Environmental campaigners have reacted to the announcement that oil giant Shell has made £8.19bn ($9.5 Billion) in profits in the third quarter of this year.
Campaigners say that the forthcoming Scottish Energy Strategy is a chance for Scotland to ‘chart a clear path’ away from the oil and gas companies who are harming people and the planet to instead create an energy system that runs on renewable energy.
Climate science is clear that we urgently need to transition away from our broken fossil fuel energy system in order to stay within safe climate limits. Analysis has shown that renewable energy is 9 times cheaper than new fossil fuel energy.
Independent climate advisors have made it clear that increasing UK supply of oil and gas will have almost no impact on UK bills as prices are set by the international market. However, continued reliance on volatile fossil fuels will leave millions vulnerable to spikes in their prices.
Shell’s profits for the previous 3 months of 2022 (Q2) were £9.5billion ($11.5billion).
Friends of the Earth Scotland’s Oil and Gas campaigner Freya Aitchison said: “The announcement of yet another obscene profit for Shell shows the scale of the pain that these companies are inflicting on the public.
“While oil companies continue to make record breaking profits, ordinary people are facing skyrocketing energy bills and millions are being pushed into fuel poverty.
“Bosses and shareholders at Shell are being allowed to get even richer by exploiting one of our most basic needs. Shell is also worsening climate breakdown and extreme weather by continuing to invest and lock us into new oil and gas projects for decades to come.
“The Scottish Government must use the opportunity of its forthcoming Energy Strategy to chart a clear path away from fossil fuels and towards an energy system that is built on clean, reliable renewables.
“They must listen to the science which tells us that to meet climate targets in a fair way, fossil fuel extraction needs to be phased out in the next decade.”
FRIDAY’S ‘fiscal event’ contained some of the most substantial tax policy changes seen in recent decades (writes Fraser of Allander’s DAVID EISER). Combined with last week’s announcements on the Energy Price Guarantee and Energy Bill Relief Scheme, this constitutes a huge change in the fiscal outlook.
In this context, the decision not to involve the Office for Budget Responsibility (OBR) is irresponsible. It might be billed as a ‘Growth Plan’, but today’s announcements are a budget in all but name. The OBR plays an essential role in scrutinising tax and spend forecasts, assessing the likely impact of policy announcements on growth, the deficit and debt. Its exclusion from the process weakens transparency around the impacts of the proposals.
The new Chancellor (above) used the first part of his speech to reiterate the government’s unavoidably large interventions in the energy market to protect households and businesses from energy price rises. In the remainder of the speech he announced a host of measures designed to stimulate economic growth through a combination of tax cuts and regulatory changes.
Tax changes – implications in Scotland
There were two ‘tax cuts’ that are more accurately described as reversals in recent or planned increases.
A planned increase in the Corporation Tax rate from 19% to 25% will now not go ahead. The Treasury estimates this will cost £12bn in reduced revenue compared to its previous plans in 2023/24, and more in subsequent years.
The Health and Social Care Levy has also been scrapped, together with the 1.25% increase in dividend tax rates. These changes will cost almost £18bn in reduced revenues in 2023/24 compared to previous plans.
Both of these changes had been pre-announced and apply UK-wide.
The big surprises came on income tax. Here the government announced the biggest reforms (at UK level) since 2009.
The basic rate will be reduced from 20p to 19p one year earlier than expected, applying from April 2023 rather than April 2024.
The 45p additional rate will be abolished in April 2023.
Income tax changes and implications for Scotland
Of course, with income tax being devolved, neither of the changes will apply in Scotland. Instead, the Scottish Government will see a smaller reduction in its block grant next year than it was expecting, boosting the resources available to it in 2023/24 (the reduction to the Scottish Government’s block grant is broadly designed to reflect what the UK government would have raised from income tax in Scotland if income tax had not been devolved, and if the UK government income tax policy had continued to apply in Scotland).
In the context of this additional resource through its block grant, the Scottish Government will then need to decide whether and how to respond through its own tax policy.
It could of course keep Scottish tax policy unchanged. This would enable it to use its additional block grant to invest in public services in Scotland. The cost of it doing this politically would be that the gap between Scottish and rUK tax policy would widen substantially. Almost all Scottish income taxpayers would pay more income tax than they would in rUK. A Scottish taxpayer with an income of £29,000 would face liabilities around £160 higher. A Scottish taxpayer with an income of £50,000 would face liabilities almost £2,000 higher (Chart 1, black line).
Chart 1: Potential difference in income tax liability between Scotland and rUK, in 2023/24
Alternatively the Scottish government could mirror UK tax cuts with tax cuts of its own. It could for example decide to reduce the starter, basic and intermediate rates by 1p. This would broadly retain the difference in tax liability for individuals between Scotland and rUK at current levels (Chart 1, grey line). It would allow the Scottish Government to retain its treasured mantra that ‘the lowest income half of Scottish taxpayers pay less tax than they would in rUK’. But such a policy would cost the Scottish government around £400m in foregone revenues.
Other policy decisions are possible. The Scottish government could decide to cut just the starter and basic rates in Scotland, rather than the intermediate rate as well, at a revenue cost of around £250m.
How the Scottish Government responds to the UK Government’s abolition of the Additional Rate will also be interesting. The Scottish Fiscal Commission is likely to forecast that abolition of the Additional Rate wouldn’t be extremely costly in revenue terms (there are expected to be around 22,000 Additional Rate taxpayers in Scotland in 2023/24 so charging them a few pence less tax on their income above £150k might not have a significant affect in aggregate, particularly if it is assumed, as the SFC will, that the tax reduction will induce some element of a positive behavioural response).
The Additional Rate policy therefore puts the Scottish Government in a difficult political position. If it retains the Additional Rate it will be accused of undermining the ‘competitiveness’ of the Scottish economy, for little direct revenue gain (without any changes to existing policy, a taxpayer with an income of £200,000 would face an additional £5,900 in income tax liabilities in Scotland compared to an equivalent taxpayer in England).
But abolition of the Additional Rate would provide a significant tax cut for the highest income 0.5% of the Scottish adult population (an individual with income of £200,000 would be better off to the tune of £2,500 if the Additional Rate is abolished). The regressivity of a cut to the top rate in Scotland is difficult to reconcile with the Scottish Government’s aspirations for progressivity.
Stamp Duty changes and implications for Scotland
The Chancellor also announced changes to Stamp Duty in England and NI, amounting to an increase in the threshold at which Stamp Duty applies to residential transactions.
As with income tax, these changes will not apply in Scotland. As with income tax, the changes to English policy will pose dilemmas for the Scottish Government when considering its policy on the Land and Buildings Transaction Tax.
The Scottish Government has until now set LBTT in such a way that homes sold in Scotland for less than around £335,000 pay less tax than an equivalent property in England. Above this price, transactions in Scotland face noticeably higher tax liabilities. The changes announced by the UK government today mean that – if there are no changes to the existing Scottish LBTT rates – all property transactions in Scotland would face higher tax liabilities than they would in England (see Chart 2).
The Stamp Duty cuts in England will generate some additional resources for the Scottish Government via its block grant. In ballpark terms the increase in resource might be around £80m. It could use this additional resource to fund public services, or to cut LBTT rates in order to maintain existing tax differentials.
Chart 2: Residential property transactions tax liabilities in Scotland and England
Investment zones – an option for Scotland but at what cost?
The UK government announced the establishment of several dozen ‘investment zones’. It is hoped that these zones will ‘drive growth and unlock housing… by lowering taxes and liberalising planning frameworks’.
Policies implemented within the investment zones will include business rate reliefs for newly occupied or expanded premises, and stamp duty relief on land bought for commercial purposes, and a zero-rate of employer National Insurance Contributions for new employees earning below £50,270.
