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

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Energy and Climate Change Committee

Consumer engagemenT with energy markets

Tuesday 30 OCtOber 2012

Sarah Harrison and Andrew Wright

Rt Hon Gregory Barker MP and Rachel Crisp

Evidence heard in Public Questions 219 - 376

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 30 October 2012

Members present:

Mr Tim Yeo (Chair)

Barry Gardiner

Albert Owen

Christopher Pincher

John Robertson

Sir Robert Smith

Dr Alan Whitehead

________________

Examination of Witnesses

Witnesses: Sarah Harrison, Senior Partner for Sustainable Development, Ofgem, and Andrew Wright, Senior Partner for Markets, Ofgem, gave evidence.

Q219 Chair: Good morning, and thank you very much for coming in. As you know, there is a great deal of interest in this subject, perhaps even greater than we could have foreseen two weeks ago, but it is all healthy and I hope for the benefit, a lot of it, of consumers. Could I begin by asking you how the new RMR proposals from Ofgem, which will require suppliers to give customers personalised information on the cheapest tariff that they offer them, compare with the Prime Minister’s announcement, two weeks ago, that energy companies, "Will have to give the lowest tariff to their customers"?

Andrew Wright: First of all, thank you very much for inviting us to appear here today. We certainly welcome these sessions and the input that you provide. Let me start by highlighting the Retail Market Review, the RMR, proposals. The objective of the RMR proposals is to improve consumer engagement in the market in order to ensure that consumers, making good and active choices between suppliers, will hold those suppliers to account in terms of prices and in terms of customer service. We have identified a number of obstacles to that happening effectively, not least that consumers find the market confusing and they lack trust in the market and confidence in being able to improve their offering.

The proposals that we put forward were designed to make the market simpler, clearer and fairer. In terms of simpler, it is a question of simplifying the tariffs that are available and putting a cap on the number of tariffs in the market. Clearer, in making sure that customers know whether there are better deals available for them and included in that is the proposal you referred to around ensuring that customers are aware of the cheapest deal or told of the cheapest deal that is provided by their supplier. Fairer, in that we are putting in place new standards of conduct that will require suppliers to treat their customers fairly in the market.

The proposal that we are putting forward is one where suppliers are required to tell customers on the bill, on the annual statement and when they increase prices, whether there are any cheaper deals available, both of the same payment type and of any payment type. Our proposal goes no further than making customers aware of that in clear and intelligible language and signposting where they can act on that information if they want to switch to the cheapest deal. As far as I understand-and it is fair to say that we have not seen the full details of the Prime Minister’s proposals-the key difference appears to be that whereas our proposal effectively requires the customer to opt into a switch, there will be an element of the customer opting out of a switch in the Prime Minister’s proposal-in other words, that customers would be switched on to that cheapest deal unless they chose or opted out of that switch. I think that at the highest level is the difference between the proposals.

Q220 Chair: Just for clarification, your proposals would not need a change in the law. Do you have the authority to make those changes without any legislation?

Andrew Wright: Yes. Our intention is to make these changes through amendments to the supply licence. It is worth saying that the companies have the ability to appeal those licence changes, in which case it will be heard at the Competition Commission.

Q221 Chair: In the present state of public opinion, I think the companies would be out of their minds to appeal against what seems to me wholly reasonable proposals. Just to be absolutely clear, it looks as though what the Prime Minister has suggested is going to require measures to be introduced into the Energy Bill-so far not yet published-and therefore subject to all the delay that involves. Your measures would be implemented through, you say, the licence arrangements. How quickly could those be introduced?

Andrew Wright: On our current plan we are looking to come up with the final proposals for statutory consultation in the spring of this year and, assuming that no company appeals, then we would expect those to be in place by July. On some of the proposals, particularly ones that require changes to the companies’ systems, we may need to give an additional implementation timeframe, but I think we said in the document our ambition is to get this in place ahead of or by the next winter.

Q222 Chair: Supposing you do all that and then the Energy Bill is passed with provisions that give effect to what the Prime Minister has set out: does that make what you are now doing in the RMR proposals redundant?

Andrew Wright: As I say, we have not yet seen the details of that. We very much hope that we will have the opportunity to work with the Government to make sure that any proposals that they put forward in legislation complement rather than conflict with our proposals. In the discussions we have had with Government since then, that is certainly their objective as well.

Q223 Chair: Is it your view that if the Prime Minister’s proposal was introduced, that would kill competition, as Ann Robinson has suggested?

Andrew Wright: We have not yet seen what these proposals are and I think there are lots of details yet to be worked out. It is a significant intervention and would need to be constructed very carefully, and part of that assessment would need to consider the impact on competition. We hope that they put in place proposals that align with our proposals and support the same objectives, and our objectives are to enhance competition. Certainly, it is a matter of getting consumers on to the best deal for them, but it is to do that in a way that enhances competition because we believe competition is the best way of ensuring consumers get good value for money from this market.

Q224 Chair: Looking at your proposals, if the supplier sets the standing charge but different suppliers set different standing charges, doesn’t that still make it rather difficult for the consumer to compare what he actually might have to pay?

Andrew Wright: Yes, it does. I think we have made it absolutely clear that we think that there are things needed over and above simplification of the market. Customers tell us very clearly there are too many tariffs in the market and those are too complicated. We are taking important measures that build trust and confidence to reduce the number of tariffs and simplify those tariffs, which will help people not only choose the best deal for them but also to understand their bills, understand their tariffs and have greater confidence that they are paying the right amount of money.

We have always taken the view that we need to go further. That is why in our original proposals we suggested the regulating of the standing charge for variable tariffs, which gave the "at a glance" capability. In these proposals, important parts are the supplier cheapest deal proposal that we have already talked about. On top of that, to replace the "at a glance" capability, we are putting in place what could be an even stronger measure. We are trialling a proposal that every supplier will have to tell their most sticky customers and their most vulnerable customers about the best deal for them across the whole market. That will address this additional requirement that I think you have correctly identified.

Q225 Chair: Yes. It is quite a protracted process. You started this before the end of 2010, didn’t you, so it is going to be almost three years by the time anything actually happens.

Andrew Wright: Yes, it has been a long process, and this is a big and important proposal. I am not saying that volume is the only measure, but if you look at the amount of documentation that was published on Friday, about 300 pages altogether, including more than 70 pages of licence changes and licence amendments, you can see that an awful lot of work goes into these proposals. We also have to consult fully. The consultation period is 12 weeks, effectively a three-month consultation period, and we have to consider the outcome of those consultations very carefully. We have also backed up that consultation with extensive consumer research. We talked to thousands of customers to make sure we are addressing the problems that they find engaging in the market, and putting in place a package that will be effective. So, putting all of that together, it has taken longer.

On top of that, it is undoubtedly the case that we thought very carefully about whether the proposals we put forward in March were the right way forward and, as a result of the consultation and the further work we have done, we now have a stronger package that is both more effective and has less risk of unintended consequences. From that point of view, the process that we have undertaken since we last published back in December 2011 has been certainly worth while.

Q226 Chair: Is the TCR, the Tariff Comparison Rate, something that people are going to find robust and easy to understand?

Andrew Wright: The Tariff Comparison Rate is important on two fronts. One is it is important as a prompt. It is something that we hope will be present on advertising material, on the bill, on best buy tables that may appear in newspapers, and will enable customers to compare, to get some indication of whether or not they are on the best deal for them, looking across the whole of the market with a single, simple number. We do recognise that the Tariff Comparison Rate will not necessarily identify the best bill for every customer. It will be based on a typical customer, and if you have higher or lower consumption than the typical customer it will not necessarily be 100% reliable. The important thing is that it alerts customers to the availability of cheaper deals and for many customers it will provide a reliable indicator, so if that is all customers use to switch supplier it is likely they will get a better deal than they would otherwise get. We know that lots of customers will want to engage in that high level way without necessarily engaging in full calculation and in a full market search.

Q227 Sir Robert Smith: I should remind the Committee of my entries in the Register of Members’ Interests to do with the energy industry, especially oil and gas, and a shareholding in Shell.

If the companies were mad enough to decide to appeal, can you implement subject to the result of appeal or does it delay the whole process until the appeal is heard?

Andrew Wright: I am not a lawyer so if I have got it wrong we will get back to you, but my understanding is that the appeal would be required to be heard by the Competition Commission. The company could apply to the Competition Commission to suspend the implementation of the licence condition, so the Competition Commission will then make a judgment about whether to allow the licence condition to take effect or to suspend it pending their decision.

Q228 Sir Robert Smith: Is it that primarily, these proposals are about improving the market by increasing the simplicity of the market?

Andrew Wright: That is a really important part of it, yes. We have seen that there is a vicious circle in play in the energy market, where consumers have bad experiences. They find the market too complicated. They are not necessarily treated well by the companies in the market. That reduces their trust and confidence and makes them less likely to engage, which means that the competition works less effectively and there is less pressure on the companies to price keenly and improve customer service. So it creates that vicious circle that we are trying to break by requiring the companies to provide simpler and clearer tariffs.

Sarah Harrison: Could I add that there is another component of this package, which is really driving not only to assist with simplicity and clarity but also with more fairness, as Andrew has mentioned. That is the development and position of new standards of conduct, which would be licence-backed and therefore capable of being fully enforced and backed up by fines. This is a departure from the previous arrangements. Those standards of conduct are intended very much to look at it from the customer’s perspective, how they might expect a company to behave or to treat them-for example, not to sell them products that are not appropriate to those customers and to provide information in ways that are intelligible, legible and capable of being readily understood. Those principles will be baked into the standards of conduct and similarly then backed up by licence obligations. I think that provides a wraparound to the more detailed proposals around simplicity and clarity, and overall presents a package that not only offers the customer much more scope to access the market but also greater assurance that when they do they will be treated fairly.

Q229 Sir Robert Smith: Would there be remedies that would benefit the customer who has been let down, or is it more a punishment of the company to make them behave better the next time?

Sarah Harrison: You raise a very relevant point there, because at the moment the powers that are available to us, which would extend to the standards of conduct, are essentially to impose financial penalties. However, we have argued for-and we are very pleased that, with good grace, we will see in the Energy Bill-new powers to be able to award consumer redress. For example, in situations where companies fall foul of their licence obligations, not only will we have available the route to financially penalise them, where essentially those penalties go off to the Consolidated Fund in the Treasury, but also to require compensation to be repaid to customers who may be affected, or otherwise to require the supplier to take remedial action. We see that as a really important strengthening of the powers available to us in order to tackle failings where we find them.

Q230 Sir Robert Smith: In measuring the market, are we putting too much emphasis on measuring the level of switching between suppliers per year? Is that really an indicator of whether the market is working or not?

Andrew Wright: I think it is an important indicator. If consumers are not switching and engaging at all then it is difficult to see how a market could work effectively, so you do need some customers holding companies to account by changing their supplier. However, you are correct in saying we should not just focus on that single measure as a measure of success of our proposals. When we did the supply market probe back in 2008, one thing that came out loud and clear was a lot of customers were switching but many of them were switching on to worse deals because they found the market difficult to navigate and they were being, in some cases, misled by the marketing activities of the companies.

We will be looking at the extent to which consumers are engaged more broadly; are they aware of other offers available in the market; are they acting on that; are they moving to cheaper deals with their current supplier? We will be looking at the extent to which trust and confidence is being built in the market and whether or not consumers feel that they are able to act on that. We will be looking at the success of our specific measures such as the supplier cheapest deal and the market cheapest deal measures and whether or not consumers are acting on that information. Ultimately, what we want to see is that the pricing behaviour and the customer service of the companies are driven by competition and that we can be confident that the pricing is being constrained by customers switching from supplier to supplier.

Q231 Sir Robert Smith: Would it be better to look at the number of customers that have never switched as an indication of-

Sarah Harrison: Indeed we do. Part of the overall monitoring does include looking at what we call our consumer engagement tracker, which assesses and tests the views not only of people who have participated in the market but equally those who have not, for precisely the reason that we want to understand what the barriers are.

Andrew Wright: Another measure for success is that those consumers that do not engage, because there almost certainly will always be some, are not getting a significantly worse deal than those that do. We want to make sure this is a market that works well for everybody.

Q232 Sir Robert Smith: I suppose, yes, because perversely if companies were really trying to keep hold of companies that could be the sign of an effective market.

Andrew Wright: Yes, exactly.

Q233 Sir Robert Smith: Would some of the measuring, rather than concentrating all the burden on the shoulders of the consumer, start to look at things like market share of the companies and ability of new entrants to come in? Would that show whether the market was truly working?

