28 Oct 2013

Energy bills are heading for an all time record

Ed Miliband’s cunning and unconventional gambit is offering a seeming solution to the public, and the Coalition is debating its response.

Part of that response will involve jettisoning up to half of the £119 on average bills of £1300 that helps fund government initiatives on the environment, efficiency and fuel poverty.

This has stoked serious debate within the Quad and within the Coalition. What of the Coalition’s promise to be: “the greenest government ever”?

The Conservatives also vowed to shift taxes towards pollution: “taxes on burning not earning”.

So on Friday, amid the better news on the economy I asked the Chancellor about why he is about what happened to the greenest government ever.

“I totally reject the idea that the sign of a good environmentalist is that they whack taxes on families and increase people’s energy bills, that is not for me what good environmentalism is.Good environmentalists, and this government I think has a great environmental record, invest in long term low carbon energy generation, whether nuclear power or other renewables.It makes sure we have a Green investment bank which we’ve created to stand by some of that investment,” said Mr Osborne.

“That is actually what we can do to help tackle climate change, and make sure that this country is doing its part. But if you’re only equating being green with high taxes on consumers, then I don’t think you are going to get much public sympathy,” he told me.

The energy companies suffered a blow this weekend. The companies blame those government schemes to encourage energy saving and alternative fuels… and of course global energy markets outside Britain’s control.

But new figures from the industry’s own regulator, Ofgem, spotted by the FT this morning indicators are rather damaging for that argument. It shows the average total bill a year ago was £1250.

Today, its £1320, now, before the new price rises. So an extra seventy pounds. But Ofgem also says the wholesale cost of energy, the cost they pay to get the gas and electricity in the first place has gone from £600 pounds to just £610. So it’s barely moved at all. While profit margins have more than doubled – from £45 to £95.

The Big 6 energy groups dispute how these numbers are calculated. But clearly if this is anywhere near the truth, a key justification for higher bills falls away – and most consumers are going to feel pretty angry. and some politicians are lining up to squeeze those bigger profits, even through a windfall tax.

Labour is going after that £95 profit margin. If it puts a freeze on prices, that margin, they say, will have to absorb any change in wholesale energy costs. The Conservatives are focusing on the £119 in each bill that funds green, efficiency and fuel poverty measures, with hints perhaps half of them will be scrapped, even ones introduced by the Coalition itself.

Lastly, what happened to that promise that Green taxes would increase over the parliament? How on earth will that be met, if these charges are cut, and fuel duty rises scrapped etc. Well rather cunningly, the Government changed its own measure of environmental taxes last year, away from the ONS, Eurostat and OECD measures to exclude car and air taxes.

Magically, this means that the “pledge” will almost certainly be met (rising from 0.5% of GDP to 1%). On the normal measures it would clearly be falling, and the pledge missed.