[Mr. Hugh Bayley in the Chair]

Q 197197

We are going to hear evidence this morning from Jonathan Stearn from Consumer Focus and Jenny Saunders from National Energy Action. I need to tell the Committee formally that Dr. Gill Owen from the Fuel Poverty Advisory Group, who was due to be with us, has been prevented from getting here by the snow and has telephoned through her apologies.

I remind witnesses in particular that the rules under which I operate are absolutely strict. If we have not finished the proceedings at literally the second 10.25 am comes, I am required to stop you even if you are in mid-sentence. Perhaps with two rather than three witnesses we will not be running up to the clock in quite the same way. It remains for me to welcome our two witnesses to the meeting. Can I ask you to introduce yourselves and the name of your organisations? We will then start the questioning.

Jonathan Stearn: My name is Jonathan Stearn; I am a programme head from Consumer Focus. My particular area of concern is vulnerable and disadvantaged consumers. For the record, before that I used to work for Energywatch.

Jenny Saunders: I am Jenny Saunders, chief executive of National Energy Action. We also have a subsidiary not-for-profit company called Warm Zones. We are a campaigning organisation specifically focused on helping people on low incomes to save energy and take them out of fuel poverty, but we also have practical experience of running programmes as well.

Thank you both very much.

Q 198

There has been a lot of discussion on social tariffs over a long period. Jenny—you and I have talked about that. We are moving from a voluntary approach to a mandatory approach in the Bill. Does that really prove that the voluntary approach has failed?

Jenny Saunders: I don’t know that I would go so far as to say that. It depends what we are trying to do under that voluntary agreement. It had been an organic process. Companies, through social corporate responsibility programmes, started to identify customers that they felt needed additional help. The problem with that voluntary agreement was that the companies were not certain who they should be helping and how to find some of the more vulnerable customers. We felt that for the agencies trying to give advice to people, there was a lot of confusion as to which was the best tariff. How were we really describing these social tariffs? We had campaigned to get recognition that the social tariff should be the company’s cheapest offering. That was one way we  could make it clear to people that, if you were frightened of switching—which a number of customers were—and if you stayed with your particular supplier and asked them for the social tariff, you knew that that should be the cheapest deal. We have not got there yet.

What is proposed in the Bill is an alternative to that, and maybe in the discussions we can explore the pros and cons of the two different approaches, because what is proposed here is simple. It means that people will know what they will get; it is automatic. There are some advantages to that; however, it is a rebate. It is not what we had defined as a social tariff, but I think it is a welcome initiative, certainly. We believe that putting it on the statutory footing is what is required.

Q 199

I shall ask Jonathan about that as well, but let me add a bit more. Some companies have been pretty good—British Gas, for example. Others, such as EDF, have not performed as well as some of the others. Will a mandatory approach sort that out?

Jonathan Stearn: Certainly Consumer Focus, and before us Energywatch, absolutely wanted to see a mandated social tariff, because we thought that it really was the responsibility of the Secretary of State to tell the companies who should be getting price support. As Jenny said, it has been left up to the companies. We had variations between companies in the support that was being given. For example, in some of the agreements recently, some consumers have been let off price increases. There are all sorts of variations in the way that this has been implemented and the amount of support given by companies. It also means that you get gaps as well. For example, two companies provide support only for older people. This is an issue that we might come on to later. Who gets support is effectively at the whim of the companies. We thought it absolutely right that the Secretary of State should get involved and mandate, saying, “This is the group who should be getting the support and this is what the support should look like.” We are quite pleased that the Bill does not define who is going to get what and what that support will be.

There are still quite a lot of areas for discussion in terms of who the eligible groups should be and what form that support should take. Jenny mentioned social tariffs. Consumer Focus still thinks that should be on the cards—in other words you have a deal where the household gets the cheapest deal from that company. We see variations of up to about £250 between what you can get from the same supplier through online direct debit and through prepayment or paying your bill quarterly, so you are looking at quite a wide difference between what consumers pay. We think it is really important to recognise that. That is why we think the issue of social tariffs should not just be disregarded and should still be thought of as part of the mix.

Q 200

In fairness to the companies, the amount they have been spending on social tariffs has increased quite significantly over recent years. Isn’t that the case? Looking into the future, how much should we be spending on social tariffs?

Jonathan Stearn: It depends on how the scheme works going forward. Consumer Focus would like to see the mandate become the major part of the support so there is a clear diktat to companies about whom they  should be providing support for. What is being envisaged is a scheme is where you have part mandate, part voluntary agreement. It is very important to make sure that all the households who should be covered are covered and given the support they need. As I said, we are seeing major price differences between different types of tariffs. If you are lucky enough to have a bank account which allows you to pay for things through direct debit and you happen to be a consumer who is online, then you are going to get by far the best deal. Unfortunately, lots of the consumers who we think should be eligible for this just aren’t in that position.

Jenny Saunders: Just to add to that, when you ask how much we should spend on social tariffs, it is important to recognise that this is a regressive way of helping customers. The proposal in the Bill will potentially add £12 to every customer’s bill. We think that is a reasonable amount, but it has to be proportionate. If we are going to start to load more and more costs on to bills there has to be a limit. There are other ways in which we should be addressing people’s incomes and the affordability of energy, not just through loading it on to energy bills, because the current levies for reducing carbon already amount to around £100.

