Memorandum submitted by BERR
SUMMARY
This memorandum responds to the Committee's
call for evidence.
Section 1 gives an overview of current domestic
market conditions including pressures on prices, and other relevant
issues.
Section 2 addresses EU and international markets
and action to improve levels of competition in them.
Section 3 addresses regulatory issues and notes
current Ofgem reviews on aspects of the markets.
Section 4 provides an update on action to reduce
and alleviate fuel poverty.
INTRODUCTION
1. As set out in last year's Energy White
Paper, we face two principal long term challenges in energy policy:
— tackling climate change by reducing
carbon dioxide emissions within the UK and abroad; and
— ensuring secure, clean and affordable
energy as we become increasingly dependent on imported fuel.
2. Global competition for energy resources
is growing, and so is the UK's reliance on international resources.
We cannot isolate ourselves from international markets; rather
we need to work to improve the competitiveness and transparency
of those markets, to increase the diversity of our energy sources,
and to encourage the investment needed to bring those sources
into play.
3. Within the domestic markets we need to
ensure that competition continues to deliver benefits for all
consumers. We need to maintain, and where appropriate develop,
the frameworks within which our competitive markets operate, to
ensure that we meet all of our energy policy goals.
4. This memorandum summarises BERR's views
on the UK energy markets in their global context, the regulatory
framework in the UK, and fuel poverty, noting ongoing Government
activity where relevant.
SECTION 1: COMPETITIVE
ENERGY SUPPLY
MARKETS
5. We believe that energy supply is best
delivered through competitive markets. By giving clear price signals
to market players, and promoting activities that reduce costs
and risks, competitive markets are the best way of maintaining
secure and sustainable energy supplies, increasing efficiency
and improving services for customers.
6. Ofgem is responsible for the regulation
of the GB energy markets. Ofgem's principal objective is to protect
the interests of consumers, by promoting effective competition
wherever appropriate.
7. Since liberalisation, the UK's competitive
energy markets have delivered highly reliable, affordable supply,
improvements in efficiency and productivity, and large investments
in infrastructure to build up a diversity of supply sources. While
the UK's exposure to movements in global energy prices has increased
as its self-sufficiency in fossil fuels has declined, competition
continues to work in the interests of UK energy consumers.
8. In January 2008 the Oxford Economic Research
Associates (OXERA) published research confirming that the UK's
energy market remains the most competitive in the EU and G7. OXERA
monitors the competitiveness of the energy market by assessing
a range of factors, including the market shares in generation
and supply, the separation of transmission from generation and
supply, and the availability of regulated third party access to
gas and electricity transmission and distribution networks.
9. However, rising prices for consumers
have recently given rise to concern about how well the markets
are working. In response to this, Ofgem announced on 22 February
2008 that it had launched a probe into the gas and electricity
supply markets, including whether competition is working well
for all energy customers.
10. We welcome this action by the independent
regulator in response to public concern. It is important that
all appropriate measures are used to monitor and promote competition
in the markets. Ministers have recently met with Ofgem to discuss
these issues, and will continue to do so. In particular we welcome
Ofgem's concern with ensuring that the benefits of competition
are available to all consumers.
11. We are deeply concerned by the impact
of higher energy prices on people on low incomes. Ongoing measures
to reduce and alleviate fuel poverty are described in Section
4 of this Memorandum.
12. Ofgem has previously reviewed the wholesale
markets, for instance in the Gas probe 2004-06, which identified
some imperfections, and has worked with the European Commission
to find remedies. Ofgem undertakes regular analyses of the operation
of the domestic markets, and publishes Domestic Retail Market
Reports (the last in June 2007).
