Examination of Witness (Question Numbers
72-79)
MR DEREK
LICKORISH
10 MARCH 2010
Q72 Paddy Tipping: Derek, thank you for
coming. Thank you for all your work on fuel poverty over a long
period of time, and to your colleagues on the Fuel Poverty Advisory
Group, which is an important body that makes important points.
I am grateful to you for coming. Let us start with the Government.
They are saying they are doing everything that is reasonably possible
to resolve the issue of fuel poverty. What is your view?
Mr Lickorish: It
will not surprise you to hear that I have a slightly different
view.
Q73 Paddy Tipping: Absolutely.
Mr Lickorish: I accept that we
have seen a seismic shift in energy prices of about 125 per cent
since 2003 and, as we sit here today, we have gone from 1.2 million
customers to around 4.6 million households in fuel poverty in
England. Clearly we are not doing enough no matter what we are
doing and we must do a lot more. There are some specific areas
which I have some serious concerns over. One is the uptake of
benefits where we still have around £10 billion to £12
billion worth of unclaimed means-tested benefits. The provision
of capital to carry out insulation measures is the single biggest
thing that has alluded us and we have not pushed the suppliers
enough, we have not examined the suppliers' business models enough
to see what we can do about providing capital from their business
to carry out these insulation measures. We need that kind of creativity
because I think, looking forward with the transformational energy
context that we are in, we are going to have to do even more because
I am fearful that the numbers will grow significantly. We have
a concern about prices and equity; we do not think enough has
been done there. As I sit here today we see something like around
a potential £300 per annum differential for a prepayment
customer on dual fuel compared to a customer who has access to
the internet paying by direct debit. If you contrast that £300
differential to what we are looking to do in terms of social price
support, which is about £100 per annum, I question the wisdom
of some of the things that we are trying to do in helping people
with their bills. Off-gas grid, we know how much more those customers
have to pay and if we are going to tackle their problems with
oil and the excessive cost of liquid propane gas we have got to
get low carbon heating, but we need significant trials of the
new technology off-gas grid. Currently I understand we have around
51 air source heat pumps about to be trialled and this just is
not enough. If we are looking to insulate and have low carbon
heating in huge numbers, the industry needs confidence to invest.
We want the proper accreditations. I welcome some of the things
that have been said in the Heat and Energy Management Strategy.
There is a lot more to be done. I will leave it at that.
Q74 Paddy Tipping: You will be pleased
to know that we are going to pick up all of those issues in the
course of the next 45 minutes. Is the issue one of resources or
a lack of policy and strategy?
Mr Lickorish: It is a mixture
of all those things. You will know from the last annual report
that we prepared the number one thing we asked for was to see
a roadmap which would set out what would be done between now and
2020 to eradicate fuel poverty and try to get us on track to achieve
the 2016 target because clearly the 2010 is not going to be achieved.
We are still waiting for the roadmap. I understand what is happening
in terms of the Fuel Poverty Review, but unless we have a declared
understanding of the task that is before us, that we have a clear
view on what energy prices are going to do, or perhaps a range
of views because I accept it is very difficult to have one view,
that kind of ambition setting out the funding arrangements will
create the necessary momentum that we need and the supply chain
to get stuck into solving some of these problems.
Q75 Paddy Tipping: Talk to me a bit
more about the roadmap. I got the idea that the Government were
fairly dismissive of this concept. Am I being unfair to them?
Mr Lickorish: Certainly I have
been pressing, and I know who is following me this morning, I
have spoken to the Minister and others, and I hear we have a lot
of projects going on, the Community Energy Saving Programme, so
a lot of things that should inform the strategy, but all of that
keeps putting off what is so urgent. I would like to see much
greater determination in terms of the roadmap so that all participants
and the energy industry, not just gas and electricity but oil
as well, can get involved and engaged in the process that we have
before us. We cannot keep putting it off, particularly now with
all the other ambitions that we have in terms of the Great British
Refurb for example. All those sorts of things will have an impact
and interrelationship with the roadmap to eradicate fuel poverty
and we need to see how it hangs together. Just picking up the
point on resources, I welcome the announcement that energy companies
have got to talk to local authorities. I think local authorities
have a significant role to play in all of this going forward.
I know it varies from one authority to another and we have to
find the right mechanism to engage them, but unless we have that
roadmap and that plan how can we hope to get people like the local
authorities engaged in the process.
Q76 Paddy Tipping: Against that notion
of the plan, and personally I am signed up to that concept, is
not one of the real difficulties the volatility of energy prices
and the reason the Government is not going to meet its targets.
Can you tell us whether you think the 2016 target is achievable
because energy prices in broad terms have doubled over recent
years?
Mr Lickorish: I hear that argument,
but I do not accept that argument. I have spent 37 years in the
energy business and have run a very large energy retail operation
with 5.5 million customers. You have to have energy scenarios
and you have to live with it and plan against it. Currently from
where we sit when we look at the Transition Plan to a low carbon
economy I think we are woefully inadequate on our analysis of
future energy prices. For the average customer, it will add about
£76 to the bill for the additional environmental costs in
2020. That is a huge average position to be taking. It is also
set against the generating capacity will come on stream when required,
it is set against oil at $80 a barrel, but it does not take into
consideration, for example, customers who just use electricity
for heating where a greater weight of environmental costs sit
on customers' bills. To bring that into focus, around 20 per cent
of households in the lowest three income deciles use electricity
for heating compared to only eight per cent in the top three income
deciles. Those customers are going to be adversely affected by
what is happening. We will need a range of energy price scenarios,
no matter how painful they are. It is only by getting to that
basic information and some working assumption about the cost of
energy that we can begin to plan against it. I do not accept that
the plan is not appropriate; it makes it even more appropriate
so that we can begin to set up the right mechanisms. I keep coming
back to the supply chain, but this is a massive growth opportunity
for jobs and everything else and people who are looking at this
will need confidence to invest and, therefore, some clear targets
against what we think energy prices will do and how we are going
to put the right social policies in place to help those who cannot
afford energy is the right thing to do.
Q77 Paddy Tipping: Is the 2016 target
achievable?
Mr Lickorish: I think it is achievable.
We can achieve it in several ways. I am not keen on us constantly
subsidising customers' bills because the mechanism is regressive
as it currently stands. Nevertheless, it will alleviate fuel poverty
for those people but it does nothing about the long-term issue,
it is but a sticking plaster on the problem. It is the investment
in energy efficiency measures that is the right thing to do long-term.
Q78 Miss Kirkbride: Mr Lickorish,
I think you are right but I just want to press where you think
we are in terms of the trajectory of fuel prices. I think it is
going to be the big issue of the next decade because, as you have
been talking about, green measures are obviously going to cost
a lot of money so carbon prices are going to go up and demand
will go up worldwide for the energy that we have and we still
need to heat our homes in the UK. From the analysis that you have
done, we have gone up to 4.6 million households in fuel poverty
because of what we have seen in the last few years here, where
do you think we might be in 2015 or 2020 in terms of what has
happened to fuel prices versus income?
Mr Lickorish: The information
that I have available to me is not dissimilar from what the rest
of you have, but I work on the basis that a one percentage increase
in energy prices puts another 40,000 households into fuel poverty.
When you look at the differing views that there are about future
energy prices—and this is another thing that really concerns
me, how we can have different parts of Government with different
views on what energy prices will be in the future—they range
from around an eight per cent increase in residential customers'
bills, as far as DECC's analysis is concerned, to—
Q79 Miss Kirkbride: Over what period?
Mr Lickorish: That is through
to 2020.
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