Energy Prices — House of Commons, 2017-03-16
Topic: Energy
John David Penrose (Conservative, Centre-right): That is one of the underlying concerns about the way that this industry operates. People are not necessarily asked at the moment they are switched to the default tariff, so when they notice that they have been—if they notice—they feel that they are being ripped off, because those default tariffs are so much higher. That leads to distrust of the suppliers, and that is one of the things corroding the underlying trust in the industry as a whole. It is incredibly dangerous. I think some forward-thinking people in the industry understand that and the brand damage that is being done, not just to individual firms but to the sector as a whole. Trust is slow to gain and easy to lose. My hon. Friend has a background in marketing and consumer business, so I am sure that he understands what I mean Rolling out the end-to-end services that I mentioned, which are still in their infancy, should persuade a new group of customers who currently do not switch at all to do so, extending the number of people in that stubborn two thirds of the customer base who do not switch, or do so very rarely These changes, taken together, are essential steps to solving the underlying fundamental problems that make the energy market such a rip-off. If the Government, the regulator—Ofgem—and perhaps even enlightened energy firms themselves are willing to take those steps, abuses and consumer detriment will start to fall and customers will finally be in the driving seat, as we already are and expect to be for everything else, from toothpaste and coffee to cornflakes and soap. But how long will this take to fix? How quickly will the rip-off stop? Even then, will there still be stubborn pockets of problems left over here and there? Given that fully two thirds of all customers are on these rip-off tariffs and that proportion has been glacially slow to change, there is an awfully long way still to go. Even under the most optimistic scenarios, an unacceptably large number of households will still be being ripped off for too many years yet. So we need a stopgap—a temporary solution—while all those other changes to make switching easier and less scary start to take effect The answer is a relative price cap—a maximum mark-up between each energy firm’s best deal and its default tariff. If someone forgot to switch to a new deal when their existing one came to an end, they would not be ripped off too badly, but people would still be able to save plenty of money when they got round to switching again, so it would always still be worth their while to become engaged and take that additional action, should they be so minded Under these proposals, energy firms would still be able to compete on price—they could still decide whether they wanted to be the Aldi or Lidl of the industry, or the Waitrose or Marks and Spencer—and could still have as many tariffs as they wanted, so there would be plenty of customer choice. If someone wanted a green energy tariff, that would be fine. If someone did not like computers or wanted to do it the old-fashioned way with offline paper and an ink deal, that would be no problem I am delighted to confirm today that the idea of a relative cap is supported by three of the largest challenger brands—OVO, Utility Warehouse and Octopus Energy, which cover hundreds of thousands of customers between them—and I hope to persuade others to join the cause in due course Crucially, a relative cap is a lot better than a normal price cap. A relative cap would mean that each energy firm could still adjust its prices whenever the wholesale price of gas or electricity went up or down, but a normal cap would mean that Ofgem had to approve any changes, which inevitably would be slower and create work for lawyers and lobbyists. A relative cap would also mean that energy firms still had plenty of incentives to innovate and find new ways to please particular groups of customers however they wanted, without needing Ofgem’s approval first Lobbyists and lawyers will hate a relative cap, because there will be much less lobbying and lawyering to do. Putting customers in the driver’s seat would mean fewer fat fees and fat lunches. If customers could switch their supplier as easily as changing their brand of cornflakes or soap, we politicians, and the bureaucrats and regulators, would rightly matter a lot less in this area. Because of the extra clarity and simplicity, a relative cap would mean that we could deregulate, too, by striking out reams of regulations, red tape and guidelines that complicate the market and stop energy firms thinking about their customers first and foremost and make them focus on their regulators, lawyers and compliance directors instead. A relative cap would reduce red tape rather than add to it But the people who would hate a relative cap the most are the big six, because it would force them to treat us, their consumers, fairly, to reward loyalty rather than exploit it and to fight hard to keep long-standing customers rather than take us for granted. In other words, it would force the industry to be a normal industry with normal firms where the customer, not the regulator or politicians, is king I know that both Ministers and regulators understand this problem. They have spoken to me and many others in this House about it, and both the Secretary of State for Business, Energy and Industrial Strategy and the Prime Minister have been trenchant in criticising the sector for not delivering an economy that works for everyone, so I hope that they will accept the thrust of this motion The time for action has come. We simply cannot argue, as others have tried to, that even though fully two thirds of the country is being ripped off, we are not going to help or protect those victims because it is their own silly fault if they are not savvy enough to switch. Yes, we need to make switching easier and safer so that, eventually, most of us do it most of the time. That is clearly the right long-term answer. But I hope that Ministers accept that, until that glorious day, we cannot simply sit back and allow consumers to be harmed on this scale for this long and do nothing. We need to do more.