That the Grand Committee takes note of the cost of living, and in particular (1) the rising cost of household energy, and (2) the role of the consumer protection regulatory regime in energy markets.
My Lords, I obviously had great prescience in going for this debate on this day. Unfortunately, it means that Ofgem and the Chancellor have stolen some of my thunder and limelight. I actually had my coat on to come here when the Chancellor was speaking, but I heard most of what he said.
I propose to focus largely on the energy market failure, but let us start by putting it into broader context. Higher gas prices are coming, while shop price inflation rates doubled in the last month, rents are at their highest level for more than a dozen years in real terms, house prices for first-time buyers are at their highest level ever, food prices are rising in the post-Brexit situation and general price inflation is at its highest for about 30 years. That means unprecedented numbers of people are taking out loans, and incomes are not keeping pace. Wages, benefits and pensions are all falling in real terms in the face of this inflation, and all taxpayers are about to be hit by the surcharge on national insurance. As a result of these costs and pressures, according to Which?, more than 2.5 million households in the month of January alone defaulted on at least one regular payment—rent, mortgage, energy, loans or credit cards—placing those families in financial difficulty and often under serious mental stress.
That is the background, but the energy price rises are the most spectacular feature. Another enormous hike in the energy price cap of nearly £700 was announced today. This is before we all have to face up to the very substantial cost of transitioning away from gas heating entirely, and the need for a just transition to a non-fossil-fuel-based home heating system.
I will return to that longer-term issue in a minute, if I have time, but the Government and Parliament need to recognise the stress and hardship that all of this is causing to vulnerable individuals and households, particularly to low-income families. As I understand it from the Chancellor’s Statement an hour or so ago, the Government recognise that the hike in the energy cap is a problem. The Minister will correct me if I am wrong, but the Chancellor intends to offer an offset to the potential £700 rise in household energy bills by giving all bill payers an undifferentiated £200 each, unrelated to household income, energy bills or property conditions. This is to be delivered via a sort of indirect loan to suppliers, which then have to repay the Government. The costs of this will eventually be passed back to consumers, thus adding to potential household cost pressures and indebtedness down the line. In addition, over and above what was rumoured, the Chancellor is announcing a rebate to lower council tax bills.
My Lords, I declare an interest in energy price-related issues, as in the register.
My brief contribution to this superbly timed debate—it really is perfectly timed—will be more about preventing the reoccurrence of this problem, which otherwise will hit us again and again, than the immediate amelioration which is certainly needed. No doubt we shall hear from the Government about what is proposed to prevent widespread suffering and address the real fear in many households, and disruption throughout key parts of industry, when energy prices go super-volatile as they are doing now.
There is a simple—perhaps over-simple—one-word answer to the question of what we can do to prevent recurrence: back-up. We are in the midst of a gigantic energy transformation which is the biggest for over 200 or 300 years, since the Industrial Revolution. It is a fundamental reorganisation of our entire energy system into a new pattern. This is huge, and no system—certainly not this one—will work without the full availability of fall-back energy supplies, 24/7, which can kick in when the inevitable disruptions, breakdowns and crises occur. It does not matter whether we talk about green energy or traditional fossil fuels: there will be, as there has been in the past, occasional and sometimes devastating interruptions, and that is why we must have full back-up facilities in place. Do we have them?
Look at the scene. We have ruled out coal. Obviously, that is the right thing to do but frankly, I am afraid that it will not make any difference to rising emissions worldwide or to climate control, because of course the main coal emitters are roaring ahead. There are 8,200 coal-fired stations in the world, all puffing fumes into the air, and several more are being built despite the Glasgow undertakings that they would not be. So, coal will continue to drive emissions upward, but at least we can demonstrate our good intent by closing it down. So that is that—although I note, slightly cynically, that to keep the lights on in Glasgow and the conference going, they had to open up a couple of coal-fired plants.
