Fuel Poverty

Robert Smith Excerpts

Wednesday 19th January 2011 Westminster Hall

[Chris Evans (Islwyn) (Lab/Co-op)]

I am grateful to you, Mr Gray, for the opportunity to speak in my first debate in Westminster Hall—this is, I suppose, almost like my second maiden speech.

The topic of the debate has been brought into sharp focus by the fact that the recent cold weather has left many constituents struggling to pay household energy bills. Last December was the coldest on record for 100 years. As a result, every home owner used more energy to heat their homes, resulting in more households falling into fuel poverty.

Fuel poverty is a serious and complicated issue. It is defined as affecting those who spend more than 10% of their income on energy bills. It is caused by unaffordable fuel prices, combined with poor housing stock, which is often characterised by inadequate insulation and inefficient heating systems.

Fuel poverty has more than doubled in the UK since 2003. The “Annual Report on Fuel Poverty Statistics 2010” estimated that fuel poverty affected 2 million households in 2003, and the figure rose to 4.5 million in 2008. Official predictions say that that is only the tip of the iceberg and that the worst is yet to come.

On 16 December 2009, an Ofgem presentation forecast that 6 million households would be in fuel poverty. On 24 February 2010, Ofgem warned the Select Committee on Energy and Climate Change:

“there is a real chance that as we go towards the middle of this decade prices will not only go up but will become fantastically volatile. That is not good news for the consumer”—

quite. Age UK says that, between 2003 and 2009, average household gas bills doubled and average electricity bills rose by 60%. The latest estimate of fuel poverty in the UK shows that more than 3.5 million older people are in fuel poverty. Surely that must be a worry for us all.

Fuel poverty is not spread evenly throughout the UK. Nearly a fifth of households in England, more than a quarter in Wales, nearly a third in Scotland and more than a third in Northern Ireland are in fuel poverty. In Wales, the November 2010 fuel poverty figures showed that 332,000 households were fuel-poor in 2008, and that the figure had risen by 198,000 since 2004, representing a 15% rise. In 2008, 26% of Welsh households were estimated to be in fuel poverty. That is despite measures undertaken by the previous Government to address fuel poverty and to improve the energy efficiency of homes.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

One lesson that we all have to take on board is that the previous Government put too much reliance, especially in the early stages, on cutting energy prices and on the market delivering lower prices, so when the market put prices up, many people went back into fuel poverty. The hon. Gentleman is therefore right to say that it is important that we permanently deal with the energy efficiency of the housing stock.

[Chris Evans]

Yes, I agree, and I will develop that argument further.

The measures introduced by the previous Government included the winter fuel payment, central heating programmes, which the hon. Gentleman alluded to, and the energy efficiency commitment. All those have played a role in tackling fuel poverty, but their impact has been eroded by the financial crisis and what seem to be annual energy price rises. With rising fuel prices and lower disposable incomes, householders must make a tough decision between heating their homes and paying for other essential household expenses.

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[Chris Evans]

The point that I am trying to make is that one way to solve fuel poverty is to make sure people do not use so much energy; it brings the price of their energy bills down and they will have a warmer home. They will come out of fuel poverty and will not be in so much danger.

The welfare and public sector cuts that have been announced by the Government together represent a threat to the lives of millions of people. I worry that the number of people in fuel poverty will soar over the coming months as a result.

It is all very well quoting figures, and my telling the House how wicked I think the Government are, but what does it mean to live in fuel poverty? It means that families will have to cut back on essential items to allocate money for rising fuel bills, or will have to turn down their heating, risking their health by increasing the chances of contracting common ailments such as colds, flu or bronchitis. Fuel poverty causes stress in children and adults as well as long-term depression and anxiety. To many individuals and families it can be the main cause of social exclusion, and deteriorating life chances and educational achievement.

I welcome the independent review of fuel poverty targets that the Government have said they will initiate before the end of the year. Making the nation’s housing stock more energy efficient should be at the heart of the Government’s energy strategy in the Energy Bill. The Government have set out plans for their green deal, whereby loan-funded insulation costs pay for themselves through efficiency savings. However, at the same time, as I have said, the coalition have announced that they are cutting Warm Front funding to a third of its current level. That threatens to leave many fuel-poor households even worse off, because they are likely currently to be under-heating their home, so any savings from improved energy efficiency will be taken in additional warmth, and their energy bill savings will not be enough to cover the green deal finance repayments.

Furthermore, some vulnerable customers may be nervous about taking on a fixed charge on their energy bill, despite promises of lower final bills, as that will reduce their option to budget. I fear the green deal is unlikely to be sufficient to help the fuel-poor. That has been confirmed by Age UK, which states that while the Government’s plan to have loan-funded insulation costs pay for themselves through efficiency savings

“is likely to benefit mid and high income households, there remains a big question mark over whether it will work for those in fuel poverty.”

