Helen Goodman:
I intuit that the Minister may be about to sit down. Before he does I want to remind him of another issue raised in the debate: whether he has put
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any further pressure on his Ministry of Justice colleagues to amend the Legal Aid, Sentencing and Punishment of Offenders Bill.
Mr Vaizey: It is worth making the point that the conditional fee arrangements could be interpreted as a restriction on press freedom. I hear what the hon. Lady has said about the Opposition’s case for a clear exemption in the relevant areas; but there is certainly an argument that conditional fee arrangements put the press under undue pressure. I hear what the hon. Member for Rhondda says about the sums of money involved, but there is evidence that newspapers might settle cases that they would otherwise be prepared to fight, on the basis of the legal costs that they are likely to rack up against a litigant. I will happily write to the hon. Lady and the hon. Member for Rhondda, setting out the position on that issue.
Chris Bryant: Some newspapers have advanced the argument that under the proposals they would not write things that they would otherwise write; but if the result is that they choose not to write things that infringe people’s privacy or libel them, that is a good thing, not a bad thing. If there is a chilling effect that means that they do not write lies, that is good, not bad. It is difficult enough, even if conditional fee agreements are allowed for privacy and libel cases, for ordinary people to gain access to lawyers. They just do not know how to go through the process. However, it will be infinitely more difficult, or almost impossible, for someone from, say, Soham to get justice, as it would be for someone involved in any of the big criminal investigations where the victims of crime have ended up in the newspapers unnecessarily and incorrectly, with their privacy traduced.
Sir Peter Bottomley: May I add to that intervention, and contradict it? The Joint Committee on the Draft Defamation Bill has produced a report, to which we expect the Government to respond at some stage; perhaps it is as much for the Ministry of Justice as it is for the Department for Culture, Media and Sport. Anyone who has listened to the editors of Nature or the British Medical Journal, or the campaign “Sense about Science” or who has heard the saga of Simon Singh or Dr Peter Wilmshurst, would say that what matters to the public interest is to get more information out, especially if it challenges what other people are saying, or if what is claimed is incontrovertible.
Zac Goldsmith: I should like to take up both those last two points, although that was not originally why I wanted to intervene.
I edited The Ecologist for about 10 years. We were threatened every month with litigation. Were it not for the fact that I personally had deep pockets and could defend the magazine in a way an ordinary editor or owner could not, the magazine would have been thrown against the rocks, so I take my hon. Friend’s point; but that is entirely different from the point that the hon. Member for Rhondda was making.
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There is a clear public interest in the issues that Nature, for example, wanted to explore. There is no public interest in the kind of industrial-scale but nevertheless schoolyard bullying that people such as Charlotte Church faced, and which served no public interest. A 16-year-old girl was mercilessly torn apart by newspapers, and I do not believe any decent person in this country would defend what the newspapers did to her. The fact that she is a celebrity is neither here nor there. What they did was inhuman, and there is no public interest defence.
I challenge any of the newspapers following the debate to come up with one example of a genuine public interest story that has not been published as a result of the so-called chilling effect of the Leveson inquiry. I ask the Minister to reassure people who are afraid of a chilling effect resulting from it—several people have made that point—by saying that none of the ideas being put forward in response to the crisis that we face would jeopardise a free press.
Index on Censorship, which has campaigned harder than anyone else for the kind of reforms that my hon. Friend the Member for Worthing West wants, has teamed up with Hacked Off, which focuses entirely on the kind of abuse we have been discussing. The fact that they have joined forces to come up with a solution shows that the proposed solutions are not designed to jeopardise a proper free press.
I ask the Minister to make that point and to add, finally, that even if a crazy idea were put forward—if Leveson lost his head and came up with a lunatic idea, which is highly unlikely—the ideas are just recommendations, and Parliament will take a view. There is no reason at all for anyone to fear the Leveson process. I hope that the Minister will echo those sentiments and make that very clear.
Sandra Osborne (in the Chair): Order. Could we have short interventions, please?
Helen Goodman: I just want to comment on the intervention made by the hon. Member for Worthing West. There are many things in the draft defamation Bill that will free the press, which the Opposition support. However, the Joint Committee report makes the point that the Jackson proposals should have been introduced rather than the things in the Government’s Legal Aid, Sentencing and Punishment of Offenders Bill.
Sandra Osborne (in the Chair): Minister?
Mr Vaizey: I hesitated for a moment, Ms Osborne, in case anyone wanted to make a further intervention. Perhaps members of the audience might wish to participate in this debate, which is, funnily enough, beginning to resemble “Question Time”. I was glad not to raise a point of order with you, Ms Osborne, during the intervention of my hon. Friend the Member for Richmond Park (Zac Goldsmith). Although it was a lengthy intervention, it was full of passion. He is another Member of the House who has taken a great interest in recent activities.
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My hon. Friend said that my hon. Friend the Member for Worthing West was making a separate point, but what that illustrates is the fact that there are arguments on both sides—whether that in protecting the interests of a litigant, we are restricting press freedom, or whether we are protecting the interests of a litigant against the press. Inadvertently perhaps, he made an interesting point. It is not always the big media organisations to which we turn to expose corruption or wrongdoing. Often it is small media magazines or publications, which do not have large-scale resources to defend themselves against litigation, that can be silenced when the balance is tipped the other way. The hon. Member for Rhondda made a passionate point about conditional fees, and clearly he will want those points taken on board and responded to fully in the light of the legislation that is currently being considered. As has been said time and again, it is interesting that it is the Ministry of Justice that is taking forward those important pieces of legislation, which are nevertheless having an impact on this debate.
Sir Peter Bottomley: I thank my hon. Friend for giving way. I think that he will remind us to keep in mind that there are issues of libel or defamation and of privacy. There are also issues relating to people who are not journalists who may want to speak at some professional conference where reports of what they have said can occasionally and wrongly suffer challenge in the court on the grounds of privacy, but more often of defamation. That needs protecting. In terms of the media responsibility, I hope that my hon. Friend and his Department will engage with the Ministry of Justice to ensure that such points are not forgotten.
Mr Vaizey: Certainly, we engage with the Ministry of Justice at length on many of these issues. Going back to the speech of the hon. Member for Rhondda, his thesis was that the regulatory regime failed across the board, whether it be the directors of the company, the Press Complaints Commission, the Metropolitan police, the courts or Parliament. However, it is also worth remembering that where there was wrongdoing, there were mechanisms to stop it, such as a proper criminal investigation or a criminal prosecution. Nevertheless, we have quite rightly set up an independent inquiry into the future of press regulation. It seems that there is general agreement that whatever recommendations emerge from that, we need a system of press regulation that is independent both of Government and of newspapers.
Chris Bryant: The Minister correctly characterised my argument, but there is one other vital element to it that Leveson is probably not considering, which is ownership. Part of my argument is that it was actually the whole pattern of owning BSkyB and 40% of the newspapers that was the problem. It was what led to the sense of hubris about how News International and News Corp owned the Metropolitan police, the British Government, Parliament and politicians and could do what they wanted.
Mr Vaizey:
I hear what the hon. Gentleman says. He has obviously raised the issue of the fit and proper test and it is frequently referred to in this context. As he knows, Ofcom, an independent regulator for which I have the highest regard, has an ongoing duty to ensure that anyone who owns a broadcasting licence is, and
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remains, a fit and proper person. It is frequently suggested by the hon. Gentleman and others that the revelations at News International mean that the owner of News Corporation is not a fit and proper person and hence BSkyB is not fit and proper to continue to hold its broadcast licences. I again emphasise that the regulation is independent of Government and is a matter for Ofcom. I understand that Ofcom has contacted the relevant authorities and asked to be kept informed of any information that might assist it in assessing whether BSkyB is, and remains, fit and proper to continue to hold its broadcast licences.
In the last five minutes, I wish to raise the issue of technology, which has not come up so far in this debate. It is worth looking at other systems of regulation. We now have the Authority for Television on Demand, which regulates broadcast-style services over the internet. It is interesting to see how that system of co-regulation is working; we have already had references to self-regulation, independent regulation and Government regulation. It will be interesting to see whether something emerges from Leveson and from our Green Paper about how to join up those different elements of regulation. Newspapers on the web do not currently fall under the regime of ATVOD because they are not pursuing broadcast-like services. That is an interesting matter for genuine debate about the future of press regulation.
We have had an entertaining and interesting debate. The hon. Member for Rhondda has put his case with the clarity and force for which he has become renowned in the House. I am grateful to my hon. Friend the Member for Worthing West for reminding the House about the importance of press freedom not just in this country but around the world where perhaps more oppressive regimes may exist. I am grateful for the support from the hon. Member for Bishop Auckland for the Leveson inquiry and for her pertinent comments about the position of the official Opposition. The common position is that we must wait for the Leveson inquiry to reach its conclusions. I hope that people, including hon. Members with a particular interest in this area, will use the opportunity of the Green Paper to put forward their views on the future of media regulation.
