Examination of Witness (Question Numbers
100-119)
MR DEREK
LICKORISH
10 MARCH 2010
Q100 Paddy Tipping: You talked to
us earlier on about the pressures on the public purse. Can you
tell us about winter fuel allowances? £2.7 billion was paid
out. Is that well-targeted money?
Mr Lickorish: I am not sure who
is sitting behind me so I may not get out of the room after what
I am about to say now. I think that we live in desperate times
and we have a very uncertain future about the price of energy
for all the reasons that I think most people know. We are going
to have to tackle this very difficult issue. The first thing I
would say, and I stress this is not the Fuel Poverty Advisory
Group's policy, is this is a pension supplement and it is a misnomer
for it to have anything to do with fuel but, nevertheless, I cannot
see why high rate taxpayers get it. I would stop giving it to
high rate taxpayers and then I would look very seriously at whether
it should not be taxed full stop because if we believe the tax
system is fair, whatever that may mean, then we should be taxing
this. The recovery for high rate taxpayers, I am told it would
save somewhere between £160 million and £200 million,
and that again is a significant sum of money. If you contrast
that to what we are proposing with social price support to what
will be 4.6 million households in England, six million households
nationwide, we are looking at £300 million. We go a long
way towards the £300 million just by not giving it to high
rate taxpayers, and if we taxed it then we would have substantially
more. I do accept for an awful lot of people it is an essential
payment, there is no doubt about that, but then there are a lot
of others for whom it is not.
Q101 John Robertson: Correct me if
I am wrong, but it strikes me that the roadmap seems complicated
and it is more like Spaghetti Junction than it is a roadmap and
for that reason alone there are problems. You have mentioned Ofgem
a few times and you are probably one of the few people we have
taken evidence from who have not attacked Ofgem, and that is usually
right from the start of their contribution. I see the problem
for people in fuel poverty is that they do not try and swap providers
because it is too complicated for them, they need simplicity.
A lot of things that you are suggesting do the opposite, they
make things much more complicated. While you understand it, and
I might try and understand it, the people it affects will not
so much not understand it but lose interest in it and they are
much happier with one provider. Let me clarify what I am trying
to say here. It is complicated, but can you say how we can make
it simple and comment on Ofgem's role in this, which is separate
from Government.
Mr Lickorish: I think Ofgem's
role in this is being hugely clarified by Government and about
customers' interests, but there is no doubt that if we look back
in time the issue that was uncovered as part of the supplier probe
where particularly non dual fuel customers, so off-gas grid customers,
were paying a disproportionate amount more for their electricity
than they should have been. There have been some significant structural
issues in the marketplace that have caused that. Ofgem have put
their hands up to that. They may not use those words, but there
have been some issues there. I think Ofgem's role in this going
forward is they have made some different declarations on some
of these issues to Government and things to do with the RHI and
feed-in tariffs they have challenged and asked is the proposal
correct because there is some inequity in it, which is a different
stance than perhaps we would have seen some time before. I would
like to see them look at the points that I have been making about
the customers who do not participate in the competitive market
but have to pay and is there not a means to make it simple, and
I believe a fair trade tariff would.
Q102 John Robertson: How do you get
them to participate when their natural reaction is not to?
Mr Lickorish: If we go back to
what we are proposing to do for the Household Energy Management
Strategy of utilising local authorities, the stakeholders in the
community, where these people are very close and have a better
relationship with them than the suppliers do, we ought to be leveraging
that touch point to bring into being something more simple for
these customers in energy.
Q103 John Robertson: This is where
I think it has become more complicated, because some local authorities
might want to help with that but a lot of them will not want to
help because of the extra responsibility and cost that it puts
on them at a time when their budgets are being cut.
Mr Lickorish: Yes, I understand
that and I have written on this particular point. Nevertheless,
whilst there will be some who are not in favour of it, I think
the majority will be and we have got to push and take the others
with us. Putting fuel poverty aside for the moment, we have a
massive issue going on in the transformation of energy which will
require the 68 million people in this country to be engaged in
it. There is a massive exercise that as yet needs to take place
to engage customers in carbon reduction and smart metering. Part
of that engagement process should be also addressing these points
that we are talking about here. It is only by combining all of
this with some simple messages that we will begin to engage the
right people in some of these objectives. I do think that a fair
trade tariff type idea will be much simpler for people to understand
and once they are on it, I am saying that fair trade tariff would
be pegged to something that shifts in the market, so those people
no longer have to move around, it is dealt with for them and there
is an equity that comes into it that we do not have now.