13. The same six vertically integrated companies
compete in the domestic gas and electricity markets. A number
of parties exited the domestic electricity supply market in 2002;
there has been no further significant consolidation in that market
since then. Indeed, companies that previously held a monopoly
position in specific regions (or, in British Gas's case, the whole
country) have tended to lose overall market share. In comparison,
the industrial and commercial supply sectors are characterised
by larger numbers of competing companies.
| Company[1]
| Gas market share
% | Electricity market share %
|
| BGT | 47 | 22
|
| Eon | 13 | 19
|
| SSE | 13 | 18
|
| RWE npower | 12 | 16
|
| Scottish Power | 9 | 12
|
| EDF Energy | 7 | 14
|
| |
|
14. Different suppliers will employ different purchasing
and pricing strategies but operate within many of the same external
conditions. Overall, competitive pressures in the market mean
that companies that charge higher prices compared to other players
lose market share. Many consumers have switched supplier and their
ability to do so, even if they choose not to, has helped to create
competitive pressure on suppliers to improve the price and service
they offer to customers. Even with the latest price increases,
there will be opportunities for customers to save by switching
suppliers. However, not all consumers (particularly those on low
incomes) are in a position to switch easily or at all—and
this issue is returned to in paragraph 67 of this Memorandum.
15. In the non-domestic supply markets energy suppliers
offer several products to help customers manage the risk of increasing
and more volatile wholesale prices, including interruptible contracts.
Products are also being offered providing improved energy management.
16. To protect consumers we need competitive energy supply
markets, but it is also essential that energy companies can operate
successfully and profitably, rewarding investors and making further
major investments year on year to renew and extend infrastructure.
The current trading environment can be challenging, with rising
wholesale prices, environmental obligations, and volatile margins.
These markets are by their nature cyclical, with periodic strategic
decisions needed on investment. We need companies in this sector
to take these decisions with confidence.
17. We note below that energy companies are already making
large investments in major infrastructure developments for gas
import and storage, to meet demand and provide greater protection
against price shocks and delivery interruptions. In addition,
about a third of the United Kingdom's electricity generation is
due to be retired over the next two decades, and we will need
new generation to replace it. Network infrastructure needs to
be maintained and renewed, and to develop alongside the generation
mix.
18. The Government is committed to maintaining and developing
the good environment for energy investment that we have established.
Ofgem is reviewing regulation of networks to ensure that conditions
are right to encourage necessary investment. We are also introducing
fundamental changes to the planning system, affecting major energy
infrastructure developments among other projects, to ensure that
proper scrutiny is undertaken within a timescale which does not
deter investment unnecessarily.
Energy prices
19. Ofgem's analysis has identified underlying cost pressures
as the biggest factor in recent increases in retail energy prices.
Global energy demand continues to rise, particularly demand from
developing countries. Global fossil fuel prices have been on an
upward trend over the last 12 months, reaching record levels,
driven mainly by strong demand growth and tight production
and refining capacity.
20. In the UK, wholesale gas year-forward prices have
increased by more than 50% and coal prices by more than 85% since
January 2007. These increases in fuel prices have put pressure
on electricity wholesale prices which have increased by 85% in
the same period. Environmental regulation, commercial decisions
by suppliers, and transportation charges also impact on prices.
21. High fossil fuel prices impact on retail energy prices,
though the relation between them is complicated by long term contracts
and suppliers' individual buying and pricing policies. BERR's
internal analysis suggests that wholesale prices make up, respectively,
around 50% and 45% of retail prices for domestic gas and electricity
customers, and around 70% and 91% of prices for (average sized)
industrial gas and electricity consumers. It is therefore not
surprising that large increases in the underlying costs can also
translate to substantial increases in end-user prices.
22. Domestic competition alone cannot protect UK consumers
from all the effects of the rising global demand for energy resources.
Because the UK is interconnected with the Continent and the global
market through pipelines and LNG trade, UK gas prices are increasingly
linked to those in the rest of Europe and the world. Daily variations
in UK gas prices depend significantly on many other variables,
but the long term trend in UK wholesale gas prices is similar
to that on the Continent.
23. EU wholesale gas markets are currently working imperfectly,
with a strong link to the price of oil and oil products, bundled
and non-transparent gas transportation and supply, and a predominance
of rigid long-term supply contracts. This means that arbitrage
is not working as it should: European gas flows do not always
respond to price signals. Action to improve the competitive functioning
of EU and other international markets, and the UK's access to
them, is described in Section 2 below.