The hoped-for impacts of these investment zones on UK-wide economic activity – as opposed to their effect on displacing economic activity within parts of the UK – is based more on hope than on empirical evidence.
Several dozen potential zones have been identified in England. The UK government says that it will work with the Scottish government and local authorities to identify zones in Scotland.
What is not yet clear is how the costs of investment zones in Scotland – in the form of reliefs on business rates and stamp duty (which are devolved) and NICs reliefs (which are not devolved) – will be distributed between the Scottish and UK governments. The Treasury’s costing document does not seem to give an indication of the funding associated with the planned investment zones in England, so it is difficult to get a sense of the fiscal scale of these interventions at this stage.
U-turn on IR35
In another regulatory reform design to unlock growth, the chancellor announced the repeal of the anti-avoidance legislation commonly known as IR35. This legislation was designed to reduce so-called “disguised employment”, whereby workers could work long-term for businesses as self-employed contractors rather than employees – and in so-doing reduce the tax liabilities faced by both themselves and the company that they were contracted to.
The IR35 regulations were introduced for public authorities in 2017, and for medium and large enterprises in 2021. The regulation has big impacts on the nature and shape of the workforce in particular sectors.
The introduction of IR35 has been a huge undertaking by public authorities and corporations to ensure compliance with the legislation, so the change announced today is a big deal. It is a shame that we don’t have the view of the OBR of the impact this could have on Income Tax and National Insurance Contributions: but the costing published today by the Treasury suggests it could cut tax receipts by £1.1 billion in 2023-24, rising to £2 billion by 2026-27.
The Energy profits levy – the existing windfall tax
Interestingly, although the Prime Minister has made it clear that additional windfall taxes were not going to be introduced on oil and gas companies, we need to remember that the Energy Profits Levy announced in May is still in place.
This is a 25% additional surcharge on the extraordinary profits that are being made by the oil and gas companies. When it was announced in May, it was expected that this could raise £5 billion this year, although there was a great deal of uncertainty about this.
Under current plans this levy will remain in place until December 2025, and on the basis of the costings published today, the Government has no plans to end it early. The policy is now forecast to raise £28 billion over the next 4 years (including this year). This is another area of costing that it would be particularly useful to get independent scrutiny from the OBR.
Summary: a gamble on growth with long odds
It is undeniably the case that the UK (and Scottish) economies have been characterised for the last 15 years by very weak growth. This has resulted in stagnation in household incomes and living standards, and constrained the growth of government revenues – with implications for investment in public services.
It makes sense therefore for the government to put the objective to raise economic growth at the centre of its strategy. But setting a 2.5% annual growth target, as the UK government has done, is much easier said than achieved.
The government’s decision to reverse the Health and Social Care Levy and cancel the planned Corporation Tax increases merely take policy back to where it has been in the recent past. It is a return to orthodoxy rather than a break from the norm, and in this sense it is difficult to see that it will make any difference to growth.
The substantial cuts to income tax do represent a bigger change to existing policy. But the hope that these will stimulate the economy is based more on blind faith than on any tangible evidence. There is no evidence internationally that countries with lower tax rates grow more quickly. Historically, UK growth rates were highest when tax rates were higher.
Whether today’s announcements unleash economic growth remains very much to be seen. Strikingly, what there was no mention of today was any plans for additional public sector investment. Despite the government’s rhetoric about reforming the ‘supply-side’ of the economy, there was little mention of the role that the skills and health of the population play in influencing the capacity of the economy to grow.
Whilst the government seems comfortable borrowing an additional £30bn or so a year to fund the tax cuts announced today, and is apparently relaxed about an over-growing burden of national debt, the path set out today will constrain the government’s room for manoeuvre on investment in public services in coming years.
At a time when parts of the public sector are struggling to deal with the legacy of the pandemic and other longstanding challenges, the implied prioritisation of tax cuts over public services investment will prove highly contentious, particularly given the regressivity of the cuts.
Households in the top 10% of the income distribution in Scotland will be better off by around £24 per week on average as a result of the cancellation of the Health and Social Care Levy, whereas those in the middle of the distribution will be only £4 per week.
The hope that the policies announced on Friday will boost growth and hence revenues despite cuts in tax rates is a big gamble with long odds.
Prime Minister Liz Truss’s opening speech on the energy policy debate in the House of Commons yesterday:
Earlier this week I promised I would deal with the soaring energy prices faced by families and businesses across the UK. And today I am delivering on that promise.
This Government is moving immediately to introduce a new Energy Price Guarantee that will give people certainty on energy bills.
It will curb inflation and boost growth.
This Guarantee – which includes a temporary suspension of green levies – means that from 1st October a typical household will pay no more than £2,500 per year for each of the next two years, while we get the energy market back on track.
This will save a typical household £1,000 a year. It comes in addition to the £400 Energy Bills Support Scheme.
This Guarantee supersedes the Ofgem price cap, and has been agreed with energy retailers.
We will deliver this by securing the wholesale price for energy, while putting in place long-term measures to secure future supplies at more affordable rates.
We are supporting this country through this winter and next, and tackling the root cause of high prices, so we are never in this position again.
For those using heating oil, living in park homes or those on heat networks, we will set up a fund so that all UK consumers can benefit from equivalent support.
We will also support all businesses, charities and public sector organisations with their energy costs this winter – offering an equivalent guarantee for 6 months.
After those 6 months we will provide further support to vulnerable sectors, such as hospitality, including our local pubs.
My Rt Hon Friend the Business Secretary will work with businesses to review where this should be targeted to make sure those most in need get support. This review will be concluded within 3 months, giving businesses certainty.
In the meantime, companies with the wherewithal need to be looking for ways they can improve energy efficiency and increase direct energy generation
We will be bringing forward emergency legislation to deliver this policy. And my Rt Hon Friend the Chancellor of the Exchequer will set out the expected costs as part of his fiscal statement later this month.
I can tell the House today that we will not be giving in to calls for this to be funded through a windfall tax.
That would undermine the national interest by discouraging the very investment we need to secure home-grown energy supplies. You can’t tax your way to growth.
Instead, we are taking an approach which is pro-growth, pro-business and pro the investment we need for energy security.
This is the moment to be bold. We are facing a global energy crisis and there are no ‘cost-free’ options.
There will be a cost to this intervention. However we are also acting immediately to defray the cost of this intervention in three ways.
Firstly, by ramping up supply.
Following on from the successful vaccine taskforce, we have created a new Energy Supply Taskforce under the leadership of Maddy McTernan.
They are already negotiating new long term energy contracts with domestic and international gas suppliers to immediately bring down the cost of this intervention.
We are also accelerating all sources of domestic energy, including North Sea oil and gas production.
We will be launching a new licensing round, which we expect to lead to over 100 new licences being awarded.
And we will speed up our deployment of all clean and renewable technologies including hydrogen, solar, carbon capture and storage, and wind… where we are already the world leader in offshore generation.
Renewable and nuclear generators will move onto Contracts for Difference to end the situation where electricity prices are set by the marginal price of gas.
This will mean generators are receiving a fair price, reflecting their cost of production, further bringing down the cost of this intervention.
Secondly, today’s action will deliver substantial benefits to our economy, boosting growth which increases tax receipts and gives certainty to business.
This intervention is expected to curb inflation by up to 5 percentage points, bringing a reduction in the cost of servicing government debt.
Thirdly, this morning, together with the Bank of England, we will set up a new scheme, worth up to £40 billion, to ensure that firms operating in wholesale energy markets have the liquidity they need to manage price volatility.
This will stabilise the market and decrease the likelihood that energy retailers need our support, like they did last Winter.
By increasing supply, boosting the economy and increasing liquidity in the market we will significantly reduce the cost to government of this intervention.
As well as dealing with the immediate situation we face, we are also dealing with the root causes.
Energy policy over the past decades has not focused enough on securing supply.
