Charles
Hendry: Until we heard that last rant, I was going to give
a warm welcome to the Minister and his comments, and to how he has
taken us through the information during the past hour. I was going to
say he had given a detailed response and had dealt with the issues
thoughtfully. Nevertheless, in general, I still feel that he gave some
helpful responses to the questions we asked, and I think we could have
maintained that approach for a while longer.
We are
grateful for the opportunity to study the report, but we have a
question in our mind about exactly what the European Union’s
competence is in this area, especially as some of the aspects that are
mentioned relate to revenue issues. The report refers to the taxation
regime and it would be interesting to know what the European
Union’s competence is in relation to that. It would also be
helpful to know what the scope is in relation to windfall tax on the
profits of the oil extracting industries. It is not clear from the
report or the Government’s response exactly what the European
Union’s competence should be in those areas.
There is no
doubt that, based on the increase in fuel prices over recent months,
the outlook is very hard for the United Kingdom. Even though they have
dropped significantly, there is a clear link between the price of
gas in this country, which follows the price of oil, and the price of
electricity, because so much of our electricity is created using
gas-burning power stations. The price of gas has increased by 50 per
cent., and since January the price of electricity has increased by 30
per
cent. We
also know that every 1 per cent. price increase pushes another 40,000
people into fuel poverty. I was surprised by the Minister’s
reaction to the issue of fuel poverty because it has not declined under
the Government. The figures relating to fuel poverty have fallen, but
they are now rising sharply. Primarily, fuel poverty decreased not
because of Government policies, but because prices were falling, and it
is increasing because prices are going
up. It
would be helpful if the Minister answered the simple question that I
asked: do the Government still have a statutory duty to end fuel
poverty for vulnerable households by 2010 and for all households by 22
November 2016? We have seen the result of the court case, but what is
the situation regarding that statutory
duty? The
problem is that if more had been done earlier to recognise the fact
that price rises would occur, we could have been in a better situation.
Since the spring, it has been clear that we are heading for a difficult
winter. Look at the forward price of energy at that time: it was half
as high again for the first quarter of 2009 as it was in the spring and
early summer of this year. At that stage, the Government should have
introduced—as we asked them to—proposals for tackling
fuel poverty and its growth. However, the Government’s response
was to cut the Warm Front budget by 25 per cent. Much, although not
all, of that cut has been reinstated, but it was a move in the wrong
direction and it has made the problems significantly worse for many
households. Consequently,
people who are applying for Warm Front grants are at the back of a long
queue. I understand that somebody who makes a request for a Warm Front
grant now—bearing in mind that to qualify their boiler must be
broken or out of order—will not get a new boiler installed until
March, which is beyond the end of winter. That is unacceptable, and I
would be grateful to know what the Minister plans to do to try to have
more of the facilities that are so urgently required brought through at
an earlier
stage. We
have also been more affected by the price changes because not enough
has been done to secure our future energy supplies. I thought that the
Minister was complacent in his comments about gas storage. We are
critically short of gas storage in this country. We have 10 or 12
days’ gas storage in the United Kingdom. Germany has 100 days
and France 120. We need to do much more to develop additional gas
storage facilities; that should be a priority for the
Government. The
Minister talks about the pipelines, but he must also remember that
those pipelines flow both ways. One of the reasons why our gas prices
for business in particular will never now be cheaper than the European
average is that the moment our prices drop below the European average,
gas is exported through the pipelines to the continent. That continues
until the prices
equalise. There
is also an issue with LNG terminals, as the Minister has rightly
highlighted. A lot of investment has gone into them, but not much gas
is flowing through them because Korea and Japan in particular have been
willing to pay higher prices for that gas than has been the case
here.
We have been
more adversely affected by rising prices because not enough has been
done to secure future investment. A serious energy crunch is
coming—perhaps as soon as 2013-14, but certainly by
2015-16—as a result of a range of issues, but particularly
because a third of our coal-fired generation and much of our nuclear
will be going out of commission. Those investment decisions should have
been taken by now to secure the energy supplies that we will need in a
few years.
The report
addresses some issues, but the Government have been rather complacent
in dealing with them. I question whether the issue is one of EU
competence, but the challenge relates to the Government’s
failure to take the lead that they should have taken. The consequence
is that we have been much more affected by higher price rises than
other countries. We have recently had huge increases in gas prices in
particular, whereas in France the increase has been only 2 per cent.
That is partly due to France’s energy mix and the much higher
use of nuclear in energy generation, but it is also because France has
an abundance of indigenous energy. We do not, so we are much more
dependent on imported energy than was the case a few years
ago. The
lack of leadership means that UK businesses are paying much higher
prices for their electricity and energy than companies overseas.
