My Lords, I will also speak to the other amendments in this group. We now come to what is probably, in the outside world, the most important part of the Bill. We had a huge discussion on nuclear regulation and a very substantial discussion on issues relating to carbon targets but the millions of people out there are concerned about—I agree with the early part of the noble Earl’s remarks just now—the very rapid doubling of prices for fuel and the more than doubling, on the old measure at any rate, of the level of fuel poverty. That is what the consumer dimension and the consumer objectives of energy policy, among all the others, need to address.
The original Bill did not include Clause 127. It is a fairly hefty clause, with three clauses after that follow it through, but it is nevertheless a pretty thin part of the totality of the approach to energy policy represented by the Bill. It owes its genesis almost entirely to a remark by the Prime Minister in October last year when he effectively promised that everybody would be on the lowest possible tariff. There was some consternation at the time in the noble Baroness’s department and Ofgem about what the Prime Minister actually meant by that. Ofgem rapidly engaged in some internal work, some of which was very welcome. It is now engaged in two consultations on how to put that into effect. Clause 127 gives effect to some of the issues covered and recommended in the Ofgem consultation.
However, the clause does not really deliver the Prime Minister’s objective. It probably delivers some greater transparency and certainly delivers a very welcome requirement on reducing the extraordinarily confusing number of tariffs that consumers face at the moment. But underlying it, it betrays—as my noble friend implied just now—a huge lack of trust in Ofgem to deliver
this. Clause 127—probably correctly given Ofgem’s present state and record—is full of subsections allowing the Secretary of State effectively to intervene and tell Ofgem what to do.
There are delicate issues of independent regulation here. There are important issues as to where policy lies in terms of the department as against the regulator and where legislation lies as against secondary legislation and Ofgem’s own rules. It is an odd approach in many ways. However, given the deficiencies of regulation in terms of consumer benefit, it is not one I entirely reject, but if we are to go down that road we need to be clear why we are giving the Secretary of State such powers of intervention. In another context, and in relation to, for example, the statement of policy, the Government wish to step back and give the regulator, in this sector as in others, a general framework to act on for five years. This clause gives the Secretary of State the ability to intervene at all sorts of points on all sorts of issues in all sorts of ways, but does not really explain for what purpose. Subsections (5) and (6) of Clause 127 lay down the way in which the Secretary of State could intervene, but no part of Clause 127 explains for what purpose.
My amendments today are to try to establish that purpose and thereby to achieve what I think was behind the Prime Minister’s intervention, which is that that every household should, as far as practicable, know the most appropriate tariff for their circumstances or that there should be an obligation on their supplier to ensure that they know it. Whether that is always the cheapest tariff depends a bit, but it is certainly not delivered by Clause 127 as it stands or by current Ofgem practice.
In a sense, I am taking the Prime Minister’s text and trying to give the Secretary of State basic objectives for intervention which would help to achieve the objectives we seek, in particular, the ability to intervene in order to ensure more economic use of energy in terms of energy conservation, energy efficiency and decarbonisation and to ensure that tariffs are more affordable, at least for domestic consumers—there are also industrial consumers who do not really feature here, even microbusinesses, which also need to be addressed—in terms of affordability in general and fuel poverty in particular.
Obviously, I have not had time to absorb the full impact of the Secretary of State’s intervention on fuel poverty strategy today. As the noble Earl said, redefining a problem does not make it go away. However you redefine fuel poverty, it is always a very big number. At the moment, it is going up seriously. While some of the changes in definition that underlie John Hill’s recommendations, which the Government seem to have adopted, are quite sensible—there is a total income gateway to being defined as fuel poor whereas on the previous formula some very rich people could have been so defined—that is a relatively minor point. The problem about the redefinition, which the Government, Ofgem and all of us who care about fuel poverty will have to address, is that whereas the previous formula was arguably far too sensitive to price movements, the present formula is very insensitive to price movements, yet price movements are what define whether you fall
in or out of fuel poverty. With insensitivity to price, it is going to be quite difficult to shift that new total so the aim of reducing fuel poverty will prove more difficult.
I am trying to help the Secretary of State here, at least to have some clarity about what powers of intervention he has on fuel poverty and other issues. Clause 50A allows the Secretary of State to require Ofgem to put a requirement on a supplier licence to require tariffs aimed at reducing fuel poverty, for example, tariffs aimed at low-income households or associated with energy-efficiency measures to reduce the totality of the bill, probably funded via the ECO. My amendment also allows for tariffs aimed at low users or at low-income, high-use households. These tariffs would be options. They would not be mandatory over the whole range of tariffs and therefore they would allow Ofgem to require and the supplier to allocate people to the most appropriate tariff for their circumstances, which must be the aim of this policy.
