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Westminster Hall
Wednesday 26 March 2014
[Sir Roger Gale in the Chair]
Energy Markets (Competition)
Motion made, and Question proposed, That the sitting be now adjourned.—(Gavin Barwell.)
9.30 am
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op): It is a pleasure to serve under your chairmanship, Sir Roger. I am delighted to have secured this debate, which is even more topical this morning than when I submitted my request last week.
The debate’s background is the rise in energy prices faced by domestic and business consumers over the past few years. Since 2010, energy bills for domestic consumers have risen on average by almost £300, and businesses say that energy bills are their second biggest cost. Many consumers find it difficult to pay their increasing bills and are concerned that they may face further rises. The issue’s importance was recognised by my right hon. Friend the leader of the Labour party when he announced that a Labour Government would freeze energy prices until 2017, thereby making an effort to help people facing today’s cost of living crisis. There is no doubt that that announcement struck a chord with the public, but the freeze was always envisaged as an interim measure to allow time for more fundamental questions to be addressed. It is important to have that discussion here today.
One fundamental question is how far there is effective competition in the energy market, or whether competition is, to a greater or lesser degree, ineffective and whether, as a consequence of any such weakness, lack of competition leads to higher prices for customers. Customers often feel there is lack of competition in the market’s operation. They see that when world prices go up, the price for the consumer goes up; but when world prices go down, the retail price does not appear to go down as far or as fast. That can be seen by comparing the movement of wholesale energy prices over the three years up to the winter of 2013. Wholesale energy prices were relatively stable from the winter of 2011, rising by an average of 1% a year, but during that period large energy companies increased their retail prices by an average of more than 10% a year. That is not just a recent phenomenon, and it is not just a phenomenon under this Government. If we go back to 2008, there was a dramatic rise in wholesale prices for both gas and electricity followed by a substantial increase in retail prices that was roughly commensurate with the increase in wholesale prices, but when there was a dramatic drop in wholesale prices in 2009—a drop of about 45%—it was not followed by a big drop in retail prices, which went down by only 5%.
We have to ask why that is the case. What does it show, and what needs to be done? Various reasons have been suggested for the apparent lack of effective competition in the market. It has been suggested that one factor might be customers’ lack of willingness to move from their traditional regional supplier, and it is certainly true that in most parts of the country—although in some parts more than others, with Scotland being one
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such example—most customers still stick with their traditional regional supplier. The dominance of the big six has barely shifted. The figures from the Department of Energy and Climate Change show that, until the end of 2012, at least, SSE, E.ON UK and RWE npower held exactly the same market share in gas as they did five years previously. British Gas’s market share dropped from 44% to 40%, and EDF’s share rose from 7% to 9%. Similarly, there were no real changes in the share of the electricity market held by those companies over that five-year period.
Some suggest there is inherent weakness in a system dominated by vertically integrated companies—that is what we have for the most part—in which both the supply and generation businesses are closely linked. Others point to the unwillingness of consumers to move because of the complexity of tariffs. Until recent changes, by some counts there were more than 400 tariffs across the various companies.
Of course, the companies point to other factors as being the principal reason for the gap between wholesale and retail prices and for the system’s apparent difficulties and shortcomings. I accept that it is a complex world and that the market is influenced by many factors, but important questions need to be asked, and it is certainly not just the Labour party that is asking those questions. As hon. and right hon. Members know, the consumer organisation Which? recently published material estimating that the flaws in the market, as Which? describes them, have left consumers paying almost £3.9 billion more than they ought to have paid since 2010.
Businesses are also concerned. Along with Which?, the Federation of Small Businesses wrote to the competition authorities a few days ago saying:
“We all want to see a transparent market where consumers and businesses alike can understand their bills, compare prices and switch easily. We want to see the presence of strong competition right across the industry drive affordable pricing that gives everyone the confidence they are paying a fair price for their energy.”
Small businesses, consumers and the Labour party are raising those concerns and questions.
Mr Gregory Campbell (East Londonderry) (DUP): I congratulate the hon. Gentleman on securing this debate. Does he agree that, in addition to the lack of competition, there is widespread concern that millions of customers are making complaints, particularly against the big six?
Mark Lazarowicz: Indeed, and the figures have been rising, as the hon. Gentleman knows.
As I said at the start of my remarks, the Opposition see energy prices not just as the first step to reduce pressure on customers but as part of a much more fundamental reset of the energy market. In summary, we propose to get the energy companies to separate the generation and supply sides of their businesses, and we want to see all energy companies trading for energy in an open market by selling into a pool. We want a simplified tariff structure and a new, tough energy watchdog with new powers to police the market, including the power and remit to force energy companies to cut their prices when there is evidence of overcharging. All those proposals would make the market more transparent, and no doubt my hon. Friend the Member for Sunderland Central (Julie Elliott), our Front-Bench spokesperson, will refer to those proposals in more detail.
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The proposals in the Labour party’s consultative document are welcome, and I note with interest the response to the consultation published today by SSE, although I have had only a brief opportunity to look at it this morning. I suspect that the Minister will say that, yes, there are weaknesses but they are being addressed. He will no doubt point to increased competition and to the new entrants into the market. Indeed, there has been an increase in the role and market share of new entrants, but they still represent a fairly small proportion of the market as a whole.
There is a long way to go, and we all know that many customers are reluctant to switch for all sorts of reasons. They might be uncertain about how to go about switching, for example. Some of my constituents switched and found that, after an apparently attractive offer, within a few months they were paying even more than they did under their previous supplier. The tariff simplification introduced by the Government, which on paper seemed a good idea, has in practice led to a number of difficult consequences. Many of us know of cases in which people have ended up paying substantially more following the tariff changes because those changes are in some cases biased against people who use little energy, either by choice or by lack of income or resources.
A much more fundamental change is needed, which is recognised across the industry. I also recognise that the weakness in the market is not the only reason for higher prices. World supply and demand is a major factor, and taxes and support for energy efficiency and renewables have an impact. There is certainly a need for changes there as well. Like many Members, I am concerned that the changes the Government have introduced so far will mainly result in the watering down of energy efficiency measures, which are the single biggest way of enabling consumers to cut energy waste and cost.
Albert Owen (Ynys Môn) (Lab): Another factor in the increase in prices and the high prices is distribution cost. In the distribution areas, there is no competition at all. That monopoly contributes somewhere between 19% and 24% of a bill. Does my hon. Friend agree that we should look for greater competition in that area?
Mark Lazarowicz: Absolutely. That is one of the areas where a fundamental investigation is needed, with fundamental questions asked and fundamental changes made. I recognise that businesses have to make a profit for their shareholders and future investments. They are big businesses, so the profits will have big numbers in them. Nevertheless, there are fundamental questions. Today, SSE has made an announcement that promises an energy price freeze until at least 2016 and it is preparing to separate legally the retail and wholesale sides of its business. Those changes are in line with the policies announced by the Labour party last year.
David Mowat (Warrington South) (Con): This debate is indeed timely, given the SSE announcement. The hon. Gentleman will also be aware that SSE announced this morning that of the four offshore wind farms it was planning, three will not now go ahead.
Mark Lazarowicz:
I see that that is how it has been described by some in the media. I have not had a chance to look at the SSE comments in great detail, but I am
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not sure that the causal linkage that the hon. Gentleman suggests exists. It was interesting, given the various comments on the Labour party proposals, that SSE has welcomed the need for long-term stability in the framework for investment. Perhaps the single biggest problem for long-term investment in offshore wind has been the confused and mixed messages sent by the Government recently.
Mark Lazarowicz: I will draw to an end, because I know a lot of colleagues want to speak in the debate, including the hon. Gentleman. There is an increasing focus on price, the customer, the structure of industry, long-term prices and long-term investment, and that focus comes from many quarters. If it had not been for the intervention of my right hon. Friend the Leader of the Opposition and our policies last year, we would not have seen this welcome concentration of minds on the issues. That has encouraged many to bring forward their proposals for change. I hope that this debate will contribute to getting the changes in the industry’s structure that are so desperately and urgently needed.
Sir Roger Gale (in the Chair): Order. At least seven Members have indicated a desire to speak, and we have an hour and a quarter for the debate. I will not impose a time limit at this stage, but I urge Members to exercise a degree of self-restraint. If everyone keeps their remarks to about six minutes, all Members should be accommodated.
9.43 am
David Mowat (Warrington South) (Con): I did not rise to indicate that I wanted to speak, because I was with a colleague last night and I left my speech in the pub. I have been trying to rewrite it and I will happily now go ahead.
Sir Roger Gale (in the Chair): Order. The hon. Gentleman did the courtesy of putting his name down to speak, which is why he was called. We try to call people, as a general rule, who bother to put their names in first. No doubt the circumstances he faces will lead to brevity.
David Mowat: Certainly the second part of my remarks will be brief, Sir Roger.
The issue before us is serious. Everyone at this debate is concerned about fuel poverty in their constituencies and high fuel prices. Most of us, I think, are concerned about energy intensive industries, particularly in the north-west and the north-east. Some 900,000 people work in industries where the price of energy is a significant determinant of profitability, and it behoves us all to take the issue seriously. We are where we are because issues have been raised on the market fairness and market effectiveness of the energy industry in the UK, and it is right that we look at that. The Secretary of State has talked about referring the industry to the competition authorities, and I support that.
It is important—the opening remarks did not do this—to distinguish between gas and electricity, because they are different markets. I want to talk a little bit
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differently about each of them. There are suggestions that the industry is some kind of cartel and “the big six” is, frankly, often used in this House almost like a swear word. We hear that the big six do this and do that. I have heard the shadow Secretary of State use the phrases “price fixing” and “secret deals”. If the Opposition have evidence of cartels or price fixing, that is extremely serious. If it exists, directors of public companies will go to prison. Fines can be levied that are several times the turnover of those companies. It is important that the Opposition bring that evidence forward, if it exists.
When words like “cartel” and phrases like “secret deals” and “price fixing” are being used, be aware of what is being suggested and be willing to take that forward and give that evidence to the competition authorities in the European Union and the UK and to the police. If such evidence does not exist, it might behove the Opposition to use more moderate language, which they were doing in their opening remarks in this debate, at least.
I want to make some comments on how the UK market compares with the EU market. One way to find out whether there is price fixing, cartels or other problems is to see how our market compares in structure and outcome with the rest of the EU. I have done a little analysis on that, under three headings. The first is out-turn prices for gas and electricity in the UK compared with other EU countries. The second is market structure. People say that we broadly have the big six in gas and electricity, and other countries in Europe do not have that structure. The third is the profitability of those energy retailers in the UK versus other places. I report that the answer is different for gas and electricity.
On gas, we have to distinguish between taxed and untaxed prices. In this country, we tax gas very little, while the EU taxes it much more heavily. It can appear that prices are higher there, so it is only fair to look at untaxed prices; on that basis, our gas prices are the second lowest in the EU, although it is true that they are significantly more than in some other countries. They are triple the prices in the United States of America, but we know that that is to do with shale gas and all that goes around that. Our gas prices are the second lowest in the EU, yet broadly speaking we have an EU energy market for gas, and some comparability would be expected. If a cartel is operating in the gas market, it is hard to see that it is being very effective.
On electricity, our retail prices are among the lowest in the EU. When we look at the position without tax, it is a little more nuanced. According to the EU portal, our untaxed electricity prices are slightly higher than those in Germany, Holland and France, although not by very much—5% or 6% higher. That is a lot of money, however, by the time that all works through. On the face of it, there might be a more significant issue with electricity than there is with gas. I would be interested to know whether Opposition Members are talking about the need for a price freeze for both industries or just for electricity.
Dr Alan Whitehead (Southampton, Test) (Lab):
Does the hon. Gentleman accept that the production of electricity using gas means that there is a substantial link between gas and electricity? Investors in new gas-fired power stations claim that the relationship between gas and electricity prices means that they are currently not
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particularly willing to invest. The hon. Gentleman’s decoupling of the two markets is a bit over-precise and ought to bear that fact in mind.
David Mowat: That is a fair point. It is true that no gas power stations are currently being built in this country, but the principal reason is that shale gas in the United States has meant that coal has become cheap on the world market. We will therefore be burning coal in this country at a great rate—even more so in Europe—until we are stopped.
I accept the hon. Gentleman’s point that the markets are not entirely distinct, but my point was simpler than that. I have looked at what we are paying in this country for gas, which is a separate market, and it is the second lowest price in the EU. Members should bear that in mind when making comments later in the debate.