There’s no better example than nuclear, where the UK has not built a single new nuclear reactor in 25 years.
It’s not just about supply. The regulatory structures have failed, exposing the problems of having a price cap applied to the retail but not the wholesale market.
All of this has left us vulnerable to volatile global markets and malign actors in an increasingly geopolitical world.
That is why Putin is exploiting by weaponising energy supplies as part of his illegal war on Ukraine.
So as well as the action we are taking today on bills, we will use the next 2 years to make sure that the United Kingdom is never in this situation again.
I will be launching two reviews.
Firstly, a review of energy regulation to fix the underlying problems. We want a new approach which will address supply and affordability for the long term.
Secondly, we will conduct a review to ensure we deliver net zero by 2050 in a way that is pro-business and pro-growth. This review will be led by my Rt Hon Friend the member for Kingswood.
We are delivering a stable environment that gives investors the confidence to back gas as part of our transition to net zero.
We will end the moratorium on extracting our huge reserves of shale, which could get gas flowing in as soon as six months, where there is local support.
We will launch Great British Nuclear later this month – putting us on the path to deliver up to a quarter of our electricity generation with nuclear by 2050.
As a result of these steps on shale and nuclear and the acceleration of renewables, I am today setting a new ambition for our country.
Far from being dependent on the global energy market and the actions of malign actors, we will make sure the UK a net energy exporter by 2040.
And my Rt Hon Friend the Business Secretary will set out a plan in the next two months to make sure we achieve this.
I know businesses and families are very concerned about how they will get through this winter.
That’s why I felt it was important to act urgently to provide immediate help and support, as well as setting out our plan about how we are going to secure the UK’s future supplies.
This is part of my vision for rebuilding our economy.
Secure energy supply is vital to growth and prosperity. Yet it has been ignored for too long.
I will end the UK’s short-termist approach to energy security and supply once and for all.
That is what I promised on the steps of Downing Street.
Today we are acting decisively to deliver that pledge.
This will help us build a stronger, more resilient and more secure United Kingdom.
I commend this motion to the House.
UK GOVERNMENT BORROWING MORE TO BOLSTER OIL COMPANY PROFITS
Environmental campaigners have reacted to the UK Government plans for an energy price freeze funded by borrowing.
The UK Government will open a new licensing round for the North Sea next week, and is expected to give out over 100 permits for companies to look for more climate-wrecking oil and gas. This is despite climate science and energy experts warning that any new oil and gas projects will push the world well past dangerous climate limits.
Independent advisors have made it clear that increasing UK supply of oil and gas will have almost no impact on UK bills as prices are set by the international market.
Liz Truss also announced that her Government will lift the moratorium on shale gas. Scotland has a de facto ban on fracking.
In the first 6 months of 2022, 5 oil companies made over £80 billion in profits: Shell £16.6bn, BP £12.2bn, Exxonmobil £21.7bn, TotalEnergies £15.2bn, Chevron £14.5bn.
Friends of the Earth Scotland’s head of campaigns Mary Church said: “The impact of measures announced today to stop the immediate rise in household bills is welcome, but the approach taken by the new Prime Minister singularly fails to address the fundamental problems of a broken energy system that serves only to enrich oil company bosses and shareholders.
“The money the UK Government is borrowing will be pumped straight into the coffers of oil companies when it could have helped deliver the transition to clean, reliable renewables. People in the UK are being robbed by fossil fuel companies but instead of making them pay for the harm they are causing, Liz Truss has decided to borrow more money to keep paying the robbers.
“This energy price crisis is being driven by the price of fossil fuels and the only sure fire to prevent this happening again is a rapid and fair transition to renewable energy and a scaling up of energy efficiency.”
+ NORTH SEA OIL & GAS LICENCES “Burning oil and gas is driving the climate emergency that sees tens of millions displaced by floods in Pakistan and has brought extreme heatwaves and drought across the UK. The UK Government is denying the reality of climate change by encouraging companies to seek out more fuel for the fire that is engulfing the world.
“The Scottish Government must be willing to stand up to these reckless plans to expand fossil fuels and hand out more licences for oil and gas companies to explore and drill in the North Sea. Ministers at Holyrood must speak out and use all the tools at their disposal to block any plans to further lock us into the oil and gas that is driving both the climate and cost of living crises.”
+ FRACKING “The move to try reopen and force through fracking is a disgrace. Not only is the industry incredibly harmful in climate terms it also brings with it serious local health and environmental risks. Its laughable to suggest that fracked gas will deliver within 6 months. Communities have already successfully fought and stopped it in Northern Ireland, England and Scotland so wherever this dirty dangerous industry is proposed, it will be opposed once again.”
Commenting on the proposals announced by the government today to support households and businesses with energy bills, TUC General Secretary Frances O’Grady said: “Freezing energy bills this autumn is essential for families and to protect jobs and businesses.
“But the Prime Minister is making the wrong people pay. She should have imposed a much larger windfall tax on profiteering oil and gas giants. And she should have required all firms getting help with energy bills to commit to no lay-offs for the lifetime of the help, to protect livelihoods.
“And it’s not just energy bills soaring – so she needs to do more to help families get through the winter. That means a real plan to get wages rising, a big boost to universal credit, child benefit and pensions, and a massive rollout of home improvements to cut bills. And it’s time to bring energy retail into public ownership to make sure this crisis never happens again.”
The TUC says that the government should set out a programme to make UK living standards more resilient and the UK economy more resistant to a future crisis. This should include:
Increase the windfall tax to a fairer level relative to the excess profits oil and gas firms are making.
Rapid rollout of home energy efficiency and taking the energy retail companies into public ownership – including a new approach to energy pricing with a free band of energy to cover basic lighting, heating, hot water and cooking.
A plan to get pay rising for all workers – including stronger pay bargaining rights so that working people and their unions can make fair pay agreements across whole industries.
Increase the minimum wage to £15 an hour as soon as possible – by returning the UK to normal wage growth and having a more ambitious minimum wage target.
Social security that prevents poverty – universal credit and benefits should be raised to 80 percent of the national living wage, along with a significant boost to support for families with children.
Commenting on the Prime Minister’s decision to end the moratorium on fracking, Tom Fyans, director of campaigns and policy at CPRE, the countryside charity, said: ‘Giving fracking the green light is a hideous mistake.
“If the purpose is to tackle bank busting gas prices, it’s an exercise in futility. Even if we were to go full steam ahead on fracking, which nobody wants, least of all rural communities, it wouldn’t make a dent on the cost of energy anytime soon, or ever.
‘Any move to industrialise the countryside and belch yet more fumes into our carbon-soaked atmosphere will prompt a furious response from local communities, drawn out planning delays and nationwide protests. Hardly a proposal to keep families warm this winter, or lower bills in the future.
‘The new Chancellor got it right in March, when he said fracking “would take up to a decade to extract sufficient volumes — and it would come at a high cost for communities and our precious countryside.” Nothing has changed.
‘Proposals to offer local people discounts on their bills in exchange for environmental destruction on their doorsteps need to be seen for what they are – a feeble attempt to bribe vulnerable rural communities to accept an unpopular, unsafe and polluting process that will destroy their tranquility. Local communities need to make their voices heard loud and clear – they were right to resist before and should continue to do so.
‘The answer to the fossil fuel price crisis is to reduce usage with a mass insulation drive, alongside a clean energy sprint. There has never been a better time to transform our energy infrastructure to ensure a future of abundant green power.
‘Renewables are around nine times cheaper and far quicker to plug in than any alternative. Families facing the biggest drop in living standards on record need renewable energy to become the central pillar of a modernised energy system. And they need it to happen fast.’
A LEADING property association has praised the Government’s package of measures to help those unable to afford rising energy costs.
The National Association Of Property Buyers said the Prime Minister’s “swift and decisive intervention” would help many.
