End the Big 6 Energy Fix: Caroline Lucas's Adjournment Debate speech
As Chair of the All Party Parliamentary Group on Fuel Poverty and as Britain’s first Green MP I have secured this debate for a cause that is very dear to my heart. How we help the poorest in our society and deliver social and environmental justice?
The balmy warm weather of recent days cannot mask the fact that our newspapers have been filled with chilling stories of yet more excessive profiteering by Britain’s Big 6 energy companies, coupled with big pay awards for their top executives:
- EDF’s UK profits were up 8.5% off the back of a 15% rise in bills.
- Centrica last week reported overall profits of £2.4bn, and Scottish Power just under £1bn.
Like many other honourable members, I’m sure, I’ve been inundated by letters and emails from constituents, complaining about the price of their bills and expressing their fears about being unable to afford to stay warm.
While a few energy executives are wondering what to do with their gigantic profits, the stark reality for many Britons in these difficult economic circumstances is how they will pay this winter’s gas and electric bills.
Indeed it is now estimated that over 5.5million households in the UK are facing fuel poverty, leading to an estimated 3000 premature winters deaths.
Average annual household bills for gas and electricity have increased from around £600 in 2004, to around £1200 in 2011.
And USwitch has predicted that by 2020 this has the potential to rise to a massive £3202.
And it’s not just households who are finding it difficult. Small businesses with tight overheads are also feeling the pinch from the increasing cost of energy. Overall 94% of businesses have seen an increase in costs according to the Forum of Private Business.
The energy regulator, has also said that although fossil fuel price rises are clearly the driving factor pushing up bills, on top of this the Big Six are increasing their margins on a bill.
And while some may argue that such margins have now come down - given the gigantic profits that have been reported, it’s clear that energy companies could very comfortably reduce their prices further and still make a reasonable profit.
Just this weekend the thinktank IPPR released a report that found as many as 5.6 million people are probably being overcharged as a result of pricing policies by the big companies which, it believes, prevent new companies from gaining a foothold in the market.
Clearly something is going wrong and I believe it’s about time that we, as elected representatives, did something about it.
That’s why organisations such as Compass, the End the Big Six Energy Fix campaign, Friends of the Earth, The Independent newspaper, alongside myself and colleagues from all sides the House of Commons have been campaigning for fair energy prices, greater energy efficiency measures, and a better deal for consumers.
We believe it is time to tackle the predatory behaviour of the energy companies.
Companies that, through over-charging customers, including the most vulnerable in society, are driving people into fuel poverty.
Companies that, I would argue, are not fully meeting their social and environmental responsibilities and obligations – be it investing in insulation and other energy efficiency measures or protecting the poorest and most vulnerable from the impacts of bill rises.
This is why we’re calling on Government to stand up to the powerful vested interests of the Big 6 energy companies and act to end the energy rip-off.
I want to set out 3 simple steps that could help to effectively tackle this problem:
First, the Government could respond to the excessive profiteering of the big six energy suppliers by imposing a similar levy to the one imposed in the past on the North Sea Oil Companies and the Big Banks.
This kind of windfall taxation was used by the Conservative Government in 1981 to claw back the excessive profits of the High Street Banks, and in 1997 by the Labour Government on the privatised utilities.
In 2012, in spite of the efforts of the regulator OFGEM to create a fully competitive market, nearly two decades after privatisation the Big Six still control more than 99% of the retail market.
Whilst we may not have a state owned monopoly any longer, I would argue we now have an out of control private oligopoly that urgently needs reining in and better regulating.
Whilst the energy sector remains an oligopoly it is quite legitimate that the big six are made to pay a premium for their privileged market position. Indeed a levy would be one way of addressing market failure.
And revenues should be ring-fenced to kick-start and support a mass programme of home insulation and energy efficiency measures – starting with the homes of the fuel poor.
This would form part of a genuine Green New Deal and help to create thousands of new skilled jobs in the process.
It’s a win-win situation – helping the Government to meet its commitment to eliminate fuel poverty by 2016, creating new jobs, and helping meet emission reduction targets.
Second, to prevent energy companies from passing the cost of any levy onto consumers and to make energy prices fairer, we want the Government to give the regulator more powers to cap prices and – crucially - mandate OFGEM to actually use them.
There are a number of options available:
The regulator already has the power to cap prices if it chooses and OFGEM has threatened to do so if the energy companies don’t reduce prices.
But it’s no good simply making empty threats. The regulator should have the confidence to actively intervene and use its capping powers in the face of consistent over-charging by companies and persistent market failure.
Again, price caps are a legitimate mechanism as a means to deal with such market failure. As the Chief Executive of OFGEM conceded in October 2011 ‘we do not have a fully competitive market’.
Another option would be for the Government working in collaboration with OFGEM to legislate for new price cap powers based on a new mechanism.
Such a price cap could be linked to the wholesale price of energy to make energy costs fairer – an ‘energy price escalator’.
The telecoms regulator OFCOM has made clear its intention to cap the cost of BT line rental charges, in response to BT’s over-dominance of the landline rental market. Why not apply the same principles to the energy market?
