Hughes on Energy Regulation

11.38.52am BST (GMT +0100) Sat 13th Jun 2009

• [Jun 10] Simon Hughes (North Southwark & Bermondsey, Liberal Democrat): ' . . THE most important thing is that we should try to get a culture in which, of course, we deal with fuel poverty. That is a bad phrase: we are talking about a lack of warm homes, or homes that are inadequately heated, thereby leading to illness and sometimes death . . '

Mr. Russell, I apologise to you and to colleagues for being slightly late. I am glad that I was able to hear a substantive part of the speech made by Mr. Baron, and I am happy to follow him in this debate. He has again raised a subject in which he has long taken an interest, and I respect him and thank him for doing so. I am one of the signatories to the early-day motion tabled in his name on the subject, and I have read his contributions in previous debates, sometimes together with my hon. Friend Dr. Cable, who has also been involved.

The debate is also timely because of the work Ofgem is doing. Like colleagues, I have met Ofgem and discussed its general work and that particular piece of work. I agree with the hon. Member for Billericay that it would be helpful if Ofgem shared its preliminary view on a consultative basis before reaching its final view on the way forward.

If I have read the new Government list correctly, I am right to congratulate the Minister on her promotion to Minister of State, Department of Energy and Climate Change. She knows that we have great respect for her work in this area. She is a parliamentary neighbour of mine and we have always enjoyed good, amicable, cross-border relations. We both shared the disappointment when Millwall nearly won the play-off finals against Scunthorpe. We are having to defer our excitement about Millwall's promotion by another year, but I hope we will both be there supporting them next year.

Bob Spink (Castle Point, Independent): Before the hon. Gentleman moves away from Ofgem, does he agree that perhaps its greatest failure has been in not tackling the failure of profiteering companies to pass on wholesale prices? That is not just about spot prices but about the actual prices paid by companies for the energy they sell on, because they often forward-buy.

Simon Hughes (North Southwark & Bermondsey, Liberal Democrat): That is certainly an issue, and I have raised it with all the companies and with Ofgem. On the day that I took over this job, at the beginning of the year, my right hon. Friend Mr. Clegg and I had a fuel-price summit with all the major suppliers, as well as Ofgem and others, and that was one of the issues we raised, because it has been very much on the agenda.

I am conscious that there is a further, hidden issue in that the way in which someone pays for their supply might leave them disadvantaged when it comes to benefiting from price changes. Whether a customer pays on a daily rate is a big issue, because companies do not necessarily reduce their prices as soon as their costs are reduced. If a customer is built into a system, they might get the benefit much later-or, arguably, not at all if they pay by direct debit.

I should like to pay one more compliment to the consumer association Which? on its report, in relation to which it came to see me. I have always had great respect for Which? and have subscribed to it in the past. It has confirmed what some of us who know about this issue were already very aware of-that there are 4,000 different tariffs available in the UK, and that the confusion they bring is not in anybody's interests. These things are difficult enough for people like us in the Chamber, by which I mean not only the politicians but the civil servants, the staff of the House and the people who watch and take an interest. I would be interested to know how many times my parliamentary colleagues have changed their supplier in recent years, if any of them is willing to admit it. I own up to not having changed mine, to my knowledge, because it is so low on my list of priorities, when I get home at 12 o'clock at night, to work out which tariff might be better. We know for a fact that 50 per cent. of people do not change their supplier, and, if I may say so, some people are less able to address these issues than other people due to intelligence, time, ability, other responsibilities, language and other reasons.

It is difficult for people to make considered decisions on a regular basis against an ever-changing kaleidoscope of facts. I have had occasion to query a couple of bills, such as when my brother and I took over the management of the house in which my mother lived on her death 18 months ago. We discovered all sorts of irregularities when we tried to get regular bills, and tried to go from having estimated bills to bills requiring a reading. For example, one cannot necessarily get the whole benefit immediately of a change in reading, and therefore reduce the cost, when one goes from an estimated bill to an accurate bill because it is spread over a different period and one has to wait until the next quarter. Those are little things, but for people on tight incomes they are important and make a significant difference, so I thank Which? for doing its job.

