The
Chairman: We need to move on. Mike, you had a couple of
questions.
Q
210Mr.
Mike Weir (Angus) (SNP): The most recent figures for 2007
show that there was an increase in homes in fuel poverty from 3.5
million to 4 million from 2006. Will a measure of the Bill’s
success be whether that figure
declines? Jenny
Saunders: I think that on the face of the Bill it
suggests that this measure either will take people out of fuel
poverty—reduce the total numbers of people in fuel
poverty—or that it can also reduce the degree of severity of
fuel poverty. So I think that some people who will get this rebate will
not be taken out of fuel poverty, but they will at least have a
contribution to their fuel bills, which will be welcome.
In the way in
which we calculate it, as 10 per cent. of income, it may not take them
out of fuel poverty. I have not done any calculation of the numbers
that will be taken out of fuel poverty because we are still haggling
over which categories of people will be eligible, so I am afraid I
cannot help you on that number, but we think it is a worthwhile venture
and it is certainly one piece of the
jigsaw. As
we discussed earlier, obviously energy efficiency is missing from this
Bill, but there will have to be something more coming in the next
parliamentary Session on energy efficiency. That is clear. We are not
going fast enough and far enough on energy efficiency. That will reduce
bills into the long term. This is a welcome initiative, but I cannot
tell you how many people it will take out of fuel
poverty. Jonathan
Stearn: Can I just emphasise again the importance of
energy efficiency? I think that that has to be seen as a key and
central driver. With these proposals
in the Bill, the mandate does have the ability to affect fuel poverty.
We have done some calculations, and we think that if it is kept to
those on pension credit over 70 years old, it will reduce
the numbers in fuel poverty by about 3 per cent., and that could
increase up to an impact of more than 9 per cent. if you had a rebate
that was equivalent to what the differences in prices were—the
price differentials that are currently on offer from the suppliers are
around £190. If it was the cold weather payment group plus those
with children of school age, we calculate that that could take it up to
about 9 per cent., and we have variations in between. If you had the
£100 option, and had it for those eligible for cold weather
payments, we think you would get a reduction in fuel poverty of close
to 5 per cent. So, it depends on the mix, on what options we go for,
and what the value of the support
is.
Q
211Mr.
Weir: Within these numbers of homes in fuel poverty, there
is a group that many of us representing rural areas are concerned
about: those who are on home fuel oil or liquid petroleum gas, and who,
we accept, will not get the benefit of the social tariffs from
electricity suppliers. A large percentage of their spend is on heating
their homes, which in many cases is not covered by this. There does not
seem to be anything in the Bill that helps that group. Is there
anything that we can do that would reduce their costs and have the
equivalence of a social tariff for this
group? Jonathan
Stearn: There certainly is. There is one option that
we have looked at, which is to have two levels of rebate. You could
have, for example, a £200 rebate for those who are
off-gas—it would be quite easy to establish if somebody was
on-gas or off-gas—and a £100 one for those who are
on-gas. It might seem a bit crude, but it is not a bad proxy to use,
because if you are off-gas, you are obviously using other fuels. So
there could be a way. Again, as the Bill stands, there is the ability
to look at these proposals and see whether it is worth looking at them
in relation to secondary legislation and regulations that come in. But
that is one option that could be considered, for
example. Jenny
Saunders: The payment coming via the electricity
supply is one means of ensuring that virtually every eligible household
will get it, and that it is not restricted just to those on the gas
supply.
Q
212Mr.
Weir: It is an interesting idea, but I am sure that the
electricity supplier would come back and ask why that is increasing its
costs and paying for the fact that the gas supply does not go to those
homes. In the Bill, there is the prospect of having a balancing
mechanism between energy companies. Is that something that could be
used to balance that out and spread the cost more evenly among all the
larger energy
companies? Jonathan
Stearn: Our concern is to make sure that, whatever
happens with the balancing, it does not mean that some suppliers try to
get rid of their fuel-poor households and other suppliers
disproportionately pay support for fuel-poor households and lose out as
a result. We do not want fuel-poor consumers to lose out as a result of
this, so the balancing act needs to take account of consumers’
interests, and that means fairness among suppliers as well. This brings
in other issues about what sort of cross-subsidies go on between
electricity
and gas within the same companies, with leads to another of our
concerns, reflected in Ofgem’s probe, on how suppliers pass on
charges to consumers. We start to get into quite complex areas about
how prices are divvied up between gas and electricity and within the
same
supplier.
