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News, gossip and insight from PoliticsHome Editor Paul Waugh

Energyshambles Lines to Take

You always know a Government is in trouble when they dish out a 'Lines to Take' document to MPs.

I've been passed a copy of the latest Coalition lines on #energyshambles and it makes a fascinating read. Particularly the 'hostile questions' section (scroll down the page below).

There is anger among Lib Dems MPs (who've been sent this along with Tory MPs) that DECC is supposed to be a Lib Dem lead but all of the action is coming from No.10, the lines to take refer to the Tory manifesto and the PM has blundered.

The answers in the Q&A are far from illuminating but just underline the confusion and panic in Government ranks. I particularly like the Q 'What you say now is different to what the PM said?" The answer to which is supposed to be "Don't think different -we want to use the law to help people get the lowest tariffs"

'Help' people? So it's not compulsory?

[Check out my fisking of the PM's words in an earlier blog HERE]

Here's what has been emailed out today. Below it is the more detailed document that looks like it was drafted by CCHQ.

 

Dear All,

We want to use the energy bill to help people get the lowest tariffs
The way the market currently works people are encouraged to switch but only a minority do, the majority are left on the highest tariffs. Particularly vulnerable people who are never likely to switch and pay more than they should. We want to place more obligation on the energy companies. There are a number of options that are being considered. We will discuss with the industry and consumer groups on this. More details will be announced in due course.  

Q&A

Q  Do you intend to use the energy bill to force companies to put people on the lowest tariff? 

Details are being worked through. There are a number of options that are being considered. This is a complicated area, that we will discuss with the industry and consumer groups and work through. But we want to place more obligation on the energy companies, so that the majority of people can get the best tariffs rather than the small minority that switch now.

Q  Why won’t you say now that you will force suppliers to do it?  The PM said it?

We are exploring all options to help consumers get the best tariff for them.

Q  Well how can you do that? 

There are a number of options.  For example, the voluntary agreement in April secured a number of measures which we will evaluate to see if we should legislate to make binding.http://www.decc.gov.uk/en/content/cms/news/dpm_bestdeal/dpm_bestdeal.aspx

Q- There will end up being just one tariff?

We don't think so. We will work through details with energy companies.
But clearly there will be different customers with different needs (e.g. a big factory compared to an old lady). Plus there will be choices between different types of tariff e.g. Green tariffs, economy 7 tariffs, fixed rate deals etc are valuable to consumers. Instead, this is about making sure that those who are not closely engaged in the market, and don’t switch, are not left behind on legacy deals that give them uncompetitive rates.

Q  What about concerns this will push bills up?

This is a complicated area that we will discuss with the industry and work through.  Any legislation will be focused on delivering the best possible deal for consumers. Clearly in a properly operating market companies will want to offer the best deals to attract the most customers. 

Q Was DECC aware of this being announced?

Discussions on this issue have been ongoing for some time


Q What you say now is different to what PM said?

Don't think different - we want to use the law to help people get the lowest tariffs

Q How does this relate to what’s gone before?  Have suppliers not played ball?

We’ve been working continuously since last October’s Energy Consumer Summit on ways of making sure households get the best deal.  In April the DPM announced an agreement with the main energy suppliers that on request, they will help a customer identify the best available tariff and they will send information to their own customers annually regarding the best tariff for them.  Anything we do will build on this.  

Q How does this relate to Ofgem’s retail market review?  

Anything we do will complement Ofgem’s work.  This is a complicated area and we will continue to work closely with Ofgem.

Q Are you undermining the independent regulator?

No, Ofgem’s role is crucial.  We’ve already strengthened Ofgem’s powers, and have announced we’ll beef up their powers further.  But I am keen to ensure we see real progress in helping consumers secure the best possible deal for them

 

Here's the extra attachment just in case the MPs didn't get the message:

 

Action on Energy Bills

 

  • We will use the Energy Bill to get people the lowest tariffs. Taking the next step on our agreement with the energy companies that they should provide information on energy bills that clearly shows customers whether they are on the cheapest tariff offered by their energy company – and if they are not, shows exactly how much they would save if they switched to the cheapest tariff, and how they can do so.

 

  • We will secure our energy at the lowest cost: in the short term by promoting competition; in the medium term by insulating our homes and in the long term by steering us away from excessive reliance on fossil fuels and on to clean, green and secure energy.

 

  • Labour’s plans would add up to £90 a year to an average consumer bill. That would be an increase that hard working families can ill afford. In contrast the Government’s policies will help householders save money in the long term, reducing average bills by £94 by 2020 compared to doing nothing.