Andrew Wright: Yes. Those are also important indicators. What we have seen over the last seven or eight years is a high degree of stability in market shares, no company particularly growing or shrinking their market share, and also we have seen relatively small impact from new entrants, although happily we are seeing the first signs of that changing. There has been a very significant growth in new entrant market share over the last couple of years. But absolutely, those high level market share dynamics are important indicators of whether or not competition is working.

Q234 Sir Robert Smith: From the point of view of the consumer, they are probably not that interested in the intricacies of market measuring. They want to know, will this make a difference to the price consumers in general are paying? Do you have a feel for the impact of your measures?

Andrew Wright: I think there are two things there. Consumers have interest at two levels on this. One is an interest that they are getting the best deal available for them in the market, the most suitable deal for them in the market, and, secondly, that competition is working effectively so that the efficiency, the service and the prices are being driven by competition. They have that high level and personal interest in this working well. In terms of what you think, in terms of the price effect, it is important to focus on the entire value chain here. I think there is around £5 billion of supply business gross margin-the profit and costs-so there is an awful lot to go for. If companies are more efficient at delivering the service and reducing their own costs, as well as there being pressure on margins, then there is quite a lot of value to go for here. Gross margins typically are around the 15% level, so that gives you some indication of how much pressure there could be on prices. It is also possible that competition could drive the ability of the companies to procure their power as well. One of the objectives of retail competition has always been that it will drive companies to be more efficient in the procurement of their electricity and gas.

Q235 Barry Gardiner: I want to turn to issues of vertical integration. Before I do though, could you just clarify something for me that arose out of the Chairman’s initial questions? Clearly, you are doing quite a bit of work at the moment to ensure that the Prime Minister did not misspeak, but as part of that work, I wanted to find out when you would be looking to put somebody on to the cheapest alternative tariff to the one that they are on. How would you discriminate between what is currently the cheapest and, if they are in a deal that is longer lasting and ensures a cap on their costs over two or three years, transferring them on to a deal that at the moment is cheaper but then loses the capacity to have their bills capped over a longer period? How are you going to discriminate between those two and judge whether it is in the medium-term interest of the consumer to effect that change that the Prime Minister has suggested?

Andrew Wright: Once again, we do not yet know the details of the Government’s proposals here, but I think you have hit at an issue that is at the heart of the policy design from here on in. It would be a concern, for example, if someone who was paying a modest premium for a green tariff, for example, was automatically switched on to the standard tariff. Similarly, I think the choice between fixed term and variable is one where a consumer may choose to pay a higher price in the short term to get the stability in the longer term. I think these are all issues that need to be considered and my understanding is the Government is fully aware of these issues. There are various-

Q236 Barry Gardiner: As it was announced, what the Prime Minister said could not be a solution that you would be able to implement fairly?

Andrew Wright: I think we share the same objective of ensuring consumers-

Barry Gardiner: We all share the objective that the consumer should pay the minimum.

Andrew Wright: -are on the deal that is best for them, taking into account price and other features.

Q237 Barry Gardiner: That is why I used the words "as announced", Mr Wright.

Andrew Wright: Yes. I am not here to necessarily justify that, but certainly my-

Q238 Barry Gardiner: I am not asking you to justify it. I am simply asking you to say whether, as announced, it is possible fairly and equitably to implement what was announced.

Andrew Wright: Not all consumers will be in positions where they necessarily want to be moved on to the cheapest deal with their supplier.

Barry Gardiner: Exactly.

Andrew Wright: My understanding is the Government is fully aware of that, and I would expect that any policy proposals that emerge would recognise that. One way in which that can be guarded against is providing customers with the opportunity of opting out of any automatic switch, and that does give a safety valve whereby there may be other reasons why the customer wants this particular product.

Q239 Barry Gardiner: On the contrary, I am sure that if somebody received a letter from their utility company saying that they are doing what the Prime Minister suggested, which is to move them on to the cheapest deal that was available to them, they would think, "Oh gosh, it must be in my best interests" and therefore they would not then override that automaticity.

Andrew Wright: As we know from the fact that many customers do not move to a better deal for them today, defaults are very important, which is why I think the Prime Minister has addressed this issue. It is a really important factor, addressing those defaults and making sure they work.

Q240 Barry Gardiner: Neatly termed. Shall we move on to vertical integration?

Andrew Wright: Yes.

Q241 Barry Gardiner: First Utility has criticised your mandatory auction proposals, as indeed have Good Energy. They said that the proposals will fall far short of the more than doubling of wholesale trading activity that is required, and indeed are likely to fragment rather than increase liquidity. How do you respond to those criticisms?

Andrew Wright: The first point is that we set out some clear objectives for our work on liquidity at the beginning of the process. One is to have good and effective short-term liquidity, which to a significant extent has been achieved, both by developments in the market and company initiatives. Secondly, it is to make sure that small suppliers like First Utility and Good Energy have access to the products and services they need to be able to compete with the incumbent suppliers. The third aspect of it is to ensure that there is good liquidity along the forward curve and good price discovery. That is important both for confidence in the market and for the needs of, I suppose, larger suppliers wanting to expand their market share and potentially large-scale independent generators.

Those are our three objectives, and in our latest view those objectives have not been fully met, so our current lead option is to press ahead with the mandatory auction. We are looking at ways to ensure that that is effective in building liquidity. I understand the concerns about fragmenting liquidity, in terms of, would this simply gather up liquidity and put it all in the auction? I know there are differences of views, ranging from people who think that proposal is going too far to people who think it is not going far enough. We are watching the developments in the markets closely. We are listening to stakeholders. We are considering alternatives as a part of that, and we intend to come up with our view later on in the year. So I think we recognise the challenge. One of the problems here is there is no easy solution to getting more liquidity in the market if the incumbents are not particularly willing to trade that. The idea, once again, is another example of trying to get the vicious circle moving in the opposite direction. The idea is that having mandatory auctions that people can rely on and trust will build confidence in the market and build liquidity between those mandatory auctions.

Q242 Barry Gardiner: That sounded to me as if your response to my question was, "Well, we have these objectives. They have not been achieved yet. We are pressing ahead but we do recognise that there may be some validity in the criticisms".

Andrew Wright: We have been out to consultation and we are considering all the consultation responses carefully. There are a range of views out there, and I think it would be wrong of us to dismiss those at this stage without providing more reasoning.

Q243 Barry Gardiner: Mr Wright, I respect that. That is fine but, of course, for as long as this goes on and is not resolved we are not going to get the structural reform that we need, and this has been going on for a heck of a long time.

Andrew Wright: I accept that, but I would also point to the really significant improvements in liquidity that have taken place over this period, largely or significantly as a result of the pressure we have been applying on the industry. The amount of short-term liquidity, which is important in its own right, has increased dramatically. There is still plenty to be done, which is why we are pressing ahead with our proposals. But we are looking at ways of improving those proposals and targeting them better and listening to the concerns of stakeholders, like the small suppliers, in that. Small suppliers are an absolutely critical stakeholder group here because the second objective is meant specifically to meet their needs.

Q244 Barry Gardiner: Yes, indeed. One of the suggestions that they have made is that you could increase transparency in the market by recording all trade volumes, prices and costs between trading parties and reporting them to a third party, such as Elexon, which could then publish reference prices based on the whole market. They have said that that would make the market more accessible to new entrants and it would help to improve liquidity. Do you think that is right? Is it something that you are considering?

Andrew Wright: Price discovery is an important part of that. It is an interesting proposal and we certainly consider all constructive proposals that come forward to us, including that one. We have had a range of ideas and proposals from the incumbents, from small suppliers, from independent generators, and we are considering them all carefully. Sometimes maybe these things take a while but, as you saw with the Retail Market Review, the process of consultation often results in improved proposals, and more effective proposals, and I would hope that would be the case here.

Q245 Barry Gardiner: You have just said price transparency is an important part of this and yet you have had the power to insist on greater transparency along those lines-well, you have always had that power-but you have not chosen to exercise it. What some people do not understand about Ofgem is that the range of powers that you have is really extensive but you have always seemed so timorous about using them. You come here and you say price transparency is important, and yet you have had the power to increase price transparency and you have not done it. That is why there is a lack of confidence that Ofgem has been doing its job properly.

Andrew Wright: I would obviously challenge that we have not been doing our job properly and-

Q246 Barry Gardiner: Is there price transparency in the market?

Andrew Wright: We are looking at-

Barry Gardiner: Is there price transparency in the market?

Andrew Wright: There is a degree of price transparency in the market. I think one of the reasons we are addressing this is a lack of liquidity along the forward curve, which means that you can’t have 100% confidence in the price discovery that is there, but there is price transparency.

Q247 Barry Gardiner: When did you find that out? As an organisation, when did you realise that there was not full price transparency in the market?

Andrew Wright: One of the key proposals that came out as a result of the Retail Market Review proposals back in March 2011 was to take action to improve liquidity along the forward curve.

Q248 Barry Gardiner: I thought you had realised it in 2008 with the probe that went into place then when you said that you might go to the Competition Commission and make a referral if you did not get action, but you did not.

Andrew Wright: The issue of liquidity is a longstanding one that has been around in the industry for a number of years. We are bringing forward proposals, and the mandatory auctions will in themselves provide discovery of prices. Their objective is to provide a point in time when there is an auction where there is an efficient price discovery resulting from it. I think it is worth bearing in mind that, although we do have powers to do various things, we have to make proposals and we have to consult on those proposals. What we do has to be proportionate and necessary and it is always subject to challenge. That is the normal regulatory process we have to go through. The fact that we have to follow that due process does not, in my mind, mean that we are being timid. I think it means that we are properly consulting and, as a result, I think the proposals we come up with benefit from that process.

Sarah Harrison: I wonder if I could come in on the point about use of power, which I think is an important one. It is a challenge obviously we have heard. To draw it out more broadly for the Committee’s benefit, we do absolutely look to use our powers, and I would remind the Committee of the work that we did in 2009 on Project Discovery. The goal of that was to make more transparent the challenge that was faced by the energy market in terms of securing long-term energy supply and the price effects that would accrue if decisions were not made. Some people argued at the time that we overstretched the use of our powers on that occasion, but that was firmly an example of us using the full set of powers available to us to make sure that this market can work more effectively for customers.

I would also highlight more generally that there are circumstances where we find that we do not have sufficient powers that we believe we need. I gave the example earlier of powers in relation to consumer redress. There are other areas where we are at the moment arguing to Government for new powers. I want to put on the record the organisation’s commitment, both to use those that we have to their full extent, and to be absolutely clear where we do not have those powers, to make the case for them.

Q249 Barry Gardiner: Ms Harrison, that was 2009. It grew out of the probe in 2008. We are four years on. You were talking then about having taken steps towards price transparency and yet here we are, four years later, talking about additional measures that you could have taken four years ago to improve price transparency, and you are still saying, "We are considering it". I do not think that is expeditious. I do not think it is a full use of your powers. I think it is precisely why people are looking at Ofgem and saying, "They just don’t get it". It is not the consumers that have criticised you for going too far, it is those companies who have a vested interest to make sure that you do not regulate them properly, and that is the problem.

Andrew Wright: We are pressing ahead with the proposals to improve liquidity. The other point here, as I mentioned before, is the extent to which liquidity has improved and the companies have come up with their own initiatives and effort over this period. So I think it would be wrong to characterise this as nothing having happened over that period of time. We have seen significant improvements, and I think even our most critical stakeholders in this area would accept that.

Q250 Barry Gardiner: Will you be announcing a second round of proposals on liquidity and, if so, when will that be published?

Andrew Wright: The current timetable is, we intend to do that before the end of the calendar year.

Q251 Sir Robert Smith: How often have you actually been challenged? It may be something you can write to us about. Obviously if every time you did something you went too far and were challenged, that would be inefficient and ineffective because of all the delays and the fact that in the end the Competition Commission would be joining in. But as a measure of maybe whether you are being timid or not, it might be interesting to know how far you have pushed the suppliers at times to where they have actually challenged you.

Sarah Harrison: We can certainly write to the Committee on the specific examples. The organisation has been judicially reviewed, which is the challenge over process, which of course is why Andrew has emphasised the importance of consultation in order to avoid unnecessary risks of that kind of process challenge. So we have faced those challenges. On the Competition Commission route, which we talked about earlier, this is a new regime and the right of appeal has only relatively recently been given to suppliers, and indeed other market participants, to appeal against Ofgem’s decisions, and as yet there have been no such appeals.

Q252 Sir Robert Smith: I suppose one question on this whole topic of integration that consumers might ask is, why don’t you just make it simpler by having suppliers, generators and transmission companies, and have them as separate companies trading openly at arm’s length?

