Energy Costs

Lord Sikka Excerpts

Thursday 6th January 2022 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I thank the noble Baroness, Lady McIntosh of Pickering, for this debate.

The effects of high energy prices upon low-income households are exacerbated by the Government’s wrong policies. The cut in universal credit has made millions of households energy poor. Disposable incomes of the less well-off will be further depleted by the 1.25% Johnson tax and the freezing of personal allowances and income tax thresholds. We already know that VAT on domestic fuel and the green levy are regressive and hurt the poorest the most. Millions of retirees are unable to afford the high energy costs. Despite the triple lock, some 2.1 million pensioners live in poverty. The government response is to cut the real value of the state pension, which in April this year is due to rise by 3.1%, while the rate of inflation is expected to be double that. The age-related winter fuel payment of between £100 and £300 has remained unchanged since 2011. If it was linked to energy prices, it would need to be double that. Due to the Government’s policies, millions of people will suffer hardship and thousands will die from fuel poverty.

The privatisation of the energy industry has also been disastrous. There is little focus on the long-term, and that has deepened the crisis. In the past decade, the big six energy companies, mostly foreign-owned, have paid £23 billion in dividends, equivalent to 82% of their pre-tax profits. The investment in infrastructure is pitiful. The UK relies upon gas and electricity imports from Belgium, France, Ireland, Norway, Russia and elsewhere. The UK has around nine terawatt-hours of stored gas reserves, equivalent to 2% of annual demand, compared with equivalents of between 25% and 37% in major EU countries. As a result, people are highly exposed to price shocks.

Ofgem has failed to provide energy security and market stability or monitor the financial stability of energy companies. The collapsed Bulb Energy had, on its last balance sheet, bank loans of £54 million, owed suppliers £466 million and had accumulated losses of £223 million. However, its share capital was only £100. With such gigantic leverage, bigger than the leverage of Lehman Brothers and Bear Stearns, neither Bulb nor its parent company Simple Energy, which had debts of £1 billion, were in any position to manage the volatility in the market. Ofgem did absolutely nothing to deal with that.

To mitigate the crisis, I urge the Government to do five things: first, reverse cuts in universal credit and planned tax increases; secondly, abolish VAT and the green levy on domestic fuel; thirdly, double the winter fuel payment and restore the real value of the state pension; and fourthly, provide funds to insulate homes.

The cost of these four things can easily be met by taxing unearned income at the same rates as earned income. Applying that to capital gains would raise £17 billion extra in income tax and £8 billion in national insurance contributions—more than enough to cover the cost.

Fifthly, and finally, the energy sector should be brought under public ownership so that the country can plan for the long term and we can end profiteering and abuses by energy companies.