Q 201

Jonathan, you said in your evidence that at the moment energy companies spend about 0.5 per cent. of their turnover on social tariffs. Is that the correct figure? Is that the figure we ought to be shooting at into the future? Picking up on Jenny’s point, why should customers pay for social tariffs? Why can’t companies pay it out of their profits?

Jonathan Stearn: If you could find a way of making companies pay it out of their profits we would be very pleased to see that. Any plans to try to see companies using their profits rather than passing bills on to other customers don’t tend to hold water in my experience. You also need to look at this in context. Generally, we are seeing costs being added to bills to an increasing extent to pay for climate change policies, and this is quite small beer in comparison. As Jenny said, this is trying to do something to change the regressive nature of that general policy of getting consumers to pay through bills.

It is also worth pointing out that in the Bill there are schemes for reducing fuel poverty. Fuel poverty has three elements: prices, energy efficiency and income. We have strongly argued that energy efficiency should be absolutely centre stage in the challenges to fuel poverty, not least because it means that you can have a major impact on consumers’ bills. If you brought homes up to the standard of a home built today, you could potentially halve people’s energy bills. It also means that the regressive nature of paying for climate change policies through bills has less of an impact on those on low income. That is why energy efficiency is absolutely essential as part of this. In some ways, the Bill is looking at one small part of the equation on tackling fuel poverty.

Q 202

Can I follow that up? Clause 8 will give the Secretary of State significant discretion in secondary legislation. Does that worry you? That picks up Paddy Tipping’s point. Would it not be simpler, in your view, to have in the Bill a simple mechanism, for instance to define a social tariff as the lowest cost per unit available  by a supplier, which could be done in a very simple way? It would then be very clear that any scheme that included a social tariff thereafter had that definition, rather than there being a plethora of ways in which the companies get over this at the moment—by having a bewildering array of tariffs, often meaning that if you take electricity and gas and other facilities you get a better tariff. Would it not be better to have a simple definition in the Bill?

Jonathan Stearn: It depends on what that definition is.

I agree with that but we could argue over a definition then.

Jonathan Stearn: We have not had that debate yet and what is in the Bill is Government taking powers. What the Secretary of State said, both on Second Reading and in the summer, was that the Government are minded to use those powers to give price support to older people and pensioners. Our concern is that, as they stand, the powers allow us to have that debate and discussion about who should be included and what form that price support should take—whether it should be a one-off payment or a social tariff.

As it stands, the Bill allows us to have that debate in the future and discuss who should be eligible. What concerns me is that if we were to put who should be eligible in the Bill now, what we would put in the Bill would be pensioners; it would just say that pensioners would be eligible for this. My concern there is that, as I have already mentioned, two of the energy companies only supply their support system for pensioners. That means that if you were one of those 40 per cent. of lone parents who are living in fuel poverty, you would not get any price support if you happened to be with those one or two of suppliers or were relying on the Government’s mandated scheme. We are pleased that the Bill is taking powers. We can have a debate in the summer about what those powers should be and about the type of support that we should be giving to consumers.

Q 203

I have a supplementary, Mr. Bayley. What always worries me about legislation is that so much of the detail is in secondary legislation, to be determined sometime later. We are about to have a general election and things may change quite dramatically. Do you feel that it would be helpful if the Minister, when we discuss the Bill, gave an indication of the secondary legislation in order for us to understand the primary legislation’s context?

Jenny Saunders: I think that would be helpful. Quite a lot of thinking has been done about it. There may not be firm agreement, but the work has certainly been done to try to identify which customers would be most likely to be and remain in fuel poverty. I think we can be clear that there are certain categories of customers on the pension credit guarantee who are more likely to be in fuel poverty than others.

There is already recognition of that, but we would like to see the help extended to households that are currently eligible for cold weather payments. People are going to need that in this current cold spell. There are other categories of people—families with young children, people on premium income support, those on jobseeker’s allowance and those with disability—who we think should fall into that bracket. That will add to the cost of  the overall scheme, but we believe that we need to put that group of customers forward, and the Government themselves have already identified them as vulnerable.

I am happy with that.

Q 204

Welcome. It is good to see you and thank you, Jonathan, for your submission. May I first probe the question of the people involved, other than pensioners, before addressing methods of ensuring that people get the best or fairest deal? At the moment, we have systems that generally support people who get a benefit from the state. They are either pensioners, over pensionable age or they qualify because of income support and so on. Have you all thought through the categories that should be included? We will need some precise answers to that first part of my question.

Secondly, some people are entitled to benefits or entitlement, but they have to claim them, which has always been a problem, because the benefit take-up has never been anything like the number of people entitled. How do you deal with that?

Finally, are there people who are just under pensionable age but, for pride and other reasons, do not claim benefits, are just above the limit and should be eligible? People have talked about disability, cancer patients and other categories. Will you help us as precisely as you can as to the groups that we should include and how?

Jonathan Stearn: Yes, we have done some work on that. The issue that we have with fuel poverty is to try to get precision, because we actually do not know the energy efficiency of every house in the country. We do not have that information, so we are lacking a vital bit of information to do this properly.

Except we know that 99 out of 100 houses are not energy efficient.

Jonathan Stearn: Yes, we do. Whatever you do is going to be a bit of a proxy. We also think that there is an issue with the definition of fuel poverty. For example, if you have information that looks at basic income, which leaves aside payments for housing benefit—that never enters a person’s pocket at all—you will find that 41 per cent. of lone parents come under that classification of the fuel poor.