My Lords, I congratulate the noble Lord, Lord Whitty, on his prescience in the timing of this debate. Barring a Russian incursion into Ukraine or more wine o’clock Downing Street shenanigans, inflation is very much at the top of today’s news. It is not good news, as has already been spelled out: we are in very difficult waters at the moment and things show all the signs, in the coming period, of getting worse. With inflation now at a 30-year high and a record increase in energy bills expected from April, poorer households are under particular pressure, as essentials such as energy and food form a larger proportion of their shopping basket than discretionary items. We also have the increase in national insurance to come, adding to the pressure on jobs and living standards. I believe that to be a bad idea, certainly at this time in the cycle of our economy.
I recognise that the Minister is very much bound by the Statement on energy made by the Chancellor today. These new measures, and the inclusion of a government-backed £200 discount in bills by offering loans to suppliers, as well as the council tax rebate of £150 for those in lower-cost housing, are welcome and a recognition by the Government that we have a big problem. They are welcome, but they will not offset the other measures that we are going to experience with the Ofgem price cap announcement, which could catapult the average home bill to £2,000 from April. That is a lot of money for many households.
I had hopes—there is no surprise here, with my background—that rising real wages would help to ease the position of working people. Indeed, labour shortages and union action in a number of industries have secured impressive pay rises for some. For example, I read in the paper the other day that the GMB has secured a very decent rise for binmen in Eastbourne, while Unite has secured good settlements to disputes in South Yorkshire, Mercedes Benz and Nottingham. But this is not the general picture: the majority of workers face a fall in real pay and the heroes of the public and related services, who have done so much in the current pandemic, will be poorer at the end of it than they were at the beginning, despite being showered with thanks and claps by a grateful nation.
My Lords, I remind noble Lords that I am a vice-president of the National Energy Action advisory board. I join others in extending thanks to the noble Lord, Lord Whitty, for this timely debate.
The rise in energy costs announced this morning and in the cost of living generally is now being described as a pending cost of living catastrophe. Unless the Government change course, even with this morning’s announcement, I fear that that is what it is likely to be. It most certainly is for those on low incomes, who face rising inflation, likely to be 7% in April, this massive hike in energy prices, rising taxation—not least national insurance, council tax and the freezing of thresholds—and rising interest rates, increased to 0.5% about two hours ago.
The StepChange Debt Charity has estimated that a third of households are now having difficulty meeting their bills and many of them are now borrowing to cover their basic needs. There is now a real risk of a national debt crisis. One partial solution is to restore the cut in universal credit—that seems essential—but there are others.
I hope that the Government will act on the need to reflect the true rise in the cost of living for those on low incomes. The CPI index does not reflect the rising cost of basic food products or the cutback in the value range of supermarket products. Perhaps the supermarkets might look at what they can do to keep prices down. There should be an index that does not include car costs or consumer goods, so I am glad that the ONS will be producing an inflation index based on tracking basic food prices. I hope that the Minister will confirm that the Government will want to use it.
We heard just now that the energy cap has been increased this morning by 54%. It is estimated that a quarter of UK households will be paying more than 10% of their budgets on energy in April, but many of the poorest households we will be paying much more than 10%. For that reason, it is welcome that the Government are introducing some further financial support. It is, however, inadequate. As the noble Lord, Lord Whitty, pointed out, it is only half the increase and other measures need to be taken to support people on low incomes. Loans are being used when it is estimated that gas prices are likely to stay twice as high as they have been until at least 2025.
My Lords, I am delighted to follow the noble Lord. I declare my interest as president of the advisory board of National Energy Action. I congratulate the noble Lord, Lord Whitty, on securing the debate, but especially on securing it today; it could not have been more timely. I entirely endorse his comments about the role of the regulator, which raises a lot of questions that I will refer to in my short contribution.
I approach this primarily from the perspective of rural areas, such as North Yorkshire, Northumbria, Cumbria, County Durham and many isolated and deeply rural parts of England especially. Residents of rural areas have been particularly hard hit during the energy crisis since wholesale gas prices increased in October. I do not think that this has been sufficiently addressed by my noble friend the Minister, who I welcome to his place today, his department or the Government more generally.
Those who live off the grid in rural areas are not currently covered by the price cap. They have been left to rely on oil, LPG and solid fuels, which are not and will not be covered by the cap. My first question to my noble friend is: what assessment have he and the department made of the impact of rising energy costs on rural dwellers in general?