Andrew Wright: That would be probably something that could only be implemented by way of a market investigation reference to the Competition Commission. Although theoretically it is something we could propose, I think the certainty of that being referred to the Competition Commission would be extremely high. The sensible way to address such restructuring of the industry would be through a market investigation reference. It is our view that the issues in the market can be addressed through the licence changes that we are putting forward in the Retail Market Review and the actions we are taking on liquidity and other reforms. It has been our view that we have the powers to make the necessary changes in the industry without moving towards that reference.

Q253 Sir Robert Smith: Is there any upside for the consumer in vertical integration?

Andrew Wright: Potentially there is. I am not here necessarily to justify the ways that the companies organise their businesses, but they would argue, I am sure, that there were efficiencies in being able to self-hedge and that creating what they would regard as an unnecessary barrier or divide in the industry would reduce the efficiency of their operations and increase costs because it would increase risks on each of the participants. I am not necessarily condoning that view, but I suspect that would be where the companies would come from.

Q254 John Robertson: If the companies disagree with you, what happens?

Andrew Wright: Once again, if they disagree with any licence amendment that we propose the route of appeal is to the Competition Commission. The Competition Commission would listen to the full merits of our case and the companies’ case and make a decision on that basis.

Q255 John Robertson: How long could that drag out for?

Andrew Wright: If it is specifically on a licence amendment, my understanding is it is a matter of months rather than years. Is it? I am not-

Sarah Harrison: It is months rather than years and different routes can take longer.

Andrew Wright: Yes.

Q256 John Robertson: If it is not a licence matter, how long?

Andrew Wright: A market investigation reference typically in the past has taken up to two years or more, so that can be a much longer issue and I think that would probably be the necessary approach if you wanted these broader structural issues in the industry to be addressed.

Q257 Christopher Pincher: Back to stickiness. There seems to be quite a disparity of opinion about the number of customers that do not switch. You have said that something like 60% of customers do not switch; British Gas says it is between 20% and 30%; DECC suggests 41% of people do not switch suppliers, based upon a survey of 2,000 households. Why is there such a difference of opinion about the numbers of people who do not switch?

Andrew Wright: I will probably hand over to Sarah in a minute to give you more detail, but the high level number, the number of people who change supplier each year, is currently running at about 13% or 14%, so from that token in a particular year the vast majority of customers do not switch. I think the issue is around the number of people who have ever switched, and we have always recognised that when you ask customers that question they tend to say they have not switched when they potentially have, either as a part of moving house or a long time ago. We have always recognised that discrepancy between the information we get back from our surveys and the information we get back by knowing what customers have done through the information requests from companies.

Sarah Harrison: Other than that, I can’t really comment on either the DECC work or the British Gas work. I have not seen the methodology that sits behind that. Andrew has given you our headline figures, based on the research that we have conducted, in the same approach, incidentally, over several years. That overall switching rate has come down from about 20% switching levels in gas, 19% in electricity, at the 2007 levels.

The other dimension, though, is what happens within a supplier. One of the other key pieces of information that we have drawn on, in terms of framing some of our proposals in the Retail Market Review, is that well over 80% of customers, who none the less remain with their supplier, don’t then go on to look at other tariffs that might be offered by that supplier, or indeed other payment methods. That is why the provision of clear information about the terms and the price that you are on with your supplier at the moment, in combination with what would be a better deal if you remained with that supplier, is such an important component of the Retail Market Review package. For some people that relatively small step might deliver improvements in terms of reduced energy bills.

Q258 Christopher Pincher: I was interested to understand why it is that different numbers are being bandied about but, whatever the numbers are, there are quite a number of people-a very large number of people-that do not switch. Stephen Fitzpatrick from Ovo Energy, and others, have suggested that those sticky customers are being overcharged and are cross-subsidising those people that do switch, and that allows energy companies-the Super Six-to offer loss-leading deals to attract those rather more mobile customers. Do you think that is an acceptable practice or do you think it damages competition in the marketplace to offer such loss-leading deals?

Andrew Wright: That is a feature of the market that we recognise. I think we can-

Q259 Christopher Pincher: Do you agree with it?

Andrew Wright: I think we can debate whether or not the discounted deals are loss-leading and whether they are loss-leading over the lifetime of a customer. But, nonetheless, there is no doubt that the companies successively segment the market and charge higher prices to those stickier customer and, indeed, to their former incumbent customer bases, both in terms of their incumbent fuel and their incumbent regions. These are features we recognise and we think they are a clear indication that competition is not working as effectively as we would like, because I think in a more effectively competitive market that segmentation would be more difficult and it would be counterproductive.

I have a bit of a problem with the idea that we should stop companies competing on price for the most active customers. After all, that is the behaviour that we want to see across the whole of the market. Clearly, if loss-leading deals are being used anti-competitively then there may well be things we could do about that, but so far we do not feel we have sufficient evidence to say that that is being done. We are undoubtedly seeing better deals targeted at the more active parts of the market, for example through switching sites.

Q260 Christopher Pincher: So your view is that that activity, if it happens, is anti-competitive? That is what I infer from what you have just said, but you do not have the evidence-

Andrew Wright: No. We would like to see companies competing hard on price and service and other factors, across the whole of the market and not just for the small segment of customers that might engage through switching sites.

Q261 Christopher Pincher: Do you agree with Mr Fitzpatrick when he says that the action is making the market more uncompetitive and it makes it more difficult for the smaller players to get involved?

Andrew Wright: Intensive competition between the existing suppliers will potentially make it more difficult for more suppliers to get involved.

Q262 Christopher Pincher: So that could be anti-competitive?

Andrew Wright: Not necessarily, if it is genuine competition across the whole of the market. What we want is genuine competition across the whole of the market to the benefit of consumers. Whether that comes from new entry or whether it comes from competition between the existing suppliers to some extent is a second order issue. We certainly welcome and want to encourage new suppliers in the market. They are an important source of competition and innovation in this market but, nonetheless, we do not want to do that by preventing competition among the Big Six. We would rather see that competition spread across the whole market. It is possible that big incumbent companies could use their strong incumbent positions and foreclose the market against new entrants. As yet, we do not have evidence that that is the case and if anyone has evidence that that is the case then they should bring it forward to us.

Q263 Christopher Pincher: If you were given such evidence, what action would you take against the companies doing that?

Andrew Wright: The powers that we have are under the Competition Act, which would require the demonstration of dominance on behalf of the companies and a fairly high hurdle in terms of the cases taken against them. In terms of the history of that, relatively few cases of that type have been brought.

Sarah Harrison: Cases of predatory pricing are difficult to mount and land. I think there have probably only been about three cases successfully completed across the economy, two of which were OFT cases. This is a difficult area for competition legislation to prosecute. Notwithstanding that, clearly if that evidence comes forward and if suppliers or others bring it forward, then we would look at that. We would also look, to the extent we can, to make sure that we work with other relevant regulators such as the OFT-and we have examples where we have done that before-to make sure that we get the best possible expertise on board to test whether this is something that we can continue to pursue and prosecute under that competition legislation.

Q264 Christopher Pincher: Just so I am really clear, are you saying that there is no evidence that you have, or do you feel that the evidence that you do have is not sufficient to meet the rather complex and difficult prosecution requirements of the Competition Commission?

Andrew Wright: First of all, the features that we see in the market, the ability to segment the market, the fact that active customers have access to far better deals than less active customers, are signals that the market is not working effectively, and all the proposals we have put forward in RMR are engineered towards making that market work effectively. We are not saying that we are happy about that. We are saying that is best addressed by dealing with the shortcomings in the competitiveness of the market.

In terms of predatory pricing, we are saying we do not have the evidence that there is a case. We have not had the evidence brought forward to us that people are effectively discounting prices to such an extent that it is not in their interest to do that, with the purpose of frustrating competition. We have not had that evidence brought forward to us yet, and we have not seen it ourselves in the market.

Sarah Harrison: Just to add to that. There are other areas where there may be unjustified differentials-if I could put it that way-being charged between different payment methods. There are bespoke powers in the licences that we have available to us to prosecute cases in those circumstances where the evidence comes forward, and we do have an investigation at the moment under way into just such a case. Where the evidence is there and where it matches the powers then we certainly would look to prosecute that.

Q265 Christopher Pincher: You said that you will monitor the market and you will gauge the impact of RMR, and that you will carry out a full review of the effects in three years, so it will be a review of the review if you like. What criteria do you propose to use to gauge the impact of RMR?

Andrew Wright: I think it is similar to the answer I gave to a previous question. We will be looking at a wide range of indicators. Switching rates is important but it is not the sole one. We would be looking at whether consumers are switching effectively. In other words, are they moving on to better deals as a result of their switching behaviour? We would be looking at a wide range of indicators on things like market share, the success of new entrants in the market. We would look at the pricing behaviour of companies and whether there is evidence that they are pricing competitively to try to win business and grow their market share. We would be talking to consumers and assessing their experience of the market, whether the trust and confidence is improving, whether they feel that the market is serving their needs. Also we would be looking at the success of our specific measures, so things like the market best deal and supplier best deal, and whether those are having an effect in stimulating greater engagement. As we saw in the probe and Retail Market Review, it will be a broad, multi-faceted aspect, ranging from everything from profits and pricing through to individual consumer experience.

Q266 Christopher Pincher: So quite a list, and you are going to start to use those. You have also said that, should the evidence not be forthcoming that the RMR is working, you will bring forward the review.

Andrew Wright: Yes, potentially.

Q267 Christopher Pincher: What would be the trigger point to bring forward such a review?

Andrew Wright: As we saw with the probe, one is any evidence that the companies were frustrating or subverting the objectives through their own actions, so that would clearly be one. We would very much hope that the companies adhere to the standards of conduct and the spirit as well as the letter of the proposals we are putting forward, and certainly the mood music from the companies is very positive in that respect. Also really whether the specific-

Q268 Christopher Pincher: Do you think the mood music is positive simply because all you are doing is proposing to bring forward a review if they are not doing what you want them to, rather than using the powers you have to take action against them?

Andrew Wright: I think the companies clearly have stated their intent to try to rebuild trust and confidence with their customers-the majority of companies, should I say, rather than all the companies. That is a positive basis to start with. We have to take those statements at face value in the first instance, but we want to see the actions following up those statements.

Sarah Harrison: Just to be clear, I think there are two levels of activity that will be going on here. One is the overall assessment of whether the package in its totality is having the impact that we want and that consumers are telling us they want. The other in the meantime is, on a kind of a practical day-to-day basis, whether the measures are being complied with by the companies, and if they are not then there is opportunity for us to look to take up enforcement cases. So I think we need to look at this in terms of those two levels of activity that will be progressing at the point at which these new powers are brought into effect.

Andrew Wright: We are stepping up our monitoring activity and we will be seeking to look at all of those measures, not only at the three-year review but in real time as the measures come into place. If there are no signs of our measures having a positive effect on engagement in the market, then that may lead to us kicking off the review earlier.

Q269 John Robertson: I know and you know that the customer is not really supported in any way. We have no payments for loyalty, and if we don’t have that therefore we should be trying to encourage people to switch to get the best price possible, and yet we don’t seem to be doing that. If we have gone down from 20% to 14% it suggests that switching is not the answer. Part of the problem has always been the length of time it takes to switch and the problems of switching. People either feel it is taking too long or they always seem to have a hiccup. Why can’t there be a fine imposed on companies that take too long in switching? Why can’t you set a minimum amount of time on how long it takes to do that? Therefore, why can’t there also be a payment to the customer for the delayed switching? I say this simply as someone who came from the communications industry. It used to take two weeks to switch a telephone number and then it went down to hours. The same thing applies. It is all done by computers. Why can’t you put this task on to these companies and make them do it within a proper amount of time, and if they do not do it fine them and give a payment to the customer?

Sarah Harrison: Just a general point, and then Andrew can come in on the detail. First of all, I think, just to be clear, switching should not be and is not the only answer for customers.

John Robertson: No, I accept that, but-

Sarah Harrison: There is a really important point, if I may, which is that the experience that we have seen from our research, with some of the figures I gave, is that customers who do decide to stay with their supplier, quite possibly for very good reasons, even though they are not able to access some of the best deals that may be available from that supplier-over 80% of those customers have not moved even within the supplier’s existing tariffs.

Q270 John Robertson: I accept that, but they also have a problem-they don’t have a computer or whatever. There are great reasons for that. We know that; we have discussed it on many occasions. I am not interested in those things at this moment in time. I want to know why you cannot do that: why you cannot make these companies allow people to switch quicker, more efficiently and, if not, fine them.

Andrew Wright: Two things really. One is we have in the industry at the moment a fairly complex switching process, with many parties involved, a great deal of exchange of information, a lot of manual processes, the need for manual meter reading, and it is difficult.

Q271 John Robertson: Sorry, I don’t accept that. Déjà vu here-this sounds like BT making an excuse for not allowing people to switch.