Q
213Mr.
Weir: Jenny has partly answered my second question, which
was that the second part of the definition is
“the extent to
which any person is living in fuel poverty is
reduced”.
Can you give us your
views on what the reason is for the second part of that definition? Why
do you think that the Government proposed
that? Jenny
Saunders: Let me give you an example. Somebody with
an income of £9,000 has an energy bill of £1,000. The
reduction of £100—one of the figures that has been
mooted—could take them just on to the margins of being
classified in fuel poverty, if you are knocking £100 off.
Through winter fuel payments you would have to give people
£1,000 more to have the same effect as knocking £100 off
their energy bill. What difference that £100 will make really
depends on how much people need to use and the energy efficiency of the
property. It is a complex combination of the housing type, how much
people have to spend time in their home and what the heating needs are
for a particular family. So it is complex, but it is about recognising
that, if we take £100 off a £1,000 energy bill, it could
shift people out of severe fuel poverty. It is still not adequate, but
they recognise that it will make a contribution and it cannot do
everything. We cannot possibly, in my view, expect the competitive
markets to allow what might be needed in every instance. For example,
with somebody’s energy spend, because their house is so badly
insulated that the tariff has to come down by £600 or
£700, we cannot expect that to be passed through to other
customers. That is something that needs to be addressed by the
landlord, the housing agencies if they are in social housing, or
through other mechanisms and not just through this price reduction
scheme.
The
Chairman: Brian, would you like to come
in?
Q
214Mr.
Brian Binley (Northampton, South) (Con): As you know,
clause 27 will allow the Secretary of State to set up schemes to adjust
energy prices for disadvantaged customers. Do you think such schemes
are required? Are they workable? Does Ofgem have the power to do the
job? Jenny
Saunders: I struggled when I initially saw the Bill
to see how it would change things. How would Ofgem behave differently
because of this? It has started on this journey, after it was pushed
into undertaking a probe into how the market was working for all
customers. It took a long time for it to be persuaded that there were
problems, but it has started to grasp the nettle now. We hope that this
proposal will now give the regulator more confidence that the interests
of customers will not always be best served through competition. That
is important. I honestly cannot see where the big differences will
come. It might be just a cultural change. We have seen Ofgem introduce
new licence conditions to reduce the disadvantage that might come from
companies charging certain customers prices that are not cost
reflective.
Q
215Mr.
Binley: May I ask you a supplementary before I come on to
Mr. Stearn? Are you concerned that Ofgem could be overruled
by a Minister? This would give greater power and a shift of emphasis of
power, bearing in mind that Ofgem’s prime job is to look after
the interests of consumers.
Jenny
Saunders: The measure regarding the reserve power for
the Secretary of State was, I think, taken because a problem had been
clearly identified of customers in rural areas not able to take
advantage of dual fuel offerings. A problem was identified. The power
has not been used before—the Secretary of State has not
intervened—but I think it might be right. When we have struggled
to get Ofgem to recognise that it should be acting, there has been
nowhere else to go.
Q
216Mr.
Binley: Are you saying that Ofgem has not done its
job? Jenny
Saunders: I do not think Ofgem did its job well for
some time, but I think that it is starting to. This proposal might
formalise the move that it is now making, but it is not radically
changing its
duties.
Mr.
Binley: As my grandmother would say, it is a kick up the
bum, is
it? Jenny
Saunders:
Yes. Jonathan
Stearn: I said at the start that I used to work for
Energywatch, and we did find it quite a struggle to get Ofgem to
recognise that we had to look beyond the marketplace and see consumers
of central importance, particularly vulnerable and disadvantaged ones.
