Fuel Poverty

Lord Field of Birkenhead Excerpts

Tuesday 23rd October 2012 Westminster Hall

[Mr Frank Field (Birkenhead) (Lab)]

Some of our poor souls may be waiting for tomorrow for the big debate on fuel poverty. I hope that we will prove that they have missed the boat and that the real debate took place this afternoon, when the Minister announced precisely what the Government will do. Indeed, the Government need to announce what they are going to do after the difficulties into which the Prime Minister threw himself the other week. All of us who listened to or read what the Prime Minister said accepted that he was on to not only an important issue but the worry that most of us as consumers have that we have no idea what we are buying, let alone whether it is the best buy. In my parliamentary experience, that is very similar to the position that people face when trying to buy a pension. We could argue that buying a pension is somewhat different from heating our own homes, but there are certainly similarities between the industries, which make it difficult to understand what is the best and safest buy.

Today’s debate could not be better timed as a dry run for the Government, and I hope that the country can hear how they will respond to the Prime Minister’s special initiative. The day after he announced what he thought should happen, Ofgem in its wisdom responded—always well behind the curve—suggesting that if only people had enough information they would be able to make the right decisions. We all know, however, that merely providing people with information does not necessarily mean that they are informed or that, when informed, that information helps them to make the right decisions.

I want to sketch the size of the problem, what previous Governments have done to tackle the issue of people being cold in winter and what the Government could do today to make a break with the past, to extend a helping hand to some of our most vulnerable constituents and to get an issue behind them. The Government, among many other things, inherited a definition of people in fuel poverty—where the definition came from, which Mount Sinai it came down from, I do not know—which is those who spend more than 10% of their income on keeping warm. If we look at the detailed Government analysis of consumer expenditure, about 4.7 million people are technically in fuel poverty and, of those, 4 million are actually vulnerable.

In this debate and in the slightly bigger debate tomorrow, we need to look at how we have protected that group from dying unnecessarily in winter or from being unnecessarily cold. There were two previous schemes, of which the first was the voluntary social agreement, which ran from 2008 to 2011. Not much was wrong with it, except for three main disadvantages: people could be covered by the agreement but not on the cheapest rate, so they could be confused consumers and think they were getting the best deal, while being far from actually getting the best deal possible; the companies were allowed to decide who could apply, so they were the gatekeepers to their own scheme; and there was no link to an idea such as a social tariff, whereby people who were on it got the best deal that the company was offering. I want to return to the concept of a social tariff, because it is important if we are looking at how to move to the next stage of the debate and, moreover, how to help people.

The current scheme—to be charitable to the Government, I think that they inherited it—was to run from 2011 to 2015 and is called the warm home discount scheme. Under it, the companies again act as tax masters; they can put a levy on each of our bills and use the money to persuade people that they are helping them. Again, it is a brilliant scheme, except that we might expect a company paying a rebate to which the rest of us as consumers had contributed to give those people their lowest rate—far from it. Which? tells us that 75% of us—the figures are not broken down for vulnerable and other consumers—are not on the cheapest rate that we could be on, given the companies from which we buy our power. It is reasonable to suggest that the vulnerable might constitute 75% of that total. Therefore, probably 75% of those households, families and individuals who are helped by the warm home discount scheme are, on the one hand, getting a rebate paid for by the rest of us consumers and, on the other, paying it out in fuel bills that are unnecessarily high.

[Anne Marie Morris (Newton Abbot) (Con)]

Has the right hon. Gentleman taken on board the issue of those who simply do not or cannot have a choice? I am thinking in particular of those on prepayment meters. Consumer Focus research has shown that, on average, those on prepayment meters pay £1,306 a year, whereas those on direct debit pay £1,222 a year. Many of those individuals are undoubtedly poor and have no choice, because they are rental tenants and do not have the opportunity to take up the Government schemes. Has the right hon. Gentleman given some thought to how to help those vulnerable people?

