(2 years, 9 months ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Whitty
That the Grand Committee takes note of the cost of living, and in particular (1) the rising cost of household energy, and (2) the role of the consumer protection regulatory regime in energy markets.
Lord Whitty (Lab)
My Lords, I obviously had great prescience in going for this debate on this day. Unfortunately, it means that Ofgem and the Chancellor have stolen some of my thunder and limelight. I actually had my coat on to come here when the Chancellor was speaking, but I heard most of what he said.
I propose to focus largely on the energy market failure, but let us start by putting it into broader context. Higher gas prices are coming, while shop price inflation rates doubled in the last month, rents are at their highest level for more than a dozen years in real terms, house prices for first-time buyers are at their highest level ever, food prices are rising in the post-Brexit situation and general price inflation is at its highest for about 30 years. That means unprecedented numbers of people are taking out loans, and incomes are not keeping pace. Wages, benefits and pensions are all falling in real terms in the face of this inflation, and all taxpayers are about to be hit by the surcharge on national insurance. As a result of these costs and pressures, according to Which?, more than 2.5 million households in the month of January alone defaulted on at least one regular payment—rent, mortgage, energy, loans or credit cards—placing those families in financial difficulty and often under serious mental stress.
That is the background, but the energy price rises are the most spectacular feature. Another enormous hike in the energy price cap of nearly £700 was announced today. This is before we all have to face up to the very substantial cost of transitioning away from gas heating entirely, and the need for a just transition to a non-fossil-fuel-based home heating system.
I will return to that longer-term issue in a minute, if I have time, but the Government and Parliament need to recognise the stress and hardship that all of this is causing to vulnerable individuals and households, particularly to low-income families. As I understand it from the Chancellor’s Statement an hour or so ago, the Government recognise that the hike in the energy cap is a problem. The Minister will correct me if I am wrong, but the Chancellor intends to offer an offset to the potential £700 rise in household energy bills by giving all bill payers an undifferentiated £200 each, unrelated to household income, energy bills or property conditions. This is to be delivered via a sort of indirect loan to suppliers, which then have to repay the Government. The costs of this will eventually be passed back to consumers, thus adding to potential household cost pressures and indebtedness down the line. In addition, over and above what was rumoured, the Chancellor is announcing a rebate to lower council tax bills.
There are aspects of what the Chancellor said that I welcome. I do not think he has done it in the best way, but he has recognised some of the problems. However, it still deals with only half of the potential impact on households. The £200 is not much of an offset on £700, and, frankly, using council tax is an incredibly bureaucratic and inefficient way of getting help to the most desperate families.
Yet the Government did not need to invent new mechanisms. Fuel poverty groups and, indeed, the Labour Party have proposed a number of immediately available interventions that the Chancellor could have used—for example, post-Brexit freedoms to remove VAT, temporarily at least, from domestic energy prices. He rejected that and I can in part understand the reasons; nevertheless, that was an immediate and beneficial option. He could have expanded the warm home discount to lower-income families. There is a reference to that in the Chancellor’s Statement, and I should be grateful if the Minister could spell out exactly what it means. The Chancellor could have extended winter fuel payments to a further 2.4 million vulnerable households. He did not do that. He could have offered a one-off rebate for low-income households this winter, which could have helped at least 4 million of those households. He could have given more help on rapid repayments of utility arrears; I am not whether his Statement covers that. Of course, he could have moved on the reintroduction by energy suppliers of a social tariff for the long-term benefit of the most vulnerable households—a move I strongly advocate.
In addition, we and campaigners have called for a return to an England-wide programme of effective household insulation and energy-efficiency measures. Over the medium term, that would reduce energy consumption and hence costs to households. There was some reference in the Chancellor’s Statement to that, but it looks pretty miniscule to me, at first sight.
We need also to look at the underlying reasons for and effects of the price rise, and the role of the Government and the regulator in consumer energy prices. Of course, the immediate cause of the increases has been the indirect effects of the dramatic rise in world gas prices. But, frankly, the British economy of all economies ought to have been more resilient and insulated from the effects of Russians playing politics and the Qataris controlling the shipment of LNG. Storage and flexibility measures have not been adopted or invested in. That is partly due to a failure by Ofgem to provide suppliers and the system with the means to do so, but Ofgem has also failed in its role as regulator on behalf of consumers, particularly vulnerable consumers.
About three years ago, I chaired a group convened by Energy UK, the industry’s trade body, to identify means through which to provide a better service and more appropriate pricing structures for vulnerable consumers. To be fair, a lot of larger energy companies have adopted some of those recommendations but there is much more to be done. That has been at the behest of the companies themselves, not Ofgem. Over the past decade, Ofgem has regarded the main means of improving service to consumers as being an increase in competition. That helps significantly in most circumstances, but the way in which it has been done has actually caused more problems than it resolved for consumers, the Government and the regulator.
Obviously, the old oligopoly of the big six was rightly challenged but the number and variety of challenger companies that were nodded through and licensed by Ofgem, thereby relieving some of the obligations regarding poorer consumers, meant that, over a period of about five or six years, the oligopoly moved to becoming a cut-throat market of some 70-plus companies, many of which were new and untested. The sustainability of many of the rest was also suspect. It is clear that in this vital part of its obligations, Ofgem just allowed the establishment of dozens of novice companies through the licensing system, with totally inadequate financial resilience tests, superficial checks—if any—of the management structure and investment sources, and no stipulations on customer service in general or in particular in relation to vulnerable and low-income groups.
Citizens Advice has provided us with a litany of those failures and Ofgem’s failure to meet even the basic requirements. Yet in recent years, there has been only one Ofgem formal customer service investigation. It made no use of its powers to stop a supplier taking on customers when there were customer service concerns about the company. In the four years before the gas price crisis, the number of people working at Ofgem on consumer service had fallen by a quarter.
As Citizens Advice says:
“Regulatory failings led to a culture of non-compliance”
among many of these new companies and the rush of company failures has duly followed, with dire consequences and uncertainties for consumers and messy transfers of customers to the larger companies, increasing the pressure on consumers and the recipient companies.
It is true that early last year Ofgem introduced a new supplier monitoring and checking system, yet only one of the 20-plus companies that failed last year had any sort of customer continuity plan in place to protect their consumers in the event of financial collapse. That is a serious failure by the regulator and one which the Government and the regulator need to address to decide the size of the market we can cope with. The big six was clearly wrong but a market of 70 or 80 small companies, poorly based, is also not the right answer.
The other thing is that, if we have not been able to cope with a traditional gas price rise and preserve and increase customer service during that period without hitting consumers and without the Government having now to bail them out through the interventions the Chancellor announced today, then there is something seriously wrong in the regulatory system. I have it in mind that we will have to cope shortly with a much bigger issue—the transition of the 80% plus of our households which are on gas supply at the moment to as-yet-unknown forms of alternative low-carbon or no-carbon fuels. That is a massive operation, and it needs planning now. Yet, we still need key decisions from the Government and industry, and key questions are likely to be asked of the regulator.
That is going to be a massive transformation. The last time we did it, when we replaced town gas with North Sea gas, it was organised in every household that used gas by employees of a nationalised corporation —most of whom were members of my union—who went into every household. That took time and it needed planning, but it was a simple structure. We no longer have those simple structures. We no longer have the clear strategic decisions, and yet we are going to place on top of this system, rightly, in order to meet our carbon obligations, a whole new system of heating for pretty well four out of five households in the land, and many businesses and offices as well.
Ofgem and the department are going to face a much bigger problem than a global gas price rise. They are right to face it because we need to change our whole heating system, but we need to know how we are going to do it. We need to know that consumers’ interests will be protected in doing it. We need to know who is going to deliver it. We need to know some basics, such as what kind of fuel we are going to use and whether there be one system in different parts of the country. The Minister will know that I have asked questions on this before, but we still have no clear answers. If we postpone decisions on how we will heat our buildings in future, the chaos we are facing in relation to one big world problem is going to be compounded as we try to implement a change to meet our carbon objectives.
I am very worried about the immediate situation, and thousands of households are extremely worried and unable to meet the costs implied, even allowing for the Chancellor’s claim that he is going to cover half of the system—in a way that I do not regard as optimal. But even if he does that, there will be cost increases which thousands of households will be unable to meet.
The Government face a serious economic crisis in the form of the energy price, and a serious social crisis in terms of the impact on families and households. There is also a serious strategic and political crisis, in that we have to change the system of regulating this market and make clear to the industry and consumers the way we are going. I hope the Minister can give a few answers today, and that the Government as a whole can address these problems in the coming weeks.