12.28 pm
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Energy Suppliers and Prices
12.30 pm
Caroline Lucas (Brighton, Pavilion) (Green): It is a great pleasure to serve under your chairship, Ms Osborne. As co-chair of the all-party group on fuel poverty and as Britain’s first Green MP, I am very happy to have secured this debate on a cause that is very dear to my heart: how do we help the poorest in our society and deliver social and environmental justice at the same time?
The balmy weather of recent days cannot mask the fact that our newspapers have been filled with chilling stories of yet more excessive profiteering by Britain’s big six energy companies, coupled with stories of big pay awards for the companies’ top executives. Last year, EDF’s UK profits were up by 8.5%, on the back of a 15% rise in bills; just last week, Centrica reported overall profits of £2.4 billion; and Scottish Power has reported profits of just under £1 billion.
I have been inundated, as I am sure many other hon. Members have been, with letters and e-mails from constituents complaining about their energy bills and expressing their fears that they will be unable to afford to stay warm. Although a few energy executives are wondering what to do with their gigantic profits, the stark reality for many Britons in the difficult economic circumstances that we are currently in is that they are wondering how they will pay for this winter’s gas and electricity bills. Indeed, it is estimated that more than 5.5 million households in the UK are now facing fuel poverty, leading to an estimated 3,000 premature winter deaths. Average annual household bills for gas and electricity increased from around £600 in 2004 to around £1,200 in 2011, and uSwitch has predicted that such bills could rise to a massive £3,202 by 2020.
Of course it is not just households that are finding energy bills difficult to pay. Small businesses with tight overheads are also feeling the pinch from the increasing cost of energy. More than 94% of businesses have seen an increase in energy costs, according to the Forum of Private Business.
The energy regulator has said that although fossil fuel price rises—the wholesale price of gas, and so forth—are clearly the driving factor pushing up energy bills, on top of those rises the big six are increasing their margins on our bills. Although some people might argue that those margins have now been reduced slightly, given the gigantic profits that have been reported, it is clear that energy companies could comfortably reduce their prices even further and still make a reasonable profit. At the weekend, the Institute for Public Policy Research, a think-tank, released a report that found that as many as 5.6 million people are probably being overcharged because of pricing policies by the big companies. The IPPR believes that such overcharging prevents new companies from gaining a foothold in the market.
Clearly, something is going wrong, and it is about time that we, as elected representatives, did more about it. That is why a number of organisations, such as Compass, which launched the new “End the big six energy fix” campaign a few weeks ago, Friends of the Earth and The Independent newspaper, alongside myself
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and many colleagues from all parties in the House, have been campaigning for fair energy prices, greater energy efficiency measures and a better deal for consumers.
We believe that it is time to tackle the predatory behaviour of the energy companies. By overcharging their customers, who include the most vulnerable people in society, those companies are driving people into fuel poverty. In addition, they are not fully meeting their social and environmental responsibilities and obligations, whether by investing in insulation and other energy efficiency measures or protecting the poorest and most vulnerable from the impacts of bill rises. That is why we are calling on the Government to stand up to the powerful vested interests of the big six energy companies and to act to end the energy rip-off.
I will set out three simple steps that could help to tackle this problem effectively. First, the Government could respond to the excessive profiteering of the big six energy suppliers by imposing a levy similar to the one imposed in the past on the North sea oil companies and the big banks. Such windfall taxation was used by the Conservative Government back in 1981 to claw back the excessive profits of the high street banks and in 1997 by the Labour Government in relation to the privatised utilities.
In 2012, nearly two decades after privatisation of the energy sector and despite the efforts of the regulator—Ofgem—to create a fully competitive market, the big six still control more than 99% of the retail market. Although we may not have a state-owned monopoly any longer, what we now have is an out-of-control private oligopoly that urgently needs to be reined in and better regulated.
While the energy sector remains an oligopoly, it is quite legitimate that the big six are made to pay a premium for their privileged market position. Indeed, a levy would be one way to address what is essentially a market failure. The revenues raised by such a levy should be ring-fenced to kick-start and support a mass programme of home insulation and energy efficiency measures, starting with the homes of the fuel-poor. That programme could be part of a genuine green new deal and it could help to create thousands of new skilled jobs in the process. There would be a win-win situation: the programme would help the Government to meet its commitment to eliminate fuel poverty by 2016; it would create many new jobs; and it would help to meet emission reduction targets. So a levy on energy companies is my first demand today.
My second demand is that, to prevent energy companies from passing the cost of any levy on to consumers and to make energy prices fairer, I want the Government to give the regulator more powers to cap prices and—crucially—to mandate Ofgem to actually use those powers. A number of options are available. The regulator already has the power to cap prices if it chooses to do so—it has threatened to use that power if the energy companies do not reduce prices—but it is simply no good to make empty threats. The regulator should have the confidence to intervene actively and to use its capping powers in the face of consistent overcharging by companies and persistent market failure.
Guy Opperman (Hexham) (Con):
May I give an example of such overcharging from the Heddon-on-the-Wall women’s institute, which is in my constituency of Hexham?
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The Heddon-on-the-Wall WI is being harangued by npower to pay more than £5,000 in back entitlements of power, dating from 2006. In other words, the company got the bill for the WI wrong, and demanding that money now will effectively put the local WI village hall out of business; it would have to go into administration. Npower has not answered my letter on this subject, which I will also raise with the Minister. Is this story not a good example of the sort of haranguing power of the big companies, which are overpowering individuals and small organisations?
Caroline Lucas: I thank the hon. Gentleman very much for that intervention, because that example clearly demonstrates the kind of power that the energy companies can wield. The implications of the story that he has just told are absolutely outrageous, so I hope the Minister will take on board that kind of story. As the chief executive of Ofgem concluded in October 2011, and I hope the Minister agrees:
“We do not have a fully competitive market.”
That was the phrase that Ofgem’s chief executive used.
Another option would be for the Government—working in collaboration with Ofgem—to legislate for new price-capping powers, potentially based on a new mechanism. Any price capping could be linked to the wholesale price of energy, to make energy costs fairer. It would be a kind of energy price escalator.
Ofcom, the telecoms regulator, has made clear its intention to cap the cost of BT line rental charges, in response to BT’s over-dominance of the land-line rental market. Why not apply the same logic and principle to the energy market? Perhaps we could suggest that Ofgem pick up the phone and call Ofcom to ask for advice; after all, we are always told that “It’s good to talk.”
Thirdly, the Government should now launch an independent public inquiry into the big six energy companies. In much the same way that we have had an independent commission on banking, led by Sir John Vickers, and an ongoing investigation into the media, led by Lord Leveson, we urgently need a public inquiry into the energy industry, to get to the root causes of the problems. To be crystal-clear, I must point out that I am not calling for a Competition Commission inquiry. Instead, we need an independent public inquiry with a broader remit than just to consider prices and competition, because more fundamental issues are at work here.
Those fundamental issues include trust. It seems clear to me, from talking to the constituents whom I meet when I go around my constituency, that many people do not trust the energy companies. Therefore, it would be in the interests of the energy suppliers themselves to ensure that these issues are fully addressed and that all the facts, figures and arguments are discussed in the light of day.
David Mowat (Warrington South) (Con):
I am listening carefully to the hon. Lady’s argument that there is a market failure in the energy sector. If there is a market failure and therefore a de facto cartel is operating, that would be a very serious issue that would need to be fixed. However, what I genuinely do not understand—perhaps she can help me with this point—is why EU figures from November last year showed that UK gas prices for the consumer were 25% lower than those in Italy, France and Germany. Indeed, UK gas prices are
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the 21st lowest of the 27 countries in the EU. Those statistics do not imply that a cartel is operating in our country; alternatively, they show that, if a cartel is operating here, it is not operating very well.
Caroline Lucas: I cannot help the hon. Gentleman directly on the figures that he has just quoted. The bigger issue is the amount of power that those players have in our markets. My constituents in Brighton do not much care about the price of fuel in Italy, but they care passionately about the price of their own fuel here at home. It looks as though the big six are coming together. A public inquiry would find out whether any collusion is going on. Even if there is no collusion, it is certainly the case that excess profits are being made off the backs of constituents who are struggling with very high fuel prices. When they are urged to swap tariffs, the whole process is so deeply complicated that it is not surprising that, essentially, they are mis-sold the energy that they need.
