CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 554-ii

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

ENERGY AND CLIMATE CHANGE COMMITTEE

consumer engagement with energy markets

Tuesday 18 September 2012

Mr Richard Lloyd, Ms Audrey Gallacher and Ms Ann Robinson

mr christian hunt, mr john swinney and ms faye scott

Evidence heard in Public Questions 139 - 218

USE OF THE TRANSCRIPT

1.

This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Energy and Climate Change Committee

on Tuesday 18 September 2012

Members present:

Mr Tim Yeo (Chair)

Dan Byles

Ian Lavery

Christopher Pincher

John Robertson

Sir Robert Smith

Dr Alan Whitehead

________________

Examination of Witnesses

Witnesses: Mr Richard Lloyd, Executive Director, Which?, Ms Audrey Gallacher, Director of Energy, Consumer Focus, and Ms Ann Robinson, Director of Consumer Policy, uSwitch, gave evidence.

Q139 Chair: Welcome to the Committee. The issues we are going to discuss are of considerable interest but, as ever, we are constrained by time as well, so we will proceed as quickly as possible. I will start with a general question: why do you think it is so hard to work out how much profit energy companies are making and the relationship between their profits and prices?

Richard Lloyd: Shall I start, Chairman?

Chair: Absolutely.

Richard Lloyd: I think your opening question is one of the reasons consumers are so mistrustful and disengaged from the energy market. It is almost impossible to work out from the suppliers’-the big suppliers’-public statements what is going on, how they are attributing costs to the generation or the retail end of their operations. You get mixed messages in the media about the suppliers struggling to make a margin of more than 2% on their retail operations and reports of growing profits on the generation end. It seems to us that an obvious place to start, I would have thought, with a regulator is to require suppliers to explain in a consumer-friendly way exactly what is going on in the market and what is the interaction between the generation and retail sides of these integrated businesses.

Ann Robinson: I think there is another issue, although I am not quite sure whether the Ofgem should be requiring this information or not, because we don’t know what the suppliers pay themselves for their energy. Most of their energy is bought in advance, one, two, three, four years and very little is traded on the spot market. I think what we really need is a proper forward market in energy. You covered this in your last inquiry when you looked at the market structure, and I think that is unfinished business.

Audrey Gallacher: I don’t know if you are aware that Ofgem brought in some forensic accountants to look at the separation of businesses and how profits were reported. One of the recommendations from BDO, the company that did it, was that there should be information about companies’ trading arrangements and their trading activity should be put in the public domain, and that is not something that Ofgem has taken up. I think we need more information, particularly for the companies that are not reporting in the UK where we have seen some issues around portfolio maximisation, which is effectively the money that has been made on the trading arm of the companies. There is absolutely zero visibility on that.

Q140 Chair: How do we get greater transparency in that case?

Audrey Gallacher: I think it is about requiring companies to declare where money is being made and having a clearer understanding about from what part of the value chain companies are taking profits. As Richard has already said, we hear retailers complaining that there is absolutely no money to be made in this market, yet we see parent companies reporting really quite generous and robust profits. It is probably important to say that nobody is denying that companies need to make a profit. We are looking at massive investment down the line, but there is an issue for consumers in what is an essential service, in terms of the degree of profitability, where it is made and how visible that is.

Q141 Chair: Both DECC and the Climate Change Committee have said that rising gas prices have been the main factor in prices going up. Do you think the energy companies are in any sense being blamed unfairly?

Ann Robinson: Can I pick that one up? The problem is that it is very difficult to challenge the energy companies on this, but what we do know is that wholesale prices-certainly since about last August or September-have been consistently low. There has been the odd blip occurring and yet prices are really quite high, and we have just seen Scottish and South recently put their prices up. Alistair Buchanan put this well in the last inquiry, and I couldn’t put it any better than him, when he said that when wholesale prices go up they may not go up by very much, but prices go up like a rocket and they come down by a feather. What we have seen over the last several years is absolutely massive increases in retail prices and yet the kind of cuts that we have seen coming through have been tiny, tiny, tiny.

I will give you a really important figure-in 2004 the average price, and I remember this because it is just when I left Energywatch, people paid £522 a year. It is now £1,258 a year. It has gone up by 140%. Guess how much household income has gone up by in the same time? 20%. So energy prices have risen more than five times faster than the household income.

Q142 Chair: Nevertheless, the prospect over the next couple of decades is that we may see wholesale prices rising still further. The world economy is expanding and demand for gas especially may increase substantially as a result of expansion in Asia. You also have the need for very substantial investment in this country in generating capacity, transmission capacity-a huge infrastructure investment-and there may be some other Government policies including support for low carbon energy. All those make it likely that consumer prices are going to continue increasing faster than incomes. Do you think consumers recognise this? Do they understand that properly?

Richard Lloyd: They tell us that they are vaguely aware, but they are confused about what is driving those increases, so is it Government policy? The energy suppliers often blame the cost of decarbonisation imposed on them, which is are passed through to consumers. They blame social policies that are being delivered through the energy supply system, and there is this smoke and mirrors feel about how profits are being reported and possibly attributed to the generation and retail side of the unified businesses. Consumers who talk to Which? about this are vaguely aware, as I say. They are unclear about what is driving it. No one that we have talked to, I think, is stupid enough to think that wholesale prices are not likely to increase and that that will feed through into their bills, but there is this lack of understanding and lack of clear explanation by the suppliers about what is going on here, and very often consumers say to us they expect the Government to be better about explaining what is going on as well. They look past the suppliers to Ministers to protect them from unreasonable price shocks and price increases; secondly, to explain what is going on; and thirdly, not to forget about the affordability of energy as they introduce new policies, whatever the merits, for example decarbonisation.

Ann Robinson: Can I just add something to this, because I think it is very important? I don’t think consumers understand what is happening, and I also don’t think they understand where the future prices are going and they certainly don’t understand some of these investment costs. We have huge amounts of investment costs coming along, maybe £200 million. Where is it going to end up? Who is going to pay for it? It is going to be on consumer bills. I don’t think they understand that that is coming and that is a huge worry, because if consumers aren’t getting it-and that is why there has to be strong education to get these messages out-then they are not going to do the things that they need to do to protect themselves.

Q143 Sir Robert Smith: I must remind the Committee of my entry in the Register of Members’ Interests to do with the oil and gas industry.

On communication with consumers, uSwitch made the point that the industry is lagging behind other sectors in terms of clarity when it comes to the billing and communication with customers. Some of the companies claim to be improving things. Do you think the energy suppliers are doing enough to improve communication with customers?

Ann Robinson: I am going to be fair to them. It may be the only time today when I am, but I am going to be fair to them. I think that they are trying to improve their bills and hopefully something will come out of it. There is no doubt from our evidence that 80% of people tell us that they just do not understand their bills. We asked a maths professor to have a look at bills and he said that you really do need to have not only an ‘A’ level in maths but an instruction leaflet to understand what your bills are. The key thing about that is if people don’t understand their bills, they do not then understand how to shop around and compare prices. Not only that, but if they do not understand their bills, they do not have the confidence to engage in the market and, again, that is of considerable concern.

Richard Lloyd: I think the suppliers have obviously-as they have said to you in evidence-all woken up over the last year to just how disengaging their communications to customers have been, and arising from pressure from yourselves and consumer organisations and others they have realised they need to improve that, and to improve it for reasons to do with the success of their businesses. If they continue to operate in the way they have in the past with confusing bills and complex tariffs that people will not engage with, they are not going to be able to deliver the smart meter roll-out and they are not going to be able to deliver on their energy efficiency obligations.

I think there is a fundamental point here about the expectation of the degree to which consumers want to or will engage with the energy market. People tell us at Which? that what they want is an affordable, fair, protected price. It is not a commodity that people expect to shop around for by the day or by the hour. It is not a market that people have historically been thoroughly engaged with, and so I think even with the best of the new efforts to make customer communications improve and to tackle the worst efforts that we at Which? have exposed-the misleading claims when you call up a call centre, the degree of complexity of bills, as Ann has said, and the difficulty of switching-there is still a question mark about what proportion of the customer base is going to be willing to engage. 75% of people are still on standard tariffs, so I think there needs to be a sense of realism that even with the best of efforts in customer engagement, improvements in customer communications, where consumers are on these tariffs, by and large they find energy thoroughly boring.

Q144 Sir Robert Smith: And expensive.

Richard Lloyd: And growing in expense, but you are quite right, as the cost rises people become more engaged.

Q145 Sir Robert Smith: Do you think Ofgem’s attempt to try to get some of the language standardised will pay off? Is it that straightforward?

Audrey Gallacher: Consumer Focus and Which? and Energy UK, the trade association, made a joint approach to Ofgem to try and work not only on comparability of the language that is used and the description of tariffs and products but also on the details on the bill. Ofgem have come forward and set up a working group and are now looking to try to improve bills, but there really does have to be a much wider consumer engagement effort made.

I think one of the other problems, and Richard alluded to it, is that it is not just about lack of consumer engagement. For lots of consumers, particularly the most vulnerable, there isn’t really any alternative offering in this market, and there is a big question about whether we are just pinning too many of our hopes on increasing consumer engagement, when we probably have quite a significant chunk of customers who will never engage with this market as it is currently set up because there are just no viable offerings for pre-payment meters, for example.

Q146 Sir Robert Smith: We are going to go into more detail on the tariffs and switching, but I just wondered about that.

Ann Robinson: I think it is really important that there is common information, common language to explain so that people can understand how much energy they use and what it actually costs them. I think that is key. The second thing I think is really important is that we have had some experience of annual statements, and I banged on about the need for annual statements for years. I have to say that when the annual statements were produced, I was bitterly disappointed. We did a survey at uSwitch and only 37% of people thought that they had received one, and certainly only 40% thought they were any use at all. I think annual statements were a missed opportunity. They can do an awful lot, and I think that annual statements should be very clear. There should be a template for them, and do you know what I would like to see on annual statements? I would like to see the companies display the cheapest deal that they do. Not just the cheapest deal that is right for your circumstances, the actual cheapest deal they do. I agree, there will be some people in this market who will never switch, but even if they do not switch between companies-which is a good thing in terms of keeping the companies honest and getting competition going-at least they should have available to them information about what is the best deal with the company they are with.

Q147 John Robertson: Just on the bills, I have a theory about bills and you can tell me if you agree with me or not. I believe that the bills should have two faces. One, a simplified front sheet with a detailed back sheet. RWE said in our last evidence session that people didn’t want that. Now that might be true for some people, but my reasoning is there are plenty of people out there who are more than intelligent enough to understand their bills and the reason the companies don’t want them to get the information is that they might start asking questions.

