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As the Chancellor announced last week, we expect energy companies to increase their support to the vulnerable. In particular, we want a fairer deal for the 5
million customers on prepayment meters. Energy companies currently spend about £50 million a year on social tariffs. We want to see that treble to at least £150 million a year in the period ahead. We want to work with the energy companies, but we will take any necessary stepsI say this very clearlyto ensure that that happens.
I welcome the announcement last week by my right hon. Friend the Chancellor that we will provide an additional payment of £50 for the over-60s and £100 for the over-80s, to sit alongside the winter fuel payment. That vital extra support underlines our commitment to tackling pensioner fuel poverty. It shows that the Government can react quickly to changing fuel prices, and it will ensure that the winter fuel payment continues to provide a significant contribution to winter fuel bills, providing an extra £575 million and benefiting nearly 12 million individuals. Pensioners can therefore heat their homes with more confidence next winter. It sits alongside measures announced last year that will take a further 600,000 pensioners out of paying income tax. I hope that those positive measures will be widely welcomed in the House. They provide significant extra support to our older citizens.
The generous payments that we have already put in place have, to some extent, been affected by increasing fuel prices. Back in 1997, we were getting the benefits of North sea oil and gas, and there were quite considerable beneficial changes in the world energy market. The result was that during the late 90s and the early part of this century, fuel prices were lower than earlier in the 90s. The benefits from the winter fuel payments were therefore considerable.
In the past two or three years, we have seen that some of the benefits from North sea oil have been eroded, because much of the energy it supplies has been used. It will be around for many years to come, but the easily accessible oil and gas reserves in the North sea have now been exploited. Some of the new areas will be more difficult, and therefore more expensive, to access.
We have also seen changes in the international fuel market, with extra demand coming from China, India and several other sources. The world price of energy has therefore risen, just at the point when we have to import more energy than ever before. I well remember that, when I was the Minister with responsibility for energy, I signed the agreement with Norway that would bring about a fifth of our gas from the Norwegian gas fields into Scotland through the Langeled pipeline. That is very beneficial, but we are now much more subject to world fuel prices than we were only seven or eight years ago. The result is that our fuel prices are rising, and that is having an impact on pensioners budgets.
David Taylor: Does my hon. Friend and parliamentary neighbour agree with those observers who remark that it is easier for a smaller numbernow fiveof major energy companies to form an unofficial cartel to hold prices at higher levels than they should be, or to push them to levels that the market does not dictate? Would not that be worth investigating? Many observers think that it should be investigated.
Ofgem is there precisely to ensure that such a situation does not arise. The aim of setting up a regulator such as Ofgem is so that it can ensure that the
market is operating properly and the interests of the consumer are paid due attention. My hon. Friend suggests that the consumer comes off worst, but Ofgeman independent regulator proud of its independenceis aware that, especially at a time of fast-rising fuel prices, we need to ensure that energy companies are responding to the concerns of their customers and operating the best competitive market. We rely to some extent on Ofgem to carry out its regulatory and policing activities to ensure that the consumer is protected.
John Robertson: To back up the point made by my hon. Friend the Member for North-West Leicestershire, the difference in price between the dearest and cheapest energy suppliers is only 1.3 per cent. Is that likely to happen if we are in a competitive market?
Mr. O'Brien: That depends on whether they are competing at the lowest possible price. If they are, that might well happen. It does not necessarily mean that the market is not working effectively. It is possible that several companies are competing with each other and offering similar low price levels. However, if the prices were not low, but were agreed in some way, that would be improper and a matter that we would expect the regulators to address. Certainly, my hon. Friend the Minister for Energy has indicated that we are keeping a close eye on these issues, to ensure that the energy companies are operating fairly within the market. The extra payment promised by the Chancellor will mean that the winter fuel payment for those over 60, including the £50 top-up, will total £250 next winter. That is a 25 per cent. rise on last year. For those over 80, the winter fuel payment and the £100 additional payment will total £400, a rise of one third on last year.
