[Relevant Documents: Written evidence to the Business, Energy and Industrial Strategy Committee: Department for Business, Energy and Industrial Strategy 2022-23 Out of Turn Estimate Memorandum and Tables, reported to the House on 20 October 2022; Written evidence to the Treasury Committee, HM Treasury 2022-23 Out of Turn Estimate Memorandum and Tables, reported to the House on 19 October 2022.]
(1) for expenditure by the Department for Business, Energy and Industrial Strategy:
(a) further resources, not exceeding £60,176,000,000, be authorised for use for current purposes as set out in HC 794 of Session 2022-23, and
(b) a further sum, not exceeding £60,176,000,000, be granted to His Majesty to be issued by the Treasury out of the Consolidated Fund and applied for expenditure on the use of resources authorised by Parliament; and
(2) for expenditure by HM Treasury:
(a) further resources, not exceeding £11,175,000,000, be authorised for use for capital purposes as set out in HC 794 of Session 2022-23, and
(b) a further sum, not exceeding £11,175,000,000, be granted to His Majesty to be issued by the Treasury out of the Consolidated Fund and applied for expenditure on the use of resources authorised by Parliament.
This motion provides for an out-of-turn supplementary estimate for the urgent expenditure of two Departments—the Department for Business, Energy and Industrial Strategy and His Majesty’s Treasury. The supplementary estimate provides the resources and cash to allow the Government to help to reduce energy bill rises this winter. It also provides capital funding for the Bank of England in support of its operations as a result of a long-standing indemnity.
I will briefly explain what the two departmental requests cover. First, the House is well aware of the cost of living increases caused by Putin’s war in Ukraine and the consequential impact on fuel bills from Europe’s reliance on Russian gas. Families were worried about energy bills, which some independent forecasts said could be £6,000 a year. This is a compassionate Conservative Government who will always be on the side of the most vulnerable, which is why we acted quickly and decisively to address concerns about paying for heating this winter. We did that through the establishment of the energy price guarantee scheme to cap the unit price that consumers pay for electricity and gas. That means that a household consuming the average amount of energy will pay no more than the equivalent of £2,500 a year. Many, of course, will pay far less.
In addition, the Government have protected businesses with the energy bill relief scheme. Those combined measures will provide households and businesses with confidence and certainty this winter, up to the end of March next year. It was right to act fast and to prioritise a simple option that ensures that nobody is left out.
The second package for businesses also extends to public services. Two primary schools in my constituency have been in touch, because their energy bills have gone up fivefold from £30,000 to £150,000 a year. Undoubtedly, the package put forward will help them a bit, but I am getting feedback from schools that six months is not enough to plan ahead, particularly when their budgets for next year have already been set. They are having to make terribly difficult decisions about laying off teaching assistants and cutting school trips and extracurricular activities. Will the Minister consider at least a year-long package of support for schools and other public services?
The hon. Lady is absolutely right that the package extends to not just businesses but schools, hospitals, the public sector and charities—the important third sector. She articulates well the concern of her local schools; of course, it is important to have as much time and certainty as possible to plan. I am sure that the Minister for Climate, who is next to me, and the Secretary of State for Education will have heard her points.
The House will note that both these energy schemes are expensive. Indeed, they were the largest single element of the plans to which the gilt market reacted in previous weeks. Rather than an indefinite and open-ended liability, therefore, the Government will launch a Treasury-led review on how to support households and businesses after April 2023.
Can the Minister give the House some idea of how sensitive the putative cost of £60 billion until March is to the actual prices of gas and electricity? Is there a possibility that, with lower prices, it might be considerably less?
I defer to my right hon. Friend on all matters economic, but he is absolutely right that the Government had to act and come forward with an estimate, and that global gas and energy prices are volatile. We are proceeding on the basis of a particular set of assumptions, but if those things change, of course we will return to the House with an update.