Audrey Gallacher: I think customers tell us consistently that when they get a bill they just want to know how much it is and when do they have to pay it, and it can be supplemented by all sorts of things on the second page. What turns a lot of people off is that they think more is less, and that they are just bombarded with information. That is one of the reasons why we have pushed off to look at not just how bills are configured but what really needs to be on it. I think there is something like 14 regulatory requirements for what should be on the face of a bill, and there is a real question about whether that is something that customers want or need and whether it is even serving any meaningful purpose, or if it is working against some of the aspirations towards consumer engagement.

Q148 Sir Robert Smith: On that specific issue we are getting conflicting suggestions, because Ovo Energy suggested suppliers should be obliged to provide a breakdown in their bills of where their money goes and E.ON is arguing that the bill is not the best place to do that. It goes back to the Chair’s question, I suppose, in terms of engaging the public in understanding.

Richard Lloyd: What we are seeing are huge assumptions from companies that historically have not put the customer at the heart of what they do. So you get these assertions from some very large businesses about what customers do and do not want. They are starting to engage more with customer panels, and I think if you asked the likes of Consumer Focus and Which? that have been listening to customers about this for years and pushing for greater clarity in bills, that is based on what consumers are telling us will work for them. That is the mental shift that many of the suppliers still have not taken. They are not designing how they communicate to customers sufficiently based on what their own customers are telling them and telling us. It would be nice to see them doing more of that.

Ann Robinson: Can I come back to your Ovo point? I think it would be interesting to explain where the money goes, and it is something to think about, but to go back to the earlier point, until there is transparency, until we have that information, any further explanation can only confuse. So once we have reached the point where the information is there, it may be better for it to be given via some other form of communication. I don’t know, but what we do know for certain is that people do not understand their bills or the make-up of the bills, and they certainly do not know what the companies are making and what the profits are. They do not know whether they are getting a good deal or not, and that is the big thing. When there is no transparency at all the only way in which you can be absolutely sure that you are getting a fair price is if there are enough people engaged in the market, and I am afraid that as far as I am concerned that is the bottom line.

Audrey Gallacher: I think there is a real danger that how we are currently displaying energy prices on bills is working against both consumer engagement and the behavioural change that is necessary to cope with it and the increase in prices that we are anticipating. Some research that we have done shows that consumers thought they were paying a lot more in environmental and social levies than what they are, and that is because there is quite a lot of hype around why prices are going up. So the consumers that we surveyed were surprised that the levels were as low as they were, and they anticipated them being much higher.

There is a real conflict within the industry about if you make these levies more transparent is it going to encourage the level of behavioural change that we want to see, because people realise that they are paying for stuff, therefore they should take advantage of it, or is it just going to generate more calls into call centres disputing it? There are lots of customers who do not want to pay for wind generation, for example, so I think companies are finding themselves in a difficult position in that customers really need the information but it is going to generate questions, it is going to increase phone calls, it is going to increase costs. While we continue in this debate where consumers do not really know what they are paying, and where there is a real issue over whether or not they are paying a fair price, there is a real danger that people will sit back and wait for somebody to sort out the market, when really- even if we had the most perfectly functioning market-we are still going to see increased prices. People are still going to need to change their behaviour and get energy efficiency advice, and the lack of clarity around price and real honest conversation means we are not getting customers to where we need them to be.

Sir Robert Smith: Thank you.

Chair: I also should draw attention to my entry in the Register of Members’ Interests, although none of those listed are suppliers of electricity or gas to the British consumer.

Q149 John Robertson: I have some interest in tariffs and switching. When we had the energy companies in recently they kept on saying they are not working together, but I still find it incredible that they are saying that they have cut back the number of tariffs. Does anybody really know how many different tariffs there are? Last time I remember Ofgem telling us there were something like 400 between them all. Can you shed any light on this?

Richard Lloyd: I will give you a recent example. As you probably know, Which? ran the Big Switch earlier this year and we analysed the data that the people involved in that gave us. They were on 1,400 different tariffs. Some of them were legacy tariffs, some of them obviously are not available anymore. The number has come down now, but there are still many tariffs that are still out there that people are on and have been on for many years. I think the fact that there is greater simplicity now, for example, according to some of the suppliers you have been talking to, doesn’t mean that there isn’t still a bewildering complexity of deals that are out there and nor does it mean that people can compare between companies easily. In terms of what needs to be done, Ofgem’s proposals on tariff reform do not seem to us to be going anywhere near far enough to make those easy comparisons available. We should be able to make comparisons between different offers from companies as easily as we can the petrol pump price at the forecourt in the garage.

Q150 John Robertson: Should somebody set a set number of tariffs, whether it is for business or whatever, that people can identify and obviously somebody who uses a lot of electricity then should probably get it cheaper than somebody who hardly uses it? Likewise gas? When you start doing that you have already doubled the number of tariffs for the same thing.

Ann Robinson: Can I have a go at answering that? There certainly should be a lot fewer tariffs and they certainly should be a lot simpler. As Richard said, the most important thing is having the means of being able to compare one tariff with another. Having said that, I would not want there to be a situation where Ofgem can regulate that everyone should only have three tariffs, or whatever. That is crazy, because we know that people have different needs. I think there probably should be a ceiling on the number of tariffs each company has, but they should be allowed to at least have some scope to design new tariffs to meet new situations. You only have to think of the smart meter and time-of-use tariffs. That is going to be quite a challenge. It is going to be important, it will have some benefits, it will meet some people’s needs, so you have to have some scope for innovation to meet customers’ needs and emerging needs, but at the same time have some basic stuff so that comparisons can be made, and also have some sort of stop to prevent the number of tariffs from proliferating.

Q151 John Robertson: How competitive do you think the market is between these people?

Ann Robinson: I tell you what, it is getting less competitive by the minute. Years ago, certainly when I left Energywatch, there was something like about 21% switching. About 5 million accounts a year were switched. Before doorstep selling stopped, the figures had dropped to 16-17% and now the latest figures, from a few months ago, suggest it is around 15%-I suspect it is even lower than that, it may be as little as 12%. So there is a real concern about the number of people who are switching. I don’t know the reasons why because it did stop before doorstep selling stopped, but I suspect it may be to do with the fact that there has been so much publicity recently about Ofgem fining people for mis-selling and getting complaints, so that people are thinking, "Better stick to the devil I know rather than move

on". I think it is associated with a lack of trust of energy suppliers.

Richard Lloyd: If you look at markets that are genuinely competitive you see companies genuinely competing on the quality of their offer of service, as well as on price. You can look at other indicators, not just switching, about how market share is changing, and these indicators of a competitive market do not currently exist in the energy retail market. It is no surprise when there is a lack of demand-side pressure, competitive pressure, on the biggest suppliers, that their customer service ratings, when we surveyed energy customers, show that the biggest suppliers offer the worst service, yet they are still retaining that huge market share. In a genuinely competitive market the reverse would be the case. The small suppliers that are often offering the keener prices and the better service would be growing, but they are not. I think the rate of switching is important, but a wider view of what a genuinely competitive energy retail market would look like needs to be taken, and on those sorts of indicators it fails.

Q152 John Robertson: Going by the evidence we have had, there seems to be, in the switching, a lot of difference between the different companies and how they saw things. Some thought there was a lot of switching going on, while others did not think there was much, and somewhere in between lies the truth. What would be the best indicator for spotting switching? Would switching mean that people have now cottoned on to the fact that there are better deals, or would it be the fact that other companies are now starting to advertise themselves better? I particularly think that if we do get the market opened up properly to small companies, it would give them the opportunity to get in on the ground floor. How can we show that this is happening, and what needs to be done to make sure it does happen, to allow people to switch?

Ann Robinson: It is both. You cannot have one without the other. First of all, people have to have the confidence and feel able to do it. There is an awful lot to be done on needing to educate people about how easy it is to switch. There are still some people, would you believe it, who do not realise they can switch. Some people think they lose their gas and electricity in the process of switching, and on it goes. So there is a confidence building exercise to go through. It is only when, for example, people do start shopping around that some of the new entrants will be encouraged. Even so, there are other barriers to new entry beyond just the straightforward retail end.

Q153 John Robertson: One of the barriers from switching is they charge you money to switch if it is within a year. Look at supermarkets for example-I always like to throw supermarkets at them-they are advertising all the time about how many things are cheaper in their supermarket compared with the others, and that is how they do it, "If you come to us, you will save money." Now the energy companies do not seem to want to do this, and I wonder why. They make money, but in the case of these companies there has to be a better comparison somewhere along the line of how we can compare them all. Switching is one of the ways to do it.

Ann Robinson: Yes, it is.

Q154 John Robertson: If I am with Scottish Power, and I am, if I want to move to EDF, and suddenly all these other people follow suit, how do we measure that? Because these companies are hiding their figures.

Audrey Gallacher: I think we should probably be careful that we are not looking at switching numbers as the only indicator of a properly competitive market, which we’ve alluded to. We have seen in the past where we had high degrees of switching, and 30% or 40% of consumers were going on to a worse deal, so that is not an ideal situation, and that is not good.

Q155 John Robertson: How is that possible? These customers must have been promised at some stage they were getting a better deal.

Audrey Gallacher: Yes. It is blatant mis-sell.

Q156 John Robertson: Why can they not switch back then without paying the £30 or their £60, depending on which company it is?

Audrey Gallacher: I think Ofgem have brought in some new rules about when termination fees can be invoked, but I think that is just one example of how the complexity of the market has changed over recent years where you have been getting increasingly complex tariffs with mechanisms attached to them that are going to stifle competition, such as exit fees. What has been quite promising in the last few months is that we have seen companies coming out with fairly decently priced products that do not attract a termination fee. That is something that Ofgem should be looking at in its retail market, with a view to what are the characteristics of the tariffs and how these are working against consumers and the competitiveness of the market.

Q157 John Robertson: If I am switching to another company, how long should it take me or how long does it take me to switch, to get away and to get signed on with a new one?

Richard Lloyd: It varies hugely and it depends on whether you are switching to a small supplier or a bigger one with more modern systems. To go back to your point about switching-

Q158 John Robertson: Before you do that, what kind of time are we talking about? Is it days, weeks?

Ann Robinson: Six to 8 weeks, but Ofgem are proposing to reduce that time.

Q159 John Robertson: My background is communications and I remember delay happening a lot, with BT in particular, on how long it took for somebody to press a keyboard at both ends. Is it the same for energy companies, it is just a keyboard operation?

Audrey Gallacher: There are a whole series of industry data flows.

John Robertson: Eight weeks’ worth?

Audrey Gallacher: It cannot be justified and you get a lot of criticism, especially from new entrants, that the data quality within the market is just so shockingly bad that it takes a long time and there are lots of manual workarounds. There are big aspirations that smart metering is going to sort all this out, but of course that is a number of years away and we have the position at the moment where we want the best possible marketplace for consumers.

Q160 John Robertson: So if I make a phone call I can expect it to be done there and then?

Audrey Gallacher: Yes.