It is therefore vital that the energy company obligation should meet the needs of the fuel-poor. That is particularly important for the fuel-poor, as in some cases existing heating systems may be inefficient, but the existing carbon-focused schemes mean that it is not possible to install a new more efficient system.

In conclusion, given the pain that is being inflicted on people by energy companies, it should be remembered that, unlike consumer prices, wholesale energy prices are half of what they were in 2008. It is a matter of some urgency that the Government should intervene to curb excessive fuel price increases.

[Sir Robert Smith]

I certainly agree that the regulator, and everyone, should try to ensure that we have the lowest possible prices, but in tackling fuel poverty we must confront the fact that the underlying pressures of carbon reduction and world energy scarcity mean that we shall have to have a fuel poverty strategy that will cope with higher prices. We cannot just rely on low prices to get us out of the problem.

[Chris Evans]

As I said earlier, fuel poverty is a complex matter, and there is no magic bullet to solve the problem. We have to consider it in a holistic manner.

If the regulator does not have sufficient power to intervene to prevent huge price increases, the solution is clear. It is time for energy companies to be made to serve society again, rather than the other way round. In February 2010, Ofgem published the findings of its Project Discovery. One of the most radical proposals was to have a central energy buyer, on similar lines to the old Central Electricity Generating Board. At present, the big six energy companies own most of the UK power plants, which supply the majority of the country’s consumers, but a central Government-controlled body could require power plants to sell electricity at fixed rates that would then be sold on to customers, thus bringing an end to the dominance of the big six once and for all.

It is important to remember that fuel poverty is not simply about schemes and programmes. It is a matter of life and death for the many people who are forced to live in cold and damp conditions. We need a new, far-sighted fuel poverty strategy to ensure that fuel-poor households have a decent income and that sustainable energy-saving measures are prioritised.

[Guy Opperman (Hexham) (Con)]

I am grateful for the opportunity to speak in this debate, which is timely and well-intentioned.

Given the harsh weather conditions leading up to Christmas last year, fuel poverty has never been of such concern to the people of Hexham. I represent well over 1,000 square miles of rural Northumberland, and the subject is most important to my constituents. It is no exaggeration to say that many people have to make a straight choice between heating and eating. They are in a difficult situation. If that does not sound primitive enough, NFU Mutual, the rural insurer in my part of the world, found in its annual rural crime survey last year that domestic fuel was sixth on the list of the top 10 items most commonly stolen from homes. The “Crimewatch” scene in Northumberland is astonishing for the number of people who are suffering rural crime with the loss of their fuel.

Although there are ongoing recommendations on how to discourage thieves, this crime wave is something that the country cannot tolerate. Is it something that we can deal with or, in reality, do we need assistance in the March Budget? I certainly hope that we shall get such assistance; I believe that it would be right, because the problem is putting an unacceptable strain on people’s incomes.

I have extensively gone through the approximately 20-plus providers of heating oil in rural Northumberland. In excess of a dozen of them are owned by one company. Hon. Members will be amazed to hear that they are all using their old names, and that they are all operating and selling as if they were perfectly independent. Some people have been buying from these companies for 30 or more years. It is only when one starts digging that one realises that there is a significant problem, which affects well over half the population. It is well known that the company behind this is DCC Energy, a Dublin-based provider. The company’s fuel oil customers are less able to negotiate a good price, as the cost of oil continues to rocket.

[Sir Robert Smith]

A more serious problem in the working of the market is that, at times of stress, quite a few of these supply companies say when asked for a price, “We can’t give you a price now; it’ll be the price on the day that we make the delivery.” How can the market work efficiently if people cannot shop around when placing an order? Would the hon. Gentleman like to comment on that aspect?

[Guy Opperman]

I would: the simple truth is that customers, wherever they are and whatever problems they face, need to shop around. If they do not, they will face the problem that the hon. Gentleman describes, which I and others in Hexham have come across. They will be deprived of the ability to buy fuel on an ongoing basis.

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[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate the hon. Member for Islwyn (Chris Evans) on securing this important debate. He has said that this is his first time in Westminster Hall. I have spoken a few times in Westminster Hall, where I always find the level of debate enlightening. The first time that I stood up to speak in Westminster Hall was in a debate that I secured on fuel poverty, with a focus on rural Britain. It is nice to see some of the same faces again for today’s debate, adding new issues for us to consider and re-emphasising the issues that make fuel poverty a constant topic for debate in our constituencies, as my hon. Friend the Member for Hexham (Guy Opperman) has said.