24. Electricity generation in the UK is more reliant
on fossil fuels than in some other EU states. Therefore, our electricity
prices can be more sensitive to rises in their global prices.
In 2007, electricity produced from coal-fired generation was 37%
of total electricity supplied.
25. Some network costs have also increased, adding to
prices. Charges for gas transportation have risen in 2007-08.
These reflect higher pension management costs, higher costs of
gas lost in transportation (because of the higher value of gas),
and necessary investment in the maintenance and development of
the networks (specifically the mains gas network). However UK
network costs remain relatively low in comparison with those in
other EU states.
26. As we noted initially, affordable prices and security
of supply are not the only goals of our energy policy. This Government
has taken the lead in the EU and globally in developing cost-effective
policies to move towards a lower-carbon economy. Our environmental
policies within the energy markets—the EU Emissions Trading
Scheme, the Carbon Emissions Reduction Target (CERT), and the
Renewables Obligation (RO)—all have an impact on prices,
and the overall impact has risen this year.
27. The Government is committed to the EU 2020 Renewables
Target, which requires the EU to obtain 20% of its energy consumption
from renewables sources. In the summer, the Government will
launch a full consultation on what more the UK should do to increase
renewable energy use and meet its share of the EU target. We will
work hard to ensure that we take the most cost-effective approach
to meeting our targets.
SECTION 2: UK AND
INTERNATIONAL MARKETS
Global markets
28. For many years, the UK has benefited from its indigenous
reserves of oil and gas. As the North Sea matures and UK oil and
gas production both decline, we will become increasingly dependent
on imported energy. By 2010, net gas imports could be meeting
around a third of UK annual gas demand, potentially rising to
around 80% by 2020. To adapt to new conditions and ensure continuing
secure and affordable supplies, we need new import and storage
infrastructure, and we need improvements in the way the international
markets function.
29. Our competitive markets have previously delivered
investment in networks and supply routes, giving the UK access
to resources and an enviable record of reliability. This continues:
in response to developing import demand, there are now nine gas
and LNG storage projects in the UK that have already gained consent
and are under construction or awaiting it. Completion of these
facilities will lead to an additional 920 Million cubic metres
(Mcm) of gas equivalent of LNG in tank storage, and 1,850 Mcm
of underground gas storage. These projects could constitute a
57% increase in UK gas storage by 2015.
30. This investment will put the UK gas market in a stronger
position to deal with present and future risks to different international
supply sources. Access to the LNG market in particular will allow
for greater flexibility to respond to shocks. It is important
that this record of positive investment continues to meet our
developing energy needs in the future.
31. We must also make further progress in establishing
fully competitive and transparent international markets. This
will enable companies to get fair access to the energy resources
we need. Effective markets will ensure that the world's finite
resources are used in the most efficient way and ensure that we
make the transition to a low carbon economy at least cost. Further
liberalisation of EU energy markets is an important part of this.
32. UK and Continental gas prices and flows are increasingly
affected by the wider international energy market. As noted above,
gas prices are influenced by global oil prices, both directly
through oil price-linked contracts and also indirectly where oil
and gas are substitute fuels (eg electricity generation and heating).
In the future, it is likely that gas prices will also be influenced
by coal prices, which is a key substitute in the power generation
and industrial sectors.
33. Trade in Liquefied Natural Gas (LNG) is forecast
to increase internationally. The UK participates in this market
through the import facilities at the Isle of Grain and at Teesside
and, looking forward, through the LNG import terminals at Milford
Haven, which are expected to commission this year. Supplies of
LNG to the UK are currently sourced from Algeria, Qatar, Egypt
and Trinidad & Tobago. At present LNG prices are high, in
part due to high demand in Japan (following problems with their
nuclear power fleet) and Turkey (due to low volumes of piped gas
imports). Over time the more global and liquid the traded LNG
market becomes, the greater the access for the UK to more diverse
sources of supply.
