Fuel Poverty - Energy and Climate Change Contents


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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