I am sure that my noble friend and the Committee will accept that there are pockets of deprivation in rural areas, which are often overlooked. There is also the challenge of an increasingly elderly population living in rural areas on fixed incomes, who are particularly challenged by the increasing cost of food, to which the noble Lord, Lord Whitty, referred, and the cost of heating and electricity, which is before us this afternoon. Like others on low income, this winter they are frequently faced with the choice of whether to heat their homes or eat.
There are currently 4.5 million people in fuel poverty and it is generally understood that, come April, another 1.5 million may be pushed into poverty. National Energy Action has costed a number of its proposals, which I ask my noble friend urgently to consider. For what reason could BEIS not adopt those mentioned by the NEA? One is a one-off rebate, or crisis income support, to cover the 4 million low-income households before April. Another is to expand the GB-wide warm home discount, to which the noble Lord, Lord Shipley, referred, so that everyone currently eligible will receive the support that they deserve. Another is to provide support for an additional 2.4 million low-income working-age households across the UK by expanding the winter fuel payment. Another is to accelerate the repayment of utility debts across the UK and, by next winter, to supplement these measures with deeper price protection or a new mandatory social tariff to help those in the cohort of low-income energy users to make their energy more affordable.
My Lords, I applaud the timing and the work of my noble friend Lord Whitty in his chairing of the Commission for Customers in Vulnerable Circumstances and much more. We have also worked together as vice-presidents of the Chartered Trading Standards Institute.
April can be a cruel month, as TS Eliot might have put it, and it is certainly looking that way for millions of British households. Emerging from the biggest health crisis in a century, many UK families will be facing a painful cost of living crisis this spring, with energy price increases, rising inflation, more taxation promised and the burden of Brexit becoming more evident every day. Many British household budgets will be stretched to the limit and, in the poorest households, where fuel poverty is already a fact of life, there will be the realisation that there is nothing left to stretch.
According to the ONS’s latest stats, growth in income of the poorest fifth of people has not kept up with inflation, which has led to the median income of the poorest fifth falling by an average of 3.8% between 2017 and 2020. Meanwhile, income for the richest fifth continued to steadily grow between 2017 and 2020. This means that income inequality increased substantially over this period—before Covid, the soaring cost of energy or the increase in inflation. We know that households on low incomes spend proportionately more than richer households on essentials such as housing costs, food and transport, as noble Lords have said. According again to the ONS, households in the lowest decile spent 54% of their total weekly expenditure on these things, compared with 42% in the highest-income decile.
It is against this architecture of inequality that we have to view the alarming energy situation post April. Households in Britain could soon be spending more of their money on energy than any previous generation, including those who lived through the oil shocks of the 1970s and 1980s—some of us are old enough to remember those. Of course, these aggregate numbers do not represent the experience of specific households, particularly those in very low income and low expenditure households. They may see their energy burden rise to 13% of total spend or above.
I, too, thank the noble Lord, Lord Whitty, for securing today’s debate. It is easy to say that it is timely: it has almost been too timely, as announcements have been coming thick and fast and we have all been hastily rewriting. The announcements about the energy price cap and the Chancellor’s response have meant that we are focusing largely on energy, but we are all aware that the general cost of living crisis is the context in which this debate sits. I particularly note the Bank of England’s prediction today that inflation will reach 7%; it has been some time since we have seen that.
As the noble Lord, Lord Whitty, said, both medium and long-term issues come into play here. I want to use most of my time to speak about a longer-term issue—energy efficiency. Research by Carbon Brief has shown that a series of cuts to energy efficiency measures has meant that today’s bills are around £2.5 billion higher than they might otherwise have been. The number of homes getting their lofts insulated fell by 92%, and cavity wall insulation fitting dropped by 74% when the grants were cut. A year before it was due to be introduced, the zero-carbon homes standard was scrapped. As a result, around 1 million new homes have been built since then with lower energy efficiency standards, meaning higher energy bills for occupants and owners facing expensive retrofitting.