Andrew Wright: I am not making excuses. I am just saying that is the situation we are in at the moment.

Q272 John Robertson: But it is the same excuse that was made 20 years ago.

Andrew Wright: No. The solution to this is to sweep all of that away with smart metering that will enable the sort of solution that you have in the telecoms arena, where a change of supply can happen over a very short period of time. I certainly agree that the length of time it takes to change supplier and the occasional process failures are deterrents for customers engaging in the market. They add to this loss of trust and confidence in the market, and the sooner we can sort that out the better.

In terms of what has changed, there has recently been a new requirement coming through the European Union for switching within three weeks. That is on a best endeavours basis, so it will not be the case that they will be fined for every single instance where they fail to achieve that, but if suppliers are consistently failing to meet the standards-

Q273 John Robertson: Why does it take three weeks? It takes about 10 seconds to go on a computer and cancel the person and go to another computer and start them. Why does it take three weeks?

Andrew Wright: Because of the need to get a starting and finishing meter reading.

John Robertson: That is just an excuse.

Andrew Wright: I am not here trying to defend what, frankly, is an arcane-

John Robertson: Defend the indefensible.

Andrew Wright: -change of supplier process that we have in the industry. It will be difficult and it will take a long time to change that, and the quickest solution is to get smart meters in place and use that to resolve it. We do have a programme in place, our Smarter Markets programme, which has kicked off the programme of smart change of supplier with the objective of making that change of supplier, if not instantaneous, certainly very short indeed, a matter of days, and making it much more reliable so that people trust the process a lot more than they have previously. That is the solution and I think any attempt to unpick the labyrinth of process we have today-

John Robertson: You are putting your eggs in one basket with smart meters. I don’t think that is the answer, but time will tell whether I am right or you are right. Unfortunately, we don’t have that kind of time, and the ordinary customer hasn’t and is allowed to be told there is no time.

Chair: The Minister has just arrived. I will let the session run for another 10 minutes while we just deal with the last two questions.

Q274 Sir Robert Smith: Just very quickly-and you may have to write to us on some of this-one of the customers that is trapped, almost, is the Total Heating Total Control and other dynamic teleswitching customers. In the past we have been reassured-you feel that they are not being taken advantage of for being immobile, but in the latest round of price rises they have been hit by quite a big percentage increase. Will you be looking closely at the Total Heating Total Control price rises to see if there is anything that can be done about it and the fairness of it? I know the long-term solution is smart metering, but will you again maybe ensure that the market does work most effectively, that people can switch more easily in those markets?

Andrew Wright: Yes. We have had many exchanges on dynamic teleswitching and it is a difficult problem to resolve, and smart meters is the long-term solution. As I have said previously, we have been reassured in the past when we have looked at this that customers on DTS tariffs do not appear to be any worse off, and in fact appear to be better off than the equivalent on Economy 7, for example, so there is no evidence that companies were taking advantage of the lack of competition for these customers.

I hear what you say about the latest round of price increases and I have asked my team to look into this in more detail, not only in relation to the Scottish Hydro customers but all the DTS customers across the market. We would take quite a dim view if the lack of competition for these customers was taken advantage of. I think it is worth being aware that the price increases in the Scottish Hydro area were above average for all customers, and I suppose the key question is whether or not the DTS customers have a worse deal than the Scottish Hydro customers in general in that respect.

Q275 Sir Robert Smith: Will you write to us when you have further analysis?

Andrew Wright: Yes, we will, and we will let you know whether or not there has been any change in that conclusion that they are getting a reasonably good deal.

Q276 Barry Gardiner: Mr Wright, could you define for the Committee what you understand by the words "downward pressure on prices"?

Andrew Wright: That competition in the market and customers changing supplier in response to prices leads to companies charging their consumers no more than they have to and that therefore the prices in the market will be no higher than they need be. Clearly there are lots of other drivers of prices in the market other than the level of competition-wholesale prices, environmental charges, network charges and so on-but it would be that competition is effectively constraining prices and encouraging companies to price keenly, drive out costs, become more efficient and to provide better service.

Q277 Barry Gardiner: Thank you. I take it that is, if I may say so, an elegant justification of why in February of this year you said that you told the Big Six you wanted to see downward pressure on prices or else they would face a mandatory cap. That explains why, I take it, that you have not yet put in place that mandatory cap. Is that right?

Andrew Wright: Sorry, you said that in February-

Barry Gardiner: In February of this year, yes. Prices have just gone up by an average of about 7%. We will see what E.ON come up with in January, but 10.8% for EDF, 9% for SSE, 7% for Scottish Power, British Gas-what you are telling us is that, because of those other constraints on the market, wholesale prices, you consider the downward pressure is still in place.

Andrew Wright: I can’t recall saying that or the context in which I said it, but certainly-

Barry Gardiner: No, I wasn’t quoting you. I was quoting Ofgem. Ofgem indicated to the Big Six. Sorry, it wasn’t a quote from you.

Andrew Wright: Before even considering any alternative to using competition as the means to control prices and to drive better performance by the companies, we would want to ensure that we have exhausted all avenues there.

Q278 Barry Gardiner: Pack behaviour or unnecessary industry response to a rise in global gas prices-which would you say is the reason for the rush to increase customers’ bills over the past couple of weeks?

Andrew Wright: Our own analysis through our supply and market indicators suggests that there are three elements leading to rising costs for suppliers. One is the network charges through the regulated network price controls, secondly, the rising cost of environmental charges and, thirdly, an increase in wholesale prices if you assume the 18-month typical hedging factor. Those are costs that are common to all the companies. In terms of timing, that is really an issue for the companies.

Q279 Barry Gardiner: Let me take the third of those, and we go back to virtual integration. When companies have aligned their upstream and downstream positions, they don’t any longer need to sell and source large portions of their power in that wholesale market and that reduces their exposure to the cash-out mechanism and advantages them over the independents. That is part of the problem that we are seeking to address here. So why is it, then, that you insist on the energy companies publishing their accounts in a segmented way, that gives financial information for different arms of the business and allows those companies to obfuscate regarding where they are or are not making profit and obscure that from public gaze? Is that not part of the problem that goes back to the vertical integration that is feeding through into the third element that you have identified of the price rises and the lack of public trust here?

Andrew Wright: Just to be absolutely clear, we are not starting from a position where we think competition is effective here, so it wouldn’t be surprising-and we were the first to identify the "rockets and feathers" issue in this industry. We also made some observations both in the probe and the RMR about other pricing features that suggest that competition is not fully effective. So I do not think we are saying that that is the case. But in terms of the segmented information that we provide, what we are seeking to do is to provide the maximum transparency to consumers and to the industry about where the companies are making money, their cost drivers and so on in this business. I think it is clear to say that this is not a regulated business so there is only so much we can do in terms of determining how the companies run their businesses. If you look at the way we manage the regulated businesses, we do insist there on financial and legal ring-fencing. That would not be appropriate in a business where competition is expected to be the basis for setting prices.

Q280 Barry Gardiner: Why do you think it appropriate that EDF should have shown the largest of the price rises when the third element that you identified was the rise in wholesale gas prices and the consequent rise in the wholesale market? Most of their generation comes from nuclear so they are not subject to that pressure, are they?

Andrew Wright: There are two things here. One is, I am not here to justify an individual company’s price rises or-

Barry Gardiner: I am asking you to criticise, not justify.

Andrew Wright: -criticise an individual company’s price rises. The way they price is up to them. We do run a competitive market in wholesale and retail and within that competitive market you would expect them to price their electricity from whatever source at the market price and seek to recover that from their customers, and that is the way-

Q281 Barry Gardiner: But you wouldn’t expect them to be able to justify that by a rise in wholesale gas prices when it is not determinative of their own input costs in a vertically integrated market?

Andrew Wright: EDF has a choice in a competitive market about whether it uses the cost advantage it may have in relation to nuclear power to increase, to benefit its shareholders or to reduce prices to consumers.

Q282 Barry Gardiner: They told this Committee last time that they didn’t have that power, and the reason they didn’t have that power was that you would not allow them to use one part of the business to subsidise the other. That goes back to the very issue that we were talking about-the segmented accounts and the separation of those businesses. Is it not a failing of the regulator in not enabling both the customer who wants that overview and you as regulator to take that overview of both sides, the wholesale and the retail, and to make sure that they are aligned in the customer’s interest?

Andrew Wright: If EDF has a competitive advantage in the cost of its electricity and it wanted to pass that through to its customers it would be entirely at liberty to do so, unless it was behaving-

Barry Gardiner: So what they told this Committee was wrong?

Andrew Wright: -anti-competitively and the Competition Act would be assessed for that.

Q283 Barry Gardiner: So they blame you and you blame them?

Andrew Wright: We are not blaming anyone. We are saying they are entirely at liberty to price their electricity and their gas as they see fit in a competitive market.

Q284 Chair: Do you think that Ofgem should take a greater responsibility for communicating information about future price projections and costs?

Andrew Wright: We provide a great deal of transparency both in terms of the segmented accounts, looking backwards, and in terms of our supply market indicator, which is an indicator that is meant to show the development of costs both in real time and going forwards. Using that supply market indicator, you can see clearly what the trends are in the industry as a whole on gross and net margins, and indeed costs in the industry. That is meant to provide that indication. Of course it is up to the companies how they respond to those price pressures, but the supply market indicator provides as much transparency as I think would be appropriate within a competitive market.

Q285 Chair: Given that there is clearly a lack of trust on the part of consumers and some confusion in the consumers’ minds, do we really need a single, clear point of information they can refer to about these issues?

Andrew Wright: The supply market indicator potentially provides that. This is a forecast, it is an indicator. There will be differences of view about the information we provide and companies will on occasions contest it, but it is meant to fulfil that function of providing transparency and clarity about the cost drivers in the industry.

Sarah Harrison: I think in the Chairman’s question there is a question about the role of consumer advice and information going forward, given that the consumer landscape itself is changing. We have a keen interest not only in fulfilling the responsibilities that we see we have in relation to providing advice and information to consumers, principally through some of the measures in the Retail Market Review that we have just been talking about; but also in making sure that any success at consumer focus-which probably will not be the Regulated Industries Unit but perhaps will be Citizens Advice-has consumer engagement at its heart. This is a very important issue that we don’t want to let fall through the gaps while the challenge is so obvious about needing to engage consumers in this energy market.

Chair: Thank you. We are badly over time, so I think we will have to leave it there. I am sure we shall be in touch with you again very shortly anyway to have a continued discussion. Thank you for coming in.

Examination of Witnesses

Witnesses: Rt Hon Gregory Barker MP, Minister of State, Department of Energy and Climate Change, and Rachel Crisp, Head of Demand Reduction and Retail Energy Markets, Department of Energy and Climate Change, gave evidence

Q286 Chair: Good morning. Welcome back to the Committee. I am sorry we have kept you waiting this morning.

Can I start by expressing the surprise of the whole Committee at the announcement by the Prime Minister two weeks ago about proposed legal changes to address some of the concerns about consumers and prices? We conducted a scrutiny of the draft Energy Bill, which did not contain these provisions, nor was the possibility of their inclusion mentioned to us in any of the sessions we had on that. Why was that?

Gregory Barker: I think you have to look at the context of the Ofgem Retail Market Review, which we expected to report originally last spring, and we intended to frame our response to that potentially within the Energy Bill. However, it is unfortunate that the RMR publication, while we greatly welcome much of its content, has come much later than we expected. That delay led to a sort of increased frustration that we were waiting for this important analysis to come forward without which we would not be able to frame our policy. I think the Prime Minister very eloquently expressed what we were all feeling-that we needed to act clearly and decisively on consumer bills, which clearly have risen up the agenda. With the latest round of price rises, it is a matter of concern for everybody but very much a concern for everybody in Government.

Q287 Chair: But Ofgem have just told us, firstly, they do not know all the details of what the Prime Minister’s plans are.

Gregory Barker: That is because we haven’t announced them.

Q288 Chair: Exactly, so the clear and decisive action you have taken will effectively delay the introduction of reforms. Ofgem do not need to have primary legislation to apply their policies. They have just confirmed that at the latest they would be in place by next summer. We are now told that the Energy Bill will not even appear on the much delayed date that we had been promised, the first week of November, so the clear and decisive action does not really look like action at all. It looks like a delay in the Bill because of an unplanned announcement about which Ofgem had not been consulted and the Department seem to be in ignorance.

Gregory Barker: No, that is not the case. The Prime Minister has been very clear. We will do everything we can to help consumers get the lowest tariffs. The Prime Minister made his announcement before Ofgem came forward with their proposals, just to get the choreography right.

Chair: Two days before.