The second departmental request relates to capital funding for the Bank of England. Since 2009, the asset purchase facility, a subsidiary entity of the Bank of England, has been a policy tool of the independent Monetary Policy Committee. The APF supported the MPC’s objective of stimulating the economy to try to keep inflation at its 2% target. By far the largest element of the APF was so-called quantitative easing, under which the Bank of England has purchased to date a total of £856 billion-worth of gilts and corporate bonds. The Treasury rightly indemnifies the APF and the Bank against any losses from those authorised operations.
In 2012, the Bank and the Treasury agreed that it would be prudent for cash management purposes that any excess cash in the APF would be transferred to HMT at the end of each quarter and that if there were a deficit, the cash would be transferred in the other direction. To date, the APF has regularly transferred cash to the Treasury. In February, however, the MPC announced that it would start unwinding QE, initially by not reinvesting redemption proceeds. Further, on 21 September, the MPC announced its decision to unwind £80 billion of its stock of gilts acquired under QE over a 12-month period, including through a programme of active gilts sales that are due to start soon.
Accompanied by the recent rise in the Bank rate, that means that the overall net position has altered from one of receiving cash over the past 10 years to having to pay out under the indemnity. The outflows requested today are therefore the counterpart of previous receipts in the life cycle of the scheme. The eventual size of the net payments to or from His Majesty’s Treasury should not be used as a measure of the success of asset purchases or of the impact of the schemes on the public purse as a whole. The schemes should instead be judged by the degree to which they meet their objectives for monetary policy and financial stability. I should point out to the House that the value of these payments is difficult to predict. Future market prices and the Bank rate will impact on the amounts required, and the Bank of England MPC decision on sales may itself change over time. Any adjustment in the payments, either up or down, will be reflected in the Treasury’s usual requests in future main or supplementary estimates in the normal way.
Today’s debate is unusual in terms of parliamentary process. The last time that supplementary estimates were considered out of turn was in October 2008, when an estimate was presented to give the Treasury funding to meet costs during the financial crisis. This is no small matter. These out-of-turn estimates will increase overall spending by £71.4 billion, and I would like to briefly raise certain points on behalf of the Opposition so that they are put on record and the Minister has a chance to respond.
First, the largest component of these estimates is the £60 billion that the Department for Business, Energy, and Industrial Strategy is seeking through its resource annually managed expenditure budget. This funding is due to be split almost equally on implementing a per unit price cap for domestic energy users and a per unit price cap for non-domestic energy users. The Opposition have been calling on the Government since August to implement an energy price freeze, so we are glad that support for businesses and families with energy bills is finally being implemented.
Of course, as my right hon. Friend the Member for Doncaster North (Edward Miliband) set out a week ago, the passage of this energy support package through Parliament has been typical of the Tories’ hallmark chaos. During the debate on the legislation for this energy support, he pointed out that the now outgoing Prime Minister had gone
“on and on about her decisive action of a two-year guarantee”,
and he reminded us that she had
“even derided the Opposition’s approach of a six-month freeze”.—[Official Report, 17 October 2022; Vol. 720, c. 441.]
That was before U-turning and following our lead by implementing a six-month package. However, despite the U-turns, the Government’s approach differs in crucial respects from ours. Our plan was for a real freeze, whereas the Government’s approach still sees a rise, and of course the Government have refused to use a windfall tax on oil and gas producers’ excess profits to help fund this financial support.
I am glad the Minister agreed that the £60 billion for the energy scheme will of course adjust according to market prices, and let us hope that the current downward trend in some of the gas prices is continued. We need a mild winter and other bits of good fortune, otherwise we could be back facing even bigger bills. I am sure we are all appreciative of the fact that the new Chancellor wishes to review the scheme after March, because this is a very expensive scheme and there may be better ways of doing it to contain the expenditure.