Q161 John Robertson: Should we have an independent body or something like uSwitch who were very helpful to me when I was giving them a hard time the other week? Should we have somebody like that who takes ownership of that switch for us?

Ann Robinson: We do, in one sense, almost do that for people when they use our site, and I think all the other price comparison sites do exactly that. We like to say that our site is mostly a public service site, because over 90% of people just get the information that they need. Then we have the switching service, and if people use the switching service then we do follow up to make sure that everything goes smoothly and we take some responsibility for making sure that happens in a smooth way.

Richard Lloyd: We operate a phone service to support people who are switching through Which? Switch as well.

John Robertson: I interrupted you.

Richard Lloyd: You did, and thank you for letting me come back. On this question of effective switching, as Audrey says, Ofgem themselves have found that some 40% of people who switch, switch to a worst deal and do not get a better price. You have probably seen in the supermarkets now that there are lots of intermediaries selling tariffs, trying to persuade people to switch on behalf of some of the bigger suppliers. We found that the assumptions those salespeople were making would very often lead you to a potentially poorer deal. For example, they will assume you are on a standard tariff, and we have found them time and time again assuming the tariff that you are already on and your consumption levels and sometimes even where you live. They were making very big assumptions which will affect the quality of the advice you get about whether your switch is to a better deal or not. So it is not straightforward and it is not straightforward again, as Audrey has said, because of the complexity of the market that people are trying to move around in. So simplification and easier comparison between tariffs is part of the answer.

Q162 John Robertson: One last question. DECC have said that they see collective switching as a positive thing. What do you think about that? How do you organise something like that and who should do it?

Richard Lloyd: Which? ran the country’s biggest collective switch earlier this year. We had nearly 300,000 people sign up to take part.

Q163 John Robertson: Does that mean that 45% of the people that you managed to get to switch are now worse off?

Richard Lloyd: No, it doesn’t. What we did, and this is the thing-

John Robertson: There lies the problem, you see.

Richard Lloyd: We had to do it in quite a complex way, because we wanted to protect people against potentially moving to a worse off deal by checking firstly whether the deal we negotiated collectively with the new supplier-the winning supplier in that situation was the Co-Operative-but we also ran every individual’s details against the whole of the market and we said, "If you switch through the collective switch to the Co-Op, this is what you will potentially save, but we have checked the whole of the market and we found potentially for some people a better deal elsewhere. You choose". We did not want to mislead people that there was only one better deal for them out in the market for their circumstances.

Q164 John Robertson: I thought about trying to do something similar for my own constituents, and then I thought that if this turns pear-shaped, I know who is getting the blame for it.

Ann Robinson: I think collective switching is a good idea. We are certainly now involved in it, but we are involved with a number of different partners. For example, we are working with the local authorities in Cornwall, with the Eden Project-we have loads of partners working together. Our ambition there is not just to get the cheapest deal out there for everybody, what we are looking for is to help everybody who needs one to get a better deal. So it may be somebody, for example, who hasn’t been able to use a computer to compare the market-it is more tailor-made to individual circumstances to try and help people. That is why we are working with a lot of partners out there. There are different formats for collective purchasing that will depend on circumstances, but I think it is a way forward to reach people who would normally not get the advantage of a better deal.

Q165 Dr Whitehead: Collective switching appears to be taking off to a great extent, and certainly there are indications that a number of local authorities and various other groups may well be engaging in either local collective switching or national collective switching campaigns of various kinds next year. The various energy companies appear to be taking a position of, shall we say, lukewarm participation at best in potential auctions and, at worst, statements of general non-participation in any auction that might arise from the collective switch campaign. Do you think that is a trend that indicates that energy companies may be seeking to snuff out collective switching or do you think the idea that what appears to be the bottom line for a lot of companies is they might participate but they will not go below what they consider to be their best available tariffs under any circumstances? That may still have some value in terms of drawing people’s attention to good tariffs but will not go any further. Does that suggest a rather muted future for collective switching if that type of scenario becomes real?

Audrey Gallacher: We saw with the collective switching initiative that Which? ran that there were lots of suppliers who opted out and were publicly quite vocal about doing so. I don’t think it is a huge problem in that if these are companies that cannot come up with a competitive offer then you wouldn’t anticipate that they would take part in the auctions, and the ones that won it were the ones that did have the market leading deals at the time. So that is probably to be expected. But I think if we are going to take this seriously, and it is going to be developed in any meaningful way, then Ofgem probably have to come out with some proper guidance on what the expectations are, how collective switching fits with current regulation and whether current regulations fit in a world where we see collective switching. We agree it is a good opportunity because what you find with consumer engagement is that it’s not necessarily the lack of information or the lack of tools to engage in the market, people just simply don’t want to and if there is a trusted intermediary there, a third party, that can do the hand-holding or do the leg work then that might be a vehicle to get people to participate in the market who otherwise wouldn’t have done so. It is a good idea and it is in its early stages, but we certainly need to do more and I think there is a role for Ofgem and some proper guidance.

Richard Lloyd: I think you described the situation quite well. Even with nearly 300,000 potential new customers some of the bigger suppliers just outright attacked the Big Switch, others did engage and we spent weeks and weeks negotiating behind the scenes with all of them, explaining what we were doing, showing them the system, explaining how the reverse auction would work at the end. We did everything we could to make it as easy as possible for as many suppliers to take part as possible. Obviously we wanted an intense competition right at the end. It was only the Co-operative Energy on the day that made a bid that was a market-leading bid. What were the reasons for that? I think you are right that some of the bigger suppliers see this as a big threat potentially. If there is a trusted intermediary who can, as smoothly as possible, switch and help people-even if it is not to a market- leading deal but the best for them deal, as Ann was describing-that is quite a potential challenge to the big incumbents who have been lazy. That is the potential power of this and the ability to engage with lots of people. We spent a lot of money going to shopping centres and talking to people face to face, signing them up, signing people up over the phone. We did not just do it on the internet, deliberately to try to reach more vulnerable people. As I say, ultimately we switched 38,000 people, together they saved more than £8.5 million. But we found a lot of those people who were engaged with us in that process were on terrible old tariffs that were miles away from even the existing market best.

I think our expectations were we would certainly help a lot of people, we hoped we would move the market. We did, very marginally, but in the end we had to make compromises to enable small suppliers to take part. Obviously the Co-operative Energy just couldn’t cope with potentially 150,000 new customers overnight. We doubled the size of their business in two weeks through the Big Switch.

Q166 Dr Whitehead: Now they have decided not to participate in further switching campaigns.

Richard Lloyd: Well, we’ll see. I think the question is how can you adapt that model in ways that would engage more people and challenge the big suppliers, in particular, in a harder way. It is probably more of a local authority or perhaps a housing association based initiative. I think a national collective switch is a tough thing to pull off. We did it but we took a lot of flak for it and I think we proved the model but it is probably one that is better applied on a more community based approach.

Q167 Sir Robert Smith: You certainly engaged more people than would have normally been involved in switching. Did you vet in any way for loss leaders being offered?

Richard Lloyd: Absolutely. The rules are really clear. The contract between Which? and the suppliers that participated meant they had to comply with all of Ofgem’s licence conditions, one of which is loss leading is not permitted.

I have to say just on the regulatory environment for collective switching, Ofgem were lukewarm in their endorsement of what we were doing, and we have talked to them about this and we have talked to DECC about this as well. If the Government and Ofgem want to promote this kind of approach, they need to be less equivocal about whether this kind of activity is permitted within the existing licence conditions. They were not clear about that and that wasn’t helpful.

Q168 Sir Robert Smith: One other thing that Ofgem are looking at is whether they should set a standard tariff on the standing charges being set or regulated by Ofgem and the competition on them. How do you feel about that?

Ann Robinson: I will pick that up. The one thing for certain that we want to get rid of is the existing two-tier unit pricing. That was brought in largely when the old standing charge disappeared in the early 2000s, and that was the way in which the companies then could get in the money to cover the costs and so on-by heavily loading the first unit prices. That has been one of the big complications. The awful thing about that is that the higher user you are, the more you benefit because of the cost of the last unit, so that was really bad news. I think replacing that with a standing charge and one unit price is the right idea. I would prefer no standing charge at all but, obviously, I have to look at it from the companies’ point of view, it would probably be unfair because even if you use very few units there is some cost involved in running that account. Having said that, I was quite keen on Ofgem’s original proposals, which were for a low standing charge because a low standing charge helps low users, a high standing charge helps high users. For that reason my inclination is for a very low standing charge, because at least there is some ceiling on the standing charges.

Audrey Gallacher: I think we agree that there should be elements of fixed cost associated with providing the supply and that should be recovered in a fair, equitable and transparent way. I think there is an issue about what is in the standing charge. There have been a lot of concerns expressed about whether or not Ofgem should physically set it and whether that would politicise energy prices and whether it would cause more problems than it would address. But I think we definitely have to come out and be quite clear about what should be in that standing charge, and there should be a degree of uniformity, even if they don’t set the actual price. One of the things that we are particularly concerned about, and Ann has alluded to it, is that we don’t want environmental and social levies on a household basis in a standing charge, it has to be on the unit price. That is because there is a broad correlation between income and energy use, and if it is in the standing charge then we are going to find a disproportionate amount of low income consumers paying a lot more than they need to. It also works against the principles of polluter pays and some of the behaviour changes that we are looking for. It also sets us up for some difficult questions if Ofgem move to a tariff comparison rate-when you are comparing tariffs you are likely going to find that high users are getting a cheaper price, and that might not be something that is palatable when we are moving into a time when we want to encourage consumers to reduce the consumption. It is quite a complex issue; Ofgem have a big job on their hands.

Q169 Sir Robert Smith: One final thing, quite a lot of my constituents are on Total Heating Total Control from Scottish Hydro Electric with the dynamic teleswitching controls when there is bad weather forecast and price of electricity controls when they get their high charge. It seems that while the tariffs and switching is controlling the main tariff no one is willing to take on those customers, so I think this time their tariff has gone up by more than the general increase.

Audrey Gallacher: It has been a long-standing problem for those consumers. Because of the metering configuration and because of the dynamic nature of the remote switching, there hasn’t really been any viable alternative competitive offering for them, and that has generated lots of complaints. Hopefully, as we move into a smart metering world where we see increasing development of time-of-use tariffs, these customers are going to get a better offering. But it probably points to a situation where people who are trapped and cannot switch are being subject to some of the worst prices, whether that is because they physically cannot switch because of the tariff they are on or because they are massively disengaged, i.e. loyal customers being punished for staying where they are, and that is the real issue that we have. It was alluded to as predatory pricing or loss-leading tariffs. There is a real issue in this market where, potentially, the most vulnerable, lowest income, loyal customers are cross-subsidising-to a fairly substantial extent-people who are well engaged and probably don’t need the savings as much as the people that are paying for them. So there is a big issue about the fairness across the market.

