Asked by Baroness McIntosh of Pickering To ask Her Majesty’s
Government what assessment they have made of the effect of rising
energy costs on households, and in particular (1) pensioners, and
(2) those on low incomes. Baroness McIntosh of Pickering My Lords,
I am delighted to have secured this important debate. I look
forward to all contributions from all sides of the House. I declare
my interest as the honorary president of National Energy Action. At
the...Request free trial
Asked by
To ask Her Majesty’s Government what assessment they have made of
the effect of rising energy costs on households, and in
particular (1) pensioners, and (2) those on low incomes.
My Lords, I am delighted to have secured this important debate. I
look forward to all contributions from all sides of the House. I
declare my interest as the honorary president of National Energy
Action.
At the outset, I want to set out the scale of the problem. All
those currently caught in fuel poverty are those who live on the
lowest incomes: that is, below the poverty line and on 60% of the
average median income. National Energy Action estimates that 4
million households already live in fuel poverty, and that was
before the energy increases in October last year. It is estimated
that those increases have put a further 500,000 households into
fuel poverty. Moreover, a further 1.5 million people could be
forced into fuel poverty when the price cap is removed in April
if the rises are as bad as is feared.
I thank the NEA for its briefing for today and indeed the House
of Lords Library for its helpful and comprehensive briefing—it is
immensely helpful. By April this year, there could potentially be
6 million households living in fuel poverty in the United
Kingdom. Many of those will live in rural areas off the main
energy grid, dependent on fuels such as oil, liquid petroleum gas
and solid fuels, which are not subject to the price cap. As the
Institute for Fiscal Studies and other organisations have said,
real incomes are stalling yet inflation and prices are rising for
food and other essentials. We also know that taxation will
increase from April next year.
What is the background to this debate? Wholesale energy prices
recorded a record increase in the run-up to December last year,
reaching an all-time high and about nine times higher than the
year before. Crucially, there is a lack of energy storage in the
UK; I understand that we have on average only 60 days of gas
storage as opposed to three months in Germany and other European
countries. We in the UK import 50% of our gas, so we are
extremely sensitive to price rises on the global gas market.
Around 85% of UK homes use gas central heating. The cap on energy
prices is being lifted on 1 April 2022. I look forward very much
to hearing from the Minister in responding to the debate; I
understand that there is breaking news that the Government are
intending to take action well before the April deadline. I also
welcome the fact that Ofgem is currently consulting on the length
of term of reviews on the price cap.
Currently, 25% of household electricity bills will fund renewable
energy costs, yet energy generation should rightly be funded
either out of general taxation or, perhaps more appropriately, by
raising capital in the market in the normal way. What is
unacceptable is that, to date, the price of energy has increased
for domestic consumers by £235 since the previous October. That
is compounded by the fact that the cost of energy company
failures impacts on consumers too. Since August 2021, 26 energy
suppliers have gone out of business. Ofgem estimates that UK
households will have to pay between £80 and £85 extra on their
energy bills in 2022-23 as a result of these recent energy
supplier failures. Others, such as the banking group Investec,
put this as a potential £120 per household. Given that, as I
mentioned above, certain fuels, especially those used
predominantly in rural areas, are not covered by the price cap,
this is a very real problem indeed.
What action would I like the Government to take? I welcome the
fact that current schemes, such as the warm home discount and
energy company obligations, help in so far as they do. They offer
a lifeline targeted at reducing energy costs, especially for
those on low incomes and vulnerable households. These schemes
could be increased in value and their focus could be extended.
That is probably the easiest option and one bringing the best and
swiftest results to the fuel poor. National Energy Action is also
looking to pioneer a new social tariff, which I imagine would
operate in a similar way to the social tariff in the water
sector. It seems incredible that there is no social tariff as yet
in the energy sector, and I urge the Government to look
favourably on these proposals.
Equally, the Government could suspend green levies on energy and
electricity bills, and I urge them to do so. They are currently
used to fund renewable obligations and feed-in tariffs. In my
view, in my view, it is inappropriate to ask those living in fuel
poverty to pay for the next generation of renewable energy. It
would be more appropriate for energy companies to raise the money
for infrastructure costs from the market as other utilities have
to do, raising finance in the same way as do water and
telecommunication companies. I therefore urge the Government to
lift, either temporarily or permanently, green levies on domestic
energy bills.
I also propose that the Government consider either a short-term
reduction or suspension of VAT on fuel. This would be a Brexit
dividend that we have been told we can benefit from, as we were
unable to do so previously. However, as we have now left the
European Union, we could now do so. This would save households
between £90 and £150 on their domestic bills.
I would also look to restructure the market. Every time an energy
company fails, it should not be for consumers to pick up the
sizeable cost; it should be borne by the market. I also urge the
Government to expand winter fuel payments to those 65 or under
who qualify for cold weather payments—an easily identifiable
group. They could benefit by up to a £300 discount in this way on
their energy bill and support an additional 2.4 million people on
low income of working-age households. I also urge the Government
to accelerate payment of utility debt across the United Kingdom,
which would help to alleviate those living in fuel poverty.