Perhaps OFGEM should pick up the phone to OFCOM and ask for advice – after all, we’re always told ‘it’s good to talk’.
Third, the Government should now launch an independent public inquiry into the big six energy companies.
In much the same way we have had an Independent Commission on Banking led by Sir John Vickers and now an investigation into the media led by Lord Leveson, so we urgently need a similar public inquiry into the energy industry to get to the root causes of the problem.
To be crystal clear, I am not calling for a Competition Commission inquiry. Rather I think we need an independent public inquiry with a broader remit than just that of prices and competition, because there are more fundamental issues at play here.
Such as trust. The British people do not trust the energy companies.
It should therefore be in the interests of energy suppliers themselves that these issues are fully addressed and that all the facts, all the figures and all the arguments are heard in the light of day.
This can then form the basis of work together to devise appropriate and effective reforms that ensure we have a market and an industry that serves people and planet before profit.
I would seriously appeal to the energy companies themselves and the Big 6 in particular to work with us on this.
Government Ministers might like to note that there is huge public support for many of the measures that I’ve just outlined.
A YouGov poll commissioned by Compass and Friends of the Earth found that:
- 71% of voters support a levy on the profits on the Big six.
- 77% of voters support the money raised from a levy being spent on home insulation and energy efficiency measures to remove people from fuel poverty.
- And an overwhelming 86% of voters support an independent public inquiry.
I am also encouraged that 70% of people support a move away from fossil fuel to renewables.
This indicates very strongly that we need to kick-start a national debate on energy that not only focuses on the issue of price and competition, but more fundamentally on the kind of energy industry we want for the future, recognising that energy provision should be viewed not merely as a market commodity, but as a public service we all rely upon.
If we don’t use less energy or successfully make the transition to renewable energy, bills will keep going up, because the cost of gas is projected to rise, even allowing for highly controversial shale gas extraction.
We need to work hard to protect the vulnerable as much as possible from those price rises and ensure that the effects are not exacerbated by the greed of the energy companies.
Instead, we need an energy industry that helps to deliver social and environmental progress, lifts people out of poverty and helps to bring about a good society.
I’m especially interested in drawing on best practice from countries like Germany, where community ownership of the grid has played a pivotal role in allowing renewables and energy efficiency, for example, to flourish – unlike here in Britain where the grid is privately owned and controlled.
Many citizens in Germany see themselves as owners and generators of their energy, not simply consumers. That is the kind of shift I want to encourage, and in order to do so we need to challenge the unacceptable power exerted by some of our big energy companies.
Local authorities potentially have a major role to play here - in relation to both insulation and to local, decentralised energy supply.
The more we make it easy for communities and councils to generate their own, the less we rely on the Big Six. And the more we cut energy waste and get off gas, the better protected we are in relation to bills.
And of course, we urgently need to tackle the complex domestic rates and charging system that has been the subject of other debates and motions here in the House of Commons and which serves time and again to disadvantage consumers, especially those that use the least energy.
Consumer Focus are especially concerned about whether Ofgem’s core proposal for reform will deliver sufficient choice, such as for consumers who do not pay by direct debit in the non standard market, and for the most vulnerable who simply won’t engage with the market.
And Which? is championing simple tariffs that reduce the scope for misleading behaviour by energy suppliers. They will also improve the clarity of energy bills, and help people to better understand the relationship between energy costs and the amount of energy they consume.
For now, we need to know the following:
- Firstly, will the Government start drawing up plans for a levy on energy companies in time for the forthcoming budget in March?
- Second, will it instruct the regulator OFGEM to use existing powers to cap prices, or will the Government work with the regulator to bring forward new powers in the forthcoming Energy Market Reform Bill?
- Third, will the Government commit to an independent public inquiry into the big six energy companies?
I look forward to the Minister’s reply.
Caroline Lucas is the MP for Brighton Pavillion and Leader of the Green Party
 NB environmental costs have remained broadly static as a proportion of the bill over the last four years, it is rising wholesale cost and, latterly, profit margins that explain recent bill rises These costs are small compared to the overall bill (approximately 5-7 per cent, depending how you measure it), and are simply not to blame for bills going up – the main driver is gas. See table at the end.
Data from DECC shows that, excluding the cost of EU Emissions Trading Scheme (approximately £20 in 2011), the approximate proportion of the average household energy bill made up of ‘energy and climate change policies’ has risen from 2.2% to 5.5% over the last decade and has been basically flat for the last four years .
 See table at the end.
 DECC published annual data on their share across all sectors (domestic, business and industrial) which were 91.7% in electricity and 72.3% in gas (Energy sector indicators, DECC 2011). The most recent domestic only sector stats I can find are from Ofgem’s Energy supply probe which quoted figures for the end of December 2007 of 99.7% for electricity and 99.95% for gas. http://www.ofgem.gov.uk/Markets/RetMkts/ensuppro/Documents1/Energy%20Supply%20Probe%20-%20Initial%20Findings%20Report.pdf
 The Independent newspaper on Friday 17 February 2012
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