Gregory Barker: Two days before, but certainly in the Department I hadn’t seen the Ofgem report at that stage and I assume the Prime Minister had not. We greatly welcome it because it shows that our thinking is running in the same direction, but what is clear is that we will use legislation to deliver the best outcome for the consumers if that is required. You are absolutely right, Mr Yeo, that Ofgem can use licence modifications to deliver their proposals. However, licence modifications do not carry the same weight as legislation. They are robust, but they are open to challenge from suppliers and it is not our intention to have a clear, consumer-focused approach delayed by possible disagreement from suppliers with Ofgem. So we will wait. I have not come here to make an announcement on the detail of our proposals, but I do want to be very clear that we think that legislation is likely to be the best outcome to deliver that certainty, to bring the clarity to consumer bills that the Prime Minister was talking about.

Q289 Chair: The Secretary of State, when he gave evidence on the draft Bill, gave us no hint whatever that there were substantial additional clauses planned-not at that stage included in the draft Bill-to deal with consumer concerns. Does that mean he was deliberately withholding that information from us or does it mean that he had no idea the Prime Minister had this in his mind?

Gregory Barker: I am sure the Secretary of State wasn’t deliberately withholding information, but you will be aware that this is an evolving agenda. As I said, we expected the Retail Market Review to be delivered to Government by last spring and I was relying on that, having gone through a voluntary agreement with the Big Six in terms of efforts to bring greater transparency and messaging to consumer bills, which we might go on to discuss in the course of this hearing. But it was very frustrating for those of us in Government that the RMR was delayed as much as it was. I don’t know when the Secretary of State spoke to you about this, but this has been-

Chair: The middle of July.

Gregory Barker: He was probably expecting the RMR at any point. It did not happen then and I think a pressure of steam has built up in terms of our determination to act if we did not have the appropriate support from Ofgem

Q290 Chair: When did the Department start work drafting the new clauses that now have to be included?

Gregory Barker: That work is ongoing. I couldn’t tell you when we started work, but that work is ongoing and will be informed by the Ofgem report.

Q291 Chair: Had it been started when the Secretary of State gave evidence to this Committee in July?

Gregory Barker: I couldn’t say, Mr Yeo.

Q292 Sir Robert Smith: One thing on the relationship of the RMR with the Bill, we have just heard from Ofgem that the Bill does contain draft legislation to do with the ability for consumer redress on failures to meet standards of conduct, which is part of their suggestion going forward with the market, so there was obviously some dialogue between Ofgem and the Department that informed the Bill before the publication of the RMR.

Gregory Barker: There may have been. I wasn’t party to that dialogue. It may have been officials.

Rachel Crisp: I think there is a specific set of clauses within the Energy Bill around the consumer redress provisions and giving Ofgem the powers to require energy suppliers to make redress directly to consumers who suffered the harm of the breach of licence condition, and that was a separate policy that had been under development. There was a consultation out that closed in September and we are in the process of developing those clauses for inclusion in the Energy Bill, which is being taken forward separately to the work that we have been doing in developing options around delivering the lowest prices for consumers.

Q293 Albert Owen: Minister, when was it the intention of a Government Minister, whether it be a DECC Minister or the Prime Minister or whoever, to let this Committee know, because we went through the process of scrutinising the Bill at the request of Government? How were they going to tell us: by letter, in a Government official response or what? It is rather clumsy, in many ways, that we have spent months and months scrutinising a delayed Bill, which is going to be delayed again, to find out on the Floor of the House that there are going to be additional clauses.

Gregory Barker: I don’t think the Floor of the House is a bad place to find out about Bills in Parliament, first.

Q294 Albert Owen: Is that how we are going to have it in future?

Gregory Barker: No, but I am just saying, as a point in principle, I think the Prime Minister announcing something at the Dispatch Box is in the interests of transparency and openness. It is not a bad starting point. Secondly, this is a very complex piece of legislation. It is the first attempt to reform the electricity market comprehensively since privatisation. Nothing this ambitious was undertaken in the last 15 years.

Q295 Albert Owen: No, I think we agree on the principle. The question was, when was the Government going to respond to this Committee and in what format?

Gregory Barker: I am just answering your question. This is a very complex Bill. It has many parts to it and it is an evolving piece of work. I do not expect that the Bill that enters Parliament will leave Parliament after several months unamended, and there will certainly be a number of Government amendments that are brought forward to reflect the input from Parliament and also from parallel consultations. This is a very complex piece-this is not a simple piece of partisan legislation.

Albert Owen: With respect, I am not being partisan at all.

Gregory Barker: No, I know you are not, Mr Owen. I know you are not.

Q296 Albert Owen: I am asking a very simple question to a Government Minister, whom it is our job to scrutinise-to ask how and when were you going to let us know?

Gregory Barker: What I am saying is that the legislation is pretty much there but it is not completely finished, and I certainly expect it to be improved as it goes through Parliament. As I said, this is not a sort of binary choice piece of legislation in most respects. It is not, hopefully, very partisan.

Q297 Albert Owen: So can I conclude you weren’t going to tell us?

Gregory Barker: We expect it to be that there will be Government clauses added to it through Parliament.

Q298 Chair: For the avoidance of doubt, our criticism is not that the Prime Minister made this announcement. We are thrilled that the energy policy is now sufficiently important to be dealt with by the Prime Minister. Our puzzlement is that this introduced a new element into the Bill. It appeared to take the Department by surprise. It certainly took Ofgem by surprise, even though they had been working, on your own acknowledgement, for the last two and a half years on this very issue. I think in a well-ordered Government you would have thought that, since so much of this has been subject to detailed consultation, the Government might have mentioned to Ofgem they had this in mind, two days before Ofgem’s own announcement. So I think the-

Gregory Barker: The Prime Minister is not given prior warning of what questions he is going to get at PMQs, but does his best.

Q299 Chair: But you have implied that his announcement was part of an evolutionary process as the Bill is coming forward, so the implication of your answer was this was part of a detailed, seamless web of Government planning and consultation. That is not how it has appeared.

Gregory Barker: I don’t think that is what I described it as, Mr Yeo.

Q300 Chair: So it took you by surprise, like everybody else?

Gregory Barker: It didn’t take me by surprise, but I didn’t know the Prime Minister was going to be asked that question, as I am sure he didn’t.

Q301 Chair: Did you expect the Energy Bill to contain provisions dealing with what he suggested?

Gregory Barker: Did I expect the Energy Bill to deal robustly with the energy companies in the interests of consumers? Yes, I did. Yes, I do. Do I know the final details of what that proposal will be? No, I don’t. I don’t have the proposals now. We have only had Ofgem’s RMR report a matter of days ago, after the Prime Minister had spoken. We had been waiting for that report since last April. There had been growing frustration in the Department and across Government that we needed to act in the interests of consumers. We had been waiting and waiting for Ofgem to come forward and I think that the Prime Minister put on record very clearly what is our intention, which is to use everything we can do to get consumers the lowest tariffs and using legislation through the Energy Bill.

Q302 Chair: When the Prime Minister was in discussion with DECC about his announcement, did it not occur to DECC to say, "We are waiting impatiently for Ofgem’s announcement. We hear they are going to make it on Friday. Perhaps it might be better to wait until the following PMQs before announcing this new policy"?

Gregory Barker: But he was answering a question. He was not making a statement.

Q303 John Robertson: Minister, you may be frustrated but we are even more frustrated. We were given five weeks to have a look at this Bill, rather than the usual 12 weeks. Let’s be honest, we could have had 16 or 18 weeks looking at it and done a really good job for the Government in scrutinising the Bill but you didn’t allow us to do that. You are now telling us that because of RMR everything is now held up, but surely we-

Gregory Barker: No, I am not. Let’s be absolutely clear, I am not telling you that.

Q304 John Robertson: With the best will in the world, we will see what comes out in the transcript but I think you will find that is almost exactly what you said. You were impatient and you were waiting on this coming out. The Prime Minister could have said as such in his answer and said, "We will come back to you once we get the RMR from Ofgem".

Gregory Barker: But that has not held up the Bill. Mr Robertson, you have put your finger on it here. What I have said is that we have been impatient waiting for the RMR to be published but it hasn’t held up the Bill.

Q305 John Robertson: So when are we getting the Bill then?

Gregory Barker: Shortly.

John Robertson: Shortly? What does that mean? November, December, January?

Gregory Barker: Shortly.

Rachel Crisp: Yes, shortly.

John Robertson: 2012, 2013, 2014?

Gregory Barker: Shortly. It certainly will be within-I don’t have the date-

John Robertson: Within a year?

Gregory Barker: -so without a call to the Whip’s Office I couldn’t tell you. Very shortly, and we are not expecting a delay. Before you set a hare running, we are not expecting a delay.

Q306 John Robertson: On cheap tariffs, who is going to say what is the cheapest tariff? Who is going to set that criterion?

Gregory Barker: It will be self-evident what the cheapest tariffs are.

John Robertson: Self-evident? We have 400 tariffs. How can it be self-evident?

Q307 Chair: Let us deal with the process. I don’t think you will need to consult the Whip’s Office about the date on which the Department publishes its response to our report on the draft Bill. We had been promised that would occur no later than 5 November. Is that still on target?

Gregory Barker: Are we on target?

Rachel Crisp: Yes, that is right.

Gregory Barker: Yes.

Q308 Chair: Can we expect a response next week?

Gregory Barker: Yes.

Chair: That is helpful. Barry-if we are on the process point, are we?

Q309 Barry Gardiner: On the process point, yes, Chair. Minister, this is just bollocks, isn’t it? What has happened here is the Prime Minister announced policy on the hoof and the Department and Ofgem have been chasing their tails to try to make sure that he doesn’t look as if he misspoke. Everybody knows that is the case so let’s not spend undue amounts of time trying to rationalise it.

Gregory Barker: I disagree with you profoundly. Let us be very clear: the Prime Minister made clear his determination, the determination of the Government, to help consumers get the lowest tariffs, and certainly go beyond that which-

Barry Gardiner: Great, we are agreed. We are agreed on that.

Gregory Barker: We are.

Barry Gardiner: So let us move forward. In this new policy-

Gregory Barker: Since then we have had the RMR published and that-

Q310 Barry Gardiner: We are agreed, so let’s move from that agreement. Here we are, Minister, we are now trying to implement the Prime Minister’s new policy that everybody will be put on the lowest tariff. If there is a lower tariff for them, that is the one that they will be put on. My question to you is, if they are currently on a tariff that locks them into a cap on their price for two, three years going ahead but there is in the market at the moment a lower tariff that is available and they are going to be automatically put on to that-and knowing what inertia means, as we have been fighting it together for a long period of time-that may work out to be against even their medium-term financial interests, may it not? What you will find is that the Prime Minister will have said, "No, no, you have to go on the lowest tariff". Those people will be switched to a lower tariff that expires maybe in a few months, but then they find that a deal that they were already on that offered them security and a cap on their payments for the next three years has been thrown out the window and they can’t get back on to it. How are we going to resolve that problem?

Gregory Barker: That is a very understandable question. The Prime Minister was announcing the intent. He was not announcing the detail; I am not announcing the detail here. We will come forward with sensible detail on these policies. However, I would refer you, Mr Gardiner, to the RMR report itself. Ofgem say on page 8 of their report that their key proposal is to limit each supplier to four tariffs per fuel, per meter and per payment type. That is the starting point for a new regime where there is still choice, still competition, but if you have that as your starting point I think it is very easy to see how the Prime Minister’s intent, which is to help consumers get the lowest tariff, using the legislation if necessary, will be enacted.

Q311 Barry Gardiner: Minister, we are all agreed-in fact, this Committee was the first to identify the multiplicity of tariffs and to start nagging the companies to make sure that they reduced them; so we are all agreed that a lower number of tariffs can be beneficial because it avoids confusion.

Gregory Barker: Mr Gardiner, we can all agree that it is not helpful, but it will be this Coalition Government that will finally put this array of confusing tariffs that undermine competition in the dustbin and start again with a clean playing field.

Q312 Barry Gardiner: We are both agreed that that will be a very good thing, to reduce the amount of confusion marketing that there is out there.

Gregory Barker: But people have talked about it before. We are going to act.

Q313 Barry Gardiner: But my point to you on confusion is simply this. The Prime Minister could have stood up at Question Time and said, "Look, what we are trying to do is to ensure that there are fewer tariffs available, that it is simplified, that people can see what they are getting and that people end up being on the best tariff for them", but he didn’t. He didn’t say that. He said, "We are going to move people on to the cheapest tariff".

Gregory Barker: He didn’t use exactly that formulation of words either.

Q314 Barry Gardiner: Not exactly that, but the sense was the same, the meaning was the same. What I am trying to get at here is he was wrong, wasn’t he? In what he said, he was wrong. We all agree with the intention but in what he said he was wrong.

