Ahead of today’s Commons debate, Shadow Energy Minister Caroline Flint tells Central Lobby accuses energy companies of charging ‘whatever they think they can get away with’
Ever since Ed Miliband and I announced our price freeze and reforms to the energy market, energy companies have come under scrutiny like never before. Later today MPs will debate the way energy companies charge customers who don’t pay by direct debit. In total, just under half the public either pay when they get their bills, or have a pre-payment meter – often with a perfectly understandable reason. They might not have a regular income. They might not have a bank account. Or, given the well-publicised way some energy firms have refused to refund accounts when they go into credit, some people might not trust their energy supplier to take the right amount each month. But nearly all suppliers charge them a hefty premium – sometimes as much as £100 a year. This reveals two important facts about the energy market.
First, it shows just how badly the energy regulator Ofgem has failed to regulate the market. Believe it or not, the rules on this are pretty clear. Back in 2009 Ofgem introduced new regulations to stop energy companies from discriminating between different types of customers, and to ensure that any differences in price between the various payment methods were ‘cost reflective’ – in other words that they reflected the companies’ cost to serve customers. Sure, it might be ever so slightly cheaper to have a customer with direct debit, than have to send out a bill every few months and process the payment when it comes in. But the idea that this can account for a difference in price of up to £100 is patently ludicrous. The question, then, is given the rules and given the way the energy companies are so obviously flouting them, why has Ofgem failed to act? And why has the Government failed to intervene? When I challenged the Energy Secretary on this in the House of Commons back in September, Ed Davey dismissed it out of hand, stating: “I disagree strongly with her that Ofgem is not using its powers.”
But the second issue today’s debate highlights is the lack of competition in the energy market. Sometimes in the past when I’ve said that Britain’s energy market is not as competitive as it should be, people have asked me what a competitive energy market would actually look like. Of course there’s no perfect formula, but the answer’s pretty simple. Competitive pricing, with pressure on supplier costs and profit margins. High levels of consumer engagement. A wide range of retailers and rivalry between suppliers, with companies genuinely competing to win new customers and increase their market share. Those are all characteristics of a genuinely competitive market. But perhaps the most important thing I’d be looking for is good customer service. In other industries companies have all kinds of schemes to reward their most loyal customers, but in the energy market it’s the opposite – and overcharging people who don’t pay by direct debit is just one example of a broader problem whereby suppliers target the lowest prices at the most active part of the market, while sustaining significantly higher prices for their less active customers. It is difficult to explain the reasoning behind these price variations other than the fact that suppliers are charging whatever they think they can get away with.
That’s why we’ve said that the next Labour Government will put all over 75s – who are often less able to access online deals or less confident about paying with direct debit, but most vulnerable to the cold weather – on the lowest tariff. But we want a genuinely competitive energy market that works for Britain’s families and businesses. That’s why the next Labour Government will undertake the biggest overhaul of our energy market since privatisation. Our plans will break up the big energy companies, put an end to their secret deals and make tariffs simpler and fairer. And until these reforms kick-in, we will put a stop to unfair price rises by freezing energy bills until 2017, saving the average family £120.
Caroline Flint MP is Labour’s Shadow Energy and Climate Change Secretary
Caroline Flint MP: Labour will overhaul energy market
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