: the contributions towards the renewables obligation certificates, the European emission trading scheme and the carbon emissions reduction target scheme. If we want an honest debate with the public about the cost of energy efficiency and environmental improvements, they should be told what that is costing them and it should be spelled out on their bill, because there would be a better engagement if people realised exactly what it is costing them.
Some people say, “This is all too confusing. The public simply wouldn’t understand this range of information.” That is wrong. One company out there called First Utility says that the first thing that it does with a new customer is to install a smart meter. Then it gives them a bill showing them their electricity use for every half hour during that month. The bill compares the half hour of greatest usage in a month with that in previous usage, so people can see when their lowest period of energy usage is, allowing them to ask themselves, “Why was my usage on that Friday so much greater than the previous Friday?”, or whatever. First Utility has found that informed consumers really do start to make changes.
The introduction of smart meters is fundamental to the process of informing consumers. Smart meters will have great benefits in terms of energy efficiency and the environment and they will facilitate microgeneration. With regard to this debate, they will also make a massive contribution towards tackling fuel poverty. Smart meters will enable people to see what their usage is much more readily, on a real-time display in their homes, and see why something has suddenly surged. With a smart meter, people will know the comparative use of their tumble dryer, fridge and dishwasher and they will be able to determine how often they want to use things. They will be able to switch consumption, so that if they decide to use a better tariff in the night, they will get the benefits. Smart meters will not, per se, reduce people’s energy tariffs, but if people start using them constructively and sensibly they will make significant reductions indeed. That is the sort of change that we all want to see.
We need to ensure that people have a better understanding generally of the equipment that they are buying. My hon. Friend touched on the fact that every white good that we buy has a star rating for energy efficiency: so should every television and computer and every bit of kit that we buy that uses electricity. We should have an understanding of that. Somebody looking at an LCD TV and a plasma screen TV should be able to choose based on the fact that the plasma screen TV will use massively more energy than the LCD one. That information needs to be made available to them.
We need to understand how technology is evolving. My hon. Friend mentioned standby buttons. Formerly, just maintaining the electricity supply for the nation’s
standby buttons used the same amount of power as the city of Liverpool: two power stations needed full-time. Technology is changing that. People can leave a new low-energy standby button on for three months using the same amount of electricity as it takes to boil a kettle once. The technology is moving beyond recognition in these areas. But is the standby button in my house the old one, which keeps Liverpool alight, or the new one that uses a fraction of the electricity used by a kettle? We need greater information if we are to have proper consumer choice in such matters. There needs to be much greater simplicity in the tariffs that are offered. The range of tariffs must be reduced and we must also ensure that consumers are in a position actively to compare what they are using.
My hon. Friend also touched on the important role of the regulator in this area. We have suggested that there may be grounds for a swift assessment of the prices by the Competition Commission to ensure that a reduction in wholesale price is passed on as quickly as the price increases appear to be passed on. Having looked at this, Ofgem has suggested that there is no collusion and that there is not a case to be answered. But there still remains in the public great anxiety about the speed with which price reductions are passed on.
We recognise that there are enormous demands on the energy companies at the moment. They are profitable businesses, but they are being asked to spend tens of billions of pounds on new generating capacity and developing renewable technologies, on energy efficiency in our homes and businesses and on grid upgrading.
We are conscious that in today’s world some companies are based in France and Germany, and we must make a pitch to their boards for why they should continue to invest in the United Kingdom. We understand the competitive pressure facing the United Kingdom, and that if we do not receive new investment that will lead to tremendous energy insecurity, which will push up prices to very high levels in the middle of the next decade. We must balance that with the certainty that wholesale price reductions are passed on, and Ofgem can do more in that area.
There is no doubt that this is the time to act. At this time last year, we could see that winter prices would be horrible. Today’s gas price is 26p a therm and the forward price for the winter is double that at 52p a therm. That is well below where it peaked last year, but clear indicators already exist that prices could rise again in the winter. When we see a rising trend in oil prices, we know that gas prices will follow. When the Government saw the warning signs last year, they did not act quickly enough. A great deal can be done now to use people who are losing their jobs to insulate our homes better and to ensure that those in fuel poverty are given every help to reduce their energy consumption. We would like to hear from the Minister that she will start to take real action on my hon. Friend’s sensible proposals, which will start to give consumers the information that they need to make informed choices and to cut their bills.
