Domestic Gas and Electricity (Tariff Cap) Bill — House of Lords, 2018-05-22
Topic: Energy
Oliver Michael Robert Eden (Conservative, Centre-right): My Lords, the introduction of a price cap on standard variable and default-rate tariffs for domestic energy customers is a critical measure as the UK’s retail energy market is reformed. The price cap will ensure that UK consumers are protected from suppliers seeking to exploit the loyalty of their longest-standing customers by providing them with poor-value tariffs In June 2016, the Competition and Markets Authority identified that customers of the big six suppliers were paying £1.4 billion more than they should in a truly competitive market. What is worse, the consumers most likely to bear the burden of this huge detriment include some of the most vulnerable. Since the investigation by the CMA, the problem has not dissipated. Today, the difference between the cheapest available tariff and the standard variable tariff of a big supplier remains at around £300. I must reiterate that it is often some of the most vulnerable in society who pay the price of this disparity. There is an absence of behavioural change, particularly inside some of the large energy suppliers However, the Government believe that long-term state intervention in markets is neither desirable nor beneficial. Competition is the best way to drive value, service and innovation. Competition in the generation sector has brought forward significant investment and innovation, including new technologies. In the energy retail sector consumers now have a greater choice of supplier than ever before, with nearly 70 energy suppliers operating in the domestic market. More than one in five energy consumers are now with small and medium-sized suppliers, as more people switch to get a better deal. Despite the increase in the number of suppliers, however, the benefits of competition are not being felt by all consumers. That is why the Government are taking this action The Bill will ensure protection for consumers who find themselves on poor-value, standard variable or default-rate tariffs. In doing so, it will complement existing and recently expanded protections enacted during this Parliament. Following an order made by the Competition and Markets Authority, Ofgem has already provided protection for 4 million customers with the introduction of the price cap for customers on prepayment meters in April 2017. This has helped these households to save an average of £60 a year. Early analysis of suppliers who primarily supply prepayment customers shows that they are continuing to grow at a similar rate to the one that was in place before the price cap was implemented On 2 February this year, the prepayment meter cap was extended to include a further 1 million more vulnerable customers in receipt of the warm home discount. Five million customers are now protected by these measures. These protections are part of a package of measures being introduced by the Government and Ofgem to protect consumers and increase competition in the retail energy market. Other measures include support for faster and more reliable switching, initiatives to improve consumer engagement and the rollout of the next phase of smart meters. The Government believe that each of these measures will help forge the conditions for more effective competition and, in doing so, create a market in which a market-wide price cap is no longer required. It will be for Ofgem to carry out a review into whether the conditions for effective competition are in place. The Secretary of State will then make the decision on removing an extension of the cap I now turn to the Bill. Within its 13 clauses, it has one central aim: to give Ofgem the powers and duties to design and implement a tariff cap for standard variable and default-rate tariffs as soon as is practicable. Ofgem must design and implement the cap in a way that, first, creates incentives for suppliers to improve efficiency; secondly, enables suppliers to compete effectively; thirdly, maintains incentives for customers to switch; and, fourthly, ensures that efficient suppliers are able to finance their supply activities. The Bill will also require Ofgem to review the level of the price cap at least once every six months. Provisions in the Bill require Ofgem to consult on exempting tariffs which people choose to be on and which support the production of energy from renewable sources As I stated, market intervention is not something that the Government do lightly. The Bill is therefore a targeted and temporary intervention, with an initial end date of 31 December 2020. Subject to a report and recommendation from Ofgem, the Secretary of State can extend the cap one year at a time, with a hard deadline of 2023, after which the price cap must come to an end. The task of setting the cap is key. Ofgem has already started work with the publication of five working papers, to which stakeholders have had a chance to respond. Further consultation is planned as the Bill progresses through the House, and there will be a formal consultation on the final design of the price cap should the Bill receive Royal Assent As many of your Lordships will know, the merits of the Bill’s different components have been debated extensively in another place. As a consequence, the Bill arrives in this House unamended, which shows the strong cross-party support that it has. A draft version of the Bill underwent pre-legislative scrutiny by the Business, Energy and Industrial Strategy Select Committee, with a great deal of written and oral evidence weighing its merits. I am very grateful to the committee for its thorough scrutiny. Its final report was wholly supportive of the purpose, structure and effect of the Bill. The Government have accepted all the Select Committee’s recommendations to strengthen and improve the Bill and the outcomes it aims to achieve During our forthcoming debates, I look forward to hearing from noble Lords with a wealth of experience on a matter of such importance for consumers and for re-establishing trust in the domestic market. As regards when the price cap will be in place, there was significant consensus in another place that it should be implemented by the end of 2018. I note that Ofgem is already well under way with its consultation, including issuing a series of working papers on the design of the price cap In conclusion, I hope that our scrutiny will be both timely and harmonious so that this important measure may be implemented by the end of the year. I beg to move.