The group that we particularly focused on was those eligible for cold weather payments. Some 37 per cent. under those criteria are fuel poor. It is not a bad proxy compared with the equivalent for households receiving pension credit, which is 36 per cent. So we think that cold weather payments are not a bad proxy. They pick up those who are income poor, those on a pensioner premium and disability premium, and those with disabled and young children, so we think they are not a bad proxy. We would add those children of school age with parents who are on low incomes and benefits. As a core, we think cold weather payments are not a bad proxy to use.

Q 205

Just before Jenny comes in, you would say that the starting point should be the current definition of those entitled to cold weather payments but, Jonathan, you would add some other potential categories.

Jonathan Stearn: We would add people in households with benefits for children of school age, because that is the one group not included in the mix in relation to cold weather payments.

Jenny Saunders: We have also looked at this carefully and believe that the existing categories of households eligible for cold weather payments are the target group for the main rebate scheme. I take your point that there are a number of people who are not receiving all the benefits to which they are entitled. There is still room for the voluntary arrangements that companies have with other charities to get to those people who have particular health problems—you mentioned cancer—or other health-related issues that make them more vulnerable and may not be picked up as easily in the system. If we retain some of that flexibility within the mandated programme, we can be more confident that through voluntary sector partnerships or agreements with local authorities or other statutory bodies—such as npower’s Health Through Warmth scheme—we might get to people who are in need but outside the main state system.

Jonathan Stearn: There are two points. On your point about non-take-up of benefits, it is worth reminding ourselves about how much is left—although I know it is not really—in the Treasury coffers every year as a result of that. Billions of pounds are unclaimed every year, which is worth remembering when we talk about how much schemes like this might cost.

It is also worth paying attention to the potential to encourage take-up by having a mandated scheme. We know, for example, from Warm Front that people who are eligible for but not claiming benefits to which they are entitled come back to Warm Front having claimed those benefits. Warm Front acts as an incentive to claiming benefits and the same could happen with this, if we had a mandated scheme. It could be worth a lot less than the benefits, but could act as a trigger in the same way that Warm Front has.

Q 206

My last question on this is, would you, as well placed organisations, seek to work out those other categories that might justifiably be entitled? For example, we have had submissions from Macmillan—a fantastic organisation and we know what they do—but cancer patients in their 40s or 50s cannot be the only ones who are more vulnerable and need to be protected and who may still carry on working part-time, or whatever. Given that we are to have a secondary legislation round, would you be willing and able to come to a common view with the charities? Because it would be far better to have consensus rather than lots of negotiation and rather invidious discrimination later on, when people with some conditions qualify and others do not.

Jonathan Stearn: The answer is yes. We at Consumer Focus have been working directly with a range of charities, including Macmillan, to come to common agreements on fuel poverty. For example, the drive on energy efficiency was supported by Macmillan, Age Concern and other organisations, all of which saw it as a key way forward. I am sure that by working in coalition with that group we can come to common agreement.

Jenny Saunders: Yes, and I would add that there will be some categories that are difficult for anybody to identify as one category. There will always be grey areas.  That is difficult, but we might allow those professionals some discretion and perhaps have a discretionary pot for that kind of activity. There is a problem if that still requires people to come forward themselves or be referred in. The way in which it is outlined in the Bill is much simpler. If people are going to get an automatic rebate it just happens, it does not require lots of filling in of forms or applying.

We know the difficulty EDF had, for example. When it initially set up its social tariff it was not sure, so it allocated groups of customers by postcode, based on a matrix that it had worked out. It thought those people were more likely to be in fuel poverty than other customers. It has had to find proxies, and because of the definition of fuel poverty we will still have to have those proxies that people work to. But there is no doubt that people on pension credit are in severe financial hardship, and they are vulnerable because of their age. They are a good category of people for us to be helping.

Q 207

Thank you. May we just go on to method of supporting people? I have two questions. One is a specific question that I would like you both to answer, and the other is about your advice as to what methods will work. The specific question is whether there should be an end to the right of companies to charge differently depending on the means of payment. Should we simply say that it will be the same charge whether you pay by cheque, online or through a prepayment meter? It would be very simple and very fair. It does not matter if you also buy gas from the same person you buy your electricity from—that will not give you an advantage. If you are buying electricity, however you pay, you pay the same rate. Do you support a proposal that we have a single rate of payment for that product, irrespective of method of payment?

The wider question is: what is your advice as to the best way of giving support? Is it that the lowest tariff should be what the company has to offer to everybody in this category, and should that be part of a package that reduces the tariffs from the 4,000 that there are at the moment to a very limited number that the company is allowed to charge? We could legislate and say that you can only have five tariffs, for example, or we could tell Ofgem that that is what companies have to do. I am concerned that we have a ridiculously complex system, and we discriminate against people who pay by the old-fashioned methods by which poor people pay. I want to end that. How do we get that?