I also make a plea that we need to adapt to climate change. We
currently lose approximately 30% of electricity through overhead
power line transmission. These power lines are vulnerable to
extreme weather events such as gales and snowstorms and they are
now bigger and heavier and cover longer distances than ever
before. We saw in November last year the unfortunate event of a
catastrophic power failure in rural parts of the north-east of
England, where for six days people had no electricity, hot water
or heating. That is unacceptable in modern times.
The recent figures for those living in fuel poverty, as
identified by National Energy Action, show that currently the
largest numbers of those living with the highest levels of fuel
poverty are, surprisingly, 35 to 49 year-olds, followed by 60 to
74 year-olds, then 50 to 59 year-olds and finally, 75 year-olds
and older.
I urge the Government to revisit the legal basis for green levies
and look anew at competition in the energy sector. I personally
oppose fracking, which is neither cost effective nor
environmentally sustainable. However, a better option would be to
boost energy from waste, particularly where this is done so
effectively, such as in North Yorkshire at the Allerton waste
facility. I urge that the energy created is put into the local
grid, helping those living in areas of low temperatures and often
high fuel poverty.
I end with a plea to my noble friend, his department and the
Government to pursue the actions which I have identified above:
to expand the warm home discount across the whole of Great
Britain to cover a further 2 million households; to consider
introducing a social tariff; to reduce or cancel VAT on energy
bills and scrap the green levies; to support more people through
winter fuel payments; and to look carefully at restructuring the
energy market. I look forward very much to my noble friend’s
response to this debate.
2.58pm
My Lords, I congratulate my noble friend on securing this timely
and important debate. I will make four simple points.
First, higher energy costs hit the cold, the old and the poor
hardest. The further north you go, the colder it gets and the
bigger your heating bills. The lower your income, the higher the
proportion of it that goes on your energy bills. The older you
are, the more warmth you need, so the bigger your heating bills.
So higher energy bills do not just target the cold, the old and
the poor but are directed straight at the Government’s new
supporters in the working class and the north as well as their
long-standing supporters among the elderly.
Secondly, wherever net-zero policies which increase energy costs
have become a political issue, they have been electorally
disastrous. In France, they provoked an uprising of the gilets
jaunes, forcing President Macron to rescind his diesel tax
increase. In Australia, a Conservative Government looked doomed
to defeat by a Labor Party waving the green flag, but when the
Conservatives opposed the carbon tax they snatched victory from
the jaws of defeat. In the Netherlands, when the government
coalition proposed green taxes, an entirely new party formed to
oppose this became the biggest single party in the municipal
elections. In Canada it was a similar story for the provincial
elections, and yesterday an uprising in Kazakhstan was triggered
by an increase in LPG prices.
Thirdly, we will need gas for many years to come. At this very
moment—or 10 minutes ago—40% of our electricity is being
generated by gas power stations. Only 37% comes from renewables.
Even if we install more windmills, we will need gas back-up
because the wind often does not blow and the sun never shines at
night. We will need gas for electricity generation for ages.
There is no economic alternative. Moreover, we will need gas for
home heating for years to come. Even if we go ahead and ban new
gas boilers in 2030, millions of homes will continue to rely on
gas for their existing home boilers to heat their homes for
decades thereafter.
We have a huge gas potential in the North Sea and the Bowland
shale in Lancashire. Eco-fanatics opposed using this, even though
domestic gas would reduce emissions compared to importing LNG
from Oman or the US. They oppose it because their priorities are
deindustrialisation and virtue signalling; reducing carbon
emissions is not really their top priority. We should stop caving
in to them and give permission for development of new fields in
the North Sea and drilling for shale gas in Lancashire and
elsewhere.
Fourthly, this is not just a temporary problem. There is an acute
short-term problem, which the Government should alleviate by
reducing VAT on fuel to zero—as we can now do since we are
outside the EU—and suspending green levies, which add 23% to
electricity bills. Even after the present world shortage
subsides, households will continue to face long-term rises in
energy costs as long as we pursue a policy of net-zero carbon
emissions without any reference to cost-effectiveness. Indeed,
the cost of installing heat pumps and the necessary insulation
will have a far greater impact on the households affected than
has been the case with the present energy crisis. The reaction of
those households will probably be enough to bring down a
Government—we ain’t seen nothing yet.
I hope we will think again and take the impact on households into
account.
3.03pm
My Lords, I congratulate the noble Baroness on securing this
debate. This year the UK faces what the Resolution Foundation has
called a cost-of-living catastrophe. Does the Minister agree with
the Leader of the House of Commons that the rise in national
insurance planned for April should be scrapped?