[Mr Field]

Indeed I have, but, sadly, what is important is not whether I have but whether the Minister has, because he is in a position to do something about it. The proposals that I will outline shortly cover that group as well, because they put the onus on the company, not on the individual or the landlord, thereby shifting the responsibility and, in that sense, the subsidy from us as consumers paying energy companies that oversell or overprice their products to companies having responsibility to offer everyone the cheapest rate if we fall within the vulnerable groups, which includes many of the people mentioned by the hon. Lady. The problems with the current scheme include the rebate on a bill that might not be the lowest possible bill. The core group of people who qualify for such help—there is also an extended group—is narrowly defined, and my guess is that many of the core group would not include those whom the hon. Lady was thinking about, because many of them are in their own properties, whether owner-occupied or rented, and have control of their meters, so they would not be subjected to the landlord practice of which she spoke.

Under the current scheme, we have a core group that qualifies and then an extended group that is still defined by the company—not by us or the Minister, and not approved by Parliament as one might expect, but by the companies themselves. They are still in the driving seat. The problems with the warm home discount scheme include getting a rebate but not necessarily qualifying for the lowest rate or being trapped in how to buy our energy and therefore paying through the nose. Although the bulk of the funding for the rebate comes from us, many of those who are vulnerable are outside the core group, even though the core group gets 75% of the money in the scheme.

I have a plea for the Minister, and I will give him piles of time to reply, so that we can probe him further. It is a proposal that he could adopt, that would give the Government credit and that would dig the Prime Minister out of the hole that he is in, thereby perhaps earning the Minister promotion. The other day, we saw his skill in defending what the Prime Minister said on the Floor of the House. How much easier life would be for the Prime Minister if he had a proposal that the Minister thought was workable and might carry some weight in the country!

My proposal is that the Government should insist that companies do not have a licence to sell fuel unless they offer their most vulnerable consumers their lowest rate, not an artificially lowest rate, but the lowest rate at which they sell fuel. Unless they have a loss leader, one assumes that they will make a profit on that lowest rate, so they would not be asked to act in denial of Mr Scrooge. They would even make money, although perhaps not as much as they might make from other people. That would cover the group to which the hon. Member for Newton Abbot (Anne Marie Morris) referred and about whom she is rightly very concerned, in that those in the vulnerable group—I will come to that in a moment—would have the right to be sold fuel at the lowest rate. Account would have to be taken of the fact that some people have meters and receive their fuel in various ways, but such a scheme would be simple, and everyone would understand it.

It is important that people understand whether they qualify. In another role, in another place, Mr Weir, you have often referred to cold weather payments and who is eligible and who is not. We could spend a lot of time having great fun thinking about other people who should be added to the groups that are defined as being eligible for cold weather payments. Most of us would admit that they cover the most vulnerable in our society, if not all the vulnerable. They cover 4 million of those who are likely to suffer fuel poverty.

Switching back to the beginning of my speech, I said that the Government’s own data show that 4.75 million people are in fuel poverty but that some of them, like some people on higher incomes, spend more than 10% of their income on fuel because they want to be ultra-warm, or do not think about it, but 4 million households in fuel poverty are vulnerable and would be covered by the cold weather payment definition.

My suggestion is that the Government could win applause in the House tomorrow by being the first Administration to introduce proposals that effectively deal with our constituents who, particularly during winter, are cold because they cannot afford to heat their homes properly—those who are most likely to die during the winter because they are cold and those who are simply waiting for the Government to act. Ofgem, in its brilliance, said yesterday or today that nothing in the regulations, the law or anywhere in this land could stop the Government announcing that scheme and compelling companies to operate it. With 17 minutes to go, I hand over to the Minister, who could put us all us out of our misery within a minute or two.

[The Minister of State, Department of Energy and Climate Change (Mr John Hayes)]

It is a delight to speak in this debate under your chairmanship, Mr Weir, and a delight to respond to the right hon. Gentleman, whom I congratulate on securing it. He is right that it is a trailer for tomorrow’s debate on the Floor of the House, but it is more than that because it is an opportunity for us to rehearse some of the important arguments. I do so mindful of the fact that he is an authority on these matters, whereas I am new to energy. However, like him, elevation of the people is central to my political mission, and I go further than many of our colleagues because I believe in the redistribution of advantage in society, as he does.