34. Russia dominates gas supplies into Europe, currently
accounting for some 25%. Whilst the UK is not directly dependent
on Russian gas and has a diverse range of supply sources and import
routes, tightness in the Continental gas market can affect the
UK flows and prices. There are some concerns about the level of
investment in Russian gas production given the decline of their
existing large gas fields and forecast growth in European and
world demand. We are working with the EU to launch the Partnership
and Cooperation Agreement which we can use to encourage a more
stable regulatory environment for overseas investment in the Russian
energy sector.
35. Similar concerns also exist around investment in
the Middle East and North Africa. The UK is working with the International
Energy Forum to investigate barriers to investment and encourage
their reduction. We are also working with the International Energy
Agency and the EU, in particular the EU Gas Coordination Group,
to consider cross-border security of supply issues and the state
of the global gas market.
36. Further, we are promoting diversification as a key
component of an effective EU external energy policy. As part of
this we are working to create conditions in Turkey and the Caspian
states that will favour the construction of the Nabucco pipeline,
to carry gas from the Caspian to Europe.
EU markets
37. As noted above, EU wholesale gas markets are currently
working imperfectly. The Government is committed to working for
transparent, liberalised energy markets in the EU. Transparent
markets would ensure that gas prices better reflect market fundamentals
and respond more flexibly to the supply/demand balance, and would
make a substantial contribution to ensuring security of supply,
both in the short and the long term.
38. Completing liberalisation of the internal energy
market is one of the key objectives of the Lisbon Economic Reform
Agenda, which focuses on making the EU more competitive. The Commission
published the results of a sectoral inquiry in January 2007 stating
that:
(a) further unbundling of transmission businesses from
non-network activities would remove any incentive to discriminate
in favour of particular supply businesses;
(b) regulators did not always have the powers or independence
to ensure competition. The solution suggested was to give them
the necessary powers and independence, along with a duty to promote
the internal market. It was noted that there was a lack of coordination
of activities on cross-border issues and it was suggested that
there should be an Agency to ensure such cooperation;
(c) the markets displayed a lack of transparency. New
obligations to make public some types of operational information
were proposed.
39. In September 2007 the Commission bought forward their
proposals for legislation, and these are now being considered
by the Council and European Parliament. It was agreed at the Energy
Council on 28 Feb that efforts would be made to reach agreement
on the package at the June Energy Council. The relevant issues
for competition and regulation are summarised here.
40. Unbundling: This is the proposed separation
of transmission businesses from other businesses in companies
that are currently vertically integrated. It is needed to prevent
vertically integrated companies from discriminating in favour
of their own supply and production/generation businesses, to the
disadvantage of competitors. While there is already a degree of
separation required by EU legislation, more has been judged necessary.
41. The Commission is proposing that the same company
should either no longer be able to own both transmission network
assets and businesses in the competitive arena ("ownership
unbundling"); or, alternatively, that the operation of transmission
networks so owned should be carried out by an entity independent
of the network owner (this is the "Independent System Operator"
or "ISO" model). Ownership unbundling would be significantly
more effective in preventing discrimination than even the strongest
ISO, as it would remove all commercial incentive for network companies
to favour particular supply or generation businesses.
42. France and Germany, along with some other Member
States, oppose the Commission's proposals and have put forward
an alternative form of unbundling. This consists of a number of
measures to strengthen current requirements for legal unbundling
(ie unbundling that would allow transmission businesses to remain
within a vertically integrated group). The Government believes
this falls short of the Commission's stipulation that any such
alternative must provide a similar level of protection against
discrimination by vertically integrated companies as its own proposals
and should involve structural measures.
43. National regulators: National energy regulators
independent of the industry were established by the 2003 EU energy
liberalisation package. However the limited remit given to many
regulators by national governments has restricted their effectiveness.
Intervention by national governments in regulatory decisions increases
the risk that market rules are not applied equally and transparently,
so frustrating effective competition. The Commission has therefore
proposed widening regulators' duties (including for the first
time a duty to cooperate in developing the internal energy market)
and increasing their independence from governments.
44. The Government welcomes the Commission's proposals.
Regulators should be independent of Government and have wide-ranging
duties and powers and sufficient resources to carry out their
duties. This is important to ensure regulation is stable, transparent
and predictable so that market players have the confidence they
need to invest. We also support the regulators having a duty to
promote the internal market, in addition to their national duties.