Noble Lords have suggested, and will suggest this afternoon, ways
of dealing with the rise in energy prices. The impact on
pensioners is obvious: the way to deal with it is to raise the
state pension and the winter fuel allowance. I wish to focus on
those on low incomes. The Resolution Foundation and the Office
for National Statistics have shown that the real value of wages
has been more or less flat since 2008 and is predicted to fall
this year. The pandemic and Brexit introduced fluctuations in
some sectors but these have not had a wider impact. Britain is a
low-wage, low-productivity economy. Given the Government’s stated
objective to reverse this, presumably the Minister will agree
with the new year message from Frances O’Grady of the TUC that
Britain needs a pay rise.
The question is how that might be achieved. Treating workers as
commodities on the so-called labour market, where the price of
their labour is fixed by employer demand on one side and
mitigated by the need of workers to keep themselves and their
families from penury on the other, does not produce a high-wage,
high-productivity economy. The Government should look to the real
high-wage, high-productivity countries such as those of
Scandinavia, and note that the key feature which produces such
results is high levels of collective bargaining—levels of over
70% and as much as 90% of workers covered by collective
agreements. Even the European Union has now finally recognised
the importance of collective bargaining coverage of 60% or more
in its proposed directive on the minimum wage. In contrast, in
this country, from a level of around 85% of British workers,
which ran from the Second World War until the 1980s, collective
bargaining coverage has been steadily driven down by government
policy and restrictions on unions to something less than 25%
today. That means that three-quarters of our workers, some 24
million of them, have no collective say over their terms and
conditions, and next to none is in a position where an employer
will negotiate with them individually.
Given the UK’s commitment to promote collective bargaining as
articulated in the International Labour Organization’s convention
No. 87, which was recently reiterated in the trade and
co-operation agreement with the EU, and in the UK-Australia free
trade agreement, will the Minister consider reintroducing the
wages councils legislation, first promoted by Sir Winston
Churchill in 1909, which required compulsory collective
bargaining across each sector of industry where it did not occur
voluntarily? The resulting agreements were binding on every
worker and every employer in the sector. It was introduced and
functioned precisely to remedy the blight of low wages.
The Minister might also consider developments in New Zealand,
where legislation was introduced last year to introduce fair wage
agreements, much like those of the wages councils, and in Spain
on 29 December, just a week ago, where there was a restoration of
collective bargaining, by agreement with the social partners.
3.07pm
My Lords, when I was in my sixth-form debating society, we would
occasionally have a debate entitled “Something must be done.”
That mood was well captured in yesterday’s Daily Telegraph
“Chopper Politics” column, written by its chief political
correspondent, Christopher Hope. He said: “Everyone can see the
cost-of-living crisis about to hit millions of British households
in the spring. Oddly though, the Prime Minister appears to be all
at sea about how to deal with it.” The validity of that statement
is beyond doubt and the Question of the noble Baroness, Lady
McIntosh, for which I am grateful, goes to the heart of the
impending crisis, with its impact on pensioners and those on low
incomes.
We have just had a contribution from the noble Lord, , that goes to the heart of this
dilemma. We have on the one hand his “stop the world, I want to
get off” approach against the commitments that the Government
made only recently in Glasgow. It will be interesting to see how
the Minister responds to both challenges.
There is no shortage of suggestions for measures to deal with the
matter. We heard some in great detail from the noble Baroness,
Lady McIntosh, and the Labour Party and a significant number of
Conservative Back-Benchers favour a significant cut in VAT. The
Prime Minister immediately stamped on that idea because it would
help
“a lot of people who perhaps don’t need support”
with rising living costs. That might well be true, but it will
not feel that way to voters in Uxbridge, Surrey or where the
noble Lord, , used to represent in
Hertfordshire when they open their energy bills in the
spring.
So whatever the response and whenever it comes, the Government
must give the country clear direction, not only on short-term
measures but on a clear and sustainable national energy policy.
That would be difficult for a Prime Minister who seems to work
only to a 24-hour rolling news cycle.
The initiative announced by my right honourable friend for a Robin Hood tax on the gas and oil companies would
enable the Government to help the vulnerable in immediate need
and provide encouragement and resources to help with home
insulation and other energy-saving measures in the long term. It
is that combination of long-term planning for the future and
immediate help to the most vulnerable that is most likely to
result in parliamentary and public support for the difficult
choices that the Government are going to have to make.
I presume that we have all received the excellent brief for this
debate from Energy UK setting out the facts about the gas price
crisis and the fragility of the UK energy market. That brief asks
two pertinent questions. When will the Government launch their
fairness and affordability call for evidence, which was expected
in April 2021, on the options for energy levies and obligations
to help to rebalance electricity and gas prices, and support
green choices? What estimates have BEIS and HM Treasury made of
the implications of the high wholesale gas costs for the whole
economy and inflationary pressures on business and households?
Perhaps the Minister could address those questions in his
reply.
After two years of Covid, we are moving into even more uncertain
times in the economy. Such times need a Government who are strong
in leadership and clear in policies. I fear that at the moment we
have neither.
3.12pm
My Lords, I congratulate the noble Baroness on securing this
debate. It is topical and she outlined very clearly the problems
that we face. I was struck by her figure of 6 million people
being in fuel poverty, because we must remind ourselves that we
need energy to survive as a country, as individuals and as a
society.
