The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, with the leave of the House, I shall repeat a Statement made in another place by my right honourable friend the Secretary of State for Energy and Climate Change.
“With your permission Mr Speaker, I would like to make a Statement on the action the Government are taking to reduce the impact of government policies on energy bills.
Even though British households pay some of the lowest prices for gas and electricity in Europe, this is no comfort to those who have seen energy bills rise considerably over the past 10 years. The latest round of price rises announced by the energy companies has been particularly unwelcome coming ahead of what is likely to be a cold winter, and in such circumstances it is right that people ask whether these rises are justified and what the Government are doing to keep energy bills affordable now and in the long term.
The main driver of these energy price rises has been rising wholesale energy costs, and the need to upgrade energy infrastructure to ensure security of supply in the long term. Wholesale and network costs make up more than two-thirds of bills. Supplier costs and profits make up around a fifth. So the energy companies need to be more open about these costs, so that consumers can judge which suppliers are acting responsibly and keeping their costs down.
Working with Ofgem, the Government are making this possible by forcing the energy companies to open up their books and justify price rises to their customers. We are increasing competition in the market to bear down on prices and provide people with a proper choice of supplier and, as I announced in the annual energy statement, Ofgem, working with the competition authorities, will report annually on the state of competition in the market, looking in depth and across the energy sector at profits and prices, barriers to entry and consumer engagement.
Ofgem’s reforms for competition in the retail market are already making it easier for people to understand their bills, work out where they can get the best deal and switch providers easily. But it is also right that the Government are open about our social and environmental policies, which make up just under a tenth of the average bill.
Our polices provide for immediate help for the most vulnerable with direct cuts to bills as well as long-term savings on bills through energy-efficiency programmes and support for low-carbon energy, which boosts energy security and tackles climate change. For example, the warm homes discount cuts the bills of 2 million vulnerable households by £135. The energy companies obligation—the ECO—provides permanent long-term savings on bills, including for the most vulnerable, by helping people upgrade their homes and making them easier and cheaper to keep warm.
Support for cleaner energy increases our energy security and boosts investment in our thriving renewable energy sector, with tens of thousands of green jobs being created. But unlike the winter fuel payment, which provides around 12.5 million pensioners with help with their bills, and cold weather payments, which last year provided more than £146 million to cut bills for the most vulnerable, policies such as the renewables obligation, ECO and the warm homes discount are paid for directly by consumers through their bills, rather than through general taxation. So it is right that the Government keep these social and environmental obligations paid for by energy bill payers under continuous review. Where we can act to reduce their impact on bills while maintaining the integrity of our policy, we will, but as we do this, we must act responsibly. We must ensure that the changes we make maintain the support provided to the most vulnerable, maintain the investment in clean energy and do not have a negative impact on our carbon reduction ambitions.
In this spirit, the Government have reviewed the cost profile of social and environmental policies and I can today announce proposals that would reduce the average household bill next year by £50 on average. First, the Government will provide £300 million in both 2014 and 2015—£600 million in all—for a new rebate to all domestic electricity customers worth £12. Secondly, we propose to consult on remodelling the energy companies obligation so that it is easier and cheaper to deliver. The changes to the ECO would result in £30 to £35 off average bills next year, although the precise reduction in individual household bills will depend on the energy supplier.
The existing dedicated support in ECO for low-income and vulnerable households—affordable warmth and the carbon saving communities obligation—will be maintained at current levels and extended from March 2015 until March 2017. The other element of ECO—the carbon emissions reduction obligation—will also be extended by two years, but reduced by 33%. These changes are subject to consultation, which will be carried out in the new year. In addition to government action, the electricity distribution network operators are willing to take voluntary action to reduce network costs in 2014-15, which would enable suppliers to pass on an average one-off £5 reduction on domestic electricity bills.
I have been clear from the start that support for low-carbon energy should not change, and it will not. The Government recognise that green energy investment incentives, such as the renewables obligation, contracts for difference and feed-in tariffs, are essential for investment in future home-grown clean energy generation. Without this low-carbon investment, energy security would be jeopardised as Britain would become ever more dependent on imported oil and gas, and energy bills in the future would be increasingly subject to high and volatile fossil fuel prices.
