Age UK: Will the Green Deal protect against fuel poverty?

Being cold is not just an issue of comfort:  it is recognised by the scientific literature and by the Department of Health as being a serious health hazard which costs the NHS and social care services over £1bn every year, and results too in Britain’s appalling levels of ‘excess winter deaths’.  Currently there are fifteen times more preventable winter deaths than on our roads each year.

Undoubtedly, there is public concern about the transparency and clarity of energy bills and tariffs.   Every price rise in met with suspicion by the media, especially as the changes upwards seem to be announced with uncanny similarity. There is genuine anxiety in low income households, as a 10% price increase will plunge another half million households – half of them older – into fuel poverty.

Last week saw a confused announcement around energy bills in which the prime minister said that energy companies would be forced to put their customers on their lowest tariff.  Unfortunately it is hard to identify objectively the ‘best’ energy tariff, when different people make different choices about the most appropriate tariff features and payment methods. Some will want to only buy green energy, accepting it comes with a higher premium:  others may want the security of a tariff with a price fixed for a period of time ahead. Some customers may prefer to use pre-payment meters or might feel uncomfortable with using direct debits. Many older households cannot use online accounts and access paperless billing. Clearly the best tariff may not be the cheapest and Age UK supports the tariff simplification process being driven by Ofgem.

Part of the problem with energy pricing is the number of different elements which are now paid for by energy bills – a problem to which the Government has contributed by adding obligations to energy suppliers to pay for benefits and social policies such as the Warm Home Discount and energy efficiency initiatives. It is sad to observe that after Warm Front ends next year, there will be no publically funded programme to address fuel poverty, and all the Government’s trumpeted ‘help’ will be paid for by energy suppliers, from funds raised by bill surcharges – including the bills of people in fuel poverty.

In May this year, Ofgem showed that only 54% of an average electricity bill reflects the wholesale cost of energy, and 23% pays for distribution and transmission. The social and environmental obligations amount to 10%, and of course the Government also collects 5% in VAT. The picture on gas bills is not dissimilar. And we are all aware of the massive investments which the companies will need to make over the next 20 years just to keep the lights on, with power stations needing to be replaced (especially ‘dirty’ coal stations and our ageing nuclear plants), with the introduction of renewable sources of energy, and the modernising of the distribution networks. If we are producing electricity from off-shore wind instead of generating it from an on-land coalfield site, we will need a new grid to distribute it. In addition, energy companies are paying for the programme to convert households to smart meters, at an estimated cost of £12bn between now and 2019.

With the global wholesale price of energy unlikely to fall as developing countries increase their demands for a diminishing pool of fossil fuels, and with these huge investments to be made and financed, there is little prospect of energy prices falling soon.   Britain’s energy prices – the price of a unit of energy supplied to a domestic consumer – are amongst the lowest in the EU, but our household bills are amongst the highest. The problem is our poor quality and energy inefficient housing stock. Improving the insulation of homes, and modernising heating boilers and heating systems, must be a priority. As prices rise remorselessly, it is the only realistic way to protect households from fuel poverty. 

This is the thinking behind the Green Deal – an ambitious programme to increase the energy efficiency of the UK building stock. But will it work? There are real concerns that those in fuel poverty really should use savings on energy from improvements to keep more adequately warm – so they will make no saving in reality. Addressing that, there is part of the Green Deal – the Energy Company Obligation – which will pay upfront, with no repayments required through future energy bills, for energy efficiency improvements for certain households. But the Government has set the ECO at a relatively modest level, which fuel poverty campaigners, including Age UK, feel is quite inadequate to the scale and urgency of the fuel poverty issue.

Age UK will support proposals in the forthcoming Energy Bill which work for greater transparency. It is important to get these details right. But in the end they are, in essence, details. The really important decision is to have put all our aspirations to improve domestic energy efficiency into an untested Green Deal project. If it works, the Government will deserve great praise – it would permanently reduce energy costs, generate employment in the building and heating industries, and take us forward to meeting our commitments to reduce greenhouse emissions and address climate change. But it is a lot of eggs to have in just one basket.

Meanwhile we have over three million older households in fuel poverty, facing misery and discomfort as well as poor health and, for the most vulnerable, potentially even an avoidable death. Some would say we have effectively out-sourced the responsibility to reduce fuel poverty to the energy companies, and are passing the issue to local government as part of the public health reforms and new Health and Wellbeing structures. Those three million households deserve much better than the Green Deal’s ambitious, but untried approach.