The decisions to scrap those schemes were made because gas prices were high and energy bills growing. However, the decisions were short-sighted and there is a lesson for us to learn now because the answer to high gas prices is not more gas, as the evidence clearly shows; it is to double down on renewable energy sources and home efficiency improvements. If we do not act now, the peaks and troughs of fossil fuel prices will continue and we will be in this position over and over again.
My Lords, I, too, would like to offer my thanks to my noble friend Lord Whitty for initiating this important debate. I could not help smiling when he referred to the conversion to gas boilers. I remember it well: the sheer delight of coming down in the morning and not having to rake the ashes out of the grate and start the coal fire again, because it had been replaced by a gas fire.
What I would say about the current situation is that it is a very dynamic one. There is not going to be one system in the future, by any means, but one thing we do know is that gas is going to be with us for the next 20 to 30 years. That is a reality, and one that lots of people do not like to face, including some of those sitting alongside me. No doubt I will be chastised and told that it is not true and we can do it all with renewable energy, but that is a very debatable assessment of the situation.
When I say that it is a dynamic situation, well, carbon capture and storage is there and it needs to be refined, but it is certainly something I believe will happen. However, there is a supreme irony in the current situation, and this Government have to take the blame. We decided that fracking was not acceptable any longer, and nobody seemed to worry about the fact that they are still fracking in the USA and Qatar. Could the noble Baroness, Lady Bennett, tell us why it is acceptable to ship liquid natural gas all the way from the USA and Qatar, then deliquefy it and use it? We do not want fracking in this country, but we do not care how it happens elsewhere. We could have had a safe, reliable system and created thousands of jobs; it was ready and there, but a hysteria was created about it. We were told that we had to stop drilling, because we had 0.5 on the Richter scale. If a lorry rumbles past your house, it would be more than that. It was an absolutely ridiculous decision to make. I can understand the political pressures, and why it was made, but it is a situation that we are paying for and will continue to pay for—and it will not do anything about improving the environment.
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There are aspects of what the Chancellor said that I welcome. I do not think he has done it in the best way, but he has recognised some of the problems. However, it still deals with only half of the potential impact on households. The £200 is not much of an offset on £700, and, frankly, using council tax is an incredibly bureaucratic and inefficient way of getting help to the most desperate families.
Yet the Government did not need to invent new mechanisms. Fuel poverty groups and, indeed, the Labour Party have proposed a number of immediately available interventions that the Chancellor could have used—for example, post-Brexit freedoms to remove VAT, temporarily at least, from domestic energy prices. He rejected that and I can in part understand the reasons; nevertheless, that was an immediate and beneficial option. He could have expanded the warm home discount to lower-income families. There is a reference to that in the Chancellor’s Statement, and I should be grateful if the Minister could spell out exactly what it means. The Chancellor could have extended winter fuel payments to a further 2.4 million vulnerable households. He did not do that. He could have offered a one-off rebate for low-income households this winter, which could have helped at least 4 million of those households. He could have given more help on rapid repayments of utility arrears; I am not whether his Statement covers that. Of course, he could have moved on the reintroduction by energy suppliers of a social tariff for the long-term benefit of the most vulnerable households—a move I strongly advocate.
In addition, we and campaigners have called for a return to an England-wide programme of effective household insulation and energy-efficiency measures. Over the medium term, that would reduce energy consumption and hence costs to households. There was some reference in the Chancellor’s Statement to that, but it looks pretty miniscule to me, at first sight.
We need also to look at the underlying reasons for and effects of the price rise, and the role of the Government and the regulator in consumer energy prices. Of course, the immediate cause of the increases has been the indirect effects of the dramatic rise in world gas prices. But, frankly, the British economy of all economies ought to have been more resilient and insulated from the effects of Russians playing politics and the Qataris controlling the shipment of LNG. Storage and flexibility measures have not been adopted or invested in. That is partly due to a failure by Ofgem to provide suppliers and the system with the means to do so, but Ofgem has also failed in its role as regulator on behalf of consumers, particularly vulnerable consumers.