The Government will also ensure that their overall approach will cut just as much carbon as planned. New measures, worth more than £540 million over three years, will boost energy efficiency even further by introducing new schemes for home owners, landlords and public sector buildings. In future, when people buy a new home they could get up to £1,000 from the Government to spend on important energy-saving measures—equivalent to half the stamp duty on the average house—or up to £4,000 for particularly expensive measures.
The scheme will be available to all people moving house, including those who do not pay stamp duty, helping around 60,000 homes a year over three years. The Government will also introduce a scheme to support private landlords in improving the energy efficiency of their properties, which will improve around 15,000 of the least energy-efficient rental properties each year for three years. Together, the home owners’ and private rental schemes will be worth £450 million over three years. In addition, £90 million over three years will be spent improving the energy efficiency of schools, hospitals and other public sector buildings.
The Government will deliver a significant boost to the Green Deal, increasing the funds available to local authorities this year through the Green Deal communities fund from £20 million to £80 million, to help to support ‘street-by-street’ programmes for hard-to-treat homes in a cost-effective way. We will keep the Green Deal cashback scheme open, which will protect jobs in the energy efficiency industry, before the new measures take effect.
All the major energy suppliers have confirmed that they will pass the benefits of this package on to their customers. The reduction in individual household bills will depend on the energy supplier. Some companies have not yet announced price rises for 2014, or have limited their rise until the Government’s review of green levies concluded. Others have announced price rises and indicated that they will reduce their customers’ bills as a result of these changes.
Energy companies will now make final detailed decisions about how to apply these measures, but these cost reductions will ensure that average energy bills are lower in 2014 than they otherwise would have been—on average, by £50 per household.
As the major energy companies have now confirmed, there will be no need for price rises in 2014, unless of course there is a major change in wholesale or network costs. Some have gone further, with commitments to hold prices down for longer.
Today’s announcement of cuts to energy bills is just part of the concerted action the Government are taking to help hard-working families, including through income tax cuts, the council tax freeze and the fuel duty freeze. This help for people with their energy bills is being achieved while we maintain and extend support for the fuel-poor, while we continue to back green energy and boosting energy efficiency”.
My Lords, I commend the Statement.
Baroness Worthington (Lab)
My Lords, I am grateful to the noble Baroness for repeating the Statement.
I will start by commenting on why we have the Statement, which has all the hallmarks of being rather rushed. Only a month ago, we were debating the Annual Energy Statement. That was intended to be the document in which the Government set out their near-term priorities on energy policy—but here we are, less than a month later, considering a whole raft of new announcements. It is a bit odd, and the timing seems to be related more to trying to air difficult discussions ahead of the Autumn Statement than to anything else.
The rushing of this has serious implications. As noble Lords will be aware, the Statement does not have an impact assessment attached to it. It is subject to consultation—although you would not believe that given what we have read in the newspapers—which will not begin until January. We are in danger of having energy policy being made up on the hoof. The serious implications are that that will destabilise people’s confidence in our market. If we had an impact assessment, we could see what the full implications of this raft of policies would be. That would help us understand the impact on jobs in the insulation sector and the implications for households, including fuel-poor households. How many of them will now miss out on ECO measures as a result of the announcement today? I should be grateful if the noble Baroness could give me an estimate of how many households will now not receive much-needed help to insulate their homes as a result of the carbon-saving proportion of the ECO being cut by one-third.
The other curious aspect of this package is that we are now being told that the Government have managed to get a voluntary commitment to reduce network charges. Why is that voluntary? Do we not have a regulator that is meant to be putting the consumer first and assessing whether distributed network charges are appropriate? It is highly irregular for a department to be ringing round asking for voluntary cuts to a charge that is subject to price regulation. Clearly, our price regulator is not up to the task.
That raises another question about whether any of this will actually be delivered. Is it true that Ofgem has powers that it can use to ensure that the savings that the Government are making for the energy companies will be passed on to the consumer? Given that it seems incapable of regulating the distributed network operators, why should we believe that it will do any differently with this package of measures?
I am grateful that the noble Baroness repeated the acknowledgement that fuel poverty is still a priority. At the moment, the fuel poverty targets have been abolished and we are expecting to see new targets for what the Government propose to do on that policy. When we will see targets being re-established to deal with fuel poverty—not to “address” it but to tackle it and reduce the number of people who fall into that category?