I hope, for example, that consideration will be given, where price controls are still being offered to consumers, to limiting the amount of subsidised fuel any household can buy to a reasonable amount for a normal household, so that those who are in richer households and making much bigger demands on the fuel system would pay for the additional fuel they need—if they are lucky enough to have a heated swimming pool, or whatever it is—and would pay the full price on the extra fuel that such luxuries require. That is offered as a hopeful idea of how one can start to grapple with the very high costs of this scheme without in any way undermining the crucial guarantee to all those who are struggling with their bills already and want this kind of security.
I also have some concerns about the Bank of England estimate. It is quite true that, from Chancellor Darling onwards, quantitative easing decisions have always been jointly taken by Chancellors of the Exchequer and Governors of the Bank of England. One of the main reasons why they have always been joint decisions is that the Bank of England always understandably insisted on a complete capital guarantee against losses on the bonds, because it was envisaging buying so many bonds that they became very big for the Bank of England balance sheet, and it wanted to be reassured that the Treasury and taxpayers stood behind the system in case of losses.
It is odd to be agreeing on the spending of such phenomenal amounts of money in a near-empty Chamber. It would perhaps be sensible for the House to scrutinise such matters slightly more than this, but I am sure that those of us here will do our best.
These are incredibly significant changes compared with the main estimates passed by this House just in July, and the sums of money going to the energy support package and the asset purchase facility are eyewatering. I would be interested to hear from the Minister about the relationship between the money for the asset purchase facility, and the disastrous impact of the mini-Budget, because it strikes me that all this is coming at the worst possible time. Ordinary taxpayers have been left paying the price for the UK Government’s reckless mini-Budget, with Government bonds incurring a loss for the first time since 2009. The Office for National Statistics projected the loss to taxpayers just last month at £156 million, and even with the changes that the UK Government have made since the mini-Budget and its reversal, there has been significant damage to the UK’s fiscal outlook.
What is the relationship between the intervention that the Bank of England had to make during the past couple of weeks and the interventions being paid for in these estimates? Last week, in a letter to MPs on the Treasury Committee, the Bank of England’s Deputy Governor for Financial Stability noted:
“There has been a particular increase in volatility in the UK markets…The five largest daily moves in the 30-year inflation-linked gilt, in data that dates back to 2000, have all been since the 23 September”.
That was, of course, the day of the mini-Budget, which has had a significant and long-lasting impact on the credibility of the UK Government and their ability to manage the economy. What further discussions have Ministers had with the Bank of England? The Bank was clear to the Treasury Committee that it did not have a full briefing ahead of the mini-Budget, and it told the Committee:
I thank all Members who have spoken in this wide-ranging debate. The hon. Member for Ealing North (James Murray) spoke for His Majesty’s Opposition, and I say to him that the decision on the timing of this provision was made by the Monetary Policy Committee as part of the Bank of England. My right hon. Friend the Member for Wokingham (John Redwood) made, as usual, the most perspicacious observations, not least about the importance of grappling with the high cost to the public purse of these interventions. As the Financial Secretary to the Treasury said, he was right to say that this very much depends on prices, and one hopes that we will see the costs coming in lower than in the estimate before the House.
The hon. Member for Glasgow Central (Alison Thewliss) talked about the impact of prices on businesses and other organisations in her constituency. She is right that these are significant prices. They are the result of global prices. She will be aware that the EU is in a similar position and is looking at how best to break the link between gas prices and electricity prices. She will doubtlessly support the elements of the Energy Prices Bill that look to decouple those prices and do everything they can to hold prices down.
The hon. Lady will also observe that the world-leading contracts for difference scheme brought in by the Government and now widely mimicked by others has provided the capital certainty to make renewables in this country investible, thus leading to the transformation of our offshore wind. Renewables have gone from, I think, a pitiful 6.8% of electricity provision when Labour left power in 2010 to more than 40% today. Contracts for difference, brought forward by the Government, have not only contributed to that, but right now we are seeing tens of millions of pounds being paid back into the pot because of their structure, thus reducing costs that businesses and consumers would otherwise see.