Spokesman Jonathan Rolande said: “Looking at the energy and inflation crisis from the perspective of the property market, we welcome the swift and decisive intervention by the government to help households and businesses with the cost of energy by capping annual expenditure at an average of £2500.
“The impact of higher increases jeopardised so many facets of the economy it was almost impossible to over-exaggerate the terrible consequences there might have been – bankruptcies, unemployment, increased inflation, a house price crash – all were very possible.
“Bills and inflation still look set to rise. Interest rates may well do so too. But the cliff-edge has, for now, been avoided. Businesses and homeowners now have certainty about their budgets and can plan accordingly.
“There will of course be a price to pay, perhaps with higher bills or taxes in the future. But today at least, homeowners, businesses, charities and everyone in the property sector will be breathing a huge sigh of relief.”
Under proposals outlined today, a typical household energy bill will be capped at £2,500 annually until 2024.
The huge support scheme could cost up to £150bn, but Ms Truss refused to put a figure on it, saying “extraordinary times call for extraordinary measures”.
Businesses will get support, with bills capped for six months, a shorter period of protection than many had hoped for.
The help will be for everyone in England, Scotland and Wales with equivalent help for Northern Ireland.
But there are concerns the measures are not targeted enough, with no additional support for the most vulnerable. As a result, millions are still expected to be in fuel poverty this winter.
The energy price cap – the highest amount suppliers are allowed to charge households for every unit of energy they use – had been due to rise to £3,549 in October.
To limit the amount customers’ bills go up by, the government will compensate energy firms for the difference between the wholesale price for gas and electricity they pay and the amount they can charge customers.
The final cost of the scheme will depend on the cost of energy on the international energy markets, which can be extremely volatile.
The money to cover the support will be borrowed by the government, adding to the UK’s already large debt pile.
Since the election of a Tory Government there has been such a severe reduction in living standards all over the country that poverty is being seen as normal.
This Tory attack on working people is deliberate policy. How else could these people be so incompetent and so wicked at the same time?
They are responsible for the continuing rise in prices daily. This autumn there has been a massive government-sponsored rise in the cost of living; the rise in electricity prices was a devastating blow to most people in the country; the price of fuel for cars, etc. has rocketed, giving the fuel suppliers millions of pounds in profits which was promptly given to shareholders while the price of heating and food rose.
The Tories now intend to show how much they don’t care as they have already announced a 10% increases later on this winter.
Yes, this is what the Tories will do and continue to do. All workers must do all they can to resist the Tories.
MORE SUPPORT NEEDED, SAYS SCOTTISH FINANCE SECRETARY
The most vulnerable households across Scotland will receive support of over £1,000 this year, including a new one-off £650 cost of living payment
Universal support increases to £400 across Great Britain, as the October discount on energy bills is doubled and the requirement to repay it over 5 years scrapped
This new £15 billion support package is targeted towards millions of low-income households and brings the total cost of living support to £37 billion.
New temporary Energy Profits Levy on oil and gas firms will raise around £5 billion over the next year to help with cost of living, with a new investment allowance to encourage firms to invest in oil and gas extraction in the UK.
Millions of households across the UK will benefit from a new £15 billion package of targeted UK government support to help with the rising cost of living, the Chancellor announced yesterday.
The significant intervention includes a new, one-off £650 payment to more than 8 million low-income households on Universal Credit, Tax Credits and legacy benefits to be made in two tranches starting in the summer, with separate one-off payments of £300 to pensioner households and £150 to individuals receiving disability benefits – groups who are most vulnerable to rising prices.
Rishi Sunak also announced that the energy bills discount due to come in from October is being doubled from £200 to £400, while the requirement to pay it back will be scrapped. This means the vast majority of households will receive a £400 discount on their energy bills from October.
The new Cost of Living Support package will mean that the most vulnerable households in Scotland will receive over £1,000 of extra support this year.
To ensure there is support for everyone who needs it, Mr Sunak also announced a £500 million increase for the Household Support Fund. This brings the total Household Support Fund to £1.5 billion.
To help pay for the extra support – which takes the total direct government cost of living support to £37 billion – Mr Sunak said a new temporary 25% Energy Profits Levy would be introduced for oil and gas companies, reflecting their extraordinary profits. At the same time, in order to increase the incentive to invest the new levy will include a generous new 80% investment allowance. This balanced approach allows the government to deliver support to families, while encouraging investment and growth.
The Chancellor of the Exchequer Rishi Sunak said: ““I know that people in Scotland are anxious about keeping up with rising energy bills, which is why today we have introduced measures which will take the support for millions of the lowest income households over £1,000.
“As a nation we have a responsibility to help the most vulnerable, which is why this support is mostly targeted at people on low incomes, pensioners and disabled people. But we understand that all households in Scotland will be concerned about the rise in energy costs this Autumn, so every household is set to get £400 off their energy bills from October, with no repayments necessary.
“It is right that companies making extraordinary windfall profits from rising energy prices should contribute, and I’m introducing a temporary energy profits levy to help pay for this support, while still encouraging the investment that generates jobs in Scotland.”
Scottish Secretary Alister Jack said: “Global issues are causing real pressures in the cost of living for UK families. We understand how tough it is at the moment for many households, which is why the Chancellor has today announced a further £15 billion support package.
“A total of £400 per household towards fuel bills will help protect families from rising energy costs. Cash payments of £650 for low-income households on means tested benefits will target support at the most vulnerable in our society at this difficult time. This comes on top of our existing £22bn support package.
“Some of these measures will be paid for by a temporary levy on oil and gas companies – one which incentivises investment in the UK’s energy security.”
There is now more certainty that households will need further support, with inflation having risen faster than forecast and Ofgem expecting a further rise in the energy price cap in October.
So as part of the UK government’s targeted support, the Chancellor announced that around eight million of the lowest income households on Universal Credit, Tax Credits, and legacy benefits will receive an automatic £650 cost of living payment in two instalments via the welfare system this year.
Yesterday’s announcement is on top of the government’s existing £22 billion cost of living support which includes February’s energy bills intervention and action taken at this year’s Spring Statement including a £330 tax cut for millions of workers through the NICs threshold increase in July and 5p cut to fuel duty.
Energy Profits Levy
Surging commodity prices, driven in part by Russia’s war on Ukraine, has meant that the oil and gas sector have been making extraordinary profits. Ministers have been clear that they want to see the sector reinvest these profits in oil and gas extraction in the UK.
In order both to fairly tax the extraordinary profits and encourage investment, the Chancellor announced a temporary new Energy Profits Levy with a generous investment allowance built in. This nearly doubles the tax relief available and means the more investment a firm makes, the less tax it will pay.
The new Levy will be charged on oil and gas company profits at a rate of 25% and is expected to raise around £5 billion in its first 12 months, which will go towards easing the burden on families. It will be temporary, and if oil and gas prices return to historically more normal levels, will be phased out.
The new Investment Allowance, similar in style to the super-deduction, incentivises companies to invest through saving them 91p for every £1 they invest. This nearly doubles the tax relief available and means the more a company invests, the less tax they will pay.
The government expects the combination of the Levy and the new investment allowance to lead to an overall increase in investment, and the OBR will take account of this policy in their next forecast.
The Levy does not apply to the electricity generation sector – where extraordinary profits are also being made due to the impact that rising gas prices have on the price paid for electricity in the UK market, which has also been making extraordinary profits partly due to record gas prices but also due to how the market works.
As set out in the Energy Security Strategy the government is consulting with the power generation sector and investors to drive forward energy market reforms and ensure that the price paid for electricity is more reflective of the costs of production.
The Chancellor announced yesterday that the Treasury will urgently evaluate the scale of these extraordinary profits and the appropriate steps to take.
During the announcement, the Chancellor also set out the government’s strategy to control inflation through independent monetary policy, fiscal responsibility, and supply side activism – a plan he said that should see inflation come down and returning to its target over time.
