First the banks lost the public’s trust, then the tax activities of some large corporations were brought under scrutiny. So perhaps taking on the “big six” UK energy companies as household fuel bills incessantly rise is a natural next step for Ed Miliband to make headlines and try to win over voters.
In fact in his open letter to the energy companies today he wrote that the public have “lost faith in this market”, and that there is “a crisis of confidence”. But his proposal to freeze energy bills for 20 months while the energy market undergoes reform may be more a sticking plaster on a policy, rather than a market, that isn’t working.
Household energy policy has changed significantly over the past 10 years. The coalition government scrapped treasury-funded schemes to support those most vulnerable to fuel poverty (defined until last month as a household needing to spend more than 10% of income on heating). Under schemes such as Warm Front, eligible households - usually those with poor energy efficiency and low incomes - received improvements like free insulation or a new boiler.
This was aimed at reducing energy bills and working towards climate change commitments by reducing carbon emissions. At the same time the energy companies had a number of social and environmental commitments, such as providing household insulation for free, and in some cases supporting the retrofit of entire houses.
Since the 2010 election, energy companies have been under greater financial pressure to support those households in fuel poverty, and those in particularly inefficient, un-insulated homes that are hard to tackle and therefore costly to live in. The cost to do so is now met from energy bills rather than general taxation.
This move has been highly criticised. For example, Sir John Hills, leading the fuel poverty review, commented that: “since energy expenditure makes up a large proportion of overall spending for lower-income households, this increase in energy costs represents a relatively regressive means of funding a policy.”
Fuel poverty charity National Energy Action has argued that it was “perverse” that as fuel poverty and carbon emissions rise, those households struggling most pay a disproportionate amount through fuel bills, rather than a more proportional rate via progressive taxation.
The UK has legally binding obligations to both reduce fuel poverty and address climate change. At a glance these two aspects of energy policy might appear to be in conflict with each other. An increase in household energy use may reduce fuel poverty but lead to increased carbon emissions, whereas climate change policies aimed at reducing energy use by increasing bills may increase fuel poverty.
But improving the insulation and energy efficiency of Britain’s notoriously leaky housing stock is seen as the most effective way of meeting these goals simultaneously. Miliband’s proposed price freeze, on the other hand, is a short-term measure that ignores the issues of poor quality housing. Without addressing these, it will be hard to meet the carbon reduction climate goals, jeopardising the chance to improve housing and help lower energy bills in the future.
The “big six” energy companies cannot be held solely responsible for rising household energy bills. Given the legal commitments to reducing fuel poverty and carbon emissions perhaps Ed Miliband should reconsider what role the government should play in delivering social and environmental policies, instead of offloading the responsibilities to the private sector.
Improvements to the housing stock and targeted support for those in most need are perhaps more effective ways of addressing these legal commitments, rather than a short-term freeze in prices.