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Energy Prices

Volume 474: debated on Thursday 24 April 2008

High energy prices continue to affect all economies, and at the recent G7, International Monetary Fund and World Bank meetings, we called for urgent international action by those bodies to improve the functioning of the oil markets, including increasing transparency and investment, as well as supply of oil.

The Warm Front scheme has been welcome in reducing fuel poverty, but what efforts is my right hon. Friend making to reduce the costs of the preferred contractors, especially in light of the growing evidence that local contractors can do the same work for far less money? Has he also considered the criticism that the scheme is just not flexible enough?

I am grateful to my hon. Friend for his welcome of scheme in general. I think that about 7,000 households in his constituency have been affected by measures to help conserve energy through greater insulation. The point that he raises is a real concern, especially at a time when the industry is about to enter a major programme, through the carbon emissions reduction target, to insulate homes throughout the country. It would be a pity if contractors were to take advantage of that and charge more than ought to be charged. His other point was about ensuring adequate competition so that local contractors and others can get the work, which would also help drive down prices. He raises a real concern, which I want to look into, to make sure that all the work is not only done, but done as cheaply and efficiently as possible.

In the Chancellor’s reply to me on Monday, he stressed that rating agencies should not be relied on as a definitive guide in judging the stability of energy companies and other utilities. Given the high levels of leverage in energy companies, will he discuss with the regulator, Ofgem, what measures can be taken to ensure long-term stability, so that crises will not precipitate a collapse of those companies, due to the levels of debt that they are currently incurring?

I will certainly raise the matter with Ofgem. As my hon. Friend said, he raised it with me on Monday. Whether we are talking about a utility company or a bank, I am clear that a credit rating agency should be relied upon to give advice that will help inform directors’ decisions, but it should not be taken as the last piece of advice. In other words, the decision should not be taken by the credit rating agency; it must be one for the directors to take.

The other thing that would greatly help utility companies in this country, particularly in relation to energy supply, is for us to ensure that the supply of energy in the European Union is truly opened up so that we can actually see what is going on. The Commission has taken some welcome steps, which Neelie Kroes initiated a year or so ago, but frankly the progress is far too slow. It is important that we do everything we can to ensure that the market is more open, because that will help British energy companies and therefore, importantly, consumers, whether businesses or individuals.

Why is it that three months after the Chancellor’s high-profile intervention on electricity prices no action has been taken to refer to the big, vertically integrated producers that suppress competition the Competition Commission or to stop the blatant price discrimination against low-income metered consumers? Is that not another case, as with the banks, of powerful companies running rings round ineffectual regulators and Ministers?

No, I do not accept that. What is clearly the case, especially over the past year or so, is that the prices being paid by businesses and consumers have gone up. A lot of that is to do with very high oil prices, which have remained far higher than people forecast even a year ago. Oil prices are significantly higher than they were then. We have a competitive market, but as the hon. Gentleman knows, Ofgem is looking into the situation. I raised it with Ofgem at the turn of the year, because I want to ensure that our market is competitive and that there are no anti-competitive practices.

Since then, the Government have also engaged with energy companies to get them to increase the amount of money that they spend on customers with low incomes and, crucially, to do something about the unfair high payments that were imposed upon customers with pre-payment meters who, by definition, were on lower incomes than everybody else. Action is being taken, but rather like with the hon. Gentleman’s fairy tale on Monday, he might want to look at all the facts and not just some of them.

Although I welcome the interim and short-term measures that my right hon. Friend is taking, is he also considering alternative energies, such as those of the Energy Technologies Institute, which is based at Loughborough university, at the hub of a £1 billion investment? Those are the things that will reduce our reliance on oil in the long term, especially at $120 a barrel, at which it could remain for the foreseeable future. Will he ensure increased investment in those alternatives, not only for the long-term security of the nation’s energy, but for all of us suffering from the increased energy prices caused by changes currently taking place in the world?

I agree with my hon. Friend. Indeed, the thrust of the energy White Paper that I published last summer was, first, to reduce our demand for energy, through increased conservation and measures to ensure that businesses and we as individuals use less energy, which is critical. The second thing is that we need to reduce our dependence on carbon sources of energy. That is one of the reasons that the Government believe that we should rebuild nuclear capacity. However, my hon. Friend is quite right that renewable energy must play a crucial role. The renewables obligation helps the growth of renewable energy. Indeed, we have seen a huge increase over the past few years, although we have a long way to go.