There are all sorts of ways in which you could require a tariff which encouraged energy efficiency, in aggregate or in timing of energy use. For example, you could have a different range of tariffs where the marginal cost of the next unit of electricity was higher than the average cost. In almost all tariffs now the opposite is true. You could, as the Select Committee on which I sit heard from the Belgian authorities a few months ago, make it so that the opening tranche of initial units was free until you hit a certain minimum usage, and then there would be very high disincentive if you went beyond that level. You could have the whole structure of rising block tariffs, which is one way of doing it. All those methods would encourage behaviour and energy usage that reduced total energy usage and bills.
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You could also have tariffs that were designed to shift the time at which you used the energy. In earlier debates, other noble Lords and, indeed, I referred to the situation in California where a 5% reduction in peak usage leads to a 50% reduction in the total cost of the system. I have no reason to believe that GB usage is much different, and we need tariffs that seriously encourage use at non-peak times, with lower rates at night and lower rates taking you away from peak usage. The aim to achieve all those options would be a reason for the Secretary of State to intervene if, and only if, Ofgem were not already requiring it or supplier companies were not prepared to do it.
On my Amendment 50B, one other possibility for a need for intervention would be if tariffs were discriminatory, and this amendment would deal with discrimination by method of payment. It has always seemed absurd to me that the cost to someone paying via a prepayment meter has been hugely higher—slightly less high than it used to be, but nevertheless still higher—than to someone who pays by direct debit. The security of income to the supplier is almost the same; if anything, in fact, it is slightly less secure because you can always cancel a direct debit whereas you have already paid for the usage on a prepayment meter. That discrimination by method of payment has always seemed daft to me, and there ought to be a
general provision over most tariffs, if not all. The lack of that could be another reason for the Secretary of State’s intervention.
Another form of discrimination is covered in Amendment 50F, which is, in effect, between different fuels. As has been mentioned previously in Committee, this is discrimination against electricity consumers who bear the full brunt of the ECO—and other add-ons, but particularly the ECO in this context—as against gas consumers or, to some extent, dual-fuel users. The Secretary of State could intervene to remove discrimination between types of fuel.
Amendment 50D would require the Government to provide information. Ofgem and the Government have gone some way down this road. The proposition is that there should be a transparent price mechanism, a TCR. I cannot remember quite what TCR stands for and I cannot read my writing at this point, but the proposition from Ofgem is that we should have a comparison process that compares the average payments so that the consumer can look at the average rates on different forms of tariff. I know that the consumer groups feel that this is still a fairly confusing basis for comparison and that, despite the profusion and the useful help that comparison sites provide in most cases, a lot of consumers do not understand how to use it. This process could require a direct unit price comparison by tariff or by tranches of usage per tariff. That seems to me probably the only way of comparing price which a lot of consumers will understand. The suppliers will be required to provide this. They recently carried out a survey which shows that two-thirds of people understand that system whereas less than 30% understand the TCR process. That could be another reason for the Secretary of State to intervene. I emphasise that this intervention would occur if the system was not working: that is, if the regulator and the suppliers were not working, or if the Secretary of State considered that a particular tariff structure had to kick in, which I accept is an important change, and had to set it out from the outset. These options still allow a choice of tariff with the ultimate aim of ensuring that every household is on the tariff that is most appropriate for it.
We do not, of course, want the Secretary of State intervening every five minutes. I would prefer us to move eventually to a system whereby a five-year framework was set and the independent regulator operated within that, as was the Government’s original intention. Unfortunately, the structure provided in the Bill does not guarantee that. Therefore, I suggest that where there is an intervention by the Secretary of State for whatever reason, and under whichever subsection of Clause 127, or those subsections in bulk, that should stand for at least three years. If that is not the case, consumers and suppliers will have no certainty that that tariff will remain available during that period. I am speaking to Amendment 50E which was not originally included in this group, as my noble friend said.
The final amendment in this group, Amendment 50H, deals with consultation. Even if nothing else changes, you need a system of consultation. Clause 128 does not specifically require consultation with consumer
groups. That is rather a grave omission in the rather thin passage dealing with consumers. Therefore, Amendment 50H attempts to include a specific reference to consumer groups.
This group of amendments attempts to give purpose and effect to a Secretary of State’s interventions. It does not require the Secretary of State to intervene or say that the best way of dealing with this is for him or her to intervene every five minutes. However, if we are to adopt a new strategic approach to the structure of tariffs we have to be clear what our objectives are: that is, a regulator who has to operate on a rather different basis from that operated during the past 15 years by Ofgem and its predecessors and a structure of tariffs at the far end which is clear, transparent and understandable to the consumer. The amendment we shall discuss next in the name of the noble Baroness, Lady Maddock, says that in rather fewer words. Nevertheless, that is a key outcome underpinning everything that I have said. Only if we do that can we begin to tackle the dual problem of rising and unclear bills which are often based on the mis-selling of different tariffs—we have had a good number of scandals on that front—the outcome of which is that all consumers are disgruntled and mistrust energy supply companies and a very large proportion of them are in dire fuel poverty. I beg to move.