I was about to come on to market structure. I have always thought it a little odd that having six participants was regarded as a monopoly. Looking elsewhere in EU, Germany has two retailers in electricity and three in gas, Holland has three in each and Italy has five in gas and two in electricity. France is a little different because of nuclear power. In terms of market concentration, the report I used for this is the—I do not have it here—
Chris Ruane (Vale of Clwyd) (Lab): Is it down the pub?
David Mowat: It’s in the pub. It was the “Energy Retail Markets Comparability Study” report completed for the Department of Energy and Climate Change, which stated that we have the least concentrated energy market in the EU, with the possible exemption of Austria. Opposition Members may want to reflect on that as well.
The next thing is profitability. Are companies making massive profits? The report states that there are two ways of looking at profits. They can be earnings before interest and tax, known as EBIT, or the return on capital employed or ROCE. On both measures, profitability in the UK market is similar to that in the rest of Europe. It is of course perfectly possible that I have missed the point—that every country in Europe has a cartel, of which the UK market is just one part, and that we are luckily going to fix that in the UK. That may well be the case, but all I am saying is that, by many measures, we seem to be no worse off, and often much better off, than some of our competitors.
Dr William McCrea (South Antrim) (DUP): Listening to the hon. Gentleman, it is as if our constituents were getting a real bargain for gas and electricity, but I assure him that that is not what my constituents are telling me. They are facing a choice between heating and eating and do not believe that they are getting a bargain.
David Mowat: I thank the hon. Gentleman for that intervention. I have not said that people are getting a real bargain. I am trying to compare prices here with those in the rest of Europe, including the Republic of Ireland, and to examine whether there is evidence of exploitative behaviour. That is my point.
I wish we had less fuel poverty—I will come on to how we need to vote on measures to reduce it—and would like to see lower prices, which more competition
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can achieve. The Government’s work on making switching easier and price comparability is important, but switching is still too difficult and leads to stickiness in the market. If it was easier to switch, the market would work better and prices would be lower, so we need more work on that.
I agree that it would be better if there were more new entrants in the market. Having more game-changing new guys coming into the retail market would be beneficial. All I am saying, however, is that there is nothing in the structure of our market that implies that it is worse than elsewhere in the EU. Indeed, it would appear to be slightly better.
We need to be careful about what we wish for on energy policy, because security will be a significant issue over the next three or four years. In my earlier intervention, I mentioned SSE’s decision, announced this morning, to pull out of offshore wind, which I very much regret. I hope that there will be no trend of similar announcements from other players in response to the slow-motion car crash that is Opposition energy policy. We need energy stations to be built to replace ageing nuclear and coal power stations, and they need to be built pretty quickly or we will have a problem.
Finally, I have voted four times against the Opposition on matters of energy prices. Three years ago, there was a Government motion to reduce the solar subsidy from six times grid parity to four times grid parity, but the Opposition voted against the Government on what was a moderate reform to the market. They also voted against the Government on a Lords amendment regarding the accelerated replacement of coal. How we vote on green issues matters. Many of our constituents are in fuel poverty, and we need to be thoughtful as to how we vote.
Sir Roger Gale (in the Chair): Order. I intend to call the Opposition Front-Bench spokesperson at 10.35 am, so I am imposing a six-minute limit on speeches.
9.56 am
Dr Alan Whitehead (Southampton, Test) (Lab): Why are we having a debate on the energy market when, with the Energy Act 2013 having passed through the House, energy has apparently been done to death? The simple answer is that, although all the material that went into the Energy Act mentioned electricity market reform, the electricity market was the one thing that was not reformed as a result.
As my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz), whom I congratulate on securing the debate, outlined, the market in the UK is not working well, in particular because the present structure—I take issue with the suggestion that markets elsewhere in Europe are more concentrated than the UK’s—is concentrated and vertically integrated on both sides. The big six have 95% of the retail market and some 70% of the wholesale generation market. The hon. Member for Warrington South (David Mowat) mentioned Germany, where nearly 50% of generating capacity is in the hands of independents, communities
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or local agencies, which is a different landscape from the UK’s. Switching is only part of the solution to competition and to market dysfunction.
Indeed, what we need to understand about switching is that small suppliers, which have recently seen their miniscule share of the retail market marginally increase, are subject to a reduction in energy company obligation fees when they have fewer than 250,000 customers. When Mrs Miggins of 7 Acacia avenue switches and becomes a small supplier’s 250,001st customer, that costs the supplier £7 million in the changeover from non-obligation to obligation—[Interruption.] The Minister shakes his head, but I am afraid that that is how that works.
How one fixes and deals with market competition is about looking at the whole question—how the market works together. The Opposition proposals on the separation of retail and wholesale businesses and the development of a pool—essentially an exchange to secure transparency and access to the market for all, including independents—start to tackle that overall market issue. The Government will pray in aid an Ofgem report—I believe the final report is out tomorrow—about wholesale power market liquidity, and the “secure and promote” licensing conditions. It will, clearly—certainly in relation to what has been proposed so far—deal only with the day-ahead market, one end of the trading arrangements, and not with the arrangements whereby companies trade with themselves.
That is an essential question in dealing with how to get the market working better. In bilateral deals, companies trade with themselves. They not only buy extended amounts in advance and then whittle amounts down to balance, but, at gate-closure time, they trade with themselves so as to balance their own arrangements much better, to avoid being fined in relation to balancing arrangements. That provides, among other things, a particular advantage compared with independent suppliers or, indeed, retailers, who have to buy from the spot market or the day-ahead market to balance their own supplies. It is a completely integrated arrangement as far as self-supply is concerned.
It is no coincidence, therefore, that SSE announced this morning a price freeze until 2016 and possibly beyond, and a separation of supply from retail. I think that what we should read into that is that SSE anticipates a Labour Government making the changes and getting ahead of the game. That change is greatly to be welcomed, and we need to put that on the table in discussions on competition.
10.2 am
Damian Hinds (East Hampshire) (Con): I congratulate the hon. Member for Edinburgh North and Leith (Mark Lazarowicz) on securing the debate. As the hon. Member for South Antrim (Dr McCrea), who has just left the Chamber, said, the issue is very important to many of our constituents. They are at the sharp end and they feel the effect of the high price of heating their homes. It is also a big issue, of course, for firms and for the competitiveness of the UK economy.
There are several elements to the price we pay for energy: the wholesale cost, which accounts for about 44% of a typical dual fuel bill; the cost of supply; the policy costs; taxes, of course; and, finally, profits. Today we are focusing on competition and competitiveness in the market. That will flow through; it will be seen in
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companies’ profits, of course, and to an extent in the cost base—the part of the operating cost that is retail distribution in particular. Of course there is also the question of the allocation of costs, where there is vertical integration in the market. In 2012, the big six made an average margin on domestic energy of about 4.3%, which is not the sort of level to raise alarm bells. However, the question that many people want to ask is whether the vertically integrated companies are making super-normal profits elsewhere in the chain, and in particular in generation. That is a question that even the collective wisdom of all the hon. Members in Westminster Hall today will probably not be able to solve. It needs a full-on economic analysis by the competition authorities, and I hope that that will come soon.
For today, we are focusing on retail distribution. I do not want to get all theoretical about it, because, as the hon. Member for Edinburgh North and Leith said, the issue is a practical one that people feel in their pockets and in the heat or cold in their homes. Perhaps not the stupidest place to start a discussion about competitiveness in any market is the conditions for perfect competition. The things that are needed are a commodity product; many buyers; many sellers; no barriers to entry; perfect information; and no switching costs. In the market that we are concerned with, the first two are given: there is a commodity product, whether it is gas or electricity; and clearly lots of people need to buy it. Everything else in the list does not come naturally. There are not, naturally, many sellers. There would not naturally be perfect information or an absence of switching costs and barriers to entry. Those are the things that public policy should be concerned with, for competitiveness.
It is worth dwelling for a moment on history. There is a rumour, although I do not think that the hon. Gentleman perpetuates it, that there began to be a problem with high energy prices in about May 2010, and that it is all the fault of the present Government. That is of course absolutely and wholly untrue. According to the Office for National Statistics, in 2002, 2003 and 2004 the average monthly household energy bill was £70. That rose to £108 by 2009 at otherwise constant prices—a massive rise of 50%. The rise was even worse as a proportion of income for the poorest fifth of customers. The price came down, but only slightly, I am afraid, after 2009-10. If I had more time, I would talk more about the international comparisons, although my hon. Friend the Member for Warrington South (David Mowat) did that extremely well. We should remember that, of course, the biggest factors in the price of energy are, sadly, things that we cannot control, to do with wholesale energy prices. However, a lot could be said another day in another debate about how those markets might work more in this country’s favour.
Whatever the other main factors may be, we always want a more competitive market, and that always has an impact on price. There are two areas where that is particularly relevant: the number of sellers in the market and the barriers to new ones coming in. There are many markets in this country with high concentration ratios, including confectionery, soap powder and grocery retail. However, we would all agree that they are competitive markets in which companies compete hard with each other. A problem arises, particularly, when products are less comparable, at higher value, and harder to switch between; so in a market such as banks, where there are
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high concentration ratios, there are concerns about the way competitiveness works. Challenges therefore become important, and I greatly welcome what the Government have done to encourage more companies into the market, but we need more trusted brand names in the market, to which people would feel more comfortable about switching. I should be interested to hear what the Minister thinks could be done to encourage more of those in.
A bigger issue is comparability and ease of switching. I acknowledge that we are part way through a process. Much has already been done through the regulator and in legislation, and the full effects have not yet been felt. It would be wrong to prejudge things. Tariff complexity reached almost comic proportions when there were hundreds of tariffs, including one that came with a free football shirt, for some reason. That, combined with the intangible nature of the product, and the fact that none of us really understood the dynamics of consumption and volumes, made the market a hard one for any consumer to master.
There is more that I should like to say, but I will not be saying it this morning. Suffice it to say, we obviously have high energy prices, and we all care about that and want to bring the price down. Several issues are relevant, but we cannot say that lack of competitiveness is the largest, or even a very large, single factor. However, we know that factors in competitiveness need more attention, and I hope that the competition authorities will deal with that, and that the Government will continue their push for diversity and competitiveness in the market.
10.8 am
Barry Gardiner (Brent North) (Lab): It is a pleasure to speak in the debate, and I congratulate my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) on securing it.
“The party’s over for the big six.” Those are not my words, but those of Evan Davis on the “Today” programme this morning. I was delighted to hear that, but was even more delighted to hear the comments of Alistair Phillips-Davies, the chief executive of SSE. He made them quite calmly, given all the furore when a few months ago my right hon. Friend the Leader of the Opposition announced that we would impose a price freeze and break up the vertical integration of the big six.
Alistair Phillips-Davies said, “If that’s what the customer wants, we are very happy to participate in that agenda.” Labour party policy, it seems, has moved from the unimaginable and unacceptable to the mainstream in just a few short months, and that has to be welcomed. If the second largest company in the UK is saying that it is happy to participate in that agenda, it seems that it has seen the writing on the wall.
Energy bills have risen by almost £300 for families and businesses. More importantly than simply that, however—this should be of specific concern to the Minister, whether he is listening or not—the employers’ federation, EEF, in its “Executive Survey 2014”, highlighted rising input costs as the primary risk to growth: I repeat, the primary risk. In 2014, 61% of companies surveyed by EEF cited input costs as a risk to their growth plans. That figure was up four percentage points on the 57% of just one year earlier. That is fundamental for business. Bills are going up because when the price of energy increases, energy companies pass that on,
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although they are reluctant to see the change passed on when prices go down, or at least they are not nearly so quick about it.
Why has that been possible? Why has it been allowed to happen? The answer is limited competition and weak regulation by Ofgem. Evidence presented to the Select Committee on Energy and Climate Change showed that the big six were engaged in inconsistent accounting. The hon. Member for Warrington South (David Mowat) asked for evidence—thank God he left his speech at the pub, because he managed to take twice as long as your recommended time limit without the speech, Sir Roger; goodness knows what would have happened had he brought it with him. He said that if anyone knows about such things, they should report it, so let us look at what evidence there is and at what has been presented.