Lord Howell of Guildford (Con)
My Lords, I declare an interest in energy price-related issues, as in the register.
My brief contribution to this superbly timed debate—it really is perfectly timed—will be more about preventing the reoccurrence of this problem, which otherwise will hit us again and again, than the immediate amelioration which is certainly needed. No doubt we shall hear from the Government about what is proposed to prevent widespread suffering and address the real fear in many households, and disruption throughout key parts of industry, when energy prices go super-volatile as they are doing now.
There is a simple—perhaps over-simple—one-word answer to the question of what we can do to prevent recurrence: back-up. We are in the midst of a gigantic energy transformation which is the biggest for over 200 or 300 years, since the Industrial Revolution. It is a fundamental reorganisation of our entire energy system into a new pattern. This is huge, and no system—certainly not this one—will work without the full availability of fall-back energy supplies, 24/7, which can kick in when the inevitable disruptions, breakdowns and crises occur. It does not matter whether we talk about green energy or traditional fossil fuels: there will be, as there has been in the past, occasional and sometimes devastating interruptions, and that is why we must have full back-up facilities in place. Do we have them?
Look at the scene. We have ruled out coal. Obviously, that is the right thing to do but frankly, I am afraid that it will not make any difference to rising emissions worldwide or to climate control, because of course the main coal emitters are roaring ahead. There are 8,200 coal-fired stations in the world, all puffing fumes into the air, and several more are being built despite the Glasgow undertakings that they would not be. So, coal will continue to drive emissions upward, but at least we can demonstrate our good intent by closing it down. So that is that—although I note, slightly cynically, that to keep the lights on in Glasgow and the conference going, they had to open up a couple of coal-fired plants.
Investment in more gas is being strongly discouraged. It is an amazing thought that years and years ago, when this country, or the Government, had the misfortune of having me as their Energy Secretary, 1% of our electricity came from gas, and even that was resented by Sir Denis Rooke and others. Now it is running at roughly 43%, although I note that last week 55% of our electricity was coming from gas. That is dangerously high. I remember when Helmut Schmidt told Mrs Thatcher that Germany was going to rely on Russia for a quarter of its gas—just a quarter—she said, “Helmut, you’re crazy: this is going to lead to terrible trouble”. He replied, “No, don’t worry, communism is a reliable business partner and it will all be all right.” It was not all right.
Obviously, we are discouraging pensions from investing in oil and trying to run down our international oil companies, so we are handing the ball back to OPEC there, and we will feel the rough edge of that as petrol and oil prices go whizzing up.
We had high hopes in my time of building a reliable and solid back-up system through modern nuclear power. That was the plan. We aimed for nine PWRs and only got one built, but the world moved on and oil and gas were cheap, so we managed to get by with the one at Sizewell B. Now we are trying to revive our nuclear replacement programme and I am not at all happy about where we are going. It seems that we are at a Y-fork in the road in the development of civil nuclear: between large-scale repeat such as Hinkley or maybe like Sizewell C, and going for SMRs which, according to Rolls-Royce, could be produced at about the same time.
That is a big choice and I hope that the Government get it right because, if they do not, we will end up with a lot of further disappointments and difficulties and a lack of the back-up that we need. In particular, I have to note that getting out of large-scale nuclear building and attracting private capital, which we will never get into the big-scale stuff, even with the proposed reforms in financing systems, is made 10 times more difficult by the fact that, of course, we are deeply involved with the Chinese. Somehow we will have to get out of the Chinese involvement in Sizewell C, Hinkley Point and other projects, and do that smoothly, if we are not to bring the whole house of cards down.
I am afraid that what I have said is slightly gloomy, but if people just hang on to the word “back-up” they will understand that we can save ourselves from the horrible volatility of prices. Behind the volatility, of course, comes the prospect of actual outages. We must have a resilient and diverse system. That is the big lesson, which I am not sure has yet been learned.
Lord Monks (Lab)
My Lords, I congratulate the noble Lord, Lord Whitty, on his prescience in the timing of this debate. Barring a Russian incursion into Ukraine or more wine o’clock Downing Street shenanigans, inflation is very much at the top of today’s news. It is not good news, as has already been spelled out: we are in very difficult waters at the moment and things show all the signs, in the coming period, of getting worse. With inflation now at a 30-year high and a record increase in energy bills expected from April, poorer households are under particular pressure, as essentials such as energy and food form a larger proportion of their shopping basket than discretionary items. We also have the increase in national insurance to come, adding to the pressure on jobs and living standards. I believe that to be a bad idea, certainly at this time in the cycle of our economy.
I recognise that the Minister is very much bound by the Statement on energy made by the Chancellor today. These new measures, and the inclusion of a government-backed £200 discount in bills by offering loans to suppliers, as well as the council tax rebate of £150 for those in lower-cost housing, are welcome and a recognition by the Government that we have a big problem. They are welcome, but they will not offset the other measures that we are going to experience with the Ofgem price cap announcement, which could catapult the average home bill to £2,000 from April. That is a lot of money for many households.
I had hopes—there is no surprise here, with my background—that rising real wages would help to ease the position of working people. Indeed, labour shortages and union action in a number of industries have secured impressive pay rises for some. For example, I read in the paper the other day that the GMB has secured a very decent rise for binmen in Eastbourne, while Unite has secured good settlements to disputes in South Yorkshire, Mercedes Benz and Nottingham. But this is not the general picture: the majority of workers face a fall in real pay and the heroes of the public and related services, who have done so much in the current pandemic, will be poorer at the end of it than they were at the beginning, despite being showered with thanks and claps by a grateful nation.
Worryingly, firms and employees do not expect the squeeze to end soon; we will have to live with this for a while. So what can we do about it? Some things are being done about it and I have mentioned my welcome for those. I hope that the Minister can undertake at some stage to revisit two other areas to help the low paid and hard pressed. These are raising the national living wage more than it has just been raised. Wages are too low in many sections of our society and raising them will be crucial to the success of any levelling-up agenda. If we do not raise people’s spending power in the weaker regions, we will not get very far with the levelling-up agenda. The other thing that I hope will be revisited is the premature withdrawal of the £20 uplift to universal credit, which helped many get through lockdown. That and the furlough scheme were two massive supports for the economy and for the hardest hit at a time when they were most needed and I unapologetically welcomed them at the time.
More generally, will the Government not make the George Osborne mistake? In the last period when we had recessionary pressures after the financial crash, the then Government tackled our indebtedness with growth-killing policies of austerity. It was a disaster from which we are still reeling. We should have given growth a better chance than was done at the time and I hope that the orthodoxy of that time has now passed. This time, the economy should be allowed to expand. The Government should be looking at other areas for their revenue. Lower capital gains tax payments are an obvious area for attention, as are windfall taxes. Can the Minister encourage us today by saying that those things are still on the table and are being considered?
Lord Shipley (LD)
My Lords, I remind noble Lords that I am a vice-president of the National Energy Action advisory board. I join others in extending thanks to the noble Lord, Lord Whitty, for this timely debate.
The rise in energy costs announced this morning and in the cost of living generally is now being described as a pending cost of living catastrophe. Unless the Government change course, even with this morning’s announcement, I fear that that is what it is likely to be. It most certainly is for those on low incomes, who face rising inflation, likely to be 7% in April, this massive hike in energy prices, rising taxation—not least national insurance, council tax and the freezing of thresholds—and rising interest rates, increased to 0.5% about two hours ago.
The StepChange Debt Charity has estimated that a third of households are now having difficulty meeting their bills and many of them are now borrowing to cover their basic needs. There is now a real risk of a national debt crisis. One partial solution is to restore the cut in universal credit—that seems essential—but there are others.
I hope that the Government will act on the need to reflect the true rise in the cost of living for those on low incomes. The CPI index does not reflect the rising cost of basic food products or the cutback in the value range of supermarket products. Perhaps the supermarkets might look at what they can do to keep prices down. There should be an index that does not include car costs or consumer goods, so I am glad that the ONS will be producing an inflation index based on tracking basic food prices. I hope that the Minister will confirm that the Government will want to use it.
We heard just now that the energy cap has been increased this morning by 54%. It is estimated that a quarter of UK households will be paying more than 10% of their budgets on energy in April, but many of the poorest households we will be paying much more than 10%. For that reason, it is welcome that the Government are introducing some further financial support. It is, however, inadequate. As the noble Lord, Lord Whitty, pointed out, it is only half the increase and other measures need to be taken to support people on low incomes. Loans are being used when it is estimated that gas prices are likely to stay twice as high as they have been until at least 2025.