Businesses here will have to pay £72 per MWh, compared with
£57 or £58 in Germany and France, so our businesses will
pay 25 per cent. more for their energy usage. Much of that is a direct
consequence of the Government’s policies and their failure to
take the necessary action when there was evidence that prices were
going up. As we move into winter, the situation that households face is
much more difficult than it needed to
be. A
final example of where leadership was needed is the time of the great
oil price rise, when the Prime Minister went off to the Gulf. He said
that he would hold a summit here in December, bringing world leaders
together to address the matter further, but we understand that that
idea was dropped last week, partly because the people whom he wanted to
come were not prepared to come, and some leaders whom he did not want
to come wanted to come. The summit has therefore been downgraded from
one for Heads of Government to one for Ministers of State. That is not
showing the leadership that we
expect. More
needs to be done, and I hope that the Minister will ensure that, during
his tenure, more serious attention is given to those challenging
issues.
Several
hon. Members
rose—
The
Chairman: Order. Before I call any more speakers, I
reiterate that the debate should be confined to the Commission’s
analysis of the causes of recent increases in oil prices, and to its
proposed course of
action. 5.38
pm
Mr.
Wright: I shall try to confine my comments to those
limits, Mr. Taylor, but I crave your indulgence while I look
back at the history of oil and gas in relation to today’s
prices, which are substantially higher than we have witnessed before.
It is rather tongue in cheek of the
Opposition to suggest that we have done little to help the fuel-poor,
given that in the 1980s and 1990s, when oil prices were low and we were
self-sufficient, huge tax benefits went into the Exchequer
merely to pay unemployment benefit. Even then, the previous
Government wanted to increase VAT to 17.5 per
cent.
The
Chairman: Order. The hon. Gentleman heard what I said. The
debate must be confined to the Commission’s analysis of the
causes of recent increases in oil prices, and to its proposed course of
action.
Mr.
Wright: I shall take your lead on that, Mr.
Taylor.
Clearly, we
need to consider how we can help communities in not only the European
Union, but the UK, to deal with high oil prices. We must consider how
we can meet the challenges, and the document before us states that
there is the option of putting a windfall levy on the oil and gas
companies. However, perhaps high oil prices will have a benefit in
areas such as Great Yarmouth, where high oil prices mean an enormous
number of job opportunities because of exploration for significant
wells. There will be challenges in that
direction. We
need to take on board the issues that have come to the fore when trying
to reduce fuel poverty in the light of high energy prices. The taxation
revenue arising from such high prices should be diverted into
energy-saving techniques. Such opportunities are clearly available to
us. The Government can probably have a mark of eight out of 10 for
their efforts to reduce prices for families, but I come back to the
question of how rural communities can combat the huge increases in
prices and urge the Minister to take on board these
issues. There
are challenges involved in encouraging people to use energy-saving
devices. There are questions about whether Warm Front gives the
taxpayer value for money. We need to investigate whether we are getting
value for money from that scheme, because the quotes that companies are
giving are far higher than those that people can get
locally. Today’s
debate is about facing the challenges of higher oil prices. I think
that they are here to stay and that we need to include in those
challenges how we can reduce the costs to our constituents and people
in the areas that I have described. We need to try to reverse the trend
that we have seen over the past few weeks whereby there are more people
in fuel poverty than at this time last year. The prospect of that
problem worsening needs to be attacked head on. I am sure that the
policies of my hon. and learned Friend and the rest of the Government
will show that we will reverse that trend by, we hope, this time next
year. We need awareness throughout the European Union, because I am
sure that the problem will affect other European countries, as we saw
last year when the gas supply from Russian pipelines to some European
Union member states was turned off. We need to address security of
supply as
well. There
is an ongoing argument about whether we have the necessary storage
capacity. Previously, we have not needed it, but in the past few
months, the fall in the price of the commodity has meant that people in
France and Germany can purchase it at a much lower price and store it.
We, however, do not have that capability. If there is to be a gradual
reduction in oil and gas prices, we need to increase our capacity with
all speed so that
we can take advantage of that next year. There are plans afoot to
increase the storage capacity to probably up to 21 days’ supply,
but we might need to go much
further. The
answer lies with the energy companies themselves. When the price of the
commodity comes down, that reduction should be passed on, at speed, to
the consumers. In that way, and through energy companies working with
the Government—certainly with our Government—the
consumers, who are our constituents, will benefit from the
reduction. 5.44
pm
Steve
Webb: The document that we are discussing is called
“Facing the Challenge of Higher Oil Prices”, yet we have
not talked in any detail about the opportunity of high oil prices. If,
in the glory days when I was in academia, an essay had been submitted
on this subject with no reference to the opportunity of higher oil
prices, I would have regarded it as a very partial document, because in
the context of considering the impact of high oil prices, there is, in
addition to our consideration of potentially damaging effects on the
economy at a macro level and for individual households, a huge
opportunity for us to be given a jolt into thinking about decarbonising
our
economy. One
of my worries about our discussion so far is that the focus has
inevitably been very much on business. With due respect to the
Minister, I assume that the last time he was an energy Minister he was
in the Department of Trade and Industry, or whatever it was called at
the time. He now finds himself in the Department of Energy and Climate
Change, and I hope that its creation, which needs to be reflected at
European level, will mean that energy policy is seen far more through
the lens of climate change. I believe and hope that he is on a journey
in that respect. When answering questions, however, he responded
inevitably and understandable from an energy perspective, and the words
“climate change” barely passed any of our lips.