About three years ago, I chaired a group convened by Energy UK, the industry’s trade body, to identify means through which to provide a better service and more appropriate pricing structures for vulnerable consumers. To be fair, a lot of larger energy companies have adopted some of those recommendations but there is much more to be done. That has been at the behest of the companies themselves, not Ofgem. Over the past decade, Ofgem has regarded the main means of improving service to consumers as being an increase in competition. That helps significantly in most circumstances, but the way in which it has been done has actually caused more problems than it resolved for consumers, the Government and the regulator.
Obviously, the old oligopoly of the big six was rightly challenged but the number and variety of challenger companies that were nodded through and licensed by Ofgem, thereby relieving some of the obligations regarding poorer consumers, meant that, over a period of about five or six years, the oligopoly moved to becoming a cut-throat market of some 70-plus companies, many of which were new and untested. The sustainability of many of the rest was also suspect. It is clear that in this vital part of its obligations, Ofgem just allowed the establishment of dozens of novice companies through the licensing system, with totally inadequate financial resilience tests, superficial checks—if any—of the management structure and investment sources, and no stipulations on customer service in general or in particular in relation to vulnerable and low-income groups.
Citizens Advice has provided us with a litany of those failures and Ofgem’s failure to meet even the basic requirements. Yet in recent years, there has been only one Ofgem formal customer service investigation. It made no use of its powers to stop a supplier taking on customers when there were customer service concerns about the company. In the four years before the gas price crisis, the number of people working at Ofgem on consumer service had fallen by a quarter.
As Citizens Advice says:
“Regulatory failings led to a culture of non-compliance”
among many of these new companies and the rush of company failures has duly followed, with dire consequences and uncertainties for consumers and messy transfers of customers to the larger companies, increasing the pressure on consumers and the recipient companies.
It is true that early last year Ofgem introduced a new supplier monitoring and checking system, yet only one of the 20-plus companies that failed last year had any sort of customer continuity plan in place to protect their consumers in the event of financial collapse. That is a serious failure by the regulator and one which the Government and the regulator need to address to decide the size of the market we can cope with. The big six was clearly wrong but a market of 70 or 80 small companies, poorly based, is also not the right answer.
The other thing is that, if we have not been able to cope with a traditional gas price rise and preserve and increase customer service during that period without hitting consumers and without the Government having now to bail them out through the interventions the Chancellor announced today, then there is something seriously wrong in the regulatory system. I have it in mind that we will have to cope shortly with a much bigger issue—the transition of the 80% plus of our households which are on gas supply at the moment to as-yet-unknown forms of alternative low-carbon or no-carbon fuels. That is a massive operation, and it needs planning now. Yet, we still need key decisions from the Government and industry, and key questions are likely to be asked of the regulator.
That is going to be a massive transformation. The last time we did it, when we replaced town gas with North Sea gas, it was organised in every household that used gas by employees of a nationalised corporation —most of whom were members of my union—who went into every household. That took time and it needed planning, but it was a simple structure. We no longer have those simple structures. We no longer have the clear strategic decisions, and yet we are going to place on top of this system, rightly, in order to meet our carbon obligations, a whole new system of heating for pretty well four out of five households in the land, and many businesses and offices as well.
Ofgem and the department are going to face a much bigger problem than a global gas price rise. They are right to face it because we need to change our whole heating system, but we need to know how we are going to do it. We need to know that consumers’ interests will be protected in doing it. We need to know who is going to deliver it. We need to know some basics, such as what kind of fuel we are going to use and whether there be one system in different parts of the country. The Minister will know that I have asked questions on this before, but we still have no clear answers. If we postpone decisions on how we will heat our buildings in future, the chaos we are facing in relation to one big world problem is going to be compounded as we try to implement a change to meet our carbon objectives.
I am very worried about the immediate situation, and thousands of households are extremely worried and unable to meet the costs implied, even allowing for the Chancellor’s claim that he is going to cover half of the system—in a way that I do not regard as optimal. But even if he does that, there will be cost increases which thousands of households will be unable to meet.