The Government have a responsibility to help people on low incomes now, not to keep their costs high so that tax cuts can be delivered nearer the next election, which is rumoured to be the Government’s intention. I very much hope that the Minister will confirm that that is not the Government’s intention and that the people who need help now will be helped now.
The council tax discount at bands A to D is £150, but it will not be sufficient to meet the 54% increase in the energy price cap. I have concluded that we need a windfall tax on oil and gas companies. The announcement this morning of Shell’s enormous profits points to such a Robin Hood windfall tax being justified. As I understand it, Shell has announced $6.4 billion in profits over its fourth quarter. The priority must surely be to cut the heating bills of vulnerable and low-income households, perhaps by doubling the warm homes discount and expanding it to all those on universal credit. This should be funded through a one-off Robin Hood tax on the record profits of oil and gas producers and traders.
We know that the lowest-income households spend twice as much on food and housing as do better-off households, so the current crisis hits the poorer more than it does the better off. The national insurance rise should be abandoned. The public now see it as the equivalent of the cost of unused PPE and fraud in the business support system. Those two things are the same as the projected income from the national insurance rise and I think that the NI rise really cannot be justified now. The Government should use general taxation instead, as many commentators suggest.
Mention was made by the noble Lord, Lord Monks, of the Levelling Up White Paper, but you do not level up poorer parts of the country by increasing so substantially the amount of tax that people who live there have to pay. The noble Lord, Lord Howell of Guildford, reminded us of the need for back-up. We need that and more. We need to relaunch the green homes grant scheme, we need more local networks for renewable energy sources, we need greater investment again in insulation and we need much more research on how to store renewable energy. In the medium to longer term, those should be the Government’s priorities.
Baroness McIntosh of Pickering (Con)
My Lords, I am delighted to follow the noble Lord. I declare my interest as president of the advisory board of National Energy Action. I congratulate the noble Lord, Lord Whitty, on securing the debate, but especially on securing it today; it could not have been more timely. I entirely endorse his comments about the role of the regulator, which raises a lot of questions that I will refer to in my short contribution.
I approach this primarily from the perspective of rural areas, such as North Yorkshire, Northumbria, Cumbria, County Durham and many isolated and deeply rural parts of England especially. Residents of rural areas have been particularly hard hit during the energy crisis since wholesale gas prices increased in October. I do not think that this has been sufficiently addressed by my noble friend the Minister, who I welcome to his place today, his department or the Government more generally.
Those who live off the grid in rural areas are not currently covered by the price cap. They have been left to rely on oil, LPG and solid fuels, which are not and will not be covered by the cap. My first question to my noble friend is: what assessment have he and the department made of the impact of rising energy costs on rural dwellers in general?
I am sure that my noble friend and the Committee will accept that there are pockets of deprivation in rural areas, which are often overlooked. There is also the challenge of an increasingly elderly population living in rural areas on fixed incomes, who are particularly challenged by the increasing cost of food, to which the noble Lord, Lord Whitty, referred, and the cost of heating and electricity, which is before us this afternoon. Like others on low income, this winter they are frequently faced with the choice of whether to heat their homes or eat.
There are currently 4.5 million people in fuel poverty and it is generally understood that, come April, another 1.5 million may be pushed into poverty. National Energy Action has costed a number of its proposals, which I ask my noble friend urgently to consider. For what reason could BEIS not adopt those mentioned by the NEA? One is a one-off rebate, or crisis income support, to cover the 4 million low-income households before April. Another is to expand the GB-wide warm home discount, to which the noble Lord, Lord Shipley, referred, so that everyone currently eligible will receive the support that they deserve. Another is to provide support for an additional 2.4 million low-income working-age households across the UK by expanding the winter fuel payment. Another is to accelerate the repayment of utility debts across the UK and, by next winter, to supplement these measures with deeper price protection or a new mandatory social tariff to help those in the cohort of low-income energy users to make their energy more affordable.
The noble Lord, Lord Shipley, and others have referred to a windfall to the Treasury in addition to the price increases since October, yielding an estimated £100 million extra in VAT through domestic electricity and gas bills. Also, the doubling of households bills from April to £2,000, as was referred to, will apparently yield an extra £77 million for the Treasury. There is also the increase in respect of UK ETS permits, yielding an additional £3 billion.
The Treasury, for some reason, has not sought immediately to recover the £4.3 billion in fraudulent Covid loans identified so accurately by my noble friend Lord Agnew. I pay tribute to his work in the Treasury in this regard. I understand that up to £30 billion more of such money has been identified across all departments. The noble Baroness, Lady Crawley, and I served at the same time in the European Parliament, when the level of EU fraud was a source of some embarrassment. It was an appalling disgrace, as we were told by our British colleagues in the Westminster Parliament. It was, but so is this national ongoing fraud. The money must be recovered; it would add to the funds available to the Treasury in order to finance what National Energy Action is asking it to do.
Also, climate change presents greater challenges. We have seen three catastrophic power failures already, not helped by the fact that 30% of energy is lost through overhead line transmission. That has to be addressed.
Finally, I turn to the role of the regulator. Clearly, competition is not working in this sector as it was intended. Recent failures of energy companies mean that the cost has been passed on to the customer. An additional 25% of our energy bills is going on green levies. Why is the energy sector alone allowed to fund its increases through the customer, whereas others such as the water sector have to go to the market? I urge my noble friend to address these issues as urgently as he can.
Baroness Crawley (Lab)
My Lords, I applaud the timing and the work of my noble friend Lord Whitty in his chairing of the Commission for Customers in Vulnerable Circumstances and much more. We have also worked together as vice-presidents of the Chartered Trading Standards Institute.
April can be a cruel month, as TS Eliot might have put it, and it is certainly looking that way for millions of British households. Emerging from the biggest health crisis in a century, many UK families will be facing a painful cost of living crisis this spring, with energy price increases, rising inflation, more taxation promised and the burden of Brexit becoming more evident every day. Many British household budgets will be stretched to the limit and, in the poorest households, where fuel poverty is already a fact of life, there will be the realisation that there is nothing left to stretch.
According to the ONS’s latest stats, growth in income of the poorest fifth of people has not kept up with inflation, which has led to the median income of the poorest fifth falling by an average of 3.8% between 2017 and 2020. Meanwhile, income for the richest fifth continued to steadily grow between 2017 and 2020. This means that income inequality increased substantially over this period—before Covid, the soaring cost of energy or the increase in inflation. We know that households on low incomes spend proportionately more than richer households on essentials such as housing costs, food and transport, as noble Lords have said. According again to the ONS, households in the lowest decile spent 54% of their total weekly expenditure on these things, compared with 42% in the highest-income decile.
It is against this architecture of inequality that we have to view the alarming energy situation post April. Households in Britain could soon be spending more of their money on energy than any previous generation, including those who lived through the oil shocks of the 1970s and 1980s—some of us are old enough to remember those. Of course, these aggregate numbers do not represent the experience of specific households, particularly those in very low income and low expenditure households. They may see their energy burden rise to 13% of total spend or above.
As we know, this crisis in living costs comes on the back of the loss of the £20 a week Covid welfare boost, as my noble friend Lord Monks said, which finished in September. Some people are already not putting on their heating through this winter, and the 14% of people on absolute low income in this country are finding it very difficult to keep themselves and their children warm right now. As the noble Baroness, Lady McIntosh, said, eat or heat is the dilemma. At the start of the pandemic, the Government rightly launched a project called Everyone In, which took all the homeless off the streets and into accommodation. This cost-of-living crisis needs the same urgent focus for those on low incomes: “Get Everyone Warm”.
The mitigating measures announced by the Chancellor today may take the edge off some bills, and we should recognise that, but they are ill thought out, too little and too late. The Labour Party has called for VAT on energy to be cut, and that should have happened. A one-off windfall tax, as the noble Lord, Lord Shipley, has called for, also should have happened. Paul Johnson of the IFS has suggested a one-off uprating in benefit payments this year—quite right too. While I understand that the warm home discount will finally be increased, and that is welcome, I ask the Minister: what is happening to the household support fund available to local government beyond 2022?
My noble friend Lord Whitty knows better than most that the underlying problems of a badly regulated energy market need fixing urgently, and he has set out a way forward today. There is no real resilience of suppliers, and customer protection by Ofgem’s own standards is often completely ignored by companies. The market is a shambles; meanwhile, many British children and pensioners shiver in their cold homes. It is shameful, and the Government’s response falls short of what is needed in the medium and long term.