The package also contains a number of measures to try to boost uptake of the Green Deal. I think that that is being wrapped up as an additional boost, but actually it is clear that the Green Deal is failing so abjectly that the Government have been forced to rethink and introduce the very incentives that were suggested and should have been included right from the start, including stamp duty rebates.
There is now a vague commitment that landlords will somehow be able to help people take up energy efficiency measures. Reading the detail, it seems that 15,000 households are expected to be supported by this landlord intervention. Can the Minister tell me what percentage that represents of households in the rented accommodation sector? It does not seem a huge number. Also, what proportion of least-efficient households is that likely to address?
On the issue of landlords and the energy efficiency of their properties, it has come to my attention that the Government were recently forced to pay £6 million of taxpayers’ money to the administrating body that looks after the energy performance certificate policy for rented accommodation because the number of people who have actually complied with the law in providing energy performance certificates is vastly under what was expected. Why is this? Why do we have a situation where landlords are not complying and not providing the energy performance certificates they are mandated to provide for their tenants?
The other question about the 15,000 households is: how will the Government ensure that the target is actually met? Their progress on the Green Deal is, as we know, lamentable. Fewer than 1,000 households have taken it up, against an overall target of 100,000. If the policy is to succeed, how on earth are we going to ensure that it is auditable, measurable and will actually be delivered?
I will make a couple of comments on the carbon implications of this package. The Government have been relatively clear that this will see a 3 million tonne increase in carbon emissions and have sought to introduce policies to mitigate that, one of which is a totally non-specified policy in the transport sector. Can the Minister give us any more information on what that policy is likely to be? The transport sector is not renowned for cheap or affordable carbon saving, so I would be interested to see what the impact assessment will say on the cost of that transport policy compared to the cost of cutting carbon through energy efficiency. We all know that energy efficiency is one of the best ways to reduce carbon. It is one of the most cost-efficient ways forward. Yet here we are, reducing that very policy.
When it comes to value-for-money policies on carbon cutting, will the noble Baroness also comment on the fact that, as we saw in our debate on the Energy Bill, the most cost-effective way of reducing carbon is to switch from coal to gas. In this House we passed an amendment designed to encourage that and to make sure that we do not have coal burning continuing at very high levels on into the next decade. Yet it seems that on Wednesday it seems that the Government will be whipping against it. Will the noble Baroness also comment on that?
In closing, I have a horrible suspicion that the organisation that will be celebrating the most out of this will be EDF Energy, which seems almost word-for-word to dictate government energy policy. I notice from its press release that it is now gunning for the home-display elements of the smart metering rollout. I wonder how long it will be before they are cut. It is also interested in reducing network charging. The thing I find most regrettable in all this is that the Secretary of State in the other place stated that he was standing up to the big six. I am afraid nothing could be further from the truth. This is policy as dictated by the big six. A Labour Government would stand up to the big six, split up the companies so that they are ring-fenced from generation and supply, and introduce far greater competition into the energy market. That is the way to get prices down. Much greater competition in every element of the energy supply chain is the only way that we can get out of the bind we are in at the moment. It is regrettable that the Government do not seem able to do that.
Baroness Verma
My Lords, I do not know whether the noble Baroness welcomes the Statement or not. The Government have gone a long way to try to address genuine concerns from consumers. I have constantly raised the point from this Dispatch Box that we need to ensure that we put consumers first. The Government have looked, listened, heard and responded to try to ensure that what we propose is, first, doable and is not just jingoistic language that says, “Let’s price-freeze now and pay later”. If we go by what the noble Baroness’s party is suggesting, we will have price hikes before and after a freeze, which does not resolve anything. What we are trying to do is put through some measures that will respond to a very serious issue.
The noble Baroness said that this was rushed. No, it was not. We have been discussing this and, like any responsible Government, we have been reviewing. We need to ensure that we not only respond to the concerns of the consumer but do not destabilise investment in this country, because this country sorely needs the scale of investment that this Government have been pushing for since we came into government in 2010. She also asked how many households will miss out because of the extension. The extension actually means that more households will be able to gain from energy-efficiency measures, because it will go from 2015 to 2017. I do not know why the noble Baroness thinks that we are not going to have more households, because we are giving opportunities for more households to receive energy-efficiency measures.
