Energy Policy and Living Standards

Douglas Carswell Excerpts

Wednesday 10th December 2014 Westminster Hall

[Douglas Carswell (Clacton) (UKIP)]

Government energy policy, put in place by Ministers of all three established parties, is pricing people out of being able to heat their own homes. The cosy consensus over energy policy here in Westminster is squeezing living standards across the country. According to the index of domestic fuel and light prices, helpfully reproduced by the House of Commons Library, prices have changed fairly dramatically over the past 40 years. From the early 1980s through to the early noughties, there was a slow, gradual fall in prices; it was a 20-year period of customers getting what they tend to get in a free market, capitalist economy—more for less.

Suddenly and dramatically, that picture changed in the early noughties. Since then we have seen a rapid rise in prices—sharper, indeed, than that experienced during either of the two oil shocks of the 1970s. Dual-fuel household energy bills in 2014 for the average home are forecast to be almost £1,400. That represents a real-terms price increase of over 50% in a decade—a decade during which average household incomes stagnated and during which, by some measures, the UK’s per capita income has fallen. Fuel bills have gone up sharply, but income has hardly changed. Living standards have been squeezed as a consequence. Pensioners and those on low incomes tend to pay a disproportionately high proportion of their incomes on energy. The definition of fuel poverty may have changed, but one stark fact cannot be overlooked: a large number of households—4.82 million households—now spend over 10% of their income trying to keep warm.

Why have energy prices gone up so rapidly? Why did the historic decline in energy prices suddenly turn around in the early noughties, and why have costs gone up in this way? Is it because there is not enough of the stuff? Are we perhaps running out of gas? Not at all: wholesale energy costs have actually been falling as a proportion of the total. According to Ofgem, for every £1 we pay on domestic fuel bills, only about 44p goes to meet the wholesale price. People might think, “Is this all the fault of those beastly energy companies? Are they the ones to blame?” About a fifth to a quarter of the bills that we pay covers the cost of the energy companies distributing and supplying what they sell us. People might think, “If only energy companies were forced to lower their prices, perhaps we could have cheaper energy for everyone.”

[Albert Owen (Ynys Môn) (Lab)]

Will the hon. Gentleman give way?

[Douglas Carswell]

With a due sense of reluctance, yes.

[Albert Owen]

I am very grateful. I welcome the fact that the hon. Gentleman has secured this debate. I guess that his party is now an established party—now that they are here, they are part of the establishment. The serious point is that distribution prices vary considerably across the 14 regions and contribute to between 19% and 25% of the bill. Does he agree that it is possible to have a leveller so that across the United Kingdom—or certainly in Great Britain—those prices could be the same? Does he also agree that it should be possible for people off-grid to get a better bargain? He mentioned dual fuel, and many people in deprived and rural areas are not on the grid, so they do not get the benefit of dual fuel discount.

[Douglas Carswell]

The hon. Gentleman argues in favour, I think, of Government price-fixing and making it illegal for suppliers to charge different prices in different parts of the country. I think there are a number of flaws in that approach. For a start, it could quite possibly mean that some areas would have to go without supply at all. Generally speaking, if we try to fix prices, we interfere with the allocation of resources and we have to be prepared for black-outs. That is not something that I would want, but he is absolutely right to say that a fifth to a quarter of the bills that we pay cover the cost of the companies distributing and supplying energy. The hon. Gentleman then makes the leap that many have made, which is that if only we could force energy companies to lower their prices, we could have cheaper energy for all. That, at least, seems to be the level of logic from the right hon. Member for Doncaster North (Edward Miliband). However, a prices and incomes policy for energy in 2015 will no more work than a prices and incomes policy has worked for anything in the past. Prices and incomes policies do not work.

