Energy Costs

Lord Grantchester Excerpts

Thursday 6th January 2022 Lords Chamber

[Lord Grantchester (Lab)]

I thank the noble Baroness, Lady McIntosh, for introducing this topical debate on rising energy costs and their effect on the cost-of-living crisis being felt across communities while the Government dither. The Government have conducted three rounds of industry talks and are yet to come forward with robust plans. They are still considering a range of options to protect consumers from the full impact. I thank all noble Lords for their many contributions, admirably expressed from around the House, which have laid bare the cause and effect of the recent spike in energy gas market prices—the highest seen in October 2021 being surpassed in December, now nine times higher than prices a year ago.

The UK imports approximately 50% of its gas, making it especially sensitive to price rises. Some 85% of homes use gas central heating. In addition, gas is used to generate around 30% of the UK’s electricity, with knock-on effects on electricity prices. The Government have set the conditions for this crisis and need to respond.

At this stage, I also draw attention to the impact on rural households, so often ignored but nevertheless still important. They tend to be off-grid and vulnerable to spikes in diesel prices for their heating, as well as transport costs. I also thank my noble friend Lord Hendy for his remarks on the effects on low-income households, and my noble friend Lord Sikka for his remarks on the old in our society.

Labour has called for an immediate cut in VAT on fuel bills, from 5% to 0%, for the winter six months of this year. This can happen immediately to reduce the burden and disruption in the market from the October rise in the price cap to £1,277 for the so-called “reference customer” and from the bankruptcies experienced by utility companies. This would also benefit rural households.

The scrapping of VAT on fuel for homes would bring benefits of £2.4 billion to consumers this winter and would be absorbed by the excess of forecast VAT receipts that the Government have received from inflation and increases in supply chain, materials and transport costs experienced throughout the economy. In addition to this immediate benefit, the Government can deliberate on medium-term measures to be introduced once the new price cap is announced on 7 February. This is forecast to see it rise by 40% to a new high of over £2,000 in annual household bills.

As the Minister will appreciate, it was Labour that called for the consumer price cap that the May Government introduced under the Domestic Gas and Electricity (Tariff Cap) Act 2018. At this time, Labour argued that the full five-year period, which I recollect from the legislation, would be needed for an effective market to be created. With the disruption from collapsing utility companies, can the Minister foresee that not only will the full duration to 2023 be required but extension may also be necessary?

Energy companies have requested a loan scheme to smooth out the volatility. Ofgem is considering changes to the price-cap mechanisms. Can the Minister repeat the confidence, which he expressed in answer to a previous question, that the Government are happy with the operation of the tariff cap and the application of the supplier of last resort process? Administrators have access to £1.7 billion in government loans for Bulb customers. UK households will already be paying an extra £80 in their energy bills from these recent collapses, according to Ofgem. That is why, in the medium-term, Labour is also considering measures to help pensioners and low-income families from targeted changes to the warm home discount and ECO schemes. The noble Baroness, Lady Boycott, is correct to direct attention to the wider effects on families and to speak against scrapping green levies.

In the longer term, Labour plans to upgrade the UK’s 30 million homes through its climate investment pledge of an additional £28 billion in green investment each year of this decade. This is the decisive decade for the climate emergency, and Labour plans immediate energy efficiencies to upgrade 19 million homes to reach energy efficiency—EPC band C. This is the size of the cost-of-living crisis that the Government need to have answers for.