Paddy Tipping: I want to spend our last
few minutes picking up a point you just made which is customers
who are off the gas grid.
Q104 Sir Robert Smith: You have highlighted
that there is a real challenge trying to tackle fuel poverty for
people who do not have access to the gas main but perhaps some
of the simpler solutions. You have mentioned there should be significant
trials. Are the Government doing enough in their initiatives at
the moment to try and tackle off-gas grid?
Mr Lickorish: As I said at the
beginning, with only 51 air source heat pumps about to be introduced,
clearly we are not doing enough. Government needs to do more and
we all need to do more. In the last Distribution Price Control
Review, Ofgem made available a £500 million low carbon network
fund. That does not seem to be all the rage at the moment. One
would have thought that would provide another source of funds
for developing low carbon heating and the place that it should
be targeted is off the gas grid because as we develop low carbon
heating in the rural areas there will be issues on the electricity
distribution network. From my perspective we are not doing enough,
there are significant opportunities for heat pumps, but we need
to get the right frameworks to facilitate that. Coming back to
another one of the comments I made earlier, as part of that we
need to give confidence to people to invest in this type of technology
and if we are going to have an accreditation scheme we must have
the right people involved in it now and that will develop the
supply chain that we are going to need to carry out and complete
all these ambitions of carbon reduction by 2020.
Q105 Sir Robert Smith: At the moment
until something like a solution of heat pumps is rolled out, people
are relying on supplies of coal, oil, LPG and other solid fuels.
Do you think there is any scope for at least including those suppliers
in Ofgem's remit to make sure that they are aware of their social
responsibility?
Mr Lickorish: I think it is very
difficult to include that fragmented supply chain, but you could
do something with the oil majors and at the end of the day there
are not very many of those. We ought to be able to find some kind
of modest fund-raising mechanism to assist with the social price
support. I know people will argue that it feeds all the way back
through and therefore customers' bills will go up slightly, but
I do think there is a case for some kind of social price support
mechanism although, from memory, it was not long ago that they
were referred to the Monopolies and Mergers Commission and the
message came back that it was not operating in any anticompetitive
way. We have to be bold, we have to be brave and recognise some
of the points I have made about piling everything on electricity
is not the right thing to do, we need to find another mechanism
to assist social price support.
Q106 Sir Robert Smith: From the initial
trials, there will be major disruption to the kinds of houses
these air source heat pumps are going into. It is not just a question
of taking out an oil system and taking the air source heat pump
and replacing it, you have got to re-plumb the house and make
sure the house is well insulated. These are quite major interventions.
Mr Lickorish: They are major interventions,
but they are also opportunities. At the risk of making things
too complicated, there are opportunities to improve the performance
of heat pumps with thermal water stores, with energy topped up
at lower cost, marginal cost renewable energy. There is a whole
opportunity for creativity in this space and we have to find the
right mechanism that is going to bring that into play.
Q107 Mr Weir: You mentioned the prospect
of bringing in oil majors to try and deal with this particular
issue. Is not part of the problem that we are looking at energy
suppliers in isolation putting social obligations on electricity?
Should we not be looking at bringing all of the energy suppliers
in together and having one social obligation that covers all sectors?
Is that not one way of dealing with this quickly?
Mr Lickorish: Not having thought
it through, instinctively it would seem to have a more rational
and robust approach to it and it becomes a very understood way
in which business will be done in this transformational energy
future. It would seem a "felt fair" approach if it was
articulated correctly that in view of all the issues that we have
been talking about the propensity for energy prices to rise, in
a well developed economy and society like ours we should have
this kind of mechanism in place for the poorest of society, so
it has some attraction.
Q108 Paddy Tipping: Derek, you have
told us an awful lot in a very well informed and sometimes robust
way. Thank you very much for coming. I suspect there are things
that are in your notes that you have not had a chance to tell
us about.
Mr Lickorish: I have not looked
at them.
Q109 Paddy Tipping: If as you walk
down the corridor you think, "I should have told them this,
that and the other", please drop us a line. Thank you very
much for coming.
Mr Lickorish: Thank you for the
opportunity to put my views.
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