My Lords, Amendment 51ZA is a probing amendment, although it is one that the Government could give some commitments to taking forward, if not precisely in this form.
The Government are rightly giving Ofgem the power, in cases of breach of licence condition, to require licence holders—that is, supply companies—to pay
compensation to the consumers who have suffered detriment, as well as raising a fine. I am not entirely clear whether that power also covers Ofgem requiring compensation for straightforward breach of general consumer law, rather than strict breach of licence, but it would make sense if it did.
The level of consumer complaints in the energy sector is one of the highest—in some years, the highest—of all sectors in our economy. The level of complaints dealt with by the consumer organisations, the ombudsman and, on occasion, by the courts, as well as by Ofgem, remains high despite significant improvements made or claimed by the supply companies.
It is clear that the complaints systems of several of the large energy companies are not really up to scratch. The ombudsman and Ofgem remark on this from time to time. Tens of thousands of consumers suffer from the effects of mis-selling, misleading information and misleading advice on choice of tariff and other conditions relating to tariffs; for example, on the cost determination. If you switch tariff, you have to pay a significant cost but that is rarely conveyed to you up front in an understandable form when you sign up for the tariff. It is a significant inhibition to many consumers switching and therefore to there being a proper consumer-led market in this sector.
One of the other areas of complaint is contested bills, particularly the estimated bills. As we were saying the other day, these are by definition wrong but are often insisted upon by the companies. On many occasions, eventually a settlement is reached, but it is on an individual basis. It may involve an ombudsman case but it reflects the general approach of the company to its consumers. In the impact assessment of the Bill, the provisions to improve Ofgem’s powers in this area are not given an accurate assessment. However, it is implied that the effect will be positive, and certainly I think that it will be. However, the size of detriment in the energy sector is potentially very large, and the inhibition on taking individual cases is also substantial. You have to go through a complaints process, and if you are not satisfied, you have to go to the ombudsman, take a case to court or get help from the various consumer and interest group organisations. That ends up costing a lot of time and often a lot of money, with not necessarily a coherent outcome to each case.
This situation is not confined to energy but, because of the high level of problems within energy, there are general aspects of provider behaviour from which a large number of consumers suffer. It is difficult to prove on an individual basis, but it is important that we recognise that there ought to be better systems for getting redress for consumers. By and large, consumer law in this country does not include collective provision, unlike in the United States, where there are significant class action provisions. Successive Governments have gone part of the way down the road towards greater collective provision, recognising that, for example, the PPI scandal in financial services would have been much better dealt with had there been a collective redress system rather than often quite aggressive complaints-handling companies taking up cases of varying degrees of authenticity, which led to differential outcomes case by case.
That was recognised by BIS in some of the discussion that surrounded the presentation of the draft consumer rights Bill that is now under pre-legislative scrutiny in another place. You have to get quite a long way into the Bill before you find it, but it is a significant breakthrough. It comes in paragraph 7 of Schedule 14 to the Bill and is the beginning of a provision for general collective redress in this area. It is on an opt-in basis, which is still somewhat narrower than the provision in the Financial Services and Markets Act of the previous Government, which unfortunately had to be dropped in its original form. It had a whole section on collective redress in the financial sector, which could have been taken out and generalised into other sectors and was particularly apposite for areas such as energy, where there is a regulator, regulated provisions and licence conditions, as well as general consumer law.
I attempted to get that written into the Enterprise and Regulatory Reform Bill, given that parliamentary counsel had already cleared it two years earlier. I have not bothered to provide the three pages for this Bill, because it covers esoteric matters relating to energy. I have set myself the slightly less ambitious target of requiring the Secretary of State to come forward 12 months after the Act is passed with some provision for collective redress in this area. I am encouraged by the fact that the Government have provided for at least one form of collective redress through the consumer rights Bill. Therefore, I hope that in 12 months’ time, the attitude of the House of Commons to that Bill and the Government’s reflection on it will give some guidance on how to do this with energy.
Therefore, it is an open-ended requirement on the Secretary of State in terms of the precise provisions. However, it is a signal that in this area of quite substantial consumer detriment and very substantial consumer distrust of the whole system that we take this opportunity to make it clear that the Secretary of State must, at some future date, provide a means of collective redress within this sector.
There is a second amendment in this group to which I should refer. Amendment 51ZE seeks to delete the limit of the redress to detriment that occurred more than five years ago. The reality is that some of the mis-selling in energy, just like some of the mis-selling in the financial sector, started a long time ago, and the decision to apply a five-year limit is completely arbitrary. Indeed, that does not apply in the financial services sector. If a practice started seven years ago and was still happening within the last five years, there is no reason why the earlier detriment should not be taken into account. I am being quite modest in suggesting a 15-year limitation. I would be delighted if the Minister accepted my substitution of 15 for five; I would be even more delighted if he said that on reflection the Government would prefer to delete the limit altogether, because there are some long-standing wrongs in this area and the five-year limit does not seem sensible. I beg to move Amendment 51ZA.