45. Agency for the coordination of energy regulators
(ACER): The Commission has proposed the establishment of an
Agency to oversee the coordination of efforts to encourage the
investments needed to establish an integrated European grid in
electricity and gas and to simplify and enhance cross-border trading.
46. While the Government welcomes the proposals for this
Agency for greater cooperation between national regulators, particularly
on cross-border issues, we would want to see the powers of regulators
strengthened in the Agency model proposed so that they can collectively
take binding decisions on defined cross-border issues. This is
essential for the transparent, predictable and stable regulatory
framework needed to encourage investment in an integrated European
grid in electricity and gas.
SECTION 3: REGULATORY
OVERSIGHT OF
THE UK ENERGY
SUPPLY MARKETS
47. Healthy competition is essential to protect consumers
and drive innovation. The recent report of the House of Lords
ad hoc Committee on the Regulators noted that most witnesses
agreed that Ofgem and its predecessor regulators had helped to
achieve a successful transition to fully competitive gas and electricity
markets and brought significant benefits to consumers.
48. BERR and Ofgem are in close contact with regard to
energy prices and the competitiveness of the retail energy markets.
However it is important that the Regulator is independent of Government,
and seen to be so, to ensure that the regulatory process is free
from political interference, and to avoid creating unacceptable
levels of uncertainty in the markets.
49. We have full confidence that Ofgem would respond
to any evidence of anti-competitive behaviour by taking strong
and effective action. Ofgem has a record of using its competition
powers, for instance in its recent decision to impose a large
fine for a breach of competition law that restricted the development
of competition in the domestic gas meter market.
50. Ofgem announced on 22 February 2008 that it has launched
a probe into the energy markets in electricity and gas for households
and small businesses, in response to public concern about whether
the market is working effectively, stating that customer confidence
is vital for a well-functioning market. Ofgem also cited its own
concern about the increased volatility of wholesale prices the
impact of European and other global energy market developments.
However Ofgem states it has not to date seen clear evidence that
the market is failing.
51. This detailed probe will investigate whether the
market is working well for all customers, not just groups using
particular payment methods. The probe will be carried out under
Ofgem's Enterprise Act powers. The European Commission will collaborate
with Ofgem in the probe to ensure Ofgem has full information on
other European energy markets. As noted above, we welcome this
action by Ofgem.
52. Ofgem will also continue ongoing work on tariffs
for pre-payment and standard credit customers, among other areas.
Ofgem will discuss findings at a Fuel Poverty summit in April,
which Ministers will attend.
53. In addition, we welcome Ofgem's inquiry into the
regulatory regime for energy networks (announced on 6 March 2008).
This will examine how best to provide reliable, well-run networks
with good service at reasonable prices amid growing investment
challenges. Ofgem has stated that this should not be considered
as a statement that the current framework is not working, but
that the markets now face new challenges and these should be addressed.
Issues considered in the review will include: how to adapt the
regulatory framework in line with government proposals for 2020,
proposals for greater power network interconnection in Europe,
a greater emphasis on small-scale distributed generation, and
growth in gas imports. Ofgem has stated that there can be no change
to the regulatory regime without full consultation.
54. Ofgem has also launched a code governance review
to determine whether there are weaknesses in the way the codes
are governed, preventing industry and consumers from gaining full
value from the arrangements.
55. We are satisfied that Ofgem's primary duty is appropriate
for the independent regulator of the competitive energy markets,
and we do not believe there is a compelling case to amend or add
to it. However we recognise that national and global conditions
in the energy sector continue to develop, and we believe that
it may be appropriate to update Ofgem's statutory social and environmental
guidance. We plan to publish a public consultation on this shortly.
It will reflect our expectations for Ofgem's role in ensuring
that the benefits of the competitive markets are available to
low income and vulnerable consumers, in facilitating switching
among those groups, and in meeting overall sustainability goals.
SECTION 4: FUEL
POVERTY
56. The Government has a statutory target that, so far
as reasonably practicable, it should seek an end to fuel poverty
for vulnerable households by 2010 and for all households by 2016.