David Mowat: I completely agree that we need transparent energy prices, and I hope that the Minister will talk about how we will simplify the tariff structure and all that goes with it. However, my point is the same. I understand that the hon. Lady’s constituents do not care about energy prices in Italy, France, Germany or Sweden. My point is that if there is a cartel operating, it is surprising that our gas prices are so much cheaper than in those countries. I will leave it at that.
Caroline Lucas: There are a whole set of complex reasons why energy markets are different in various member states. If everything is completely clean and above board, with no excess profits being made, that can be examined in a public inquiry. That is exactly why we need a public inquiry. I can assure the hon. Gentleman, as I am sure that he knows from his own constituents, that that is not the perception of the vast majority of ordinary people who are faced on the one hand with rising energy bills and on the other hand with stories in the newspapers about rising energy company profits.
Dr William McCrea (South Antrim) (DUP): Does the hon. Lady agree that, irrespective of what is happening in other countries, the truth is that many ordinary working families and small businesses are finding it hard to survive, and the increase in energy costs is certainly putting some under?
Caroline Lucas: I certainly agree with that. That is much of the motivation for securing the debate this morning.
Luciana Berger (Liverpool, Wavertree) (Lab/Co-op): I thank the hon. Lady for giving way in a short debate. I know that she shares my concern that the average household now spends £1,345 on its dual fuel bill and that profits last year were on average £125 per household, which is why this issue urgently needs attention. I listened carefully to what she said about competition. Does she agree that one of the key things that we need to do to reform the energy market is to encourage and ensure that the big six pool their energy, so that we can increase competition and allow more entrants into the market?
Caroline Lucas:
I absolutely agree with the hon. Lady. If I speak a bit faster, I will make that point shortly. We need more players in the marketplace. That is the way to drive down prices. It is also the way to ensure that we
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have individuals as co-generators of their own energy, rather than simply sitting back as consumers. I want to let the Minister know that, should he be minded to go down this route, he would have enormous support from the public.
A YouGov poll commissioned by Compass and Friends of the Earth found that 71% of voters support a levy on the profits on the big six; 77% support the money raised from such a levy being ring-fenced for home insulation and energy efficiency, particularly to remove people from fuel poverty; and an overwhelming 86% of voters support an independent public inquiry.
I am also encouraged that 70% of people support a move away from fossil fuel to renewables. That indicates strongly that we need to kick-start a national debate on energy that not only focuses on price and competition, but more fundamentally on the kind of energy industry that we want for the future, recognising that energy provision should be viewed not merely as a market commodity, but as a public service that we all rely on.
If we do not use less energy or successfully make the transition to renewable energy, bills will keep going up, because the cost of gas is projected to rise, even allowing for highly controversial shale gas extraction as well. We need to work hard to protect the vulnerable as much as possible from those price rises and ensure that the effects are not exacerbated by the greed of the energy companies. Instead, we need an energy industry that helps to deliver social and environmental progress, lifts people out of poverty and helps to bring about a good society.
On the point made by the hon. Member for Liverpool, Wavertree (Luciana Berger), I am interested in drawing on best practice from countries such as Germany, where community ownership of the grid has played a pivotal role in allowing renewables and energy efficiency, for example, to flourish—unlike here in Britain, where the grid is privately owned and controlled. Many citizens in Germany see themselves as owners and generators of their energy, not simply as consumers. That is the kind of shift that I want to encourage, so we need to challenge the unacceptable power exerted by some of our big energy companies.
Local authorities potentially have a major role to play here, too, in relation to both insulation and to local, decentralised energy supply. The more we make it easy for communities and councils to generate their own, the less we rely on the big six. The more we cut energy waste and get off gas, the better protected we are in relation to bills. Of course, we urgently need to tackle the complex domestic rates and charging system that has been the subject of so many debates and motions in the House and that serves time and again to disadvantage consumers, especially those who use the least energy.
Guy Opperman: The hon. Lady referred to the big six main energy companies. Does she agree and acknowledge that the problem is also off-grid in terms of liquefied petroleum gas and heating oil? Millions of consumers up and down the country are affected and their position is just as bad.
Caroline Lucas:
I thank the hon. Gentleman for that intervention, because he is exactly right. Indeed, in many rural areas, people living in poverty are off-grid
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and therefore completely hostage to whatever the energy suppliers choose to charge. They do not have much option.
On the complex set of tariffs, we are sometimes urged to shift tariffs to another supplier or to shift within the same energy company if we do not like what we are getting. However, it is difficult to compare tariffs, like with like. It is so difficult to understand what kind of tariff we need to be on that it is not surprising that not many people take up that opportunity.
I will bring my remarks to a close, because I want to give the Minister time to respond. I will summarise three key points. First, will the Government start drawing up plans for a levy on energy companies in time for the forthcoming Budget in March? Secondly, will they instruct the regulator Ofgem to use existing powers to cap prices, or will the Government work with the regulator to introduce new powers in the forthcoming energy market reform Bill? If the Minister thinks that that might be too much to ask, my third demand is reasonable: will the Government commit to an independent public inquiry into the big six energy companies?
Irrespective of whether the Minister agrees with the analysis that I have presented this morning, we can all agree that this issue is the subject of much controversy in our constituencies. Many people feel that they are being ripped off by the big six. If that is the case, action should be taken. Let us look into it with an independent public inquiry. Let us learn the lessons so that, once and for all, we can move to a more sustainable and fair energy system without all the question marks that currently surround it.
12.47 pm
The Minister of State, Department of Energy and Climate Change (Charles Hendry): It is a pleasure to serve under your chairmanship this afternoon, Ms Osborne. I congratulate the hon. Member for Brighton, Pavilion (Caroline Lucas) on securing this debate. It is a shame that we did not have a longer debate—an hour and a half—because we have had an unusually large number of interventions, which shows the interest that the subject attracts. I hope that all hon. Members will understand that I want to use the remaining time available to respond to the debate, rather than take further interventions.
The hon. Lady has secured this debate at a time when we have started to see some prices coming down. In recent weeks we have seen price reductions, which will see around a 2% weighted average decrease in retail prices. Prices on wholesale markets are beginning to reduce and companies recognise that they can start to take some of the pressure off consumers. We all share the hon. Lady’s ambition that consumers should be supported at a time when they are inevitably extremely worried about the level of energy prices.
I will talk about some of the measures that we are taking to address the issues. First, it is important to state that we need a market that operates and functions better. Some of the measures that the hon. Lady has set out would make the situation worse. We need to get £200 billion of new investment in our energy infrastructure over the next 10 to 15 years. The more that we make this an unattractive place for people to invest—they are
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mostly international investors—the greater the likelihood that we will see energy and electricity being rationed, because of a lack of investment in new supply and a lack of investment in the other associated areas of energy efficiency. The consumer will therefore end up picking up the tab.
I was also disappointed that we did not hear any recognition of the global issues that must be addressed. We are having this debate at a time when oil and gas prices are at their highest levels in recent years. The increase in wholesale prices is being driven partly by instability in the middle east and partly by other geopolitical measures. We therefore cannot divorce the issue of energy prices from what is happening globally. However, we can do and are doing a significant amount to assist consumers in paying their bills.
Caroline Lucas: Will the Minister give way?
Charles Hendry: I will not. I hope that the hon. Lady will understand. She has raised many issues, and I want to try to respond to them comprehensively. I am more than happy to meet her separately to discuss the ideas behind her initiative and campaign.
We are already requiring energy companies to provide help to 2 million of the poorest and most vulnerable households through the warm home discount, at a cost of £250 million this year, an increase of 40% over earlier arrangements. Over the next four years, suppliers will provide support worth £1.1 billion. Citizens Advice and Ofgem have received their highest level of funding yet from suppliers for the Energy Best Deal campaign, which helps vulnerable consumers shop around for the best deal. We have extended the carbon emissions reduction target until the end of the year, which we expect will benefit 600,000 of the most vulnerable low-income families, including those with elderly people and people with disabilities, and suppliers will be investing some £400 million in heating and insulation measures to help those households. In addition, the community energy saving programme, CESP, is expected to deliver about £350 million in energy efficiency measures to 90,000 households.
Looking forward, we are introducing the energy company obligation, which will include support to provide affordable warmth to low-income vulnerable households through heating and insulation measures. The ECO will provide £1.3 billion in support each year to householders who cannot achieve significant energy savings without additional support, and will have a specific target to provide heating and insulation to the low-income vulnerable households at greatest risk of fuel poverty.
We are also spending £110 million through Warm Front on heating and insulation to help households make their homes warmer. During the current winter, the winter fuel payment, worth £250 for households with members aged up to 79 and £400 for those with members aged 80 and over, will help 12.7 million older people in 9 million households with their fuel bills.
As I hope the hon. Lady will understand, significant support is going into measures to mitigate the effects of high energy bills, and particularly to ensure that we do not just help with this year’s bills but provide support in addressing the issue year on year in future through greater emphasis on energy efficiency, for which she called in her comments.