The Government face a serious economic crisis in the form of the energy price, and a serious social crisis in terms of the impact on families and households. There is also a serious strategic and political crisis, in that we have to change the system of regulating this market and make clear to the industry and consumers the way we are going. I hope the Minister can give a few answers today, and that the Government as a whole can address these problems in the coming weeks.
Investment in more gas is being strongly discouraged. It is an amazing thought that years and years ago, when this country, or the Government, had the misfortune of having me as their Energy Secretary, 1% of our electricity came from gas, and even that was resented by Sir Denis Rooke and others. Now it is running at roughly 43%, although I note that last week 55% of our electricity was coming from gas. That is dangerously high. I remember when Helmut Schmidt told Mrs Thatcher that Germany was going to rely on Russia for a quarter of its gas—just a quarter—she said, “Helmut, you’re crazy: this is going to lead to terrible trouble”. He replied, “No, don’t worry, communism is a reliable business partner and it will all be all right.” It was not all right.
Obviously, we are discouraging pensions from investing in oil and trying to run down our international oil companies, so we are handing the ball back to OPEC there, and we will feel the rough edge of that as petrol and oil prices go whizzing up.
We had high hopes in my time of building a reliable and solid back-up system through modern nuclear power. That was the plan. We aimed for nine PWRs and only got one built, but the world moved on and oil and gas were cheap, so we managed to get by with the one at Sizewell B. Now we are trying to revive our nuclear replacement programme and I am not at all happy about where we are going. It seems that we are at a Y-fork in the road in the development of civil nuclear: between large-scale repeat such as Hinkley or maybe like Sizewell C, and going for SMRs which, according to Rolls-Royce, could be produced at about the same time.
That is a big choice and I hope that the Government get it right because, if they do not, we will end up with a lot of further disappointments and difficulties and a lack of the back-up that we need. In particular, I have to note that getting out of large-scale nuclear building and attracting private capital, which we will never get into the big-scale stuff, even with the proposed reforms in financing systems, is made 10 times more difficult by the fact that, of course, we are deeply involved with the Chinese. Somehow we will have to get out of the Chinese involvement in Sizewell C, Hinkley Point and other projects, and do that smoothly, if we are not to bring the whole house of cards down.
I am afraid that what I have said is slightly gloomy, but if people just hang on to the word “back-up” they will understand that we can save ourselves from the horrible volatility of prices. Behind the volatility, of course, comes the prospect of actual outages. We must have a resilient and diverse system. That is the big lesson, which I am not sure has yet been learned.
Worryingly, firms and employees do not expect the squeeze to end soon; we will have to live with this for a while. So what can we do about it? Some things are being done about it and I have mentioned my welcome for those. I hope that the Minister can undertake at some stage to revisit two other areas to help the low paid and hard pressed. These are raising the national living wage more than it has just been raised. Wages are too low in many sections of our society and raising them will be crucial to the success of any levelling-up agenda. If we do not raise people’s spending power in the weaker regions, we will not get very far with the levelling-up agenda. The other thing that I hope will be revisited is the premature withdrawal of the £20 uplift to universal credit, which helped many get through lockdown. That and the furlough scheme were two massive supports for the economy and for the hardest hit at a time when they were most needed and I unapologetically welcomed them at the time.
More generally, will the Government not make the George Osborne mistake? In the last period when we had recessionary pressures after the financial crash, the then Government tackled our indebtedness with growth-killing policies of austerity. It was a disaster from which we are still reeling. We should have given growth a better chance than was done at the time and I hope that the orthodoxy of that time has now passed. This time, the economy should be allowed to expand. The Government should be looking at other areas for their revenue. Lower capital gains tax payments are an obvious area for attention, as are windfall taxes. Can the Minister encourage us today by saying that those things are still on the table and are being considered?
The Government have a responsibility to help people on low incomes now, not to keep their costs high so that tax cuts can be delivered nearer the next election, which is rumoured to be the Government’s intention. I very much hope that the Minister will confirm that that is not the Government’s intention and that the people who need help now will be helped now.
