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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 (Con)
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.
Lord Lilley (Con)
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.
Lord Hendy (Lab)
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.
Lord McNally (LD)
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, Lord Lilley, 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, Lord Lilley, 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 Ed Davey 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.
Lord Berkeley (Lab)
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, Lord Lilley, 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, Lord Lilley, 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.
Lord Sikka (Lab)
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.
Baroness Boycott (CB)
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.
Baroness Fox of Buckley (Non-Afl)
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.
Lord Oates (LD)
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 Lord McNally 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 Ed Davey. 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 Lord Foster of Bath, 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 David Amess. 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, Lord Lilley. 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.
Lord Grantchester (Lab)
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 Lord Hendy for his remarks on the effects on low-income households, and my noble friend Lord Sikka 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.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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, Lord Berkeley and Lord Grantchester, 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, Lord McNally, the noble Baroness, Lady Boycott, the noble Lord, Lord Hendy, 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, Lord Berkeley, Lord Oates, 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, Lord Oates, 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, Lord Grantchester, 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, Lord Hendy, 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, Lord Grantchester, 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 Lord Lilley 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 Lord Lilley; 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 Lord Lilley and the noble Lord, Lord Sikka, 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 Lord Lilley: 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, Lord Grantchester, 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.