The noble Lord, , talked about the pressure
towards zero carbon, which I will not go into now because he did
so clearly, but the other option for people is, of course, to
consume less and change our lifestyle. It may be possible to do
something like that with transport, but it is much more difficult
to do with the things that affect fuel poverty. I was struck by a
recent Eurostat report that set out that across Europe 63% of
one’s energy consumption—a good average—is on space heating. If
one tries to cut out space heating, one is shivering. One can cut
out water heating and have cold showers. One can cut out cooking
and lighting, but the biggest demand by far is for space heating.
The report also says that in 2019 the residential sector
represented 26.3% of final energy consumption. That means that we
have an energy supply problem.
Putting it simplistically, we now have a situation whereby demand
exceeds supply. We have all read about the way in which the
Russians are playing off the European Union—Germany in
particular—on the supply of gas. Renewables are not there; the
noble Lord, , mentioned France’s nuclear
situation and the fact that the interconnector is not functioning
as a result. Therefore the price goes up, and, as several noble
Lords have asked, how much has it gone up?
There is no easy short-term solution, because unless something is
done in the short and the long term, people will continue to
shiver. The Prime Minister has said that the energy shortage is a
short-term problem. I see that in the Daily Express today the
Chancellor said that there is a limit to how much government can
do. There may be a limit to what the Government want to do, but
in practice the Government can do what they like. They obviously
respond to the electorate.
I hope that the Minister when he responds will tell us not just
about the short-term solutions that are needed, as other noble
Lords have said, but about a long-term solution to help the large
number of people—the noble Baroness said it was about 6
million—who are going to suffer and shiver, not just this winter
but for many winters to come, unless we do something to put this
issue on to a sound, long-term basis.
3.57pm
My Lords, I thank the noble Baroness, Lady McIntosh of Pickering,
for this debate.
The effects of high energy prices upon low-income households are
exacerbated by the Government’s wrong policies. The cut in
universal credit has made millions of households energy poor.
Disposable incomes of the less well-off will be further depleted
by the 1.25% Johnson tax and the freezing of personal allowances
and income tax thresholds. We already know that VAT on domestic
fuel and the green levy are regressive and hurt the poorest the
most. Millions of retirees are unable to afford the high energy
costs. Despite the triple lock, some 2.1 million pensioners live
in poverty. The government response is to cut the real value of
the state pension, which in April this year is due to rise by
3.1%, while the rate of inflation is expected to be double that.
The age-related winter fuel payment of between £100 and £300 has
remained unchanged since 2011. If it was linked to energy prices,
it would need to be double that. Due to the Government’s
policies, millions of people will suffer hardship and thousands
will die from fuel poverty.
The privatisation of the energy industry has also been
disastrous. There is little focus on the long-term, and that has
deepened the crisis. In the past decade, the big six energy
companies, mostly foreign-owned, have paid £23 billion in
dividends, equivalent to 82% of their pre-tax profits. The
investment in infrastructure is pitiful. The UK relies upon gas
and electricity imports from Belgium, France, Ireland, Norway,
Russia and elsewhere. The UK has around nine terawatt-hours of
stored gas reserves, equivalent to 2% of annual demand, compared
with equivalents of between 25% and 37% in major EU countries. As
a result, people are highly exposed to price shocks.
Ofgem has failed to provide energy security and market stability
or monitor the financial stability of energy companies. The
collapsed Bulb Energy had, on its last balance sheet, bank loans
of £54 million, owed suppliers £466 million and had accumulated
losses of £223 million. However, its share capital was only £100.
With such gigantic leverage, bigger than the leverage of Lehman
Brothers and Bear Stearns, neither Bulb nor its parent company
Simple Energy, which had debts of £1 billion, were in any
position to manage the volatility in the market. Ofgem did
absolutely nothing to deal with that.
To mitigate the crisis, I urge the Government to do five things:
first, reverse cuts in universal credit and planned tax
increases; secondly, abolish VAT and the green levy on domestic
fuel; thirdly, double the winter fuel payment and restore the
real value of the state pension; and fourthly, provide funds to
insulate homes.
The cost of these four things can easily be met by taxing
unearned income at the same rates as earned income. Applying that
to capital gains would raise £17 billion extra in income tax and
£8 billion in national insurance contributions—more than enough
to cover the cost.
Fifthly, and finally, the energy sector should be brought under
public ownership so that the country can plan for the long term
and we can end profiteering and abuses by energy companies.
3.20pm
My Lords, I am very pleased to support this debate, but I am
always sad that we have to have it at all. In her Question to the
House, the noble Baroness asks about the effect of rising energy
costs. In my few minutes, I will talk about the effect this will
have on food.
Potentially, 6 million households—not 6 million people—will have
to choose between heating and eating, paying a bus fare or buying
sanitary towels. Some 2 million of those households are, at the
moment, keeping their heads above water, but come 1 April they
are liable to sink below the waterline.