We continue to work towards these goals.
57. Fuel poverty is influenced by a range of factors.
The most prominent drivers are fuel prices, level of household
income and the energy efficiency of a dwelling. The Government's
strategy for alleviating fuel poverty is centred around:
— Programmes to improve household energy efficiency
measures and efficient heating systems.
— Maintaining a competitive energy market, ensuring
the market works for the less well off, and encouraging industry
initiatives to combat fuel poverty.
— Continuing action to tackle poverty and increase
incomes through the take-up of all benefits.
58. Since 2000 the Government has spent around £20
billion on tackling fuel poverty across the UK. These measures
have helped to ensure that the number of households in fuel poverty
in 2005 was significantly below the number in 1996.
59. However, more recent rises in fuel prices have had
a significant impact, offsetting to some extent the success of
these measures. The latest estimates produced by BRE for the Fuel
Poverty Advisory Group Annual Report show that in 2007 approximately
2.9 million households were in fuel poverty in England (of whom
2.3 million were defined as vulnerable). However it should be
noted that this projection does not take into account energy efficiency
improvements to dwellings since 2005, an area extremely difficult
to model statistically, and thus is likely to represent an upper
bound of the actual level.
60. In the light of the effects of higher fuel prices,
we have decided on further actions, which were announced in Budget
2008. A summary of ongoing and new initiatives to alleviate fuel
poverty is provided below.
Warm Front
61. Since its inception in June 2000, 1.6 million households
have received assistance through Warm Front, which offers a range
of insulation, heating improvements and energy advice. Between
2000 and 2008 the Government will have committed £1.6 billion
to Warm Front, providing support to vulnerable households across
England. Similar schemes operate in Scotland, Wales and Northern
Ireland. Looking ahead, the Government has announced an ongoing
commitment to the Warm Front Scheme of just over £800 million
during the next Comprehensive Spending Review period.
Carbon Emissions Reduction Target (CERT)
62. The Carbon Emissions Reduction Target (CERT) will
have a focus on low-income and elderly customers through a priority
group obligation. The targets for overall lifetime carbon dioxide
savings under CERT will be roughly double that of the Energy Efficiency
Commitment (EEC, which ran between 2005 and 2008). Energy suppliers
will be required to meet 40% of their carbon saving target by
installing free of charge energy efficiency measures to a priority
group of low-income and elderly customers (aged 70 and over).
The effect of this increased activity together with the Warm Front
funding announced mean that spending on energy efficiency and
other measures in low-income, elderly and disabled households
is expected to rise, by £680 million to around £2.3
billion compared to the previous spending period.
Decent Homes Programme
63. The Decent Homes Standard is a minimum standard below
which homes should not fall in England and the Government aims
to have 70% of vulnerable households in decent homes by 2010.
The majority of local authorities and registered social landlords
are carrying out work well in excess of the thermal comfort standard,
with 90% planning to install both cavity wall insulation and loft
insulation even where the standard only requires only one of those.
Progress on thermal comfort means that the number of social sector
homes in England failing on this criterion has more than halved
since 1996.
Area based approaches
64. Warm Front and the Energy Efficiency Commitment are
also supported on a local basis. This has enabled us in 2007-08
to award funding of over £6 million to 50 projects across
England under the auspices of the Community Energy Efficiency
Fund. The projects being supported are designed to promote innovation
and look at a whole house approach, with the aim of providing
a cost effective way of delivering measures to households on a
local basis, drawing together support from the Warm Front and
energy suppliers' activity through the Energy Efficiency Commitment/Carbon
Emissions Reduction Target. The projects supported are expected
to help assistance to be delivered to around 600,000 households
in England over the next three years.
Access to the gas network and alternative technologies
65. We have also been exploring the role of alternative
technologies in alleviating fuel poverty and looking at ways to
encourage gas distribution network companies to provide connections
to deprived communities off the gas network, as gas is the cheapest
form of heating. As part of the post-2008 Gas Distribution Price
Control, Ofgem consulted on measures that would incentivise companies
to provide connections to deprived communities currently off the
gas network. This is likely to benefit up to 360 communities in
Great Britain.