Finance Secretary Kate Forbes has welcomed the short term action announced by the Chancellor of the Exchequer, but warned more support is needed for households and businesses as the cost of living crisis worsens.
Following calls from the Scottish Government, the UK Government has taken steps to ensure that cash grants, rather than loans, are provided to those on lowest incomes. Ms Forbes has also cautiously welcomed the decision to introduce a Windfall Tax on energy companies benefiting from significant profits but commented that it means Scottish industry is disproportionately funding interventions across the UK.
Responding to the Chancellor’s statement, Ms Forbes has said UK Ministers should have acted earlier and gone further to provide more support that would make a real long term impact, including following the Scottish Government’s lead by doubling the Scottish Child Payment to £20 per week – which is due to increase to £25 from late 2022 helping lift an estimated 50,000 children out of poverty in 2023-24.
Ms Forbes said: “Many households will be relieved to see the support belatedly announced today, but we still need a long term solution to the cost of living crisis and reassurance that the UK Government is going to tackle long term inequalities rather than provide one-off bursts of crisis support.
“Rather than listen to our plea for a comprehensive funding package that fully addresses the unprecedented rise in the cost of living and uses the full £30 billion of fiscal headroom, this piecemeal approach makes it highly likely that more support will be needed later when energy prices rise significantly in the autumn.
“There is also a severe lack of support for businesses – many of them are still struggling to recover from the pandemic and now face crippling increases in energy costs and the damaging impacts of Brexit on supply chains and the labour market. Without urgent economic support there is a real risk that the UK economy is heading for a recession.
“Inflation is at its highest levels in 40 years and the UK Government’s failure to fully invest in increasing incomes, tackling inequality and boosting economic competitiveness will only risk pushing households into further debt and poverty
“The UK Government has almost £30 billion of fiscal headroom, spending only half of this during a cost of living crisis does not go far enough, especially when a further £5 billion from the Windfall Tax will be raised.
“The introduction of a windfall tax is a start, but as a stand-alone measure this means Scottish industry is carrying the weight of UK-wide interventions.
“The removal of the £20 Universal Credit uplift last year was a hammer blow to hard pressed families and the Chancellor’s failure to restore it and increase it to £25 only places a disproportionate burden on the shoulders of those who need help most. The statement was also worryingly silent on public-sector pay with no related consequential funding, when the lowest paid need urgent assurance in the face of rising inflation.
“The refusal to reverse the National Insurance increase implemented in April and temporarily suspend VAT on household energy bills will also cost families hundreds of pounds annually at a time when their budgets have never been more squeezed.
“The Scottish Government has already taken action to support people, communities and businesses as much as possible, with almost £770 million per year invested in cost of living support. We have increased eight Scottish benefits by 6%, closer to the rate of inflation, and introduced a range of family benefits not available elsewhere in the UK.”
Commenting on the government’s cost of living support package announced today (Thursday), TUC General Secretary Frances O’Grady said: “Unions have repeatedly called for an Emergency Budget to help families, and a windfall tax on energy companies.
“The Chancellor should have acted far sooner after his inadequate Spring Statement. His dither and delay has caused unnecessary hardship and worry for millions.
“While today’s intervention is badly needed, we should have never been here in the first place.
“Years of attacks on wages and universal credit have left many households on the brink.
“The government still doesn’t have a plan for giving families long-term financial security.
“With energy bills rising 23 times faster than wages we urgently need to get pay packets rising and to pay universal credit at a permanently higher rate – not just a one-off boost.
“That’s the best way to protect livelihoods and to support the economy.”
“We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet”
Record increase in global gas prices sees energy price cap rise of 54%
Ofgem knows this rise will be extremely worrying for many people
Customers struggling to pay their energy bill should contact their supplier to access the help available
The energy price cap will increase from 1 April for approximately 22 million customers. Those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year (difference due to rounding). Prepayment customers will see an increase of £708 from £1,309 to £2,017.
The increase is driven by a record rise in global gas prices over the last 6 months, with wholesale prices quadrupling in the last year.
It will affect default tariff customers who haven’t switched to a fixed deal and those who remain with their new supplier after their previous supplier exited the market.
The price cap is updated twice a year and tracks wholesale energy and other costs.
It stops energy companies from making excessive profits, ensuring customers pay no more than a fair price for their energy.
The price cap allows energy companies to pass on all reasonable costs to customers, including increases in the cost of buying gas.
Since the price cap was last updated in August, the current level does not reflect the unprecedented record rise in gas prices which has since taken place.
Under the price cap mechanism, energy companies will be allowed to pass on these higher costs from April when the new level takes effect.
This is because energy companies cannot afford to supply electricity and gas to their customers for less than they have paid for it.
Over the last year, 29 energy companies have exited the market or been put in special administration in the wake of soaring global gas prices, affecting around 4.3 million domestic customers.
Jonathan Brearley, chief executive of Ofgem, said:“We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.
“The energy market has faced a huge challenge due to the unprecedented increase in global gas prices, a once in a 30-year event, and Ofgem’s role as energy regulator is to ensure that, under the price cap, energy companies can only charge a fair price based on the true cost of supplying electricity and gas.
“Ofgem is working to stabilise the market and over the longer term to diversify our sources of energy which will help protect customers from similar price shocks in the future.”
Ofgem will tomorrow announce further measures to help the energy market weather future volatility by increasing financial resilience and have the flexibility to respond so that risks are not inappropriately passed on to consumers.
The further measures include enabling Ofgem to update the price cap more frequently than once every 6 months in exceptional circumstances to ensure that it still reflects the true cost of supplying energy.
Help available for customers:
If customers are struggling to pay for energy bills, they should contact their energy supplier as soon as possible. Depending on their circumstances, customers may be eligible for extra help with their energy bills or services, such as debt repayment plans, payment breaks, emergency credit for prepayment metered customers, priority support and schemes like the Winter Fuel Payment or Warm Home Discount rebate.
Breathing Space Scheme: This is a scheme to give households time to receive debt advice and find a solution to sort out their debt problems. Breathing space will last for 60 days as long as applicants remain eligible during which time all creditors who have been included will be informed and must stop any collection or enforcement activity. Once the breathing space ends, creditors will be able to collect the debt in the usual way. Call the National Debtline on Freephone 0808 808 4000 or visit www.nationaldebtline.org
The Citizens Advice consumer service can provide advice on how customers can resolve problems with their energy provider. You can contact Citizens Advice via webchat, or by calling 0808 223 1133. For complex or urgent cases, or if a person is in a vulnerable situation, they may then be referred onto the Extra Help Unit.
2. Ofgem will announce further measures tomorrow including:
Introducing an uplift in the wholesale cost allowance in the price cap: after reviewing the evidence, Ofgem has decided that the existing price cap methodology did not appropriately account for the additional wholesale energy costs energy companies have incurred during the current price cap period following the unprecedented scale of wholesale energy prices and volatility. This adjustment represents less than 10% of the overall price cap increase.
Changing licence conditions to give Ofgem the more flexibility to change the price cap level if needed in between the regular six-monthly cap updates: Ofgem has set ourselves five tests which mean we will only expect to use the power in exceptional circumstances.
Further reforms to the price cap from October: In December we set out three options to make the price cap more robust to high and volatile wholesale energy costs while preserving as far as possible the benefits of the price cap for consumers. The consultation published tomorrow will include all three options, with quarterly updates as our preferred option
Breakdown of costs in the energy price cap
Dual fuel customer paying by direct debit, typical energy use (GB £)
*Network costs: The main driver of this increase is the recovery of Supplier of Last Resort (SoLR) levy costs (£68). A supplier acting as a SoLR can make a claim for any reasonable additional, otherwise unrecoverable, costs they incur. These levy claims are paid to energy companies by the distribution network companies and recovered from consumers via their charges.