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Caroline Lucas: I thank the Minister for his response. He says that the Government are tackling the problem by, for example, providing the new ECO, but we know that the amount of money in the ECO is £1.3 billion and that by the time we subtract the money being ring-fenced for hard-to-treat homes, there will be far less money left for tackling fuel poverty than came from CERT, CESP and Warm Front. We also know that the money is being raised by a levy on all householders, which will push more people into fuel poverty, whereas Warm Front and the other programmes were funded by taxpayers’ contributions. In the rest of his remarks, will he address the issue of a public inquiry? I do not think that what he is saying addresses the key point, which is about profits, not prices.
Charles Hendry: I will of course address those issues, but it is important to provide the context of what else is being done. A tremendous amount of help is being given, more than ever before, to insulate hard-to-heat homes and direct support to people to pay their fuel bills. That is part of the overall energy picture, and it is important to take a holistic approach and understand the issue that way.
In addition, it is important to highlight the impact that the green deal will have. Through the green deal, we are determined to move this country from being one of the least energy-efficient in the whole of Europe to being one of the most. That is an extraordinary challenge, and one that we are determined to address. We recognise that we as Government should be trying to create an environment in which we can make lasting changes to our households so that people can reduce their bills over time.
To come directly to the points raised by the hon. Lady, I think that we all recognise that energy companies need to make a profit and invest in infrastructure for the future. They must also make a return for their shareholders. We have considered pricing here and elsewhere carefully. As my hon. Friend the Member for Warrington South (David Mowat) said, prices here for both electricity and gas are some of the lowest in Europe. However, that is not the same as having the cheapest bills. Our bills are often higher, because our energy efficiency is less good. Again, that reinforces the hon. Lady’s point that we need to make much more progress on energy efficiency in order to contain those bills.
It is also worth considering how suppliers’ profits here stack up against other countries. Their profitability in the United Kingdom is worse than in almost any other jurisdiction where they operate. If we want suppliers to continue to invest the £200 billion necessary, they must see the UK as a good economic area in which to invest. The more measures we put in place to make ours an unattractive investment regime, the worse we will make things in the longer term for consumers in this country.
This is not a case in which one must be on the side either of consumers or of industry. In the longer term, we can only be on the side of the consumer by creating an environment in which businesses want to invest. Through our market reforms and other measures, we are trying to make the UK an attractive jurisdiction and ensure that the regulator, Ofgem, takes strong action to prevent excess profiteering in the sector.
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The hon. Lady discussed having new entrants into the market. We are absolutely committed to making that happen. One measure of the success of our market reform proposals will be whether we increase liquidity by bringing more companies into play in the market, but we should be clear that six is already an unusually large number, larger than in any other European country. Most other European countries have one or two dominant players and low levels of switching. Levels of switching here are three or four times higher than in countries such as Germany, which she held up as a good example. There are many aspects of our market that create better opportunities for consumers, and we must be determined to protect those aspects as we go forward.
It is essential for Ofgem to monitor the market closely. My concern about the sort of public inquiry that she suggested involves the consequences. The companies looking to invest in Britain are exactly the companies with the funding and expertise to invest in renewables, which she says—and I agree—are important. However, if we hold an inquiry, they will defer, making it much more challenging to get new investment during the two years of that investigation. Our scope for meeting our renewables targets will therefore start to slip away. The approach that she suggests would have consequences, and I believe that there are better ways to protect consumers in the short term rather than the long term, as her approach would do.
Part of our approach is boosting competition. We have already gone a long way to cut red tape for smaller suppliers, and have increased from 50,000 to 250,000 the number of customers that companies must have before being required to participate in environmental and social schemes. We are making it easier for small companies to get a foothold in the market.
In December, Ofgem published for consultation radical proposals to require suppliers to simplify their tariffs and billing information so that consumers can compare supplier deals much more easily in order to decide whether they will be better off switching. Currently, more than 400 different tariffs are available—that is the scenario that we inherited when we came into Government—which inevitably leads to great confusion and makes it much more difficult, as the hon. Lady said, for consumers to make an informed choice when they are looking for the best deal.
Progress is being made on simplifying the approach. British Gas and SSE have announced that they intend to simplify their tariff structures; SSE has pledged to reduce the number of tariffs that it offers from 68 to just four. Once we get into a world where people can understand much more clearly what they are paying for and see more effectively how it compares with what other companies are offering, consumers will be in a much better position to exercise choice. The big six still cover about 99% of the domestic retail market, so it is important to have additional suppliers and players in the retail sector to ensure that we get the best deal for consumers. I am pleased to see that significant work is happening.
I also welcome the move towards collective switching, an issue taken up by Which? in the past few weeks, which brings together a range of consumers to give them much more confidence and to buy on their behalf. There is more liquidity, more companies are coming into the market and the market will operate better. A tougher regulator is taking action to ensure that comparison
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between companies is easier and that profitability is not excessive. Above all, we are creating a market in which businesses will be keen to invest, in order to ensure, in the most affordable way, security of supply and low carbon in the longer term.
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Jam Jar Bank Accounts
1 pm
Damian Hinds (East Hampshire) (Con): It is a great pleasure to see you in the Chair this afternoon, Ms Osborne.
For most of us, using a current account is as natural and normal a part of modern life as indoor plumbing, but it was not always so. Many hon. Members will remember their parents coming home with weekly wages in cash, in an envelope with little holes in it so people could count the money when it was given to them. On arrival at home, the cash would be divided into amounts for the rent, the bills, housekeeping and, hopefully, savings for an unexpected bill, school uniforms or Christmas. The sub-divided amounts would typically be kept in separate boxes, tins or jam jars, from which this debate takes its title.
Most households have changed a lot since then, and there are many advantages to that evolution. For most jobs now, people need a bank account to accept their salaries or wages, and people also need an account to pay the rent or the mortgage. People’s money is also safer in a bank than on the kitchen windowsill. As payments through direct debits and standing orders cost less for financial institutions to process, bank accounts give people access to better deals. A bank account also becomes a gateway to other financial services.
Much progress has been made over the last number of years on that front. The number of people without a transactional bank account, including a basic bank account, fell by about a half between 2003 and 2010 to just 1.5 million households.
As I said, there are many advantages to the transition, but there are also some drawbacks. For a start, there is loss of control, particularly with things such as direct debits. Although people set them up, they happen subsequently without people actively having to do anything.
Justin Tomlinson (North Swindon) (Con): My hon. Friend has secured a fantastic debate.
Our extensive research in my all-party group on financial education for young people highlighted loss of control as a particular problem. Some 91% of people who got into financial difficulty did so because they kind of lost control, and my hon. Friend has highlighted exactly why that is happening.
Damian Hinds: My hon. Friend goes right to the heart of the matter. There can also be a feeling of being rather flush on payday and a danger of people not making provision for unexpected, or sometimes even expected and known, subsequent liabilities.
Although most of us enjoy free in-credit banking, nothing in life is free; there is a cost to operating bank accounts. The point made by my hon. Friend the Member for North Swindon (Justin Tomlinson) also goes to the heart of that issue. The provision of free banking relies on people making mistakes and incurring penalty charges. Research for the financial inclusion taskforce has shown that low-income families that move to have a bank account in order to save money through direct debits and so on found that those savings were entirely wiped out by penalty charges, which averaged £140 in the first year. That combination of factors, as my hon. Friend
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says, can lead to people tripping into debt, which can then spiral. I mentioned people who do not have a transactional bank account, but many choose to manage in cash even if they have a bank account.
Esther McVey (Wirral West) (Con): My hon. Friend talked about people tripping into debt. He will also find that people trip into ill health, particularly mental ill health. I work with Advocacy in Wirral, and one of the main issues that it deals with is the sheer practicalities of life and not being able to pay bills, leading to a deterioration of mental health.
Damian Hinds: My hon. Friend’s point is, as ever, apt and to the point. She could also have mentioned the stress that debt and trying to manage one’s finances can bring to families, which is one of the key factors in family breakdown.
To address those points—at least in part—and a few other points, we have jam jar accounts. They mimic the jam jars on the windowsill; that is the whole point of such accounts. Louise Savell of Social Finance has identified three core features. First, when someone’s wages come in, the money is automatically distributed among different pots within the bank account—for rent, household bills, spending money, savings and so on. Secondly, the person would receive a low balance alert by text, if there is a danger of that person failing to meet one of their bills from the bills account. Thirdly, if the person does not act on that for whatever reason, there would be an auto-sweep from savings into the bill-paying account in order to avoid penalty charges or failing to make the payment.