 

Issue

 

  • On 17 October 2012 the Prime Minister announced that government would use the energy bill to get people the lowest tariffs. On 18 October 2012 there will be an urgent question on the Government’s proposals in response. (BBC news, David Cameron’s ‘lowest energy tariffs’ plan criticised, 18 October 2012, link).

 

  • On 17 October 2012 Which? wrote an open letter to the Prime Minister expressing concerns that not enough was being done to help consumers keep their energy bills down and calling for the Prime Minister to conduct an urgent review of the energy market (Which?, Urgent review of rising prices is needed: keep consumers from cold this winter, link).

 

  • This was in response to the latest round of energy price rises has begun with Scottish and Southern Energy, British Gas, Npower, and Scottish Power announcing their gas and electricity prices will rise this winter (BBC News, Scottish Power to raise gas and electricity prices, link)

 

  • According to DECC the average gas bill for 2011 varied between £683 for direct debit customers to £729 for those paying quarterly bills. The average electricity bill for 2011 was £463-483, depending on payment method (House of Commons Library note, Energy Prices, 4 September 2012)

 

Our Approach

 

  • Government will use the Energy Bill to get consumers the best deal on their energy. The Prime Minister has announced that government will be legislating to put the obligation on energy companies to give the lowest tariff to their customers. This builds upon our deal with the major energy suppliers and our 2010 manifesto pledge to ensure every energy bill provides information on how to move to the simplest tariff offered by their supplier (DPM Press Release, 11 April 2012, link; Conservatives, Conservative 2010 manifesto: Invitation to join the government of Britain, link).

 

  • Simpler tariffs. On 14 October 2011, Ofgem proposed that each supplier should be required to offer one standard tariff for each payment type. With the standing charge set by Ofgem, suppliers will only be able to change the unit price, ensuring consumers can compare prices at a glance (Ofgem Press Release, 14 October 2011, link).

 

  • Making it easier to switch supplier. Consumers can save up to £200 a year by switching suppliers or tariffs, so we will make it easier to switch. Customers will have the right to be switched within three weeks once their cooling-off period has elapsed. Energy suppliers will be under a new obligation to speed up their switching processes (DECC Press Release, 20 September 2011, link).

 

  • Immediate action to improve insulation and reduce bills. From December 2011, four million of the most vulnerable energy customers received letters to tell them they were eligible for free or heavily-discounted insulation to their loft or cavity walls, provided by the energy suppliers (DECC Press Release, 17 October 2011, link).

 

  • Introducing the Warm Homes Discount, giving £130 a year to the poorest pensioners. We have introduced the Warm Homes Discount – a new mandatory scheme whereby the energy companies must offer rebates to vulnerable households. The poorest 600,000 pensioners will automatically received an annual rebate on their energy bills worth £130, with some support available for other groups. It is projected that 2 million households a year will benefit. The Warm Home Discount scheme will help more people and provide support worth two thirds more this year than the voluntary schemes it replaces (DECC Press Release, 2 December 2010, link).

 

  • Preserving the Winter Fuel Payment. We are protecting Winter Fuel Payments, on the same basis as budgeted by Labour. Winter Fuel Payments are annual tax-free lump sums given to almost everyone aged 60 or over to help towards their winter heating costs (HMT, Spending Review 2010, October 2010; DWP, Winter Fuel Payments, link).

 

  • Boosting Cold Weather Payments. Cold Weather Payments are one-off payments made during periods of extreme cold weather to vulnerable households. We are investing an extra £50 million a year in ensuring the increase in Cold Weather Payments to £25 per payment is made permanent. Payments are made when the forecast or recorded average temperature in the local area falls to zero degrees Celsius or below over a seven-day period, which must be between 1 November and 31 March. Around 4.2 million people, defined as those in receipt of certain benefits, are currently eligible for Cold Weather Payments (DWP, Spending Review 2010: Summary, 23 May 2011, link; HMT, Spending Review 2010, October 2010).

 

  • Delivering energy efficiency through the Green Deal. Every British home and business will be able to install packages of energy-saving technologies such as insulation, worth up to £10,000, at no upfront cost, with repayments made over time out of the energy savings. The Green Deal is expected to kick start around £14 billion of private sector investment over the next decade and could support at least 65,000 insulation and construction jobs by 2015 ( The most energy inefficient homes in the UK could save, on average, around £550 per year by installing insulation measures under the Green Deal (DECC Press Release, 21 September 2010, link; DECC Press Release, 23 November 2011, link).