In the debate that I secured, I focused on people off the mains gas grid, concentrating on oil and LPG. I am pleased to say that, as a result of that debate, electricity companies were falling over themselves to let me know what they were doing for my constituents. If this message has not got out I will repeat it now: anyone who does not have access to mains gas is allowed to claim for a dual fuel discount from all their suppliers. The electricity companies made their position on that scheme clear, and if any constituent of mine, or indeed of anybody else, is not taking advantage of that scheme at the moment, they should alert their electricity company to that fact.

Since then, we have also had the oil price spike, and both the Minister and I have homes that are heated by oil. He was already taking action on the matter when it was raised in December, and I commend him for some of the work that he has done, but there is no question in my mind but that the spike has plunged more people into fuel poverty. We are talking about a significant differential of hundreds of pounds between the cost of heating our homes with gas and the cost of heating them with oil or LPG, and I encourage the Minister to think more creatively. I do not want to sound like a socialist, but when the market is not operating efficiently, regulation is at times necessary—or just the threat of regulation might help.

We have already heard stories about prices rocketing; they have now fallen back a bit, but not to where they were in October and November. Some of that is due to the oil price rising. The spikes were of 70 or 80%, although some people say that they were higher. Rises of 50 to 70% were typical in my constituency.

The price has now dropped back to about 62p per litre, from an average, at its peak, of about 72p. Considering, however, that in October the price was about 40p, that is still a significant increase. In my view, if the price of mains gas or electricity leapt by 50% in a matter of weeks, there would be more action than we saw over student tuition fees.

I do want to pay some tribute to the previous Government’s Warm Front programme. It would be wrong to dismiss it entirely as it did quite a lot of good but, as I have said previously, I encourage the Minister not to repeat some of its mistakes, because it was inflexible and took no real account of the housing stock. Several of my constituents took advantage of the programme, seizing the opportunity to get more efficient boilers and similar equipment, but they were in properties that were already connected to the gas grid. Most of my constituents who fall under the fuel poverty definition missed out on an opportunity to do something about their heating situation.

The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) mentioned that housing stock does not seem to be a factor in deciding how fuel poverty measures are applied. It absolutely needs to be, and the green deal is a great opportunity to do that. The green deal has been flagged up as being about efficiency, and I think that initially it over-focused on the insulation of existing houses. Energy companies and the Energy Saving Trust and similar bodies say that a lot of what is planned will be almost irrelevant if we do not all have thermostats in our homes. We can turn down our radiators manually and do other things, but if we do not have thermostatic control the boiler will still generate and consume the same amount of fuel. Prioritising thermostatic control is, therefore, one thing that we need to focus the green deal on.

There is also the issue of the funds available to households. I understand the simplicity of the green deal, and that it will mean about £6,500 for householders, but the plan is that the amount will be the same across the country. Frankly, with urban stock, householders could do a lot of what they wanted—insulation and draught excluding—for less than £1,000, as I did in my house in Hampshire, when I was living there. For about £12, I dramatically reduced my fuel bills, simply because I plugged the gaps that the old walls and doors did not—the change was significant. I am concerned that for my constituents who rely on LPG and oil, it will cost far more than £6,000 to rip out inefficient carbon-based fuel systems and replace them with more energy-efficient heating systems. I hope that the Government take that into consideration when doing their individualised, but hopefully targeted, programme. It would add complexity, but it would make a difference, rather than the programme just being about getting a bit more energy efficiency for the same money.

My hon. Friend the Member for Hexham talked about efficient markets—perhaps oligopolies—developing. I am not suggesting that suppliers in my constituency operate as such, but I am concerned about the efficiencies of the market because they have an impact on pricing. I have written to the Office of Fair Trading and, to my knowledge, it has not acknowledged my letters from over a month ago, which is disappointing. I hope that the Minister thinks about some of the suggestions that the hon. Member for Ynys Môn (Albert Owen) made about the importance to people of energy and of its pricing, and about whether the Office of Fair Trading is the best body to look at this energy sector, given that LPG and oil do not currently fall under the Ofgem banner. Despite my attempts to talk with that body about some innovative social tariff ideas, it keeps saying, “It’s not our issue.”

[Sir Robert Smith]

The hon. Lady makes an important point. When Ofgem is dealing with the other energy suppliers, those of electricity and mains gas, it looks at vulnerable customers and the way in which customers are treated, as well as the price of the product. The OFT, however, is far more limited in its powers and, it would appear, in its interests.

[Dr Coffey]

I agree strongly, and that is why I am keen to see an expanded role for Ofgem. I do not say that lightly, nor do I insist upon it, but I would like the Minister to consider the issue, because it is not going away. It is a fact of life that energy—certainly oil—is becoming more and more scarce.

It has been mentioned that quite a lot of people in this country live less than a mile from grid gas, so should we be considering introducing incentives to use some of the green deal money to get more homes on to the grid? Should we think about encouraging communities? Several communities already come together to do co-operative buying, so is there a way of rolling out best practice in that area? Again, I do not think that the OFT is the body to do that, and aspects of Ofgem could be involved.