Q170 Sir Robert Smith: Do you think there is a solution in smart metering?

Audrey Gallacher: I think it will likely bring more scrutiny on price and the range of pricing. Richard mentioned some of the tariffs that some consumers are on, and there have been some moves towards putting cheapest deals on the bills, so alerting consumers to cheaper deals.

Sir Robert Smith: I was thinking more of the Total Heating Total Control.

Audrey Gallacher: I think it is a difficulty because nobody is prepared to come in and-

Q171 Sir Robert Smith: Should Ofgem try and link into other tariffs?

Audrey Gallacher: In the past, we have approached Ofgem because there is a licence obligation on suppliers to offer customer terms and if they don’t do that they are in breach. But what we found is that there is no obligation to offer half decent or comparable terms so you could get a deal but it would be insanity to take that deal up. It is an issue that has been worked on for a number of years and still no solution has been found. Of course, it is a significant proportion of customers who are paying the most because they are in all-electric households, probably in fuel poverty, and could really be doing with a bit of a deal.

Q172 Chair: Just going back to one of your earlier points. You said that switching tariffs may not be the best indicator of a competitive market, what do you think would be a good indicator?

Audrey Gallacher: There are issues around the quality of the switch, where people move into a better deal, and I repeated the research that showed us that 40% figure to ensure people are getting an effective switch. But there are also issues about those hardest to reach customers, so analysis on the configuration of the market share is important-understanding who are the customers who have never switched and why, and what price are they paying. Obviously, we have issues with the whole structure of the market and whether it allows scaled new entry, clearly it doesn’t, we can see that. There is quite a lot that we could do in order to make the market more competitive. I think we have to be a bit more sophisticated on the indicators that have been viewed on this, it can’t just be switch numbers.

One of the issues we have is that Ofgem have come out with a retail market review and is trying to encourage increased consumer engagement and improve comparability of better customer information. But it has not really set out what the success criteria for the retail market review are, so how are we going to know if this has worked-especially if there is quite significant change that is going to bring with it a cost, a cost that would ultimately be borne by consumers. So, I think we are looking at Ofgem to also give us a bit of understanding of what a more competitive market would look like or what a successful retail market would deliver for customers.

Ann Robinson: Could I have a quick stab at this? First of all, just going to back to Audrey’s comment about 40% being worse off, that was the case and a lot of it was selling on the doorstep, and the worst case was selling pre-payment tariffs on the doorstep, but that I think has changed quite a bit since doorstep selling has gone. The competitive market and the change between companies has to be a key indicator. But another key indicator, I would suggest, is how hard the companies work to retain the customers they have. How hard do they work to make sure that people who are with them are on the best possible tariff? I think that is important too, so I would like to see a second metric introduced so that everybody is aware of the best tariffs that the companies offer and let’s see how the movement goes.

Q173 Sir Robert Smith: There is a lesson there from other entities, because if you phone BT with a problem they have a quick look at your tariff and say they can offer you a better deal than the one you are on.

Ann Robinson: Exactly. Maybe I am wrong about this, but I believe that if people become aware of the fact that there is a better deal within the company, and they are given that better deal, it may make them a bit more savvy, so they begin to compare the whole market, and that would be the thing to go for.

Q174 Christopher Pincher: First of all with respect to effective switching, I have been trying to switch from British Gas to Atlantic, which is part of SSE, for the past four months. That does not seem to me to be particularly effective switching. In the battle to keep bills down, the flip side of effective switching and a more competitive market is energy efficiency and both DECC and the Committee for Climate Change have said that the way to offset the rising bills over the next several years-as commodity prices go up, as subsidies for green energy kick in-will largely be done by more effective and efficient consumption of energy. CCC figures suggest that there will be a 19% reduction in electricity from more efficient appliances and an 8% reduction in gas consumption through loft and cavity wall insulations. DECC is a little less optimistic. Do you think that those views are realistic?

Audrey Gallacher: We are quite concerned about some of the claims that are being made on reduced energy costs as a result of product policy, because it is not really taking in the distributional effect. There is also a big question because we are banking the savings that have been made from these profits and energy bills but we were not featuring anywhere how much these new products are going to cost, whether consumers can afford them, and how quickly they replace appliances. I think a bit more analysis needs to be done on those figures and we have asked quite a lot of questions about whether that product policy is, in fact, going to deliver the degree of savings that it is promising, and certainly what the distributional effect of that is going to be. There is a real worry that low-income consumers are not going to be replacing appliances at the rate that we would anticipate to see these savings.

Richard Lloyd: I was going to say it in a more macro way. I think the assumptions behind those kinds of projections include transformation of the degree of customer engagement with energy efficiency programmes, with the whole demand management piece-the ability and the willingness of people to reduce their consumption. This is why your inquiry about the engagement with market is so important. If people are disengaged in the market, if they do not trust what the suppliers are telling them, if they do not want to let them over their doorstep to give them free loft insulation-for example, at the moment E.ON are offering people £100 for a lead to give away CERT scoring energy efficiency measures. I think there is a degree of unrealism at DECC about just what it is going to take to transform that consumer engagement with energy efficiency. That obviously has pretty serious implications for assumptions about how the cost of policy and the movement of prices generally are going to affect the customer.

This is why we are saying, for example, the Green Deal seems wildly optimistic to us. We would all like to see people taking on the more expensive end of energy efficiency, but are people seriously willing to take on debt to do that, especially given the way that it has been set up at the moment? Would you trust an energy company to come and sell you a loan when you probably trust them less than a banker? Are the energy efficiency subsidies, solid wall under ECO, being directed at the right places? I think there are some very big questions to ask of DECC about their assumed understanding of where consumers are in this and how that is going to translate into the offsetting of price increases, either as a result of decarbonisation costs or wholesale prices in the round.

Ann Robinson: We have surveyed people over a number of years on energy efficiency to find out what their attitudes are and the evidence that we get is that people do not understand what they can do, how to go about it, a lot of people think they are already doing enough and there is no more that they can do and they are just worried about it, they don’t know where to start. People put out high level information, all the figures that you mention-I disagree with Richard on this point, because I think there are bits of the Green Deal that are going to be really good, firstly, the assessment. Having an assessment you can trust that tells you what your efficiency rating is but also tells you what measures you can do to improve it. That is the first thing that matters. The second thing that matters is going to be the Green Deal mark, the quality mark, so that if you have work done by people who have this mark it is going to be good quality work, done safely. I think that also matters. By the way, if you need any help there is the financial package at the end. I believe that once that is out there an awful lot of people will then start to have a look at energy efficiency with a bit more confidence because they are going to get a good assessment. They know what they have to do and they are going to be using people who are going to do it well. I think that could transform the whole market, so I am very positive about Green Deal. Whether or not people take the financial package, I think it has huge potential.

Q175 Christopher Pincher: Do you think there is any evidence that people are changing their behaviours, either because of high prices or because they know that there are energy efficiency packages on the table?

Ann Robinson: No, I don’t think they are. Last winter, for example, we did a survey to find out how people were behaving. Do you know what was happening? 80%-odd of people were rationing their energy, and a very high percentage of people turned the heating off at some point during the winter. So the behaviour is not energy efficiency, it is switching the heating off or whatever, serious rationing, and that is a major concern.

We have done a large survey that shows that when bills hit £1,500 a year, almost 40% of people said that they would switch off their central heating or their heating altogether. Now, I ask you, isn’t that a dreadful situation to contemplate?

Q176 Christopher Pincher: Do you think people do that because it seems to be the easiest and simplest thing to do?

Ann Robinson: Exactly, they understand that. They understand that: switch the heating off, the bills will be lower. On energy efficiency, they don’t know what to do, they don’t know how to handle it, they are a bit worried about it. Again, it is another confidence issue.

Q177 Christopher Pincher: If we accept that a lot of people are saying they have done all they can, and there is a gap between what they say they can do and what you know they can do, what can be done to bridge that gap?

Ann Robinson: Do you know what I think? DECC now have this Office of Energy Efficiency and they have the Green Deal and all the rest of it. We need a very high profile consumer education promotion of all the things that can be done. If that Office of Energy Efficiency in DECC isn’t doing that, then I don’t know what they are there for.

Q178 Christopher Pincher: Who should do it?

Audrey Gallacher: We have the new energy saving advice line. In the first part of the session we spoke about consumer engagement in the market, switching and competition. We are a bit disjointed in how we approach this whole market because we have first-hand advice coming from Citizen’s Advice on changing supply and market engagement and we have a separate Government help line, the Energy Savings Advice line, that advises people on Green Deal and energy efficiency. I think we have to make sure there is an holistic package. Whether it is different organisations or agencies funding and delivering this, it doesn’t mean that we can’t join it up, that we have proper referral mechanisms in place, that there is a concerted consumer engagement plan that is coming out centrally, that there is a consistent message from all the organisations like the ones sitting here, that we are giving consumers a consistent message about what they can do both to engage in the market, to save money, but also energy efficiency advice, measures, behaviours, those kind of things.

Q179 John Robertson: I understand what you are saying about energy efficiency and everything else that goes along with that, but I have housing in my constituency-and lots of MPs have the same kind of housing-where the buildings are made of concrete blocks. The concrete blocks are heated up in the winter and they cooled down in the summer if possible, and when they switch their heating off they are hoping that the building will keep the warmth in but then it gets cold and they have to spend part of the cost in reheating buildings to make their dwelling warm enough to live in. I am not a great one for introducing tariffs, but is there not a place for a tariff for housing that is known by the local councils as being unable to be made in any way energy efficient? Those houses could receive a lower tariff that would allow them at least to have the opportunity to have smaller bills because the only thing they are going to do, as Ann says, is they are going to switch off the electricity. The blocks will get cold quickly and then when they switch it back on they will have to spend all the extra money in heating up the building again as opposed to getting the heat themselves? Is there not a place for that?

Ann Robinson: Can I just pick up that because you have raised a very good question on where we are going on the future and all the high costs of energy and so on. I believe that this issue, and certainly fuel poverty, shouldn’t be a driver of the energy policy going forward but the impacts of it on everybody should be taken into account. There needs to be a really good strategy for dealing with a range of things. This is one, John, that you have just mentioned but there are other things as well. Certainly we do know that of the people who are in serious trouble, who cannot afford to keep warm-in depth we are talking big problems-a lot of them are on means-tested benefit and although energy companies have the warm homes discount and all the rest of it, it doesn’t go far enough and it is not big enough. Again, is it fair that the energy companies should pick up all of this? Maybe the Government needs to think across the board about what the strategy might mean, including, for example, where people are on some sort of credit, giving additional payments just to help them handle their energy needs.

Q180 John Robertson: The strategy is, of course, to get rid of the housing and introduce new stuff that is energy efficient. I know in Glasgow, in general, we are knocking down a lot of these big tower blocks but that is going to take a long time and with the best will in the world, if we have another winter like we had a few years ago we are going to be in the same situation where unfortunately people will die.