I appreciate the points that the Minister is making about contracts for difference, but does he not agree that the grid charging regime penalises generators of offshore and onshore wind in Scotland, making it more expensive for them to generate electricity than a power station in the south-east of England?
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Given all that, this is an important motion for the continuation of Government business, and I commend it to the House.
Moving on, the second component of these estimates comprises just over £11 billion of capital annually managed expenditure to fund payments to the Bank of England’s asset purchase facility under the terms of its indemnity by the Treasury, as the Minister set out. This part of the debate is particularly laden with financial terminology, but I will make my point to the Minister as simply as I can. The Bank of England has used quantitative easing to support the economy through lending to households and businesses. This has been carried out by buying Government bonds or other financial assets from private investors through the vehicle known as the asset purchase facility. The asset purchase facility borrows the money to buy these bonds from the Bank and pays the Bank rate—the headline rate set by the Monetary Policy Committee—on that loan. It can therefore make profits or losses, as we have heard, depending on the difference between the Bank rate and the return on the assets it holds.
The Treasury has indemnified the asset purchase facility against any losses it incurs, and of course it receives any running profits. A crucial determinant of whether the Treasury—the public purse—receives profits or losses is therefore the Bank rate. No one is denying that, since the scheme’s inception, it has been expected that, after receiving profits during years of the Bank rate being set low, at some point the Treasury would need to pay out on its indemnity of losses as, for instance, the Bank rate was expected to rise. However, if people thought the public finances were likely to pay for those losses in a relatively stable and orderly fashion, it seems extremely unlikely that the Government would have needed to make the payment by way of an out-of-turn estimate—the first such emergency payment in 14 years.
As the House of Commons Library put it in its briefing, published on Friday, the speed and scale of this cash flow appears to have been unexpected. In the briefing, the House of Commons Library acknowledged that it has been known for a long time that the Treasury would eventually need to make cash payments to the asset purchase facility, but:
“Despite that, the scale and speed of the impact leading to cash flowing from HM Treasury to APF may have been unexpected by HM Treasury, leading to this out-of-turn Estimate. It is also not clear how much of the impact may have been caused by events after the publication of the Main Estimate, for instance the hit to the gilt markets after the publication of the Government’s Growth Plan in September 2022.”
The implication is very clear: this payment to the Bank of England is being made urgently and unexpectedly—the first such out-of-turn payment in 14 years—and it comes straight after the kamikaze mini-Budget. What we are seeing is yet more of the damage done by the Conservatives. The £11 billion bill before us today is a brutal reminder that the Tories created this economic crisis and that working people are paying the price.
To the extent that this supplementary estimate is to make good losses on bonds that the Bank of England is selling, I have these questions. First, why does the Bank of England think it must sell bonds at this juncture, when the United Kingdom bond market, the American bond market and lots of other bond markets around the world are particularly depressed by the need for a counter-inflation strategy based on high interest rates? We are crystalising a loss that, as I understand it, the Treasury then has to pay for, whereas if we have an unrealised loss, no payments are of course needed until eventual redemption, and very often the redemption value of the bond is considerably higher than today’s price in the market. I cannot quite understand why the Bank needs to sell these bonds now, and as this has always been a joint policy in which Chancellors have been very heavily involved and have heard Bank of England advice—Chancellors had to sign it off because the taxpayer is at risk, not the Bank of England itself—I hope this will be carefully re-examined.
To those who say that we do need to be selling bonds as well as putting up interest rates to curb inflation, I would say they should be careful not to overdo it. If the Bank really does feel it has to tighten even more, it can do so by a further rise in interest rates; it does not have to do so by selling bonds. Very directly, as we see tonight, the sale of these bonds can realise a loss and then can trigger a cash requirement on taxpayers and the Treasury at an extremely bad time for such a cash requirement. I think all of us have much better priorities than paying for bonds that are underwater, when we see the current state of the economy and the need to route more money to individuals and companies in the right ways, to see off a longer and deeper downturn and provide some balance in the public accounts. I ask the Minister and Chancellor to think again, and to talk again to the Governor of the Bank of England about their joint responsibility. They must ask whether this is really the right time to be crystalising losses, resulting in unspecified amounts of money that will have to be paid.
