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Energy

 

This Conservative-led coalition government has a lamentable record when it comes to energy and safeguarding and protecting the hard pressed and over-paying consumer. At next year’s election, the British people face a choice on energy. A choice between the Tories, who have done nothing to stop soaring energy bills or tackle the broken energy market, and Labour, who will act to create a fairer energy market that works in the interests of consumers, and freeze energy bills until 2017.

The energy market is broken, and ordinary consumers are suffering as a result. Since David Cameron became Prime Minister, the average household dual fuel energy bill has risen by nearly £300 whilst a typical small business has seen their energy bills rise by more than £13,000. These soaring energy bills are a key factor in the cost-­‐of-­‐living crisis created by the Tory-­‐led Government. They are also a symptom of a poorly functioning energy market. Lack of competition in the retail market has resulted in customers being overcharged, and lack of transparency in the wholesale market has resulted in a growing gap between retail prices and wholesale costs. Instead of standing up for consumers and tackling rip-­‐off energy bills, David Cameron and the Tories have stood up for the privileged few – backing the Big Six energy companies rather than ordinary families.

On this Prime Minister’s watch, energy bills in Britain have risen twice as fast as inflation, four times faster than wages and faster than in almost any other country in the developed world. Households and businesses cannot afford another five years of this. Labour recognises that the broken energy market and soaring bills are contributing to the cost-­‐of-­‐ living crisis for families. A Labour government will act to create a fairer energy market that works in the interests of consumers.

We will break up the Big Six energy companies and force them to be more transparent about how they buy and sell their energy, introduce a simple new tariff structure so people can compare prices, and create a tough new energy watchdog with new powers to police the market. And, to protect consumers from unfair price hikes while we carry out these reforms, we will freeze energy bills for 20 months, saving the average household £120. Next May, on energy, the British people will decide between the Tory threat and the Labour future: that’s the choice.

THE TORY FAILURE

Under David Cameron and the Tories, energy bills have soared by almost £300 a year,1 while the profits of the ‘Big Six’ energy companies have spiralled. Rising bills are a symptom of a broken market that has allowed consumers to be overcharged. But David Cameron has repeatedly failed to stand up to the ‘Big Six’ energy companies and demand a better deal for consumers. Even when he has personally promised to take action, for example on rolling back green levies or forcing companies to put customers on the cheapest tariffs, David Cameron has repeatedly broken his word. Despite his promises, bills are still rising.

David Cameron’s broken promise on tariffs

At Prime Minister’s Questions on 17 October 2012, David Cameron announced that he would be legislating to require energy companies to put all their customers on the lowest tariff. “We have encouraged people to switch, which is one of the best ways to get energy bills down. I can announce, which I am sure the hon. Gentleman will welcome, that we will be legislating so that energy companies have to give the lowest tariff to their customers—something that Labour did not do in 13 years, even though the Leader of the Labour party could have done it because he had the job.” David Cameron, Hansard, 17 October 2012, column 316

He has since repeated this promise twelve times. However, the Government’s own Energy Act only gives the Secretary of State the power to require a supplier to change a customer’s tariff when a customer is on a ‘closed tariff’. As a result, only people who are on dead tariffs which are more expensive than the standard evergreen tariff will actually be moved to a cheaper tariff. In December 2013 the Government announced changes to green levies on energy bills.

David Cameron repeatedly claimed that this would save all consumers £50 from their energy bills. “It is on this side of the House that we have delivered the £50 off bills by rolling back the cost of the green levies.” David Cameron, Hansard, 12 February 2014, column 846 “We have also cut energy bills by £50 by rolling back the cost of some of the green measures.” David Cameron, Hansard, 22 January 2014, column 300

However, four of the ‘Big Six’ energy companies (nPower, Scottish Power, E.ON and EdF) refused to pass on the full £50 reduction to customers on fixed price deals.6 In January 2014, the Government said that if the energy companies failed to pass on the savings of the changes to green levies this “would not be acceptable”. Mr Barker told the BBC’s You and Yours programme he was unaware that some suppliers were not passing on the reduction and that this “would not be acceptable”. Telegraph, 29 January 2014,

Despite this, the Government has taken no action to force energy companies to pass on these savings to customers on fixed price deals, with an estimated 3.8 million households to miss out on David Cameron’s promised £50 saving as a result.7 Furthermore, the Government’s own figures show that the energy companies should be cutting their prices even further after the Big Six saved more money than first thought from the reductions in green levies.

In their response to the Consultation on the future of the Energy Company Obligation, the Government admitted that the changes to the scheme were likely to mean that the energy companies would make more money. “ECO companies are likely now to be in a position to make greater savings than they had originally projected in December…” The Future of the Energy Company Obligation Government response to the 5 March 2014 consultation, 22 July 2014,

However, rather than setting out concrete plans for how they were going to recoup these savings, the Government merely “invited” the energy companies to let them know.

THE LABOUR FUTURE

  •  Labour recognises that the broken energy market and soaring bills are contributing to the cost-­‐
    of-­‐living crisis for families. A Labour government will act to create a fairer energy market. We
    will reform the market so that it works in the interests of consumers. And while our reforms
    are taking place, we will freeze energy bills for 20 months to protect families from unfair price
    hikes.
  • Labour will freeze energy bills until 2017, saving the average household £120 a year and the
    average small business £5,500.
  • While bills are frozen, Labour will undertake the biggest overhaul of our energy market since
    privatisation, breaking up the Big Six energy companies and forcing them to be more
    transparent about the way they buy and sell their energy.
  • We will ring-­‐fence supply businesses from generation businesses within vertically integrated
    companies. This will mean that each part of the business will need to operate as a separate
    legal entity within the group, with a distinct licence and separate information, governance and
    reporting arrangements. This will ensure that the interests of the supply business are better
    aligned with those of its customers, which will create much stronger incentives to keep
    wholesale costs down.
  • We will require all energy companies to buy and sell 100 per cent of their power via an open
    exchange, or pool. Requiring all electricity to be traded via an exchange would centralise the
    communication of bid and offer prices, communicate those prices throughout the market and,
    therefore, create a level playing field which would allow any market participant to buy as low,
    or sell as high, as anyone else. It would also improve liquidity.
  • We will require all energy companies to introduce a new simple tariff structure.
  • We will replace Ofgem with a tough new regulator with the primary remit to protect the
    interest of existing and future consumers by ensuring that they get fair value from the market.
    The new regulator will have the ability to force companies to cut their prices when wholesale
    costs fall. We will also give the new regulator the power to revoke energy companies’ licences
    where there are repeated instances of serious and deliberate breaches of their licence
    conditions which harm the interests of consumers.
  • We will also include the off-­‐grid energy sector within the remit of the new regulator, bringing
    off-­‐grid energy under regulation for the first time. We will commit to paying Winter Fuel
    Payments earlier for pensioners using off-­‐grid energy; providing a practical solution to protect
    pensioners from the excessive price spikes associated with off-­‐grid energy at the onset of
    winter.
  • We will use money currently spent on energy efficiency to better target the fuel poor. We will
    deliver it more efficiently through area based programmes led by local authorities and
    companies in partnership. This will bring down costs, deliver better value for money and
    reduce the pressure on bills.