Redistribution of advantage requires knowing when the Government should act and when they should not, knowing when the Government need to step forward in some of the ways he described and knowing when stepping forward might obscure or limit opportunities to achieve that goal. Chesterton, whom I hope the right hon. Gentleman admires as much as I do, said:

“The honest poor can sometimes forget poverty. The honest rich can never forget it.”

I hope to be rich—I am certainly not at the moment—but I aspire to be honest, and I hope that I can deal honestly with some of the issues he raised.

The right hon. Gentleman is right to divide his remarks. Similarly, half of my remarks will dwell on what we can do to support the most vulnerable in respect of the cost of fuel, but it is also appropriate to talk about how we can change the character of demand and consequently deal with the other part of the equation. The big debate about energy sometimes neglects how to attune people’s demand for energy more precisely to their circumstances. That is the other part of what the Government can do.

I will deal with some of the specific points that the right hon. Gentleman raised. I often think that Ministers do not do so sufficiently, and I do not want to be accused of falling into that camp. He spoke about when the definition of fuel poverty emerged, and he will probably recall that it emerged in formal terms in 2001 as part of the UK fuel poverty strategy.

Before that, the definition came from a series of academic studies that began to look at how being fuel-poor was defined in relation to the average or aggregate spend on fuel in households. That was deemed to be around a median energy spend of 5%, which meant that if someone was spending 10%, the median would be doubled and they would be deemed to be fuel poor. The average spend on energy may have changed over time, and perhaps that is why we need to update our understanding of fuel poverty. However, that is the history.

I will say a bit more about the core group of poorest pensioners who lie at the heart of the warm home discount, which the right hon. Gentleman spoke about at some length. He was right to say that the measures we put in place must not be just about the provision of information, for provision of information alone is not enough. Some people with simpler minds than his believe that the provision of information and the exercise of choice are not only virtues in themselves, but automatically lead to virtuous outcomes. I have never believed that, never having been preoccupied with the concept of choice in those terms. The right hon. Gentleman may want to read “The Paradox of Choice”, which argues that sometimes not only does it not lead to a virtuous outcome, but it can positively inhibit virtue.

None the less, information matters to some degree. For example, there is a strong case for being clear about what information people should receive, and for making that information comprehensible so that instead of being presented with all kinds of different options and having to navigate a system that is ever more confusing, simplified information is provided to people about energy costs and bills.

A strong argument that has been put to me, and is part of what the Government have and will continue to consider, is that there should be some obligation, and that is consistent with what we have already done in our voluntary arrangements on energy suppliers. I wholly agree with the right hon. Gentleman that provision of information is not a sufficient end point, but it is part of the package, and we might agree that it is appropriate to address the issue.

By the way, none of my comments has been prepared for me by my officials. I would not want to be limited by that.

The other important point made by the right hon. Gentleman was that the mechanisms we devise to identify those with the greatest need must be as sensitive as possible to circumstances. Of course, that is partly because need is dynamic. People’s needs change—by their nature, they are not static—and to that end, there is a real opportunity to engage with some organisations that are experts in particular areas.

As the right hon. Gentleman will know, Age UK prepared a briefing for the debate and there are organisations that represent the interests of chronically sick people, who have profoundly significant energy needs, in terms of both heating and light. Disabled organisations and charities also need to be engaged in the process, and we need to be open-minded enough to draw in a number of sources to identify need. That is also true of Departments, and I shall cover that in more detail in a moment or two. It is important that we learn from the policy levers used by other Departments to alleviate poverty and that we share good quality information.

I turn to the warm home discount, which the right hon. Gentleman spoke about. We want to provide immediate assistance to those who need help with their energy bills and to help energy companies find vulnerable people so that they can be offered longer-term support. The four-year warm home discount scheme provides that help. Launched in 2011, it requires energy companies to provide help with energy bills to about 2 million low-income households a year, and it is worth about £1.1 billion over four years.

The energy suppliers are required to provide the majority of that support to pensioners on the lowest income. As a group, such people are particularly vulnerable to the ill effects of a cold home over winter, as the right hon. Gentleman highlighted. The characteristic of that group—I have also mentioned other groups to which this point relates, such as housebound disabled people and the chronically sick—is that, by nature, they tend to spend more time at home. They are often in poorly insulated homes and may be using energy highly inefficiently, as well as which, put simply, very old people, like the very young, need to be kept warm, so a coincidence of factors make that group particularly vulnerable.