Jenny Saunders: I can start on that. I think that when we were looking at the definition of social tariffs some time ago, it was that it should be irrespective of the method of payment. I spotted your amendment to that effect, and I think that that is something about which we are very exercised. There had been an increasing differential between the different methods—online, direct debit and prepayment—and at the worst it was more than £500 between the best and worst deals. It took us a lot of persuading of Ofgem for it to intervene, because it felt that the competitive market was still the right route, and that if people knew that if they switched between companies they would get a better deal, they automatically would. We saw, and the companies saw, people switching away to a worse deal. We were told by EDF that 50 per cent. of people who switched away from what it knew to be its cheapest tariff moved to a worse deal.

There is no doubt that the current array of tariffs is very confusing and people get into a muddle, and it is very difficult for advice agencies to know what is going to be best for different customers. We did get into a big tangle over this. It would be nice to have what you are proposing, but I suspect that what we will be limited to is the European legislation, which means that prices have to be cost-reflective now. So there will be some differential. Having recognised that differential, whether you can then use the social tariff to address that and—are you following what I mean? I’m sorry it’s a bit muddled. We have to simplify the tariffs and we have to simplify the advice that we are giving out to people.

Q 208

I am totally confused by your answer. I am sorry. I am not being disingenuous. Are you saying to Simon Hughes that European law would prevent it being stated in this Bill or in secondary legislation that all companies must offer their lowest tariff available as part of their response to the fuel poor?

Jenny Saunders: No. Ofgem made it clear that within its existing duties—these won’t change—they have special duties for the care of vulnerable customers, so they can do this.

So we could have that on the face of the Bill?

Jenny Saunders: Yes.

You said we couldn’t earlier.

Jenny Saunders: As a general issue, we have to have cost-reflective pricing. But we can tackle the disadvantage that that might bring as well through this proposed legislation. The question is how many people do we really want to help through this mechanism? There are over 5 million households in fuel poverty; we cannot help all of them through this. They can’t all get access to a social tariff without that cost coming through into quite a large amount of money, which will be passed on to all other consumers. It is a matter of being careful as to how much these costs will amount to. I know that you’ve done some work on that, Jonathan.

We are running into the danger that half of our agenda will be lost. Can I ask Simon to focus on a final question and could I also ask the witnesses to try to give us some concise answers?

Jonathan Stearn: On the point about making charging the same, the issue of cost-reflectivity is the one that Ofgem would raise. Pricing generally has to be cost-reflective. We would have an issue with what you actually mean by cost-reflectivity. As I said at the beginning, there can be a £250 difference between what you’d pay to the same supplier if you were paying through direct debit online and what you would be paying through a prepayment meter or, indeed, a quarterly bill. We have had a lot of impact on prepayment meters and have managed to bring the charging of those down to levels similar to quarterly payments, but there still can be a £250 difference between that and direct debit online. Certainly that is detrimental to the groups we are concerned about here. We cannot just say to people, “That’s the market place. You haven’t got a computer. You haven’t got a bank account. Well, tough.” We need to move  forward from that and have policies that recognise the detriment that those consumers are facing. Yes, that means you can delve into the issues of what cost-reflectivity is.

There is an interesting example in Northern Ireland where semi-smart metering was introduced. It meant that prepayment became very popular. The price differences between that and any other cheaper forms of payment are very small because there is investment. That is the issue behind cost-reflectivity: what cost are you reflecting? If you don’t invest in something then the costs of supplying it on a prepayment meter will be very high. If you do invest then the costs over time can go down a lot. That is why, to be honest, the issue of smart metering is very important here. Again, we are really pleased. Energy Watch argued for the introduction of smart metering for a long time so we are really pleased that every home will have smart meters. But it is absolutely essential that every home has the ability to have prepay as part of their smart meter option for both gas and electricity. That would change the marketplace quite considerably; measures such as that can make a difference.

We still have differences between the amount that people on low incomes pay through prepayment or quarterly bills and what you get online and with direct debit. That is where the argument for keeping the social tariff comes in. The social tariff would mean, no matter how you pay, that you would be paying the lowest charge. It means that, if you happen to be one of the minority of fuel-poor lucky enough to be on direct debit, the amount you would get back would be less than if you were on a prepayment meter. It means that everybody who we have recognised as needing support would get the cheapest deal from their supplier.

Paddy, do you have a supplementary question?

Q 209

Yes. A little while ago, you used the words “Treasury coffers”. Is it not the case that winter fuel payments last year cost £2.7 billion, and that only 12 per cent. of people who receive them are in fuel poverty? Is that a sensible way of going forward? Should we not use that money to support new mandatory social tariffs?

Jonathan Stearn: It is worth remembering the history of the winter fuel payment, because I had some involvement. It started off as a private Member’s Bill when I worked for Age Concern. We were trying to give support to old people in the winter to give them confidence to keep warm. The word “fuel” came into it, but the idea of the winter payment was to give older people courage and belief, and to get around the whole issue of the lack of take-up of benefits. We knew that those with the greatest need were not claiming the benefits that they were entitled to, and the universal winter payment meant that we could give confidence to older people to keep warm in the winter.

The concern about losing the universal aspect of it and bringing it back to means-testing is that those who need it most are inevitably going to be the ones who miss out. In some ways you could look at it the other way around, in terms of doing top-end means-testing where those on the higher rate of tax, for example, do not get it or are not eligible. There might be ways you could play that. Personally, however, I would be very concerned about losing the universal nature. Its very  aim was to reach those older people who do not claim the benefits that they are entitled to because of stigma, lack of knowledge and so on, and they would lose out. That would be my concern.

