Gas and Electricity Costs

Alan Whitehead Excerpts

Tuesday 18th January 2022 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I congratulate the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) on securing the debate. I think the best way to sum up this afternoon’s debate is to call it a united front. I was going to say a cross-party united front, but the party that was going to be in that united front is now no longer in that party—the hon. Member for Newton Abbot (Anne Marie Morris) had the Whip removed for daring to say that there should be a VAT reduction on bills as a result of the energy crisis. I commiserate greatly with her. It is shameful that she has had the Whip withdrawn under these circumstances. I would have expected hundreds of her colleagues to vote with her on that occasion, because we all know that we have to do something urgently about the perfect storm in energy prices that is coming towards us. It is a perfect storm because it will be added to the ending of the universal credit uplift and other cost of living increases.

As my hon. Friend the Member for Makerfield (Yvonne Fovargue) eloquently put it, millions of people in this country are spinning plates every day to keep their bills, rent and other costs under control. To have a £600 increase in their bills coming their way very shortly—the decision may well be made within a couple of weeks—will inevitably cause those plates to come crashing down across millions of households. This is a crisis emergency that we absolutely have to tackle with equal emergency and resolution as the crisis unfolds.

Hon. Members have talked about both the causes of the crisis and the things that could be done about it. I acknowledge that one of the key bases of the crisis is the unprecedented increase in wholesale gas prices coming into the country, which has had a knock-on effect for electricity prices and bills. Of course, the crisis does not involve a spike in price; it is likely to be a price dome rather than a spike, and it will probably last a couple of years.

The Government are not responsible for that, but they are substantially responsible for making the crisis much worse, as a number of hon. Members have talked about. The Government have managed the retail markets with extraordinary negligence over recent years, allowing a large number of companies to come in and sell us gas and electricity, with no hedging and no serious support behind them. Some 28 of those companies have now gone bust, leaving the customer to pick up the bill, and not just for the transfers that they had to undertake.

About 4 million people have lost their supply and are having to transfer to other companies at the price cap, rather than at the prices they were previously charged, so there is an additional increase on their bills. The companies are potentially having to bear the costs, at about £100 per customer, for the carnage that has taken place with the energy companies that have gone bust and the cost of putting those companies into “supplier of last resort” arrangements.

The Government have also been negligent by allowing gas storage effectively to disappear in this country in 2016, putting us at risk, to a much greater extent, of volatility in the markets, as we have seen recently. There are a number of things that can be laid directly at the Government’s door for their stewardship of the energy economy over the last few years, in addition to what we know are the problems of world prices. That is a double reason why the Government have to act now to put right a number of the things that they have so negligently allowed to happen.

Many hon. Members have mentioned the idea of reducing VAT for an extended period while the crisis in gas prices runs through. That could easily be afforded because of the increase in VAT that the Government have received recently. A windfall tax on companies that have been supplying the gas is an important idea. After all, whether it is supplied to the UK from the UK sector, from the Norwegian sector or from liquefied natural gas, the price that it is sold for is the same in the end. International spot prices are the same, whatever the origin of the gas. That is why a number of companies supplying within the UK sector have made super-profits from this episode, and it is right that they should be subject to a windfall tax that can be clawed back for customers to reduce the level of prices that they are likely to pay.

Hon. Members mentioned increasing the level and extent of the warm home discount, which would be a particularly targeted way of ensuring that those who can least afford it—the real plate-spinners in our society—have an additional plate to spin in the shape of a much more generous warm home discount, and one that expands its range.

[Wera Hobhouse]

Will the hon. Member pick up on a point that I made? Customers who wanted to do the right thing and bought their energy from renewables only should not be subject to energy price rises when renewable prices are falling because energy supply companies can lump the prices together.

--- Later in debate ---

[Dr Whitehead]

The hon. Lady has anticipated exactly what I will say in a moment. One of the wider issues about the energy crisis is how, regardless of where someone gets their energy from, what sources they get it from and who makes the energy, it is all delineated in gas prices eventually, so they pay what they would have done had they been a gas-to-electricity customer, even if they are not. Essentially, the whole market is now delineated—the wholesale market and the balancing market—around gas prices being the price-maker.

Hon. Members mentioned that the long-term issue is that we need to get off gas and go further on renewables, but—I put this straight at the Government’s door—we need urgently to reform the wholesale energy market and balancing market so that the market is not delineated in gas and it works in a way that properly reflects the increasingly dominant form of energy production that is renewables. Had we done that, although the gas price issue would have been considerable, it would not have been as damaging and as universal as it has been under the present circumstances.

I call on the Government to undertake measures that will take that terrible burden off the back of customers in the short term, ensuring that they are not subject, as they look to be at present, to the £600 or so increase that is likely to come their way in April, and indeed further increases that are likely to come their way as the price cap reflects the current price dome in gas.

I ask the Government to look seriously in the longer term at how the market has become so dependent on gas, how we have become so vulnerable to it, and how we can take measures to protect our industry and country from such volatility in the future by reorganising our market so that customers are substantially protected from it. This is an issue not just for domestic customers; it is a substantial issue for industry as well, which is groaning under the current price increases and, among other things, needs protection. I personally think that we need a price cap measure on volatile prices from outside the UK coming into the UK for industrial purposes, so that industry can have some certainty ahead of it regarding what prices it will pay for gas.

I hope that the Minister will have answers on all those issues. I know that the Government have been holding discussions with the industry about measures that might be taken, but the concern mentioned by hon. Members this afternoon is that nothing whatsoever has come out of that so far, and time is running out. The longer we do not know what we are going to do, the worse the crisis becomes. I hope the Minister can tell us what is to be done about this energy crisis.