These energy price rises affect everything in the life of a
family. Food is always the part of the budget that is squeezed.
You can always, more or less, buy something cheaper and thus less
healthy, or you can just choose not to eat at all. This already
happens, not just in families but in cash-strapped councils and
schools, which take bits of the schools food budget as it passes
through their hands. Too many of our children are being served
cheap food that limits their physical and mental progress; now
even more of them will be suffering that at home. For many more,
breakfast will be reduced to a packet of crisps and a fizzy
drink; that might fill them up for a moment, but who is thinking
of the long-term damage? Of course, we see all this in the Covid
epidemic.
Food prices are also rising. The Government’s own food security
report, published just before Christmas, acknowledges that the
poorest 20% of households are
“more impacted by changes in food prices”,
and that
“With a decrease in income alongside the percentage spent on food
having remained the same, the poorest households”
have had a really “diminished budget” since 2017. But why is food
always singled out as an item of expenditure that can be, and
often is, the first to be cut? The report again explains that
“expenditures such as electricity and gas bills are …
non-discretionary, meaning that it is difficult for a household
to cut back on spending.”
In a subsequent paragraph, the report confirms:
“For some households, it could also mean that people might rely
on food aid”,
or completely miss meals.
The Government are armed with all the facts they need to justify
action. They know full well that without such action there will
be more visits to the food bank. This has certainly been the case
at Feeding Britain. One little boy said to his mum when they were
aboard one of our food buses the other day, ‘Do we really need to
go home, mummy? If we stay here we have the internet, it’s warm
and there’s food”. A dad who recently joined one of our
affordable networks commented to a volunteer that he had the
first piece of meat he had been able to afford in six weeks.
Aboard another of our food buses, two-thirds of people signing up
at the first couple of stops required both low-cost food and
emergency credit on their meter. One family in London recently
sought help late on a Friday afternoon, with just 5p on their
meter. Even if they could get some food, how would they cook it?
Pensioners have been especially badly hit. As I have spoken about
before, they are reluctant, through a matter of pride and despair
in this country, to have to turn to food banks. We have been able
to set up many food banks in Glasgow—not something I am proud of
having to do.
I urge the Government to look at every possible bit of support
they can through the social security system and things such as
the Robin Hood tax, the warm homes discount and winter fuel
supplies. I also urge the Government not to turn their back on
investment in green energy. It would be a very short-sighted
decision to say that we will stop funding our investments in this
direction. We will all pay for it in the long run. Quite frankly,
the energy companies have made enough money out of all of us over
so many years that to tax them to try to stabilise this situation
seems only fair and just.
3.24pm
My Lords, I heartily welcome this short debate from the noble
Baroness, Lady McIntosh. I am just surprised that the Chamber is
not packed out. We hear a lot about emergencies—public health
emergencies, NHS emergencies and, of course, the mother of all
emergencies, the climate change emergency—but millions not being
able to afford energy in the UK in 2022 really is an emergency
and will be immediately devastating for many individuals and
institutions.
When we talk about climate-related deaths, I hope we count those
people who could die of the cold because they cannot afford
bills. This is also not just about consumers. Think of all those
businesses struggling because of lockdown policies. These extra
energy costs will be a hammer blow and will lead to many cafés,
pubs and factories shutting up shop—hardly levelling up. Two
small charities I know that work respectively with vulnerable
women and the homeless have told me that they will not be able to
keep their premises open because of energy bills.
Of course I welcome short-term fixes—yes, scrap green taxes and
VAT—but this surely demands a major rethink of energy strategy. I
understand partly that this immediate crisis is caused by
international lockdown measures, but as economics writer Phil
Mullan points out, we need to untangle contingent factors from
long-term endemic issues affecting gas shortages and higher
energy prices. I quote him:
“long-term problems … derive from the … transition … from fossil
fuels, and the absence of reliable alternative energy”
supplies. I agree, and this points to how green policies and
tougher and tougher targets for decarbonising energy supplies are
one major reason for the hike in energy bills that has left our
energy supplies so precarious and left ordinary people to foot
the bill.
We need to stop letting carbon reduction policies be placed ahead
of securing the supply of cheap, reliable energy. I would like
the Government to address the following four areas. First, having
spent millions subsidising renewables, will the Minister concede
that the headlong embrace of wind power means that the UK is
vulnerable to energy shocks when the wind stops blowing? Until
the technology exists to store wind, surely we need to recognise
that fossil fuels, gas turbines and coal-fired power stations are
still needed.
Secondly, can we stop neglecting nuclear power, given that it is
a clean, stable energy source that produces carbon-free
electricity? The onerous, prohibitive and exorbitant regulatory
bureaucracy and the years of delays in building new plants needs
to stop. Indeed, I suggest that the Government emulate—wait for
it—the EU’s Ursula von der Leyen; you never thought I would say
that. They should label nuclear as green if they need to do so to
brandish their eco credentials post COP 26.