I pay tribute to a collection of men who belong to a Rotary group, not in my constituency, but where I used to live in the North West Hampshire constituency. Every week they get together to chop wood and make it into kindling, which they supply to pensioners in the village—my mother is a beneficiary. It is a nice thing that these good people do, and spending £4 a week on a bag of kindling is welcomed by the pensioners. I am sure that the activity provides the men with exercise but, more importantly, it provides them with a sense of well-being and of knowing that they are doing a service. We should encourage good examples of communities working together to ensure that vulnerable people in those communities are well served.

In summary, I want the Minister to think more widely about the oil and LPG market, about its efficiency and how it operates, about how we can get social tariffs into oil and LPG provision, and about Ofgem’s role. Most importantly, the flexibility of the green deal is critical in making a difference to the fuel poverty of, and energy efficiency for, those not connected to the mains gas grid. I look forward to the Minister’s comments.

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[Charles Hendry]

There is a great deal in what the hon. Gentleman says not just about the benefits of shopping around, but about people understanding the benefits of buying early. The price increase happened extremely quickly. It rose from 40p at the beginning of December to 70p within two or three weeks. More people should be ordering in October and November. I hope that they will not have the experience that the hon. Gentleman had of only getting a partial delivery. We need to ensure that people understand that issue more fully.

The most important change that we need to consider is whether to take a fundamentally different approach to energy efficiency. In this country, we have some of the least energy efficient housing in Europe. From 2012, the green deal, which is part of Energy Bill, will provide the opportunity for householders to take action to improve the energy efficiency of their homes and to protect themselves against energy price rises through greater energy efficiency. We are also introducing a new energy company obligation to replace both the carbon emissions reduction target and the community energy saving programme. That will do more to help the poorest and the most vulnerable consumers and it will offer basic heating alongside insulation.

The key to the green deal is that the consumer should receive the benefit before they have to pay for it. We also hope that it will be of benefit to people who are in private rented accommodation, which is often the most difficult area to deal with. The landlord will no longer have to pay up front to cover the costs because they will be recovered over time from the people living in that property, as a result of a small addition to the Energy Bill. We hope that the landlords will decide to do that work voluntarily, but the Energy Bill will provide powers to require that work to be done, including a new power for local authorities from 2015 to require action to improve the worst performing homes. As the Energy Bill goes through the other place and, ultimately, the House of Commons, we are keen to discuss much of the detail and to ensure that we deal with the matter in the most effective way possible.

[Sir Robert Smith]

The hon. Member for Suffolk Coastal (Dr Coffey) raised the fact that a lot of the early talk about the green deal related to measures such as the physical insulation of the home. Has there been any discussion with suppliers about expanding the green deal or working with installers to put more efficient equipment into the home? Is there any way that that can be integrated into the green deal?

[Charles Hendry]

The golden rule with the green deal is that the saving has to be greater than the long-term cost. Accordingly, measures can be considered—for example, more efficient boilers and thermostat controls—that will help to meet that energy efficiency goal and to fit within the total golden rule that I have mentioned.

The root of the problem of fuel poverty is that price rises and changes are reflected in the cost of energy. I am very disappointed that most energy suppliers announced price increases before the winter. I join the hon. Member for Islwyn in paying tribute to EDF, which deferred a price increase until after the winter. We should recognise good practice where it occurs, and EDF’s customers will recognise and appreciate such action. In addition, we want a complete end to retrospective increases, where customers are only told after an increase has come in that it is going to happen. We want to do more to help consumers switch by requiring more helpful information to be provided on bills, and we are pleased that Ofgem has announced a market review to consider the large increase that it has seen in the profit margins of such companies.

As the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) mentioned, rising commodity prices have been reflected in consumer prices. The increase has been on a rising trajectory, and I think that most hon. Members would assume that the price of oil—currently, $90-plus a barrel—will continue to increase. We are looking to the same companies to rebuild our energy infrastructure. Some £200 billion needs to be found to upgrade our energy infrastructure, because of the lack of investment over recent decades. Accordingly, an enormous amount needs to be done by the companies and we need to recognise that. I am pleased by Ofgem’s work and by the evidence that Alistair Buchanan gave to the Select Committee on Energy and Climate Change yesterday. I am in absolutely no doubt whatsoever about the robustness and thoroughness of the Select Committee’s investigation and the real powers that it has to address these issues.

Once again, I congratulate the hon. Member for Islwyn not only on securing the debate, but on giving hon. Members the chance to address these issues at an important time of year, when they are very much on people’s minds. I also congratulate him on the constructive and thoughtful way in which he introduced the debate.