Gregory Barker: No, he was not.

Q315 Chair: I will take you to the quotation here, just for the avoidance of doubt. The Prime Minister announced, "The Government will be legislating so that energy companies have to give the lowest tariff to their customers". That really seems to me to be proposing a situation where there is no point in having more than one tariff, because if the law says you have to give the lowest tariff to the customers, what is the merit in having alternative tariffs?

Gregory Barker: The Prime Minister was speaking at PMQs. With respect, Mr Yeo, let’s get real. PMQs is not a place for long, lengthy answers in detail to an informed audience. The Prime Minister was summarising in the shortest possible way the intent. The intent of this Government is to use legislation to cut through all the crap that we have had for the last 15 years of consumers being fobbed off with voluntary agreements, with initiatives and warm words, and politicians that haven’t been prepared to act. We are going to act, through legislation if necessary, to deliver fair, decent tariffs to hard-pressed consumers that will make a very real difference. That is what the Prime Minister was saying.

Q316 Barry Gardiner: So the words he used were wrong?

Gregory Barker: The Ofgem report that was subsequently published after the Prime Minister had spoken clearly points the way as a useful starting point for us to build a sensible basis for doing that. That will not mean one tariff because there are different types-

Barry Gardiner: But what the Prime Minister said was wrong.

Q317 Chair: At some point, therefore, after the Secretary of State came to this Committee to discuss the Bill-

Gregory Barker: As you said, Mr Yeo, the Secretary of State came in July.

Chair: Yes. I just want to be clear. Some time between his meeting with us in July and the Prime Minister’s announcement two weeks ago at questions, the Department took a decision that the law was going to need to be strengthened to pursue the objective that we all share, which you have been very eloquent about. There is no dispute about that at all. At some point between the middle of July and the middle of October, the Department decided they needed to strengthen the law to do this.

Gregory Barker: We haven’t yet concluded what our actual response will be in detail. We couldn’t do that until we had the Ofgem RMR report. We have now had that, and we are very pleased with it. It is quite possible that the Ofgem report could have been much weaker, wetter, than it transpired it is. Had that been the case, we would have to have asserted a much greater sense of leadership than will be the case. We can work very constructively with the Ofgem proposals. They knit very well with the Prime Minister’s clear political intention, which is to get on the side of hard-pressed consumers.

Q318 Chair: Is that the beginning of a backtrack here-that the Department have now thought, "Perhaps we don’t need to change the law after all"?

Gregory Barker: No, absolutely not. What I am saying is to those who doubted that the Prime Minister was real or the Prime Minister misspoke, look at the Ofgem market review and there is the basis of how we will put into action the Prime Minister’s very clear intent, which is to help consumers get the lowest tariff, including legislation in the Energy Bill.

Q319 John Robertson: It must have been already written before the Prime Minister said anything, because it was only released a matter of a week or so later. The RMR must have already been completed before the Prime Minister made his statement.

Gregory Barker: I certainly had not seen it.

Q320 John Robertson: Does that mean he has seen it before us?

Gregory Barker: I don’t know whether Downing Street gets something three days in advance. I doubt it. But as I said, I think there was a growing frustration that we had not had the RMR and the Prime Minister was signalling our very clear intent that in the absence of anything else we would come forward and act. He spoke up for millions of hard-pressed consumers who wanted a Government that would get around to using legislation, the powers at its disposal, to act for hard-pressed families, and that is exactly what we are going to do.

Q321 Chair: Had you been pressing Ofgem to bring forward the RMR?

Gregory Barker: Yes.

Q322 Chair: Just before the Prime Minister’s announcement?

Gregory Barker: I don’t know about just before the Prime Minister’s announcement, but we have been making clear over the last months that we were keen to get the report.

Q323 Sir Robert Smith: Are you saying that in the light of the RMR it may be that the goal can be achieved of ensuring consumers get the best deal without legislation?

Gregory Barker: I think it is desirable that we use legislation. We haven’t announced our proposals yet. I have not come to the Committee to make a proposal but, as I said earlier, legislation will give added force to the policy that Ofgem are consulting upon. Licence modifications do not have the same statutory footing as legislation and they are open to challenge more easily than legislation in the Bill. I think this Government isn’t in the business of outsourcing decisions on consumer bills, which are so important to millions of families, to a quango. We want to take responsibility for getting this right.

Q324 Sir Robert Smith: Is it the end of using a regulator to control the market and is it going to be the Government?

Gregory Barker: No. As I said, what we have had is an excellent report from Ofgem that clearly points the way. Even the Ofgem report is not the end of the matter because they are consulting on this document. I think the consultation closes on 21 December. We will work closely with Ofgem, and we are very pleased with it. We just wish it had come several months earlier.

Q325 John Robertson: So we are not likely to get the Bill before 23 December then, are we?

Gregory Barker: No, no, no. You should not anticipate that we will delay. We are not going to delay the Bill so that we have every single clause in there.

John Robertson: But you have already.

Gregory Barker: We are not delaying the Bill in order to hold up the process in order to get this in. We will amend the Bill in the course of its passage through Parliament in a way that is consistent with best parliamentary practice.

Q326 John Robertson: Let me put a political view on that. That means you make it particularly difficult for scrutiny of the Bill if the Bill doesn’t have the information in it. It makes it practically impossible for an Opposition-and for that matter the Government-to bring forward amendments that can be debated in Committee or even on the Floor of the House at that rate. We will have a Bill, once again, that goes to the House of Lords and will end up being scrutinised by them and not by us. I totally don’t accept that, as an elected representative. That just should not happen.

Gregory Barker: It is above my pay grade to give emphatic-

Q327 John Robertson: But you are doing it deliberately. What you are saying is you are deliberately putting obstacles in for the House of Commons to be able to scrutinise the Bill. That is what you are telling us.

Gregory Barker: No, it is not what I am telling you.

John Robertson: That is what it sounds like to me, and that is my opinion.

Gregory Barker: First, as I am reminded, we are consulting on the proposals, but this is a very big, very complex Bill dealing with a whole range of issues. In terms of legislation, this is just one relatively small part of the Bill. In terms of the impact it is going to have on consumers, it is extremely important. We will be consulting on the proposals, Ofgem are consulting on the proposals, and we will bring them forward. I expect that to be in the Committee stage of the House of Commons, and given that I hope this will attract cross-party support-I know the Labour Party only wants to give cheap tariffs to the 7% of the population that are over 75-

Q328 John Robertson: No, that is not true. That is not true, and that is not fair either. We have already stated that we want to get it as cheap as possible to consumers. What we don’t want is obstacles that are being put there by Government. We want to discuss the Bill and we want the cheapest tariffs that we can possibly get for constituents. If you think that any MP thinks otherwise then you are in a different place from me.

Chair: Let us perhaps return to the subject that we are looking at this morning. Barry, do you want to now move on from this?

Q329 Barry Gardiner: Minister, thanks, but enough of that. That has been done. Can we go to something that is really about consumer confidence? DECC has said the average household energy bill is estimated to be 7% lower in 2020 and 3% lower in 2030 compared to what their bill would have been without the current policies, the proposed policies. That is a very roundabout way of reassuring people and of course, because it is roundabout, it doesn’t. What is a clear message to consumers about the future rise in prices that they are likely to see and the savings that they could make from efficiencies? What I am asking you is, instead of saying, "Look, what we are doing means that you will get cheaper bills than you otherwise might have done"-which doesn’t tell you anything, unless you say what the business as usual trajectory would have been-what are you going to say to people is, "Look, your bills are going to go up. The fact is that in order to meet rising wholesale gas prices, in order to meet our renewables obligations targets, in order to get £110 billion-worth of infrastructure investment into the electricity and £200 billion total into the energy infrastructure, bills are going to go up"? How are we having an honest conversation with the public and whose responsibility is it to do that?

Gregory Barker: First of all, Mr Gardiner, there is a little bit of confusion there between bills and prices and this is something that is consistent across the whole-

Barry Gardiner: That is why I mentioned the bit about energy efficiency.

Gregory Barker: Exactly, across the piece, and whenever this is debated there is invariably some confusion between bills and prices. Undoubtedly prices are going to go up, certainly that is our assumption. There are all sorts of different scenarios that people are painting about a world with much cheaper gas, which could impact but we have to be prudent.

Q330 Barry Gardiner: We also have to meet our renewables obligations, which means we can’t just rely on gas.

Gregory Barker: We can’t rely on any one energy source. We need to meet our decarbonisation commitments that are consistent with the Climate Change Act. We would need significantly to increase our share of renewables and low carbon energy. However, all too often this discussion leaves out energy efficiency and the whole sweeping potential of demand reduction and demand response at many different levels. Obviously I have banged on to this Committee before about the virtues of the Green Deal and that is the most consumer-facing element. It is something that we are very excited about and we are committed to an ambitious roll-out that will begin apace in spring next year. The first Green Deal finance plans will be written on 28 January, but the Green Deal is only one part of energy efficiency. I am very keen that the Energy Bill includes a very significant element of measures that will embed demand response into our electricity system for the very first time. Electricity is only an element of that. The larger part for most people is their heating bill and we have to ensure that is addressed going forward as well.

The combination of demand response and demand reduction in policy with the Green Deal in the home and in business means that people can look at bills and take a different view that is not just simply a straight line edition of what has happened to prices.

Q331 Barry Gardiner: Minister, I don’t want to get involved in substantive debates about the Green Deal and so on here. What I am challenging you on and asking you to work with the Committee on is the whole business about this honest debate. I entirely agree with your assertion, first, that unit prices for energy are likely to rise and, secondly, that energy efficiency is the way to ensure that you minimise the cost to the consumer and keep those bills as low as possible. You have given those figures of 3% and 7% lower than they would otherwise have been, but what that means is that the Department must have made a calculation. What I am asking, in effect, is for you to be transparent about that calculation with the public. That calculation is-given the cost of unit price rises in energy that we anticipate by 2020 and 2030, what is that cost? What would bills be like if the energy efficiency savings that you have projected were not made? Be open and transparent about that and then be open and transparent with the public about the sort of energy efficiency savings they do have to make in order to achieve the lessening in increase of their bills, which is really what we are talking about. We are talking about rising bills, but not rising as much as they otherwise might do if we did not conduct those energy efficiency savings. Can you make that available to the public and have an open and honest debate with the public about what energy bills are going to be in the future?

Gregory Barker: Yes. Obviously from your question, Mr Gardiner, we need to do that better. That information is effectively in the public domain, but you are absolutely right. If the Committee has suggestions on how we might engage the public-because engaging the public on these issues is not easy, it is not the most fascinating issue. It is incredibly important but for most people it is not something that they engage with. This is part of the trouble. This information is not secret and we are happy to share it. Our projections are in the public domain. I don’t have them off the top of my head. We would be very happy to work with you and to consider any suggestions you have.

Q332 Barry Gardiner: We say we want this open and honest debate with the public, but that honest debate with the public will have to be clear that bills are likely to rise at the very time we are saying to the public and we are trying to get the political message across that we are the Government or we are the political party-and I am looking across party here-that is going to do the most to bring your bills down. These two things conflict, and the honest debate about the real rises in bills and our political aspiration to be the party that is on your side is what is stopping the public trusting us on energy matters.

Rachel Crisp: It might just be worth bringing the Committee’s attention to the Annual Energy Statement that publishes a lot of this detail and the detail of our analysis about prices and trajectories and so on. The last one was published on 23 November 2011 and the next one will come later this year. Those annual assessments do look at the drivers of change in retail energy prices, looking at both historic and projected prices, as well as an analysis of the impact of Government policies and looking at wholesale price trajectories on energy prices and bills at regular intervals out to 2030. We do put a lot of information out there and, in addition, the Climate Change Committee has published reports looking at drivers of trends. Ofgem publishes data around these issues in their quarterly supply market reports. The issue is maybe not necessarily the data themselves but how we then engage the consumer in what is quite a complex data set.

Q333 Barry Gardiner: Ms Crisp, I absolutely accept that. There are anoraks like me that will go on to that website and look at your data, but there are lots of people out there who don’t. That is why we need to elevate this into the political domain where we are taking that data and being honest with the public and getting the message out to the media that no matter what happens, your bills are going to go up. That is why it is so important to take the energy efficiency matters. Minister, do you think that the expectations about energy efficiency savings are realistic? We need to get that debate out there in order to get the public to realise the risks they are running if they do not do anything to improve their energy efficiency.