Thirdly, unlike the noble Baroness, Lady McIntosh, I think we
should look again at fracking. A vast supply of gas lies beneath
our feet, and if the UK extracted just 10% of its shale gas
resources it could meet gas needs for the next 50 years. Can the
Government please lift their seemingly indefinite moratorium on
fracking?
Fourthly and finally, I suggest that the best way the Government
can lower energy bills is to review, and indeed scrap, some of
their own wrong-headed eco policies—none more so than my bête
noire, the imposition of heat pump boilers. They are costly to
install and you have to wait 24 hours to get a limit of 17 to 19
degrees, yet they are likely to lead to even more green levies on
gas bills. They should go. What we mainly need is a complete
overhaul of our energy policies so that energy price crises do
not become the new normal.
3.28pm
My Lords, I congratulate the noble Baroness, Lady McIntosh, on
securing this timely and important debate. Although I do not
often agree with the noble Baroness, Lady Fox, I absolutely share
her view that this is an emergency. After that, however, I think
we part company. The Minister knows that I always want to be
helpful to him, so I will share some of the practical suggestions
that, as my noble friend told the House, the Liberal
Democrats have recently set out to tackle the immediate energy
price crisis.
Noble Lords will be aware of the excess profits currently being
generated by oil and gas companies as consumers suffer.
Consequently, we propose a windfall tax on these profits to
support vulnerable individuals and families. This Robin Hood tax
would raise an estimated £5 billion to £7 billion, which would be
spent on the following: doubling the warm home discount, taking
£300 off the bills of 7.5 million vulnerable households, and
extending the discount to all those on universal and pension
credit; providing up to £600 a year to 11.3 million elderly
pensioners to help with heating bills through a one-off doubling
of the winter fuel allowance; implementing a 10-year home
insulation scheme to reduce energy bills in the long term,
including £500 million to be spent on emergency insulation in the
next year through fully granted funds for those in fuel poverty
and on low incomes; and, finally, establishing a £500 million
fund to support energy-intensive businesses, protect jobs in the
sector and help companies to reduce their long-term energy
requirements.
These are practical short-term measures that the Government could
take now, if they had the will. In the longer term, they have to
construct an effective energy policy, which should be centred on
three principles: first, reducing energy waste; secondly,
massively increasing our energy storage capacity; and thirdly,
accelerating renewable deployment. Although we face an undeniable
crunch on household energy bills today, over the decade from 2010
to 2020—the last full year for which government figures are
available—total household expenditure on energy and overall
household energy bills based on average consumption both fell
significantly in real terms. This was due significantly to
reduction in consumption as a result of new heating and
energy-efficiency measures introduced during the coalition
Government by the then Secretary of State, one . Total energy expenditure on gas in real prices fell
from £28 billion to £23 billion. During that time, average annual
household consumption of gas fell from 17,651 kilowatt hours in
2010 to just 12,225 kilowatt hours in 2020.
As the Climate Change Committee has reported, measures to reduce
emissions from the UK’s 29 million homes have since stalled.
Energy usage in homes has increased and adaptations of the
housing stock to meet the impact of the changing climate are
lagging far behind what is needed. The Government urgently need
to address this issue. As the NAO report on the green homes grant
fiasco recommends, the Government must
“engage with the installer market on the proposed design of any
future scheme and base its planning on a realistic assessment of
how long it will take … the market to mobilise the skills and
capacity to meet demand across … the country.”
Can the Minister tell us what discussions the Government are
having on this? Can he also tell us why the Government have
failed to take up the Minimum Energy Performance of Buildings
Bill tabled by my noble friend , which places a duty on
the Secretary of State to achieve the Government’s
energy-efficiency targets for homes, by placing them in
legislation and requiring annual reports on progress provided to
Parliament? A very similar Bill was proposed in another place by
the late . It would be a fitting tribute
to his memory if the Government would now implement this in
law.
I will avoid being provoked into an intemperate response to the
curious comments of the noble Lord, . I simply conclude by saying
that the influence of climate defeatists on past Conservative
policy is one of the key reasons for the difficulties in which we
now find ourselves.
3.33pm
I thank the noble Baroness, Lady McIntosh, for introducing this
topical debate on rising energy costs and their effect on the
cost-of-living crisis being felt across communities while the
Government dither. The Government have conducted three rounds of
industry talks and are yet to come forward with robust plans.
They are still considering a range of options to protect
consumers from the full impact. I thank all noble Lords for their
many contributions, admirably expressed from around the House,
which have laid bare the cause and effect of the recent spike in
energy gas market prices—the highest seen in October 2021 being
surpassed in December, now nine times higher than prices a year
ago.
The UK imports approximately 50% of its gas, making it especially
sensitive to price rises. Some 85% of homes use gas central
heating. In addition, gas is used to generate around 30% of the
UK’s electricity, with knock-on effects on electricity prices.
The Government have set the conditions for this crisis and need
to respond.
At this stage, I also draw attention to the impact on rural
households, so often ignored but nevertheless still important.