66. The Design and Demonstration Unit within BERR has
successfully developed a model for the provision of gas connections
to deprived communities by independent gas transporters. The Unit
has also developed models to provide lower-cost household energy
from renewable and other new technologies for those deprived communities
where gas connections are not economically viable. These approaches
are currently being piloted in deprived communities in the North-East
and Yorkshire.
Ensuring access to the competitive market
67. The Government has been working with Ofgem to enable
the fuel poor to use the competitive energy market to their advantage
by switching to suppliers offering the lowest tariffs. Ofgem is
currently working with the Citizens Advice Bureaux to help vulnerable
customers to switch to a better tariff and is conducting research
into barriers that might prevent the fuel poor from switching
supplier. Looking ahead the Government will also be joining Ofgem
at the Fuel Poverty summit in April that will bring together key
players to consider what steps can be taken to deliver support
to vulnerable households to help them take advantage of the offers
the market may offer.
Energy supplier social programmes
68. In the Energy White Paper, published May 2007, the
Government challenged energy suppliers to deliver a proportionate
programme of assistance to their vulnerable customers. The energy
companies responded by increasing the level of assistance provided
to vulnerable customers from £40 million to £56 million
benefiting around 700,000 households. These measures were estimated
to take 70,000 households out of fuel poverty across Great Britain.
69. We welcome these steps but, given recent rises in
energy prices, vulnerable households need further help. Together
with the energy companies and Ofgem we will draw up an action
plan to achieve a fair programme of assistance for vulnerable
households. Our aim is to increase the level assistance from £56
million a year to a £150 million a year. The Government is
prepared to legislate as necessary to require energy companies
to make a fair contribution.
Tackling tariff differentials
70. Households that use prepayment meters and typically
pay around £55 more a year for their energy than customers
paying by standard credit and £144 more than those who pay
by direct debit. It is not clear that these differentials simply
reflect the extra cost to companies of servicing prepayment meter
customers, nor is it clear whether prepayment customers are being
given enough information about other cheaper payment methods.
We have therefore asked Ofgem and suppliers to develop proposals
to ensure prepayment meter users are treated more fairly. If sufficient
progress in not made by next winter the Secretary of State for
Business Enterprise and Regulatory Reform is prepared to use his
statutory powers to reduce the differential between prepayment
meters and other forms of payment.
Increasing incomes
71. A wide range of action has been taken across Government
in tackling poverty through improved incomes. Significant progress
has been made in tackling pensioner poverty and work is ongoing
to tackle the challenge of child poverty. Key actions include
the introduction of Pension Credit and the introduction of Tax
Credits for families.
Winter Fuel Payments
72. The Government introduced the Winter Fuel Payment
in 1997, specifically to help older people, who are particularly
vulnerable to the effects of cold weather, with their winter fuel
bills. The Winter Fuel Payment helped to keep 11.7 million households
in the UK warm in the winter of 2006/07. If counted against fuel
bills this would remove one million households from fuel poverty
in the UK. In addition to our commitment to paying Winter Fuel
Payments at their current rates (£200 for households with
someone over 60, £300 if over 80) for the lifetime of this
Parliament, in Budget 2008 we have announced an additional one-off
payment of £100 to over-80s households and £50 to over-60s
households in winter 2008-09.
Benefit Entitlement Checks
73. Improving the income of households has a major role
to play in reducing fuel poverty. There is a commitment across
Government to encourage people to claim all of the benefits to
which they are entitled. Since 2003 we have offered benefit entitlement
checks to those households who contact Warm Front for assistance
but at the time of doing so are not in receipt of one of the qualifying
benefits. This assistance was extended in 2005 to offer benefit
entitlement checks to all under Warm Front, whether or not they
are in receipt of a qualifying benefit when they apply for the
Scheme. These checks result in an average increase in potential
income of around £1300 a year for those found to qualify
for additional support.
1
Table figures are taken from Ofgem's Domestic Retail Market Report,
June 2007 (% of customers as of March 2007). Back
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