Audrey Gallacher: As Ann says, potentially the short term answer is that we have better targets in the price support measures that are currently available, that they are targeted at the people who really need it rather than the scattergun approach that we have seen up until now. There is definitely more that companies could do with their trust funds and application of social tariffs, but it is about understanding the customers and putting a proposition in place that is going to work.

Richard Lloyd: Just on the point about who people will believe and trust when they hear about energy efficiency messages and offers, it is clearly not the major energy suppliers-they proved that through their struggles to deliver the existing schemes. I think the Green Deal remains to be seen. Ann is involved in this from a business point of view and is likely to be positive about it, I am more sceptical about it simply because of the reliance on those same big suppliers that people do not want to engage with in helping to deliver the scheme. In the end we need to find ways of introducing more trusted intermediaries, probably local authorities, into driving energy efficiency schemes. We need to link it up with housing policy. It is not just about retrofitting old stock, this is about where we are going. Any current housing developments are far more energy efficient but do we have genuinely integrated energy efficiency programme across CLG and DECC? What is it that we can do to ensure that there is more of a community based approach? Is it too premature to end CERT and CESP and move to ECO and the Green Deal when those programmes have not been properly completed? I think there is a big question mark, as I said before, about not only the assumptions that DECC have made about what they are planning to do, but also about seeing through what has been started. If you talk to the suppliers privately many of them will say on things like smart metering and energy efficiency that they would much rather work with trusted intermediaries on a community basis than on this free-for-all approach. The Green Deal will, I think, exemplify this but DECC are trying to encourage it.

Ann Robinson: Can I just say I don’t have any direct business association with the Green Deal and one of the things I do think is that it is going to happen, so we have to make the most of it and we have to make it work. It is too important for it not to work.

Q181 Sir Robert Smith: Do you not think, Mr Lloyd, that one of the positive aims of the Green Deal is to bring into the market more trusted suppliers that are used to dealing with other retail functions? Do you think it will encourage them?

Richard Lloyd: I hope so. In the end we all want to see more energy efficient stock. Certainly, in the consumer testing we have done, people are very suspicious of getting into further debt to make their homes more energy efficient, even if they are persuaded by the assessments. I think the mechanism through which you would test whether this is working for you or not-your energy bill-is going to be the problem, and the suppliers know this. They are integral, whether it is B&Q or any other non-energy company that is involved in providing the products, but in the end your measure of whether this is working for you will be the bill that you get and whether the cost is being offset in that. That is the problem that the suppliers are going to have to grapple with. I think it is a big challenge.

Q182 Chair: We are running out of time because we have another panel we need to see. We have five minutes to deal with three more questions, so can I plead for very concise answers. Just one brief question on smart meter roll-out. What do you think the main issues are here? For example, are you concerned about whether there is a danger that interoperability will become a problem? Do you think the smart meter roll-out may be an opportunity for people to sell other things that are not necessarily so desirable? What are the issues here?

Richard Lloyd: For us, the number one issue is the cost. What is going to constrain the cost? DECC’s answer to that is competitive pressure between the suppliers will constrain the cost. I think we have all heard enough this morning about the lack of competitive pressure on the suppliers that are involved in this. On interoperability, yes, there are moves to put that in place. At Which? we have been encouraging suppliers to sign up to a "just installing not selling" promise because, again, we do not want to play into that mistrust of suppliers problem by people having smart meters installed and then being sold other products. In the end, the question mark over the programme for us is what is genuinely going to be put in place to protect consumers from the cost of this programme ballooning? The kinds of scenarios you can easily imagine would be the costs spiralling because of the number of visits that a supplier will have to make to install one meter.

Ann Robinson: For me the big issue is people understanding what smart meters are and what they can do and feeling comfortable with them. Again, it is a big education publicity programme. One of the things that worries me is that what the companies may do is they will obviously have a programme of exchanging old meters for the new smart meters, and it may be that, after that, smart meters are based on the deals, on time-of-use tariffs and so on. So you will get some early adopters and you will get some people who are right at the back end of the line for it. The people who are right at the back end of the line-who can benefit the most because they need to understand their end use and make savings and so on-may be the last ones to get smart meters, and I think there is a lot of suspicion about it. If you want to use smart meters as a way of changing behaviour and making savings and so on, we need that programme early on so people know exactly what those meters are capable of doing for them.

Audrey Gallacher: I think the big challenge is that consumers are adequately protected during this roll-out and that they can achieve the benefits of smart meters. Given the way we are approaching it, there is a real danger that that won’t happen because we won’t have the co-ordination, we won’t have effective consumer engagement, and we have lots of evidence coming through from Consumer Direct that already there are problems with interoperability and the ability to use the supplier, and that is not really going to be resolved until 2014. So there is a big danger that the programme gets a bad reputation before it is even off the ground. That said, I think DECC have a comprehensive work programme in place for the roll-out, but we are not helped by the fact it is a supplier led roll-out where ideally it should have been led by the distributors, which would probably have addressed quite a lot of those challenges around interoperability and consumer engagement in community based roll-outs. There is a real worry, as Richard said, as the costs are fairly significant and the business case rests on consumer behaviour change and there is not really any guarantee that we are going to get that delivered in the current regime.

Ann Robinson: Can I just say very briefly, I don’t think the costs are just about consumer engagement, I think there is an awful lot to be said for the smart grid and a lot of the efficiencies that can be made are in local balancing mechanisms and the savings are probably as great, if not greater, through use of smart grid.

Q183 Dr Whitehead: We have talked quite a lot about Green Deal on and off this morning, I just wanted to concentrate briefly on the question of interest rates, repayments, the Consumer Credit Act and the issue of early repayment charges, and also the issue that I understand is now coming forward of the extent to which mortgage companies may require house sales to be clean, that is not with a debt hanging over the sale. Do you think these issues, as far as the future of Green Deal, are what we might describe as killer issues or can they be resolved in order to bring Green Deal forward, or do think they are perhaps a deeper structural problem in terms of the particular way in which Green Deal has been conceived?

Richard Lloyd: I think you are right that the finance dimension of the Green Deal is probably the killer and we have asked people, "At what point does your interest in the Green Deal vanish? At what interest rate would your interest in the Green Deal vanish?" Homeowners say that at an interest rate of 4% or above only 12% of homeowners are interested in taking up the Green Deal. It falls to 7% of homeowners at an interest rate of 6% or above. So it is a critical part of people’s decision making. We have been pressing DECC about early repayment fees. They have said that to encourage entrants into this new market they need to give businesses the freedom to charge those. We think they are striking the wrong balance here, that they need to put the customer first in this programme, otherwise it will not take off to the extent that they have assumed.

Audrey Gallacher: I think we agree there is a real worry that in any house sale there is going to be a requirement to clear the debt, and if early repayment charges apply that could have consequences further down the line for Green Deal take-up. But having said that, I think there are quite a lot of structural issues around the finance mechanism and the consumer protection regime that need to be sorted out. If it is helpful we could submit some information that we have already submitted to DECC on the issues that we think need to be tackled, because there is still quite a few of them.

Ann Robinson: My understanding is that some of the issues related to the financial package are still to be worked out, and that, in fact, the financial package is not going to be out until 28 January.

Q184 Dr Whitehead: Is it your understanding they have been taken on board to the extent of possibly considering recalibration of the scheme or further secondary legislation or what, because this is now upon us, isn’t it?

Ann Robinson: I don’t know. I was with the Secretary of State the other week and I know that this is being worked out but I don’t know what angle is being worked on.

Dr Whitehead: I would certainly value the further information on that.

Audrey Gallacher: It is our understanding that secondary legislation would be required to address some of this. Obviously, we are mindful of the fact to some degree of regulatory certainty for businesses that want to start operating in this market but that can’t be at the expense of consumer protections, especially if it is going to be critical for affordability in the coming years that consumers are able to make their houses more energy efficient. So I am certainly happy to send you that note in.

Q185 Dan Byles: So consumers are bombarded with information, they don’t necessarily understand it, even if they are a maths professor, and they probably don’t believe it when they are told it because most of the people giving this information have some sort of a vested interest. So what is the answer to that? Do you think there is a case for an independent one-stop shop-some sort of a single organisation that has a mandated independence so that we know it is not part of a vested interest-in order to provide impartial information?

Ann Robinson: There is some information that has to be part of the deal of being a customer of a company-you have to have clear bills, you need annual statements. In terms of the more general stuff, to an extent the price comparison sites like my own fulfil that role. We are accredited. We are accredited by Audrey’s people to make sure that we are delivering against certain principles and against certain rules. So I think we are part of the answer.

Dan Byles: That’s a good pitch.

Ann Robinson: Yes, I know, I am quite good at that. But one of the good things that has been happening, and what we have been seeing over the last few years, is the number of people using price comparison sites, so the number of people switching, has been going up. It has not gone up enough but, yes, we see ourselves very much in that role.

Q186 Dan Byles: Do you think the evolution, if you like, of price comparison sites is an example of the free market effectively solving the problem? You popped up as part of the free working of the free market saying, "Your energy companies aren’t giving you the information you want so we’ll do it, come to us".

Ann Robinson: Well, yes, certainly when it comes to the switching bit, but we are not actually able to give people the information and the confidence in order to be able to exercise that choice.

Q187 Dan Byles: Is that because you can’t get access to enough information? If you had access to more information about wholesale pricing and that sort of thing, would you be able to offer a better service in terms of comparison information?

Ann Robinson: We would be able to offer a better service if customers could opt to say, "Yes, we want uSwitch to manage our energy for us and get us the best deal every year". That would be a very different proposition. We can’t do that at the moment but if you are asking me to say if we could do that-yes, we could-and that would make a difference.

Audrey Gallacher: I have already mentioned we are in danger of this proliferation of helplines and websites, almost as many as we have tariffs-I am being flippant-the Energy Services Advice Line is providing energy efficiency advice; we have Citizen’s Advice providing first-hand advice on energy complaints, heating advice; and we have the Home Heat Helpline that is funded by the warm homes discount. We have a whole array of different phone numbers, and even more websites. There is a massive challenge ahead of us in terms of improved consumer engagement, massive behavioural change, roll-out of smart meters, take- up of energy efficiency, and I think it is really time that we look at rationalising some of these and doing it in a more cost-effective way. A one-stop shop for consumers, it is an easy message, it is one phone number, it is one website. You can have lots of people feeding into it. But I just think the way that we are going with this ever-increasing number of helplines is not really going to help consumers. You want to be able to give them a fairly consistent message.

Q188 Dan Byles: As long as it is not yet another addition to that mix. As long as it is a genuine one-stop shop where people can go and it is the only place they need to go, you think there could be an argument for it?

Audrey Gallacher: Yes.