The council tax discount at bands A to D is £150, but it will not be sufficient to meet the 54% increase in the energy price cap. I have concluded that we need a windfall tax on oil and gas companies. The announcement this morning of Shell’s enormous profits points to such a Robin Hood windfall tax being justified. As I understand it, Shell has announced $6.4 billion in profits over its fourth quarter. The priority must surely be to cut the heating bills of vulnerable and low-income households, perhaps by doubling the warm homes discount and expanding it to all those on universal credit. This should be funded through a one-off Robin Hood tax on the record profits of oil and gas producers and traders.
We know that the lowest-income households spend twice as much on food and housing as do better-off households, so the current crisis hits the poorer more than it does the better off. The national insurance rise should be abandoned. The public now see it as the equivalent of the cost of unused PPE and fraud in the business support system. Those two things are the same as the projected income from the national insurance rise and I think that the NI rise really cannot be justified now. The Government should use general taxation instead, as many commentators suggest.
Mention was made by the noble Lord, Lord Monks, of the Levelling Up White Paper, but you do not level up poorer parts of the country by increasing so substantially the amount of tax that people who live there have to pay. The noble Lord, Lord Howell of Guildford, reminded us of the need for back-up. We need that and more. We need to relaunch the green homes grant scheme, we need more local networks for renewable energy sources, we need greater investment again in insulation and we need much more research on how to store renewable energy. In the medium to longer term, those should be the Government’s priorities.
The noble Lord, Lord Shipley, and others have referred to a windfall to the Treasury in addition to the price increases since October, yielding an estimated £100 million extra in VAT through domestic electricity and gas bills. Also, the doubling of households bills from April to £2,000, as was referred to, will apparently yield an extra £77 million for the Treasury. There is also the increase in respect of UK ETS permits, yielding an additional £3 billion.
The Treasury, for some reason, has not sought immediately to recover the £4.3 billion in fraudulent Covid loans identified so accurately by my noble friend Lord Agnew. I pay tribute to his work in the Treasury in this regard. I understand that up to £30 billion more of such money has been identified across all departments. The noble Baroness, Lady Crawley, and I served at the same time in the European Parliament, when the level of EU fraud was a source of some embarrassment. It was an appalling disgrace, as we were told by our British colleagues in the Westminster Parliament. It was, but so is this national ongoing fraud. The money must be recovered; it would add to the funds available to the Treasury in order to finance what National Energy Action is asking it to do.
Also, climate change presents greater challenges. We have seen three catastrophic power failures already, not helped by the fact that 30% of energy is lost through overhead line transmission. That has to be addressed.
Finally, I turn to the role of the regulator. Clearly, competition is not working in this sector as it was intended. Recent failures of energy companies mean that the cost has been passed on to the customer. An additional 25% of our energy bills is going on green levies. Why is the energy sector alone allowed to fund its increases through the customer, whereas others such as the water sector have to go to the market? I urge my noble friend to address these issues as urgently as he can.
As we know, this crisis in living costs comes on the back of the loss of the £20 a week Covid welfare boost, as my noble friend Lord Monks said, which finished in September. Some people are already not putting on their heating through this winter, and the 14% of people on absolute low income in this country are finding it very difficult to keep themselves and their children warm right now. As the noble Baroness, Lady McIntosh, said, eat or heat is the dilemma. At the start of the pandemic, the Government rightly launched a project called Everyone In, which took all the homeless off the streets and into accommodation. This cost-of-living crisis needs the same urgent focus for those on low incomes: “Get Everyone Warm”.
The mitigating measures announced by the Chancellor today may take the edge off some bills, and we should recognise that, but they are ill thought out, too little and too late. The Labour Party has called for VAT on energy to be cut, and that should have happened. A one-off windfall tax, as the noble Lord, Lord Shipley, has called for, also should have happened. Paul Johnson of the IFS has suggested a one-off uprating in benefit payments this year—quite right too. While I understand that the warm home discount will finally be increased, and that is welcome, I ask the Minister: what is happening to the household support fund available to local government beyond 2022?
My noble friend Lord Whitty knows better than most that the underlying problems of a badly regulated energy market need fixing urgently, and he has set out a way forward today. There is no real resilience of suppliers, and customer protection by Ofgem’s own standards is often completely ignored by companies. The market is a shambles; meanwhile, many British children and pensioners shiver in their cold homes. It is shameful, and the Government’s response falls short of what is needed in the medium and long term.