BDO found that the vertically integrated companies were using four different accounting standards. The improving reporting transparency review conducted by BDO for Ofgem recommended that Ofgem
“Require the reporting of trading function results, including disclosure of the risk each trading function assumes”,
as part of companies’ segmented accounts. Ofgem, however, will not act on the proposal, because, it stated, that would have meant the need to change company structures and Ofgem does not have the powers to require such a change. That is, in part, because four of the big six are not UK companies, but it also shows that Ofgem is far too weak to effect the changes needed to our energy market.
It is worth noting that EDF opposed recommendation 2 of the improving reporting transparency inquiry—that would require an independent auditor to provide an opinion on segmental statements—and that the trading arms of the vertically integrated energy companies were implicated in the fixing of the benchmark price for gas. The hon. Member for Warrington South said, “Where’s the evidence?”, and asked us to produce it. Well, with the fixing of that benchmark price for gas, unusual trading activity reduced the price of gas just before the end of the financial year, and that was reported to the Financial Services Authority by a company responsible for setting so-called benchmark prices, ICIS Heren. The practice was indeed reported to the FSA at the time. That type of activity enables the big six to reduce the cost of gas relative to the price paid by independents, creating further barriers to market entry and ensuring that the big six retain their unhealthy monopoly.
I know what the Minister will say about competition in the market, because he has said it on a number of occasions in the House. It is the Government’s prepared agenda. They say, “Oh, but there were 14 players in the market before it was reduced to the big six by the Labour Government through the new electricity trading arrangements, or NETA.” There were 14 regional monopolies, not six national players; I wanted to nail that one before the Minister had the chance to say it.
My hon. Friend the Member for Edinburgh North and Leith has already said what Labour will do differently and that is clear. I am running out of time, but I must add that the decision of my right hon. Friend the Leader of the Opposition has proved prophetic, and it will prove right.
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10.14 am
Mr Mike Weir (Angus) (SNP): I am pleased to be able to make a contribution to the debate under your chairmanship, Sir Roger.
I congratulate the hon. Member for Edinburgh North and Leith (Mark Lazarowicz) on securing the debate on such a momentous day, when SSE has announced a price freeze until January 2016, which neatly takes us past the next general election. I should declare an interest: I am a customer of SSE and pay by direct debit, so I will benefit from the freeze, with the added advantage of avoiding the annual argument when the company tries to put up the amount of the direct debit, even though use might have fallen.
SSE also announced that it is to split its generation and retail arms. The Labour party is, of course, seeking to take the credit—as good politicians, that is not surprising—but given what the chief executive said on the “Today” programme this morning, the decision is clearly a commercial one, driven by the fact that Ofgem is due tomorrow to announce possible further action against energy companies.
Ofgem has already taken action to force generators to trade fairly with independent suppliers or face financial penalties, and to post the prices at which they will trade wholesale power up to two years in advance, as well as ensuring that more information is given in annual statements. I have not always been the greatest fan of Ofgem, but in this case its actions appear to have borne some fruit. It will be interesting to see how things develop after the SSE announcement and whether others of the big six energy companies will follow suit.
Another competition problem arises, however, in how a price freeze will affect the smaller players in the market—especially in the gas market, where many buy gas on the spot market using the day-to-day price. At a time of international uncertainty, that price can fluctuate wildly. A freeze by the big six may cause problems for the smaller companies.
It has long been a major frustration that we find it difficult to discover the true costs of energy and have to wade through the opaque ways in which it is traded within companies. The Ofgem decision should at least give us some greater information. We have to take care and keep a close eye on how things work.
Last year, the “Dispatches” programme on Channel 4 investigated energy prices and described how E.ON, another of the big six, internally deals with its existing split between retail and wholesale markets. Apparently, its retail arm makes no money, because it pays huge rates of interest on money borrowed entirely from associated companies within the group. Although E.ON is already in theory split between generation and retail, it is far from clear what real profit is being made, because of the accountancy practices employed. Will the Minister assure us that the new Ofgem rules will tackle such abuses and make it clear what is actually being earned by both sides of the company?
We can all welcome a freeze on energy bills, but we should not get too carried away because far from everyone will benefit from such an action. Again on the radio this morning, it was pointed out that SSE has higher charges with some tariffs than other companies, and that it is possible to get a better deal by shopping around even among others of the big six companies. That illustrates
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another problem with a simple freeze, which is that many customers are on less than great tariffs, especially those on prepayment meters. A freeze will lock in those inequalities within the system. We need to look closely at the inequalities among the different tariffs and ensure that those with the most need get lower energy prices.
It is also worth noting that a simple freeze will produce regional anomalies, because the proportion of people paying by direct debit fluctuates wildly. For example, in the south-east of England it is 63% and in my own area of the north of Scotland it is 56%—curiously, the very two areas in which SSE is the dominant player—while in London it is only 41%, possibly because of the much more transient population and the many houses of multiple occupation in the city. The effect of the freeze will therefore vary greatly.
It is also worth noting in passing that a price freeze comes with a cost. SSE also announced today that it is shedding 500 jobs and pulling out of three of its proposed offshore wind farm developments. It has said previously that it is pulling out of some wind farm developments, but I remind the hon. Member for Warrington South (David Mowat) that although SSE is pulling out, several parties are involved in most of the developments, so that does not mean a development will not go ahead.
Many of us warned that a simple price freeze would have the effect of endangering the investment urgently required to ensure that we have an energy infrastructure that meets our future needs. SSE’s announcement is an indication that that could indeed be a problem. Both Ofgem and the Government need to address that to ensure the correct balance between prices and investment. If SSE’s decision to withdraw from the wind farm development is replicated by other companies, that will pose a real threat to future renewables development. The future is in renewables, and if we are to get prices down and keep them down we must ensure that such development goes ahead.
10.20 am
Albert Owen (Ynys Môn) (Lab): It is always a pleasure to serve under your chairmanship, Sir Roger.
I speak today as a member of the Select Committee on Energy and Climate Change—we have already heard from another member, my hon. Friend the Member for Southampton, Test (Dr Whitehead). Over the past few years, the Committee has looked seriously at and conducted some in-depth inquiries into electricity market reform, profit, prices and poverty. We have been looking at the energy market in great depth, and I welcome its being raised on the political agenda, as that has focused attention on some of those big issues. For too long we were seen as not really addressing the big issues, but the subject has now become one, for a number of reasons. Prices have been hiked in recent years at a time when many households have seen their incomes frozen or cut. The cost of energy and the impact of energy prices have become a profound problem.
I want to talk about an area that has not yet been discussed this morning, but I will begin by talking about how we have got to this position, and why I and many others believe that the UK energy market is not working. There are historical reasons. In the 1980s and 1990s, there was an ideological privatisation of the energy market, and in the first instance monopolies were set up. British Gas became a vertically integrated
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monopoly in 1986, and liberalisation came in much later. Electricity monopolies were also set up. My hon. Friend the Member for Brent North (Barry Gardiner) was absolutely correct to say that privatisation created regional monopolies. Those monopolies still exist in transmission and distribution.
That is the issue that I shall concentrate on. The Energy and Climate Change Committee will hold an inquiry into the issue, because, as I said in an intervention earlier, it contributes to some 19% to 24% of the bills that all households and businesses in this country pay. There is a lack of competition within transmission and distribution. Companies pass on the costs of distribution and transmission to customers and we end up paying that bill. That is something we need to take seriously and look into.
At the moment, many of those companies are foreign-owned and have a profit motive, so their first priority is the shareholder. During the passage of the Energy Bill and the reform of the electricity market brought forward by the Government—whoever had been in government would have had to bring in such measures—there was discussion of the fact that National Grid is an American-owned monopoly that controls the high velocity distribution of electricity in this country, with its shareholders as its first priority. It will be the system operator of any new-build system in the future. We have a monopoly, then, that will have a big say in the development of new technologies and the different projects that go forward. There is a worrying lack of competition that impacts on prices.
The Minister is a generous person who tries to give an answer either on his feet in the debate or else in writing. Will he comment on the distribution and transmission systems in this country, in which there is no competition whatever at the moment? As I said, that contributes to the prices that businesses and other customers pay.
I want now to deal with the announcement made this morning by SSE. The hon. Member for Warrington South (David Mowat) spoke about the language used when we talk about the big six. I have been careful in my choice of language today, but I have not held back in any shape or form when the big six have been giving evidence to our Committee. They have been hiking prices considerably and are their own worst enemies, because of the lack of transparency within the system.
To be fair, the hon. Member for Angus (Mr Weir) was right: Ofgem has tried—a little late, to many people’s minds—to open up tariffs and make companies more transparent, so that we have a greater understanding of the market. But my right hon. Friend the Leader of the Opposition was absolutely right, and ahead of the game, when he suggested that we should have a price freeze—for two reasons.
First, as I said, energy price hikes have caused real hardship to families and businesses throughout the country. Secondly, the aim is to have a deliberate pause to look at the regulatory system itself, because it is not working as many who supported privatisation in the 1980s and 1990s thought it would, as it is not bringing down prices for businesses and domestic customers.
I would like the Minister and the Government to comment on distribution and transmission. When the Energy and Climate Change Committee has a thorough
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inquiry into that matter, I am certain that he and the Government will respond to our findings. The monopolies that exist in many areas are contributing to hardship throughout the business community and the United Kingdom. Transmission and distribution should be treated in the same way as retail and wholesale. I welcome SSE’s announcement today as a first step to common sense. We should have a freeze so that we can address those big issues.
10.26 am
Mr Iain McKenzie (Inverclyde) (Lab): It is a pleasure to serve under your chairmanship this morning, Sir Roger. I congratulate my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) on securing this important and timely debate.
We are all agreed that the energy market is not working for families or businesses. Energy bills have risen by almost £300 for families, and businesses say it is the second biggest cost they face. With that in mind, businesses have focused on reducing their energy consumption, to the point that people in Inverclyde see that as almost an attraction to set up business there—by going back to the future. Previously, industry energy costs were subsidised by hydropower, and we still have that infrastructure. We are investigating that and hope we will be allowed to approach industries and businesses to offer them a subsidy on their energy costs if they set up in our area. We hope that transpires, because energy prices are a big issue.
It is not only we politicians who are saying that. In a recent survey, almost 80% of the people who responded said that energy costs were the biggest worry for them. More tellingly, in that survey only one in five people said that they trust their energy provider to act in their best interests. That stems from the days when we witnessed something that I am glad to say we do not witness as much—indeed, I hope it has ended—door-to-door selling to encourage people to switch energy supplier. That has unfortunately had a knock-on effect on those who are genuinely trying to assist people with energy costs, as the distrust is still there when they knock on the door. We have seen that in my own area.
In Inverclyde, we are trying an exciting new project called iHeat, which is not about reducing energy prices but assisting people in reducing consumption. We have been reasonably successful in installing insulation in most of the housing in Inverclyde, and so have gone beyond advice on insulation. We are also giving advice to families. It is traditionally thought that pensioners are the ones whom we have to advise on energy consumption, but that advice is now being targeted more at families who are struggling with their energy costs.
People are advised to look at switching tariffs. The hon. Member for Warrington South (David Mowat) touched upon that, saying that it is still not as easy as it should be, and indeed it is not. When I visited the iHeat project, I spoke to many of the staff who were assisting people in switching tariffs. They sometimes spent upwards of an hour on the phone, waiting to get through to an energy company for help with tariff switching.
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The issue is not only about assistance with reducing energy consumption; it is about changing the marketplace and separating generation from supply. The current market structure may provide consumers with a reliable supply of energy, but there is no evidence to suggest that costs are fair and efficient. An incident across the water from me highlighted that. Scottish Power was making quite a bit of profit, but its maintenance was low and it plunged many rural communities into a situation of no energy supply not for days but for weeks. It was noted that fairness and efficiency, and its profit margin, did not extend to simple, basic, regular maintenance.
What should be done? We have three suggestions: separating the parts of the business that generate energy from those that sell to customers; selling energy in an open pool; and introducing a new, simple tariff structure. We also suggest that Ofgem should be abolished because it has failed to stand up for customers. Until those reforms kick in, we will put a stop to unfair price rises by freezing energy bills up to January 2017 for people having to cope with increasing energy costs and the cost-of-living crisis.
In future weeks, months and years, people will fall into fuel poverty, which is why we must introduce projects such as those suggested by iHeat. The number of families falling into fuel poverty is rocketing, and if we do not try to help them, their choice will be between heating and eating.
10.32 am
Julie Elliott (Sunderland Central) (Lab): As ever, Sir Roger, it is a pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) on securing this important debate. No one could have predicted the news this morning, which has turned this debate on an important matter of concern on both sides of the House into one on the topical issue of the day. That is almost unprecedented.
