Who is footing Labour's energy bill?
7 min read
Labour sold its green energy plan as a win for consumers at the election, but critics and supporters want it to be clearer on who meets the short-term bills for the long-term gain. Harriet Symonds reports
It was one of the few unashamedly ‘retail’ promises in the Labour manifesto: families’ average energy bills would be up to £300 lower by the end of the decade.
The recent increase in the energy price cap – as well as the decision to remove universal entitlement of pensioners to winter fuel allowance – has put that pledge in the spotlight.
Ed Miliband, the Energy Secretary, seeks to use the recent rise in wholesale gas prices to underscore the case for ending fossil fuel energy in the UK by 2030.
It’s only by freeing ourselves from a notoriously volatile market that British families can benefit from reliably cheap renewable energy. The catch, of course, is that achieving that freedom comes at a cost – and the question is, who picks up the bill?
I wouldn’t be at all surprised if Ed Miliband is the first Cabinet minister to resign
Both supporters and critics alike believe that Miliband and Labour need to do much more to make their policies consumer-friendly if they aren’t to be crushed by a voter backlash.
The latest energy price cap pushed average bills up by £149 a year – and experts think that could rise again in the new year. “Energy bills are already unaffordable and have just got less affordable,” says Matt Copeland, head of policy at National Energy Action. “What’s quite worrying is that it looks like bills could go up again in January based on current projections.”
Research by the Resolution Foundation found nearly 7.7 million (37 per cent of) households will be at risk of “fuel stress” this winter and struggle to heat their homes. It’s even more severe in single-parent households, the number jumping to 77 per cent.
“No one wants to see bills going up. It’s clear that for lots of people those bills are going to be forcing some really difficult decisions,” says Alistair Strathern, Labour MP for Hitchen and chair of the Environment APPG.
With many facing a winter of uncertainty, there are concerns that some decarbonising costs could be passed on to consumers too, who will then be expected to stump up even more money – at least in the short term. “The investment needed to get there will mean that in the interim there’s a risk of higher bills,” says Alex Belsham-Harris, head of energy consumer markets at Citizens Advice.
And if the short-term vagaries of the energy market are difficult, they are dwarfed by the challenge of moving the nation off gas boilers and onto clean alternatives like heat pumps.
Lower-income households will inevitably find it a challenge to pay for any additional costs, however small, to decarbonise their homes. “What’s happened in the past is paying for net-zero policies through levies has actually made low-income households disproportionate sponsors of those policies when they’re not necessarily getting the benefits,” warns Copeland. “The government has to make it easier for the poorest to make this a just transition. If we don’t, the poorest will suffer most,” urges Lord Deben, former chair of the Climate Change Select Committee.
A No 10 source agrees that you cannot put the cost of the transition onto the taxpayer.
“Our whole country, pretty much, is dependent on fossil fuels to heat their homes and we need to change that,” says a Labour MP, who explains that local authorities should be given powers, alongside third-sector partners, to offer green upgrades to households that can be paid in instalments to avoid upfront costs.
“You need to do it at scale because if you leave it to individual consumer choice you will end up with very high costs, either for the consumer or the state,” they add.
“We’re obviously going to have to mobilise a lot of public and private investment behind this if we’re going to be able to deliver it at scale and in a way that really delivers benefits for consumers, not just in security, but in their back pockets through bills too,” says Strathern.
So far, just 250,000 out of 28 million households have had heat pumps installed, likely in part due to a costly installation process.
“There are ways of structuring the financing of this kind of thing that will keep the costs for consumers down,” maintains the Labour MP, but doesn’t explain what these might be.
“It could only be done either through massive energy bill increases for consumers or through massive tax rises,” says Conservative peer Lord Hannan, adding, “neither of those is really a credible option.”
And the cost of installation isn’t the only issue. “Your costs don’t always reduce if you use a heat pump instead of a boiler – in fact they can increase,” says Copeland.
But the Labour MP counters: “They don’t have to be expensive to install, and they don’t have to be expensive to run, if you get the regulatory framework right, and that’s what the government needs to be doing.”
For pensioners the cost of decarbonising their home would simply not be worth the upfront costs. “If you haven’t got many years to live, you’re not going to have time to be able to reap the financial rewards of moving to a more energy efficient home and a lot of older people are in that position,” points out Caroline Abrahams, director of Age UK.
“It is an utterly unachievable project,” argues Hannan, who predicts the 2030 target will not be reached. “When we get to the expense of having to replace boilers and so on, I think attitudes will change very quickly. I wouldn’t be at all surprised if Ed Miliband is the first Cabinet minister to resign,” he says.
“This might seem like a foreign concept, but it’s because we have chosen not to embrace a strategic approach to decarbonising our energy system and that’s what we’re going to do,” insists the Labour MP.
Age UK has found four-in-five pensioners living below or just above the poverty line will lose their winter fuel payment. The Budget at the end of this month is an opportunity for Chancellor Rachel Reeves to soften the impact of the cut and direct some of the savings to poorer households struggling most.
Reforming the Warm Home Discount, currently only available to people on means-tested benefits, to cover more households is a popular option among Labour MPs.
Introducing a social tariff is another popular idea. This would subsidise energy bills to offer discounted energy prices to vulnerable and low-income households. It would also help to decarbonise homes, where costs would otherwise be unaffordable, and shield consumers from future shocks.
“A social tariff, at least, puts the burden on the private businesses,” says one Labour MP, but adds: “If that was to be considered, it doesn’t happen overnight.”
“That’s why we need energy market reform to recalibrate the market for consumers so that you’re not finding it difficult to do the right thing by buying clean electricity. And at the other end, making the right regulatory changes to encourage investment.”
Others have more radical suggestions. Lord Deben suggests incorporating decarbonising costs into existing mortgages. “If people cannot afford the actual cost then it can be placed as an additional part of their mortgage and because of the energy efficiency that that produces, of course, it means that people’s energy bills will be much less year by year.”
But where is the consumer voice in all this? “It’s easy to get very focused on the infrastructure and things like planning reform and support for renewables. All those things need to happen but having a clear, consumer voice there as well is really key to make sure you maintain consent for a lot of these changes,” adds Belsham-Harris.
The Conservative Party senses a huge opportunity. At a fringe event at their party conference, Hannan suggested an independent pressure group lobbying on behalf of consumers over energy costs would help the party’s revival. It was endorsed by John Redwood, who was also on the panel.
“The Leave campaign did this. When we set up Vote Leave we very deliberately created sectoral and interest groups,” he explained. “They will be much more persuasive for not being linked to the Tory Party”.
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