The Opposition amendments seek to amend schedule 14 by removing restrictions on retrospective and unlimited liability. I understand the concerns and motivations of the Opposition, but I can assure them that this coalition is also committed not only to helping hard-working families and, indeed, all consumers with the rising cost of living, but to empowering consumers and protecting hard-working families from rip-offs and scams. So although I have some sympathy with the aim of amendments 2 and 5, which are intended to allow Ofgem to compel energy companies to pay redress for events that happened prior to the enactment of this Bill, I am troubled by the effect of setting a precedent by retrospectively applying powers in the energy market and by the impact that that would have on all consumers. There is a general principle that powers should not be applied by this House retrospectively. Beyond that principle, there is potential for very real, negative impacts on consumers.
The Government are committed to encouraging competitive pressure on the big energy market players, but the regulatory uncertainty these amendments would introduce would be likely to lead to an increase in the cost of capital for energy companies, and that, in turn, could push up bills for everyone. Furthermore, it could create investor uncertainty at the very time we are trying to encourage the necessary private sector investment required to move to a low-carbon economy and renew our energy infrastructure. More expensive finance would most heavily hit the smaller companies that are also covered by this legislation—the very small companies and entrepreneurs we want to attract into the sector. Under the previous Labour Government, competition in the electricity sector shrank to leave just six big supply companies dominating it. The last thing we want to do is accept amendments that could hinder new entrants to the market.
The amendments may also lead to increases in the cost of insurance premiums for companies, in order to cover the extension of liability for events that took place prior to the enactment of this legislation—again, that is likely to be proportionately higher for smaller energy companies. All these factors could push up the cost of living for hard-working families, at a time when, as we know, many can ill afford it. I understand the intention behind the amendments, but the unintended consequences could end up hitting the very people we are trying to protect, and so we cannot accept them.
Again, I have some sympathy with the intention of Opposition amendments 3, 4, 6 and 7, which seek to ensure that the amount of compensation that can be required through a consumer redress order is not limited. As I said at the outset, the coalition Government are absolutely committed to providing a fair deal to consumers. So when considering these amendments, we should look to balance the need for a redress mechanism that allows consumers timely and proportionate compensation, with an appeal mechanism that is proportionate to the potential liability faced by energy companies.
Under existing arrangements, consumers can obtain redress through the courts, but we recognise that the legal process is lengthier and does not offer a typically quick remedy for consumers who have been badly served or ripped off. That is largely because the courts offer recourse for consumers in cases where compensation may exceed the 10% limit set in this legislation. The legal process is necessarily equal to the potential sums at stake. The powers set out in schedule 14, however, contain appeal mechanisms, proportionate to the potential penalty, limited to 10% of an energy company’s annual turnover.
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