5. The charts below show the wholesale prices that are used to determine the wholesale cost allowance within the price cap from spring 2018 ahead of the introduction of the price cap in January 2019.
Wholesale costs make up the majority of a customer’s bill. An efficient supplier will purchase energy for their customers on the wholesale market in advance of when they need to supply that energy.
This purchasing strategy is reflected in how the wholesale allowance is calculated within the price cap. We observe the forward-looking energy contracts that energy companies typically purchase over time and combine these to determine the wholesale cost allowance within the price cap.
We do this twice a year when we update the price cap in August for the winter period (October – March) and in February for the summer period (April – September) based on the price of these forward-looking energy contracts over the previous six months.
The fixed horizontal line shows the average wholesale cost allowance for each 6 month price cap period based on the price of the relevant forward looking energy contracts (the jagged line).
The recent spike in the prices of relevant forward looking energy contracts over the last 6 months can be clearly seen. The scale and pace of wholesale price increases has resulted in a big increase in the wholesale cost allowance for the price cap level for summer 2022.
Wholesale gas price costs in the energy price cap
Pence per therm
Wholesale electricity price costs in the energy price cap
Pounds per megawatt hour
Data sets behind these graphs are proprietary and can be sourced from ICIS.
Chancellor’s statement – Energy Price Cap
Statement, as delivered by Chancellor Rishi Sunak, on 3 February 2022:
Mr Speaker,
The UK’s economic recovery has been quicker and stronger than forecast.
In the depths of the pandemic, our economy was expected to return to its pre-crisis level at the end of 2022.
Instead, it got there in November 2021 – a full year earlier.
Unemployment was expected to peak at nearly 12%.
Instead, it peaked at 5.2% and has now fallen to just over 4% – saving more than 2 million jobs.
And with the fastest growing economy in the G7 this year…
Over 400,000 more people on payrolls than before the pandemic…
And business investment rising…it’s no wonder Mr Speaker, that borrowing is set to fall from £320bn last year …
… the highest ever peacetime level …
… to £46bn by the end of this Parliament.
As we emerge from the depths of the worst recession in 300 years, we should be proud of our economic record.
The economy is stronger because of the plan we put in place; because of the actions we took to protect families and businesses.
And that plan is working.
But for all the progress we are making – the job is not yet done.
Right now, I know the number one issue on people’s minds is the rising cost of living.
It is the independent Bank of England’s role to deliver low and stable inflation – and the Governor will set out their latest judgements at midday today.
And just as the government stood behind the British people through the pandemic…
… so we will help people deal with one of the biggest costs they now face – energy.
The energy regulator, OFGEM, announced this morning that the energy price cap will rise in April to £1,971 – an increase of £693 for the average household. Without government action, this would be incredibly tough for millions of hardworking families. So the government is going to step in to directly help people manage those extra costs.
Mr Speaker,
Before I set out the steps we are taking, let me explain what’s happening to energy prices, and why.
People’s energy bills are rising because it is more expensive for the companies who supply our energy to buy oil, coal, and gas.
Of the £693 increase in the April price cap, around 80% comes from wholesale energy prices.
Over the last year, the price of gas alone has quadrupled.
And because over 85% of homes in Britain are heated with a gas boiler, and around 40% of our electricity comes from gas, this is hitting households hard.
The reasons gas prices are soaring are global.
Across Europe and Asia, a long, cold winter last year depleted gas stores.
Disruption to other energy sources like nuclear and wind left us relying more than usual on gas during the summer months.
Surging demand in the world’s manufacturing centres in Asia…
… at the same time as countries like China are moving away from coal…
… is further increasing demand for gas.
And concerns about a possible Russian incursion into Ukraine are putting further pressure on wholesale gas markets.
And so prices are rising.
Mr Speaker,
The price cap has meant that the impact of soaring gas prices has so far fallen mainly on energy companies.
So much so, that some suppliers who couldn’t afford to meet those extra costs have gone out of business as a result.
It is not sustainable to keep holding the price of energy artificially low.
For me to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest. But what we can do is take the sting out of a significant price shock for millions of families … by making sure the increase in prices is smaller initially and spread over a longer period.
Mr Speaker,
Without government intervention, the increase in the price cap would leave the average household having to find an extra £693.
The actions I’m announcing today will provide, to the vast majority of households, just over half that amount – £350.
In total, the government is going to help around 28 million households this year.
Taken together, this is a plan to help with the cost of living worth around £9bn.
We’re delivering that support in three different ways.
First, we will spread the worst of the extra costs of this year’s energy price shock over time.
This year, all domestic electricity customers will receive an upfront discount on their bills worth £200.
Energy suppliers will apply the discount on people’s bills from October.
With the government meeting the cost in full.
That discount will be automatically repaid from people’s bills in equal £40 instalments over the next five years.
This is the right way to support people while staying on track with our plans to repair the public finances.
And because we are taking a fiscally responsible approach, we can also provide more help, faster, to those who need it most – the second part of our plan.
We’re going to give people a £150 Council Tax rebate to help with the cost of energy, in April – and this discount won’t need to be repaid.
And I do want to be clear with the House that we are deliberately not just giving support to people on benefits.
Lots of people on middle incomes are struggling right now, too – so I’ve decided to provide the council tax rebate to households in Bands A to D.
This means around 80% of all homes in England will benefit.
And the third part of our plan will provide local authorities with a discretionary fund of nearly £150m…
… to help those lower income households who happen to live in higher Council Tax properties…
… and households in bands A-D who are exempt from Council Tax.
We’re also confirming today that we’ll go ahead with existing plans to expand eligibility for the Warm Home Discount by almost a third…
… so that 3m vulnerable households will now benefit from that scheme.
And that’s not all we’re doing to help vulnerable households.
We’re providing £3bn over this Parliament to help more than half a million lower income homes become more energy efficient, saving them on average £290 per year.
Increasing the National Living Wage to £9.50 an hour in April, a pay rise of over £1,000 for 2 million low paid workers.
And providing an effective tax cut for those on Universal Credit, allowing almost 2 million households to keep an average of £1,000 per year.
The payment through energy suppliers will apply across England, Wales and Scotland.
Energy policy is devolved in Northern Ireland, with a different regulator, and the government does not have the legal powers to intervene.
So we will make sure the Executive is funded to do something similar, with around £150m for Northern Ireland through the Barnett formula next year.
And because the Council Tax system is England only, total Barnett consequentials of around £565m will be provided to the devolved administrations in the usual way.
Mr Speaker,
I know that some in this House have argued for a VAT cut on energy.
However, that policy would disproportionately benefit wealthier households.
There would also be no guarantee that suppliers would pass on the discounts to all customers.
And we should be honest with ourselves: this would become a permanent Government subsidy on everyone’s bills.
A permanent subsidy worth £2.5 billion every year – at a time when we are trying to rebuild the public finances.
Instead, our plan allows us to provide more generous support, faster, to those who need it most, providing 28m households with at least £200, and the vast majority receiving £350.
It is fair, it is targeted, it is proportionate – it is the right way to help people with the spike in energy costs.
Mr Speaker,
Today’s announcements are just one part of the government’s plan to tackle this country’s most pressing economic challenges.
A plan for growth – with record investments in infrastructure, innovation and skills.
A plan to restore the public finances – with debt falling by the end of this Parliament.
A plan to cut waiting lists and back the NHS with £29bn over three years and a permanent new source of funding.
And, with the measures I’ve announced today – a plan to help with the rising cost of energy with £350 more in the pockets of tens of millions of hard working families.
That’s our plan to build a stronger economy – not just today but for the long term.
And I commend it to this House.