Energy prices are not going up because of a shortage of energy or because of beastly energy companies; public policy is driving up the cost of household energy bills. The renewable obligation requires energy companies to increase the proportion of energy they generate from supposedly renewable sources. That basically means that we have to pay more in order to subsidise the construction of wind turbines. The Government’s own estimate suggests that fuel bills have gone up by 7% to refund those renewable obligations. However, the Renewable Energy Foundation, for example, has pointed out that the methodology of the Department means that the figure of 7% is, by many ways of analysing it, an extraordinary understatement. If we measure the increase in terms of price per kilowatt-hour, the increase in prices is likely to be far greater.

According to data that the Department recently put out following a freedom of information request, in the central fossil fuel price scenario for 2020, low-carbon policies will result in a 50% increase in energy costs for small business. In the low fossil fuel price scenario for 2020, low-carbon policies will cause a 77% increase for medium-sized companies, which would rise to 114% by 2030. Whitehall officials have gambled on the price and cost of fossil fuel and they have got it spectacularly wrong. I wonder whether the Minister, with an ambitious eye on the world beyond May next year, is willing to defend those policies.

The Minister’s colleague, the Secretary of State for Energy and Climate Change, has pledged to treble the amount of electricity derived from renewables. Will the Minister defend that, too? Energy prices are increasing because we are switching off perfectly good gas and coal power stations while pouring billions of pounds into windmills. It does not make sense.

[Mr Jim Cunningham (Coventry South) (Lab)]

I am intrigued by what the hon. Gentleman has had to say, but his analysis has missed out the fact that the price of oil has been dropping. That can have an impact on the cost of living and on energy costs, particularly for poorer families in this country. How does he think we could get the oil producers to pass on that decrease to the consumer?

[Douglas Carswell]

The hon. Gentleman is absolutely right and makes a very valid point. For a number of reasons—not least because of technology and innovation in the United States and the shale gas revolution—the cost of fossil fuel is being driven down. Unfortunately, we have a Government whose officials banked on the cost of fossil fuels being relatively high, so we are now locked into a position where people will have to pay higher costs for years, despite the potential for a great reduction. It is extraordinary that a Government who once pretended to believe in the free market are presiding over that. It is quite remarkable. We should be benefiting from the lower oil costs, but we are unable to because we have a Department that is committed to price-fixing.

[Sammy Wilson (East Antrim) (DUP)]

Does the hon. Gentleman accept that not only have the Government pushed up the price of electricity because of this infatuation with wind turbines, but that that in itself has led to distribution costs going up because the grid has to be reinforced, and that the carbon tax that is now imposed on the fuel used by the cheapest types of power stations is adding to people’s bills as well? The whole policy is directed towards high energy prices, which have reduced people’s standard of living and have furthermore chased industry out of the United Kingdom.

[Douglas Carswell]

The hon. Gentleman is absolutely spot on. It is irrational and uneconomic on so many levels. The irony is that the Government talk about windmills and wind turbines, using the language of sustainability, but the truth is that without the subsidy, it simply would not be sustainable. Unlike solar, it simply will not make economic sense to generate electricity through 13th and 14th-century windmill technology.

[Mr Christopher Chope (Christchurch) (Con)]

I congratulate the hon. Gentleman on securing the debate. Does he accept that the Government’s policy is very illogical in this area? For example, we are spending taxpayers’ money in order to enhance the setting of a world heritage site at Stonehenge, while at the same time using taxpayers’ money for subsidies for offshore wind turbines that are going to wreck the world heritage site on the Jurassic coast?

[Douglas Carswell]

The hon. Gentleman makes a brilliant point. He is extremely sound on this issue, as on so many other things. There are things on which it is good to spend public money, and securing the future of something like Stonehenge is wonderful, but one of the downsides of subsidising windmills is that they damage the countryside. It is not good conservation practice to industrialise the countryside with these subsidised wind turbines. It is not good for the environment or our heritage sites. It is not good, either, for people in Jaywick and west Clacton in my constituency, who are deliberately being priced out of being able to heat their home. Why? Because an out-of-touch elite in Westminster and Whitehall believes that that will somehow save the planet from excess carbon dioxide emissions. It is the Alice in Wonderland world of SW1 that has come to believe that. Ministers are competing to be the mad hatter, but it is a ridiculous state of affairs.

