Energy Costs

Baroness McIntosh of Pickering Excerpts

Thursday 6th January 2022 Lords Chamber

Asked by

[Baroness McIntosh of Pickering]

To ask Her Majesty’s Government what assessment they have made of the effect of rising energy costs on households, and in particular (1) pensioners, and (2) those on low incomes.

[Baroness McIntosh of Pickering (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.