Commenting on the energy cap rise, interest rate rise and the Chancellor’s measures to address the cost of living crisis, TUC General Secretary Frances O’Grady said: “The Chancellor’s announcement is hopelessly inadequate. For most families it’s just £7 a week and more than half must be paid back.
“It’s too little, it’s poorly targeted, and it’s stop gap measures instead of fixing the big problems.
“Britain needs a pay rise. The best way to help families is to get wages growing again. But this government has no plan to end pay misery.
“Ministers should be getting urgent help to families that need it most through raising universal credit. And we need a windfall tax on the excessive profits from North Sea gas to cut bills and boost investment in affordable energy.”
Responding to today’s announcements on energy costs and the cost of living, Katie Schmuecker, Deputy Director of Policy and Partnerships for the independent Joseph Rowntree Foundation said: “The Chancellor has offered cold comfort to families in poverty, who are already rationing what they can spend on essentials such as heating and food.
“These families are now expected to find at least half of the eye watering increases in energy bills, when many are already getting into debt to keep their houses warm and food on the table.
“Three quarters of those who can claim the enhanced support are not in poverty. Meanwhile inflation is set to rise at more than double the rate of benefits. This support will not get people through the next few months and it will not protect those most at risk of hardship.
“People in poverty are hit hardest by all these pressures because our social security system is simply not offering adequate support, and until that changes they will continue to be exposed to every economic shock.
“The Chancellor has made his choice, the harder choices will now be coming for those who still can’t afford essentials for themselves and their families.”
University of Birmingham’s Harriet Thomson on the rise of energy price caps: “This news comes at a time when families across Great Britain have already been facing years of rapidly increasing energy prices, as well as chaotic energy market conditions with the collapse of around 20 energy supplies since January 2021 alone.
“Just last month, ONS data found that 2 in 3 adults said their costs of living had gone up in the past month, with 79% of those attributing blame to gas and electricity prices.
“We know from the extensive body of existing evidence on this topic that lower income households will be disproportionately hit by the price cap increase, risking pushing millions more into a situation fuel poverty.
“This will have serious consequences for physical and mental health, social isolation, and educational attainment, with households forced to make difficult everyday decisions over whether to ‘heat or eat’.
“Moreover, these price increases are likely to push more people into using risky and/or polluting alternative energy sources, such as DIY candle heaters that have been linked to house fires, burning scrap wood and other flammable materials, and digging up peat. As well as the obvious risks to human life, these approaches will also exacerbate climate change.
“It’s clear that energy companies are reeling from the potent combination of cash flow reductions due to pandemic-related economic pressures on families who are building up more energy debt, and the global gas crisis.
“But the answer is not to burden households with yet more costs. The energy market is broken and needs radical reform – now is the time for the UK government to show ambition and commitment to the nation by investing in deep retrofits of our old and leaky housing stock, and to rollout decentralised renewable energy systems at scale.”
The number of households suffering from ‘fuel stress’ – spending at least 10 per cent of their family budgets on energy bills – is set to treble overnight to 6.3 million households when the new energy price cap comes into effect on April 1, according to new research published today by the Resolution Foundation.
The research shows that the proportion of English households in ‘fuel stress’ – a general indicator of finding energy bills unaffordable and also the definition of fuel poverty in Wales, Scotland and Northern Ireland – is currently 9 per cent.
It is expected to leap to 27 per cent as a result of the energy price cap rising by more than 50 per cent this April to around £2,000 per year. Ofgem will announce the new price cap level on February 7.
Levels of fuel stress are set to be highest in the North East and the West Midlands (33 and 32 per cent), among pensioner households (38 per cent), among those in local authority housing (35 per cent) and among those in poorly insulated homes (69 per cent of families in homes with an EPC F-rating).
The sheer scale of energy bill increases mean that fuel stress will no longer be confined to the poorest households, says the Foundation, but low- and middle-income families will find it hardest to cope as they spend a far greater share of their family budgets on these essentials.
The report notes that the Government is rightly considering ways to mitigate rising energy bills, and should target support at lower income households.
The Foundation says that the most effective way to support lower-income families is through the benefits system, with a faster-than-currently-planned uprating of benefits in April (benefits are set to rise by 3.1 per cent).
Alternatively, an additional payment based on the Warm Homes Discount (WHD) could be pursued. However, the policy will require major surgery in order to make it for purpose. The reforms should include making the WHD:
Bigger, by increasing the £140 payment by at least £300;
Broader, by widening eligibility to all families in receipt of pension credit or working age benefits (8.5 million families in total) and making payments automatic;
Timelier, the extra support should be delivered via an additional bill discount this spring, following the normal winter round; and,
Taxpayer funded, by funding the payments through general taxation (at a cost of £2.5 billion) rather than through further increases in everyone else’s energy bills.
A new vastly improved WHD would cut the number of households living in fuel stress by around five percentage points – equivalent to over one million families.
The report adds that the Government may also want to take action to cut everyone else’s energy bills too.
This could be achieved by spreading the costs of energy firm failure over a number of years (reducing bills by up to £65) and temporarily transferring the social and environmental levies needed to future-proof Britain’s energy supply from bills to general taxation.
This would cut everyone’s energy bills by around £245 and would cut the number of families in ‘fuel stress’ by over seven percentage points – or 1.7 million families – but at a cost of £4.8 billion.
In combination, this dual approach of providing support to all energy bill payers, alongside targeted support for those most at risk of falling into ‘fuel stress’ would reduce energy bills by up to £545 a year – at a cost of around £7.3 billion – and help to avert a cost of living catastrophe this year. The rise in fuel stress would be reduced by two thirds, with 2.7 million fewer families in fuel stress.
Finally, while short term measures are clearly needed, the medium- and long-term solution to energy price shocks is reform of our energy market, better insulating our homes, and reducing our dependence on natural gas via an accelerated move to heat pumps, and the rollout of renewable and nuclear electricity.
Jonny Marshall, Senior Economist at the Resolution Foundation, said:“Rising gas prices are causing energy bills to soar, and will see the number of families suffering from ‘fuel stress’ to treble to more than six million households this summer.
“Fuel stress levels are particularly high among pensioner households, and those in poorly insulated homes – a stark reminder of the need to modernise Britain’s leaky housing stock and curb national dependency on gas for power and heating.
“The Government can take action by targeting support at lower income households via benefits or a bigger and broader version of the Warm Homes Discount. They should also temporarily transfer the cost of environmental levies onto general taxation, as well as spreading the cost of supplier failure over three years.
“While not cheap at £7.3 billion, this plan is affordable, and by cutting bills by up to £545 would help prevent the upcoming rise in energy bills turning into a cost of living catastrophe for millions of families.”
Every UK household will have to pay extra on their energy bills in 2022 – just to pick up the tab for more than £130m of FREE energy given out by Britain’s biggest energy failure.
That’s according to Bill Bullen, Founder and CEO of Utilita Energy, who has slammed Bulb’s strategy of giving new customers a £50 free energy credit – and another £50 to friends who referred them – in a bid to drive growth.
He says that Bulb’s “irresponsible approach” to lure in customers from rival suppliers will slap £5 on every domestic energy bill next year – at an estimated total cost of £132m1.
Just days after Ofgem revealed its action plan for improved financial resilience in the sector – effectively a ‘stress test’ for incumbents and new entrants – Bill Bullen is calling for the regulator to review the use of ‘free energy’ referral schemes too.
“It is not the fault of Bulb’s customers, but the reality is everyone else will end up paying for Bulb’s irresponsible approach,” he says.
Bulb has lost tens of millions of pounds since 2015 and is now being run by Government consultants to save it from collapse. Taxpayers are funding this to the tune of an estimated £2bn already.
Mr Bullen believes the firm’s referral strategy is partly to blame and, worse still, says it encouraged behaviour at odds with the nation’s net zero ambitions.