Baroness Scott of Needham Market (LD)
I, too, thank the noble Lord, Lord Whitty, for securing today’s debate. It is easy to say that it is timely: it has almost been too timely, as announcements have been coming thick and fast and we have all been hastily rewriting. The announcements about the energy price cap and the Chancellor’s response have meant that we are focusing largely on energy, but we are all aware that the general cost of living crisis is the context in which this debate sits. I particularly note the Bank of England’s prediction today that inflation will reach 7%; it has been some time since we have seen that.
As the noble Lord, Lord Whitty, said, both medium and long-term issues come into play here. I want to use most of my time to speak about a longer-term issue—energy efficiency. Research by Carbon Brief has shown that a series of cuts to energy efficiency measures has meant that today’s bills are around £2.5 billion higher than they might otherwise have been. The number of homes getting their lofts insulated fell by 92%, and cavity wall insulation fitting dropped by 74% when the grants were cut. A year before it was due to be introduced, the zero-carbon homes standard was scrapped. As a result, around 1 million new homes have been built since then with lower energy efficiency standards, meaning higher energy bills for occupants and owners facing expensive retrofitting.
The decisions to scrap those schemes were made because gas prices were high and energy bills growing. However, the decisions were short-sighted and there is a lesson for us to learn now because the answer to high gas prices is not more gas, as the evidence clearly shows; it is to double down on renewable energy sources and home efficiency improvements. If we do not act now, the peaks and troughs of fossil fuel prices will continue and we will be in this position over and over again.
State intervention is needed to deal with the problem of an inherently energy-inefficient housing stock in this country. I shall explain why. By their nature, many energy efficiency measures require up-front cash and often take some years to pay back. For those in the private rented sector, neither landlords nor tenants have any incentive to invest in those measures, even assuming that they can afford it. In the social rented sector, a lot of good work is done by local authorities and housing associations to reduce energy costs for their tenants, who quite often lack their own financial resources. But those bodies are themselves increasingly strapped for cash and unable to finance the energy efficiency measures that they know are required.
However, the majority of us are owner-occupiers. In a country with high levels of home ownership and a flexible job market, houses are no longer seen as places where people live for a long time. Houses are not just homes nowadays; they are property and often the main or only financial asset. Putting scarce cash resources into measures that take years to pay back and do not really add to the value of the house does not look like an attractive option for many people. Take the example of a heat pump, which can cost between £6,000 and £8,000. If we are to improve the energy efficiency of our national housing stock, government intervention is required. I remind the Committee that around 22% of UK carbon emissions comes from domestic energy consumption, so there is a significant contribution to net zero to be made.
As other noble Lords have said, Shell announced today that it made £17 billion profit in the past year. I agree with all those who said that it is beyond time that we thought about—indeed, introduced—a windfall tax. Like the noble Baroness, Lady McIntosh, I pondered on the extra VAT that has accrued to the Treasury, which ought to be available to help people. The cost-of-living increases and today’s announcements on energy will hit everyone but the impact on the poorest is absolutely devastating. The Chancellor’s package is not sufficiently aimed at helping them. The council tax rebate is an untargeted, blunt instrument. A scheme that helps people this year but has to be paid back in future years is just a gamble on gas prices falling. If they do not, at best the pain is postponed but it could get considerably worse.
It seems to me that by far the easiest way to target help to the poorest would be to reintroduce the £20 a week universal credit uplift. There is a strong case for having a look at the grant situation. I am sure that other noble Lords received a briefing from Marie Curie, which set out the difficulty that terminally ill people are having in receiving grants. That is a desperate situation; you do not get more vulnerable than people who are dying at home and are cold because they cannot access things—so we need to look at that.
A coalition of 27 charities has written to the Government urging them to respond to the energy crisis with measures that create a green, fair and affordable energy system, and I am afraid that the Chancellor’s response does not do any of that today. It does not help the worst off and does not provide any means of longer-term security through energy efficiency.
Lord Young of Norwood Green (Lab)
My Lords, I, too, would like to offer my thanks to my noble friend Lord Whitty for initiating this important debate. I could not help smiling when he referred to the conversion to gas boilers. I remember it well: the sheer delight of coming down in the morning and not having to rake the ashes out of the grate and start the coal fire again, because it had been replaced by a gas fire.
What I would say about the current situation is that it is a very dynamic one. There is not going to be one system in the future, by any means, but one thing we do know is that gas is going to be with us for the next 20 to 30 years. That is a reality, and one that lots of people do not like to face, including some of those sitting alongside me. No doubt I will be chastised and told that it is not true and we can do it all with renewable energy, but that is a very debatable assessment of the situation.
When I say that it is a dynamic situation, well, carbon capture and storage is there and it needs to be refined, but it is certainly something I believe will happen. However, there is a supreme irony in the current situation, and this Government have to take the blame. We decided that fracking was not acceptable any longer, and nobody seemed to worry about the fact that they are still fracking in the USA and Qatar. Could the noble Baroness, Lady Bennett, tell us why it is acceptable to ship liquid natural gas all the way from the USA and Qatar, then deliquefy it and use it? We do not want fracking in this country, but we do not care how it happens elsewhere. We could have had a safe, reliable system and created thousands of jobs; it was ready and there, but a hysteria was created about it. We were told that we had to stop drilling, because we had 0.5 on the Richter scale. If a lorry rumbles past your house, it would be more than that. It was an absolutely ridiculous decision to make. I can understand the political pressures, and why it was made, but it is a situation that we are paying for and will continue to pay for—and it will not do anything about improving the environment.
Of course I believe in renewable energy. I was a bit puzzled when the noble Baroness, Lady Scott of Needham Market, said that nobody was going to invest in their houses. Plenty of people around me are investing in solar panels, even though the subsidy has gone, and there is a good return on them. She is shaking her head, but you only have to look at roofs if you do not believe that. I want to make a plea, when we talk about renewable energy and nuclear and so on, or hydrogen, that we have a holistic analysis and not the idea that there is just going to be one solution.
The noble Lord, Lord Howell, referred to small-scale medium reactors, and it looks like a promising area—who knows? There is hydrogen as well. I also think that there are some possibilities, without wanting to seem patronising to people, and ways in which you can save energy. You can save by the way you cook, and by wasting less food, which makes an important contribution. Trying to educate people in their lifestyle is important, and the Government should be thinking about that, in my view.
Of course I believe in things such as the green homes scheme. I am puzzled why that has been abandoned because that would have a long-lasting effect. I also agree with noble Lords who have referred to things such as the windfall tax. I am looking forward to the Minister being able to address all these issues. There is a real challenge—and not just for the Government—in how we analyse the best way to help people in the future when we know the cost of living is rising. Is the only solution to increase benefits? Part of the solution, in my view, is getting people back into employment. Not only is that better for them individually; it sets an example to their families, so that another generation of young people do not feel that the only income coming into the family is benefits.
I hope that people will recognise that I am trying to make a serious contribution on things such as fracking and the need for a more holistic analysis.
Baroness Bennett of Manor Castle (GP)
My Lords, I shall try not to turn this into the Oxford Union but the noble Lord, Lord Young of Norwood Green, put some direct questions to me and, in responding to the debate, I will also provide some answers to those. His comments about lifestyle change are really quite insulting to the people who are struggling so hard that food banks are having to make up parcels of no-cook food because they simply cannot afford to cook. The noble Lord said that some people around him were investing in their homes. We are talking about the cost-of-living crisis. There are very large communities where very few people have any money at all to maintain their homes, let alone invest in them.
However, I will agree with the noble Lord that we cannot do it all with renewables. Indeed, the powerful and informative speech from the noble Baroness, Lady Scott of Needham Market, covered that very well. The cleanest, greenest energy is the energy we do not have to use. The quality of our housing stock is disastrous, and saving energy is the other side of using renewables.
I will go back to where I was planning to start, which is by thanking the noble Lord, Lord Whitty, for securing this debate and, as many others have, congratulating him on his extremely good timing. What we are seeing today is pretty well the rest of the country following where the Green Party has led. Back in the autumn of 2021, we called for a payment of £320 to every household—a winter fuel payment to help people through the winter. Voilà: today we have a payment to most households of £350.
As the noble Lord said, a lot of this, effectively, is expected to be paid back. It is a debt. Households enormously laden with debt already are using debt to pay their grocery bills because they simply do not have the money, and the Government are effectively putting more debt on them. There is a very large question to be asked about the process.
I referred to what we were saying in autumn 2021, when we called for a temporary cut in VAT on domestic energy bills. It may have been a Boris Johnson promise in 2018, and Her Majesty’s Opposition, I believe, are now calling for that. Also in autumn 2021, we called for a windfall tax on oil and gas companies, which I understand is also now Labour policy. As the noble Baroness, Lady Scott, made very clear, it is obviously the time for that windfall tax on oil and gas companies.