10.31 am
The Minister of State, Department of Energy and Climate Change (Joan Ruddock):
I thank all hon. Members who have contributed to this interesting and productive debate. I particularly commend the hon. Member for Billericay (Mr. Baron) for obtaining it and
for presenting his case so ably. I also thank him for his kind words to me. I may not cover all my predecessor’s brief, because we have not yet decided on portfolios and I have some major responsibilities for climate change. We will decide soon what the mix will be, but I am happy to be here.
We are all clear that people must be treated fairly by the companies that supply their energy and that they must have confidence in the rules and arrangements under which those companies operate. I agree with the interventions by the hon. Member for Castle Point (Bob Spink), because unless people have good information that they can understand, they cannot exercise choice, which is central to running a competitive energy market such as that in this country. We must do better.
Last year, the gas and electricity regulator, Ofgem, registered concerns from consumers and the Government, and responded by investigating the energy supply markets. Hon. Members have referred to that work, which revealed that many consumers suffer significant and unjustified disadvantages in what they pay for their energy. Under pressure from the Government and the regulator, suppliers have taken action to remove those unfair practices. That is a start, but all suppliers must take full responsibility for ending such practices and avoiding their repetition in future. Ofgem is working to ensure that through changes to suppliers’ licences. We have made it absolutely clear to energy companies and Ofgem that fairness to consumers is a key priority, and I reiterate that today.
Ofgem’s investigation also showed that consumers cannot always make the best choices about tariffs, payment methods and energy use, because they are not given information that they can understand fully and use effectively. I share the concerns of all hon. Members who have spoken this morning about information for consumers and the need to make great improvements.
Suppliers must clear away confusion about tariffs and how information is presented. People must be able to understand their bills and to make confident decisions on tariffs. The hon. Member for Billericay said that changes are clearly needed on tariffs, and the hon. Member for North Southwark and Bermondsey (Simon Hughes) illustrated from his reading of the booklet what a nightmare the current system is. We are all clear about that.
As the hon. Member for Billericay said, the regulator has proposed new obligations on suppliers to provide clearer information to their customers, and specifically a standard annual statement, including the tariff name, the customer’s consumption, a reminder of the right to switch, and simplified information on tariffs to make comparisons easier, including a clear price scorecard, although I know that the hon. Gentleman expressed some scepticism about that.
The hon. Gentleman made a good argument on the need to simplify and clarify tariffs. Being able to make a comparison with similar homes would undoubtedly be a useful way for people to satisfy themselves that they were getting a fair deal, and that they were doing the right thing. Most people want to do the right thing—they want to save energy for the benefit of their pocket and also to help the climate—but they are not in a good position to know whether they are doing the best for themselves and for society at large.
The hon. Gentleman suggested that each consumer should have information about the cheapest rate for them. Clearly, that would be ideal, but the problem is how to achieve it, and the work is already under way by Ofgem.
Simon Hughes: Will the Minister address whether the normal consumer would believe that the organisation best equipped to give them independent and accurate advice about the best option for them is the supplier who wants their custom, or someone who is not connected with the supplier, such as someone engaged by the local authority or an independent agency?
Joan Ruddock: It may sound attractive to have someone who is independent, but that might introduce enormous complexity. The energy supplier in a competitive market wants to attract customers and to keep them, so they have an interest in serving them well. The disappointment about the competitive market at the moment is that, as we have all agreed, people cannot even work out whether they are getting the best deal. It is crucial to making the system operate that the energy companies are obliged to produce the information.
The hon. Member for Wealden (Charles Hendry) said that people should be able to discover how much energy is used by different appliances, such as leaving the TV on standby. We are working with the Department for Environment, Food and Rural Affairs on sustainable consumption and production, and particularly in Europe, to obtain more labelling schemes, reductions in appliances’ energy use, choice editing by retailers, and to enable customers to make relevant choices. Whether all that information could be supplied directly by energy companies is questionable, the obvious reason being the extent of the booklet. We must not put more and more requirements on energy companies, but we must ensure that we enable people—retailers have a huge role to play in this and have been helpful—to make the best choices in reducing their energy consumption wherever possible.
