Not before time, Liz Truss is starting to consider solutions to soaring energy bills. In the early Conservative leadership debates, the candidates were keen to talk about almost anything other than solutions to the cost-of-living crisis (Brexit, tax cuts, wokery, etc.) But there is no doubt what is troubling the wider public: bills.
Even back in May, Public First polling for the Green Alliance think tank showed that 71 per cent of people saw the cost of living as the most important issue facing the country. Concern has only risen since then.
So what should the new prime minister do to help people? And what should they avoid doing?
Truss has promised to suspend the green levies on everyone’s energy bills that cover support for vulnerable households, such as the Warm Home Discount Scheme, and the promotion of clean energy. It is disconcerting that some of the support for suspending the green levies was motivated by an antipathy to anything billed as “green”, but the proposal is to move them into general government spending, funded through taxation or borrowing. That is sensible. It will reduce energy bills by £153 a year on average.
Rishi Sunak has promised to cut VAT on energy bills and Truss says she is considering it. VAT adds five per cent to bills. Cutting it will help everyone, but it will most help those who use the most energy, generally higher-income households with larger homes.
Suspending the green levies and axing VAT will reduce bills by a few hundred pounds. That is welcome. But with the price cap forecast to rise from £1,971 today to £3,500 in October, £5,000 in January and a whopping £6,500 in April, these savings barely make a dent. Nor do they do anything to tackle the underlying cause of the crisis: our dependence on fossil fuels.
In the short and medium term, much more can be done to reduce energy use and lower bills. Across Europe, governments are taking vigorous action, including helping people move out of their cars and onto public transport or electric bikes. But the UK government is unwilling even to issue basic advice (turning down thermostats, for instance, or reducing the heating flow temperature on a combi boiler) let alone urge people to use less energy. It is terrified of being accused of “nanny statism”.
The National Grid has proposed bill discounts for consumers who use energy outside peak hours, when it is abundant. This is a welcome step on the path to a more responsive and ultimately cheaper electricity system. But the plan relies on smart meters, and almost four in ten people do not know they can be installed for free. We need a public information campaign on this and other ways to save energy.
Alongside demand flexibility, the energy efficiency of homes needs radical improvement, with support targeted first at those most in need. The lower the energy performance of a building, the higher the cost to heat it. In a well-insulated home, a heat pump can reduce energy bills further.
Until 2013, the UK had a thriving energy efficiency industry with over two million loft and cavity wall insulations a year. Then government support was cut, and millions will suffer unaffordable bills this year as a result. We need a mass programme to retrofit the country’s housing stock. And we need to stop building new homes that will need retrofitting almost as soon as they are occupied. The Cameron government’s decision to scrap the zero-carbon homes standard in 2015, when it was getting rid of the “green crap”, looks more foolish with every year that passes.
As well as using less energy, we need cheaper, cleaner energy. Wind and solar are the cheapest way to generate electricity, costing four times less than gas. The most recent contracts for offshore wind set a record low price of just 3.7 pence per kilowatt-hour. And there are wider benefits: offshore wind and solar support five times more secure jobs than gas generation, according to a recent Green Alliance report. Sunak and Truss’s hostility to solar and onshore wind on the campaign trail has been baffling: whether or not they realise it, they are encouraging higher bills and more climate change.
But it will take until 2035, on current plans, to fully remove gas from the power system. In the meantime, the government should amend the electricity market so that gas no longer sets the market cost. This would avoid the absurd situation in which renewables are being sold at an artificially high price.
Truss and Sunak both say they support fracking provided it has local consent. This is a distraction because, as David Cameron discovered, it will not get consent. Besides, any gas extracted would be sold on the European market. The same applies to North Sea gas. And new oil and gas fields off Scotland will take up to 28 years to come on stream. Neither fracking nor new North Sea licences will do anything to lower prices. The government should get serious and forget the gimmicks and misleading rhetoric.
Support is needed this winter, but it remains a sticking plaster. A government that takes the cost-of-living crisis seriously needs to set out exactly how it will deal with the underlying causes of high energy prices otherwise a sticking plaster will be needed again next winter. The structural solutions are known: insulation, electrification and renewables. The new prime minister must get on and deliver them.
[See also: Can interest rate rises reduce the UK’s “astronomical” inflation?]
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