Energy Costs

Question for Short Debate

Asked by

To ask Her Majesty’s Government what assessment they have made of the effect of rising energy costs on households, and in particular (1) pensioners, and (2) those on low incomes.

My Lords, I am delighted to have secured this important debate. I look forward to all contributions from all sides of the House. I declare my interest as the honorary president of National Energy Action.

At the outset, I want to set out the scale of the problem. All those currently caught in fuel poverty are those who live on the lowest incomes: that is, below the poverty line and on 60% of the average median income. National Energy Action estimates that 4 million households already live in fuel poverty, and that was before the energy increases in October last year. It is estimated that those increases have put a further 500,000 households into fuel poverty. Moreover, a further 1.5 million people could be forced into fuel poverty when the price cap is removed in April if the rises are as bad as is feared.

I thank the NEA for its briefing for today and indeed the House of Lords Library for its helpful and comprehensive briefing—it is immensely helpful. By April this year, there could potentially be 6 million households living in fuel poverty in the United Kingdom. Many of those will live in rural areas off the main energy grid, dependent on fuels such as oil, liquid petroleum gas and solid fuels, which are not subject to the price cap. As the Institute for Fiscal Studies and other organisations have said, real incomes are stalling yet inflation and prices are rising for food and other essentials. We also know that taxation will increase from April next year.

What is the background to this debate? Wholesale energy prices recorded a record increase in the run-up to December last year, reaching an all-time high and about nine times higher than the year before. Crucially, there is a lack of energy storage in the UK; I understand that we have on average only 60 days of gas storage as opposed to three months in Germany and other European countries. We in the UK import 50% of our gas, so we are extremely sensitive to price rises on the global gas market. Around 85% of UK homes use gas central heating. The cap on energy prices is being lifted on 1 April 2022. I look forward very much to hearing from the Minister in responding to the debate; I understand that there is breaking news that the Government are intending to take action well before the April deadline. I also welcome the fact that Ofgem is currently consulting on the length of term of reviews on the price cap.

Currently, 25% of household electricity bills will fund renewable energy costs, yet energy generation should rightly be funded either out of general taxation or, perhaps more appropriately, by raising capital in the market in the normal way. What is unacceptable is that, to date, the price of energy has increased for domestic consumers by £235 since the previous October. That is compounded by the fact that the cost of energy company failures impacts on consumers too. Since August 2021, 26 energy suppliers have gone out of business. Ofgem estimates that UK households will have to pay between £80 and £85 extra on their energy bills in 2022-23 as a result of these recent energy supplier failures. Others, such as the banking group Investec, put this as a potential £120 per household. Given that, as I mentioned above, certain fuels, especially those used predominantly in rural areas, are not covered by the price cap, this is a very real problem indeed.

My Lords, I congratulate my noble friend on securing this timely and important debate. I will make four simple points.

First, higher energy costs hit the cold, the old and the poor hardest. The further north you go, the colder it gets and the bigger your heating bills. The lower your income, the higher the proportion of it that goes on your energy bills. The older you are, the more warmth you need, so the bigger your heating bills. So higher energy bills do not just target the cold, the old and the poor but are directed straight at the Government’s new supporters in the working class and the north as well as their long-standing supporters among the elderly.

Secondly, wherever net-zero policies which increase energy costs have become a political issue, they have been electorally disastrous. In France, they provoked an uprising of the gilets jaunes, forcing President Macron to rescind his diesel tax increase. In Australia, a Conservative Government looked doomed to defeat by a Labor Party waving the green flag, but when the Conservatives opposed the carbon tax they snatched victory from the jaws of defeat. In the Netherlands, when the government coalition proposed green taxes, an entirely new party formed to oppose this became the biggest single party in the municipal elections. In Canada it was a similar story for the provincial elections, and yesterday an uprising in Kazakhstan was triggered by an increase in LPG prices.

Thirdly, we will need gas for many years to come. At this very moment—or 10 minutes ago—40% of our electricity is being generated by gas power stations. Only 37% comes from renewables. Even if we install more windmills, we will need gas back-up because the wind often does not blow and the sun never shines at night. We will need gas for electricity generation for ages. There is no economic alternative. Moreover, we will need gas for home heating for years to come. Even if we go ahead and ban new gas boilers in 2030, millions of homes will continue to rely on gas for their existing home boilers to heat their homes for decades thereafter.