Last year, the winter fuel payment covered more than half of the average winter fuel bill. Next year, with rises of £50 and £100, the winter fuel payment will continue to make a significant contribution to pensioners winter fuel bills. It is difficult to give a precise figure because we do not know precisely what the winter fuel bills will be. These measures will, I hope, ensure that many more pensioners can keep their homes warm, safe in the knowledge that they can meet their fuel bills.
My hon. Friend the Member for Glasgow, North-West suggested that we should extend the winter fuel payment to other groups. We provide a range of benefits to meet different peoples needs and we have a series of benefits in place that are designed to help people who are terminally ill, cannot work or are in need of further help from the state. Older people are particularly vulnerable to the effects of cold weather during winter months. That is why we created the winter fuel payments. They give pensioners the reassurance that they can afford to heat their homes.
Other groups also have issues, such as the disabled. However, 60 per cent. of those who receive disability living allowance or attendance allowance are over 60 and already receive winter fuel payments automatically. The extra heating needs of children with disabilities arise throughout the year, not just in the winter
months. The disability living allowance is worth £109.50 and will increase to £113.75 from April this year, while the poorest are entitled to some extra help through the disability premium in income-related benefits.
My hon. Friend wanted to know whether it would be possible to reconsider the issue of having two bands, one for those over 60 and one for those over 80. He suggested that it might be possible to have a more targeted, nuanced payment system and drew attention to the fact that some people on relatively high incomes also receive the supplement. We could do various things to change all that. For example, we could take the view that those on higher incomes would be taxed on their winter fuel payment. We could take the view that people on higher incomes would not receive a winter fuel payment and that we would only perhaps allocate it to those who were on pension credit.
There are all sorts of things that the Government could do to change, alter and redirect the payments. We considered all that and took the view that there was an expectation among pensioners that we would make winter fuel payments to them as we did in the past and as the Government had committed to do in their election manifestos, and that we ought to continue to do that. If there needs to be a debate about changes to the system, let us have a debate by all means. At the moment, the Governments view is that we have made commitments on winter fuel payments and we want to keep to them.
The two age-related bands make the system easier for people to understand and help older people plan ahead secure in the knowledge of the contribution they will receive towards their winter fuel bill. The current age split takes account of the fact that older pensioners over 80 are more likely to live alone or in less energy efficient homes. They are more likely to have a lower income than recently retired people. People over 80 are less likely to have well-paying final salary pension schemes. Many of those who are retiring now will have good quality final salary pension schemes, although not all of them will. People over 80 tend to spend a higher proportion of their income on fuel. Our view has been that there is a strong argument for making payments to those over 80. Of course, those older pensioners are also likely to be most vulnerable to not sensing that they are getting cold and are the most likely to fall victim to hypothermia. There is an argument for ensuring that we keep things simple while recognising that the over-80s deserve an extra payment.
My hon. Friend has made a powerful argument, and I congratulate him on raising the issues, which do call for a wider debate. The Government are committed to tackling pensioner poverty, including fuel poverty. We have made considerable progress in the past decade, with pensioner poverty falling significantly. The winter fuel payment is an important part of our strategy; we know that our cold winters affect older people more than the rest of the population. The winter fuel payment provides a guaranteed payment to all older people. It is an important contribution towards household fuel bills.
The extra money announced by the Chancellor last week will ensure that the winter fuel payment continues to make a significant contribution to pensioners winter fuel bills next year; it is a generous extra payment,
keeping pace with changes in the market. That will give older people the confidence to continue to keep their home warm, and hopefully it will keep many more of them alive. We hope that that will be the outcome of the changes that we have made.
It can always be argued that the Government could pay more and do more, but of course they have to ensure that they balance the various demands for public expenditure. However, pensioners were rightly a high priority in the Budget last week. As Minister with responsibility for pensions, I am pleased that the Chancellor
listened to representations, not only from me but from people such as my hon. Friends the Members for North-West Leicestershire (David Taylor) and for Glasgow, North-West, on the need to consider, and respond to, the issue of rising winter fuel bills. The Chancellor did so by increasing the amounts that will be paid next winter. I am glad that that was done, and I hope that pensioners will feel the benefit of it.