There are a number of questions about product design, which can be done in different ways. One big debate is about budgeting support, which could accompany the accounts. Comprehensive budgeting support—helping people to decide how much goes into each pot and how and when to redistribute—would be a great bonus, but that is quite costly. The issue should have a separate debate, because we can have a lot of the benefits from jam jar accounts without fully comprehensive budgeting support, and we can have a lot of great benefits from fully comprehensive budgeting support without jam jar accounts.
A second question about product design is how easy we make it to raid a savings account. Jam jar accounts are in many ways a method for one to impose discipline on oneself. A customer might decide that it would be good to impose further discipline and say, “If I want to move money out of the savings account into the spending account, I should have to do something actively. Ultimately, it is my choice because it is my money, but I will make myself ask for it in writing or by e-mail.”
David Simpson (Upper Bann) (DUP): Does the hon. Gentleman agree that more attention and help need to be given to those of a certain age? They could find bank accounts hard to deal with—it is taxing, as he has suggested—and they like to see what they have and manage it in that way. More help is needed for the senior citizens of our country.
Damian Hinds:
The hon. Gentleman is absolutely correct. There is a generation that is more comfortable with managing such matters online, if they have access
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to a desktop personal computer, or, for those who do not have that, through smart phones, mobile phones and auto-voice recognition. However, there is a cadre of people for whom that is less appropriate.
The third question on product design is how to market such accounts, by whom and to whom.
Why would we want a great increase in jam jar banking? First, it would reduce the extent to which people trip into debt. Secondly, the poorest would pay less, both directly, through lower bank charges; and indirectly, because service providers would have a lower average cost of collection. Therefore, the poverty premium, as highlighted by Save the Children and others, would be reduced. Thirdly, and just as importantly, it would stimulate savings through a sort of a nudge. One of someone’s jam jars would automatically be a savings account, and they would have to say yes or no to put a few pounds away every week or month. We all know what a difference that makes; it can be quite transformational to have savings and assets.
Guy Opperman (Hexham) (Con): As my hon. Friend knows, I am leading a campaign for the establishment of community-based local banks. Would one of the best custodians for jam jar accounts not be a community-based local bank? Such banks allow people to save locally with a local bank manager, with whom there can be a close, personal relationship. That would increase savings and the benefits of a jam jar account.
Damian Hinds: My hon. Friend makes a fine point, and I commend him on his leadership in the local banking movement. I will say a few things about credit unions, which I think share some characteristics.
I have talked about the “Why?” of jam jar accounts, and it is also fair to ask, “Why now?” There are three good reasons why the issue is particularly relevant at the moment. First, the Government and Members on both sides of the House are focusing, rightly, on the cost of living. We discussed heating bills in the preceding debate, and there are active debates about rail fares and petrol and diesel costs. Bank charges are also a significant part of the cost of living. The second reason why the debate is particularly timely is because of the introduction of universal credit, the move from fortnightly to monthly payments, and the move away from direct payments to landlords. The third reason is the sector modernisation fund of £73 million for credit unions that the Government are supporting. That presents new opportunities for development in that sector.
Esther McVey: Of course I greatly welcome—as all of us here do—the universal credit, but does my hon. Friend agree that what is being offered protects not only those receiving the credit, but potentially the landlords and other people who are the recipients of bill payments? Those people also need protection.
Damian Hinds:
My hon. Friend is right. Of course, there is a potential benefit for landlords and other service providers. There is a line of argument that goes: why not just keep the two-weekly payments and the direct payments to landlords? However, a key objective of universal credit is to make the receipt of benefit feel more like being in work, which usually means having to cope with monthly payments, not having money paid
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direct to a landlord and so on. The use of such accounts is a good way of helping people through that, which is a perfectly legitimate aim, while keeping the key features of universal credit.
We know that Ministers are interested in this area. Most recently, in answer to a written parliamentary question tabled by my hon. Friend the Member for North Swindon, which was published after I applied for the debate, the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb), confirmed that the Government are actively looking at the potential for low-cost budgeting accounts.
So why do they not exist already? Well they sort of do, just not on a particularly big scale. Last year, there were four providers of jam jar accounts, although three of them are not the household names that most of us would recognise. Until now, a key driver for the development and roll out of such accounts has been debt management companies wanting to have greater security of payment schedule, rather than consumer advertising. So although they exist, they do not exist at scale. Social Finance estimates that there are only about 150,000 such accounts in the UK. They do not exist through big brand institutions—by the way, the exception to that is the Royal Bank of Scotland. I know that it is not very fashionable these days to say nice things about RBS, but I commend it for having such an account, which it uses for its most challenging customers. However, that also means that the account is not actively marketed to the general public. Someone would struggle to walk into an RBS branch and open such an account, unless they are referred on to it.
Guy Opperman: Given that RBS will potentially be sold or divested by the Government in the longer term, is that something that should be carried through post-sale and hopefully made part of a community-based organisation?
Damian Hinds: In the interests of time, I will have to leave that question hanging—fascinating though it unquestionably is—because I must plough on.
The third important point is that such accounts are not available at an attractive price—with the exception of the RBS account. Typically, they cost the consumer about £150 a year. Why are such accounts not available at scale through big brand institutions at an attractive price? That is a very good question. Intuitively, such accounts seem like an attractive concept. In fact, many hon. Members here might reflect that, in our own personal finances, we mimic how jam jar accounts work. We might have a separate current account for household bills or a separate credit card that we use for car payments or something like that.
There is an attraction to such an idea, but the key stumbling block is economics. There is no reason to believe that the banks that do offer such accounts at the prices I talked about are making above normal profits, although at scale the cost should come down. Social Finance estimates that it should be possible to provide such accounts at between £5 to £7 a month, which is around £60 to £85 a year. The biggest sensitivity to that cost is the extent to which call centre human support on budgeting and so on is provided.
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In any case, that is still a lot of money, so the question of how to pay for it remains. My hon. Friend the Member for Wirral West touched on some of those issues a moment ago. There is some reason to believe that people—consumers themselves—would be willing to pay something. In the credit market, if we think about how much consumers implicitly are willing to pay for the convenience and flexibility of home credit over cheaper sources, there is some evidence that people value and would pay for control. Some research suggests that maybe people would be willing to pay £1 a week—£50 a year. However, that still seems rather a lot. That could possibly be augmented with some other charges for ATM withdrawals and so on.
Some people might say, “Get the banks to pay for it. They’ve done all these bad things, so they should do it.” To be fair to banks, they do quite a lot in the corporate social responsibility sphere already, including with credit unions. We could perhaps get them to provide such accounts on a semi-commercial basis, forgoing their normal profit margin. What would not be a good idea is to suggest that other customers should cross-subsidise those with jam jar accounts. There are two reasons for that: first, for competition policy reasons and, secondly, because it is generally a bad idea in the interest of effective markets.
As my hon. Friend the Member for Wirral West mentioned, there may be a role for service providers, particularly housing associations and utility companies, who would benefit from having a more reliable payer. Particularly for the most risky customers, a housing association, for example, might even be willing to provide cash support for the costs. Perhaps more generally, one would be looking for softer support in terms of marketing and so on to reach scale.
We are talking about banks and consumers, but is there a role for the Government? There is certainly not a role for the Government in telling people what sort of bank account they should have. There is also not a role for the Government in telling banks what should be in their new product development pipeline. However, there is a real social interest in all these issues, as I outlined earlier. If it is a question of bringing together organisations that may all have an interest, some of which may not know about it yet, in developing this market, perhaps the Government are best or uniquely placed to do that.
In my final minute or so, I have three simple asks of the Government, to which I would love to hear the Minister’s response. The first ask is to prod the banks and continue to stress to them the benefit that may be had both to society and potentially to them in developing these products. There may even be a pure commercial case to be made for them. After all, I often remark that nobody knew until 3M brought it to market that the thing that was really holding back their office productivity was a little yellow square piece of paper that can be stuck to the wall. Sometimes products just have to get out there before we realise their potential.
The second ask is to consider having a pilot scheme in one area, working with a housing association and one or more utilities. It would then be possible to quantify the benefit that comes from security of payment and collection cost, as well as to assess the beneficial impact on individuals in terms of their budgeting behaviour, the amount of money they save and their propensity to start to make savings.
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My third ask is to work with credit unions. This Government have been a great supporter of the credit union sector, particularly through the £73 million modernisation fund. If part of that were to be used to develop a robust, sustainable common banking platform, it would open up all sorts of possibilities, including this one. There would also be the potential to work with the Post Office, which would provide a great new source of revenue and business to post offices, which matter so much to all of us in our communities and constituencies.
