Gas costs threatens to increase fuel poverty

from IC Wales

THE Conservative Party’s Bow Group today publishes a report into Labour’s commitment to eradicate fuel poverty. Here its author, Tony Lodge, argues that with increasing energy prices there is a danger that the problem could be worsened

AS the first frost of winter bites, more and more families will spend this Christmas struggling to pay fuel bills and consequently join the growing number of British households in fuel poverty.

Against a background of rapidly rising energy prices, Gordon Brown should be praying Jack Frost doesn’t do his worst. The consequences of a cold winter for those on low incomes could highlight the worst social crisis to face Britain for decades.

More and more British households are spending a higher percentage of their income on energy costs. The number of households categorised as being in fuel poverty is expected to have doubled in the last four years, up from two to four million households. During this period we have had to endure the human tragedy, and political scandal, of Britain having 25,000 excess winter pensioner deaths each year as over 22% of older people have gone without gas or electricity in order to make ends meet.

Fuel poverty is when 10% or more of household income is spent on fuel for the home. It is reckoned that half of people in fuel poverty are pensioners, which should make these alarming statistics more pressing for the Government.

The Government is officially committed to completely eradicating fuel poverty by 2018 but this is now regarded as unachievable as energy prices spiral upwards and the Government’s own mechanisms for combating fuel poverty such as the winter fuel payment have not been increased in line with prices. Labour’s own budget to tackle this blight looks set to remain static or even face cuts, against the advice of its own Fuel Poverty Advisory Group.

The Citizens Advice Bureau has revealed that the number of people seeking help with overwhelming debt problems soared to a record high in 2006 and the number seeking help because they are seriously behind on gas and electricity payments rose by a third. Coupled with rising council tax, food bills and petrol and diesel costs the pressures on lower income families is reaching breaking point.

Since 2004 energy prices have spiked. Gas prices from the beginning of 2004 to the end of 2006 rose by 67%. This was coupled with a 41% increase in electricity prices in the same period. The average fuel bill has risen from £572 in 2003 to £924 today. After a small reduction earlier this year, gas prices are rising again and this will affect electricity prices as gas now generates 40% and rising of Britain’s electricity. The Government has released data which supports fears that consistently high energy prices will result in more and more households falling into fuel poverty in the future.

There are a number of reasons for higher prices. According to industry regulator Ofgem the two main reasons for the price of gas are high oil prices, which strongly influence the gas price, and declining UK gas supplies. Importantly, as gas is now the main fuel used to generate electricity in the UK there is a direct knock-on effect on electricity prices. The dash-for-gas policy pursued in the early 1990s has resulted in the UK becoming perilously overdependent on supplies of gas, the bulk of which is to be imported from Russia, Algeria and the Middle East.

The Paris-based International Energy Agency has warned that Britain is becoming too dependent on gas to generate its electricity on grounds of cost and security of supply. This warning should be heeded and acted on without delay if we are to address rising bills, more fuel poverty and energy security.

Fuel poverty and energy policy are intrinsically linked. A balanced energy policy which utilises different sources helps stabilise prices, especially if a large proportion of this generation can be indigenously sourced. After all, the fundamental purpose of any energy policy should be to ensure reliable and affordable energy for domestic and industrial customers.

High bills not only place more families in fuel poverty, they also erode our economic competitiveness as industry costs rise as a consequence of higher overheads. There are many reports of energy intensive industries hurting on the back of spiralling energy costs.

Another problem for Britain of more gas dependence is the lack of a free market in energy on the continent which results in gas supplies not responding to strong UK prices and demand. Indeed, there is no shortage of gas in Europe, largely supplied by Russia, but there is no connection between supply, demand and price. British attempts to resolve this in the EU have singularly failed. Pressure from German and French power companies to protect their monopolies appear to have prevented the EU taking action in Britain’s favour.

Overdependence on this one fuel for electricity generation is hurting the poorest families in Britain and driving more and more into fuel poverty. Next month’s Energy Bill must embrace a more balanced energy mix which can help get prices down in the long term and better guarantee energy security. Nuclear, clean coal and renewables must be embraced in order to wean Britain away from dangerous overdependence on foreign gas.

If not, then the Government’s dismal recent record on fuel poverty will be cruelly exposed in the harsh winters ahead as the catastrophic social and economic implications for Britain become clear.

All Hot Air – Labour’s Failed Strategy on Fuel Poverty, by Tony Lodge, is published by the Bow Group