We risk
missing the elephant in the room, which is the fact that even if we
could extract all the oil, coal and gas available, we should not, must
not and cannot. If we were to burn all of it, we would, to use a
technical term, be completely stuffed. That cannot happen, so our
response to energy and oil price hikes must not always be to think,
“Where can we get yet more?” A little while ago, the
Prime Minister was urging the North sea producers to turn on the taps a
bit faster. That might be a short-sighted response to a short-term
crisis, but surely, as the document states, we need to consider
longer-term responses. The progressive and rapid decarbonisation of the
UK and European economy ought to be central to
that. One
of about nine bullet points in the conclusion states
that “any
measures taken to alleviate the immediate impact of high oil prices
must be proportionate and accelerate longer term adjustment to a low
carbon
economy”. While
that is acknowledged in the document, it is very peripheral, bullet
point seven stuff, but it really ought to be the headline of the whole
document. It ought to state, “These high oil prices are a
wake-up call to us all. They have hit us in the face. Let’s not
just try to bail ourselves out of a short-term crisis and go back to
the
bad old ways. Let’s transform our economies.” I hope that
as well as being a challenge, high oil prices will be seen as an
opportunity. In
that context, what happens to oil capacity in the coming years is
important. There has been discussion of the important tar sands. It
could be said that we do not need to worry too much about oil prices
because the market will respond and we will get increased capacity, but
the document states that, in addition to Shell, at least one other oil
company, Talisman—I do not know whether it is different from
Shell—has lost faith in the tar sands proposition and pulled
out. The Minister rightly said that there were serious environmental
concerns about that extraction, and those concerns are in spades. The
report rightly states that we need to decarbonise, and if our failure
to do that means that we are being driven to more and more marginal
fields, that will be a cause of not just economic concern, but serious
environmental concern for the other half of the Minister’s
Department. I hope that he will internalise both aspects of
that.
That is the
macro context, but all these things have a big impact on individual
households. Paragraph 1.8 of the European Scrutiny Committee report
states: “The
Commission suggests that, in order to mitigate the burden on the most
vulnerable segments of the population support for the poorest
households may be
needed”. Interestingly,
it then says that that
support “should
focus on income transfers, rather than reducing
price”. The
EU view is that the right thing to do is to give poor people more money
to pay high fuel bills, rather than to bring fuel bills down. The
paradox of that, of course, is that although we do not ever want fuel
to be so cheap that it is wasted, there is a concern that income
transfers, especially universal ones, are not at all targeted, whereas
social tariffs are. My concern about the Commission’s approach
is that we do not want to bring everybody’s prices down, because
we really need to focus on those who are most hit by high prices.
Making social tariffs work therefore becomes a better strategy than
that set out in the
document. The
Minister has talked a lot about pension credit, and that is right and
understandable, given that one thinks of poor, elderly people shivering
in the winter. However, he will know from his days at the Department
for Work and Pensions that the fuel-poor are not just the elderly on
pension credit. Will he confirm that the Government are examining
social tariffs for disabled people, families with young children and
others? My understanding is that the data sharing that he has mentioned
relates only to pension credit. I have not followed the plot, because
that relates to pensions legislation, but I guess that that is the
case. How confident are we about this? Have pensioners been considered
because they are in a sense easier, as they are big group? Are we at
risk of neglecting people on disability living allowance, whose
conditions might mean that they really need heat, but who are suffering
due to the high prices and need the kind of price mitigation that the
EU says that we should not adopt, although, in my judgment, we
should? To
ensure that the companies get help through to such people, one form of
consumer power would involve equipping the consumer with information
that they could take to a company to get a social tariff. I believe
that the Government write to every benefit recipient once a year to
notify them of their benefit rates for the following year. Should not
the Government enclose with that letter something like a certificate
that consumers could present to their energy supplier to ask for its
best price or something
similar? The
risk with the Government’s strategy is that it involves giving
British Gas a list of all its customers who are on pension credit or
whatever. The Minister suggests that social tariffs are somehow a
competitive mechanism, and that poorer customers will shop around among
energy companies for the best social tariff. In a theoretical, ideal
world, perhaps they would, but is not the reality that poor customers
are the least likely to shop around, and the least likely to have
access to the
internet? We
need to empower poor customers so that they are in a better negotiating
position with the company. If they received a piece of paper when they
got the benefit up-rating statement each year that said something like,
“Take this to your energy company and it will guarantee you the
best price that it offers to anybody,” would that not be more
effective than simply giving the companies a computer disc to be left
on a train? Would it not be better to give the consumer some extra
negotiating power with the
company?
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