State intervention is needed to deal with the problem of an inherently energy-inefficient housing stock in this country. I shall explain why. By their nature, many energy efficiency measures require up-front cash and often take some years to pay back. For those in the private rented sector, neither landlords nor tenants have any incentive to invest in those measures, even assuming that they can afford it. In the social rented sector, a lot of good work is done by local authorities and housing associations to reduce energy costs for their tenants, who quite often lack their own financial resources. But those bodies are themselves increasingly strapped for cash and unable to finance the energy efficiency measures that they know are required.
However, the majority of us are owner-occupiers. In a country with high levels of home ownership and a flexible job market, houses are no longer seen as places where people live for a long time. Houses are not just homes nowadays; they are property and often the main or only financial asset. Putting scarce cash resources into measures that take years to pay back and do not really add to the value of the house does not look like an attractive option for many people. Take the example of a heat pump, which can cost between £6,000 and £8,000. If we are to improve the energy efficiency of our national housing stock, government intervention is required. I remind the Committee that around 22% of UK carbon emissions comes from domestic energy consumption, so there is a significant contribution to net zero to be made.
As other noble Lords have said, Shell announced today that it made £17 billion profit in the past year. I agree with all those who said that it is beyond time that we thought about—indeed, introduced—a windfall tax. Like the noble Baroness, Lady McIntosh, I pondered on the extra VAT that has accrued to the Treasury, which ought to be available to help people. The cost-of-living increases and today’s announcements on energy will hit everyone but the impact on the poorest is absolutely devastating. The Chancellor’s package is not sufficiently aimed at helping them. The council tax rebate is an untargeted, blunt instrument. A scheme that helps people this year but has to be paid back in future years is just a gamble on gas prices falling. If they do not, at best the pain is postponed but it could get considerably worse.
It seems to me that by far the easiest way to target help to the poorest would be to reintroduce the £20 a week universal credit uplift. There is a strong case for having a look at the grant situation. I am sure that other noble Lords received a briefing from Marie Curie, which set out the difficulty that terminally ill people are having in receiving grants. That is a desperate situation; you do not get more vulnerable than people who are dying at home and are cold because they cannot access things—so we need to look at that.
A coalition of 27 charities has written to the Government urging them to respond to the energy crisis with measures that create a green, fair and affordable energy system, and I am afraid that the Chancellor’s response does not do any of that today. It does not help the worst off and does not provide any means of longer-term security through energy efficiency.
Of course I believe in renewable energy. I was a bit puzzled when the noble Baroness, Lady Scott of Needham Market, said that nobody was going to invest in their houses. Plenty of people around me are investing in solar panels, even though the subsidy has gone, and there is a good return on them. She is shaking her head, but you only have to look at roofs if you do not believe that. I want to make a plea, when we talk about renewable energy and nuclear and so on, or hydrogen, that we have a holistic analysis and not the idea that there is just going to be one solution.
The noble Lord, Lord Howell, referred to small-scale medium reactors, and it looks like a promising area—who knows? There is hydrogen as well. I also think that there are some possibilities, without wanting to seem patronising to people, and ways in which you can save energy. You can save by the way you cook, and by wasting less food, which makes an important contribution. Trying to educate people in their lifestyle is important, and the Government should be thinking about that, in my view.
Of course I believe in things such as the green homes scheme. I am puzzled why that has been abandoned because that would have a long-lasting effect. I also agree with noble Lords who have referred to things such as the windfall tax. I am looking forward to the Minister being able to address all these issues. There is a real challenge—and not just for the Government—in how we analyse the best way to help people in the future when we know the cost of living is rising. Is the only solution to increase benefits? Part of the solution, in my view, is getting people back into employment. Not only is that better for them individually; it sets an example to their families, so that another generation of young people do not feel that the only income coming into the family is benefits.
I hope that people will recognise that I am trying to make a serious contribution on things such as fracking and the need for a more holistic analysis.