We know that financial inclusion, helping people to make the transition into work and helping hard-pressed families with the cost of living are all things for which Ministers have shown a passion. They are also all things where jam jar banking could make a substantial difference. I hope very much that Ministers will continue to work with consumer groups, housing associations, utilities, banks and credit unions to help to stimulate such accounts into becoming an at scale reality.
1.18 pm
The Economic Secretary to the Treasury (Miss Chloe Smith): I thank my hon. Friend the Member for East Hampshire (Damian Hinds) for securing this debate on the topic of jam jar accounts and low-income consumers. It is particularly interesting and timely, given the various reforms going on in the area, which I hope to explain a bit about in my remarks. In the absence of my colleague the Financial Secretary to the Treasury who leads on these issues, I am very pleased to be responding on behalf of the Government. Indeed, hon. Members may know that I have taken a long-standing interest in these issues in my constituency of Norwich.
My hon. Friend the Member for East Hampshire made a number of relevant points concerning the potential role that jam jar accounts could play in helping to improve financial capability and inclusion, particularly alongside the introduction of universal credit. I should like to respond to the various points that he made and take this opportunity to set out briefly some of the work that the Government are doing in this area, which I am sure he and others will welcome.
Let me begin by dwelling on the progress made to date on the issue. Jam jar—or budgeting—accounts are a relatively new concept, as my hon. Friend mentioned. However, they are available in various places. As he has described, such accounts include various features that are aimed at helping customers to manage their money more easily. At the most basic level, that includes the ability for customers to divide their money between different pots. It may also include, as my hon. Friend said, a function that automatically moves money between accounts and access to support from a trained money manager who can provide advice or direction if necessary.
As hon. Members may know, the Financial Inclusion Taskforce commissioned initial research into the viability of this concept in 2010. It was carried out by Social Finance and was published in June last year. As I think my hon. Friend is aware, the report surveyed the demand and provision of jam jar accounts. It noted, as he said, that such accounts currently exist but tend to carry a monthly account usage fee that can put them out of the reach of those on the lowest incomes. The report also quantified the pool of customers who could benefit from such accounts if they were available at lower
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costs—up to 9 million. The report recommended that further research be undertaken, followed by a pilot study to explore the potential benefits of such accounts.
Certainly, the idea is extremely interesting. While no one financial product will suit every individual, some people may find these kinds of budgeting facilities useful, and far more useful than the methods that they use currently. The Government are committed to promoting a diverse and competitive financial services sector that provides consumers with access to a range of financial products such as jam jar accounts, which may form a part of those services, to meet consumer need.
If my hon. Friend the Member for East Hampshire will allow, I will refer briefly to a couple of points raised by my hon. Friend the Member for Hexham (Guy Opperman). Ms Osborne need not worry—I will not veer into the scope of the Royal Bank of Scotland in this debate. The Government are committed to providing a diverse and competitive financial services sector, exploring options to expand the roles of credit unions, which have been mentioned and which have an important role in providing services to communities. I note the other points that were made about more local banks and housing associations. Hon. Members will be aware of the current opportunity, under the Big Lottery Fund, for housing associations to take an interest in financial capability, which is important and an issue that I am aware of at constituency level. The Financial Services Authority has made improvements to its authorisation process to ensure that it will not act as a barrier to entry for new local banks, if that is something that the good people of Hexham want.
It is relevant to consider this issue, as my hon. Friend the Member for East Hampshire has, in the context of the introduction of universal credit. The new benefit will simplify the existing complex system of benefits and tax credits, improve work incentives and make it clearer to claimants how the move into work will benefit them. As hon. Members are aware, it will be paid in a single monthly payment, with housing costs paid direct to the tenant. That will enable low-income households to overcome one of the traps of poverty relating to the responsibility of managing a budget and the impact that that can have on other things. The monthly payment of benefits will make it easier for households to take advantage of cheaper tariffs and make access to affordable credit easier through an increased financially responsible record.
The Government recognise that some claimants need additional help to budget, particularly during the transitional period. As my hon. Friend suggests, jam jar accounts could have a role to play in helping many universal credit claimants to budget, protecting their essential payments and supporting positive money management behaviours. For that reason, I am pleased to confirm that, in addition to working with the advice sector to ensure that claimants can access appropriate budgeting support services, the Department for Work and Pensions is working with a range of banking and financial product providers, such as banks, buildings societies, credit unions, pre-paid card companies and others, to explore options for delivering such services, and to make financial services more accessible and supportive to low-income households.
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David Mowat (Warrington South) (Con): We have heard a good idea this afternoon, but high street banks cannot, or will not, provide such accounts at a cost-effective rate. Until that issue is fixed, we are just talking about an idea or a concept, and it will be very hard for it to be realised. Will the Government do more to bridge the gap between what the banks are able or willing to do and what the market is apparently willing to spend?
Miss Smith: I shall, with pleasure, come on to some of the work that the Government are doing to encourage simple financial products, via explaining briefly the next steps for the DWP and via credit unions.
From June this year, the Government will run a series of housing demonstration projects in which we will pay housing benefit direct to tenants to test the support required to help claimants budget and manage their rent payments effectively. They will be an opportunity to consider what type of budgeting products—whether from the commercial sector or elsewhere—can be used to support universal credit claimants in the longer term.
Several hon. Members have mentioned credit unions. They play an important role in offering access to financial services—bank accounts, affordable credit, insurance and savings to name but a few—to people who may not be able to, or may not wish to, access those services through mainstream banks or building societies. They work within a local community ethos and often actively seek to help those most in need of support. The recent legislative reform order brings new and exciting opportunities to credit unions. It is now for the sector to respond to those opportunities by seeking new ways to reduce their costs, to improve the products and services that it offers and to reach out to new markets to become self-sufficient and sustainable. To support credit unions in making this leap, the DWP has carried out a feasibility
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study to look at options for expanding their role. That study has reported to Ministers and an announcement on its findings will be made soon.
On the point about how the Government can otherwise help consumers take responsibility for their finances and make better choices, jam jar accounts may be one useful tool, but consumers need access to both financial advice and an appropriate range of products. That is why last year the Government launched the Money Advice Service, which promotes understanding of the financial system and helps to raise financial capability across the UK. In particular, its financial health check is helpful to some of the citizens referred to by my hon. Friend the Member for East Hampshire.
Another part of empowering consumers is ensuring that the right products are available. They need to be straightforward, easy to understand and simple to provide consumers with a benchmark with which to compare products, make good decisions and make sense of an often bewildering marketplace. Earlier this month, the Government launched a steering group to design a range of simple financial products, made up of representatives from both industry and consumer advocates. The group will report to Ministers in July and has announced that it will focus initially on developing simple deposit savings and protection insurance products. This is an opportunity for industry to innovate and develop a range of simple products, and it comes at a time of exciting developments elsewhere in the industry.
Under the various developments that I have outlined today, it is clear that there is an appetite, in the Government and in the third and commercial sectors, to find a way forward. I thank my hon. Friend and other hon. Members for their remarks. I am sure that my colleagues, the Financial Secretary to the Treasury and the Secretary of State for Work and Pensions, will appreciate the insights that they have contributed and will continue to take them into account in the further development of work in this area.
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Clean Coal
1.29 pm
Chi Onwurah (Newcastle upon Tyne Central) (Lab): Ms Osborne, it is a pleasure to serve under your chairpersonship. I am pleased to see so many of my colleagues attending a debate on an important subject: the economic potential of clean coal.
As a child in the 1970s I used the phrase, “taking coals to Newcastle”, to describe the silliest, most useless activity that could possibly be undertaken. I never really thought about the words behind the phrase, of course, except to note that it referred to Newcastle, the city in which I lived and which had been exporting coal since the 13th century. The region powered Britain’s industrial revolution. Recently, when I visited the port of Tyne and saw huge ships unloading coal, the full realisation of the extraordinary change in our relationship to coal was forced on me. Three million tonnes of coal per year are coming up the Tyne, instead of going down and out to the wider world. We are now importing millions of tonnes of coal per year to Newcastle and the same is true for Great Britain, once described as an island built on coal.
According to the Library, in 1920 there were 1.25 million miners in the UK. Today, the UK mining industry provides just over 6,000 jobs directly and supports a similar number in coal power stations and coal transportation, but demand for coal has not fallen to the extent that those figures might imply. In addition to the increased productivity of coal miners, we also need huge levels of imports to satisfy demand. In 2010, we produced 18.4 million tonnes of coal to meet demand of 51.4 million tonnes. What makes that all the stranger is that the UK has thousands of billions of tonnes of coal reserves, offshore and onshore.
Five Quarter, a company spun out of Newcastle university, has licences from the Coal Authority to exploit 2 billion tonnes off the Northumberland coast. Using new technologies and processes, in energy terms that is equivalent to 11 billion barrels of oil; and that is just one company. Yet in 2010 we imported 26.5 million tonnes of coal.