Yesterday’s Financial Times had the headline: “Big Oil groups regain swagger with largest profits in years”. In the climate emergency the last thing we need is fossil fuel companies swaggering around the world, using their windfall profits to seek out even more oil and gas fields, building the carbon bubble even further. It is a huge threat to our financial security as well as our fragile, overheated planet. Returning to what the noble Lord, Lord Young, said about fracking, creating a new industry that you are going to have to immediately shut down makes no sense at all—and no, we should not be shipping LNG, but we are doing that because we did not invest in home energy efficiency or renewables.
The Motion refers to the role of the consumer protection regulatory regime in energy markets. For my final period I want to focus on that and in particular on what that regime cannot do. The fact is that, while we rely on gas, we will be at the mercy of world markets, even without the other environmental considerations about using that gas. I will cut down what I say on this, because the noble Baroness, Lady Scott, has already covered it so well, but we are now building homes—people are picking up their keys for them today—that immediately need to be retrofitted, not only for environmental reasons but also so that people can afford to live in them. That is an absolute disgrace and a huge government failure.
There are also renewables. I was talking about oil and gas profits. How much better if people in the more prosperous communities that the noble Lord, Lord Young, referred to were able to invest in community energy schemes, putting solar panels and local wind turbines up and fuelling schools, doctors’ surgeries, factories and homes through that? Yet I keep asking the Minister: where is the funding for that and the plan for it that was promised last June? I got a Written Answer, which pointed to a bit of money going to farms. That is the only thing that the noble Lord could point me to.
I also want to look at the structural issue of privatisation. The noble Baroness, Lady McIntosh of Pickering, said that competition is not working and the noble Lord, Lord Whitty, spoke in his introduction about the absolute mess of the privatised utilities. The last figure that I have been able to find is from November—I would be interested if the Minister could update me on this—when the cost of the collapse of those privatised energy companies was £3.2 billion, or £120 for each household. That is the cost of ideology going on to those heavily indebted, struggling households. If we could just run these essential services, such as our energy and water companies, for public good, not private profit, we would take some of the pressure off our heavily indebted households.
Lord Sikka (Lab)
My Lords, I thank the noble Lord, Lord Whitty, for this timely debate. It is a pleasure to follow the noble Baroness, Lady Bennett of Manor Castle.
People are facing a twin threat of rising prices and shrinking incomes. The announcement of the new energy cap comes on the day when, as some have mentioned, Shell has announced that its profits have risen from $4.8 billion to $19.3 billion. It is so awash with money that it is paying an extra $8.5 billion to its shareholders in the shape of a share buyback. In the last decade, oil and gas companies have paid £200 billion in dividends while the regulators have been twiddling their thumbs and doing absolutely nothing. Over the last decade, the big six energy companies have paid £23 billion in dividends, which is 82% of their pre-tax profits and six times the amount of money that they pay in corporation tax. The sad truth is that the UK, unlike Ireland, cannot even produce its own electricity—it has to import it. It does not even have enough storage facilities for gas; thanks to the Government, they have been run down. Our gas storage facilities are equivalent to only 2% of our annual demand compared to—
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
Ireland does not generate its own gas—it gets it from us.
Lord Sikka (Lab)
Other countries are better at handling it, if you like. Let us look at Norway. Norway collects about $21.35 for each barrel of oil extracted from the North Sea because it kept a large part of it under public control. The UK gets only 8% of that: $1.72 per barrel—those are the figures for 2019. Why? Because of this obsession with light-touch regulation and privatisation being good, while people are basically struggling. It is shameful that as a nation we are not even able to generate our own electricity—enough to meet our needs.
Today’s announcement by the Government does not really help that much: £693 or £700 extra. Perhaps the Minister will be able to tell us how much additional VAT will be generated as a result of this hike in the energy price and exactly where it will go. The Government should have listened to the Labour Party and its call for a 5% cut in VAT. The imposition of that 5% is highly regressive: the poorest suffer the most. The Chancellor said today that he did not really want to reduce it because that helps the rich. That is interesting: the Government have been handing all kinds of tax cuts to the rich and he never complained, but now he says that this would help the rich. Of course, the Government could claw back the equivalent amount from the rich by, for example, increasing the highest rate of income tax from 45% to 50%. That option is always available, but not exactly exercised.
The 2% electricity discount is also highly deceptive. It is not a discount at all. If I go to a supermarket and it is selling something on a discount, that does not mean that I have to repay that amount over the next five years, which is what people are being forced to do here. They will have to repay about £40 over the next five years. The £150 council tax rebate does nothing for the poor or those living in rented accommodation. It would also be helpful to know who is paying the cost of that. Will central Government be bearing the cost of that £150 discount, or will it lead to a further cut in local authority budgets as they are forced to bear this cost? Even if this £150 gift, as some people are calling it, is accepted by some, what happens to the other £350 of the cost of energy that people will have to bear?
The Government need to rethink their entire economic policy. They need to help the poorest. They have already cut universal credit by £1,040 from 4.4 million people. They are offering only a 3.1% increase in the state pension, while the CPI is likely to be double that rate. The increase in minimum wage is 6.6%, while RPI is already at 7.5%, so that does not really do anything. Winter fuel payments have not changed since 2011. The Government need to offer an immediate increase in the state pension of £500, double the winter fuel allowance and increase universal credit and the minimum wage at least in line with RPI to give people a cushion.
Although we have talked about energy prices, we have not said much about what is happening to retail prices. Just in the past six weeks, the price of 18 essential, staple items has gone up by more than 8%, and supermarkets, now owned by private equity, are basically lapping it up. Morrisons has increased its price of those 18 items by 15.3% in the past six weeks and Asda by 13.6%. Why are the Government letting private equity rip and increase the cost of living?
Lord Jones (Lab)
My Lords, it is always instructive to follow my noble friend Lord Sikka. I thank my noble friend Lord Whitty for his choice of debate. I know of his union life, when he devilled at the highest level brilliantly for the low waged. As a director of the apparatus of the party, he presented manifestos that sought to enhance the lives of the unemployed and the underprivileged.
Born in 1937 and growing up during World War II and the immediate post-war years, one recollects the frequent complete loss of domestic power for many hours. The great winter of 1947 tormented us all and Lord Manny Shinwell’s Cabinet career collapsed when he could not deliver coal to the power stations. In those days, there was only one warm room in the house; it is a history of when we were all in it together. Of course, there was heating—personal heating by hot water bottle. It was a time when one woke up to ice on the inside of the windowpane and when chilblains denoted the cold house and the bus stop queueing routine, as my noble friend Lord Young recalled.
Much has changed. However, climate change has not abolished the contemporary cold house. The cold house does not add to the hope for human happiness. It destroys morale. It makes the young children therein quarrelsome and can impinge on the everyday health of its tenants. Eating and sleeping in a constantly cold house can be soul destroying. There are households where there is always a wintertime contest between the semblance of warmth and debt—for example, the manipulation of the credit cards that the householder might have. There is the predicament of the low-waged having weekly recourse to the church or chapel food bank. The noble Lord, Lord Bird, has great insights here.
We in your Lordships’ House live here, swathed in our ermine and surrounded by carvings, statuary, murals, Axminsters and gilt. We septuagenarians and octogenarians notice the Chamber temperature and the difference between our Monday sittings and the rest of the week. Our civilisation puts man on the moon and speeds us in five hours from London to Edinburgh, while millions of our fellow citizens live in homes where daily payment and warmth are for ever in consideration.
An Englishwoman’s home is her castle and it should not be a bone-chillingly cold castle. We do not convincingly enable the young single mother, with her several youngsters, to face those six or so draughty, cold months surrounded by warmth. She and they may well be on benefits and, at the grass roots, it is a daily life of difficult decisions and stress. It is wrong, unjust and hurtful to the young ones. How many such households exist? Is it in the tens of thousands? Perhaps it is hundreds of thousands in our nation of 60 million-plus—a nation still fissured by wealth and poverty, class and expectations. Will the Minister make an estimate? If he can, our debate should then have better context.
These households exist in Wales, Northern Ireland and Scotland as well as in England. As a one-time Prince of Wales said, in the lovely land of Wales—one’s own homeland—something must be done. It is still a truism. Some homes today have had their gas and electricity turned off. Does the Minister have any idea of the numbers? It is a fact that the household budget of even the comfortably off is dominated by major day-to-day outgoings: first, of course, the gas and electricity bills; then the council tax; then the filling of the tank of the still-ubiquitous petrol and diesel cars; and then all those other necessitous direct debits to the public utilities and the ever-growing number of insurers. It is getting harder and harder.