To return to the point about information, it is also true that the most vulnerable often have the greatest difficulty with complex forms and the provision of information in an insensitive, over-complicated way. They may find it hard to navigate the system and, as a result, become relatively undiscerning consumers through no fault of their own. Therefore, rather than having to apply for the warm home discount, most receive it automatically without needing to claim. The right hon. Gentleman has spoken about that matter in the broader context of welfare reform many times, and I am hesitant even to address—I will not say “lecture about”—the matter in his presence, because he knows so much about it and I know my limits.

However, further to my remark about sharing information, I would advertise that through innovative work we have developed good systems to match data between the Department for Work and Pensions customer records for those on pension credits and the information held by energy companies. Although it is true that energy companies play a key role in the process, we have engineered an appropriate level of co-operation between Departments and the energy companies to identify the target group. This winter alone, that means that 1 million pensioners will receive an automatic £130 discount by 31 December, providing them with the certainty that they need about heating their home over the coldest months.

[Mr Field]

One million is about a quarter of those who would get cold weather payments and are in what I would define as the vulnerable group.

[Mr Hayes]

Yes, the right hon. Gentleman is correct. It is, of course, true that a number will not be found through such mechanisms so we have set up a dedicated line and a call centre will be established for people to make a simple claim. All those who we believe may be eligible will also receive a letter telling them whether they receive an automatic discount or need to claim by the end of January.

The warm home discount also provides help to other low-income and vulnerable households who may be struggling to heat their homes, including those on a low income with children under five and those on a low income who are disabled. I accept that the eligibility for that broader group is determined by each energy supplier, but it is against criteria that must be approved by Ofgem. There is, therefore, an independent voice in that process, and it is not entirely a matter for energy suppliers.

A further 230,000 homes have benefited in that way from those discounts. The big six energy suppliers are all offering those schemes, which I encourage every hon. Member to advertise to their constituents. They should broadcast the availability of the schemes and work with local community organisations, voluntary groups and charities in their areas to ensure that we get the best value from that work.

We could discuss fuel payments, cold weather payments and so on, but we do not have time; the other part of what we are working on is the Warm Front scheme, which is about demand and dealing with the consumption of energy in a way that reduces costs. The scheme provides assistance, as the right hon. Gentleman knows, to low-income, vulnerable households through the installation of a range of heating, insulation and energy efficiency improvements to private sector households. We have recently made changes to the Warm Front regulations to broaden the eligibility criteria and allow even more fuel-poor households to access the assistance available under the scheme, which has assisted more than 2.3 million households vulnerable to fuel poverty. It is, however, the scheme’s final year, so we again urge people who are eligible for assistance to apply to Warm Front.

The obligations on energy companies are an important part of addressing the problems. I share the right hon. Gentleman’s view that it is simply not enough to stay where we are in respect of tariffs. That is precisely why the Prime Minister addressed that matter last week and why I was able to say the next day that we would use the energy Bill to facilitate change in that area. A strong case can be made around the kind of proposals set out by the right hon. Gentleman and others, which essentially are about creating greater obligation in the system. I want energy companies, consumer groups and other organisations that I have described to help shape that, so that it is deliverable. The imposition of such an arrangement now, without a proper discussion, would be inappropriate, but the Bill will come before the House in weeks rather than months. As the right hon. Gentleman knows, the Prime Minister has made it clear that the Bill provides a great opportunity for us to address this issue.

Like one of my political heroes, Joseph Chamberlain, I am in favour of tariff reform. They may be different tariffs and different reform, but if it was good enough for Joe, it is good enough for me.

[Mr Field]

Mr Chamberlain split his party on tariffs; what I propose today would unite the Minister’s party.

[Mr Hayes]

I am a unifying figure. I bring together all the elements of my party and the coalition around an absolute, undiluted, unabridged determination, as I have described, to redistribute advantage, address poverty and elevate the people; my party and I regarded Disraeli as a hero before it became fashionable. To that end, we will address the issue of fuel poverty in a new way, mindful of the right hon. Gentleman’s comments. We are determined to make it work; the response will no longer be supine, but proactive, and it will assist those in the greatest need.