1The draft Domestic Gas and Electricity (Tariff Cap) Bill
Pre-legislative scrutiny of the draft Domestic Gas and Electricity (Tariff Cap) Bill
1.Following a Conservative Party manifesto commitment to extend existing price controls to “more customers on the poorest value tariffs”1, the Queen’s Speech 2017 outlined the Government’s plans to ensure “fairer markets for consumers.”2 The Secretary of State for Business, Energy and Industrial Strategy, Rt Hon. Greg Clark MP, then asked the gas and electricity regulator, Ofgem, what steps it would take regarding “the future of standard variable tariffs” and the “safeguarding” of customers on the poorest value tariffs.3 Ofgem’s reluctance to introduce a market-wide cap without the introduction of primary legislation4 prompted the Government to take action and publish the draft Domestic Gas and Electricity (Tariff Cap) Bill on 12 October 2017.5
2.In a statement to the House of Commons on the same day, the Secretary of State for Business, Energy and Industrial Strategy formally asked us to scrutinise the Bill.6 We agreed to do so, partly on the basis that it complemented our existing work on energy price controls.7 We received written evidence from energy stakeholders, Members of Parliament and members of the public. We heard oral evidence from competition experts, consumer bodies, energy suppliers, Ofgem and the Department for Business, Energy and Industrial Strategy. We are grateful to all those who have provided evidence to this inquiry.
3.We had also agreed to meet the Secretary of State’s request to report by the end of January.8 However, the Cabinet reshuffle in January 2018 delayed our oral evidence session with the Minister of State for Energy and Clean Growth, Rt Hon. Claire Perry MP, and, consequently, this report. Nonetheless, the publication of this report in February should provide sufficient time for a committed Government to seek parliamentary approval of the Bill before the summer recess. This would guarantee that energy customers receive protection from excessive prices in time for winter 2018.
Improving fairness and effective competition
4.From 1986 onwards, the GB energy market was progressively liberalised but even today it remains partially regulated and held to high standards. Policy interventions are taken regularly by government or the regulator to ensure that the market delivers both effective competition and fairness for all energy consumers, especially for those who are vulnerable. This is because energy is seen to be an “essential service”,9 an “unavoidable necessity of life, which amounts to a significant portion of household budgets”.10 In the words of the Minister:
[ … ] There is something very fundamental about energy—about heating and lighting a home—particularly for the most vulnerable customers.11
5.We agree that where existing frameworks fail to deliver fairness or effective competition in the provision of essential services like energy, they must be amended. This report is our assessment of the Government’s proposed remedy for a market that is “not working for all consumers”.12 We want to work constructively with the Government to make the Tariff Cap Bill as effective and beneficial as possible for all energy consumers.
6.One of the key objectives of the Bill, according to the Minister, is achieving fairness.13 The other one is “to protect domestic energy customers from unjustifiably high prices until the conditions for effective conditions are in place.”14 In our inquiry, we assessed the Bill and the evidence we gathered on it against these two objectives and make recommendations where we consider that they could be achieved better in a different way.
1 Conservative Party, Forward Together - The Conservative and unionist party manifesto 2017, p60
2 Cabinet Office, Queen’s Speech 2017, 21 June 2017
3 Department for Business, Energy & Industrial Strategy, Letter from Rt Hon Greg Clark to Dermot Nolan, CEO Ofgem, 21 June 2017
4 ‘Legislation needed to tackle UK power price rises, regulator warns’, The Financial Times, 17 August 2017
5 Draft Domestic Gas and Electricity (Tariff Cap) Bill, Department for Business, Energy & Industrial Strategy, 12 October 2017
7 Business, Energy and Industrial Strategy Committee, Energy price cap inquiry, October-November 2017
8 Business, Energy and Industrial Strategy Committee, Correspondence from the Chair to the Secretary of State, BEIS, on pre-legislative scrutiny of the draft Domestic Gas and Electricity (Tariff Cap) Bill, 25 October 2017
10 Department for Business, Energy & Industrial Strategy, Impact Assessment: Draft Domestic Gas and Electricity (Tariff Cap) Bill, 29 November 2017, 11 December 2017, p1
12 Draft Domestic Gas and Electricity (Tariff Cap) Bill, Department for Business, Energy & Industrial Strategy, 12 October 2017
14 Department for Business, Energy & Industrial Strategy, Impact Assessment: Draft Domestic Gas and Electricity (Tariff Cap) Bill, 29 November 2017, 11 December 2017, p1
9 February 2018