Over many decades, successive differing Governments have offered up bureaucratic, credible alibis on energy, but still the problem remains. The bald, cunning, devious Kremlin gangster has not even started yet. In all this, what of the high-energy-demanding British steel industry? What, indeed, of manufacturing generally?
Lord Oates (LD)
My Lords, I follow other noble Lords in congratulating the noble Lord, Lord Whitty, on the timely nature of this debate, coming on this day when we have seen a staggering increase in the energy price cap, the Bank predicting inflation at 7.25% by April and the Bank rate rising by a further 0.25%, impacting on millions of borrowers and current mortgage-holders on variable mortgages, plus all the people who will enter the mortgage market in the coming years. It has been estimated that the average rate is likely to rise from 1.6% to 2.5% by the end of this year. So there is a whole series of pressures—not just home costs and energy costs but the knock-on effects on the wider economy. The one thing about energy inflation, of course, is that it feeds through our whole economy and will continue to do so for some time.
Back in 2015, I had a conversation with Stewart Wood—now the noble Lord, Lord Wood of Anfield—who was at the time working for the then leader of the Opposition. He was talking to me about the Labour Party’s proposal for a price cap and what the Liberal Democrats’ view of it was. I gave him my personal view: I lived for some time in Zimbabwe, where the Government thought that they could cap prices. The impact was that there is no decent electricity supply in Zimbabwe anymore. Stewart perhaps thought that I was trying to compare the leader of the Opposition at the time to Robert Mugabe, which was not the point. The point was that, at the end of the day, no Government can insist that a business, or even a public utility, should supply goods in the long term at a lower cost than they cost them. It is just not sustainable.
Of course, this is not the moment to lose price caps, but we have to understand that, in addition to this 54% hike that people are going to see—indeed, for some people it will be up to 100%, because they may be coming off fixed rates—we also have the costs that will be piled on to energy bills to pay for the collapsed energy companies. Some have estimated that it will cost as much as £94 per household to cover the cost of those that went bust. I would be interested if the Minister could shed some light on that.
On top of this, the Government are now proposing that part of the way out of the current situation is a solution that will put further costs—a further £40—on bills later. As the Resolution Foundation said today, it is about slightly smaller bills today for even bigger ones tomorrow. That is no solution in the long term. On top of that even, the Government are proposing, in a Bill that will come into the House on 21 February, something called the regulated asset base model for the funding of nuclear, which will pile yet more money up front on the bills of millions of consumers.
At the same time, as many noble Lords, including the noble Lord, Lord Sikka, have mentioned, we see Royal Dutch Shell and all the oil and gas majors showing record profits. I do not intend to get into a debate about who proposed what first with the Green Party, the Labour Party or anybody else, but as my noble friend Lord Shipley said, the Liberal Democrats proposed a windfall tax—a Robin Hood tax, as he called it—on those oil and gas majors, which would help to provide a doubling of the warm home discount, a doubling of the winter fuel allowance and a £500 million fund to assist energy-intensive industries, which the noble Lord, Lord Jones, mentioned.
However, the truth is that we are where we are because of an abject failure of energy policy on the part of the Government. It starts with their failure on home insulation. My noble friend Lady Scott of Needham Market set out clearly the nature of that failure. We should, however, put that in the context of what the noble Baroness, Lady Bennett, said, which is that the best energy saving is the energy that one does not use. Contrary to much that we have heard from the climate chaos fanatics who, sadly, are not represented here, and who say that it is all about us pumping not enough gas or putting too many green levies on bills, the truth is that the price rises are to do with fossil fuel, not green levies.
Total household expenditure on energy between 2010 and 2019 fell from £27.7 billion to £23.4 billion. One of the main reasons for that was that domestic gas and electricity consumption also fell in that time, from 43,717,000 tonnes of oil equivalent in 2010 to 34,282,000 in 2019—a 21% drop. A huge reason for that was some of the efforts made by the coalition Government, in particular by my right honourable friend Edward Davey as Energy Secretary, to push home energy efficiency. In March 2015, just before the end of the coalition, there were 53,894 monthly installations. In March 2019, that had figure fallen to 13,929. I have used the 2019 figures in all those statistics so that people cannot say, “Oh well, that’s just to do with Covid”. That has been costing households, as my noble friend Lady Scott said, an absolute fortune. In addition, as she also mentioned, the zero-carbon homes standard of the coalition was scrapped by George Osbourne—another one of his mistakes.
I say to the noble Lord, Lord Young, who thinks that somehow if there were more fracking or we were pumping more gas from the North Sea it would solve our problems, that I am afraid the truth is that it would not. The astonishing fact is that between September and November 2021, the latest period for which figures are available, the UK exported 31,975 gigawatt-hours of gas. Between September and November 2020, the figure was 15,830 gigawatt-hours—less than half. In case people say that that was just because of Covid, the figure for the same period in 2019 was 19,633 gigawatt-hours. The truth is that we are operating in a market, and all that would happen if we pumped more gas is that we would export more of it. The idea that whatever we could pump would materially bring down prices, unless we somehow seized those assets and nationalised them, is for the birds.
The inflationary impact of energy is massive, but it comes amidst so many other inflationary pressures. The impact on the lowest paid, as we have heard from my noble friend Lord Shipley, the noble Baroness, Lady Crawley, and many others, will be particularly acute, and I join him in calling for a realistic price index that really reflects the impacts on the lowest paid.
In conclusion, we must have a radical overhaul of our energy system and economy, so that we can get to a stage where the Government are not boasting about the funding they are giving to food programmes and holiday activities, but are ensuring that we have an economy in which people can earn a decent wage and have a decent life.
Baroness Blake of Leeds (Lab)
My Lords, I start by declaring my interest as a vice-president of the LGA. I also add my sincere thanks and congratulations to my noble friend Lord Whitty. Originally, I think the cap announcement was scheduled for next Monday; I wonder whether they brought it forward in acknowledgement of my noble friend’s contribution to the debate today. Indeed, this is such an important issue, and we on this side cannot possibly keep up with the announcements made in the other place this morning. I am sure that we will get more insight into that by the end of the debate.
I am especially grateful to my noble friend for his summary of the role of the regulators, which was extraordinarily helpful in the context of today’s debate. I think we will all have found the excellent Library briefing very useful. The debate today has been first class, as I am sure we can all agree, and the contributions have helped to move us forward. As we have heard from the many valuable contributions, we are talking about policy failure on a catastrophic scale. The impact on our most vulnerable and on an ever-increasing number of people experiencing fuel poverty is, frankly, unforgivable, as is the impact on our businesses, particularly those that consume lots of energy to manufacture steel and glass, for example. The impact on all businesses will have profound repercussions throughout the supply chain and, ultimately, will put more pressure on our hard-pressed consumers.
As we heard in today’s announcement, electricity and gas bills for a typical household will go up by 54%, or £693 a year from April—even higher than the predictions discussed in the past few weeks. I am sure we have all read the heart-breaking case studies from Age UK, the citizens advice bureaux and others who have been doing their best to highlight the circumstances that people who are experiencing fuel poverty are enduring. Do any of us in this Room really understand the choices that some of our old-age pensioners are having to make between heating and eating? What must it be like to be forced to live in one room, and to be able to afford to put the heating on for only one hour in the morning and two hours in the evening? What is it like for parents going without food so that they can heat their homes and feed their children? I, too, have spoken to people who have asked food banks specifically for food that does not require heating, because they cannot afford the heating bills.
I just want to add another insight into the impact of austerity. One thing that we have not mentioned today is the impact of austerity on local authorities, forced to close public buildings such as libraries, community centres, children’s centres and, particularly, daycare centres—heated environments, often with free food as well, to which older people and parents with children could go during the day.
The context to this, as we have heard, is that the eye-watering energy price rises come in addition to the steep rise in inflation, the proposed national insurance rise, councils being forced to raise council tax as they are further starved of resources and, as my noble friend Lord Monks ably highlighted, the impact of the fall of real pay and the need to address all the issues around the real living wage and insecure employment. Basically, we are witnessing the results of the low-growth, high-tax trap that government policy has led us to, adding up to predictions of the average household having to pay £3,000 more tax in total by 2026-27.