They tend to be off-grid and vulnerable to spikes in diesel
prices for their heating, as well as transport costs. I also
thank my noble friend for his remarks on the effects
on low-income households, and my noble friend for his remarks on the old in
our society.
Labour has called for an immediate cut in VAT on fuel bills, from
5% to 0%, for the winter six months of this year. This can happen
immediately to reduce the burden and disruption in the market
from the October rise in the price cap to £1,277 for the
so-called “reference customer” and from the bankruptcies
experienced by utility companies. This would also benefit rural
households.
The scrapping of VAT on fuel for homes would bring benefits of
£2.4 billion to consumers this winter and would be absorbed by
the excess of forecast VAT receipts that the Government have
received from inflation and increases in supply chain, materials
and transport costs experienced throughout the economy. In
addition to this immediate benefit, the Government can deliberate
on medium-term measures to be introduced once the new price cap
is announced on 7 February. This is forecast to see it rise by
40% to a new high of over £2,000 in annual household bills.
As the Minister will appreciate, it was Labour that called for
the consumer price cap that the May Government introduced under
the Domestic Gas and Electricity (Tariff Cap) Act 2018. At this
time, Labour argued that the full five-year period, which I
recollect from the legislation, would be needed for an effective
market to be created. With the disruption from collapsing utility
companies, can the Minister foresee that not only will the full
duration to 2023 be required but extension may also be
necessary?
Energy companies have requested a loan scheme to smooth out the
volatility. Ofgem is considering changes to the price-cap
mechanisms. Can the Minister repeat the confidence, which he
expressed in answer to a previous question, that the Government
are happy with the operation of the tariff cap and the
application of the supplier of last resort process?
Administrators have access to £1.7 billion in government loans
for Bulb customers. UK households will already be paying an extra
£80 in their energy bills from these recent collapses, according
to Ofgem. That is why, in the medium-term, Labour is also
considering measures to help pensioners and low-income families
from targeted changes to the warm home discount and ECO schemes.
The noble Baroness, Lady Boycott, is correct to direct attention
to the wider effects on families and to speak against scrapping
green levies.
In the longer term, Labour plans to upgrade the UK’s 30 million
homes through its climate investment pledge of an additional £28
billion in green investment each year of this decade. This is the
decisive decade for the climate emergency, and Labour plans
immediate energy efficiencies to upgrade 19 million homes to
reach energy efficiency—EPC band C. This is the size of the
cost-of-living crisis that the Government need to have answers
for.
3.38pm
The Parliamentary Under-Secretary of State, Department for
Business, Energy and Industrial Strategy
My Lords, I first pay tribute to and thank my noble friend Lady
McIntosh for securing this debate on what is, of course, an
extremely important topic. I think that all of us will agree that
the debate has, yet again, been interesting and informative. I am
also grateful to all others who contributed.
First, I make it absolutely clear that this Government are
committed to supporting vulnerable households with their energy
bills, both now and in the long term, as we seek to decarbonise
our energy system and transition to net zero by 2050. I say to
the noble Lords, and , that the Government are
currently engaging with stakeholders, including consumer groups,
energy retailers and other business sectors to consider what
further action may be necessary in the short term.
The recent rise in energy prices has been driven by the increase
in the price of wholesale gas, the demand for which has grown, as
we and other nations recover from the Covid pandemic.
Consequently, higher gas prices were observed internationally in
the latter half of 2021, with tremendous increases across the
world. In addition, greater liquefied natural gas—LNG—demand in
Asia, upstream maintenance affecting supply capacity last summer,
a fire at one of the UK’s major electricity interconnectors with
France, and increased demand for gas in electricity generation in
the UK and on the continent, as coal is disincentivised, have all
played a role in and contributed to rising prices.
However, it is important to emphasise that this has not impacted
on our energy security. The Government continue to work closely
with Ofgem, National Grid, National Grid Gas and other key
industry organisations to monitor gas supply and demand.
A number of Peers—the noble Lord, , the noble Baroness, Lady
Boycott, the noble Lord, , and others—raised the issue of
protection for households. The Government already have a wide
range of support measures in place to help the most vulnerable
households reduce their energy consumption, through both rebates
and energy efficiency measures. These include, first, the warm
homes discount, providing support with energy bills through
rebates and helping households to stay warm and healthy in
winter. The scheme currently provides more than 2 million
low-income and vulnerable households with a £140 rebate of their
winter energy bill, and BEIS has already consulted on proposals
that would expand the scheme from about £350 million to £475
million per year at 2020 prices, which will help the scheme to
reach 3 million households from winter 2022-23 onwards. Let me
say to my noble friend Lady McIntosh that in 2011, that scheme
replaced the social tariff to which she referred, and, in our
view, it provides better targeted support than the tariff. The
additional funding and proposed reforms would mean that 780,000
more households would receive rebates every winter, with a
proposed increase in the value of rebates to £150 per household.
In addition, most households would receive their rebates
automatically, without having to apply.