Let us be clear that by importing so much coal we are not reducing the global carbon footprint or improving the safety of mining. Nearly 10 million tonnes of coal a year is imported from Russia. Despite having improved somewhat in recent years, Russia’s mining safety record is still poor, although it is better than China’s. In the UK, we suffered the terrible tragedies of three mining deaths in 2010, the highest for several years. In the same year, 135 Russian miners died at work, including 66 in one explosion.
I applied for this debate because I believe there could be huge potential in exploiting the vast reserves of coal beneath our feet, and I am concerned that the Government are not doing all they can to realise that potential. I should be grateful to hear the Minister’s views on why we import so much coal when we have such vast reserves.
Mr Brian Binley (Northampton South) (Con):
I congratulate the hon. Lady on obtaining this important debate and I welcome her remarks. Will she push the
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Minister a little bit on clean coal, recognising that there are 300 years of energy need beneath our feet? The hon. Lady touched on that in her opening remarks.
Chi Onwurah: I will come to that point. I shall consider it a pleasure to push the Minister, just as the hon. Gentleman describes.
Coal importation does not raise the same issues as gas importation. In terms of energy security, there is no vulnerable single coal pipeline and there is a wider supplier base and a more competitive market for coal, but transporting millions of tonnes of carbon around the world is hardly green and, more importantly, there is in this country the budding technical knowledge to exploit coal in a cleaner way than our competitors.
The first industrial revolution was fuelled by coal and we are now having to deal with the consequences in the form of climate change. Clean coal, as the hon. Gentleman mentioned, is any technology that reduces harmful emissions from burning coal or avoids the need for burning coal altogether to generate electricity in a more sustainable manner.
Carbon capture and storage and underground coal gasification are two areas where the UK has the opportunity to become a world-beater in clean energy production, but we cannot wait for ever. Underground coal gasification is the gasification of a deep coal seam to convert coal to a high energy synthetic gas, which goes by the lovely name of syngas. Both the technology and the gas produced are relatively clean, compared to coal-fired generation and surface mining.
Jim Shannon (Strangford) (DUP): I congratulate the hon. Lady on bringing the matter to this Chamber.
The potential for clean coal is estimated between £2 billion and £4 billion, perhaps with some 60,000 jobs as well. Does the hon. Lady feel that we should be embracing the technology in totality, especially as oil has reached its highest price in the past two years?
Chi Onwurah: I thank the hon. Gentleman for mentioning the important economic potential of clean coal, especially at a time of high energy prices. I shall mention that.
Ian Lavery (Wansbeck) (Lab): Does my hon. Friend agree that the north-east region could play a tremendous role in terms of the abundant reserves off its coast, from Durham to the top end of the north-east coast, underground coal gasification and deep-mined coal reserves? Does she agree that we should consider every opportunity to exploit that resource and, in the meantime, create thousands of what we would describe as clean jobs—clean energy jobs—in our region, which has suffered greatly as a result of the closure of the coal industry and shipbuilding?
Chi Onwurah: My hon. Friend has a huge amount of experience in coal, to which I pay tribute. He raises important points about the north-east, with regard to our huge coal reserves, which he rightly mentioned, and the economic potential of coal, which I will say a little more about. I thank him for his intervention.
Like all new exciting, but as yet untried, technologies, carbon capture and storage and underground coal gasification require research, analysis and trialling to
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understand the risks, if any, and whether and how they might be overcome. However, I regret that I am yet to be convinced that the Government are fully committed to enabling the potential of clean coal technologies to meet our energy needs in the medium and long term and to bring to the region and the country the kind of jobs my hon. Friend has mentioned. The Carbon Capture and Storage Association estimates that by 2025 the market for clean coal could be worth £10 billion a year to the UK, with more than 50,000 quality jobs.
David Mowat (Warrington South) (Con): I agree with the hon. Lady’s remarks on clean coal. She mentioned 2025, which might be a realistic time for this technology to come in, because it is unproven. Does she acknowledge an issue that all hon. Members know about, given the dependence of regions on coal, which is that the previous Government signed the EU large combustion plant directive, which mandated that, by 2015, five of our biggest coal stations will come off-stream, way in advance of any realistic prospect of CCS working? I hope, eventually, that that technology will work.
Chi Onwurah: I am glad that the hon. Gentleman supports clean coal technologies. The previous Government made huge efforts to ensure that we were on track for sustainable energy to meet the appropriate emissions concerns. I will mention the timetable for carbon capture and storage, on which, as he rightly says, current coal generation capacity is dependent.
We have already seen how the Department’s muddled messages have damaged the solar industry and, this week, the wind industry, so it is now vital for the Government to set out a sufficiently detailed and long-term ambition for clean coal technologies in the UK, because the prize in terms of jobs and energy security is far too important for us to fumble.
Dan Byles (North Warwickshire) (Con): I congratulate the hon. Lady on securing the debate. Does she agree that terminology is important? Using the words “renewable energy” all the time, rather than “low-carbon energy”, can muddle the debate. Effective clean technology, should it be proved to work, will be low-carbon energy, and that is the sort of descriptor we should be using, rather than “renewable”.
Chi Onwurah: The hon. Gentleman makes an important point. He is right that in meeting the emissions targets we have set ourselves, “low carbon” is a key term, rather than “renewables”. Low-carbon energy can be a transition to a future that might, in the longer term, be entirely based on renewables as differently based forms of energy run out.
My concern is the real possibility that if the UK does not act now, companies will not invest here; they will reprioritise their investments away from carbon capture and storage and away from the UK. The economic potential of clean coal extends further than the direct jobs created in the industry and the supply chain. As has been mentioned, it could bridge the gap to longer-term renewable energy and could keep energy costs down in the short and medium term, which will be a better deal for home consumers and for industry. In the north-east,
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that is particularly important, because we have many world-leading but energy-intensive industries such as chemical processing. Developing integrated clean coal processes has the potential to supply the energy needs of those important sectors in the north-east and elsewhere.
Gloria De Piero (Ashfield) (Lab): I stress the huge potential of clean coal. Areas such as Ashford, which I represent, have powered the UK before and would like to power it again, so I thank my hon. Friend for the debate and for pressing the Minister.
Chi Onwurah: My hon. Friend is right to draw attention to the importance of clean coal and clean coal technologies to the north-east and to many regions in the UK, including the north-west.
Last year, in response to an oral question, the Minister told me:
“The Government recognise the potential of underground coal gasification, but the technology is still in its early stages...Our view is that as a carbon capture option it is not a priority to pursue at present. The Coal Authority has lead responsibility, as the freehold owner of our national coal resource, and we continue to monitor developments in the sector.”—[Official Report, 7 July 2011; Vol. 530, c. 1649.]
At a subsequent meeting, in January, the Minister and his officials appeared somewhat more positive and certainly supportive of carbon capture more generally. I was not filled with confidence, however, to learn that the DECC policy team that deals with clean coal is called the coal liabilities team. A rose by any other name would smell as sweet, but can the Department champion the potential of clean coal rather than the legacy of the past?
DECC’s continued delay played a significant part in the failure of the Longannet CCS demonstration project in 2010. In November last year, the Department promised that the money would be reallocated to other CCS projects, but in the autumn statement, the Treasury raided the CCS fund to spend on other projects. Coal-burning power stations still provide 28% of our electricity, rising to 50% in times of high demand. Many coal-fired stations are dependent on testing the viability of retrofitting those new technologies so as to be able to continue production past 2015, as mentioned by the hon. Member for Warrington South (David Mowat).
Globally, China mines three times as much coal as any other country, or more than 3,000 million tonnes of coal in 2010.
Ian Lavery: I thank my hon. Friend for giving way a second time. She mentioned China, and it is important for us to look at what is happening on carbon emissions not only regionally and nationally but internationally. I was lucky enough to be in China only two weeks ago, with the Select Committee on Energy and Climate Change. The Chinese put coal production in 2010 at 3.24 billion tonnes; they forecast 3.9 billion or almost 4 billion tonnes of coal per year by 2020, and then they are looking to reduce production to a steady output of around 2 billion tonnes by 2050. Does my hon. Friend agree that it is really up to us to use our engineering and manufacturing skills to get carbon capture and storage on line in the UK, giving us a great opportunity to export our manufacturing to the likes of China, which will make a huge difference overall?
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Chi Onwurah: My hon. Friend makes an important point. We might disagree about the speed at which the new technologies can be brought on line—whether 2015 or 2020—but what is absolutely clear is that the rest of the world is burning coal and that the new technologies will be needed to ensure that the energy required in the world does not bring about grossly increased emissions. We have an opportunity to be at the forefront of a new and expanding market. It could be a huge new market, but I fear that we might let it pass by without fully understanding it.