“Telling customers that energy is free, cheap, or selling it ‘below cost’ is not only unsustainable and irresponsible, but by doing so it encourages consumers to be frivolous with energy. Right now, most homes in the UK waste around 20% of the energy they pay for. This cannot continue.
“To enable consumers to make the right choices for their pocket and the planet, I am calling for the industry regulator to require suppliers to show their value proposition, whereby each supplier presents what value it can offer to the consumer, as an energy partner. This would result in households using and paying less and would give the UK a chance of hitting its 2050 net zero target.”
GB energy consumers face the biggest ever increase to the energy price cap
Fuel poverty charity National Energy Action (NEA) warns that the average increase of £153 for prepayment customers and £139 from those paying by direct debit using a default tariff is likely to result in more utility debt, 500,000 extra households in fuel poverty and an increase in preventable deaths this winter
Suppliers are putting their prices up in October when millions of people will see a reduction in their incomes, as uplifts to Universal Credit are withdrawn
Charity says new Household Support Fund welcome but not enough to prevent needless deaths this winter
Calls on UK Government to take more action to directly reduce higher prices for the poorest this winter and for Ofgem to do more to protect the most vulnerable consumers when suppliers fail.
Adam Scorer, Chief Executiveat fuel poverty charity National Energy Action (NEA), said: “The massive devastating increases in energy prices will drive over 500,000 more households into fuel poverty, leaving them unable to heat or power their homes.
“Just when they were needed most, the uplifts to Universal Credit are also being withdrawn and inflation is soaring. The new Household Support Fund will provide some welcome support for those who can access it, but on its own it is not enough to halt the erosion in incomes and deal with rising prices.
“Without a wider package of support – keeping UC uplifts and more rebates to protect those on the lowest incomes from spiralling energy prices – vulnerable people are still at dire risk of premature death this winter”.
“Falling through the gaps when suppliers fail”
NEA warns that the current crisis is likely to badly affect vulnerable customers when their suppliers fail. The charity is warning that households on older prepay meters are at risk of not being able to top up with their new supplier if their current supplier fails.
In addition, people in debt who transfer over to their new suppliers may also immediately risk aggressive debt recovery tactics from their previous suppliers’ administrators. People eligible for Warm Home Discount are also falling through the gaps when they move to their new supplier. They often can’t access all elements of this vital support.
Adam Scorer continued: “We know this situation is preventable, but Ofgem must act fast to protect the most vulnerable consumers when suppliers fail. The UK Government must also use the upcoming Budget to provide more additional emergency support so we can guard against the consequences of soaring bills and hits to millions of low incomes.
“This means enhancing current schemes and taking new steps to accelerate the repayment of utility debts across the UK”.
“Many of those on the lowest incomes live in the least efficient homes”
NEA has also stressed that one of the key reasons the situation is bleak for the poorest households is the vicious overlap between the households who live on the lowest incomes and who also live in the least energy efficient homes.
They say in England alone, more than 680,000 households on the lowest incomes also live in the least efficient homes making the impact of the price rises much more severe. Over 3 million fuel poor households will need to be prioritised for retrofits if the goal to meet Net Zero is to be met at the same time as statutory fuel poverty targets.
Adam Scorer again: “These quick emergency fixes are vital to get struggling households through this winter, but we can’t lose sight of the long-term solution to reduce the energy waste in our homes.
“We have some of the least efficient housing in Europe. This has left the UK more exposed to the current soaring gas price than many other countries and we are wasting billions of pounds each year as heat escapes through leaky roofs, floors and ceilings”.
What needs to be done
As a summary, NEA is proposing emergency provision to help fuel poor households to stay warm at home this winter, including:
Providing additional funding towards the Warm Home Discount scheme this winter as an emergency provision to guard against significantly increased gas prices
Supporting more households with the Winter Fuel Payment, especially for those eligible for the Cold Weather Payment in Northern Ireland
Helping accelerate the repayment of utility debts across the UK by enhancing Fuel and Water Direct
Continuing the Winter Grant Scheme through this winter
Additionally, through the Spending Review, NEA propose the following longer-term actions to ensure that fuel poor households can be warm at home for years to come:
Fully implement the Conservative Manifesto for the Home Upgrade Grant Scheme (HUG) and Social Housing Decarbonisation Fund (SHDF)
Ensure the Shared Prosperity Fund (SPF) helps end cold homes across the UK
Extend and strengthen the £20 a week uplift in Universal Credit and Working Tax Credit for low-income households.
With the combination of more people working from home and the current colder temperatures, heating bills for most people across the UK are rocketing.
Energy bills will rise further for millions more after the regulator, Ofgem, lifted the price cap on standard tariffs back to pre-pandemic levels but there are lots of simple things you can do to keep cosy and reduce your fuel bills during the current chilly period.
Here are some top tips from NHBC, the UK’s leading warranty and insurance provider for new build homes, to help you save on your winter bills:
· Reduce draughts – an important job as winter approaches is to make sure that your house does not have any unintended draughts. Floorboards and skirtings usually go ignored but cold air can easily filter through, so check for gaps and fill them in. Check to see if your letterbox is draughty, which can lead to cold hallways – installing a letter box draught excluder that fits onto the inside of your front door is an inexpensive easy DIY job. If you have an open fireplace and chimney which is not used, this can be draught proofed to stop warm air escaping and cold air entering your property. Remember that openings for ventilation should not be blocked.
· Bleed your radiators – trapped air or gas prevents hot water from heating your radiators fully so, if you have a radiator that is warm at the bottom but cool at the top, this may well mean there is air in the system, which may require bleeding to ensure maximum efficiency of the heating system.
· Loft insulation – insulating your loft is a simple, inexpensive and effective way to reduce energy waste and lower your heating bills. All new houses are fitted with loft insulation that meets the latest building regulations but, if you are in an older property, you may want to think about renewing it or topping it up.
· Thick curtains – they can help to protect your home from losing heat through windows. It’s important to try to get as much sunlight into your home during the day as possible but, as soon as dusk falls, remember to close curtains to reduce the need for additional heating.
· Keep radiators free – a common mistake we often make is to place our sofas in front of the radiators which can absorb the heat.
· Cavity wall insulation – around a third of all the heat lost in an uninsulated home escapes through walls so, if you live in an older property, considering thermal insulation of cavity walls could save you lots of money.
· Loft hatches – energy loss through the loft hatch is often overlooked. Insulating the hatch and ensuring that an effective draught seal is in place will help to keep heat energy in and your home warm.
· Windows – energy-efficient glazing keeps your home warmer, allowing less heat to be lost. Double glazing is fitted as standard to new-build homes but, if your house is older, replacing windows could be a good investment as they help to keep warmth in and reduce external noise.
· Service your heating system – all central heating boilers should be serviced and safety checked at least once a year by a Gas Safe Registered engineer. If your boiler is old, then consider an upgrade. According to the Energy Saving Trust, a new A-rated condensing boiler can save up to £315 a year on heating bills – most new homes have this type of boiler.
· Room temperature controls – your thermostat should typically be set between 18°C and 21°C, but by installing thermostatic radiator valves you can set different temperatures in different rooms (turn down the radiators in unoccupied rooms), according to individual preference. These will be standard in new homes but are easily fitted to existing radiators.
· Floor insulation – insulating your ground floor or floors above any unheated spaces e.g. integral garages will assist in keeping your home warm.
· Insulating tanks, pipes and radiators – Lagging water tanks and pipes and insulating behind radiators reduces the amount of heat lost, so you spend less money heating water up, and hot water stays hotter for longer.
Standards and Policy Manager at NHBC Giles Willson, said: “People living in new homes typically benefit from lower energy bills because their properties are built in line with the latest Government regulations for energy efficiency.
“However, whether you live in a newly-built home or an older property, there are a lot of ways that could save money on utility bills during the coldest part of the year when many millions of us are also working from the kitchen table and home-schooling our children.”