My Lords, I congratulate the noble Baroness on securing this debate. This year the UK faces what the Resolution Foundation has called a cost-of-living catastrophe. Does the Minister agree with the Leader of the House of Commons that the rise in national insurance planned for April should be scrapped?

Noble Lords have suggested, and will suggest this afternoon, ways of dealing with the rise in energy prices. The impact on pensioners is obvious: the way to deal with it is to raise the state pension and the winter fuel allowance. I wish to focus on those on low incomes. The Resolution Foundation and the Office for National Statistics have shown that the real value of wages has been more or less flat since 2008 and is predicted to fall this year. The pandemic and Brexit introduced fluctuations in some sectors but these have not had a wider impact. Britain is a low-wage, low-productivity economy. Given the Government’s stated objective to reverse this, presumably the Minister will agree with the new year message from Frances O’Grady of the TUC that Britain needs a pay rise.

The question is how that might be achieved. Treating workers as commodities on the so-called labour market, where the price of their labour is fixed by employer demand on one side and mitigated by the need of workers to keep themselves and their families from penury on the other, does not produce a high-wage, high-productivity economy. The Government should look to the real high-wage, high-productivity countries such as those of Scandinavia, and note that the key feature which produces such results is high levels of collective bargaining—levels of over 70% and as much as 90% of workers covered by collective agreements. Even the European Union has now finally recognised the importance of collective bargaining coverage of 60% or more in its proposed directive on the minimum wage. In contrast, in this country, from a level of around 85% of British workers, which ran from the Second World War until the 1980s, collective bargaining coverage has been steadily driven down by government policy and restrictions on unions to something less than 25% today. That means that three-quarters of our workers, some 24 million of them, have no collective say over their terms and conditions, and next to none is in a position where an employer will negotiate with them individually.

My Lords, when I was in my sixth-form debating society, we would occasionally have a debate entitled “Something must be done.” That mood was well captured in yesterday’s Daily Telegraph “Chopper Politics” column, written by its chief political correspondent, Christopher Hope. He said: “Everyone can see the cost-of-living crisis about to hit millions of British households in the spring. Oddly though, the Prime Minister appears to be all at sea about how to deal with it.” The validity of that statement is beyond doubt and the Question of the noble Baroness, Lady McIntosh, for which I am grateful, goes to the heart of the impending crisis, with its impact on pensioners and those on low incomes.

We have just had a contribution from the noble Lord, Lord Lilley, that goes to the heart of this dilemma. We have on the one hand his “stop the world, I want to get off” approach against the commitments that the Government made only recently in Glasgow. It will be interesting to see how the Minister responds to both challenges.

There is no shortage of suggestions for measures to deal with the matter. We heard some in great detail from the noble Baroness, Lady McIntosh, and the Labour Party and a significant number of Conservative Back-Benchers favour a significant cut in VAT. The Prime Minister immediately stamped on that idea because it would help

“a lot of people who perhaps don’t need support”

with rising living costs. That might well be true, but it will not feel that way to voters in Uxbridge, Surrey or where the noble Lord, Lord Lilley, used to represent in Hertfordshire when they open their energy bills in the spring.

So whatever the response and whenever it comes, the Government must give the country clear direction, not only on short-term measures but on a clear and sustainable national energy policy. That would be difficult for a Prime Minister who seems to work only to a 24-hour rolling news cycle.

My Lords, I congratulate the noble Baroness on securing this debate. It is topical and she outlined very clearly the problems that we face. I was struck by her figure of 6 million people being in fuel poverty, because we must remind ourselves that we need energy to survive as a country, as individuals and as a society.

The noble Lord, Lord Lilley, talked about the pressure towards zero carbon, which I will not go into now because he did so clearly, but the other option for people is, of course, to consume less and change our lifestyle. It may be possible to do something like that with transport, but it is much more difficult to do with the things that affect fuel poverty. I was struck by a recent Eurostat report that set out that across Europe 63% of one’s energy consumption—a good average—is on space heating. If one tries to cut out space heating, one is shivering. One can cut out water heating and have cold showers. One can cut out cooking and lighting, but the biggest demand by far is for space heating. The report also says that in 2019 the residential sector represented 26.3% of final energy consumption. That means that we have an energy supply problem.