The noble Baroness is right that the distribution networks are regulated. They are regulated by Ofgem. However, they have taken a decision voluntarily—we have not asked them to do so—to put forward this proposal for 2015, which reduces bills. That is a very good thing and we should welcome it.
The noble Baroness said repeatedly that the Green Deal has failed but it is a long-term programme over 20 years. We have already addressed the measures in 230,000 households under ECO and we have had 100,000 assessments done. Some of those assessments will be done through the Green Deal finance; others will be done through other measures. This is an opportunity for people to be in charge of how they might reduce their own energy costs. I remind the noble Baroness that, under her party’s Administration, between 2004 and 2009 average bills went up from £522 to £1,153. We should remind her that this is a discussion of a concern that we should all be trying to address. While I agree that a lot more needs to be done, what is really good is that consumer groups have welcomed what we are doing.
Lord Deben (Con)
I welcome the Statement that has been read, and particularly the fact that the Government have taken on board two recommendations of the Committee on Climate Change, of which I am chairman: first, in the use of more loft insulation and cavity wall insulation, which, against our recommendation, were previously excluded; secondly, in the fact that we were proposing a reduction in stamp duty to help people to go in for energy efficiency. I also welcome the fact that the Government have repeated their commitment to the reduction of our emissions, in line with the statutory requirements and the very tough policies necessary to achieve those. The Committee on Climate Change will look at the 33% reduction to see whether it will in fact be as the Government suggest; that is its duty and will be part of its job in the coming year.
The important thing is that, as far as we can tell at this moment, what is proposed today means that we will still be able to meet our carbon budgets as required—the first, second, third and fourth of those—and that there will still be more stringent matters to be taken on later. Above all, after all the discussion that the Government might perhaps remove themselves from their commitments, it is quite clear that this is not part of it. However, we recognise that next year the Government will have to face up to the most stringent investigation as to how far the actualities meet the promises.
Baroness Verma
My Lords, I thank my noble friend Lord Deben for his endorsement of the Statement. Like him, I am very concerned that we meet all our commitments, particularly on carbon emissions, which are not just important for us but a global problem that we all need to work on. I remind the House that, since we came into government, we have seen a reduction in carbon emissions, perhaps not of the scale and size that we would like, but it is going in the right direction: 4% is still better than the rising emissions that we were seeing.
Lord O'Neill of Clackmannan (Lab)
My Lords, before the noble Baroness gets carried away with the reduction in carbon emissions, it would not be unreasonable to remind her that we have had one of the worst economic slumps since the 1930s. The level of industrial activity made a bigger contribution to that than any policy of the Government—although one might say that their economic incompetence has had a role to play.
As someone who is a member of a couple of the fuel poverty charities—I have an interest declared on this—I would say that at best those charities would give a guarded welcome to this. Perhaps the Minister could tell us when she anticipates an impact assessment being published on these measures. If we are going to have a serious debate on this in the weeks and months ahead, we have to have some kind of independent assessment of what is taking place.
It is also fair to say that at best this is a reduction in price increase; it is nothing much more than that. At worst, it still means that far too many households are now going to have to wait longer for any improvement in their insulation. As the Minister has said, the fact that there is a cut of some 30% means that the money will be spread thinly over a longer period.
The Minister said that the failure of the Green Deal can be excused by the fact that it is a 20-year project; it is only a 20-year project for people who have to pay it back. The idea is that people will come into the scheme and will have up to 20 years to pay. I cannot imagine that Governments will still be flogging this dead horse 20 years from now. People who are living in cold, hard-to-heat houses want treatment this year, not in 2033.
Baroness Verma
My Lords, when the noble Lord speaks about economic downturns, I have to remind him that it was his Government who were in charge of that. It was his Government who oversaw the worst economic problems that this country has ever faced in peacetime, so let me just put that on record. Since 2010, we have had to make some really difficult decisions, and those decisions have had, in part, to be taken because of the incompetence of the party opposite for 13 years when it was in charge.
On the impact assessment, I told the House that we will see something early next year. I really regret that the noble Lord keeps putting down the Green Deal, given that it gives so many jobs to small suppliers. I say to the noble Lord that we need to encourage the growth of the Green Deal, because it supports small and medium-sized enterprises across our great country.