Q189 Dan Byles: Do you agree?

Richard Lloyd: I would agree with that. In the past people have floated the idea of one single super-switching site, so you know where to go-an Ofgem regulated and endorsed super-switching site.

Q190 Dan Byles: That is the opposite of a free market approach, you are not allowing the switching sites themselves to demonstrate to the customers that they are the one you should come to because they do the best service, the Government should pick one. Have any switching site you like as long as it is this one.

Richard Lloyd: That is the opposite and, personally, I would not support that, not least because-just to add to Ann’s pitch-Which? runs the only country’s not for profit energy switching site, Which? Switch. I think there is advantage certainly in the volume of communication to consumers about the options available to them in this market through more private providers, like us, being engaged in this. But I think on the information and simplicity of the communication to customers there is a huge job for the suppliers still to do and that should be driven by Ofgem. I think Audrey is absolutely right, I don’t have a number, but if you looked at all the state-funded advice lines and organisations that are doing some part of the piece of this overall picture then there must be some rationalisation available. But personally, I wouldn’t support that going to an organisation that isn’t solely focused on the energy market. Throwing it into a portfolio of the likes that Citizen’s Advice have to deal with seems to me to be the wrong way. There must be some efficiencies and some simplicity for the consumer in knowing where to turn to in tidying up this messy landscape.

Q191 Sir Robert Smith: Can I just ask one very quick and short question? All we have been talking about is domestic consumers, but in many ways this applies to small businesses and convenience stores, and solutions need to be found for them as well as for the domestic consumers.

Ann Robinson: Absolutely. In fact in many ways solutions for them are more urgent than they are on the domestic side because they do not have that regulatory underpinning.

Q192 Chair: Thank you very much. We have covered a lot of ground, and that has been very helpful. Thank you for coming in.

Examination of Witnesses

Witnesses: Mr Christian Hunt, Editor, Carbon Brief, Mr John Swinney, Public Sector Business Development Director, Carillion Energy Services, and Ms Faye Scott, Head of Research, Green Alliance, gave evidence.

Q193 Chair: Let’s just start on smart meters, if we can. We are up against a bit of a deadline, I am afraid, so we need to move rather more swiftly. Can we start on smart meters and perhaps, particularly, the Green Alliance has done a lot of research on this. Could you just give us, very briefly, your main conclusions?

Faye Scott: Yes, we focused on the consumer engagement challenge that they present. I think the first thing to say is that we welcome the recognition that there is a need for a certain amount of central co-ordination of activity in consumer engagement in the form of a central delivery body, which the Government has proposed. That is something we have advocated as needed in relation to things like the Green Deal as well. But there are two key areas in relation to where we think there is probably need for improvement or further thinking. One is around the remit of the central delivery body, because while there is a consumer engagement challenge that is quite logistical and practical about getting smart meters into people’s homes and their understanding why that is happening and necessary, the smart meter programme is only successful if it ultimately delivers reductions in energy use through behaviour change. That is exactly where the central delivery body can add huge value in the consumer engagement by building that story around energy use-why we are having smart meters, what is the bigger picture and what opportunities it presents for consumers to get to understand their energy use better and to reduce their bills through changed habits. There is a risk that the central delivery body-because it will be largely populated by suppliers-will end up having quite a narrow focus, really still focusing on logistical challenge and forgetting the bigger picture that is essentially the central aspect of what the consumer engagement strategy has to deliver.

The other area where we have put proposals forward is in relation to capturing the benefits of a regional approach to consumer engagement. We absolutely recognise that the smart meter roll-out is supplier led, it is not a regional roll-out, but thinking through the way we do consumer engagement offers an opportunity to capture some of the benefits that a regional roll-out would have delivered. In particular, it will really enable civil society engagement, in which, as people have referenced earlier, the need to build trust and confidence in the smart meter programme is really vital. Civil society groups have an essential role in that, and expecting disparate groups across the country to be ready and able to respond to queries about a quite complex programme over the course of six years on a drip- feed basis is quite a big ask, whereas if you are rolling out your consumer engagement in a regional way it offers you the opportunity to do quite in-depth awareness raising with civil society groups in a given place over a defined period of time. You can work with local media, you can work with local authorities, and essentially build the levels of awareness and momentum around the programme that you simply would not be able to achieve if you were doing a national campaign running over six years. You just couldn’t get to that saturation level point across the country. We think that would reap benefits in terms of the levels of installation you would be able to secure, because people would be hearing about this opportunity from different avenues and are more likely to look into it during a focused bit of attention on their area than they are if they are only going to be getting quite dispersed messages from a national level campaign and then individual comms from their energy company. Also, that context provides a better context in which to talk to people about not just the logistical and practical aspect of smart meters but the behaviour change elements, because you are going to have a lot of stakeholders involved. We have found that suppliers-while reluctant to share their roll-out plans for essential body to actively co-ordinate-have said that if the central delivery body were to decide to pursue a regional consumer engagement strategy, it would absolutely make sense for them to take advantage of it and to say, "Okay, they are going to be in the south-west for that period, we will identify and target our customers with our own messaging at the same time". So it seems to be an approach that has some buy in, but from the interim documents we have seen about the evolution of the consumer engagement strategy, it doesn’t seem to have been getting that much attention and thinking. It is in a list of quite big questions that remain to be pursued. So thinking about how to capture those benefits is one of the key recommendations we have made.

Just finally, people have also responded quite well to the idea of a smart town pilot, which would be similar to what the digital switchover did in Whitehaven. It is was an opportunity to rigorously test both the technical aspects of the switchover but also to refine the consumer messages and make sure they really worked for people, so that once you were then rolling out overall you had confidence that they worked. We appreciate the timing for that would be challenging because you would be looking at doing your pilot next year, which is quite a tall order. So those are the key aspects we have looked at in terms of strengthening the consumer engagement and particularly capturing the behaviour change aspects of it that are so essential.

John Swinney: Can I just add something? We are down to the last Birmingham Energy Savers project, which you may or may not know, but one of the things that will be in our final submission is that people who get Green Deal get a smart meter of some sort or other, and linked to that people will also get a carbon reduction discount card. So if you are beating the golden rule, you get points that you can then spend on other energy efficient products. It is just an idea, but it is all about supporting the behaviour change thing, which I think is more important than almost anything else in all this.

Q194 Chair: Do you think the concerns that may or may not be well-founded that some people have expressed on behalf of the consumers about health or data protection or costs and so on, are they being addressed by the suppliers and by the Government?

Faye Scott: I think at present no one is really geared up to address those in a consistent way. We have seen in other countries concerns like this absolutely derail smart meter roll-out, so it is vital that they do get addressed properly. Again, referring to Digital UK, from a very early stage they had an almost shadow version of their delivery body actively responding to and rebutting, where appropriate, any scare stories in the media because they will happen and they can take on a life of their own very quickly. What we would advocate is that as soon as the central delivery body gets set up, an active part of its remit is to start actively putting out useful information and being quite proactive about getting positive stories out into the media so there is not a vacuum in which negative stories just can grow and grow.

Q195 Dr Whitehead: The perception of the heavy involvement of energy companies in the Green Deal and ECO, I think might be characterised by some people as a group of highly trained foxes coming to insulate all the neighbourhood hen houses. That may be unjust, but is that something that could affect the success of Green Deal, that extent of perception allied to value involvement and that reliance on those companies in order to guide people through the Green Deal process?

John Swinney: Shall I start? We are obviously an independent in that sense; we are not an energy company. One of the big selling points that we have been pushing as we have gone around the country talking to people about Green Deal is that independence, and there is no doubt in our view that ourselves, and a number of other relatively large businesses, should benefit from the fact that we are independent and that we are not seen in the context that you have just described. So I think that is quite important.

One of the other things that is clear to us is that around ECO, the energy companies seem to have, or are keen to have, a series of partners who will deliver those projects for them rather than their being seen at the front end. That, to be fair to them, is a recognition of how they are perceived by people in the marketplace. I think there are some things happening that will mitigate against that, I don’t think it will go away, but they are mitigations in that sense.

Faye Scott: We have also focused on trying to mitigate that risk because it is a real one, thinking about how you would do the consumer engagement around the Green Deal. Again, we would advocate quite a high level national campaign that gives consumers the confidence that the Government has initiated this, there are broader reasons for it, it is not just your energy company suddenly trying to talk to you about using less energy, which does create suspicion. Also, it is also a matter of undertaking the consumer engagement in a way that actively brings in both independent companies of the kind that John is talking about, but also civil society groups and local authorities very actively that are already much more trusted voices and sources with information to citizens on a wide range of issues.

Q196 Dr Whitehead: There has been a similar debate on the extent of take up of CERT, particularly as far as measures that are apparently free to the consumer is concerned. Is that in your view a function of that distrust of energy companies, i.e. "An energy company is offering me something free, it can’t be true"? And does that then, in your view, reflect on the extent to which Green Deal may be taken up or do you think the issues that we have already raised this morning on interest rates, issues relating to saleability of property with a debt hanging over it, and possible early redemption charges associated with that may be a much larger concern in people’s minds? Or maybe perhaps not such a large concern?

Faye Scott: There is a mix of things that will get in the way of a consumer finding the Green Deal an attractive offer. I don’t know the degree to which mistrust is the reason that consumers have not taken up the opportunities that CERT has provided them. There are questions about the degree to which they were actively promoted and explained to people, but the Green Deal is, as discussed, quite a complex financial offering. Financial questions are only one barrier and one of the things that prevent people undertaking energy efficiency improvements to their homes. Again, we have a whole report that sets out how we think consumer engagement can overcome some of the many other barriers about trust. Coherent messaging can overcome the confusion that will play in to what prevents people seeing it as an attractive offer. The complexity is a concern.

John Swinney: The big issues for us are local authorities. They have a key role to play in Green Deal and, in the main, that is who we are looking to partner with to deliver Green Deal. Even though CES was very much local authority driven, I don’t think CERT was done on the local basis that it needs to have been. The other bit is local, and we are rethinking the whole way we deliver our services around Green Deals so that we are using local businesses, because once of the big issues that comes out in most of the research that has been done around Green Deal is trust, which is similar to what you are talking about with some of the energy companies. No one trusts more than the local small businesses that you have used to change your boiler for the last 20 years, so that is where we want to do that engagement. We want to engage with local hairdressers, off licences, and corner shops because we think that is a better way of getting into communities than some of the things that we have traditionally done-so micro-businesses, small SMEs, we will not be delivering any of this ourselves. We will wrap around them our financial muscle and all the quality assurance but we think you have to get really local to make Green Deal work.

Faye Scott: Yes, and all of those stakeholders were missing in the CERT process. They will add value.

Q197 Dr Whitehead: You have considerable experience of precisely these sorts of trust issues and getting very local, so would you say that is an absolute sine qua non of getting in to the next stage of Green Deal or are there other approaches?