The Climate Change Act 2008 was a mistake. I should have listened far more carefully to the late, great Eric Forth MP and voted against it. My failure to do so is my biggest regret as a Member of Parliament. My new party looks to help me to right that wrong, or rather I look to help it to right that wrong.

Government schemes promising to insulate homes have been a flop. In Jaywick and west Clacton, in my corner of Essex, thousands of householders were led to believe that they could get free home insulation. For all that, it has happened only for a handful. The green deal has failed, and alongside it the Minister who presided over the scheme. Should we now follow the right hon. Member for Doncaster North, who has declared that he wants energy prices to be fixed and a prices policy for energy? He may have committed his party to a price freeze, but that will not mean lower energy prices for everyone. If we hold down the price of something by Government fiat, we end up constraining the supply of it. That policy will lead directly to black-outs.

The real reason for higher energy prices is the public policies that were put in place by the right hon. Member for Doncaster North when he was the Energy Secretary, and which all three parties now support. All three parties have had a say on energy policy and all three parties have got us to this sorry state of affairs. We need a return to the idea of an honest energy market. The Minister might pay lip service to the idea of a free market, but where it counts—when it comes to what he actually does in office—he is cheerfully defending a system of energy production that is anything but free, so let me remind him of what an honest market in energy production might look like.

If we had an honest energy market in this country, suppliers would compete to supply householders with energy at a price that they were willing to pay. There would be no requirements on them to produce a particular mix or quota of energy. Innovation and competition would mean giving customers more for less. Capital and technology would come together to satisfy customers. Instead, we have a system in which lobbyists and quotas meet in Government Departments in pursuit of renewable targets. It is a corporatist racket, not an energy policy that is remotely competitive or free. Coal, gas, fracking, nuclear—who knows what mix we might get if we had innovation, capital and a free, honest market in energy?

If the Minister finds it hard to imagine what a free market in energy might look like, may I suggest that he look across the Atlantic? Gas prices for domestic consumers have fallen by 26% in five years in the United States. As our prices have risen, over there they have fallen. It is not that the laws of physics are any different on that side of the Atlantic. The laws of physics are the same. It is public policy on this side of the Atlantic that is so fundamentally flawed and needs to change.

Voters who struggle to pay their heating bills this year should rightly blame those on all three parties’ Front Benches, who put this dreadful scheme in place. We need to make a change. We need to scrap the subsidies. We need to love the new technology, but subsidies must be abolished.

--- Later in debate ---

[Matthew Hancock]

The Government have had discussions about that. Ultimately, those changes can be best driven by competition. I share the disdain of the hon. Member for Clacton for prices and incomes policies in energy. Indeed, I think that he has missed some of the changes that we have made over the past couple of years, not least in the Energy Act 2013. For instance, he argued for more competition between different technologies so that those with the most potential can drive down costs and improve the situation for consumers. By switching from a regime in which, as he described, subsidy is given out to whatever renewable technology was brought forward to a regime in which a controlled pot of subsidy is auctioned to ensure that we get the best possible value for money, we have made a change towards a market-oriented system.

[Douglas Carswell]

In the United States over the past five years there has been a 26% reduction in wholesale gas prices and gas prices to consumers. Does the Minister have something to learn about public policy from America?

[Matthew Hancock]

I have no doubt that the massive expansion of the extraction of shale gas in America has had a downward impact on gas prices. Allied to that is the fact that America did not have many export terminals—it is now building them—which meant that it had a relatively closed market. We are working hard to get shale gas extraction going in the UK, where I think that it has huge potential. The Infrastructure Bill, which is currently before the House, proposes changes to make it easier to get shale gas out of the ground in a carefully regulated and safe way. I welcome the hon. Gentleman’s support for that.

The capacity mechanism and the changes to make our energy system more driven by competition are designed to ensure that we get that security of supply as well as the cheapest possible cost. That is best done through a market mechanism, but the market must have a strong framework around it, because we must ensure continuity of supply in order to keep the lights on.