“Had they asked us what the market reaction would be, we would have interacted with them.”
Such interaction by the Government with experts who would have told them that their decisions were not particularly wise seems to be lacking. If there is anything to be said for the new Government, perhaps they will consult experts and listen to them more than those who are leaving the Government fairly soon.
On the energy support package, I have a lot of concern for my constituents—both businesses and individuals—come April. People who run businesses have been in touch with me. They want to know what will happen with the business support scheme come April, because as yet there has been no clarity on that from the UK Government. There has also been little clarity about what will happen for individuals. This had been talked about as a two-year support package, which gave people a sense of relief, and a sense that even if prices are higher, at least they know they will be slightly more secure. The measures that have been introduced have ripped up that guarantee entirely, and people are incredibly worried about it.
Let me give an example from my Friday surgery at Toryglen community base. Toryglen is one of the community hubs that we all depend on in our constituencies. It runs various events, is a hub for many different things, and has a nursery as part of its building. Its gas bill has gone from £9,700 a year to £62,273.36—[Interruption.] I see the Minister raising his eyebrows at that, but that is the increase. There is no way that any organisation, whether a company or a charitable organisation such as Toryglen community base, can afford that. I implore Ministers to listen to people in those circumstances, because they have to sign those contracts. If they do not, it will cost them more than the £62,000 they have been quoted. There is no alternative for them, and they do not know what will happen come April. It is irresponsible for Ministers not to give clarity to organisations in such circumstances.
The energy provider helpfully gave Toryglen community base a printout, which it passed on to me, stating that the bill is a 539% increase. Nobody can meet that. Businesses will fold and charities will not be able to provide the services that we all depend on, and I want to know the UK Government’s answer to that point. Toryglen community base was also given a quote for the following year, 2024, of £50,287.59. It is not as if prices are falling to any significant extent, and even if it survives the coming year, the bill quoted for the year afterwards is still huge, yet the energy price guarantee for businesses finishes in April. The Minister must explain what will happen to such businesses. We appreciate the cost of measures such as these, which we see in these estimates, but there will be a cost to society more broadly if all those businesses fold, charities cease to exist, and ordinary people in their homes cannot afford to put on the heating, turn on the lights and use the power on which they depend.
Thought must be given to customers who are off the gas grid and rely on heating oil. It costs more than £1,000 to fill an oil tank, often with a £500 minimum order requirement. The UK Government’s £100 of support is nowhere near adequate. Families cannot afford this. In Scotland nearly 130,000 homes rely on alternative fuels such as oil for heating their homes, and they need to know what will be coming later in the year and have certainty so that they can fill up their tanks. People are putting things on credit cards and getting into more and more debt, because they cannot afford this. There must also be some further indication about how vulnerable non-domestic customers will be identified. Again, there is little clarity on that from the UK Government. I hope there will be more, but there is not as things stand.
The eye-watering sums of money that we are talking about sound far away from people who just need an extra couple of hundred pounds to fill up a fuel tank or pay their bills. We should not, however, forget about the very real impact on businesses, charities and individuals of these huge sums of money, and of the money that we will be paying back for years because of the shambolic way the UK Government dealt with this issue. People have not voted for the chaos that there will be for many years to come or the prospect of further austerity as a result of the UK Government’s poor choices, and should not be expected to pay for it. In particular, people in Scotland are facing a higher toll in many ways, due to the cost of fuel in rural areas and unfair grid charging in Scotland. Again, the UK Government have not done anything to deal with that, and they have not decoupled the price of gas from the price of renewables. These are not choices that Scotland has made. Scotland would make different choices if we were independent, and we would ensure that nobody in Scotland went to bed cold and hungry.