I see suppliers regularly, as we all do, and I decided to check specifically the three suppliers to whom I have recently had access. The best illustration of the problem is provided by Scottish Power, which paradoxically supplies fuel to some members of my family in Wales. It has sent out a booklet, dated September 2008, entitled, "Prices: Your domestic gas and electricity pricing information". The booklet does not have page numbers but it has many pages of information describing a "Single Rate", a "Two Rate", a "Domestic 'S'" rate, an "Economy 7" rate and a "White Meter No. 1¥" rate-one has to check what that sign means. As well as those five electricity rates, there is a daily service charge, a price for "All/Day kWh", a separate night rate, and prices without and with VAT.

The booklet then gives all the different package payment options. One can have a "Premier Plus Package", paying monthly by direct debit or standing order, a "Standard Package", paying quarterly by direct debit, cash, cheque or postal order, a "Weekly Payment Package", paying weekly by payment book or card, or a "Prepayment Package", paying as one uses a prepayment meter. If that is not enough, one can have a "Premier Plus Package", paying monthly by direct debit or standing order for gas, or a "Standard Package" for gas with different payment options. There are then standing charge options for gas and some packages that have no standing charges. In the second half of the booklet, there are more categories for standing charge options, including a "ComfortPlus Control" rate, a "ComfortPlus White Meter" rate, a "Domestic & Economy 2000" rate, a "Domestic & Off Peak C" rate, "Domestic & Off Peak 2‡" rate, a "Domestic & Off Peak A‡" rate and a "Domestic & Off Peak D‡" rate. I am only halfway through the booklet, but I think you get the idea, Mr. Russell.

I want to make a simple set of propositions to the Minister, because I think we are in danger-I say this with respect to the hon. Member for Billericay-of buying into a system that has begun to be so complex that we think it will be sufficient to simplify a bit of it. I should like to put to the Minister not a formulated party policy position, but some suggestions for her and the Government to consider in relation to Ofgem's work. I have deduced that Ministers as a whole, as well as my party and others, think that the way in which the market was privatised was not, in the end, in consumers' best interests. I have spoken to my right hon. Friends the Members for Gordon (Malcolm Bruce) and for Berwick-upon-Tweed (Sir Alan Beith), who were responsible for our policy when these matters were going through the House some years ago, and they predicted that it was not the right way to proceed with the industry, and I am confirmed in that view.

I am conscious that we have to have a competitive industry within the European Union, although I observe that whereas the French and others have penetrated the British market well, we have not done quite so well in penetrating the mainland European market, so there does not seem to be absolute equity of access. It is not the first time that that has been mentioned-[Interruption.]-and I shall not get Bob Spink going on that. I am pro-European, but it appears that something is not quite right in that context. My background proposition is that we have not got the market quite right, and my proposal is that the Government should confirm that we will all have available to us, in the long term, a smart meter or super-smart meter, as they would move everybody to the cheapest tariff automatically without them having to worry about things. That is more or less the idea of the technology, but that will not happen tomorrow, as the meters must be put into everybody's homes. The Italians installed them the most quickly-I am told that they did the whole of Italy within three years. I have taken advice from people who have thought about the technical aspect, including colleagues such as my hon. Friend Andrew Stunell, who worked in the architectural profession, local government and elsewhere before he came to the House. He made it clear that it would be far better to have a longer period for installation-not least so there is the capacity to do the work. In a sense, it is nonsense to train the people to do the job if there is only going to be a three-year programme around the country, so it might be better to have a six-year programme or something like that.