On the money left in the coffers, it is clear that, if we had an effective take-up campaign, the Treasury would have to find the money, which is in the region of £10 billion. In some ways, it is worth thinking how that money could be used with these sorts of schemes to give support where it is needed.

Jenny Saunders: I agree. I do not think that we should abolish winter fuel payments. There are certainly some people who are not in fuel poverty who receive a high percentage, but it is a known additional amount that people can rely on and they know that in advance. In fact, we would like to see the eligibility extended. Households that receive cold weather payments and families on low incomes with young children should also receive it. We have been asking for that for a long time.

We used to have something called heating additions, which were abolished in 1998. They provided around half a billion pounds’ worth of assistance to people who were living in the worst housing. That was linked to people’s different benefit payments and it went. I think that what is in the Bill is an attempt to recognise that pensioners on benefits need additional support and help. The energy supply industry is one means of doing it, but that should not be at the expense of giving public support as well.

We need to move on. Mike, you had a couple of questions.

Q 210

The most recent figures for 2007 show that there was an increase in homes in fuel poverty from 3.5 million to 4 million from 2006. Will a measure of the Bill’s success be whether that figure declines?

Jenny Saunders: I think that on the face of the Bill it suggests that this measure either will take people out of fuel poverty—reduce the total numbers of people in fuel poverty—or that it can also reduce the degree of severity of fuel poverty. So I think that some people who will get this rebate will not be taken out of fuel poverty, but they will at least have a contribution to their fuel bills, which will be welcome.

In the way in which we calculate it, as 10 per cent. of income, it may not take them out of fuel poverty. I have not done any calculation of the numbers that will be taken out of fuel poverty because we are still haggling over which categories of people will be eligible, so I am afraid I cannot help you on that number, but we think it is a worthwhile venture and it is certainly one piece of the jigsaw.

As we discussed earlier, obviously energy efficiency is missing from this Bill, but there will have to be something more coming in the next parliamentary Session on energy efficiency. That is clear. We are not going fast enough and far enough on energy efficiency. That will reduce bills into the long term. This is a welcome initiative, but I cannot tell you how many people it will take out of fuel poverty.

Jonathan Stearn: Can I just emphasise again the importance of energy efficiency? I think that that has to be seen as a key and central driver. With these proposals  in the Bill, the mandate does have the ability to affect fuel poverty. We have done some calculations, and we think that if it is kept to those on pension credit over 70 years old, it will reduce the numbers in fuel poverty by about 3 per cent., and that could increase up to an impact of more than 9 per cent. if you had a rebate that was equivalent to what the differences in prices were—the price differentials that are currently on offer from the suppliers are around £190. If it was the cold weather payment group plus those with children of school age, we calculate that that could take it up to about 9 per cent., and we have variations in between. If you had the £100 option, and had it for those eligible for cold weather payments, we think you would get a reduction in fuel poverty of close to 5 per cent. So, it depends on the mix, on what options we go for, and what the value of the support is.

Q 211

Within these numbers of homes in fuel poverty, there is a group that many of us representing rural areas are concerned about: those who are on home fuel oil or liquid petroleum gas, and who, we accept, will not get the benefit of the social tariffs from electricity suppliers. A large percentage of their spend is on heating their homes, which in many cases is not covered by this. There does not seem to be anything in the Bill that helps that group. Is there anything that we can do that would reduce their costs and have the equivalence of a social tariff for this group?

Jonathan Stearn: There certainly is. There is one option that we have looked at, which is to have two levels of rebate. You could have, for example, a £200 rebate for those who are off-gas—it would be quite easy to establish if somebody was on-gas or off-gas—and a £100 one for those who are on-gas. It might seem a bit crude, but it is not a bad proxy to use, because if you are off-gas, you are obviously using other fuels. So there could be a way. Again, as the Bill stands, there is the ability to look at these proposals and see whether it is worth looking at them in relation to secondary legislation and regulations that come in. But that is one option that could be considered, for example.

Jenny Saunders: The payment coming via the electricity supply is one means of ensuring that virtually every eligible household will get it, and that it is not restricted just to those on the gas supply.

Q 212

It is an interesting idea, but I am sure that the electricity supplier would come back and ask why that is increasing its costs and paying for the fact that the gas supply does not go to those homes. In the Bill, there is the prospect of having a balancing mechanism between energy companies. Is that something that could be used to balance that out and spread the cost more evenly among all the larger energy companies?

Jonathan Stearn: Our concern is to make sure that, whatever happens with the balancing, it does not mean that some suppliers try to get rid of their fuel-poor households and other suppliers disproportionately pay support for fuel-poor households and lose out as a result. We do not want fuel-poor consumers to lose out as a result of this, so the balancing act needs to take account of consumers’ interests, and that means fairness among suppliers as well. This brings in other issues about what sort of cross-subsidies go on between electricity  and gas within the same companies, with leads to another of our concerns, reflected in Ofgem’s probe, on how suppliers pass on charges to consumers. We start to get into quite complex areas about how prices are divvied up between gas and electricity and within the same supplier.

Q 213

Jenny has partly answered my second question, which was that the second part of the definition is

“the extent to which any person is living in fuel poverty is reduced”.

Can you give us your views on what the reason is for the second part of that definition? Why do you think that the Government proposed that?

