Higher Oil Prices

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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?
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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