I will start by responding to SSE’s announcement, which the Labour party welcomes. It shows that energy companies can and should freeze their prices to reset the energy market. We also welcome their decision to separate their generation and supply businesses. That is a vital reform necessary to improve transparency and competition in the energy market. SSE should go further and commit to freezing their prices until 2017, but they have said they will review the situation.
In a recent press article, the Minister said that the decision of my right hon. Friend the Member for Doncaster North (Edward Miliband) to freeze energy bills is extremely dangerous. Will he comment on that in the light of SSE’s announcement? He also said that most voters will see that as a gimmick, but companies of the size and complexity of SSE do not employ gimmicks in the energy market. Perhaps he will comment on that.
The Minister of State, Department for Business, Innovation and Skills (Michael Fallon): The hon. Lady has tempted me. When she clarifies her party’s policy, perhaps she will confirm that the price freeze will apply to all companies, not just the big six? Does she intend to catch all the smaller companies, or just the big six?
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Julie Elliott: I will outline our policy, but it is not for me to answer questions about it today; it is for the Minister to respond to the debate.
Before coming to the bulk of what I want to talk about, I want to comment on some of the issues raised by the hon. Members for Warrington South (David Mowat) and for East Hampshire (Damian Hinds). The hon. Member for Warrington South referred to SSE’s announcement on wind farms. We need to look at the detail of that, but while energy company profits have been rising during the last few years, renewable energy investment has been falling, and only about half of such investment is coming from the big six. Despite huge annual price increases since 2010, investment in clean energy has halved under the Government’s watch, costing jobs and threatening our energy security. Furthermore, there is no correlation between profits and investment. The energy companies with the biggest profits do not make the biggest investment in clean energy.
The Minister has commented on energy costs. Electricity prices in the UK, excluding tax, are the fourth highest in the EU15 and second highest in the G7. They are not what the hon. Gentleman quoted: they are among the highest in Europe. Gas prices are not as high, and are at the European average.
Barry Gardiner: I am listening carefully to my hon. Friend’s comments. She is doing very well. Will she comment on the fact that in the UK the profit margin for shareholders has been between 5% and 7%, whereas on the continent it is between 2% and 3%? The hon. Member for Warrington South did not mention those figures when he compared the UK with the continent.
Julie Elliott: My hon. Friend is absolutely correct.
David Mowat: I am glad that my remarks have at least made this into a debate. On gas, it is impossible for us to get to the bottom of these numbers in a debate, particularly those given in the intervention from the hon. Member for Brent North (Barry Gardiner). Does the hon. Lady think that our gas prices are not among the lowest in the EU?
Julie Elliott: My understanding is that our gas prices are at the EU average, according to the Department of Energy and Climate Change.
David Mowat: I want to put on the record the fact that our gas prices are the second lowest in the EU, according to the EU energy portal and the International Energy Agency. I realise that we cannot spend our time bandying this around.
Sir Roger Gale(in the Chair): No, we cannot.
Julie Elliott: I will go with the Government’s stats.
What would a genuinely competitive energy market look like? It would provide good customer service, competitive pricing, pressure on supplier costs and profit margins, high levels of consumer engagement, and a wide range of retailers and rivalry between suppliers, with changing market shares and new entrants. That is what our energy market would look like, but it is not what it looks like today. It provides consistently poor
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levels of customer service. Complaints to the energy ombudsman are up 71% compared with last year. There are uncompetitive prices. Energy companies often say that prices here are lower than in the rest of Europe, but that is true only when tax is included. There is evidence of what is known as “rockets and feathers”. If pricing is competitive, falls in the wholesale cost should be passed on as quickly as when it increases. However, in 2011 Ofgem found evidence that energy bills respond more rapidly to rising supplier costs compared with falling costs.
There is mixed evidence on supplier costs. In a competitive market, operational costs should converge, but the Institute for Public Policy Research found that operational costs for energy suppliers had in fact diverged.
On high and rising profits, given the complex ways in which energy companies organise their affairs, it is not clear exactly how much money they are making. That is not completely straightforward. The segmental accounts, which they file with Ofgem, usually have gaps and provide a snapshot of earnings. They show collective profits up by about £1 billion a year compared with 2010, at a time when sales are down and there have not been any significant reductions in fuel or operating costs. Most companies publicly aspire to a 5% margin on supply, but that is significantly higher than any other comparable industry and is obviously on top of their profits from generation.
Levels of consumer engagement are low. Notwithstanding what seems to be a one-off spike in switching following the last round of price increases in November 2013, the number of people switching supplier has fallen by about half since 2008, and switching levels are the lowest on record. That was clearly outlined by my hon. Friend the Member for Inverclyde (Mr McKenzie). The situation is exacerbated by very low levels of trust in the industry. A recent report by Edelman showed that energy companies are less trusted in the UK than in nearly every other country in the world. That is a frightening state of affairs.
There is a static market, which is dominated by the big six firms, which hold 97% of the domestic market and 82% of the smaller business market. The domination of those six firms does not in itself indicate that competition in the market is ineffective, but the fact that no new entrant has achieved anything like the scale of operations to challenge the big six suggests significant barriers for newcomers. There has been little change in companies’ market shares in the past six years, and much evidence suggests that “sticky” customers—those who have stayed with the companies they were with before privatisation—pay a premium compared with those who switch, as my hon. Friend the Member for Ynys Môn (Albert Owen) highlighted.
What are Labour’s plans to promote competition in the energy market? We will make companies buy and sell all their electricity via a pool or open exchange. Currently, most energy is traded bilaterally or even within vertically integrated companies. Other European markets have much more exchange-based trading, such as in Nord Pool, which is one reason why those markets are more liquid, more transparent and more competitive.
We will ring-fence supply and generation businesses within vertically integrated companies. If companies can supply most of their own generating capacity, they have much less incentive to trade on the open market.
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That again makes it more difficult for independent generators and suppliers to find a market to trade in, and prevents any proper scrutiny of the prices companies pay for electricity from their own power stations. We will therefore put a ring fence between companies’ generation arms and their retail businesses.
In the retail market, we will make it much easier for consumers to find the best deal by introducing a simplified tariff structure. I accept that Ofgem has taken some steps to reduce the number of tariffs, but to drive real consumer engagement we need to create a consistent pricing system and standardise the tariff structure. We propose to create a simple structure with a daily standing charge and cost per unit.
To sustain the benefits that those structural reforms will bring, we will create a new regulator. Our green paper proposes additional powers to penalise anti-competitive behaviour to ensure that consumers get what would be expected from a functioning, competitive market. Therefore, if wholesale prices fall and that reduction is not passed on fairly by suppliers to consumers, the regulator would have the power to require suppliers to do that. We also propose additional protections for non-domestic customers in bringing the off-grid market under the regulatory framework. A Labour Government would, until our reforms kick in, put a stop to unfair price rises by freezing energy bills until 2017.
I end with a few questions for the Minister. I outlined the comments he made about Labour’s proposed price freeze being “extremely dangerous”, but does SSE’s announcement today prove that he was completely wrong? Does he now welcome SSE’s move and agree that it should go further and commit to freezing its prices until 2017? The Minister and his colleagues have argued against Labour’s plans to ring-fence generation and supply in separate businesses within energy companies. Given SSE’s announcement today, does he now admit that they were wrong on that as well?
According to Which?, only one in five people trust their energy provider to act in their best interests. If the Minister believes that the energy market is working so well, what does he put that statistic down to? Does he also accept that the 5% profit margin that the big six energy companies aspire to is greater than in comparable industries and utilities in Europe?
10.44 am
The Minister of State, Department for Business, Innovation and Skills (Michael Fallon): I, too, congratulate the hon. Member for Edinburgh North and Leith (Mark Lazarowicz) on securing the debate and on his immaculate timing in fitting it between SSE’s announcement this morning and the forthcoming publication of Ofgem’s assessment. We have had a good debate on some of the major issues.
My hon. Friend the Member for Warrington South (David Mowat) made an excellent speech, which was all the more impressive for him not being able to stick to his prepared text. He made some important points of comparison with the European Union and the key point that all of us need to have regard to the need to ensure that energy companies are able and willing to invest in the new energy capacity the country requires. He also made the point that, in the end—this answers a
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question from the shadow Minister, the hon. Member for Sunderland Central (Julie Elliott)—it is not for politicians to decide on profit margins or the merits or disadvantages of vertical integration. Such matters need to be weighed up on the basis of evidence and investigated by regulators that are independent of Government.
The hon. Member for Southampton, Test (Dr Whitehead) is usually knowledgeable on these matters, but he was not right about the effect of the threshold on the smaller suppliers. Three suppliers now have more than 250,000 customers and a taper is in place to deal with what I think he called the £7 million problem.
My hon. Friend the Member for East Hampshire (Damian Hinds) emphasised the importance of switching. I will later give him the latest statistics on that, which are encouraging.
The hon. Member for Brent North (Barry Gardiner) was a little out of date in his reference to the Engineering Employers Federation. It was concerned about energy costs, but I do not think that he has picked up its latest release, which followed my right hon. Friend the Chancellor’s excellent Budget last week, in which it welcomed the new support package being given to the most energy intensive industries. He was also not quite right about the regional monopoly among the suppliers. After 2000, the 14 suppliers were free to compete nationally, not just in their regions, but after 10 years, we discovered that there was still a regional concentration and that obviously needs to be looked at.
The hon. Member for Angus (Mr Weir) spoke about the importance of transparency. I confirm that that is one issue that Ofgem has been looking at and a great deal needs to be investigated. The hon. Member for Ynys Môn (Albert Owen) asked me about distribution and transmission. Perhaps he will allow me to write to him on some of the detail. It is difficult to get more competition into the major transmission network, but he makes a point about distribution companies. They are monopolies at the moment, although they are rigorously regulated. Perhaps he will allow me to write to him on that particular point.
The hon. Member for Inverclyde (Mr McKenzie) wants to see simpler tariffs. We certainly do, too. That power has been taken and Ofgem has managed to simplify the tariff structure, which will apply from next week. He also said that supply should be separated from generation. I make the point again that integration has advantages and disadvantages. The best way to weigh those up is independently on the basis of evidence so that we can understand whether change is needed.
The hon. Member for Sunderland Central was not able to clarify whether Labour’s proposed price freeze will apply to the very smallest companies outside the big six. There still seems to be some confusion about that. She asked me specifically whether I welcomed SSE’s announcement this morning. The answer is yes, I do. I strongly welcome that and I am sure that customers of other suppliers will be asking whether they will follow suit. She asked me whether that was evidence that the market is not working well. That is exactly why we have referred the market to Ofgem for the annual competition assessment.
Competition is at the heart of our energy policy. Consumers get the best deal when suppliers face tough competition. Competition also helps to deliver innovation,
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and ensures that prices are kept as low as possible. Investors will only have confidence in a market that they see as fair and in which all participants compete on equal terms. That is what—
Barry Gardiner: Will the Minister give way?
Michael Fallon: I hope that the hon. Gentleman will allow me to proceed, because I have a number of points to cover.
That is what both Government and Ofgem are working to achieve. Through the Energy Act 2013, supported by all the major parties in the House, we have introduced far-reaching reforms to the electricity market and supported Ofgem’s reforms to the retail market and the improvements that it is seeking in liquidity in the wholesale market.
Poor liquidity in the wholesale market is cited by small suppliers and independent generators as a key barrier to entry and growth. Since 2010, trading in the day-ahead market has grown rapidly. The amount of power traded on the day-ahead exchanges has increased from just 6% in 2010 to more than 50% last year.
However, we also need to strengthen liquidity in the forward market. That is one of the key concerns. From next week, Ofgem will be introducing tougher licence conditions that further strengthen forward market liquidity. Those conditions will require the big six suppliers and the largest independent generators to trade fairly with small suppliers or face financial penalties. They will also impose a market-making obligation on the big six, meaning that they will have to post the prices at which they will buy and sell power up to two years in advance. That will make it easier for independent suppliers to buy power for their customers. Knowing that the big six will buy power at the prices that they post will also help independent generators to sell their output in the forward market. The new licence conditions will be supported by Ofgem’s powers to fine companies if they are in breach of them. We have underpinned those reforms by taking powers in the Energy Act to act if Ofgem’s reforms are delayed or frustrated.
Dr Whitehead: Will the Minister give way?