Jenny Saunders: Let me give you an example. Somebody with an income of £9,000 has an energy bill of £1,000. The reduction of £100—one of the figures that has been mooted—could take them just on to the margins of being classified in fuel poverty, if you are knocking £100 off. Through winter fuel payments you would have to give people £1,000 more to have the same effect as knocking £100 off their energy bill. What difference that £100 will make really depends on how much people need to use and the energy efficiency of the property. It is a complex combination of the housing type, how much people have to spend time in their home and what the heating needs are for a particular family. So it is complex, but it is about recognising that, if we take £100 off a £1,000 energy bill, it could shift people out of severe fuel poverty. It is still not adequate, but they recognise that it will make a contribution and it cannot do everything. We cannot possibly, in my view, expect the competitive markets to allow what might be needed in every instance. For example, with somebody’s energy spend, because their house is so badly insulated that the tariff has to come down by £600 or £700, we cannot expect that to be passed through to other customers. That is something that needs to be addressed by the landlord, the housing agencies if they are in social housing, or through other mechanisms and not just through this price reduction scheme.

Brian, would you like to come in?

Q 214

As you know, clause 27 will allow the Secretary of State to set up schemes to adjust energy prices for disadvantaged customers. Do you think such schemes are required? Are they workable? Does Ofgem have the power to do the job?

Jenny Saunders: I struggled when I initially saw the Bill to see how it would change things. How would Ofgem behave differently because of this? It has started on this journey, after it was pushed into undertaking a probe into how the market was working for all customers. It took a long time for it to be persuaded that there were problems, but it has started to grasp the nettle now. We hope that this proposal will now give the regulator more confidence that the interests of customers will not always be best served through competition. That is important. I honestly cannot see where the big differences will come. It might be just a cultural change. We have seen Ofgem introduce new licence conditions to reduce the disadvantage that might come from companies charging certain customers prices that are not cost reflective.

Q 215

May I ask you a supplementary before I come on to Mr. Stearn? Are you concerned that Ofgem could be overruled by a Minister? This would give greater power and a shift of emphasis of power, bearing in mind that Ofgem’s prime job is to look after the interests of consumers.

Jenny Saunders: The measure regarding the reserve power for the Secretary of State was, I think, taken because a problem had been clearly identified of customers in rural areas not able to take advantage of dual fuel offerings. A problem was identified. The power has not been used before—the Secretary of State has not intervened—but I think it might be right. When we have struggled to get Ofgem to recognise that it should be acting, there has been nowhere else to go.

Q 216

Are you saying that Ofgem has not done its job?

Jenny Saunders: I do not think Ofgem did its job well for some time, but I think that it is starting to. This proposal might formalise the move that it is now making, but it is not radically changing its duties.

As my grandmother would say, it is a kick up the bum, is it?

Jenny Saunders: Yes.

Jonathan Stearn: I said at the start that I used to work for Energywatch, and we did find it quite a struggle to get Ofgem to recognise that we had to look beyond the marketplace and see consumers of central importance, particularly vulnerable and disadvantaged ones. The Ofgem probe has shown it starting to walk down the road to Damascus to some extent. As Jenny said, that was linked to issues about dual fuel and those living in rural off-gas areas, but I think there could be real potential here, going back to Simon Hughes’ question. We have a situation where very vulnerable and disadvantaged consumers face quite severe detriment in the marketplace. The market is not serving them well; they are being charged a lot more for their energy, because they do not have the benefits of a computer and a healthy bank account.

If this proposal means that we can challenge the detriment that those consumers are facing and get to a situation where they do not face that sort of detriment, I would support it. I think that it means that we could see a change in the way that consumers, particularly disadvantaged and vulnerable consumers, are treated by energy companies and the marketplace. It seems to be unfair that if you are in one of the 15 million households that do not have a computer, or you do not have broadband or a bank account that can have money coming out of it monthly, you end up paying more.

The irony is that the group who know most about their energy use are the group who end up paying the most for it. The people on prepayment meters who pay their bills quarterly know about the energy that they use, because they have to be very aware of their consumption. If you are doing it through direct debit and have done it online, you do not have to pay any attention to it; it just pops out of your back account.

Q 217

I understand the reasons and I am grateful for your explanation, but I am still concerned about why we do not make Ofgem work more effectively,  rather than split the powers and give greater power to the Minister in the area where Ofgem was set up so that it would not be politically involved in that way.

Jenny Saunders: As I understand it, the powers are already there; they are just tightening it up. I think that they are clarifying it because the previous wording did not make it clear that the Secretary of State had powers to intervene between gas and electricity supply, where we have got integrated companies. I see no problem with it. If Ofgem is doing its job, there should be no reason for the Secretary of State to intervene, and as I understand it, the Secretary of State would not be able to intervene, so I do not think that we would see great intervention and meddling in the market. I do not believe that that is the intention, but it means that the energy companies know that there is that potential if they are not delivering a fairer deal to all consumers. It means that through these additional measures that they are taking—introducing more stringent licence conditions—we can expect the differentials to go down. We have not seen them be really tough yet. At the minute, there is still, I think, a £15 difference between what Ofgem have specified as allowable cost-reflective pricing between prepayment and offline direct debit. I think that only one company has managed to get those differentials right down. There is still work to be done, but this eases things along the way.

Hopefully.

Jenny Saunders: Hopefully.

Charles, is there anything in general terms that you would like to address?