Lord Teverson (LD)
My Lords, I was quite pessimistic when the negotiations started between the Treasury and the DECC on this matter but I congratulate the Minister on the outcome. It has not moved us backwards; it has actually moved the energy efficiency and carbon agenda forward. I very much like the fact that, for new home buyers or people moving, there will be that discount or a contribution towards energy efficiency. Certainly, there needs to be a deal for landlords; that is also good. The other thing that has not been mentioned so far is that we have had a reaction from distribution network operators, who seem to have been left out of this somehow and have some responsibility themselves. Perhaps from that small move on taxation, we will have a more progressive regime. On the existing regime, we have affordable warmth, the carbon-saving community obligation still in place and the low-carbon regime that comes out of the Energy Bill, which we hope will pass unchanged. Those are all items of good news.
Will the Minister tell us when the scheme to do with people moving houses and the landlord scheme are likely to come in? Many people will welcome those schemes very strongly. Will the new focus on distribution network operators continue and what will her department be doing in that area? We seem to be held captive by the mantra that energy prices relate entirely to wholesale gas prices. We have seen cheap coal becoming an increasingly important part of the energy mix. Where have the profits that the energy generating companies have made through that cheaper fuel gone? They certainly have not come through to consumer bills. Will my noble friend pursue that investigation?
Baroness Verma
My Lords, I thank my noble friend for his endorsement of the Statement and the work behind the scenes to ensure that we have not lost all the important elements and measures that will reduce carbon, provide energy efficiency and help the most vulnerable households that we need to make sure we are helping.
My noble friend asked when the new schemes will come in. They will come in around mid-2014. They have to follow the proper processes and consultations. Ofgem regulates the distribution network operators. It is for Ofgem to ensure that the costs the networks are proposing are viable. We must accept the package in the round. A lot of things need to be done. This Government are taking that on board.
My noble friend asked about competition and coal. We are taking both extremely seriously, and I hope to come back with a little more detail about how we propose to see Ofgem strengthen what it is doing to ensure that there is greater transparency on how energy companies use their profits.
Lord Wigley (PC)
My Lords, the Minister will be aware that in many rural areas people are dependent on off-grid supplies for their energy. In what way and by what mechanism will those people in rural areas be helped by this package?
Baroness Verma
My Lords, I fear I shall not be able to answer the noble Lord straightaway. If he will allow me, I shall write to him. I suspect that this will not have a direct impact, but I shall clarify that rather than a make a statement that fails.
The Lord Bishop of Chester
My Lords, there is much in the Statement that I welcome, particularly a point that has not been commented on directly. The move in support for the social aspects of the programme from energy bills to general taxation will have some impact on the poorest and on fuel poverty and is entirely to be welcomed. The renewables obligation payments are still going to be collected through energy bills. When will the expected increases in those precepts on bills eat up the £50 which has been announced today?
Baroness Verma
The right reverend Prelate asks a really important question. The point is that whatever measures we are taking, they have to be taken in the round with other measures that we are also taking. It is not just the £50 that will, on average, come off a bill. It will be all the other measures that work alongside this. While the right reverend Prelate is right to ask the question, he needs to accept that there are several measures in place that will address a number of outstanding issues, such as making sure that the most vulnerable pensioners get the help they need during the coldest periods of the year. Let us look at the picture in the round rather than identify one measure.
Baroness Rawlings (Con)
My Lords, I applaud and welcome the help the Minister has announced today to assist heating in homes. Have the Government considered, as a simple, practical measure, encouraging people to use electric blankets? They are the answer to many of the Government’s aims. They are very green as they use little electricity and they reduce the need for so much heating in the home. They also make the home very energy efficient—that is, they cost less—which is what the Government seem to have as an aim.
Baroness Verma
I thank my noble friend for her endorsement of the Statement. As with all measures, we need to be able to ensure that people are kept warm and safe and that they are not paying over the odds for energy. There are measures in the Statement and measures that we are already undertaking that will help energy efficiency and help consumers to reduce their bills.