John Swinney: There are other approaches and you will have your early adopters who will do things just because they believe in it for whatever reasons. But if you are to build the momentum that is required to make Green Deal a success, or any other energy efficiency programme, ECO as well, you have to find ways of engaging with a lot more people than one person here and there, which was always part of the problem with Warm Front. It was a pepper-potted piecemeal type scheme. What I would hope would happen with Green Deal is you will be able to concentrate on streets and roads and communities and build that momentum. Our experience, for example with free solar PV, was once you had half a dozen people in a street taking it up, everybody in the street wanted it. Once it was being talked about in the local paper shop, everybody said, "Well, why can’t I have that?" There is a big part in this about getting local and generating that momentum.

Q198 Dr Whitehead: The Government has suggested that for smart meters there should be a central delivery body. Do you think that would be appropriate for Green Deal and ECO, to have some central body which might co-ordinate and validate these approaches?

Faye Scott: There will be a quality mark anyway that it is assured by Government, so to a degree there is that central stamp on it. But, yes, we feel that in relation to the communications and awareness raising, there is probably a strong argument for some level, not absolute that is all there is, but some level of central communication. Otherwise a lot of businesses are going to not call it the Green Deal, they will be talking about it in different ways, and it just won’t necessarily add up to consumers, in their minds, as being the same thing and part of a big initiative that is quite exciting and has potential to transform their homes for the better.

John Swinney: Where we are doing things in partnership with the local authority, for example in Birmingham, they will provide that check as well. So the issue is how we integrate all that and make sure it is not confusing to everybody because B&Q will want to do it their way, Tesco will want to do it their way and so on, and there will be the energy companies selling Green Deal packages directly over the phone. You are going to have a whole mismatch of different ways of Green Deal being taken forward so something that sits somewhere across all that would be useful, in addition to the accreditation and all that. It is probably communications more than anything.

Faye Scott: Yes, it is and most energy suppliers are very keen on some central aspects of communications because they worry themselves about the trust issue and whether it will undermine their opportunities. As one consumer you could have maybe five or six different people targeting you about the Green Deal, because it will not just be your energy company in the way it will be for smart meters.

Q199 Christopher Pincher: You may have heard some of these questions from the previous evidence session, but we talked about switching, we talked a more competitive market as a way of helping consumers reduce their prices. But the flip side of that is more energy efficiency, reducing their energy costs I should say. DECC and the Committee for Climate Change have both suggested that energy efficiency is a way of offsetting rising energy costs up to 2020. The CCC suggests that with energy efficient measures, household bills might be about £25 more expensive in 2020 than they were in 2010. DECC is being a little bit more optimistic, only suggesting that there will be a price fall. Do you think that those expectations are realistic? Do you think that the energy efficiency measures that have been brought forward and public engagement with them are sufficient to reduce the cost of energy?

Faye Scott: You mean things like The Green Deal and the smart meters? It remains to be seen, because I imagine we will be successful in getting smart meters in everyone’s homes, I would hope as the logistical element. But securing people’s active engagement with their energy use and reducing it, is the big unknown and is why the way we go about consumer engagement is so important. We feel that if it is communicated in the right way people will understand the opportunities and they will get engaged but we can’t make any big assumptions about it and it is also very hard to quantify.

John Swinney: The challenge is getting enough people to do it. That is the biggest thing and, as has been said this morning, people have been giving away things like loft insulation and paying people a payment on top and still not making it work. The challenge is getting people to do this.

Q200 Christopher Pincher: You have quite a bit of experience in trying to get people to do it?

John Swinney: Absolutely.

Q201 Christopher Pincher: So what do you think is the best mechanism for engagement?

John Swinney: Go local. You have to get down to the grass roots. So you have to involve all sorts of community groups, faith groups, a local pub, whatever it might be, you have got to get as local as possible. I think if you don’t, you are never going to drive that take up. As I said, you will always have your early adopters, they are almost a given, but it is everybody else who you have to get to. It probably needs more national support and national campaigning from the Government than is currently evident or there, that is important. There does need to be some Government backed marketing campaign as they did with the digital switchover. But it is at a local level, and every local authority needs to take responsibility for some of that as well. Lots of local authorities, lots of housing associations still have no idea what they are going to do about Green Deal, they haven’t made their mind up at all, and it is round the corner.

Q202 Christopher Pincher: Why is that? Why have they not made their mind up?

John Swinney: Some of it is to do with the fact that there is still a lack of clarity in certain areas about what it is. Some of it is about local authorities not being clear about what their future role should be. The people in Birmingham and Manchester and the London boroughs, Bristol, Norwich, they have all gone on and gone for it, but a lot of other places just haven’t and they are just not sure what they should be doing or not be doing. There is a big bit in there about procurement as there always is with anything to do with the public sector, do they procure people like us-as Birmingham have done-or because it is directly to private householders, can they avoid the procurement rules? There are issues like that.

Q203 Christopher Pincher: Okay. If your diagnosis to make this work and to make the take up as great as possible is to get down to individual communities, my supposition is that it might take some time because you have to seep it out into the tentacles of community, rather than roll it out in a top down approach. That being the case, and that seems to be what you are accepting, do you think that it is therefore possible, by 2020-which is only seven and a bit years away-to make the sort of cost savings that DECC suggests or to put a cap on the cost increases that the CCC suggests, in that we would expect energy prices to rise?

John Swinney: My view is that it will happen quite positively in some parts of the country and not in others. So the places that are taking the lead, be they local authorities or whatever, that is where you will get a lot of activity and a lot of action. There will be lots of places where almost nothing happens, and it will all go back to the energy companies and trying to sell to their customers. That is how I think it will happen. How that impacts on the 2020 targets, I am not 100% sure. Some places will make very good progress and some places will make virtually no progress.

Q204 Christopher Pincher: What then are the drivers and the motivators for those individual places that are going to make progress to make the progress? Is it a geographical issue? Is it a political issue?

John Swinney: It is leadership, isn’t it? Some places see themselves as leaders and some places see themselves as followers. What will happen is that you will see the Birminghams of the country taking a lead with their energy savers project and gradually everybody will follow. No one likes to go first in that sense, so you have that whole thing about people gaining confidence in the process. It will pick up pace but it will be very slow to begin with.

Q205 Christopher Pincher: Given that you have also said that there needs to be an umbrella structure to support these local, and in some cases, very local groups and organisations to push this deal out there, what organisation do you think is best placed to lead that because, as you might have heard from the previous evidence session, the view was that it is not the role of the energy companies?

John Swinney: That umbrella organisation is securing and ensuring and quality assuring the actual activity on the ground. The installation and the process should be a mix of organisations but the energy companies will be part of that, so will organisations such as Carillion and so will B&Q and Homebase and all those. You can have a mix of those organisations. If you are talking about there being an umbrella body, which was talked about earlier on around things like switching and that sort of thing, that is a different thing from getting the delivery done on the ground.

Faye Scott: In a way it is about the approach that different providers take. Wherever Carillion is operating, they are going to go in with this local approach and put significant time and investment into it. It is basically encouraging that kind of approach, and where people have tried to do a steamroller roll-out, then advocating the value of deeper local engagement. But most suppliers and those who are interested in being Green Deal providers do recognise that it is necessary, but often it is an environment they maybe have not had to interact with much yet. It is quite a challenge, but most people are aware of the value of pursuing that route, but they are just ready for it to different levels. DECC has commissioned a community guide to the Green Deal to try to gear up the grass roots from their end as well.

John Swinney: We have some ideas around creating community energy trusts which then could get into collective switching and doing all that. I am sure all the other companies that intend to play in this space will have their innovations and ways of encouraging take up and behavioural change, so you will get some innovation in this market place very quickly.

Q206 Christopher Pincher: Just on the topic of behavioural change, Greg Barker made a speech recently where he suggested-and I hope I am not putting too many words into his mouth-that there are clearly positive benefits of people changing their behaviours with respect to being much more energy efficient, but that might also result in some negative behaviour. Say you save some money by installing cavity insulation or using your smart meter, but then you spend the money saved on a flight to Spain which has other consequences for carbon output. Do you think that that is a real challenge and if it is, do you think there is a way of meeting it?

Faye Scott: There are two things I would say briefly on that. First of all just to direct you to some research being done by RESOLVE (research group on lifestyles, values and environment) at the University of Surrey. They are doing extensive study on the rebound effect, trying to quantify it and think about how to mitigate it as well. But, again, I sound like a broken record, it comes back to consumer engagement because if you are simply talking to people about, "We’re trying to put a smart meter in your house", or, "We’re trying to get you to insulate your walls", it is totally understandable that it does not seem illogical to them to then use that saved money to go to Spain, or whatever. Whereas if it has been pitched to them as part of a bigger effort for the UK to make itself energy secure for the future-and we are all part of that effort, our homes are important in it-it creates a much stronger context in which people will think about, "Well, why have I made this saving?" It then makes the disconnect between what you then spend the saving on become much more apparent, whereas if you have only talked about it in isolation and on a purely financial basis there is no reason they would not see that as something they have every right to do.

John Swinney: It is the thinking behind this carbon reduction discount card, so if you were going to then spend all your money on the plane you would lose points. Whether it will work or not I don’t know, but it is trying to provide an incentive for people to behave across the piece in a more carbon friendly way.

Faye Scott: Yes, reinforcing good choices.

John Swinney: The right behaviours.

Q207 Sir Robert Smith: Mr Hunt, if you could outline what the Carbon Brief organisation does and, in particular, the research you have been doing on homes that green policy measures impact on domestic energy bills when it comes to media coverage?

Christian Hunt: Sure. Carbon Brief, which I run, is an organisation that has examined the energy and climate coverage in the media in some detail over the last couple of years. As part of that, we have looked in particular detail at how the media reports energy bills. Overall, I would generally characterise media coverage of the topic as fairly confused and there is a significant amount of coverage that is inaccurate and misleading.

A particular example of that that we have looked at very closely is media coverage that has misrepresented, over-inflated the effects of environmental policies on consumers’ energy bills. We have won three PCC complaints against the Mail group over their coverage of the issue, and they have printed three corrections about overinflated figures. But we find that getting PCC complaints is quite a time consuming process and once inaccuracies have been introduced into the debate they live on, so they are repeated by other media outlets or they have a life of their own online.

We have also found that coverage of this issue has been very polarised and that polarisation is more extreme in comment and editorial pieces and reflects across energy coverage as a whole. Renewable power is either good or bad, gas is either expensive or cheap, energy efficiency measures are either going to work perfectly or not work at all. That is the degree of polarisation that you see. We have found that seems to create a pressure to find facts which fit stories rather than the other way round. Unfortunately, as we have just been hearing, in this area there is a range of expert opinion. There is a significant degree of nuance on much of these questions and based on our research some of the media is not doing a particularly good job of communicating that. In relation to this session, in my view, that is likely to make it more difficult for consumers to understand and engage with energy markets, particularly if some of the changes that are being considered are on the horizon.