Putting it simplistically, we now have a situation whereby demand exceeds supply. We have all read about the way in which the Russians are playing off the European Union—Germany in particular—on the supply of gas. Renewables are not there; the noble Lord, Lord Lilley, mentioned France’s nuclear situation and the fact that the interconnector is not functioning as a result. Therefore the price goes up, and, as several noble Lords have asked, how much has it gone up?

There is no easy short-term solution, because unless something is done in the short and the long term, people will continue to shiver. The Prime Minister has said that the energy shortage is a short-term problem. I see that in the Daily Express today the Chancellor said that there is a limit to how much government can do. There may be a limit to what the Government want to do, but in practice the Government can do what they like. They obviously respond to the electorate.

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.

My Lords, I am very pleased to support this debate, but I am always sad that we have to have it at all. In her Question to the House, the noble Baroness asks about the effect of rising energy costs. In my few minutes, I will talk about the effect this will have on food.

Potentially, 6 million households—not 6 million people—will have to choose between heating and eating, paying a bus fare or buying sanitary towels. Some 2 million of those households are, at the moment, keeping their heads above water, but come 1 April they are liable to sink below the waterline.

These energy price rises affect everything in the life of a family. Food is always the part of the budget that is squeezed. You can always, more or less, buy something cheaper and thus less healthy, or you can just choose not to eat at all. This already happens, not just in families but in cash-strapped councils and schools, which take bits of the schools food budget as it passes through their hands. Too many of our children are being served cheap food that limits their physical and mental progress; now even more of them will be suffering that at home. For many more, breakfast will be reduced to a packet of crisps and a fizzy drink; that might fill them up for a moment, but who is thinking of the long-term damage? Of course, we see all this in the Covid epidemic.

Food prices are also rising. The Government’s own food security report, published just before Christmas, acknowledges that the poorest 20% of households are

“more impacted by changes in food prices”,

and that

“With a decrease in income alongside the percentage spent on food having remained the same, the poorest households”

have had a really “diminished budget” since 2017. But why is food always singled out as an item of expenditure that can be, and often is, the first to be cut? The report again explains that

My Lords, I heartily welcome this short debate from the noble Baroness, Lady McIntosh. I am just surprised that the Chamber is not packed out. We hear a lot about emergencies—public health emergencies, NHS emergencies and, of course, the mother of all emergencies, the climate change emergency—but millions not being able to afford energy in the UK in 2022 really is an emergency and will be immediately devastating for many individuals and institutions.

When we talk about climate-related deaths, I hope we count those people who could die of the cold because they cannot afford bills. This is also not just about consumers. Think of all those businesses struggling because of lockdown policies. These extra energy costs will be a hammer blow and will lead to many cafés, pubs and factories shutting up shop—hardly levelling up. Two small charities I know that work respectively with vulnerable women and the homeless have told me that they will not be able to keep their premises open because of energy bills.

Of course I welcome short-term fixes—yes, scrap green taxes and VAT—but this surely demands a major rethink of energy strategy. I understand partly that this immediate crisis is caused by international lockdown measures, but as economics writer Phil Mullan points out, we need to untangle contingent factors from long-term endemic issues affecting gas shortages and higher energy prices. I quote him:

“long-term problems … derive from the … transition … from fossil fuels, and the absence of reliable alternative energy”

supplies. I agree, and this points to how green policies and tougher and tougher targets for decarbonising energy supplies are one major reason for the hike in energy bills that has left our energy supplies so precarious and left ordinary people to foot the bill.

We need to stop letting carbon reduction policies be placed ahead of securing the supply of cheap, reliable energy. I would like the Government to address the following four areas. First, having spent millions subsidising renewables, will the Minister concede that the headlong embrace of wind power means that the UK is vulnerable to energy shocks when the wind stops blowing? Until the technology exists to store wind, surely we need to recognise that fossil fuels, gas turbines and coal-fired power stations are still needed.