Gregory Barker: Energy efficiency savings are going to come from a variety of sources. One of the most important drivers is going to be product standards, certainly in the home, which is great because it does not require a great deal of buy-in from the consumer. It will just happen, providing there is not an aberration from current behaviour patterns. Televisions, fridges, cookers, all of the standard home kit that you have in a typical family home, because we have supported ambitious energy-saving standards, will require a lot less electricity and heat to run by 2020. So that will be delivered. What is more problematic is getting people to take measures for themselves, measures that can only be delivered with their consent. That is where the Green Deal and the ECO come in, but we also want to use other measures on top of that. The Energy Bill is an opportunity to allow at scale demand reduction measures to be used for the first time as potentially an alternative to new build of generating assets. This is pioneer territory. These are things that have not been done at scale in many places around the world so once again the UK will find itself cutting new ground in the energy sector.

Q334 Barry Gardiner: How do you think the media and other public figures and maybe other organisations could be used to help to promote the honest conversation with consumers? Is this something the Department is working on?

Gregory Barker: Very good question. It is something that we are constantly asking. We know from our own public attitude tracker that there is a high level of distrust with the energy companies. As we know, MPs and politicians are not held in great trust so we do need other voices, and trying to mobilise those voices is something that we continually think about. I have set up our own consumer engagement group for the Green Deal, which has been very helpful, but unfortunately, Mr Gardiner, I have yet to stumble across the silver bullet.

Q335 Barry Gardiner: Finally, what are your thoughts on the role that compulsion might play in producing the sort of energy efficiency savings that we are going to need if bills are to be kept as low as possible?

Gregory Barker: There is a role for compulsion or regulation. For example, in the first Energy Bill of the Coalition Government, as part of the Green Deal measures we announced that private rented sector landlords will be obliged to bring their properties up to a minimum standard. From 2016 they will not be able to refuse a request for a Green Deal from a tenant and by 2018 we will specify a minimum standard of energy efficiency in the private rented sector. Likewise, in new build we are going to zero carbon homes. There is a clear role for regulation, and particularly I am in favour of long-dated regulation that drives innovation. The American Energy Secretary, Steven Chu, has done a very interesting peer-reviewed paper showing that smart regulation can drive greater regulation than if you just leave business to itself.

Q336 Chair: On this point about how we can promote energy efficiency, I very much welcome what you said about product standards; it is totally desirable. I remember about 19 years ago, when I was a Minister of State in a predecessor Department, having a conversation with some rather bemused officials about an idea whereby you would have a tariff that did not do the normal thing, which is to reduce costs for high consumption, but reversed that and said you would get a low tariff for the first element of your usage but the tariff would then charge more and more as a direct means of incentivising people to use less. Is that an idea that has been reconsidered?

Gregory Barker: Rising block tariffs is an idea that is actively considered regularly. The drawback to that, Mr Yeo, is that it is very unfair if you are, say, disabled or you are a pensioner at home or you are a young family and people are at home. It does discriminate, or the very basic model would discriminate, in favour of people who are not at home much. That is a problem. I don’t know that necessarily it is an insuperable problem but it has meant that what is on the face of it a very sensible idea has not been taken up in the past under successive Governments.

Q337 John Robertson: Can I follow up what you said. I am very pleased to hear you talking about vulnerable customers. Talking about vulnerable customers in general does not always mean an elderly person or a disabled person; it could be somebody with mental health issues, which is a popular theme at the moment. In Glasgow we have many multi-storey concrete tower blocks and you can’t get efficiency into these kinds of places. What are you going to do for these people? Will you set criteria for the companies so they know exactly what they should do? I find they talk a good game but they do not look for these vulnerable customers who need their help, and the people who do need their help are the last people who go and look for it.

Gregory Barker: A very good point. This has been very difficult. As CERT and CESP have rolled on and the majority of the population has been covered, we have put a premium on what we call a super priority group but the cost of customer acquisition has gone up and up and up. For example, when I was in Sheffield people were telling me that the time and money spent finding these vulnerable customers was greater under the CESP programme than the amount of money and time spent implementing the measures. It was very difficult because they do not self-identify, but we still need to address them. I think the best way to do that is on a community basis and there are diminishing returns. If you keep squeezing your definition of vulnerable, there are diminishing returns of being able to identify those people. Even though we are clear what we are trying to do, actually trying to do it is difficult. We all know where they live, broadly speaking. Mr Robertson, I am sure you could have at your fingertips the roads, the streets, the blocks where these people live. You just might not be able to identify them by name.

Q338 John Robertson: As an MP for 12 years who was born in his constituency and lived most of my life there, you are absolutely right; yet not one person has ever come and asked me for any kind of help.

Gregory Barker: Yes. So what we need is a street-by-street focus, a community roll-out to avoid what I have seen in other parts of the country like Salford, for example, where you have pepper-potting. You have a street that is basically low-income housing-there were not many Lottery millionaires living there-but because certain households did not meet the defined benefit criteria, maybe a young mum who has gone back to work after having a baby or somebody who is on a benefit or maybe a pensioner couple with a small occupational pension that just puts them above the minimum requirement, that meant that only some of the homes in that street had been done. What we need is much more focus on a sweeping street-by-street, community-led, local authority-based approach. That is what I have endeavoured to embed into the Green Deal and ECO. Birmingham is the first local authority to announce their Green Deal plans and they have announced a partnership with Carillion where they are going to be retrofitting 60,000 homes-which is far bigger than my constituency-plus 1,000 commercial and public buildings. It is these large-scale community-based proposals that will capture all of those people who are very difficult to identify on an individual basis, for all of the reasons we are all too familiar with.

John Robertson: We do need something.

Q339 Chair: I should have drawn your attention earlier to my entry in the Register of Members’ Interests. Can I go back to what you were saying about Ofgem. You expressed a bit of frustration about the pace of progress with the Retail Market Review. You also drew a distinction between policies that would be enforced by law and those that Ofgem would simply implement through the licence conditions. Is the implication of what you are saying that you feel Ofgem does not have sufficient teeth to do its job?

Gregory Barker: No, it is not they don’t have sufficient teeth, but for this specific piece of legislation this is a priority for the Coalition, this is a priority for the Prime Minister. We don’t want this to be delayed. As I said, the RMR was promised in the early part of this year; it only landed last week. This is an absolute priority for the Coalition and so we want to be absolutely certain that our proposals, drawing on Ofgem’s excellent report, will be delivered. I can’t give you the details of what that is but it is likely that legislation will be the route for that.

Q340 Chair: Do you feel Ofgem have sufficient powers to do their job at the moment?

Gregory Barker: Yes, but we keep that under review all the time.

Q341 Chair: Looking at the information that is available about the profits the companies make-and reference was made to a number of sources of information about the relationship between prices-the average consumer clearly feels that they do not have enough clarity about the profits made by the companies. Do you as a Department feel you know enough about that?

Gregory Barker: I think we do, but I would certainly agree that the consumer has a very hazy idea, not surprisingly, of how much money is being made by the energy companies. Maybe that is one of the reasons that trust in the energy companies is so low. According to Which?, energy suppliers ranked 11th out of 13 industries and only one in four people say they trust the gas and electricity industry to act in their best interests. It is for Ofgem to investigate if there has been any actual licence breaches.

Q342 Chair: If the Department feels it understands these profits in the companies’ accounts but recognises that the public do not, what could you do? If there is information that you have or an interpretation that you are able to put on it that satisfies you that the companies are acting in a fair and reasonable way but the public do not feel that, is it perhaps a role for Ofgem to make this clearer to the public?

Rachel Crisp: I am sure Ofgem will have spoken about the work that they have done to improve their transparency and accountability of accounts and the work undertaken by BDO, the accountancy firm. I think the proposals that came out of that work have only just come into force within the past couple of weeks or so, and we would want to see what effect those have in improving the transparency of energy companies’ accounting before looking at it again with Ofgem.

Q343 Chair: Do you think these changes will have some effect?

Rachel Crisp: I think so, but we need to wait and see the implications when companies publish the accounts and reports and compliance with those.

Q344 Chair: How will you measure whether they have been successful or not?

Rachel Crisp: That is a good question. There are probably a certain number of elements that we would want to see. We can look at how the reporting was done under the old regime and then look at how it is done under the new regime and see what the differences are and whether that brings sufficient additional clarity. The Minister is absolutely right: it might be one thing providing clarity to the Department and another thing providing clarity to the public at large. That is probably quite a different issue as well.

Q345 Chair: Against the background of at least the possibility of rising world prices for gas, the concern, which we would undoubtedly share, is that people should understand that the impact of some of the suggestions of green measures that are included is not enormous. It exists but it is not as large as perhaps some media reports suggest.

Gregory Barker: Absolutely. The increase this year is very, very small.

Q346 Chair: Quite. The Department certainly has an interest in facilitating better consumer understanding of the relationship between prices and profits.

Gregory Barker: That is why we welcome Ofgem’s recommendations on clearer bills, not just on tariffs but on usage and the Annual Energy Statement reforms that they are proposing. I have been working with the Big Six for nearly two years now, with the excellent support of our colleague John Baron MP and his Billing Stakeholder Group. We had a voluntary agreement last year with the Big Six to implement sensible messaging on bills. It was very mixed in terms of how they implemented what they agreed to do and it has added to my feeling that voluntary agreements are not enough in delivering a better deal for consumers. Ofgem has some very useful suggestions on transparency and messaging for customers. My feeling is that at the moment there is just too much on customer bills.

Q347 Chair: Do you think the companies are being unfairly demonised for raising prices in circumstances that do not justify it?

Gregory Barker: I very much regret the fact that there has been this big increase. The fact that different companies have responded with different price rises is a testament to the fact there is not a uniform response. It shows that different companies had regard to different factors in deciding to put up their prices. What we ultimately need, Mr Yeo, is more competition.

Q348 Chair: Do you think the changes proposed in the Energy Bill will achieve that?

Gregory Barker: They will certainly enhance competition. From 1997 there were 14 major players in the energy economy. There are now six. Hoping that we are going to revert to the status quo ante in terms of large-scale utilities would be overly optimistic. It is not impossible that we could have one or two new entrants, but I think the big opportunity is for the smaller players. What I would like to see is rather than the Big Six it is the Big 6,000, or go even further and see far more companies and individuals and communities generating their own heat and electricity, whether that is on a community model, whether that is on a commercial model for business, or whether that is individuals taking advantage of new micro-generation technologies as the prices fall. Ultimately, that is where the competition is going to come from, from a much more distributed model of energy generation and a much more engaged consumer population thinking about how and where they generate their electricity and heat.

Q349 Christopher Pincher: Minister, you have rightly said that the demand side of the equation is vital in delivering energy efficiency in homes, and DECC says that one of the key components of that is going to be smart metering. But your own analysis shows that only about half of those people who have been asked know anything about smart metering, and half of those have no intention of installing a smart meter in the next few years, in the near term. There have been problems in the US and in the Netherlands with the roll-out of smart metering because of a lack of public engagement. Do you think there is going to be a problem here and what are you going to do about it?

Gregory Barker: I do not think there will be a major problem here. The reason that people have not heard of smart meters is that smart meters are not widely available. The roll-out of smart meters in the UK does not really kick off until 2014 and it is going to be, effectively, a six-year programme. This is not something that we are going to be relying on consumers to fit themselves. These will be fitted by the industry to an interoperable standard. This is a very complex piece of kit that we are putting in and an even more complex piece of kit to manage effectively. That is why we must not get confused regarding what we are talking about as smart meters-an interoperable piece of kit that is able to talk to devices in the house and also communicate remotely to energy companies, and will potentially offer tariff savings and so on. It is a really smart meter. What most people think of as smart meters, certainly a lot of consumers think of, is simply a display meter that shows your current usage. That will be a component of a smart meter but it is by no means the only component. I would not worry too much about people saying they are not going to fit one. We do not want people to be against it, but this is something that will be a logical upgrade of their existing electricity meter. It is an upgrade to something far better.

Q350 Christopher Pincher: Don’t you think it is a little complacent to suggest that we do not need to worry about it but also to accept that most people out there do not know what a smart meter is? Shouldn’t we try to engage with people now, so when the roll-out does begin next year people have an idea of what is coming and they will be happy about that, they will be keen to have a smart meter?

Gregory Barker: It is not next year. As we get closer to 2014 I do expect that there will be a-

Q351 Christopher Pincher: We are in November now, we are virtually in 2013, so shouldn’t we be engaging now to educate people?

Gregory Barker: Not yet. There is a lot on at the moment. We have plenty of time to begin the communications around the beginning of the smart meter roll-out and that is something that we will want to work very closely on with the energy companies. Once the Green Deal is up and running that is going to help greatly. We have to take our fences one at a time. Do we intend to increase the level of communication activity and consumer engagement as the programme begins in earnest? Absolutely.