Eleven years of this Government’s failed energy policy, characterised by dither, delay and incompetence that have created an energy crisis felt by everyone, have left us uniquely exposed. As we have heard, the Government have failed to invest in and expand our vast potential in British renewables and nuclear energy. They have also failed to invest in insulation and energy-efficiency schemes, whether in new-build homes or in retrofitting existing properties. All this is despite warnings over many years and ignoring the experience of many of our European neighbours in particular, who are well ahead of us in these areas. Examples include the reduction of the green homes grant scheme and, as the noble Baroness, Lady Scott, said, the failure to compensate for heat pumps, which have such an important potential future use.
One area that I hope the Minister will help us on is the exploration for alternatives, such as hydrogen. An enormous amount of work has been done up and down the country in this area, but we do not seem any closer to having the answers. Hydrogen was portrayed as one of the solutions for the issue of the need to refit our gas appliances, for example. These things all deserve serious investigation and we are not getting the progress that we need.
On top of this, as we have heard, there is the abject failure properly to regulate our energy market and the consequent devastating impact across all sectors. It would be helpful to understand how and why the decision to slash the amount of gas storage that we have was made. Where were the considerations around energy security factored in? Why have our exposure and vulnerability been treated so lightly? As the noble Lord, Lord Howell, asked, where are the back-up schemes? We know how vulnerable we are from the different climate emergencies that we have suffered, whether from flooding or wind, and the devastating impact that communities face when their electricity or gas supplies are cut off. Running through this whole debate is the need to address the requirements on the agenda around achieving net zero.
As my noble friend Lord Whitty outlined, this regulatory failure must be addressed by immediate measures to counter the real hardships faced by so many. I share his concern at the proposed use of council tax rebates. This is a blunt instrument with no guarantee, as it is a property tax, that it will help all those most in need. I echo his hope that the Government will accept Labour’s immediately available interventions.
In conclusion, I hope that the Minister can give us an update on the proposals put forward by the Chancellor today. We await the analysis with interest. It would be helpful to have a sense from data, which I am sure the Government must be gathering, of the scale of the problem that we are facing. It would also be useful to know whether the Government are considering, as most parties have outlined, the potential that a windfall tax could bring to help to alleviate the problems. None need that more than those 1 million extra households predicted by National Energy Action to be at risk of fuel poverty. They are the ones that need the answers that I hope we will get today. Although welcome at first sight, help of £350, which is just over half the latest price increase, will be woefully inadequate.
Lord Callanan (Con)
My Lords, I thank the noble Lord, Lord Whitty, and admire him for his prescience in selecting such an appropriate subject for debate today. He must have had more advance notice than even I had of when the Government’s announcements were coming, so congratulations to him on a very timely and informative intervention. Of course, I am grateful to everyone who has contributed today on this topical but also extremely vital subject. I will try to address as many of the points as possible that noble Lords raised, but this has been a wide-ranging debate and, if I do not manage to cover everything, I am sure that we can catch up in writing.
The Government of course recognise and understand the pressures that people are facing with the cost of living and we will continue to listen to people’s concerns, as we have done throughout the pandemic. I agree with the noble Lord, Lord Monks, and many other speakers in recognising that this is a timely debate, with the energy regulator’s announcement just a few hours ago and the Chancellor’s announcement on the back of that. The regulator’s announcement was for the period April to September 2022.
In a recent debate secured by my noble friend Lady McIntosh, I set out that wholesale energy prices have been rising, as we all know, due to increases in the price of wholesale gas, to which multiple international factors have contributed. I start by reiterating that energy security remains an absolute priority for the Government and we are confident that our energy security will be maintained. We continue to work closely with key industry organisations, including Ofgem and National Grid gas, to monitor both supply and demand. In response to the point made by the noble Lord, Lord Sikka, we meet around half of our annual gas supply through domestic production and the vast majority of our imports come from reliable suppliers such as Norway.
As I have said before in the House, the energy price cap has, for the last six months, protected millions of households during the winter period from the volatility seen in wholesale gas prices. The Government have committed to retaining powers to implement a price cap beyond the current long-stop date of 2023, should that prove necessary. However, as noble Lords will know, sadly, the rising wholesale costs of energy have now fed into the price cap’s methodology, leading the independent—I emphasise that—regulator, Ofgem, to increase the level at which the price cap is set. Recognising the impact that this will have on households, I am pleased to update the House, as the Chancellor did this morning in the other place, that the Government are taking action on the back of this.
Today the Chancellor announced a £5.6 billion energy bills rebate, which will help households to deal with the unprecedented increase in energy bills that we have seen this year by helping to smooth the costs over subsequent years. The rebate, which will shortly be consulted on by my department, will provide households with a payment of £200, which will be credited to their energy bills by their current energy supplier. This rebate will likely start issuing payments to energy suppliers to pass on to their household customers from autumn this year, which of course is when households will need it most as we head into the winter period next year.
In response to the point from the noble Baroness, Lady Bennett, let me make it clear that while the mechanism will be subject to consultation, this scheme is not a loan. No interest will be charged on the upfront funding provided by the Exchequer. The Government will seek to recoup the funding at a later stage, smoothing out the cost increases we have witnessed in the wholesale energy markets. The department will work closely with industry and consumer groups on how we can best deliver this policy, with a consultation planned for the spring.
This is an important and timely measure, which will help households at a time when they need it most. In addition, the Government have announced further support for delivery outside of the energy system to help with the wider cost of living. We have also today announced a £150 payment for the 80% of English households in council tax bands A through D. This measure will be worth the equivalent of more than 2.5% of net income in 2022-23 to the poorest 10th of households, compared with less than 0.5% to the richest 10th. In addition, there is £144 million of discretionary funding for local authorities to support households who need support but for some reason are not eligible for that council tax rebate. The combined package could see some households receive £350 over the coming financial year to help them with the cost of living. This is worth some £9.1 billion.
This new support package is on top of the existing set of measures in place to support families, worth around £12 billion a year. These include energy-specific measures targeting the fuel poor. The noble Lords, Lord Whitty and Lord Oates, and my noble friend Lady McIntosh mentioned the warm home discount scheme which provides support with energy bills through rebates, helping households stay warm in the winter months. The scheme currently provides over 2 million low-income and vulnerable households with a £140 rebate off their winter energy bills. I am pleased to confirm to noble Lords that BEIS has already consulted on proposals which would expand the scheme from around £350 million to £475 million per year, at 2020 prices, which will help the scheme reach 3 million households from winter next year onwards.
On the very important subject of energy efficiency, I am afraid I have to tell the noble Baroness, Lady Scott, that she is simply wrong. The energy company obligation has already installed 3.3 million measures in 2.3 million homes. We are increasing, not cutting, the amount energy suppliers invest in energy efficiency measures for low-income households. From April this year, the start of the next financial year, this will be extended until 2026 and we are boosting its value from £640 million to £1 billion a year, helping the poorest households to install the energy efficiency measures that many noble Lords referred to.
In addition, for the benefit of noble Lords who raised the issue, such as the noble Lords, Lord Oates and Lord Shipley, and the noble Baronesses, Lady Scott and Lady Bennett—amazingly I agree with one point the noble Baroness, Lady Bennett, made—the best form of green energy is indeed not using it in the first place, through energy efficiency measures. This is precisely why we are investing over £2 billion a year in energy efficiency schemes, through projects such as the home upgrade grant, the local authority delivery scheme, the sustainable warmth competition and the social housing decarbonisation fund. All of these are helping to provide long-term solutions by improving the energy efficiency of the homes of the poorest people in society—exactly those who should be deserving of our support.
In addition to all that, the Department for Work and Pensions has a set of measures to support households with their energy bills. The £500 million support fund was announced last autumn to help those most in need this winter. This includes provision for utility costs, including energy. The DWP also continues to provide support for vulnerable users and pensioners through its winter fuel payment and cold weather payment.
Picking up on some of the points made by noble Lords, the debate was well introduced by the noble Lord, Lord Whitty, who asked a number of questions, as indeed did the noble Lord, Lord Oates, about the retail market and supplier failures. As a result of high gas prices, some 26 suppliers have exited the market since the beginning of August 2021. The current situation has been precipitated by unprecedented conditions. In the vast majority of those cases, the Government and Ofgem have utilised the supplier of last resort process, which has been set up to protect customers when their supplier fails to ensure that they do not suffer any disruption or lose any of their credit balances. Ofgem and the Government will continue to look at ways to reduce the costs that arise from a supplier of last resort process, but it is clear that it is a vital safety net that has protected millions of consumers. Last October, Ofgem published a letter to industry setting out the actions that it will take to reform the retail market. This includes reviewing licence conditions to strengthen the financial resilience of suppliers and help restore stability to the sector.