The Ofgem probe has shown it starting to walk down the road to Damascus
to some extent. As Jenny said, that was linked to issues about dual
fuel and those living in rural off-gas areas, but I think there could
be real potential here, going back to Simon Hughes’ question. We
have a situation where very vulnerable and disadvantaged consumers face
quite severe detriment in the marketplace. The market is not serving
them well; they are being charged a lot more for their energy, because
they do not have the benefits of a computer and a healthy bank
account.
If this
proposal means that we can challenge the detriment that those consumers
are facing and get to a situation where they do not face that sort of
detriment, I would support it. I think that it means that we could see
a change in the way that consumers, particularly disadvantaged and
vulnerable consumers, are treated by energy companies and the
marketplace. It seems to be unfair that if you are in one of the 15
million households that do not have a computer, or you do not have
broadband or a bank account that can have money coming out of it
monthly, you end up paying
more. The
irony is that the group who know most about their energy use are the
group who end up paying the most for it. The people on prepayment
meters who pay their bills quarterly know about the energy that they
use, because they have to be very aware of their consumption. If you
are doing it through direct debit and have done it online, you do not
have to pay any attention to it; it just pops out of your back
account.
Q
217Mr.
Binley: I understand the reasons and I am grateful for
your explanation, but I am still concerned about why we do not make
Ofgem work more effectively,
rather than split the powers and give greater power to the Minister in
the area where Ofgem was set up so that it would not be politically
involved in that
way. Jenny
Saunders: As I understand it, the powers are already
there; they are just tightening it up. I think that they are clarifying
it because the previous wording did not make it clear that the
Secretary of State had powers to intervene between gas and electricity
supply, where we have got integrated companies. I see no problem with
it. If Ofgem is doing its job, there should be no reason for the
Secretary of State to intervene, and as I understand it, the Secretary
of State would not be able to intervene, so I do not think that we
would see great intervention and meddling in the market. I do not
believe that that is the intention, but it means that the energy
companies know that there is that potential if they are not delivering
a fairer deal to all consumers. It means that through these additional
measures that they are taking—introducing more stringent licence
conditions—we can expect the differentials to go down. We have
not seen them be really tough yet. At the minute, there is still, I
think, a £15 difference between what Ofgem have specified as
allowable cost-reflective pricing between prepayment and offline direct
debit. I think that only one company has managed to get those
differentials right down. There is still work to be done, but this
eases things along the way.
Jenny
Saunders:
Hopefully.
The
Chairman: Charles, is there anything in general terms that
you would like to address?
Q
218Charles
Hendry (Wealden) (Con): A few issues have come up. The
whole area of fuel poverty is incredibly confusing, particularly for
those who are affected by it. The names and range of schemes mean that
most people do not know where to start looking for the available
support unless they get some expert advice. To what extent will the
Bill and its measures clarify things, and what more needs to be done
beyond the Bill to simplify the system further?
Jenny
Saunders: This will simplify matters when it comes to
customers knowing whether they are eligible for some kind of discount
from their energy supplier and it will make the process very simple.
That is the intention and I think that that will follow through with
the secondary legislation. The enabling powers in themselves are not
doing it, but we can see that it will flow through. That should
simplify things. Those who are eligible will get an automatic reduction
in their bills.
In terms of
energy efficiency, nothing is being said. I assume that that is because
the Government know that they have limited time to get this Bill
through and, if we were to have energy efficiency changes, we would
have to look at the current Warm Front obligations on the energy
suppliers and decent homes for social housing. I think that
would be too complex, but I do believe that we need to look at that
very soon, because the existing arrangements are due to end by 2011-12,
so we have to get our act together. It would be good to have some kind
of intention. We would like to have seen something on energy efficiency
in the Bill, but I do not know whether there would be time for that to
be properly
considered, given where we need to get to, because we need a radical
review. We want a national scheme so that everyone can buy into it and
we can prioritise the poor and retain grants for people who cannot
afford such investment. | 