Michael Fallon: I hope that the hon. Gentleman will forgive me if I do not.
Our work to break down barriers to entry into the retail energy market is already bearing fruit. The supplier base that we inherited had shrunk, as I have said, from 15 majors in 2000 to just six in 2010. In 2011, we raised the customer threshold for participation in the key energy programmes from 50,000 to 250,000. Since 2010, 11 new companies have entered the domestic supply market—they include one that now has more than 800,000 customers—and we see more companies preparing to enter. There are now 18 independent suppliers, which are increasingly penetrating the market share of the larger, more established players. Their market share, although small, has doubled since 2010, and we will continue to work to remove barriers to entry and growth.
According to industry figures—this is the answer to the point made by my hon. Friend the Member for East Hampshire—between October and February alone, about 1.5 million customers switched their electricity supplier and, of those, nearly 500,000 switched their account to one of the smaller suppliers. The smaller suppliers are
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of course the ones that would be most exposed by Labour’s price freeze. They are less able to absorb any increased costs arising from network charges or increases in the price of wholesale energy and would struggle to compete with the big six in those conditions, so we do need an answer to the question that I put to the shadow Minister.
I was also asked about consumer engagement. An engaged consumer base is a key component of a competitive market, which is why we are reforming the retail energy market and making it easier for consumers to navigate. In 2010, we inherited a market that was not working in the best interests of consumers. There was a profusion of more than 350 complex tariffs, no doubt supported by Opposition Members, but that complexity made it very difficult for people to work out how to get on to the right tariff for their circumstances. Bills were complicated and unclear, making it difficult for consumers to compare their existing tariffs against others on offer.
The retail market review that Ofgem has already carried out has simplified tariffs and limited suppliers to offering just four simply structured tariffs per fuel. New rules, introduced next week, will make bills clearer and simpler. Suppliers will be required to tell their customers about the cheapest tariff that is available to them and the savings that they could make by moving to it. That information will now be provided on bills and annual statements. By June, all customers on poor-value dead tariffs will be moved to the cheapest variable tariff.
The measures that I have outlined demonstrate our determination to drive greater competition in the energy market, but those measures are not, of course, all that we are doing. My right hon. Friend the Prime Minister announced last autumn that the competition authorities would carry out an annual competition assessment. The first assessment is being carried out by Ofgem, the Office of Fair Trading and the Competition and Markets Authority. We expect it to be published very soon.
Barry Gardiner: I am grateful to the Minister for eventually giving way. He has spoken about competition a great deal. Does he accept that the whole purpose of vertical integration by a company is precisely to be a bulwark against competition and, although what he has said about introducing greater liquidity into the long-term market is absolutely right, does he not accept that that would be achieved by breaking up that vertical integration?
Michael Fallon: That is something, as I have said, that we require independent investigation to establish on the basis of evidence. There are arguments in favour of vertical integration. I am not putting them forward today, but there are those who argue that vertical integration can lower the cost of capital and lead to more efficient risk management. These are issues on which the evidence needs to be properly weighed—with the greatest respect, neither by the hon. Gentleman nor by me, but by independent investigators who are detached from the political process. I am very disappointed to see that the regulator would be abolished if Labour ever came to power. The evidence needs to be weighed independently, and we need to have a proper judgment. The first competition assessment is being completed—
Albert Owen: Will the Minister give way?
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Michael Fallon: If the hon. Gentleman will allow me, I will not, because I am running out of time. The first competition assessment is now being carried out by the three competition authorities and will be published very, very soon. The independent authorities set out the scope of the assessment in December. They are looking at all aspects of competition in the energy markets, including market share and how easy it is for innovative new entrants to enter the market and compete. They have also been examining, as I have said to the hon. Member for Brent North, the impact of vertical integration, the degree of consumer engagement in the market and, indeed, the levels of profitability, to which a number of hon. Members have referred.
Real progress has already been made to incentivise the driving forces of competition: greater consumer choice and increased participation in the energy markets. However, we are not complacent. By commissioning an annual competition assessment, we are creating a formal process for the independent regulatory authorities to test the effectiveness of our reforms and to test annually whether the market is working in the interests of consumers.
I do not want to speculate on the outcome, but it is essential that we respect the independence of the process and any decisions that the regulatory authorities may take to strengthen competition and to protect the consumer. Independent regulation is fundamental to investor confidence. I hope that hon. Members on both sides of the House will therefore be able to support the independent regulator and the competition authorities when they publish their assessment very shortly.
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Minimum Practice Income Guarantee
11 am
Tim Farron (Westmorland and Lonsdale) (LD): It is a huge pleasure to serve under your chairmanship, Sir Roger. I am extremely grateful for the opportunity to raise the problems caused by the removal of the minimum practice income guarantee. The removal of the minimum practice income guarantee is not the sole cause of the crisis facing some of England’s rural surgeries, but it has unveiled the failure over several decades to provide a sustainable basis for funding GP surgeries in rural communities. The coming crisis, which could have the unintended consequence of closing dozens of rural surgeries, will be immensely costly to our communities and to the taxpayer. Taking intelligent, targeted and swift action to prevent those closures will be extraordinarily cheap by comparison.
Over the past few months, I have been working with our communities in and around Hawkshead and Coniston in my constituency, whose surgeries are undoubtedly at risk. Last August, 500 local people filled the school hall at John Ruskin school in Coniston at a public meeting. Five hundred people is an impressive turnout in any community, but when we realise that the total number of patients listed at Coniston is just 900, we see how important the issue is. Those 500 people turned up because they know that it would be impossible for them reasonably to access another surgery, given how remote and isolated they are. My job today is to convince the Minister—I hope it will not take much doing—that my constituents are right and he should take action to help them. Let us be clear: unless a specific decision is taken to provide new and additional support for small rural surgeries, there will be a series of surgery closures that will be hugely damaging to our communities, harmful to patient safety, costly to the taxpayer and utterly embarrassing for Government.
In my constituency, two practices stand out as being in need of immediate aid from NHS England and the Department of Health: Coniston and Hawkshead, two communities in the central Lake district, which are about as remote as one can get in England. Both communities have a GP surgery, and both surgeries are at risk because of unsustainable funding. If you would care to have a look at your Ordnance Survey map of the Lake district, Sir Roger, you will see that if either of those surgeries were to close, the next nearest surgery would be on the other side of at least one lake, not to mention a couple of mountain ranges.
Across the country, there will, of course, be some small practices that should amalgamate with others, predominantly in urban areas where access and sparsity are not such an issue. The number of small rural GP surgeries, such as Coniston and Hawkshead, which are facing up to falling off the funding cliff is relatively small. At the last count, there were 36 in the whole country. Therefore, although intervention is vital, it is manageable and affordable. It is not a big problem to solve if we do it now, but it will become an enormous problem if it is not tackled. The evidence is clear that for that to happen, there will need to be strong and unmistakeable political leadership. In other words, Ministers must state unequivocally that they want NHS England to protect small, strategically vital GP surgeries, and
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that they expect a formal fund to be set up to make that happen—a small strategic surgeries fund—just as our Government have successfully done to protect small, strategically important schools in rural areas. It will cost little, but it will save a lot.
A couple of weeks ago, controversially, our Government fought to permit the Secretary of State to have the right to intervene in local trust matters when there is a patient safety issue. They were right to do so, because elected Governments should involve themselves to ensure that strategic priorities are met. Here is one such example. It is strategically vital that people in rural areas across the country, including Coniston and Hawkshead, have the same rights to access health care as anyone else.
Dr Sarah Wollaston (Totnes) (Con): As somebody who has worked in a small rural community, where there are high levels of deprivation in an area of relative affluence, the difficulty is that many people cannot access transport to get to services in other locations. I agree with my hon. Friend that we must prioritise access in small rural communities and recognise the problems of rural poverty.
Tim Farron: I am grateful to my hon. Friend for making that strong and good point. What counts as poverty in rural areas is often very different from what counts as poverty in urban areas. It is poverty in terms not only of income but of access to services. The average age of my constituents is 10 years higher than the average age of the UK population, so isolation and lack of access to private transport, never mind public transport, make it physically impossible to access another service. That is why we need to intervene.
I have had many conversations with NHS England, our local area teams and the clinical commissioning group. In the nicest possible way, there is a sense that they are all seeking a lead from the top. They are all good people, but they seek direction from the top. To be fair, NHS England has identified some 90 GP surgeries as outliers—practices that will lose more than £3 a patient—and a further 200 or so that will lose more than £2 a patient. However, that process of identifying outliers does not tell us which practices will be sustainable and which will not. Crucially, although outliers have been identified, no resource has been identified to help to protect them. That is why the Government must take a lead and make it clear that surgeries such as Hawkshead and Coniston must be protected, and that funding must be set aside to ensure that they not only survive but thrive. I am concerned that many of the discussions and the media attention have focused around the minimum practice income guarantee when we should focus more directly on funding sustainable general practice in remote rural areas.
In south Lakeland there are vast differences in minimum practice income guarantee payments per patient. Coniston gets approximately £25 a patient, Hawkshead gets less than £1 a patient and Ambleside gets around £15 a patient. By comparison, Slaidburn in Lancashire receives £110 a patient, even though the Slaidburn practice is the same size as the one in Hawkshead. The proposed changes from April will begin to remove those differences. Arguably it is correct to do so, but it is not correct simply to leave it at that.
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The process of removing the minimum practice income guarantee and redistributing the funds per capita is a staggeringly blunt instrument. It is the ultimate one-size-fits-all policy, which treats small rural practices the same as large urban ones. It is on a par with making the casual assumption that the local village shop will have the same business model as Tesco. Smaller practices do not have the economies of scale that larger practices do; for example, the core practice management costs are the same whether the practice has 1,000 patients or 5,000.
NHS England’s argument is that, because smaller surgeries are inefficient, they should merge with neighbouring practices to increase efficiency. That works in urban areas, where there are often multiple GP practices operating close together. In that case, it is safe and sensible to consider sharing resources more efficiently. In remote rural areas, however, it is not possible to achieve those savings without sacrificing patient safety. It is not possible physically to merge with a neighbouring practice if it is on the other side of a lake. Merging, say, Coniston and Hawkshead with a larger, more distant surgery in Ambleside or Ulverston will not change the fact that health care still needs to be provided in the heart of those communities.
The only way to get savings is by closing a surgery or downgrading the service significantly in one or more of the villages and asking the patients to travel to another one for their main GP service. That would, in fact, result in no savings at all. Consider the increased cost to the ambulance service, to the A and E units nearby—not that they are particularly nearby, by the way—and to social care that would be triggered by the removal of GP services from the heart of our community. The human costs of closure are immeasurable, but the financial costs are measurable. It would be extreme foolishness to let our surgeries close by accident.
NHS England suggests that the policy does not impact on large numbers of rural practices, and that a greater number of urban practices will lose out. It is correct: there are not a large number of rural surgeries at risk. However, the analysis ignores the fact that, for the rural surgeries, an alternative to the current service provision is simply not available. Patients cannot simply move to the neighbouring practice down the road, because there is no “down the road”.
The changes come on the back of an already diminishing level of income in general practice for small rural surgeries. Hawkshead’s 2013-14 income from the GP contract is down 5% on 2012-13, and that has absolutely nothing to do with the removal of the minimum practice income guarantee. We should therefore be careful not to allow the removal of the minimum practice income guarantee to mask the much wider problem of a lack of sustainable funding streams for a relatively small and very manageable number of rural surgeries.
NHS England states that the removal of the minimum practice income guarantee will be phased gradually over seven years, but only so much can be squeezed out of an ever-reducing funding stream. The core running costs of the premises cannot be cut, so all that is left to cut is staff. If the staff consists of barely a handful of committed professionals, all that is left to do is close.
Hawkshead is already at 50% of the national staffing average, which reflects its historical low level minimum practice income guarantee funding compared with similar practices. At the same time, the surgery has the highest
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patient satisfaction levels in the country. It is officially the best surgery in England, but, as things stand, its only options are to reduce service provision to a level that would never be tolerated in an urban area, or to close. I am sure that the Minister will agree that such unacceptable choices mean that we must intervene.
Unlike Coniston practice, Hawkshead will gain by a small amount through the proposed changes. However, it will be by only about £1,000 a year, when the historical funding shortfall is about £35,000 to £40,000. Coniston’s income will decline significantly—by around £25,000 to £30,000 a year—and, to put it mildly, both surgeries will be at severe risk.