The hon. Member for Billericay referred to the Which? report and recommendations, which I have looked at in preparation for this debate. That organisation has taken a useful role by engaging more customers in the debate and coming forward with a host of proposals. We need to keep up the pressure, which I welcome wherever it comes from. I hope that all the recommendations were made to Ofgem in the consultation that closed recently, which is where such matters can be properly explored.
The remarks of the Secretary of State and my predecessor, my hon. and learned Friend the Member for North Warwickshire (Mr. O’Brien), in relation to the hon. Gentleman’s private Member’s Bill stand. We want his ideas to be fed into the system and for something better to come out of it. We are not using Ofgem as a shield and are working with the regulator that this Government put in place. Ofgem is there to do a job, which it is doing. It was asked to make proposals that will give consumers more confidence when changing suppliers and to give a guarantee that the process will be safe. It is clearly nonsense if people go through a process to get a better deal and end up with a worse one.
The hon. Member for North Southwark and Bermondsey asked how many hon. Members have changed supplier. The hon. Member for Wealden admitted that he had done so, but had not got a cheaper tariff, and I
have shared his experience. We probably made the same switch on to a green tariff, and we probably pay the highest prices as a consequence. I will be satisfied with that if the company produces additional green energy beyond what would have come about as part of the supplier obligations under renewables obligations certificates. I am currently trying to find that out.
Mr. Baron: May I gently put the Minister on the spot? We all accept that Ofgem is looking at a range of proposals. We welcome that and want to be part of the process. However, as I highlighted in my speech, my simple proposal goes one step further than what Ofgem is considering. The Government have said that they welcome that proposal and are actively considering it. However, it is not clear what they will do about it. She has quoted Ofgem at me, but Ofgem is falling short of my proposal. What will the Government do with regard to my proposal?
Joan Ruddock: We are considering all matters raised in the hon. Gentleman’s proposals, the Which? report and this debate. The suggestion was made that I send a copy of this debate to Ofgem, and I will do so. However, we must allow Ofgem to do its job. It would be premature to give a commitment to adopt any ideas—including the hon. Gentleman’s—however fine they are, because we have given Ofgem a job to do. When we see the results, we will be in a position to say whether we are satisfied. We have made it clear that we want satisfaction, fairness, transparency and the fair deal that consumers have not been getting. It was assumed that privatisation would give consumers a fair deal, but it has not. We are all impatient for improvements.
Simon Hughes: I hope that I am not misrepresenting the hon. Member for Billericay in asking the Minister to join us in asking Ofgem to consult on its provisional view before it is finalised. That would be welcome.
Joan Ruddock: I have made a note of the hon. Gentleman’s point and will consider it. There are processes and protocols that must be followed. However, we ought to be in a position to have a meeting. It would also make sense to hold an all-party meeting, if the Front-Bench spokesmen would like to.
It was necessary for the regulator to consult on these issues because that is the appropriate vehicle for taking account of the views of everyone concerned. That is the process that we are currently going through.
I was asked what the criteria for success will be and how I will monitor them. As we have all rehearsed, one criterion for success is whether the consumer has information that helps them to understand their bills and to make the appropriate behavioural changes. As suggested by Which?, another test will be whether the public opinion of Ofgem and the energy companies changes. Public opinion of the companies is currently poor. The companies would appreciate a change in public opinion, so it is in the interests of everyone that we work together to sort this matter out.
In the follow-up to its probe, Ofgem examined standards in doorstep selling. In my constituency, Deptford Action Group for the Elderly frequently complains that people
going door to door—particularly to the doors of elderly people—are quite aggressive in trying to persuade people to sign up to new tariffs on the spot. There is concern that people will feel intimidated and might make the wrong choices. We know that many have made wrong choices, although I am not suggesting that they were bullied into doing so. We therefore appreciate Ofgem’s examination of the standards in doorstep selling. It has proposed new rules to require suppliers to offer written quotations following doorstep sales and to provide that the offer made on the doorstep is better than the customer’s existing deal. That is another important step forward. All the steps that have been taken could prove to be important in giving consumers confidence that they are paying fair prices for their energy.
