Domestic Gas and Electricity (Tariff Cap) Bill — House of Lords, 2018-06-27
Topic: Domestic Commerce
Oliver Michael Robert Eden (Conservative, Centre-right): I thank my noble kinsman for that explanation, and make it quite clear that I am sure the reason for his support is nothing to do with the fact that we happen to be related, but he does bring a breath of fresh air to his Benches Turning to the remarks of the noble Baroness, Lady Kennedy of Cradley, I will come on to "tease and squeeze" later, but I agree with her that that is a problem, and we think there are ways to deal with that. She made it clear that she would like certain experts from the industry to talk to Ministers, and if she gets back to me I will certainly make sure that that is possible. I would be more than happy to talk to them as the Bill continues its passage—but we are near the end of it—about life post the Bill and under the new arrangements The noble Lord, Lord Grantchester, is seeking to place a duty on Ofgem to develop a relative price cap that would come into effect on the termination of the tariff cap conditions which are set out in this Bill. The noble Lord is nodding in assent, so I think that I have got it right. That would cap each supplier’s most expensive advertised standard variable and default-rate tariffs as a proportion of its cheapest fixed-term deal, and again, Ofgem would set the differential. The new clause would be inserted by the amendment and its effect would be to introduce an indefinite relative price cap. It remains the Government’s position that this amendment is not necessary, and I hope to set out why we believe that that is the case It is not the intention of this Bill or the Government to put in place a permanent market-wide cap, as I have explained on earlier occasions, and I would pass that on to my noble kinsman Lord Redesdale. I know that the intention of the amendment is to stop the practice of "tease and squeeze", whereby customers are lured in with a cheap fixed rate and then fall into an expensive default rate at the end of the fixed term. However, as with any relative cap, there is a risk that under this proposed amendment suppliers would raise their least expensive tariffs rather than decrease their most expensive standard variable rates. That is the Government’s fundamental concern about any kind of relative price cap The Government and others, which includes the detailed work done by the BEIS Select Committee during its pre-legislative scrutiny of the Bill, believe that a relative price cap would not work. Indeed, a relative cap as a permanent feature of the market risks undoing the work of the temporary absolute cap, because it would remove the incentive for the market to innovate and reform. I would emphasise in particular those points to the noble Baroness, Lady Kennedy of Cradley, who I think possibly did not understand how markets work. It also puts in place a solution to a problem that is anticipated some years hence. We believe that it is better for Ofgem to consider what measures may be needed once the price cap is lifted rather than prejudge the situation now and tie Ofgem’s hands in a way that might damage consumers or be ineffective The key way of ending the practice of "tease and squeeze" will be the detailed work that Ofgem is undertaking to develop better ways of securing customer engagement. The work was emphasised by the noble Lord, Lord Grantchester, when he talked about smart meters. It will make switching quicker and more reliable, so smart meters and other programmes will help to make the market work better I recognise the concerns of noble Lords opposite in this area and the need for action to protect consumers following the removal of the price cap, should that be necessary. In acknowledging this, I can confirm a triple commitment by the regulator on this issue. I can confirm that Ofgem has committed to assessing whether ongoing protection will be needed for vulnerable consumers beyond the end of the price cap. I can confirm that Ofgem considers that it can implement price protection for selected consumers should that be appropriate. I can also confirm that, ahead of the price cap ending, Ofgem has committed to producing a report on what additional protection might be needed, who needs that protection—we are thinking of vulnerable consumers—and what form that protection should take. Following the production of that report, Ofgem will act accordingly. I repeat: Ofgem will act accordingly having produced a report on what additional protection might be needed, who needs the protection and what form that protection should take The House might also have seen Dermot Nolan, the chief executive officer of Ofgem, giving evidence to the BEIS Select Committee during its pre-legislative scrutiny of the Bill. He was asked whether a price cap or other protection might be needed for vulnerable consumers upon the removal of a market-wide price cap. Mr Nolan responded: "In my view, yes. … I would envisage a very possible situation in which if a full, market‑wide price cap was removed, Ofgem would continue with the price cap for vulnerable customers" I hope that those commitments from the regulator, alongside the comments of its chief executive officer, would go some way to reassuring noble Lords, including the noble Lord, Lord Grantchester, of Ofgem’s capabilities and stance towards protecting consumers beyond the life of the Bill. I hope that my explanations have been helpful and that the noble Lord will therefore see fit to withdraw his amendment.