The minimum practice income guarantee should be removed or phased out. That is not challenged by those of us in rural communities. The wide disparities between surgeries with significant minimum practice income guarantee grants and those that, like Hawkshead, get pretty much nothing, makes the case for us. Nevertheless, the removal of the minimum practice income guarantee provides an opportunity to ensure that, in the wider context of a fairer and more efficient funding model, there should also be an element in the formula that does what the minimum practice income guarantee was originally intended to do, only more efficiently, more effectively and less expensively.
A small strategic surgeries fund could cover the additional cost per patient of keeping the core expenses covered. As a basic need, Coniston must keep its current funding, and Hawkshead must rise to a similar level in order to sustain service provision. NHS England will argue that it has reverted responsibility for the decision-making process to local area teams. However, there is no ring-fenced funding to deal with the problem, so local area teams are limited in what they can do. Our local area team has given its support to ongoing service provision in Hawkshead and Coniston, and I am extremely grateful for that, but so far no additional funding has been identified to support the practices.
The Minister will know that strategic small surgery funds have been established in Scotland and Wales. They are ring-fenced at the centre to ensure that no surgery that needs to remain open is closed by accident. Rural communities in England suffer from poor funding in social care, secondary care and primary care. Far too often, people in areas such as Cumbria are forced to put up with services funded at a fraction of what is required in order to provide care equivalent to that on offer in urban areas.
It is understandable that civil servants in Whitehall and officials in NHS England should come up with funding mechanisms that, in the first instance, overlook the fact that it simply costs more money to provide equivalent care to rural communities. It may even be understandable that officials might be ignorant of the desperate social needs in rural communities caused by poverty, ageing populations and isolation. However, once those problems are made clear, it is not acceptable to shrug them off. Once we have brought them to national attention, it is imperative that we see action.
In summary, I want to make five quick points. First, a small number of small, rural surgeries in England are at risk, partly as a result of the removal of the minimum practice income guarantee. Secondly, Coniston and
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Hawkshead are two such surgeries, and there is no alternative to having a surgery in either of those communities that is either sensible or safe. Thirdly, rural communities have as much right to decent health care as anyone else. Fourthly, it will cost relatively little to come up with a strategic fund to protect those few dozen surgeries. Fifthly, such a fund will be created only if the Department of Health and NHS England agree that it must be, and then make it so.
My constituents deserve access to good local GP services as much as anyone in London, Birmingham or Manchester. Unless we tackle the problem I have outlined, my constituents will be put at unacceptable risk. On behalf of the people of south Lakeland, and all other rural communities, I ask for the Minister’s help in setting up a small strategic surgeries fund so that we can remove that risk.
11.14 am
The Parliamentary Under-Secretary of State for Health (Dr Daniel Poulter): It is a pleasure to serve under your chairmanship again, Sir Roger. I congratulate my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) on securing this debate, which is pertinent to many constituencies in England. Indeed, it is pertinent to my own constituency in Suffolk. Later in the debate, I hope to reassure him by giving good local examples from Suffolk of how the joint working he has described can be very effective. The issue is not just money, but improving the quality and availability of care for patients.
We all recognise the importance of local GP practices, particularly in rural communities such as those in my hon. Friend’s constituency. I would like to reassure him that the Government believe that high-quality local services can be maintained. I will not rehearse all the background to the 2004 GP contract negotiations, which we know changed the way that GP practices were funded, but it is worth drawing out a couple of points. Rather than receiving a series of fees and allowances, since 2004, GP practices have been paid based on a formula to take account of need and work load. Practices can also earn money by participating in the quality and outcomes framework—commonly known as QOF—or offering enhanced services.
To smooth the transition to the new system, a minimum practice income guarantee was introduced and used to top up practices’ core funding to match their basic income levels before the 2004 contract was introduced. We must also remember that many GP practices are of course small businesses in their own right. They value and enjoy the flexibility that the GP contract implicitly recognises, and that can bring great benefits to patients. In a moment I will talk a little more about the minimum practice income guarantee and the changes under the recent GP contracts, which from now on will be negotiated by NHS England, as my hon. Friend outlined.
It is worth talking a little about rural practices and highlighting some of the measures in place to support them—it is important to get that on the record. We recognise the fact that rural practices, in areas such as Hawkshead and Coniston in my hon. Friend’s constituency, play a vital role for their local communities. We also recognise the rurality and the often sparsely scattered populations that such GP practices look after. Both the Government and NHS England intend high-quality local services to be supported and maintained.
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My hon. Friend will be aware that the funding formula for general practice already includes an allowance for rurality, and there is also provision for the costs of temporary residents. That can be a particular issue during the summer months with the arrival of tourists in the Lake district. The funding formula already includes additional support for rural areas and places with a more transient population because of tourism, or for the seasonal population fluctuations in more agricultural constituencies where there is a high reliance on temporary, summertime or seasonal labour.
Rural GPs may also be able to increase their income in other ways. For example, dispensing practices tend to be in rural areas, although not exclusively. That is potentially another way to provide additional income for a practice, as well as important support for the community, which can have closer-to-home access to prescribed medications and drugs.
I understand that NHS England is working with local GPs through the Cumbria clinical commissioning group to decide how to maintain accessible, responsive, high-quality primary medical services—my hon. Friend alluded to that in his speech. For example, NHS England can help practices to work more closely together. It is looking at doing that by sharing IT and other back-office support in order to improve care and practice efficiency. NHS England is also ensuring that, through practice patient participation groups and local healthwatch services, patients are being kept fully informed and are able to contribute to discussions.
I would like to talk briefly about the phasing out of the minimum practice income guarantee, which last year we announced would begin this April. As my hon. Friend outlined—I was pleased that he supported this—we consider that the payments are no longer equitable, because under the system, two surgeries in the same area serving similar populations could be paid different amounts per patient they serve. That is inequitable and does not make sense.
The payments of the MPIG will be phased out not simply overnight, but over seven years. The overall intention is for the funding for GP practices to be properly matched to the number of patients they serve and the health service needs of those patients.
Funding will also continue to take into account the unavoidable costs of providing services in rural areas. The issue is not one that affects only rural practices, as both rural and non-rural practices receive MPIG payments.
Dr Wollaston: Regarding the point about funding following the number of patients, the Minister will be aware that there is now greater flexibility for patients to register. Relatively young, mobile patients may choose to be registered near their place of work; indeed, they should have that flexibility. However, that is an additional income drain on small and sparsely located practices. Is the Minister aware of that?
Dr Poulter:
Absolutely. I alluded to that point in some of my earlier comments. We know that there is the tourist trade, which is an important part of the local economy in the constituency of my hon. Friend the Member for Westmorland and Lonsdale. Recognition of that factor is built into the funding formula for GP practices. People moving locally to work somewhere is already taken into account as part of the formula,
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which will benefit the funding of some of the local practices in my hon. Friend’s constituency. I hope that is a helpful clarification of the point about people moving from one location to another.
Dr Wollaston: Does the Minister accept that not all sparsely populated areas will see that offset by incoming tourists? Many areas of the country will not see that offset benefit.
Dr Poulter: Absolutely. As I have outlined, other parts of the formula recognises rural areas; they are already recognised in GP funding allocation. Therefore, on both counts, additional support is available for areas such as those described by my hon. Friend the Member for Westmorland and Lonsdale in his constituency, and indeed those in Totnes and in my own constituency. Rurality is already factored into GP contracts and funding for GP practices and health care.
What will happen with the money that is recycled and released from the MPIG is an important point. The money released by phasing out the MPIG will be reinvested into the basic payments made to all general medical services practices, which are based on the number of patients and key determinants of practice work load, such as the age and health needs of patients and the unavoidable costs of rurality.
Another factor that we all recognise—I know it is a factor in Totnes and, I believe, in Westmorland and Lonsdale—is that many older people choose to live in rural areas. Older people once used to retire to seaside towns, but they are increasingly retiring to predominantly rural areas. The changes and the freeing up of cash from the MPIG will benefit all practices. In the health care funding formula—not necessarily the GP funding formula, but how clinical commissioning groups allocations are allocated—there is a strong weighting for age which will bring broad benefit to rural areas, particularly those that have a high proportion of older people.
NHS England has been undertaking specific analysis of the withdrawal of the MPIG. Inevitably, a small number of practices will find themselves in more difficult circumstances. NHS England has been considering the small number of significant outlier practices, as my hon. Friend the Member for Westmorland and Lonsdale mentioned, for which alternative arrangements may need to be made to ensure that appropriate services are maintained for local patients. We appreciate that that is a matter of concern for some practices, and my hon. Friend has outlined concerns in his own constituency. That is why we have decided to take seven years to implement the change to the MPIG funding. Phasing in the changes over that period will allow the minority of practices that lose funding to adjust gradually to the reduction in payments.
NHS England has been looking carefully at how its area teams can support the practices that are most affected. It has invited practices that believe they will have problems as a result of the phasing out of the MPIG to raise that concern with their area team. In a small number of cases where there are exceptional underlying factors that necessitate additional funding, NHS England has asked its area teams to agree different arrangements to ensure that appropriate services for patients continue to be available. That includes looking at how services are funded.
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Importantly, NHS England has suggested that practices with small list sizes could look at collaborating with other practices, for example through federating, networking or merging with nearby practices, to provide more cost-effective and better services for patients, a point I will come to in a moment. Practices can also identify other ways they could improve cost-efficiency, such as reviewing staffing structures, and they can review commissioning or contracting options.
Tim Farron: I am grateful to the Minister for that explanation. I simply want to point out that neither Hawkshead nor Coniston, despite both being put in an unsustainable financial situation in the future, technically count as outliers. Will he guarantee that NHS England will look at the sustainability of all surgeries, not just those that have lost the most from the withdrawal of the MPIG?
Dr Poulter: The answer is in exactly the point made by my hon. Friend in his speech: it is about local area teams working effectively with practices.
Let me provide my hon. Friend with an example of how collaboration between services and GP practices can work well, from not just a financial perspective but a patient care perspective. In Debenham, Otley and Grundisburgh in my constituency, all of which have important rural communities, there is a practice that works collaboratively and a practice that serves and looks after populations across a number of sites. That works well for local populations, because they have an accessible local GP service.
That practice model has also produced considerable economies of scale. It has allowed the practices to invest in additional services for the benefit of local patients. Where there are pressures caused by an ageing population and the complex needs of older patients, that has allowed more money to be freed up to focus resources appropriately. In some cases, it has also allowed greater flexibility in the use of the infrastructure—certainly, surgery buildings —to provide greater community benefits.
The model can work, and it is important that practices, even though they are small businesses, consider that they need to collaborate and work with neighbours,
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where possible—not to lose their independence or identity, but to make efficiencies where they can, so that more money can be directed into front-line patient care. That is part of the answer.
Providing a sustainable solution is about practices working well with their neighbours. Sometimes it might mean rebuilding relationships that have broken down in the past. We know that, with the best will in the world, we do not always get on well with our colleagues, although we all do our best to look after patients. Sometimes it is about practices setting aside past disagreements, working collaboratively for the benefit of patients and making efficiencies where possible.
Tim Farron: Of course, many surgeries will be able to find ways of surviving and thriving through different working arrangements. There will be some, however, that are essential and strategically vital for rural communities such as mine, which will have done everything they possibly can but cannot make ends meet. Will the Minister confirm that funding will be available through NHS England to support those surgeries?
Dr Poulter: That is a matter for area teams to look at. The first approach that area teams will take is to ask, “Where can we make efficiency savings that will mean there is more money for front-line patient care, such as IT, back-office services and administration costs?” Hospital providers have been doing well in reducing administration and freeing up money for patient care. Are there economies that can be gleaned through better procurement practices and surgeries working together?
That has got to be the first thing: surgeries looking to help themselves. Later on down the line, if everything else has been exhausted, the area team will have to make a decision about whether other mechanisms are in place to provide additional support.
I am confident that, with a funding formula that recognises rurality, and a funding formula for CCGs that particularly identifies the importance of an ageing population, we have a formula that will support rural practices into the future.