On the many points raised on energy efficiency by the noble
Lords, , , and others, we of course have
the energy obligation scheme, which has already installed 3.3
million measures in 2.3 million homes. We are increasing the
amount that energy suppliers invest in energy efficiency measures
for low-income households, extending ECO until 2026 and boosting
its value from £640 million to £1 billion per year. We estimate
that this will help at least an extra 305,000 families with green
measures such as insulation and low-carbon boilers, which will
reduce their energy demand and save them an average of £300 a
year on their dual fuel bills.
I remind the noble Lord, , that we are also investing more
than £2 billion in other energy efficiency schemes through
projects such as the home upgrade grant, the local authority
delivery scheme, the sustainable warmth competition, which brings
together HUG 1 and LAD 3, and the social housing decarbonisation
fund. All those measures are helping to provide long-term
solutions by improving the energy efficiency of homes.
In addition, the Department for Work and Pensions provides
support for both vulnerable users and pensioners through its
winter fuel payment and cold weather payment schemes. The winter
fuel payment is worth between £100 and £300 and is paid
automatically to those in receipt of state pension or other
social security benefits, while the cold weather payment is a £25
payment for vulnerable householders on qualifying benefits when
the weather is expected to be unusually cold. In addition, the
Department for Work and Pensions announced last autumn a £500
million support fund to help those most in need this winter, and
that includes provision for utility costs, including energy.
A number of noble Lords—the noble Lord, , and my noble friend Lady
McIntosh in particular—raised the issue of the price cap, which
has protected households this winter from the short-term
volatility of wholesale gas prices. Ofgem has confirmed that the
cap will stay at the current level this winter. The Government
have committed to retaining powers to implement a price cap
beyond the current long-stop date of 2023, should that be
necessary. I say to the noble Lord, , that the Government have made
protection of consumers their priority, and the price cap has
indeed protected millions of consumers. Setting it is, of course,
a matter for Ofgem, and the regulator has issued a number of
consultations in recent weeks on how the price cap could adapt to
changes in the cost of supplying energy to households; we look
forward to its decision on this matter. In the longer term, in
reply to the noble Lord, , the Government are
looking at how policy costs that help to fund low-carbon energy
infrastructure, to provide support to vulnerable consumers and to
ensure security of supply are distributed between gas and
electricity.
My noble friend raised the issue—I think it was
also raised by the noble Lord, Lord McNally—of green levies. As
set out in the Heat and Buildings Strategy, we will publish a
fairness and affordability call for evidence to set out the
options for energy levies and obligations in order to help to
rebalance electricity and gas prices and to support green
choices, with a view to taking decisions this year.
My noble friend Lady McIntosh asked me about a number of matters,
particularly the removal of green levies, as did my noble friend
; I think the noble Baroness,
Lady Fox made a similar point. I say to all of them that the
Government’s energy, investment, environmental and social
policies have helped to protect the most vulnerable, to lower
emissions and to increase security of supply. However, we also
want to make sure that our policies enable consumers to make
decisions that support decarbonisation. As set out in the Heat
and Buildings Strategy, as I said earlier, we will publish a
fairness and affordability call for evidence to set out the
options for energy levies and obligations, in order to help to
rebalance electricity and gas prices to support the transition to
net zero.
On scrapping VAT on energy bills, raised by my noble friends Lady
McIntosh and and the noble Lord, , I suspect all noble Lords know
that this remains a matter for the Chancellor and Her Majesty’s
Treasury and is not something I am able to comment on, although
it is worth bearing in mind the point made by my noble friend
: that the only reason why we
can even consider doing this is that we have now left the EU.
On energy loss from transmission lines, raised by my noble friend
Lady McIntosh, the Government and Ofgem recognise the value of
minimising energy losses in reducing emissions and protecting
consumers from unnecessary cost. It is an important feature of
Ofgem’s regulation of energy companies.
The noble Lord, , and my noble friend Lady
McIntosh raised the issue of off-grid homes. The Government are
of course aware that the price of oil has remained around levels
not seen since 2018, which has had an impact on the price of
heating oils. Heating oil consumers are of course able to shop
around for the best price for each delivery, and we believe that
this provides the best long-term guarantee of competitive
prices.
On the costs of renewables and decarbonisation, raised by the
noble Baroness, Lady Fox, as we set out in the Net Zero Strategy,
the Government are introducing a balanced range of low-carbon
technologies, including new nuclear and hydrogen technologies.
The noble Baroness also raised the important issue of the costs
to businesses. We recognise the impact of rising energy prices on
businesses of all sizes, and Ofgem and the Government are in
regular contact with business groups and suppliers.
Unfortunately, I am running out of time, so I say in conclusion
that the Government are committed to protecting vulnerable
households in respect of their energy bills, which is why we have
in place the many support schemes I have outlined to help those
most in need, both through direct financial rebates and through
measures to improve energy efficiency in the home. We will
continue to engage with consumer groups and industry and consider
what further support may be necessary. I apologise to those noble
Lords whose points I did not get a chance to refer to, but I will
write to them.
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