Retail Energy — House of Commons, 2017-10-12
Topic: Energy
Gregory David Clark (Conservative, Centre-right): With your permission, Mr Speaker, I would like to make a statement to the House about the draft Energy Price Cap Bill, which we are publishing today Over the past 15 years, energy prices have risen by over 90% in real terms. Currently, most households in Great Britain are on tariffs that penalise rather than reward loyalty. In 2014, in response to widespread concern that competition in the retail energy markets was not serving customers’ best interests, the independent regulator Ofgem referred the market for investigation to the Competition and Markets Authority The CMA completed its investigation in 2016 and found that the retail energy market was not operating in a fully competitive way. It reported that customers of the big six pay an average of £1.4 billion a year more than they would in a truly competitive market. The CMA report said: "Overall, our view is that the overarching feature of weak customer response gives suppliers a position of unilateral market power concerning their inactive customer base and that suppliers have the ability to exploit such a position through their pricing policies." Since the CMA findings, the big six energy suppliers have announced unjustified price increases in their poor value standard tariffs. Customers of the these firms have seen their energy bills increase by between 7% and 10% within the past 12 months, increases on prices the CMA had already concluded were too high The Government want the market to thrive, and we continue to promote competition as the best driver of value and service for customers. However, as my right hon. Friend the Prime Minister said last week, the Government are prepared to act when markets are not working for all consumers. The energy market is a clear example of this, as Ofgem itself said yesterday The energy market is on the cusp of a major change, in which smart meters will be offered to every household and business by the end of 2020. When fully rolled out, smart meters will make it easier for consumers to reduce their energy consumption and to access competitive deals. In the meantime, however, the CMA panel recommended a number of measures to improve competition and a temporary tariff cap for those with prepayment meters until smart meters are rolled out. As the CMA said: "our remedies will take time to implement before they start to address the features that we have identified and, in turn, reduce the detriment to domestic customers arising from them." The CMA was in two minds over how widely interim protection should be applied. The panel’s minority opinion was that the temporary price cap should be extended to a wider group of consumers. In its words: "They must be supplemented by a wider price control designed to give household customers adequate and timely protection from very high current levels of overcharging." The Government agree with that view, which is why I wrote to Ofgem in June to ask them what action they intended to take to safeguard customers on the poorest value tariffs. In response, Ofgem undertook to consult consumer groups to provide measures to protect vulnerable consumers. We welcome Ofgem’s commitment yesterday to protect a further 1 million families, meaning over 5 million families will be protected from expensive standard variable tariffs for the first time; and we welcome Ofgem’s statement that suppliers must step up their efforts to get more of their customers currently on default tariffs on to better value deals. However, this does not address the scale of the detriment suffered by all consumers on expensive default tariffs and it still leaves 13 million families paying more than they would in a competitive market. These consumers are often on lower incomes, are elderly and are renters. I am determined that we will be on the side of all consumers and ensure that the market can become more effective. Our goal is to ensure a fair deal. The market is currently not delivering this, which is why the energy companies and Ofgem need to act. It is precisely for this reason that we are publishing this draft Bill today I have invited the Business, Energy and Industrial Strategy Committee to scrutinise the draft Bill, which provides for a price cap for domestic customers on standard variable tariffs and default tariffs. The cap will be temporary and will be set by the independent energy regulator, Ofgem. It will initially last until the end of 2020, with the potential to be extended by up to three years if needed The draft Bill will preserve the ability for the market to act competitively: there should be savings for customers on high-priced standard variable tariffs, but enough headroom to allow for effective competition and to give a reason for people to shop around. It is of the utmost importance that consumers are treated fairly and our priority must always be to act in their interests. The draft Bill would allow competition and innovation in tariffs between existing players and new entrants, but would ensure that the worst excesses of overcharging could not be visited on loyal and, in many cases, vulnerable consumers of energy companies. It would require Ofgem to impose the cap as soon as is practicable after legislation, but it does not stop companies acting sooner and they should do so To conclude, Mr Speaker, when £1.4 billion a year of detriment to British consumers is identified, following a thorough investigation, we have a duty to act. These measures are intended to safeguard the interests of consumers during the transition to a more competitive market. I commend this statement to the House.