11.30 am
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Stillbirths and Infant Mortality
[Philip Davies in the Chair]
2.30 pm
Tracey Crouch (Chatham and Aylesford) (Con): It is a pleasure to serve under your chairmanship this afternoon, Mr Davies, although there is certainly no pleasure in the subject matter of this debate. The issue of stillbirth and infant mortality is a complete and utter tragedy for parents who lose their child. I have met a number of my constituents who have experienced the loss of a baby. Mothers, fathers and siblings have been devastated, left bereft and unable to comprehend what has happened and why. It was heartbreaking to meet them. However, what is equally heartbreaking is that here in the UK, which has arguably one of the best health services in the world, we have one of the highest rates of infant mortality in Europe and other parts of the developed world. It is shocking that we have higher infant mortality rates than countries such as Croatia, Lithuania, Estonia and Slovenia.
Sadly, unlike other countries we have barely seen any reduction in infant mortality rates in the last 20 years. Almost three quarters of child deaths under the age of 15 in the UK happen during the first year of a child’s life; more than half in the child’s first 28 days; and almost 40% in the child’s first week. These statistics do not include the one in 200 pregnancies in the UK that end in stillbirth. Stillbirths account for the death of a further 4,000 babies a year.
There are many reasons for perinatal, early neonatal and neonatal deaths, but I will concentrate today only on stillbirths and on sudden infant death syndrome or, as it is perhaps more commonly known, cot death. That is not because I have no interest in other forms of infant mortality, but so I can focus the Minister’s mind on a few actions that might make the difference sooner rather than later. That said, I wanted to give a wide title to the debate today because I am aware that colleagues have other issues they may wish to raise.
The figure of 4,000 stillbirths per annum is far too high. I cannot imagine the horror of having to go through labour knowing that your baby is already dead. I met one lady who gave birth to her son, Henry, at 38 weeks, but he had not grown for 16 weeks. In the intervening weeks, she had forged a bond with her unborn son, named him and planned a life ahead, but it was one that would never be fulfilled.
Our NHS is brilliant and our midwives are fantastic, but I have yet to meet a woman who has gone through pregnancy without seeing more than one midwife. One lady told me that she had seen 12 different midwives during her pregnancy, which sadly ended in stillbirth. She felt that all 12 of them had different ways of measuring her. I am not going to criticise the midwives—they do not deserve criticism—but we need to ensure continuity of care throughout gestation, to give mothers some peace of mind.
Research that the National Childbirth Trust carried out with the Women’s Institute last year into women’s experiences of maternity services highlighted the shocking statistic that 34% of women were not given the name and phone number of a midwife to contact with any concerns. We must do more to encourage people to go
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into midwifery, and I hope the Government’s pledge to increase the number of health visitors will help in that regard.
However, we also need to improve our standard monitoring and measuring systems, making the most of modern technology. In the case of poor Henry, who had not grown for 16 weeks, it was clear that the measuring was not as good as it could have been. I accept that not everyone agrees with me on this, but I believe that we should be looking to increase the number of scans expectant mothers receive. Having a scan at 12 weeks and again at 20 weeks is fine, but unless a mother is anticipating complications, those are the only scans she will receive.
There are examples of the successful use of increased measuring and monitoring. The Rainbow clinic at St Mary’s hospital in Manchester, which is funded by Tommy’s baby charity, has taken huge and groundbreaking steps forward in understanding the risk profiling of mothers, and it has a great success rate because of its extra monitoring and measurement. I would like to see its work rolled out. The clinic’s test on those who are deemed to be at risk—possibly due to previous multiple stillbirths or miscarriages, which we know increase the risk of future stillbirths or miscarriages—allows those in the “at risk” category to receive further monitoring and measuring in the third trimester, when placenta problems usually occur, to allow earlier delivery if necessary to prevent stillbirth.
These preventive measures involve awareness raising and risk profiling, followed by improved measuring, with new techniques and monitoring through an increased number of scans. They have led to a significant increase in healthy babies being born to women in the “at risk” group. Although the study at the Rainbow clinic is on a small scale, it has a very high success rate. However, the clinic does not have the funding to expand its work and I urge the Minister to examine its work and give it her full support.
I am not an expert on placenta. However, given that we know it starts to break down at 38 weeks but we do not induce mothers until 42 weeks—a point when we know women carrying later are more at risk of losing their baby—we need extra research into this process and to determine whether this delivery time frame is still viable. I will not dwell on that now, but it would be helpful if the Department examined both the risks and the benefits of reconsidering induction as late as 42 weeks. I have spoken to women who have had stillbirths and many of them raised this issue with me. There is genuine concern about the length of time that women are carrying babies for, particularly those at the higher risk end of the spectrum.
This issue is not all the responsibility of the NHS and it is important that we raise awareness of reduced foetal movements, so that expectant mothers can spot early signs of distress. The Count the Kicks charity has fabulous self-monitoring support, empowering mums-to-be with knowledge and confidence, including a mobile phone app and tips for dads. This understanding should be universal.
If a stillbirth does occur, it is important that the parents receive all the support they need. The third sector does an amazing job of providing advice and bereavement support for parents who lose a child before, during or shortly after birth. However, we need to
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ensure that parents receive good care from the health service, whether that is by ensuring the appropriate equipment is available—such as cameras and other equipment to take handprints and footprints, with staff available who know how to use it—or by providing access to all the literature and available support and advice, including bereavement services. We must also ensure that parents receive correctly handled treatment; we must remember to treat them as parents even if they do not have a baby.
Dr Phillip Lee (Bracknell) (Con): I congratulate my hon. Friend on securing this debate. As someone who has professional first-hand experience of dealing with parents who have had a stillbirth, I know that it is an emotive topic but it is essential that we discuss it. Recently, Scotland produced a report outlining that its infant mortality rates are improving and it appears that it has a different approach to education, assessment and analysis of at-risk groups.
Tracey Crouch: I am grateful to my hon. Friend for his intervention. It was a coincidence that the Scottish Government released their statistics on infant mortality yesterday, which showed that Scotland now has the lowest infant mortality rates in the United Kingdom. It has managed to do that by introducing some of the measures I have already proposed in this debate, such as extra monitoring, extra targeted intervention and support for those at highest risk. That work should be rolled out across the United Kingdom.
We must be very clear about the bereavement services and support that people receive. A local charity in Kent, Abigail’s Footsteps, is working with the Royal College of Nursing to establish a national standard of bereavement training that it would like to see universally implemented. That is absolutely fantastic. On top of that, however, one of the best ways to accomplish good care in all the areas I have mentioned is to create the job specification of bereavement midwives within the NHS. This suggestion is supported by Sands, the leading stillbirth and neonatal deaths charity. I fully support this proposal and urge the Minister to consider introducing a nationally recognised job specification for bereavement midwives, which I believe would ensure the best possible mental health of, and support for, parents whose babies die before, during or shortly after birth.
I am aware that people have suggested that this will be an additional cost to the NHS, but we need to remember that the cost to the NHS of supporting people with mental health concerns, as well as loss of productivity because they have lost a child, is significant—some £1.5 billion to £2.5 billion. Therefore, an early investment in such support services will make a massive difference.
A bereavement midwife would be familiar with all relevant policies and procedures. They could ensure that all protocols are up to date and that relevant paperwork and equipment is always available; ensure that there are high standards in bereavement care in every relevant hospital department; and liaise with others within the hospital, such as chaplains, neonatal and paediatric pathologists and mortuary staff. They would also be able to promote good communication and building
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relationships with primary care providers such as GPs, as well as external bodies, including the registrar of births and deaths, and to ensure that patients have access to all appropriate available support and literature.
We are lagging behind on stillbirths, and I think the Minister will agree that we need to do more. I have outlined just a few suggestions that would help, as proposed by those who work in maternity care and who have suffered the loss of their own baby during pregnancy.
As tragic as a stillbirth is, the sudden death of a baby who was born, named, taken home and then fell asleep never to wake again is something I cannot even begin to imagine. Sudden infant death syndrome, or cot death, was dramatically reduced due to the outstanding success of the “Back to Sleep” campaign that the Government launched in the mid-1990s. The campaign, reminding parents that babies should sleep on their back, not side or front, was highly successful and led to an outstanding drop in the number of cases of babies who died of sudden infant death syndrome. As a result of that campaign, the number dropped from five babies a day in the mid-1980s to five babies a week, where it has stubbornly remained ever since, even 20 years later.
Access to information is vital. The first thing we need to do is reinstate the literature that new mothers used to receive when they left hospital with healthy babies. Unfortunately, the helpful “Safer sleep” guide was caught up in the Cabinet Office’s bonfire of public sector communications, and now new mothers are expected to rely on other organisations providing information. The Bounty pack is brilliant, although it is not necessarily immediately available or universal; however, the information provided in it could be life-saving. Risk profiling is essential if we are to reduce SIDS. Mothers need to understand the dangers of alcohol, smoking, vitamin deficiency and obesity, both during and after pregnancy, as a matter of course and not just as an optional extra, because those are the biggest causes of preventable perinatal death.
The Lullaby Trust and Bliss do wonderful work together and are helping my own local authority in Medway, which has multiple areas of deprivation, to identify risk and support professionals targeting intervention. This is essential. The statistics speak for themselves. The cross-party report published recently by colleagues, entitled “1001 Critical Days”, found that 26% of babies in the UK are estimated to be living within complex family situations, which can heighten the risks for a baby’s well-being, and that drug and alcohol problems affect more than 109,000 babies. Targeting resources at higher-risk families, parents and babies will help to reduce SIDS. It is essential to ensure that support and information are there for those who have premature babies, have babies young, or who are living in complex situations.
Furthermore, if we are really going to tackle infant mortality and reduce our embarrassingly high rates, we need to support, encourage and promote breastfeeding and improve access to “Healthy Start” vitamins, which are currently only accessible via named chemists. These should be available at all chemists. Investment should be made in both universal and targeted services, as recommended by the Healthy Child Programme. Where targeting has not made an impact—for example, vitamin D supplementation—universal approaches should be considered if they are also cost-effective. We need to highlight the message that this is not an optional extra, but is vital to ensuring foetal welfare.
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We must improve awareness of smoking cessation services and the harm caused to unborn children by smoking. Similarly, we need to ensure that people understand the dangers of smoking for those who have been born. We must also do more to discourage binge drinking during pregnancy. I was shocked to learn that 18% of women still binge drink—that is, drink more than six units in one session—while pregnant, often leading to foetal alcohol syndrome.
I know I have not covered everything in this debate, but I hope it is a useful start. I thank the Royal College of Paediatrics and Child Health, Tommy’s, Sands, Kent Sands, Bliss, the Lullaby Trust, Abigail’s Footsteps, Together for Short Lives, the National Childbirth Trust, the Women’s Institutes and Bounty for their briefing materials in advance of this debate. I thank, in particular, the mothers and fathers I have met who have spoken movingly about their own personal tragic experience.
The Prime Minister said he wants to make sure that Britain is the best place to end life. Today, I am calling for us to work together to make Britain the best place to start life and give every expectant mother all the support they deserve. I look forward to the Minister’s response and the contributions of other Members, and thank them for taking the time to be here this afternoon to discuss this important issue.
2.45 pm
Tim Loughton (East Worthing and Shoreham) (Con): It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch) on an excellent speech and on raising the profile of this much neglected but hugely important subject for many of our constituents who have been through the pain of stillbirth, infant mortality or perinatal mortality.
I am, slightly shamelessly, going to use this debate as a further opportunity to plug the ten-minute rule Bill that I put before the House on 14 January, with the support of my hon. Friend and other hon. Members. I am pleased to see the Under-Secretary of State for Health, my hon. Friend the Member for Battersea (Jane Ellison) here, as she sat in on that ten-minute rule Bill. I am glad that her colleague at the Department of Health has now, I hope, agreed on a meeting to take that forward; some of us can take constituents affected by stillbirth to that meeting and see whether we can bring about the change in the law that I will come back to in a minute.
I echo the accolades that my hon. Friend the Member for Chatham and Aylesford bestowed on all the organisations that have an interest in this matter and have for many years, quietly but assiduously, been campaigning for better care for people bereaved by stillbirths or who lose their children at an early age, giving support and advice, and campaigning for improvements and changes in the law.
This is quite a complicated area. Although the debate is entitled “Stillbirths and Infant Mortality”, we talk about neonatal deaths, perinatal deaths and post-neonatal deaths—those deaths between 28 days and a year after birth—as well as infant and stillbirth mortality rates. However, across all those fields the record of the United Kingdom is not good. My hon. Friend contrasted the UK’s record with the great progress made on sudden infant deaths, particularly on cot deaths, during the “Back to Sleep” campaign. A concerted, focused and
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well promoted campaign led to a decrease of more than two thirds in the horrific spate of cot deaths that afflicted so many families. It is perplexing and worrying that, although there has been some progress in reducing mortality rates across the board, pre and post-birth, they still remain alarmingly and unacceptably high, certainly compared with European partners.