 

  • Forcing landlords to meet minimum energy efficiency requirements. In the private rented sector, landlords will not be able to refuse reasonable requests from tenants to improve their property through the Green Deal. This will be effective from April 2016. From April 2018, it will be unlawful to rent out a house or business premise which has less than an ‘E’ energy efficiency rating. As a result, at least 682,000 properties will have to be improved before rental, encouraging participation in the Green Deal (DECC Press Release, 10 May 2011, link).

 

  • Limiting the impact of rising prices by saving households £94 a year. We expect energy bills to rise over the next decade as a result of higher global oil and gas prices, but we are limiting the impact on consumers. In 2020 the average household bill will be 7 per cent, or £94, lower than if the Government was not pursuing policies to achieve energy savings and incentivise alternatives to fossil fuels (DECC Press Release, 23 November 2011, link).

 

  • Independent regulation of the energy market. We support Ofgem in its efforts to make the energy market more transparent and more competitive. We are committed to a framework of independent economic regulation for the energy sector and to Ofgem as the independent regulator (DECC, Ofgem review: summary of conclusions, 19 May 2011, link).

 

  • Breaking up the dominance of the Big Six. The Big Six energy companies currently dominate the domestic market with a 98 per cent share. Ofgem are developing proposals for ‘Mandatory Auctions’ to force the Big Six to sell 25 per cent of their power. This represents nearly half of all household power use in Britain and should allow plenty of liquidity for independent suppliers and potential new entrants to expand their businesses. Ofgem will publish final proposals in the winter (Ofgem Retail Market Review – update and next steps, 21 May 2012, link).

 

Political Points to make

 

  • Ed Miliband repeatedly avoided taking tough action on Energy Bills. Ed Miliband was Energy Secretary from 3 October 2008 until the 2010 General Election. During that time he did nothing to force companies to give a good deal to energy consumers.

 

  • Energy company profits rocketed under Ed Miliband. Just before Ed Miliband became Energy Secretary, the net profit made by the energy companies on an average household bill was -£25. The average dual fuel bill was £1,215 and the wholesale cost of the energy supplied was £665 (Ofgem, Electricity and Gas Supply Market Indicators, 19 September 2012).

 

  • While Miliband was in charge wholesale costs fell faster than bills, meaning that by the time he left office the average profit was £55. The average dual fuel bill was £1,105 and the wholesale cost of the energy supplied was £485 (Ofgem, Electricity and Gas Supply Market Indicators, 16 May 2012).

 

  • Under the new Government the net profit has fallen back £45 (Ofgem, Electricity and Gas Supply Market Indicators, 19 September 2012).

 

  • Labour strengthened Ofgem’s role. In Government Ed Miliband had the chance to abolish or replace Ofgem, but instead his department’s flagship legislation cemented Ofgem’s role. Ed Miliband himself described the ‘purpose of the [Energy] Bill is precisely to strengthen Ofgem’s powers in a number of respects and to make it a more proactive regulator’ (Hansard, 7 January 2010).

 

  • Ed Miliband has flip-flopped on Ofgem. Ed Miliband’s latest idea is to replace the current regulator, Ofgem, with a new body. But he was the Energy Minister who gave Ofgem its current powers and he repeated backed Ofgem when he was in Government:

 

  • ‘What is our strategy as a Government? It is to give the regulators more power, as we are doing in the Energy Bill; to eliminate some of the worst unfairnesses-in respect of prepayment meters, for example; and, rightly, to say to companies that they have a responsibility not only to their shareholders but to customers. We are doing all those things’ (Ed Miliband, Hansard, 25 February 2010, c444, link).

 

 

  • Labour have proposed taking similar action on tariffs. Labour criticism of action on tariffs is hollow given they have promised to ‘force energy firms to cut the gas and electricity bills for 4 million pensions over the age of 75’ (Labour press release, 28 March 2012, link).

 

  • As Energy Secretary, Ed Miliband planned to add another £193 a year to energy bills. Ed Miliband planned to introduce extra levies on consumer bills to fund the Renewable Heat Incentive and Carbon Capture and Storage plants. The Coalition has scrapped these extra levies and is funding these policies out of general taxation instead. The RHI would have added £179 a year to the average domestic gas bill and CCS would have added £14 a year to the average domestic electricity bill (HM Government, Analytical Annex: The UK Low Carbon Transition Plan, 15 July 2011, pp. 66-67, link).

 

  • Labour would now add £50 a year to electricity bills. Labour have consistently opposed the government’s reductions to Feed-in Tariffs as the costs of solar have fallen and take-up has risen. Yet if we had continued with the scheme we inherited by Labour, at least £61 a year would have been added to consumers’ electricity bills, compared to just £9 a year under the Coalition’s reforms (Hansard, 24 May 2012, Col. 1307, link).