Q208 Sir Robert Smith: From your experience is there anything that could help in the way the Press Complaints Commission works in future, or will it be just one of the realities of a pluralist society that in the debates strongly held views are put in the most robust way?

Christian Hunt: Sure. If you look at the PCC editors’ code of conduct what they say is the press should take care to not make inaccurate or misleading statements, and this very much what this is about. I would completely support the right of media organisations to campaign on issues, to take whatever line they think, but it should be within the bounds of factual accuracy. Looking at our experience, obviously there is a wider issue with the Leveson Inquiry which has turned up many of these issues. It seems clear to me that the PCC is failing to hold media organisations to account on this issue.

Our own experience was around a very clearly inaccurate figure. It was a figure which was double Ofgem’s estimate of how much you pay for environmental policies. That figure was used enthusiastically by the Daily Mail. In order to get a correction for that we had to write many e-mails over a series of three months. There is no reason why you would do that unless you were a particularly devoted individual or you were doing it as part of your job. Obviously, by the time the correction is published the world has moved on somewhat.

We can see there are some structural failings in the PCC process. They may be around resource, they may be around the role that regulation plays in the press. I don’t necessarily have answers to that but it will be interesting to see what happens when the Leveson Inquiry reports back.

Q209 Sir Robert Smith: I suppose the reality of meeting deadlines and rushing to produce the next day’s copy, you scan and-unless you have a very robust filing system within the organisation that links the correction to every time the mistake has been made-then there is a risk of sub-editors just grabbing the information because it has been published.

Christian Hunt: That is right. That might also lead to thoughts about how prominent correction should be. The correction that we secured, one of the corrections was on page 4. It was a couple of centimetres squared and I think it ran to 56 words. This was against a front page article and the repeated use of the figure in other articles and editorials. We were told that that was a relatively prominent correction.

It obviously was not prominent enough for the Mail on Sunday because they reused the figure eleven days later. If even newspapers within the same editorial group are not spotting this, as you say, it suggests that there is a failure of process, but to me it also suggests that there is not enough care, that taking care over these kind of things is not something that is valued highly enough I guess.

Q210 Sir Robert Smith: Just generally, I don’t know what all the panel think, but we had a survey done where only 5% of those surveyed thought that investment in renewable energy was the main contributor of rises in energy costs between 2004 and 2010. Do you think despite the media coverage is it necessarily changing public perception?

Christian Hunt: It is interesting that that ended in 2010. There has been a big push on this story over the last year or so. I was thinking about this, we have not done engagement with the public, we have not done polling on this issue, but thinking about where, as a consumer, I get information about what I am paying for on my energy bill I don’t get a great deal of information from Government, I don’t get a great deal of information from the power companies. The information on a bill is very limited. Energy bills have been a constant topic in the press over the last couple of years, and this idea that it is green policies that are driving rises has been a very prominent theme for certain newspapers. To me it would be surprising if that was not affecting consumer beliefs. But it would be an interesting piece of research to do to look at what newspapers people read and map how their attitudes change across these issues.

Sir Robert Smith: What about the other panel members?

Faye Scott: It is not something we have looked at in detail but it is particularly timely to think of it in relation to the smart meters because, as Christian said, these things can take on a life of their own. You only need a couple of bad stories about a programme or a new initiative and that is what sticks with people if they see it on the front page of their paper-more than once on some occasions.

John Swinney: As we have been going through the dialogue process with Birmingham, that is the consistent thing-we must not have any bad stories early on. We want good stories, quick wins and then it will all work. It is slightly naïve but there is a huge amount of truth in it.

Q211 Chair: Just picking up on what you said, Mr Hunt, about some of the inaccuracies-trying to be as objective as possible, not always easy when it comes to these issues-but is it fair to say that the inaccuracies tend to be of a sort that support the campaigning stance of the publication concerned?

Christian Hunt: That would be fair to say, yes.

Q212 Chair: So it does suggest some lack of editorial objectivity. Once they have decided they are campaigning on a particular issue, they may then be inclined to present facts in a somewhat slanted way.

Christian Hunt: In terms of what causes it, there is probably a combination of reasons. Certainly, having a strong editorial line on something can encourage those kind of mistakes. There are realities about the resources that newspapers have these days with shrinking numbers of specialist correspondents and less time to write stuff that probably contribute to that as well. There is a grey area where you do not need to present stuff flat out inaccurately, you can find the facts to fit your case.

There is one example that I will just relay to you, which was a story where the Committee on Climate Change had released a report looking at the impact of Government policies on energy bills, and the headline that was written off that was, "Electricity bills to rocket by 25% because of green targets, say Government". Well, obviously the CCC are not the Government, but more fundamentally that 25% figure was taken from an annex of the report which dealt with non-typical households where the heating was entirely electric powered. That is less than one in ten households in the country. That fact was not mentioned in the report. I would be hesitant about going to the PCC in relation to that because I am not sure if the PCC would have enough nuance themselves to be able to make a ruling on that, but you can see that is the technique.

Q213 Chair: Carbon Brief has suggested that there should be a neutral arbiter whose role is to communicate issues about prices to consumers rather than leaving that to the Government or the industry or some of the NGOs or whatever. Do you have an idea of who could take that role on?

Christian Hunt: We see a clear need for unbiased, clear, public-facing information on the kind of things that get discussed in the media. It would be nice to believe that there could be a neutral arbiter that everybody would trust, that could lay out the law and people would listen to. The issue is one of making information very clearly available-in part to journalists so that they can use it to inform their reporting and so that there can be an easy reference point to kind of check these stories.

In practice, as people have kind of talked about in this session and the session before, there probably needs to be a more general effort around trying to improve the energy literacy of consumers and that will have to come from Government. It will have to come from Ofgem, who fulfil some part of that neutral arbiter role at the moment in relation to providing information. It will probably have to come from different levels of community organisations and all that kind of stuff. It is a very challenging job to do. We can see that it might be useful to have a neutral organisation, but exactly how that is set up or how you encourage people to trust it, that is perhaps beyond my expertise.

Q214 Chair: You have also suggested that DECC’s statements sometimes may have led to confusion among consumers, particularly where they say that bills will be 7% lower than they would have been otherwise.

Christian Hunt: Sure.

Q215 Chair: How do you think DECC should try and communicate those kind of messages?

Christian Hunt: Well that is an interesting example because if they say, "Household bills will be 7% lower than they would otherwise be without our policies", which I think was the quote, I would take away from that that bills are going to fall. That would be what I heard. If you look at the analysis, you see that in real terms bills are going to go up whatever and, perhaps more importantly, the DECC assessment says that two thirds of households will pay more because of Government policies, so not less because of the effects on fuel poverty. When that goes out into the media debate-because you have a substantial chunk of the media that just do not believe that energy efficiency is going to work at all and because DECC’s figures rely on assuming quite optimistic things about energy efficiency-the media is free to report that as, "Government says bills will go up massively", at the same time the Government are saying, "Your bill is going to come down". That is the message people hear. It is not surprising that consumers get confused.

There is a challenge here for Government, which is if we accept the weight of opinion that bills are generally going to go up for whatever reason that has to be communicated to consumers somehow. That is obviously not an easy message for a Government press office to put out, particularly when it may feel that it is under attack from sections of the media, but that is what needs to happen.

There is a slightly wider issue here which is Government relies on the media a lot to put messages out, and in such a polarised debate that can create a structural weakness in communications ability. When you are talking about policies like energy efficiency, to a large degree their success, or otherwise, will be determined by what people believe about them. If people believe that they are going to fail, or that they are just a way of raising taxes, then that is likely to degrade their ability to have an effect.

Q216 Chair: Looking more widely at the way in which the media deal with the big energy companies-and sometimes when prices rises are announced they are not exactly holding back on that either-do you think sometimes that the big energy companies are unfairly demonised in the media?

Christian Hunt: Rising energy bills are of concern to people and there is a desire to find people who are to blame, whether that is Government or whether it is energy companies. Now, again, I don’t know whether energy companies have been profiteering or not, that is beyond my expertise. But you can see that they get a certain amount of stick from the media over this issue.

At the same time it is important to recognise that energy companies play the media like any other organisation, so SSE as part of their recent price rise put out a statement saying that it was, in part, due to green policies. Again, I don’t to what extent that was right or not. I haven’t looked at that in detail, but they are as adept at managing these situations as anybody else. But whether they are unfairly demonised, I am not sure.

John Swinney: It is quite interesting, with rising prices you would think that people would better get the whole thing around energy efficiencies, but because the energy companies do often blame some of the green policies as one of the reasons why. There are a lot of disconnects in all this-it is like when anybody starts to moan about energy and everything else, like MPs for example-that has a negative effect on the whole energy agenda and the whole green agenda. We are all guilty of playing different games with all this and somehow or other you need a consistent message going across everything, which would be a positive message that would get people to say, "Hang on, we have to do something about this".

Q217 Sir Robert Smith: In the face of rising bills people want to be seen to be doing something.

Christian Hunt: I would say that over time that disjoint is very evident in certain newspapers that will publish front page articles saying the green policies are a waste of money and costing you far too much, and then throughout the rest of the paper will have articles saying, "Cut your energy bills by switching power companies", "Insulate your home for free", "Invest in solar panels on your roof". There is no awareness that that set of articles might in some way be linked to the things that are being denounced on the front page.

Q218 Chair: Finally, do you have a view about how Ofgem, and/or DECC, should communicate about the big energy companies given that they are almost now the number one, or number two, hate figures for many consumers?

Faye Scott: I don’t have a view on how they should communicate about the energy companies specifically, but it is about where the energy companies fit into the picture. You just said people want to be seen to be doing something when consumers are facing rising bills, and the Government is doing quite a lot as far as a strong suite of policies that are going to be reaching consumers over the next few years. There is a real story to tell about the opportunities they present, and in the process to maybe enable energy companies to be rehabilitated to some degree. But it is about where all the stakeholders fit into this bigger picture, which is currently missing. That positive narrative in the media particularly it just is not there.

John Swinney: It is not joined up. Everybody is knocking everybody else if they get the chance to, as opposed to everybody saying this is where we have to go, this is the direction of travel and we all have to get behind that. To be fair, we are having lots of discussions with them at the moment about the transition from Warm Front to Affordable Warmth. Can we provide a safety net for the first year of ECO? There is no doubt that some of the energy companies are looking at things very differently. Some of them are not, but some of them most definitely are and they have got the message at the top of the organisation that somehow or other they have to become much more customer facing and customer focused. Now whether that will translate itself into different ways of working I don’t know, but you do get that sense of that is the message. That is a positive note.

Chair: All right, okay. Thank you very much indeed. A very interesting session.

Prepared 13th December 2012