Total perinatal mortality rates now stand at some 7.4 per 1,000 live births in this country. In comparison, the figure for Finland, which has the best record on this front, is 3.2 per 1,000 live births, and even Portugal, which has challenging questions to face about infant health, has a rate of 3.8 per 1,000 live births. We are still way behind. An awful lot of those perinatal mortalities, particularly the stillbirths among them, remain completely unexplained.
We also have to add miscarriages to the figures, which apply only to the official recognition of stillbirths as embryos born dead after 24 weeks. Those figures, of course, do not include miscarriages, yet more than one in five pregnancies in this country ends in miscarriage, which means that more than a quarter of a million of our constituents are affected by miscarriages each year. The problem is huge.
Most miscarriages happen in the first three months of pregnancy. Some women may hardly know that they have had a miscarriage, and some may have miscarriages without knowing they were pregnant in the first place, but many women, including some constituents who have come to me since I presented my ten-minute rule Bill, have miscarriages well into their pregnancy, when the grief, trauma and distress of losing a hoped-for child is that much greater.
The way in which we support women who have been through such experiences is also worrying. Research by the Miscarriage Association found that 45% of women who have experienced a miscarriage did not feel well informed about what was happening to them. Only 29% feel that they were cared for emotionally, and nearly four out of five, 79%, received no aftercare. We know that at least one in six women—a very large number—experience some form of perinatal mental health problems. That has a great cost, socially and emotionally to those women and financially to our national health service. It is a false economy not to ensure that we support those women, whether they have suffered a miscarriage early or late, or whether they have suffered a perinatal mortality either before or after birth.
Dr Lee: On the subject of false economies in the national health service, historically we have spent significant sums on antenatal care without a lot of evidence to support that expenditure. Does my hon. Friend agree that we need to concentrate resources in the appropriate hands? We need appropriately staffed maternity units—there are worrying statistics about midwifery-led versus obstetric-led maternity services—and by doing that we can address our infant mortality rates, which compare poorly with those of our European neighbours. As politicians, we must also accept that doing that would involve reconfiguring services. There would be fewer maternity units and perhaps more obstetricians.
Tim Loughton:
My hon. Friend has great hands-on experience, and he knows a lot more about this subject than I do. He opens a far greater debate on the accessibility of maternity services. I am sure I am not alone in having
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marched and campaigned for the retention of midwifery-led maternity services at a local hospital. Interestingly, the biggest growth in mothers giving birth at that hospital has been among those who live outside the Worthing catchment area. Those mothers choose to go to the hospital.
Dr Lee: I want my hon. Friend to know that I campaigned to close my local midwifery-led unit because it was not delivering many babies—it was delivering less than one baby a day. I have real concerns about the potential for increased infant mortality in such midwifery-led units.
Tim Loughton: It is horses for courses. I am glad to say that my maternity unit delivers well in excess of 3,000 babies a year. It is a centre of excellence, and the customer votes with her feet by choosing to go there from outside the area. My hon. Friend is absolutely right that the assessment of units must be primarily based on the quality and safety of care for mothers, but I fear we are straying slightly beyond stillbirths and infant mortality rates into the availability of maternity services and hospitals. You would not want us to go there, Mr Davies.
My hon. Friend also raises an interesting point about delivering services in the most appropriate way. There are certain constituencies of women and certain parts of the country where the problem is that much greater. To take one of the classifications, the infant mortality rate in the UK overall is 4.4 deaths per 1,000 live births, but the variations for mothers born outside the United Kingdom are worrying. For babies of mothers born in the Caribbean, the figure more than doubles to 9.6 deaths per 1,000 live births. For babies of mothers born in Pakistan, the rate is 7.6 deaths per 1,000 live births, and so on.
There are also regional variations, particularly for perinatal mortality overall. In the south-west, the figure is 4.7 deaths per 1,000 live births, but in the north-east it is 5.8 deaths per 1,000 live births—a 23% difference. Why are there those differences? We simply do not have enough research; we have not commissioned and are not doing enough research to find out why certain types of women and certain geographical locations are faring worse. Such research would enable us to focus, say, additional scans or support services, or whatever is required, to ensure that we make the best use of our NHS resources. My first call is for there to be rather better research across perinatal mortality.
Mr Gregory Campbell (East Londonderry) (DUP): On geographical differences, we heard earlier about the improvement recently reported in Scotland. Does the hon. Gentleman agree that when Ministers from across the United Kingdom and beyond meet either at a joint ministerial council or at other levels, best practice, where it has been established, should be carefully researched and, where possible, implemented immediately?
Tim Loughton:
I agree. My hon. Friend the Member for Bracknell (Dr Lee) gave the example of Scotland, where people have clearly examined the matter a bit further; they appear to be achieving more than people
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in other parts of the United Kingdom. We should be sharing that best practice, rather than being parochial and not sharing it beyond the United Kingdom, with or without Scotland after 18 September. That goes beyond sharing ministerial best practice on health issues; I would guess that not just health considerations but deprivation, housing and other local environmental factors are involved, too. More than just the Health Ministers of the respective parts of the United Kingdom need to be involved. If we compare deprivation with infant mortality rates, some signs certainly start to emerge.
Last year there were 3,558 stillbirths; in 2011 there were 3,811 and in 2003 there were 3,612. The stillbirth level has remained persistently high for a long time. One in 200 pregnancies ends in stillbirth, but stillbirths are currently defined in law as being after 24 weeks of gestation, which still means that there are 15 times more stillbirths than cot deaths—the progress on cot deaths was alluded to earlier. The problem with the definition is that it masks the higher number of stillbirths that happen before the 24-week gestation qualification currently in legislation. If a woman gives birth to a stillborn child at 23 weeks and six days or earlier, the child counts not as a stillbirth but as another “miscarriage.”
That was the case for my constituent Hayley, who came to see me and was present when I presented my ten-minute rule Bill in January. She had been through the dual tragic experience of giving birth to a stillborn son at about 19-and-a-half weeks. She had to have her pregnancy induced, and she went through labour. She experienced all the pains and anguish of labour in a hospital for more than 24 hours before giving birth to her son. She and her partner, Frazer, held their son and took handprints and photographs. To all intents and purposes, their son had been born, but sadly born dead. In the eyes of the law, their son did not exist, because he had been born after less than 24 weeks. That child had no recognition in the eyes of the law. Some months afterwards, Hayley tragically went on to have a miscarriage after five or six weeks. Those two experiences were different—that is in no way to belittle the pain, anger and trauma of going through a miscarriage—but in the eyes of the law, they were identical: neither of those children was recognised as having been born.
That is what my Bill is all about. Since introducing it, I have been swamped by the experiences of women and families up and down the country. To take one example, a woman gave birth at about 21 weeks to twins. It might have been slightly more than 20 weeks—I forget now—but it was less than 24 weeks. One of the children was born just alive and lasted for a few hours. The other twin was born dead. As the first was born alive, albeit at less than 24 weeks, that child was recognised. The other twin, born dead, did not exist. How traumatic and cruel is that on the part of the state? Someone gave birth and had two dead children, but only one existed in the eyes of the law. That is why the law needs to change.
I will persist with the Bill well beyond the confines of this Session, when it will expire because of the constraints of this place, until I persuade the Government to take the issue on. It is about fairness and recognition for people who have had to go through trauma, anguish and pain unimaginable to those of us lucky enough to have had healthy, albeit slightly annoying, children. It is not acceptable for those who have lost a child before that child was ever able to breathe then to have the second blow of the state not recognising that child.
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My Bill would amend the Births and Deaths Registration Act 1953, but not in a way that says that we should redefine the 24-week limit. I do not want to make it 23 weeks or 22 weeks; this has absolutely nothing to do with abortion thresholds and things like that. I want to make a differentiation between what are clearly miscarriages and instances of when women, to all intents and purposes, go through all the pains and experiences of giving birth to a child. The definition in my Bill of a “stillborn child” does not mean a child born dead from 24 weeks’ gestation onwards, but
“a child which has issued forth from its mother and which did not at any time breathe or show any other signs of life, following the recognised processes of labour including regular, painful uterine contractions resulting in progressive cervical effacement and dilation; and the expression ‘still-birth’ shall be construed accordingly.”
It is a bit technical and a bit physical, but it is a way of giving some comfort to mothers: if they gave birth to a stillborn child, it would be a birth. The Bill would say that they had had a child, that there had not been a miscarriage and that the state should recognise that.
We have not introduced the Bill to meddle with the abortion laws—it has nothing to do with that—and it is not intended to meddle with bereavement leave entitlements or benefit entitlements. The more enlightened employers of someone who has been through such an experience would give the employee some allowance on the time they need to get over the death. For them to receive some sort of closure and to give them the support and relief that they desperately need to be able to move on, the state needs to recognise what they have been through in giving birth to a stillborn child.
At the moment, a hospital or clinical practitioner can issue a certificate of birth. It has no status in law. It is of some comfort to some people, but it is certainly not sufficient comfort for many of our constituents. That is why I am putting forward the changes to the law. They are simple and do not involve a lot of cost, but they would offer huge support, relief and comfort for mothers and their partners who have been through these sorts of experience.
As well as wanting to change the law and calling for better research into why we appear to be so vulnerable to perinatal mortality and stillbirths, we need greater research and better guidance. I do, however, pay tribute to the existing guidance, particularly that issued by the Royal College of Obstetricians and Gynaecologists on recurrent first and second trimester miscarriage, and some of the best practice.
I echo the points that my hon. Friend the Member for Chatham and Aylesford made about foetal alcohol syndrome, which strays slightly beyond the confines of the debate. When I was a shadow Health Minister, I considered the issue. I visited children’s homes in Copenhagen that specialised in children born with foetal alcohol syndrome. In many cases, the child was born to parents from Greenland’s Inuit community, which has high alcoholism rates. A lot of research has been done on that in Denmark.
It is undeniable that a lot of our children are being damaged due to excessive drinking through pregnancy and that an awful lot of that is not being properly diagnosed. In my simple layman’s view, a lot of the symptoms have parallels with autism and the autism spectrum, and there may be links between autism and foetal alcohol syndrome.
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The issue is very little researched in this country, but it potentially affects an awful lot of our children, and we need to do much more to identify it. More importantly, we need to give clear, stark, but accessible warnings to women about the practical perils of drinking irresponsibly at all stages during pregnancy. That is not to say that pregnant women must not drink at all, but we need to set out clearly what is and is not tolerable, just as we should for women who smoke during pregnancy.
To make a side point—a point I made during a debate on the Children and Families Bill—I cannot understand why the Government have set criminalising smoking in cars with children in them as a priority, yet have done nothing to criminalise, if that is the principle they want to follow, smoking for pregnant women whose foetuses are in rather more confined spaces than the back of a car. Smoking and drinking are highly damaging to children before and after they are born. People are irresponsible if they do that, and we need a much clearer and more pungent health message to mothers. We need to disseminate best practice better than we do now, whether that is from Scotland or other parts of the country that appear to have achieved some success in reducing some of these mortality rates.
This is a bigger public health crisis than we have given it credit for. I have met constituents and heard some tragic stories from around the country of families who have been through stillbirths and other perinatal mortalities. We need to take this issue much more seriously.
Jim Shannon (Strangford) (DUP): I apologise for not being here on time; I had a Committee to go to. This issue is important to all of us here, as well as to those outside the Chamber. In Northern Ireland, there are four infant fatalities a week. The UK mainland has 17 to 19 infant fatalities a day. Obviously, the populations are different, but that figure tells its own story. Does the hon. Gentleman feel—perhaps it will be in the Minister’s response—that those in the health service should consider why the infant mortality rate is so low in Northern Ireland?
Tim Loughton: I agree with my hon. Friend, who is a co-sponsor of my Bill. The hon. Member for East Londonderry (Mr Campbell) made references to Northern Ireland, and earlier in my speech—I think before my hon. Friend entered the room—I did flag up the regional differences between parts of the United Kingdom. Far more research must be done to discover why certain parts of the United Kingdom are affected more or less than others and why women of certain ethnic backgrounds are affected more. We simply do not have the level of research to discover why such things are happening so we cannot better target our resources, as my hon. Friend the Member for Chatham and Aylesford mentioned earlier.