Lord Reid of Cardowan (Lab)
I thank the Minister for the Statement. In doing so, I repeat the question I asked her last week about the Government’s attitude to markets and, in particular, failing markets. Less than two months ago, we were told by no less a personage than the Prime Minister, and by almost everyone else who has been briefing on his behalf, that any intervention in the energy markets was at best a return to the 1970s and at worst Marxism—presumably a return to the 1870s. Today, in her introductory remarks—I think I am quoting her correctly—the Minister talked about “forcing transparency on the market” and later referred to “bearing down on prices”. Will she clarify for us whether the Government now accept that it is not only proper and reasonable to intervene in a failing market but it is the duty of government so to do in order to protect people from a faulty market?
Baroness Verma
My Lords, I shall respond to the noble Lord as I probably responded to him last time. We need to ensure that there is greater competition. I hate to go back to my earlier point, but under the previous Administration, the number of energy companies reduced from 14 or 15 to six. The big six is a Labour creation. If we have less competition, it is because that competition was taken out by the previous Government. We have now seen seven new entrants in our energy mix. We will see a greater number of entrants coming forward because we have created confidence for smaller providers to come into the marketplace. We do not need intervention as the noble Lord expects. We need to ensure greater competition.
Lord Wrigglesworth (LD)
Does my noble friend agree that there is a vital need at the moment to encourage investment in the energy supply industry and in the electricity supply industry in particular? I welcome her Statement, but will she explain to the House how this is going to encourage more investment in the energy supply industry and how the pledge of the party opposite to freeze prices is going to bring about long-term investment in the electricity supply industry, which is so important if we are not going to have the lights going out?
Baroness Verma
My noble friend is right. We need investment. Since 2010, we have seen more than £35 billion of investment in the energy sector in this country. My noble friend will have to get the answer on the Opposition’s pledge from them. It seems that they are empty words that have no substance.
Lord Whitty (Lab)
My Lords, perhaps the Minister can clarify the arithmetic, particularly in relation to the eco. Past DECC figures suggested that the eco costs consumers about £47 a year. This Statement claims that we will save £30 to £35 of that cost, yet 60% of the eco relates to affordable warmth and other fuel poverty measures, and they are going to be maintained according to this Statement, so the full cost must fall on the other 40%. By my calculations, that works out at roughly £7, not £30 to £35. The only way to square those figures is by extending the period by another two years, which means halving the annual expenditure on the fuel poverty programme. Even then, the arithmetic does not work out. If that is indeed the case, and the insulation industry seems to be taking that to be the case, does it not justify the stance that we on this side of the House took that the Government’s commitment to the fuel poverty strategy is only to address it rather than to reduce the numbers in fuel poverty? The only measure that we have yet seen is an attempt by the Government to refine fuel poverty downwards, as the Select Committee in the other place pointed out. Will the Minister explain those figures and perhaps justify the position?
Baroness Verma
My Lords, I have tried to follow the noble Lord very carefully. I will write to the noble Lord if I get it wrong, but I understand that the average saving of around £50 relates to what energy companies themselves have pledged to pass on. I will have to go back, read Hansard and revisit what the noble Lord has said.
Lord Tugendhat (Con)
My Lords, does the noble Baroness agree that we not only need competition between companies, as she has said, but between different sorts of fuel and sources of supply? We have seen in the United States the very beneficial impact of fracking in diversifying both sources of supply and sorts of fuel. We have great reserves in this country. There are, of course, difficulties about extraction and differences between this country and the United States, but we have riches under our own earth. Does the noble Baroness agree that, in the longer term, the best thing we can do is exploit them?
Baroness Verma
My Lords, my noble friend is right that we need a broad energy mix and shale gas will be part of that once we have ensured that it is safe and environmentally safe to extract. That we recognise the need for a wider energy mix is shown in the establishment of the Office of Unconventional Gas and Oil.
Lord Judd (Lab)
My Lords, I return to the question asked by my noble friend Lord Reid. Would it not be better if the Minister just accepted that this whole unhappy saga has demonstrated that there are vast areas of policy which cannot simply be left to market forces because there are too many social issues involved? Intelligent government is, therefore, about getting the right mix between the roles of competition, leadership and constructive intervention by the state on behalf of society.
Baroness Verma
My Lords, I return to the response I gave to the noble Lord, Lord Reid. We need greater competition to ensure that consumers get the best price available. We cannot market-manage a sector when the noble Lord’s party reduced 14 or 15 suppliers to six. We need to widen the pool of suppliers so that consumers have a greater choice, are able to switch more easily and can be sure that energy efficiency measures will help them to reduce their bills.