Rachel Crisp: Could I just add to that. It might be worth flagging that we will be publishing a consumer engagement strategy around smart meters very shortly. It will look at measures we can take to build consumer support for the smart metering roll-out, looking at how those consumers can realise the benefits of smart meters and, therefore, hopefully view them more positively, and how we might ensure that the vulnerable low-income and also pre-payment customers can benefit from smart meters. It is something that we are taking quite a substantial look at across the Department and there will be more details in that strategy when it is published.

Q352 Christopher Pincher: I am sure we will look forward excitedly to a centralised engagement programme. Is that going to be done by the catchily titled Central Delivery Body, which sounds like it has jumped out of Gosplan?

Gregory Barker: Or a maternity hospital.

Rachel Crisp: The overall strategy for consumer engagement will be developed by that body but we do expect them to work very closely with local authorities and energy suppliers and other wider third parties as well, so it’s not just a centrally developed strategy.

Q353 Christopher Pincher: When will it be set up, who will head it and what will its remit be?

Rachel Crisp: I do not have the answers to those detailed questions.

Q354 Christopher Pincher: We are going to engage with people using an organisation that does not have a head, does not have a date for launch and does not have a remit.

Gregory Barker: It will do by the time we launch. We are in October 2012 and we are talking about a time in 2014 so there is a little bit of time.

Q355 Sir Robert Smith: Headlines are beginning to appear already about the spy in the cupboard and all the other negative stories.

Gregory Barker: Unfortunately, we are not yet responsible for controlling the press.

Q356 Sir Robert Smith: No, but you are responsible for putting out the other side of the argument. It may mean that you do not want to wait until 2014 to put the other side.

Gregory Barker: We will not wait until 2014. As Ms Crisp said, we will be launching a consumer engagement strategy. I do not want to appear flippant at all. We just have not got to that point yet. There is a clear plan of how we will roll that out over the course of the next 18 months. I do hope that by spring we will be able to tell you in more detail, appropriate detail, of our plans for taking this strategy forward in the following year.

Q357 Christopher Pincher: When it is launched and rolled out some time in the spring, do you think that the CDB might have a role in localising the roll-out of smart meters?

Gregory Barker: Absolutely. The Central Delivery Body is not some Gosplan organisation that is going to accrue power to itself. This is going to be very much a devolved roll-out but it will be clearly co-ordinated. We will learn the lessons of previous Government IT cock-ups. We will make sure that there is a light touch but nevertheless clear strategic direction from the centre. This is one piece of kit and it is absolutely essential that there is interoperability, there is connectivity, that they are able to speak coherently, that there are no barriers to switching, that there are linkages, because this will all deliver the best deal for the consumer. We can’t have the private sector building internal market walls or firewalls between them in order to minimise competition. We want a piece of kit that is going to be there for the consumer, not to maintain the grip of the Big Six.

Q358 Christopher Pincher: Have you thought about what criteria you will use to judge the success of the smart meter roll-out?

Gregory Barker: Clearly on time to our timetable, which is to complete the roll-out by 2019. We want a high level of consumer satisfaction and obviously we want the kit to work. I would have thought they would be the basic criteria for success. I am sure there are more detailed KPIs that this Committee may suggest but that would be a good place to start.

Christopher Pincher: I look forward to seeing it.

Q359 Albert Owen: Can I ask you-not in any detail here, so there is no need to take this as if we are going to hold you to ransom on it-a serious question about periphery areas. Many of the remoter areas of the United Kingdom have some of the hardest to heat properties, as you know with the Green Deal. Will they be considered for an earlier roll-out or will they have to wait until 2019 because of their geographical nature? As you know, these areas pay the highest fuel now because of transmission costs in many cases.

Gregory Barker: Under the Green Deal, for example, I have prioritised remote rural areas and ring-fenced funding for rural fuel poor so I very much take on board the point you make, Mr Owen. I can’t answer that because I am not personally responsible for the strategy.

Q360 Albert Owen: Sure, but can you consider it?

Gregory Barker: We can certainly consider it and I would be very concerned if the logical conclusion of what you are saying was that those in the most remote areas had to wait the longest. I can’t give you the detail.

Q361 Albert Owen: It is evidenced with broadband and many other roll-outs of modern technologies.

Gregory Barker: What I can say is that we are already anticipating that there will be a range of communication systems. In the centre of town it may be that you are linked fibre-optically to your communication centre but in the remote areas you may use satellite or a mobile network, whatever is appropriate. I can’t give you the detail because I am not responsible for this area but I can give you the assurance that we will look at this to make sure that those in remote areas are not unduly disadvantaged.

Q362 Albert Owen: Could I suggest that one of the pilots be a remote area? I could suggest Anglesey but I am sure there will be other contenders for it.

Gregory Barker: I would be very happy to take your suggestion on board and pass it to my colleague Mr Hayes.

Q363 Sir Robert Smith: On that remote inclusion issue, is it not quite important to have some perception of not locking in the wrong technology at the start that makes it impossible to get to those in the most remote areas?

Gregory Barker: That is why we have taken a while. There has been criticism of the Department in the past about why we are taking so long to roll out the smart meters. The reason why this has not been rushed-it has not been delayed but it has not been rushed-was that we wanted to get that question right. If you unpick the smart meter agenda, it is a lot more complex because of the technology choices and because of the absolute imperative of them being interoperable and not creating technological barriers. What we are coming up with is flexible and proportionate and appropriate for a whole range of different users in different parts of the United Kingdom.

Q364 Sir Robert Smith: It is important then that the communication system will eventually reach those areas. Albert’s point is quite important.

Gregory Barker: It is absolutely the heart of our smart meter programme that the meters in the Highlands and Islands may work on satellite; in the middle of Nottingham the chances are there could be a fibre-optic link; and in a suburb it might be on a mobile data network. We have future proofed our strategy to enable it to take advantage of whatever is the most appropriate and effective communications medium.

Q365 Sir Robert Smith: Back on the Retail Market Review proposals, you seem quite positive but do you see them working to deliver the competition and the switching that they are designed to do?

Gregory Barker: Do I see Ofgem working to deliver?

Sir Robert Smith: No, the Retail Market Review proposals.

Gregory Barker: I think it is excellent. We have only had it for a few days. Obviously there is a consultation with the industry that closes in December, but on our first reading we are pleased with this. We think it is a very firm foundation on which to build. There may be further things that we will wish to add to this because we are very ambitious in what we want to deliver to the consumer. But is this a good foundation start? Yes, absolutely.

Q366 Sir Robert Smith: Do you think also that the focus on switching statistics is maybe missing the way of measuring the market and that we should be looking at shares of the market and the number of new entrants that are able to get in?

Gregory Barker: I certainly agree with you that we should not just focus on one data set. The difficulty that new entrants have in making an impact is a concern.

Q367 Albert Owen: Can I move on to the Green Deal in some greater detail. You have mentioned it a few times here. Why do you think there is a lack of interest among some of the retailers and consumers? I am not going to give a list in any order but there is no John Lewis, no Sainsbury’s, M&S, Tescos, B&Q, at the launch and really taking this forward. Why do you think that is?

Gregory Barker: You are misinformed because some of those very companies that you have mentioned are enthusiastic backers and were among the go-early Green Deal providers. I don’t know where you got that information from but I would go back and get it corrected.

Q368 Albert Owen: We have been told that the large retailers are absent. So they are all enthusiastic about it?

Gregory Barker: Not all of them because they will move at different rates, but certainly John Lewis are very enthusiastic. B&Q or Kingfisher are very enthusiastic, have been one of our strongest champions and they have input their thoughts. They do not get everything. We continue to be in dialogue with them, but in terms of preparing for this market I am really pleased with the amount of buy-in we are getting. The Green Deal road-shows that we have had around the country have been massively oversubscribed so we are putting on more in different parts of the country. If the Committee would like to host Green Deal road-shows in their parts of the country, I would be very happy to facilitate that. The SME engagement has been very good. The local authority engagement is very good. In terms of the large retailers, some are coming forward with an early offer; others are being a little bit more cautious, holding their cards close to their chest, waiting to see what the competition are going to do, waiting to see what the market looks like when it launches.

The important thing is that we do not get over-excited about what happens in the first few weeks. This is a new market that will span the next two decades. We will bring in major participants over a period of time. The market will evolve. The incentives and the regulations that we will need to drive the market forward will necessarily need to evolve in the light of market experience. The important thing is to see this as a long-term project that we are absolutely committed to. This is not like CERT, which was introduced for a year or two years and had a year extension. This is a long-term market and it needs to be seen in that context. I am increasingly confident about the input and buy-in that we are getting, not just from the big boys because I think the SMEs are going to be the most valuable ally in delivering the Green Deal.

Q369 Albert Owen: I was with an SME on Friday who raised this very issue with me. They are an innovative company that do flat roofs and weatherproofing and are really into energy efficiency. Why doesn’t the Green Deal cover flat roofs, for instance?

Gregory Barker: Why doesn’t Green Deal cover flat roofs? Why should it cover flat roofs?

Albert Owen: Well, because this is an innovative company that wants to sell energy efficiency-it’s about insulation.

Gregory Barker: What does a flat roof have to do with energy efficiency? I am missing something, Mr Owen.

Albert Owen: They are difficult to insulate. They are hard to heat homes and yet there is no incentive for this very company. You said SMEs are very encouraged by this. I have just been to see one.

Gregory Barker: Insulation products that you can put in flat roofs are covered by the Green Deal.

Q370 Albert Owen: Not according to them. Can you have a look at that, because it is important? There are a hell of a lot of flat roofs in certain areas, on schools, for example. It is a very serious point I am raising.

Gregory Barker: A flat roof per se is not a Green Deal measure but the insulation that goes into it or on to it absolutely is. There are now 45 measures that are covered. I would be delighted if you would direct them my way.

Q371 Albert Owen: I will certainly do that. They will be very pleased to have contact with a Minister on that very point. It is a serious point. A lot of companies that I meet are not as enthusiastic. I agree with you there is no need for over-excitement but they are not very enthusiastic because they do not think that this is for them. These are real companies and real people whom you and I want to engage in this for the benefit of others.

Gregory Barker: I understand that, absolutely, which is exactly why I keep saying that we need to build this over a period of time. We must not just think, "The launch is next January", then walk away and get on with the next thing. This is something I am absolutely personally committed to work with. There are people standing on the sidelines who are not sure whether it is for them, and for good commercial reasons will want to see it evolve. Maybe they are apprehensive, maybe for good reason, but it will be up to us to work with them and hopefully they will see it working. Local authorities and local communities are absolutely key and this will build. Those who are currently cautious, I hope in the coming months, even possibly years, will say, "You know what, this is something I do want to be involved in".

Q372 Albert Owen: I have two more questions for you. You mentioned in a previous response on smart metering about the Central Delivery Body. Okay, it is not up and running but why don’t we have one of these for the Green Deal?

Gregory Barker: The Green Deal regulation has a central body; there is a Green Deal ombudsman that looks after assessors. In terms of the quality assurance standard-

Q373 Albert Owen: What about the delivery body?

Gregory Barker: We have just had that. It was rubbish.

Albert Owen: Pardon?

Gregory Barker: We had that. It was called Warm Front.

Q374 Albert Owen: You said you were going to do it for smart metering. There is a principle here, this mind-set-

Gregory Barker: You misunderstood, Mr Owen. We are not talking about the Central Delivery Body going out and putting them individually into people’s homes. The Central Delivery Body will have a strategic view to ensure that there is technical coherence and appropriate technology adopted to ensure that all of these different meters, where they use different technologies, nevertheless speak the same language of communications and are technologically compatible. It is a slightly different proposition to the Green Deal.

Q375 Albert Owen: So we are not going to have a Central Delivery Body for the Green Deal, that is clear. What is not clear is the criteria by which you will measure the success of the Green Deal. How will you be able to sit down here in a few years’ time, as a retired Minister, and say, "I started that off. It has been a huge success"?

Gregory Barker: Whether or not we achieve our carbon targets in terms of our carbon budgets that we have to meet?

Albert Owen: I don’t mean that long.

Gregory Barker: But also by the early 2020s we will need to have done about 14 million homes. Some of those might just require a small intervention to top up what they have already; for others it might mean a whole house retrofit. I do take comfort from the fact that we renew about 1.1 million or 1.2 million boilers every year, so there is an at scale delivery programme. Everyone that has a new boiler ought to have a Green Deal just on the back of that. Even if we just had a Green Deal on the back of a boiler replacement, that is 8 million, so it is not such a-

Q376 Albert Owen: We have a very successful scheme of new boilers but I am saying it is more than that. You are saying that the environmental targets will be the criteria that this will be measured against.

Gregory Barker: Yes.

Chair: You have been very kind with your time this morning and we have covered a reasonable amount of ground. Thank you very much for coming in and we look forward to seeing you again before long.

Gregory Barker: Thank you, Chair.

Prepared 30th November 2012