Oral statement to Parliament

Government action on energy bills

Statement by Edward Davey, Energy Secretary, about the government's proposed measures to reduce the impact of policies on energy bills.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon Edward Davey

Check against delivery.

With your permission Mr Speaker, I would like to make a statement on the action the Government is taking to reduce the impact of Government policies on energy bills.

Even though British households pay some of the lowest prices for gas and electricity in Europe, this is no comfort to those who have seen energy bills rise considerably over the past 10 years.

The latest round of price rises announced by the energy companies have been particularly unwelcome coming ahead of what is likely to be a cold winter.

And in such circumstances it is right that people ask whether these rises are justified and what the Government is doing to keep energy bills affordable now and in the long-term.

The main driver of these energy price rises has been rising wholesale energy costs, and the need to upgrade energy infrastructure to ensure security of supply in the long-term.

Wholesale and network costs make up over two thirds of bills.

Supplier costs and profits make up around a fifth.

So the energy companies need to be more open about these costs, so consumers can judge which suppliers are acting responsibly and keeping their costs down.

Working with Ofgem, the Government is making this possible by forcing the energy companies to open up their books and justify price rises to their customers.

We are increasing competition in the market to bear down on prices and provide people with a proper choice of supplier.

And as I announced in the Annual Energy Statement, Ofgem, working with the competition authorities, will report annually on the state of competition in the market, looking in depth and across the energy sector at profits and prices, barriers to entry and consumer engagement.

Ofgem’s reforms for competition in the retail market are already making it easier for people to understand their bills, work out where they can get the best deal, and switch providers easily.

But it is also right that Government is open about its social and environmental policies that make up just under a tenth of the average bill.

Our polices provide for immediate help for the most vulnerable with direct cuts to bills, as well as long-term savings on bills through energy-efficiency programmes and support for low carbon energy that boosts energy security and tackles climate change .

For example, the Warm Homes Discount cuts the bills of two million vulnerable households by £135.

The Energy Companies Obligation [ECO] provides permanent long-term savings on bills, including to the most vulnerable, by helping people upgrade their homes and making them easier and cheaper to keep warm.

Support for cleaner energy increases our energy security and boosts investment in our thriving renewable energy industry, with tens of thousands of green jobs being created.

But unlike the Winter Fuel Payment, which provides around 12.5 million pensioners with help with their bills – and Cold Weather Payments which last year provided over £146m to cut bills for the most vulnerable – policies such as the Renewables Obligation, ECO and the Warm Homes Discount are paid for directly by consumers through their bills, rather than through general taxation.

So it is right that Government keeps these social and environmental obligations paid for by energy bill payers under continuous review.

And where we can act to reduce their impact on bills, while maintaining the integrity of our policy, we will.

But as we do this, we must act responsibly.

We must ensure that the changes we make maintain the support provided to the most vulnerable, maintain the investment in clean energy and do not have a negative impact on our carbon reduction ambitions.

Mr Speaker, in this spirit the Government has reviewed the cost profile of social and environmental policies and I can today announce proposals that would reduce the average household bill next year by £50 on average.

First, the Government will provide £300m in both 2014 and 2015, £600m in all, for a new rebate to all domestic electricity customers worth £12.

Second, we propose to consult on remodelling the Energy Company Obligation so that it is easier and cheaper to deliver.

The changes to ECO would result in over £30-35 off average bills next year, although the precise reduction in individual households’ bills would depend on their energy supplier.

The existing dedicated support in ECO for low income and vulnerable households – Affordable Warmth and the Carbon Saving Communities Obligation - will both be maintained at current levels and extended from March 2015 until March 2017.

The other element of ECO – the Carbon Emissions Reduction Obligation - will also be extended by two years but reduced by 33%.

These changes are subject to consultation, which will be carried out early in the New Year.

In addition to Government action, the electricity Distribution Network Operators are willing to take voluntary action to reduce network costs in 2014/15, which would enable suppliers to pass on an average one-off £5 reduction on domestic electricity bills.

Mr Speaker, I have been clear from the start that support for low carbon energy should not change, and it won’t.

The Government recognises that green energy investment incentives such as the Renewables Obligation, Contracts for Difference and feed in tariffs are essential for investment in future home-grown energy generation.

Without this low carbon investment, energy security would be jeopardised as Britain would become ever more dependent on imported oil and gas, and energy bills in the future would be increasingly subject to high and volatile fossil fuel prices.

The Government will also ensure that its overall approach will cut just as much carbon as planned.

New measures, worth £540 million over three years, will boost energy efficiency even further by introducing new schemes for home-movers, landlords and public sector buildings.

In future, when people buy a new home, they could get up to £1000 from the Government to spend on important energy-saving measures – equivalent to half the stamp duty on the average house – or up to £4000 for particularly expensive measures.

The scheme will be available to all people moving house including those who don’t pay stamp duty, helping around 60,000 homes a year, over three years.

The Government will also introduce a scheme to support private landlords in improving the energy efficiency of their properties, which will improve around 15,000 of the least energy efficient rental properties each year for three years.

Together, the homebuyers and private rental schemes will be worth £450 million over three years.

£90 million over three years will be spent improving the energy efficiency of schools, hospitals and other public sector buildings.

The Government will deliver a significant boost to the Green Deal, increasing the funds available to local authorities this year through Green Deal Communities from £20 million to £80 million, to help support ‘street-by-street’ programmes for hard-to-treat homes in a cost-effective way.

We will keep the Green Deal cashback scheme open, which will protect jobs in the energy efficiency industry before the new measures take effect.

Mr Speaker, all of the major energy suppliers have confirmed that they will pass the benefits of this package on to their customers.

The reduction in individual household bills will depend on the energy supplier: Some companies have not yet announced price rises for 2014, or have limited their rise until the Government’s review of green levies concluded.

Others have announced price rises and have indicated that they will reduce their customers’ bills as a result of these changes.

Energy companies will now make final detailed decisions about how to apply these measures, but these cost reductions will ensure that average energy bills are lower in 2014 than they otherwise would have been - on average by £50 per household.

As the major energy companies have now confirmed, there will be no need for prices to rise in 2014, unless of course there is a major change in wholesale or network costs.

Some have gone further with commitments to hold prices down for longer.

Today’s announcement of cuts to energy bills is just part of the concerted action the Government is taking to help hard-working families including through income tax cuts, the council tax freeze and the fuel duty freeze.

And this help for people with energy bills is being achieved whilst we maintain and extend support for the fuel poor, whilst we continue to back green energy and by boosting energy efficiency.

I commend this statement to the House.

Published 2 December 2013