Q 218

A few issues have come up. The whole area of fuel poverty is incredibly confusing, particularly for those who are affected by it. The names and range of schemes mean that most people do not know where to start looking for the available support unless they get some expert advice. To what extent will the Bill and its measures clarify things, and what more needs to be done beyond the Bill to simplify the system further?

Jenny Saunders: This will simplify matters when it comes to customers knowing whether they are eligible for some kind of discount from their energy supplier and it will make the process very simple. That is the intention and I think that that will follow through with the secondary legislation. The enabling powers in themselves are not doing it, but we can see that it will flow through. That should simplify things. Those who are eligible will get an automatic reduction in their bills.

In terms of energy efficiency, nothing is being said. I assume that that is because the Government know that they have limited time to get this Bill through and, if we were to have energy efficiency changes, we would have to look at the current Warm Front obligations on the energy suppliers and decent homes for social housing. I think that would be too complex, but I do believe that we need to look at that very soon, because the existing arrangements are due to end by 2011-12, so we have to get our act together. It would be good to have some kind of intention. We would like to have seen something on energy efficiency in the Bill, but I do not know whether there would be time for that to be properly  considered, given where we need to get to, because we need a radical review. We want a national scheme so that everyone can buy into it and we can prioritise the poor and retain grants for people who cannot afford such investment.

Q 219

We and the Liberal Democrats have tabled amendments on efficiency, so we will have the opportunity, even within the timetable available, to discuss them and, I hope, to make those changes.

Jonathan Stearn, do you think that any other elements are missing from the Bill?

Jonathan Stearn: No; I agree with Jenny that energy efficiency should be centre stage and I know that some amendments have been tabled. We have pressed to try to get high standards in place that would mean that homes were brought up to the energy efficiency level of a home built today, because that would have a tremendous impact on fuel poverty and protect the fuel poor from future price hikes.

In terms of what the Bill is trying to achieve on price support, I think the mandate has the potential to give clarification to consumers. It means we should be clear at the end of this as to who is going to be eligible and what they are eligible for. At the moment, it is completely variable depending on what supplier you happen to be with. Some suppliers will give schemes only to pensioners, while others will do pensioners and other groups, depending on their own definitions. A mandate would give us and consumers a clear indication of who is eligible and who is not.

Q 220

You referred earlier to the problems of identifying who is in fuel poverty and the accompanying difficulty in identifying the right people who should benefit. The Government made some changes in data sharing. Have they done enough to provide accurate information to companies? What more needs to be done? Does any of that require legislation?

Jonathan Stearn: Data sharing at the moment just covers pensioners. As you might gather from what I have been suggesting, I think that the mandate should be wider than pensioners. If you are going to use the same data sharing process—again, the data sharing is a trade-off in terms of data protection and protection of consumers——we feel that the relationship that has been established with the Department for Work and Pensions and with the companies could mean that you could maximise the take-up of price support. If we are to use the same process for groups other than pensioners, we are going to need new legislation. If we had a wider group who were mandated, we would have to have some interim solution which, I suspect, would not be as effective in getting take-up as data sharing.

Q 221

You have also talked about the importance of smart metering as a way of helping people. My understanding is that, in Northern Ireland, people on pre-payment meters pay less than others, so there is a positive benefit for them rather than a gap. Would you like the roll-out of smart metering prioritised so that homes occupied by people in fuel poverty are targeted first?

Jonathan Stearn: My understanding of Northern Ireland is more or the less the same as yours. You might be able to get about 1 per cent. less with one other deal.  My point was that investment can pay off. It became a very popular way of paying for energy among Northern Ireland consumers. I would support the roll-out. My key point is to make sure that everybody, when they get a smart meter, has the ability to pre-pay, because that can dramatically change the marketplace. Just think about the marketplace with mobile phones and the ability to move between contracts and pre-pay. You would have the same ability with your energy, and it could have a dramatic impact on the market itself. It would mean that we would stop having this discrimination against those who are using pre-pay as a way of paying.

Remember that more than 1,000 people a day are being put onto pre-payment meters because of debt. That means they are being put on to a more expensive way of paying—ironically because they have got into debt. We need to work our way through that, and smart metering is a key way of doing it. I can see some real benefits of rolling it out to people in deprived areas first, but we need to make sure that everybody gets a smart meter that has the ability to pre-pay. That is what can change the marketplace.

Jenny Saunders: I think that we should start the smart meter roll-out by replacing those pre-payment meters. That is clearly a real problem. I think it is complex territory that we might be going into. It might change the market, but without very good advice to customers and some Ofgem intervention, I think we could get into very complex arrangements and more confusion, so I think there would be a note of caution. I think that the Ofgem duties to protect customer interests will need to be looked at very carefully when it comes to these new tariff offerings that might result from smart meter roll-out.

Q 222

Just one more question, if I may, Mr. Bayley.

Picking up on the conversation earlier with my colleague Mr. Binley about clause 27, would it be your preference that, if Ofgem had the powers and was using them as you would think appropriate, those powers should rest with Ofgem rather than the Secretary of State? Do you think that the Secretary of State having some powers to help disadvantaged customers and Ofgem having others creates scope for confusion, as some might fall through the net because neither organisation knows whose job it is to deal with things? Also, the Secretary of State’s powers appear pretty arbitrary, and subsection (7) essentially gives him the power to make up what evidence he does not have. That is a degree of proof that is not available to Ofgem, which must have evidence-based material to go forward. Would you prefer, if possible, that this should be done through Ofgem rather than the Secretary of State?