No matter how much information consumers have, their main concern is the size of bills, particularly given last year’s dramatic price rises. The Government have made it clear that we expect reductions in the wholesale costs for energy companies to be passed on to the consumer. We have required Ofgem to track the link between wholesale and household prices so that there is more transparency. That will be reported to us on a quarterly basis. We are keeping a close eye on that, especially as oil prices have recently risen again. I appreciate the concerns of all hon. Members who have spoken in support of their constituents and urge everyone to keep up the pressure.
Although we all want affordable energy, energy companies should publish on their bills the extent of the payments that are made in support of renewable energy and the transition to a low-carbon economy, as the hon. Member for Wealden has proposed. We are committed to moving to a low-carbon economy, increasing our renewable energy supplies and meeting the 15 per cent. target by 2020, but we must accept that that will add inevitably to the cost of fuel bills. We are developing policies to make that journey as cost-effective as possible. We are putting in place policies and regulations that help consumers take action.
We believe that smart meters, which have been referred to by all hon. Members in this debate, can contribute significantly to that aim and be cost-effective. They can help us change our energy habits in the short term and provide a stepping-stone to the smart grids of the future. Smart meters will empower all consumers, enabling them to monitor their energy use and reduce consumption, which will help them to save money as well as reduce carbon emissions. There will be no more of the estimated bills that particularly irritate those people, such as hon. Members, who can never be at home for the meter to be read. I had estimated bills for years, and then, amazingly, my energy company found that my gas meter had not even been working. There are great hazards in estimated bills, and I probably suffered one of the worst of those. Not being able to stay home for readings is a real problem, and we need to move beyond it as quickly as we can.
We have announced, as hon. Members know, the roll-out of smart meters. I know that there is frustration, because we have said that the total roll-out will take us until 2020, but it is a major infrastructure project. We have more than 20 million homes, and we must get it right. We want to put in the equipment that will do the best, most comprehensive and most efficient job. That is why there is a consultation period before the roll-out.
We are determined to bring smart meters forward through a system whose design will bring the best value to everyone involved.
The hon. Member for North Southwark and Bermondsey made several points, and I have not dealt with them all yet. I thank him for his congratulations. I agree that it is disappointing that we cannot congratulate Millwall this year, but there is next year. He suggested—I think that I have already responded on this point—that when Ofgem has established a preliminary view, it should consult on it. I am happy to take that proposal on board. He accepted the need for a competitive industry in Europe, and I agree with him that there has not been sufficient liberalisation of the continental energy market. It is not a case of our turning back, but rather of seeing that more is done in continental Europe. He said that a smart meter is the answer to getting the best tariff, and, as I have just explained, we all hope that we will be able to go down that path.
The hon. Gentleman spoke at length about social tariffs and suggested that a subsidised rate might be possible for all vulnerable groups, which he defined as pensioners, disability living allowance recipients and people with children. We have social tariffs at present, which last year cost energy companies £100 million. This year, they will cost £125 million, and next year they will cost £150 million—they cover 800,000 people. The categories of people to whom the hon. Gentleman referred would run into many millions—possibly tens of millions. The difficulty with subsidised tariffs, as opposed to lowest tariffs, is that they require someone else to fund the subsidy. That would be either the Government, directly, or, as at present, the energy companies. The more we use subsidy to prevent or help people out of fuel poverty, the more we risk tipping others into fuel poverty. That is why the social tariff model outlined by the hon. Gentleman would not work. However, that is not to say that we are not extremely interested in, and carefully considering, social tariffs. We appreciate that many people have urged us to mandate for social tariffs.
The hon. Gentleman suggested that there should be publications in newspapers twice a year. That is a very interesting idea—as is anything simple that we can do that people can rely on. The question is whether the simplicity that the hon. Gentleman proposed can be achieved. He spoke about the night rate and said that the hours are not even the same for every company, and I agree that it would be sensible if those were brought into line. Everyone made a plea for a simpler system; I agree, and we must try to achieve it.
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