My Lords, this amendment is also in the names of my noble friend Lord Roper and the noble Lords, Lord Berkeley and Lord Cameron of Dillington. I am very glad to see the noble Lord, Lord Cameron, back in his place; he sent me the first e-mail from Ethiopia that I have ever received, only a day or two ago. I cannot promise to be quite as brief with this amendment as I was with the previous one that I moved.
The House will remember that on 31 October my noble friend Lady Verma repeated a long Statement about the Government’s energy policy, made in the other place by my right honourable friend the Secretary of State for Energy and Climate Change, Ed Davey. Towards the end of that Statement, following an announcement made earlier in another place by the Prime Minister, Mr Davey gave further details of a proposal to set up,
“annual reviews of the state of competition in the energy markets”.
He referred to them as “competition assessments”, to be undertaken,
“by Ofgem, working closely with the Office of Fair Trading and the”,
newly established,
“Competition and Markets Authority, when it comes into being”.—[Official Report, 31/10/13; col. 1771.]
As noble Lords will be aware, there is now serious public mistrust of the way in which the regulatory system has been working. The recent spate of announcements of, in some cases, swingeing price increases for energy have simply inflamed that mistrust, so there has been a
cautious welcome to the announcement. I say “cautious” because I think most people remain to be convinced that these reviews will make any difference in practice. They see that, in place of the more than 20 generating companies which we had before 1997, there are now only six major firms which control 92% of the generating market. They also see what they rightly perceive as the failure of the regulator to get tough with the industry, even to the extent of failing to use its existing powers; there can be no doubt about that—I am glad to see my noble friend on the Front Bench nodding her assent.
Last week the Secretary of State delivered what he called “a tough message” when he spoke to the industry’s main trade association, Energy UK. It is a long speech but I will quote just one or two bits of it because it very much reinforces the case for this amendment. Near the beginning of his speech he says:
“Trust between those who supply energy and those who use it is breaking down. You’ve admitted as much to me. For it is so difficult for people to work out what exactly they are paying for, that they fear the big energy companies are taking them for a ride when bills go up. Fair or not, they look at the big suppliers and they see a reflection of the greed that consumed the banks. So this is a ‘Fred the Shred’ moment for the industry to avoid the reputational fate of the banks”.
That was indeed a very tough message. He went on to make the claim:
“The Government and Ofgem have been acting to open up the market, to increase competition, and put consumers in control of where they get their energy, and how they use it”.
I suspect that few people are able to see that that claim has been actually happening.
This is not the time or place to quote more of what I believe was, by any standards, a forceful and effective speech, but I will allow myself one more quote. After making the point that tough and rigorous competition bears down on costs and prices, he referred to the annual competition reviews. He said:
“Competition works. We’ve seen small suppliers gain substantial business on the back of this year’s high price rises. And today’s announcement by”—
he mentioned one of the companies—is, he said, another welcome thing. However, he said, this,
“will only work … when there is a relationship of trust between suppliers and consumers”.
He went on to talk about the reviews which had been announced.
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Part of the problem has undoubtedly been that, for whatever reason, Ofgem has failed to use its powers. It is, no doubt, true that both the other bodies—the OFT and the new Competition and Markets Authority—will have further powers. However—and here we come to the amendment—what happens if the reviews throw up abuses with which the regulators do not have the powers to deal? Do we have to wait for primary legislation to provide those additional powers? That is why, in the exchanges that followed the Statement given in this House on 31 October, I asked my noble friend:
“Would it not be wise to take powers now in order to avoid having to introduce fresh primary legislation?”.
In her reply, my noble friend started by agreeing:
“The purpose of the review is to enable the regulators, led by Ofgem, to see what needs to happen in order to strengthen competition”.
She then ended:
“If they need extra powers, it is for the Government to ensure that we support them by ensuring that those extra powers are put in place”. —[Official Report, 31/10/13; col. 1775.]
That is quite right. However, she did not answer the question that I had asked, which was: what happens if the extra powers are needed and are not there? Should we not now give the Government power? They could put introduce regulations in the Bill that would give regulators extra power. That would be a considerably better solution than to wait for new legislation that might otherwise be necessary.
My noble friend and I had a brief discussion about this yesterday, and she asked me, “What sort of thing do you have in mind?”. Earlier today I drew her attention to the specific recommendations set out last July in a Which? report, entitled The Imbalance of Power. The report is quite long, but I will quote only two bits of it. It said that,
“we’ve found little to give consumers confidence that the prices they pay are fair. The structures of the biggest companies raise serious questions of conflicts of interests. Much price setting and trading is hidden away behind closed doors. The volume of trading and the level of competition in the open wholesale markets are low”.
Those are pretty swingeing criticisms. One then comes to the report’s recommendations, the first of which echoes an amendment that was moved at an earlier stage by the noble Lord, Lord Berkeley:
“Ring-fence supply businesses from generation businesses in vertically integrated companies by requiring a distinct license holder for each business. Which? considers that a natural skewing of incentives exists within the current vertical integration arrangements—reducing the effectiveness of the market to the detriment of consumers. Evidence set out in this report suggests that structures that put supply and generation or production businesses under a single management and governance structure, may impede competition, and so increase … prices”.
I do not know whether, if the review threw up a recommendation that something along those lines had to be done, it would be within the existing powers of Ofgem. But I do know that Ofgem does not seem ever to have considered any such thing in practice, so one wonders whether that is because it does not have the power to do it. The other bodies may have some power; I have not attempted to analyse that—but if there are no existing powers to enforce such a change, and if the reviews find that there ought to be such powers, why should we not give the Government the authority now to introduce regulations to create those powers? Why do we have to wait for other primary legislation?
If the Government were to accept the new clause it would do two things. First, it would demonstrate beyond peradventure to the industry that they are deadly serious about strengthening competition in the industry. Secondly, it might begin to rebuild the trust that the Secretary of State has acknowledged has evaporated. I beg to move.