I was also asked about retail market reform. The Government want a retail energy market that continues to protect consumers now and as we transition to net zero, while engaging them with positive choices about their energy supply. We want a competitive market whereby companies invest in innovation and offer products and services that help us in our drive to decarbonisation.
The noble Lord, Lord Whitty, talked about retail market regulation to support progress to net zero. In considering these reforms, the Government will take account of the lessons of the current market. In fact, we published a call for evidence on the future of the retail energy market. A strategy will be published as soon as possible once the current market situation has stabilised.
The noble Lord, Lord Oates, raised the issue of funding our future policy costs to deliver net-zero policy. He will be aware that, 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 to help rebalance electricity and gas prices and to support green choices, with a view to taking final decisions in 2022. Consumers will be at the heart of those decisions.
Lord Oates (LD)
The one question that the Minister has not answered is what the Government’s estimate is of the added cost to bills as a result of the 26 energy company failures that he mentioned. Citizens Advice estimates that it has put £93 on bills. Do the Government have a figure?
Lord Callanan (Con)
I do not have a precise figure in front of me. It is a complicated issue because it depends on exactly where the costs fall but if the figures are available, I will write to the noble Lord with as much information as I am able to provide.
In response to the point made by the noble Lord, Lord Whitty, on national insurance rises, the lowest earners will, of course, be protected from the levy. The highest-earning 15% will pay over half the revenue and 6.1 million people earning less than the primary threshold or lower profits limit will not pay the levy at all. Regarding the rebate adding costs to bills further down the line, the aim of the policy is to reduce energy bills for households in Great Britain in 2022-23; it is to be paid back automatically and interest-free over the next five years. This is a fiscally responsible approach that helps customers to manage the unprecedented increase in energy bills by spreading the increased costs of global prices over time.
My noble friend Lord Howell of Guildford, as he normally does, made some good points about our overall energy strategy. He will be aware that the energy White Paper set out a vision for transforming our energy system, backed up by practical action. We will address the decarbonisation of the power sector on a whole-system basis so that we deliver low emissions and maintain high levels of reliability and resistance, while ensuring that the cost of the transition is fair and affordable. The Government are taking a range of important steps to decarbonise the power sector, while establishing business models to support hydrogen-fired generation, new nuclear and CCUS-enabled generation, and to support the development of flexible storage.
I agreed with many of the sensible comments made by the noble Lord, Lord Young of Norwood Green, from whose expertise in this area we have benefited. He reminded us—it is worth making this point—that these are difficult, complicated issues, which need long-term holistic solutions. Of course, we are all searching for a simple, easy answer, but many of these issues take decades to come about. One issue that I could highlight is that of new nuclear. The noble Baroness, Lady Blake, criticised us for not developing new nuclear, but these projects take decades to bring about. The main reason for the decline in the nuclear industry in the UK was that Labour abandoned our nuclear programme when it came to power in 1997. For the whole of its period in government, no progress whatsoever was made on new nuclear. We are now reversing that and proceeding with new nuclear developments, but it takes many decades to bring them online. I believe that, in considering our energy system, that decision will prove to be one of the biggest mistakes in energy policy over recent decades.
The noble Lords, Lord Shipley, Lord Monks, Lord Sikka and Lord Oates, the noble Baroness, Lady Crawley, and other noble Lords raised the issue of a windfall tax. It is worth pointing out that the UK Government already place additional taxes on the extraction of oil and gas, with companies engaged in the production of oil and gas on the UK continental shelf subject to headline tax rates on their profits that are currently more than double those paid by other businesses. To date, the sector has paid more than £375 billion in production taxes. We are always considering a full range of options to support consumers and businesses through the current high price challenges, but it is important to remember that any action that we take must not have broader negative consequences for the economy.
All Peers have referred to the importance of attracting investment and achieving our energy goals, which will require vast investment from the private sector in our energy system. If the Government woke up one morning and imposed windfall taxes, however attractive that might sound, that would massively impact the amount of inward investment that we attract into the country. While the dividends of those companies have been criticised, we should never forget that many of those dividends go into paying the pension funds that help to pay the pensions of the many pensioners that noble Lords highlighted who might be suffering from fuel poverty this winter. There are never any easy, simple or straightforward solutions to these problems, however much we might want to think that there are.
My noble friend Lady McIntosh raised the important issue, as she often does, of off-gas-grid consumers. The Government believe that it is essential that consumers of LPG and heating oil get a fair deal. In our view, the LPG and heating oil markets do not share the monopoly characteristics of network utilities and are therefore not subject to price regulation under Ofgem. However, I can tell my noble friend that the energy rebate announced today is being passed through to suppliers to pass on to domestic energy users, including off-gas-grid consumers, who are, of course, electricity customers.
The noble Lord, Lord Jones, asked for estimates of the number of homes struggling. We regularly publish updated fuel poverty statistics, including projections for 2022, taking into account the price cap increase and the measures announced today. We will publish those on 24 February. In addition, Ofgem regularly publishes its statistics on vulnerable consumers and indebtedness through its consumer protection and vulnerability reports.
Lastly, the noble Baroness, Lady Blake, spoke about the important subject of hydrogen. We are committed to the development of hydrogen as a strategic decarbonised energy carrier for the UK. We are currently taking a twin-track approach, covering both electrolytic hydrogen from renewables and methane reformation with carbon capture, usage and storage. Both methods of production are covered by innovation schemes and policy development.
As I have set out, the Government have listened, recognised and acted on the concerns of families struggling with the cost of living. As I said at the start, the energy bills rebate will provide over £5.6 billion of support to households later this year, ahead of the next winter period, while the additional support for English homes in council tax bands A to D will further help households with the cost of living—a total package worth £9.1 billion. Of course, the Government will continue to engage with industry, consumer groups and other stakeholders as we progress these measures and I am sure that we will have further debates as these policies develop in the coming months.
Lord Whitty (Lab)
My Lords, I genuinely thank the Minister for that comprehensive reply, in which he gave some additional information about the Chancellor’s announcement, which I shall look forward to reading in detail, and made some other points that we need to take on board in this context. It is an extraordinarily complex issue that we have been addressing today but, at the end of the day, the immediate problem, as well described by my noble friend Lord Jones, is that of families living in cold and in debt. We have an opportunity, if we can get this right, of making sure that what has happened today does not make their situation worse but begins to ameliorate it.
The bigger point that I am making—big and emotive though that is—is that there are three different things that we need to address. We need to address the immediate impact of the gas price rise on the poorest families and on all families, in many respects, and on our economy. I hope that the Chancellor has gone a little way towards that, although I do not think that he has gone far enough and I think that some of the means that he is proposing are very odd. It is very odd to use council tax as a way in which to give back money; it is similar to using national insurance in the way that the Government have done to raise money for the health service and social care. There is a tax system that we should be using for these purposes, which would be much more progressive than what he proposes and much better targeted. However, he has done something and I appreciate that.
The second crisis, of course, is the one that the noble Baroness, Lady McIntosh, and others clearly outlined: the present regime with Ofgem is not effective in creating a market where competition really works, as distinct from one that is very vulnerable, or one that protects the more vulnerable consumers. I am glad to hear that we are having an assessment of consumer regulation under Ofgem, but we need to make that serious and effective. I look forward to seeing progress on that as rapidly as possible. The Minister made a pointed remark that Ofgem is independent; it is sort of independent, in the sense that it is at arm’s length, but it works within a framework defined by government and by legislation. I am looking forward to the next White Paper and energy Bill—I am not sure that the Minister is, but I am.
The third issue is that we need to ensure that our energy system and its interrelationship with consumers and industry prepares now for the transition away from fossil fuels. Given the failures that we have had recently on the relatively easy part of protecting consumers, the way in which we take the economy and consumers through a massive change in energy supply, in every house and flat in the land that uses gas, will have to change. We do not at this point know how it will change or what it will cost. The immediate answer put on the table by the Government is to have air pumps, which is putting people off because of the current cost of air pumps, and particularly putting off those who may have to adopt them early, such as the rural consumers that the noble Baroness, Lady McIntosh, mentioned.
Energy efficiency is a vital part of this, as the noble Baroness, Lady Scott, and others emphasised, and as the Minister accepts, but the intervention to change how we heat our homes and provide basic warmth for our children and elderly people will have to be much more substantial than the inadequate response from the industry and regulator to the gas price hike. It is a much bigger issue and we need to make sure that we have a regulatory system that is capable of taking it on and taking consumers with it. The Minister has a big task to resolve all those issues, but at least he has given us some indication of how the Government are thinking today and I thank him and everybody who has contributed to this debate.