Let us assume that there will eventually be a super-smart meter option for everyone. Until then, we need something that helps people to make choices. The Government should think of a new way of giving people the discounted tariff, which exists for people on low incomes. I was at a dinner the other day with National Energy Action, Neighbourhood Energy and British Gas. British Gas told me that it has 300,000 people on the subsidised tariff rate. Until recently, the way for someone to receive the subsidised tariff was for them to tell British Gas that they are a pensioner, or on income support or the disability living allowance. I gather that, until recently, they did not have to prove that they were on any of those things; they just asserted that they were. That has changed and proof is now required.

We could have a simple system that ties in with the Department for Work and Pensions so that pensioners and people on disability living allowance, income support or in receipt of child benefit can be given a subsidised rate. The reality is that the following groups of people are much more likely to use fuel than the rest of us: people with children-the more children someone has, the more the need is; people who are older, for example, past retirement age; people who are ill or disabled and are at home all day because they cannot work; and people who are out of work. A household full of healthy adults, whether it comprises a single person, a couple, students or other groups of people, should not expect subsidised rates for their fuel.

I am not presenting a final formulated proposal, because we need to work the matter out through dialogue with Ministers and Ofgem, but we could have a very simple system that would make it as easy as possible to have, in principle, two types of rate: a normal rate and a cheaper rate for more vulnerable customers. Hon. Members are here because they want to tackle fuel poverty. Obviously, there is not a direct match between the types of people in fuel poverty and those categories because someone who lives in a hard-to-heat home has much greater difficulty than someone who lives in a less hard-to-heat home. If we pull into the categories people who have children under 18 at home-the state knows who they are-people of retirement age, and people who are on disability living allowance or on income support, we are likely to catch the individuals who do not have an income, about whom we are most concerned. That is my first proposition.

My second proposition is that, at the end of this exercise, it is important to ensure that the energy companies are required to publish publicly-twice a year before and after winter would be reasonable-a grid of the six suppliers with the six key comparators of information that people need in the local and national press. I hope that Ministers will be tough about that with Ofgem because they have hinted that if necessary they will take the powers to be tough and legislate or regulate. Publishing such information would mean that people could make a choice. Everyone would know that, for example, the weekend that the clocks go forward and the weekend that they go back, they would find in their local paper, library and elsewhere a table comparing the suppliers' offers. I do not understand why that cannot happen and why the key facts and figures, for example the per unit cost, cannot be made available.

Thirdly, in terms of the demand system, there is obviously an argument for having a cheaper purchase rate for those who purchase electricity at night when the demand is less. The other day, when I read the suppliers' information-not just Scottish Power but British Gas and Electricité de France-I noticed that there is not even a consistent time period for the cheaper night-time rate. The time at which people clock on to the cheaper rate depends on the company, which is nonsense. I gather that the peak time for use of electricity and gas is understandably between 4 and 8 pm, so the cheaper rate could be available from 8pm to 8am, or from 8pm to 7am if demand starts earlier in the morning. It is obvious that there is a downtime at night when people use less energy, and it should be possible to have a system that allows people to take their feed then and be charged at a lower unit rate. That principle could apply generally across the UK so that everyone knows about it. If people have the systems that allow them to have storage heaters and so on, they will benefit from such a proposal.

My final proposition-I have thought about this quite a lot-is that there should be no differential price dependent upon the method of payment, with one exception. Whether someone pays by pre-payment meter, direct debit, quarterly, weekly or monthly, they should be charged the same rate provided that they understand that if they do not pay within seven days of the date they have agreed under whatever system they are using, there might be a slight penalty. Let us consider the proposal the other way round: there would be a discount for prompt payment-whoever someone is and whether or not they are on direct debit, pre-payment or so on. The Liberal Democrats have argued that the suppliers wrongly penalise two groups of people, and that they should not do so. They penalise people who have to pay up front by pre-payment meters-that should not happen because they are often the poorest people-and they penalise people who do not pay by direct debit. That is one category. Suppliers also penalise the low user because the first unit purchased is charged at a higher cost than later units. If someone purchases only a small number of units, they pay relatively much more.