 

The Labour line

 

  • Shadow Energy Secretary, Caroline Flint: ‘Energy bills have gone up by more than £200 since this Tory-led Government came to power. The Government’s last-minute decision to force energy companies to put customers on the cheapest tariff, after most energy companies have already announced price hikes, is an admission that their ‘do nothing’ energy policy over the last two years has failed. The cheapest deal in an uncompetitive market will still not be a good deal for the public unless we completely overhaul our energy market to break the dominance of the big six energy companies and create a tough new watchdog with powers to force energy companies to pass on price cuts. Until we see real action from the Government, the Prime Minister’s warm words in the House of Commons will be cold comfort to millions of families worried about how they will pay their energy bills this winter’ (Labour Party Press release, 17 October 2012, link).

 

  • Response. By making energy companies take action on tariffs we are standing behind people who want to get on. Unlike Labour we don’t talk about getting behind people we just get on and do it. Labour had 13 years to do something about the cost of energy for ordinary people. They did nothing. In fact Labour repeatedly insisted Ofgem had the powers needed to regulate the market when Ed Miliband was energy secretary, making a mockery of their claims now replacing it would solve everything. Labour are looking for someone else to take responsibility for the problem so they don’t have to come up with answers. We are taking action so that the burden doesn’t fall on anyone else.

 

Hostile Questions

 

Q: This announcement seemed to come out of nowhere did anyone know what the Prime Minister was going to say?

What the Prime Minister said simply builds on the agreement we made in April with the major energy suppliers that they would write to their customers every year to tell them what the best tariff is for them and how to get it. We’ve been working on this across government since last October’s energy summit. What we want to do is take the hassle factor out for the consumer and put the obligation on the energy company. As you’d expect the detail will be fully consulted on but we want to use the law to support those who are saving to support their aspirations.

 

Q: If everyone is moved to the cheapest tariff won’t that mean that there’s only one tariff?

This is not about taking away consumer choice but putting the emphasis on the energy company to give people who want to get on value for money. We recognise that different people have different needs. What this is aimed at is ensuring that suppliers take responsibility for what they charge especially on the vulnerable.

 

Q: Labour say this is simply words and that we need real action. What do you say to that?

Legislating to make energy companies offer their customers a better deal is the only action that matters. Labour’s idea of action is to abolish Ofgem and create a new regulator in its place, despite Ed Miliband repeatedly claiming the powers he gave Ofgem in the 2010 Energy Act made it able to address issues in the energy market. Unlike Labour we aren’t interested in creating another quango so that someone else to take responsibility for the problem so we don’t have to. We’re taking action to get behind people who want to get on.

 

Q: How can you claim to be helping families cope with energy costs when you have you abolished the Warm Front scheme?

Our Green Deal is far more ambitious than the Warm Front scheme. On its own, Warm Front would take more than 80 years to treat homes which we hope to treat in the next 20 years. The Green Deal will allow for up to £10,000 worth of energy efficiency improvements at no upfront cost. The most energy inefficient homes in the UK could save, on average, around £550 per year by installing insulation measures under the Green Deal.

 

Q: Won’t your plans for more renewable energy increase prices for consumers even more?

We are in this position because Labour let our energy system become so unbalanced that changes in global prices abroad hit people who work hard and want to get on at home. By diversifying our energy mix with things like renewables and new nuclear we can make sure this doesn’t happen in the future.

 

Q: Aren’t you making it much harder for families by adding massive environmental levies onto bills?

No, environmental policies make up just 7 per cent of bills and we have also taken concrete action to cut the costs to consumers of Feed-in Tariffs by reducing tariffs for large-scale solar saving taxpayers £3.5 billion over the next decade, a move opposed by Labour. Plus had Labour used their 13 years in power to diversify Britain’s power supply we would not be needing to incentivise alternative energy in order to protect people who work hard and want to get on from paying the cost of price changes in global markets.

 

Q: Why have you cut Winter Fuel Payments by £100?

We have preserved Winter Fuel Payments in line with the budget set out by Labour. Of course we recognise the difficulties facing pensioners this winter. That is why we have boosted Cold Weather Payments by making permanent the increase to £25 per payment, and it is why we have introduced the Warm Homes Discount, which will see the 600,000 most vulnerable pensioners automatically receive a £120 rebate alongside help for a further 1.4 million households. The Warm Homes Discount is mandatory, unlike the previous voluntary scheme, and will provide two thirds more support than was available through the previous scheme.

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