I welcome the recent announcement from DECC that takes us a step closer to the first CCS commercial demonstration project; it is long overdue. We are now told, however, that the demonstration will take between four and eight years. Does the Minister not recognise the importance of being ahead of the curve in demonstrating and scaling such technology? Instead of a programme of support and a stable policy environment from the Government, we continue to see confusion. I am sure the Minister agrees that a proper energy policy requires security and a diverse source of supply. How can he reassure the House that he is doing everything to ensure that we capture the benefits of clean coal? We also need certainty. What assessment have the Government made of the economic potential for clean coal, and when will he be in a position to make a long-term decision on whether the Government will support it?
1.48 pm
Mr David Anderson (Blaydon) (Lab): I congratulate my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) on getting the debate, because it is timely.
Hindsight is a wonderful thing, and in opposition, we can all have a go at what the Government did or did not do in the ’80s or ’90s. Everyone would agree that, if anything, the Government went too far in closing down the coal industry, which could still have been producing for this country today, but the truth is that the Labour Government also did not do particularly well by the coal industry.
Until the petrol price increase of 2007 and 2008, coal was a dirty word in this place. Thankfully, finally, in those years, because of the huge, uncontrollable expansion in the cost of petrol, people began to realise that we had to look for alternatives. The alternative could and should be coal, but since those days, we have become bogged down in discussions about where we go with it. There was a bidding process in Europe and in this country, but we have seen nothing but reversals, with projects at Hatfield, Longannet and Kingsnorth all going into reverse and being dropped. If possible—I am very aware of the limited time that the Minister has—can he tell us exactly where we are with the CCS process? Will we see anything done in the near or longer term? The debate has been going on for a long time, and we have had, in effect, little if any progress.
In particular, the underground gasification of coal is a huge issue and is being developed strongly in our region by Newcastle university and the Ramsay project. The technology was proven more than a century ago to access reserves of coal way beyond anything that has ever been reached by conventional mining, whether in the last 10 years or the last 1,000 years. Coal that is
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sometimes thousands of metres deep and cannot be accessed by humans, can be accessed by machinery, and that should be promoted. The last Government agreed that a strategic environmental assessment would be carried out off the Northumberland coast. Has that happened? If not, will it happen? If so, when will it happen?
1.50 pm
The Minister of State, Department of Energy and Climate Change (Charles Hendry): It is a great pleasure to serve under your chairmanship this afternoon, Ms Osborne. I am grateful to the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) for securing this debate. She has raised some important issues. I am sorry that, to make a political point, she distorted the situation, but I will clarify how we are trying to take forward carbon capture and storage particularly, to ensure that Britain can lead global developments in the sector.
Let me say at the outset that we agree absolutely with the hon. Lady about the important role that coal can continue to make. We want it to have a significant role in our energy infrastructure for many years to come. It is valued partly because of its flexibility, and as we move to inevitably more intermittent generation from all sorts of renewables, the flexibility, or dispatchability, of the coal sector is valuable indeed. We recognise that to secure that long-term future, we must deal with carbon emissions. The clean coal technologies—the hon. Lady outlined two of them—can help to ensure that coal has a chance to play an important role in our energy mix.
We are keen to take CCS forward with all speed. The Department has created a new division called the office of carbon capture and storage. It is not part of the old coal liabilities group, which is dealing with the historic legacies of the mining industry, but a new dynamic team focused purely on developing clean coal technologies. I hope that the hon. Lady recognises that in our message to the outside world we are already doing a great deal to signal a step change.
The hon. Lady referred to coal production and the volume of imports. In 2010, which is the last year for which we have full figures, domestic production was nearly 18 million tonnes from 16 underground and 35 surface mines, employing just over 6,000 people. We have seen a significant drop in imports in recent years, because of a range of factors, from 38 million tonnes in 2009 to 27 million tonnes, a drop of 31%, by 2010. There is a range of reasons for that, including pricing issues—it may sometimes be cheaper to import coal—but often the reason is the sulphurous content and other issues that are important in combustion uses for the different types of coal. Those are commercial decisions, but I want to ensure that we create a long-term viable future for the UK coalmining industry, and we want as much coal as possible to be provided from domestic sources.
On carbon capture and storage, the hon. Lady talked about confusion. At a CCS conference yesterday, Jeff Chapman, who heads the Carbon Capture and Storage Association, used the word “tremendous” to describe the Government’s position. He said that he was encouraged
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by the speed at which we are trying to move forward and our dynamism and much more comprehensive approach.
Last year, we had to accept reluctantly that the Longannet project would not work and that we could not get the 300 MW CCS output that we wanted for $1 billion. Some aspects of the old competition were part of that process. It ruled out some of the pre-combustion technologies that we believe have a significant role to play and oxy-fuel combustion, which is another technology that could be significant. It did not take account of the £100 million cost involved in putting in place the flue gas desulphurisation technology that an old plant needs to give it a longer-term future.
Since pulling back from that project, we have sought to put in place a new one and a new competition that is much more all-embracing. It will give the industry opportunities to identify more projects, and greater scope for collaboration between different industrial partners in that process. It will also provide the opportunity to find out whether we can use the funding to support infrastructure development. For example, would putting in place large, over-sized pipelines provide the opportunity for an industry to be created, rather than a few pilot projects?
Our ambition has moved on. It is not just about how to put a few projects in place, but about how to create an industry that is viable and competitive in the 2020s. That is why there is a real sense of excitement. There were 200 people at the CCS conference yesterday. Two hundred businesses attended an industry day last week, and 150 attended a previous one before Christmas. People around the world who know about the technology are looking at the United Kingdom as one of the places where they can take it forward.
We still have the £1 billion. The hon. Lady is wrong in saying that it has been raided. The Treasury said that we do not now expect it to be used in the current spending round, but it is still available, and if projects come forward more quickly, they can access it.
Chi Onwurah: Is the Minister saying that the £1 billion is available to be spent in this period of the spending review?
Charles Hendry: We think it unlikely that anyone could come forward for £1 billion in this spending round, but we have said that it is still available when it is needed. The likely expectation is that it has been knocked back to the next spending round, but the commitment remains.
Mr Anderson: I understand that I must be brief. If we are to reduce emissions by 8% from 1990 levels, when would CCS have to have proven itself and to be operational?
Charles Hendry: The hon. Gentleman speaks with tremendous authority on these issues. We want a viable industry that is cost competitive with other low-carbon sources of electricity generation in the 2020s. We want the project work to be done now, and we are looking at a range of technologies and their contribution.
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We have £1 billion of up-front funding. We want to run the project so that it links in with European funding— the new entrant reserve 300 funding—so that that can also be accessed. We have allocated £125 million for research and development, which is on top of that. Our electricity market reform measures are considering a range of other factors that can be used to incentivise long-term investment in full-scale plant. I hope that I can reassure the hon. Lady that we are moving ahead with tremendous speed. During the next few weeks, we will launch the competition with a view to deciding how to select the best companies and the best projects as soon as possible.
The hon. Lady referred to underground coal gasification, and I was grateful to her and the hon. Member for Wansbeck (Ian Lavery) for bringing representatives from Newcastle university to see me at the end of last year to talk through some of the issues. Underground coal gasification is a fledgling industry so far and has yet to be proven in the United Kingdom, but there is increasing interest in its potential. It has been suggested, as the hon. Lady did today, that it could be linked with carbon capture and storage, although that concept is still at an early stage of development and a lot more work will need to be done on the process. I do not want to go into the technology, but we think it may be a significant opportunity to enable us to access the extensive coal resources that remain in the United Kingdom. They are unlikely to be exploited by conventional mining, as the hon. Member for Blaydon (Mr Anderson) said, and we must use different technologies to access the very deep mines, which cannot be done by men and women working in them.
As with any activity involving underground coal, potential underground coal gasification operators would have to obtain a lease and a licence from the Coal Authority. It is likely that the UCG process would also release native methane, which would require a licence from Department of Energy and Climate Change under petroleum legislation. However, given the incidental nature of any natural gas release, the Department will seek to minimise any administrative burdens in that respect.
To be acceptable in the United Kingdom, operators must be able to demonstrate that they employ processes that are sound from the environmental control perspective. A great deal of evidence has been submitted about this, and we look forward to working closely with the hon. Lady and her colleagues at Newcastle university to try to take the matter forward. She will be aware that the Coal Authority has issued 18 conditional licences, paving the way for potential exploitation of coal through UCG. I will follow the progress of the Newcastle team and other conditional licences with great interest.
I hope that in that brief response I have been able to re-emphasise our commitment to clean coal technologies and their contribution, and I hope that that strong message will go back to the communities that the hon. Lady and her colleagues represent.