The problem with renewable energy that we also need to tackle is that sooner or later people must face up to the fact that if we want renewable energy, we have to give the go-ahead to wind farms onshore or offshore. The problem, certainly in this House, is that there are people who say, “Yes, we want to be greener”, but who then go on to say, “But not anywhere near me.” That is something that we as a country are going to have to resolve. I agree with my hon. Friend, however, that conserving energy and getting more renewable energy must be two of the centrepieces of any energy strategy if we are serious about tackling climate change and reducing bills for consumers, whether they are businesses or individuals.

The Chancellor will know that the high price of energy is hitting those on fixed incomes particularly hard, especially older and more vulnerable people. When will he be in a position to give the House details of the extra help announced yesterday that is to be given to 60 to 65-year-olds?

I hope that I can do that in the reasonably near future, but I want to make sure that we have bottomed out exactly how these payments can be made and what mechanism will be used. It will almost certainly be done through the winter fuel payment mechanism, because it is already there and we would not need to legislate for anything different. The hon. Lady will recall that, in the Budget, I increased the amount of money going to people over the age of 60 by £50 for this year, over and above the winter fuel payment. That was partly to reflect the fact that, as she has pointed out, people over the age of 60 are often, although not always, on fixed incomes. That payment will help them and will be widely welcomed. Those payments will go out in the autumn.

Is my right hon. Friend aware that electricity bills in south Wales are 10 per cent. higher than in England, causing obvious problems to individual constituents and businesses? Has he made any assessment of the effect of those higher bills on the Welsh economy?

As I said earlier, the higher energy bills are affecting all parts of the UK, although I note what my hon. Friend has said about south Wales. They are also affecting every other country in the world. This is a matter of major concern, which is why we need to do three things. The first is to ensure that we have a genuinely competitive market. While we have made strides in this country—far more than many other countries, particularly in the European Union—we need to do far more to ensure that there is no anti-competitive behaviour. Secondly, we need to ensure that we take action to become more efficient with the amount of energy that we use. The third element, given that the root cause of the problem internationally is the continuing high price of oil, is that we need to take action to increase the production of crude oil, to increase our refining capacity, and to make those markets far more open than they are at present. All those things need to be done, because energy prices are crucial, particularly for heavy industry in south Wales as well as for consumers. I am very conscious of this issue, and we need to take action here as well as internationally.

When the Chancellor is considering alternative forms of energy, will he bear in mind his responsibility for the stewardship of the economy in general? Will he reflect that the erection of onshore wind farms can often despoil the countryside, deter tourists and have a bad effect on revenue as a consequence?

The hon. Gentleman amplifies the point that I made a few moments ago. Of course we have to balance our need to generate electricity, whether from coal-fired, gas-fired or nuclear power stations or from onshore wind farms, with the fact that we need to take environmental considerations into account. If we want more renewable energy, however, we have to put it somewhere—[Interruption.] Someone says from a sedentary position, “Offshore.” Yes, indeed. However, our experience is that there have been almost as many objections to offshore wind farms as there are to onshore wind farms—[Interruption.] Not from the fish, but often from people with quite legitimate concerns that need to be addressed. If we are serious about getting more renewable energy, we actually have to build it. I would say to some, although not all, Opposition Members who say that they want renewable energy that they will need to reconcile that with their often robust opposition to building any more wind farms.

The Government have an excellent record on tackling fuel poverty, but the challenging targets to eliminate fuel poverty by 2016 are now looking difficult to achieve. Energy companies are increasing the amount that they spend on social tariffs to £150 million. Is the Chancellor confident that the voluntary approach is going to work and does he rule out mandatory tariffs?

My hon. Friend is quite right that we have reached an agreement with the energy companies to increase the amount of money they spend on social tariffs. It is far easier to proceed on the basis of voluntary agreement because it avoids all sorts of difficulties, and I very much hope that electricity companies will recognise that people feel very strongly about this approach and that it is something that they want to see, and I want to see that agreement implemented.