If we are going to deal with that inequality and ensure that no one is penalised for being a low user or because they use a payment method that they need for their own money management, we should have a requirement that says, no matter how someone pays, they will be charged the same price. Such a requirement would get rid of pages of this bumf and it would mean everyone would understand the system. The rate would be x per unit this year-the price would vary twice a year-and suppliers could apply to Ofgem or the Government for permission to vary their rates more than twice a year if the price of fuel went up or down significantly. Other issues would also have to be looked at-for example, the need to provide warnings about price increases a certain number of days before they happen-but my plea is for us to have a very simple system that is led by the needs of the consumer, not the needs of the supplier.

John Baron (Whip, Whips; Billericay, Conservative): I have been listening to the hon. Gentleman with great interest. I totally agree that simplicity must be the overriding aim when we consider how to help the consumer. However, will he explain the differences between our proposals because, when smart meters are introduced, I question whether the technology will be advanced enough automatically to ensure that every single household is on the cheapest tariff. That is a debate for the future. In the interim, my proposal suggests that it is not beyond the wit of man for energy companies simply to state on energy bills whether the customer is on the cheapest tariff available given the pattern of energy use. The hon. Gentleman's suggestion sounds a bit more complex than that. Will he perhaps guide us on his proposals?

Simon Hughes (North Southwark & Bermondsey, Liberal Democrat): The hon. Gentleman knows-and I hope that I have said so clearly-that I respect his work. Outside this Chamber, I am happy to have a continuing discussion with him about the matter. I think that our proposals are complementary. I absolutely do not dissent from his proposal that such information should be available on the front of someone's bill because patterns of use are normally consistent and, therefore, it is entirely possible to draw such conclusions. Indeed, more and more bills give some description of usage over a longer time span.

I am seeking to deal with the second issue that arises from that, and which involves a quarterly bill that says, "You are not getting the cheapest supply available, given your pattern of use". Of course, EDF Energy, Scottish Power and British Gas will not automatically tell customers where to go to get a cheaper option. Until we have smart meter automaticity, the customer will have to make that choice. I am trying to deal with the fact that because there are so many options available-the price is determined by payment method as well as other things-that is not sufficient of itself. However, I would absolutely support that additional information on the bill.

I shall make two final points, as I am conscious that Charles Hendry will contribute, and that the Minister will then reply. Does the Minister agree that we should demand that energy companies show not just the amount of energy used in the payment period, as they already do, but the embedded carbon used? We could begin to educate people about the implications of their energy use in terms of the big climate change threat that faces us. The last principle is that we should seek to reward customers for energy efficiency and reducing energy usage. There should be an incentive to do so.

As a postscript, there are other things besides varying tariffs and payment options. Customers can get Nectar points and all kinds of other goodies. I believe that they can even get air miles with some companies, but I may be wrong about that-I do not mean to mislead people. The most important thing is that we should try to get a culture in which, of course, we deal with fuel poverty. That is a bad phrase: we are talking about a lack of warm homes, or homes that are inadequately heated, thereby leading to illness and sometimes death. Of course, we want to ensure that people are able to look after themselves and their families well, but we want to reduce energy use and harm to the climate from excess emissions. We should be helping everybody to achieve those things. There is a separate debate about how homes in Britain are insulated which we are all alive to, but it is for another place and time. That is an equal imperative.

It would be helpful if, when she replies, the Minister responded positively to the constructive suggestions from this side. I hope that she will support us by saying to Ofgem, when it has thought about what it might propose next but before it finalises its proposals, knowing that the Government are watching it closely and wanting it to be pretty tough with the industry, that we would value a short opportunity to respond to the consultation so that we can get the most robust position possible under the present law. Perhaps before too long, we might change the law, whoever is in Government, to have a much more consumer-focused system.

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