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Energy Regulations (Consumer Prices)

I have been lucky in recent weeks with Mr. Speaker's roulette wheel—this is the second major debate that I have secured since the new year. It is topical, and the matter has been discussed in the House. Debate on the Energy Bill has been concerned primarily with the mix of suppliers and particularly the role of nuclear energy, but it has touched on fuel poverty. There was a debate here in Westminster Hall on fuel poverty on 8 January, secured by the hon. Member for Edinburgh, North and Leith (Mark Lazarowicz). Many of the right points were made, and since then the fuel poverty advisory group has delivered its report and there have been important discussions about the matter. I hope to add value by advancing some of the arguments made. I wish to raise three matters. The first, and biggest, is whether energy prices are overwhelmingly driven by increased costs or whether there is an element of a breakdown in competition, unfair competition or monopoly profit. That is an important point that we have not properly pursued, although the Chancellor intervened with Ofgem. The debate presents an opportunity to pursue it in detail. I notice that the hon. Member for Selby (Mr. Grogan) is here. He will probably speak for himself, but he has tabled a motion in the past few days recommending a move towards the Competition Commission. I shall argue that he is right that that needs to happen, and I shall make the argument for that step by step. The second matter that I wish to touch on is whether the Government could do something about costs and prices directly or indirectly through the European Union. I shall mention briefly gas storage, liquefied natural gas terminals and access to the European Union market. Thirdly, and finally, I shall return to something that has been discussed here often—fuel poverty and the role of the social tariff. The context of the debate is substantial increases in domestic energy prices—I shall be talking about domestic energy, not transport. Four of the big six producers have increased their prices in January, and E.ON is thought to be following fairly soon. There has been a 17 per cent. increase in the price of gas and a 12 per cent. increase in the price of electricity. In a five-year period, there has been an 85 per cent. increase in the price of gas and a 63 per cent. increase in the price of electricity. Combined bills have gone up by 76 per cent. over that five-year period, and in the past few days we have crossed the psychological threshold of an average household energy bill being more than £1,000. Associated with that are various symptoms of hardship. There were an estimated 420,000 additional cases of fuel poverty in January alone, based on the conventional definition of spending more than 10 per cent. of income on fuel. Worryingly, there has also been a rise in disconnections. Many of us thought that that problem had been solved by Government intervention some years ago, but disconnections have almost doubled in the past two years as a result of stress on prices. The conventional explanation for the rise in prices is that it is linked to cost. That is clearly a major factor—it would be unreasonable to suggest otherwise. There have been big increases in international prices of oil, gas and coal. Gas is particularly important in the UK electricity sector, and prices are determined in a peculiar way at the end of the interconnector, linked with oil prices in Europe after a time lag of three to six months. External factors such as rising world prices are clearly a major influence. As the Minister has recently reminded us, there are additional factors such as the fact that we are opting for strong environmental policies, which impose on producers costs that are inevitably passed on. We must understand that. As he has pointed out, the annual cost of the renewable energy obligation is about £1 billion a year, and in addition there are the costs of energy efficiency undertakings. That all adds to costs. The big question I want to pose is whether that is a satisfactory explanation. Is that all there is, or is there more to it? Some 80 per cent. of the public believe that they are being ripped off by the energy companies, according to a YouGov survey in the past few weeks. Is that right, and a fair assessment? Clearly the Chancellor of the Exchequer is worried that there is something else involved, otherwise he would not have approached Ofgem. I want to go through the argument about whether there has been a failure of competition policy that needs action. The first point in the argument is that there is good research. A body called Cornwall Energy Associates carried out a meticulous, detailed study commissioned by Unison, the trade union, on the period 2003 to 2006. It tried to explain the increase in electricity and gas prices in that period and concluded that gas prices were pretty well determined by cost increases and were not a particular problem. On household budgets as a whole, it found that only 72 per cent. of the increase could be explained by cost increases and that there was a big unexplained differential. The study meticulously went through all the contributory factors and concluded that the only plausible explanation was an increase in margins by the integrated energy companies that supply electricity. The study did not take a dogmatic, ideological view about that and stated that it was partly understandable, because profit margins had been very low in 2003 and it was understandable to try to rebuild them. However, the key conclusion was that as a result of their dominance in the market, the energy producers were able to push up their prices faster than their costs. There did not seem to be any other obvious explanation.