Energy Bill [HL]

Earl Cathcart Excerpts

Wednesday 22nd December 2010 Lords Chamber

[Earl Cathcart]

My Lords, like other noble Lords, I have received a plethora of briefings from various organisations raising numerous points on this Bill, but I want to concentrate my remarks on a different area altogether.

Last summer, Chris Huhne, the Secretary of State, said:

“The cheapest way of closing the gap between energy demand and supply is to cut energy use”.—[Official Report, Commons, 27/7/10; col. 867.]

Quite so. The Green Deal, which will allow households and businesses to improve their energy efficiency with no up-front costs, will help reduce the demand for energy consumption. This must be a good thing, whether or not one believes in global warming, subject of course to the paradox of the philosopher mentioned by the noble Lord, Lord Giddens.

However, the Green Deal comes at a time when energy prices are already on the increase. If last week’s newspapers are to be believed, average bills will rise by up to a further £500 per annum to pay for the new generation of environmentally friendly power stations, so the era of cheap energy is over. A spokeswoman from DECC said:

“If prices go up, it will mean more people in fuel poverty”.

Fuel poverty already stood at 4.5 million households in 2008 and, with the severe weather over the past two months, there is no doubt that it has risen again. My guess is that the figure will rise to over 6 million—a quarter of all households—but it may be even more, as indicated by my noble friend Lady Noakes.

However, there is a glimmer of hope. Following complaints that energy companies have recently increased their prices during this very cold weather, up popped Alistair Buchanan, the chief executive of Ofgem, on my television screen to say that protecting consumers is Ofgem’s first priority and that Ofgem would look into how the energy companies have been charging consumers. I thought that that was an excellent idea.

I also thought that I should look at my own bill a bit more carefully to see how I was being charged—I am ashamed to say that, until now, when I received my bill I just closed my eyes and signed the cheque. When I looked at my bill, I noticed that I was being charged in the day time nearly 30p for the first few hundred units used, after which the charge dropped to 13p. At night, I was charged a flat rate of 4.5p, regardless of the consumption. I have to admit that I am one of the 70 per cent of consumers who find the plethora of different tariffs utterly confusing, but I looked on the internet at other energy providers. It appears to be pretty standard that the first few hundred units used are expensive and that the more you use the cheaper the energy becomes. That seems totally illogical and rather defies the laws of demand and supply on how demand reacts to price change. The relationship should be the other way around. The more units I use, the more expensive per unit it should be.

Indeed, I would go further. Why do not the Government, through Ofgem, consider charging only a relatively small amount for the first few hundred units consumed and then increase the charge for the next few hundred units consumed and so on? The effect of ratcheting up the cost whenever more units consumed would have the advantage of encouraging all households to reduce their energy consumption and to endeavour to get all their consumption into the lower charging bands by taking up the undoubted advantages of the Green Deal and dropping to lower charge bands. That would encourage households to change the way in which they consume energy.

I then got my energy provider’s domestic energy price list for all the regions in Great Britain. I notice that there is a fixed daily charge, ranging from about 25p to more than 30p, depending on where one lives. Multiplying this up by 365 days means that households pay a fixed charge of between £91 and £111 per annum—that is even before they have consumed one unit of power. This is hardly helpful if one is in fuel poverty. Surely the fixed charge could be absorbed into the ratchet price structure that I described earlier.

Sadly, I do not expect Ofgem to get anywhere with the energy companies on my idea, as the energy companies will give any number of reasons why it cannot be implemented. Indeed, I can see one problem with my idea. Should a single person in a band-A property and a couple with two children in a band-D property receive the same number of units at the cheapest rate per unit? Obviously, the band-D property needs more energy and we do not want to penalise families. Why not allow the band-A property, say, 900 units at the cheapest rate and the band-D property, say, 1,200 units at the cheapest rate? It should not be difficult for energy companies to obtain the banding information for each of their customers.

I am sure that there are many other difficulties with the idea of ratcheting up the price of energy, but given that Ofgem’s first priority is protecting consumers I hope that the Government will feel that ratcheting up the price—so that the more you consume the more expensive it is—is worth exploring. I was delighted that my noble friend Lord Teverson also touched on this idea. I had thought that I might be a lone voice running down this rabbit hole. If we want to reduce the number of households in fuel poverty by lowering their energy consumption and bills, progressive charging together with the Green Deal might offer the necessary carrot and stick.

Before I finish, I should declare that I am a landlord in the private rental sector. This year, all my properties were double glazed and I think that they are all pretty well lagged. My first reaction to a tenant coming to me wanting to do the Green Deal on the basis of no upfront costs would be, “Excellent. Go for it”. However, I understand, especially after listening to the excellent speech of the noble Lord, Lord Best, that I might have been naive because there are problems in this area. No doubt I will have to get my mind around those problems before the Committee stage.