Jenny Saunders: Yes. It would be much preferable for the regulator to be working effectively, knowing where authority rested. There will always need to be guidance from the Secretary of State about environmental and social issues. At the minute, Ofgem must take into account the guidance that it receives from Government, and we would still want that guidance to be given. I do not know that things are terribly contentious, as far as we are concerned, in relation to the reserve power, because our reading it is that it could be used only if Ofgem failed to implement its duties, although I might be misreading it.

Jonathan Stearn: That was my reading as well. I would not have an objection, because it means the Secretary of State is taking the ability to make regulations in the future. That can act as a major lever to Ofgem to look at the issues of concern for disadvantaged and vulnerable consumers who are facing detriment in the marketplace at the moment.

Q 223

May I just come in on a point in Charles Hendry’s second question—the issue of Ofgem? I get the impression, although maybe I am wrong, that you think that Ofgem is not intervening and using its powers to the extent it should, and that you believe the Bill would force its hand on that. What exactly is it not doing that it should be doing?

Jenny Saunders: I can give you an example of what it did not do. It did not intervene when we saw the pre-payment meter differential rise massively, and it should have. It should have seen that those additional costs were not justified. It should have intervened when it saw that legacy electricity customers off gas grid areas were being charged more than they ought to have been and that the margins that the companies were making on electricity were much higher than gas supply.

I think that this ought now to give it encouragement—confidence even. When we tackled it on the reason why it was not acting, it kept coming back to us saying, “We do not believe it is within our statutory duties to be intervening.” Of course, affordability generally is not an issue for Ofgem—that is an issue for Government—but in terms of customers getting a fair deal, it is the least that we can expect. In a competitive market, everyone gets a fair deal.

Q 224

It seems rather interesting that the regulators just do not have the confidence to know whether they should intervene. Will the Bill give them that confidence?

Jenny Saunders: I think that the Bill clarifies it. If you have a primary duty to protect customers’ interests, which is competing with other primary duties, I hope that the Bill will make it more clear that customers’ interests are not necessarily best served by just having a number of companies that they can go to or switch to—competition is not an end in itself. It is one of the things that the Government still believe will best serve customers’ interests.

We took the view a while ago that there was no competition for the social sector—there was nothing on offer for people who were in debt or who were on prepayment meters. There was no offer—nowhere—where they could switch to. The competitive market has failed those customers completely. I think that this is not radically changing their powers, but at least they will be able to look at alternatives to just straight competition—for example, tightening up licence conditions, imposing greater penalties or imposing penalties after a longer period of time, when they have had a chance to explore. It took them longer to undertake the probe than 12 months, which is the period that they can impose fines on companies if they find that they have acted against customers’ interests.

There is time for a couple more questions.

Q 225

If we are really trying to deal with fuel poverty and make Ofgem effective, is the  following something that we ought to do, as well as simplifying the tariffs hugely? We can ensure that every consumer—either twice a year, just before the winter begins and after the winter, or three times, at beginning of the new year, when people think about things, the school year and the tax year—has something through their door that says, “These are the options available to you to buy your electricity. There are five or six companies in your area, and these are the prices they are offering.” Therefore, everyone can choose. They can see the choice and would not have to go groping on. Is that not simple? It does not require anything other than a power for Parliament to say, “Ofgem, you will insist that this is done.” Is that not the sort of thing that would make a fantastic difference?

Jenny Saunders: I think that getting simple consumer information out is something. I do not know whether that in itself will be adequate, because people do not always select the things that come from unsolicited information. But certainly, through advice agencies and all our contact with people, when they are receptive to this information, we should be thinking about how we get that message across. Much clearer consumer information would be beneficial. Again, however, we will have many companies that, in the competitive market, will go out with their own offerings, and there will still be confusion. It would be good if people knew to go to a Consumer Focus website or an Ofgem website to get that information, but I do not think that we are terribly good at getting that messaging out, partly because for a lot of people it has not been a big problem. We would like to see it directed at people on lower incomes and put in ways that they can take advantage of, and perhaps find a way through the plethora of offerings that may or may not, when they get there, be on offer to them.

Jonathan Stearn: Again, we need to remind ourselves that not everybody has access to the internet, to the cheapest deals available. We also know that when people change their energy supplier—for example, from representations on the doorstep—they often make the wrong decision and end up paying more for their energy. This is why smart metering has some potential, because it is a two-way flow of communication. We have the ability to give people information in their own homes and it is not going to be dependent on whether or not they have the internet—it will come to everybody. There is real potential in terms of giving very useful and clear information to people.

Thank you. The first witness for this afternoon’s session, Jeremy Nicholson from the Energy Intensive Users Group, has now also given his apologies. He is unable to make it to London because of the weather. I understand, however, that the Ministers and departmental officials are available to give evidence from 1 pm, so the Committee will still meet at 1 pm—the time agreed by the Committee on Tuesday in the programme motion. After the private session to allocate questions, we will move straight into questions to the Ministers and the Department. I expect that the Committee will finish about one hour early as a result, at approximately 2.30 pm.

Ordered, That further consideration be now adjourned.—(Steve McCabe.)

Adjourned till this day at One o’clock.