Ed Davey writes… Keeping down household energy bills

By Ed Davey | Fri 18th October 2013 - 9:02 am

Yesterday, I outlined why Labour’s energy policies would be bad for consumers, bad for tackling climate change and risk the lights going out.

However misguided Ed Miliband’s energy policies are there is no doubt that he was seeking to respond to the fact that many consumers are feeling the pinch through rising energy bills. The recent price increases by SSE and British Gas will hit consumers hard and I am afraid there will be more to come.

So what is our response?

By the end of this Parliament we will have put £700 a year back in the pockets of hardworking people by raising the income tax allowance to £10,000. And in the next Parliament we aim to raise the allowance further to the level of the minimum wage, around £12,500. Already, and remarkably, Labour has said they think that is a bad idea.

As we recognised in the Green Growth, Green Jobs policy paper passed at the Glasgow conference, the most effective way both to reduce our greenhouse gas emissions and save consumers money is to improve the energy efficiency and the insulation of our homes. Focussing on energy prices only gives part of the story – what we should be focusing on is energy bills.

The Energy Company Obligation (ECO) which is in the firing line of some energy companies and Tory politicians at the moment is focused on improving the insulation of our homes. To get rid of it might mean that energy prices would go down but energy bills would go up!

Whilst by 2020 policy costs will have added £286 a year to people’s bills, the savings resulting from our energy and climate change policies will amount to £452 – bills will be £166 lower than they would have been.

We have also increased the cold weather payment and introduced the Warm Home Discount of £135 a year for the least well off pensioners and some benefit recipients to help those who will have greatest trouble meeting their energy bills.

But there is also much we can do to ensure that consumers get the lowest price available to them. Liberals believe that competition and consumer choice in markets gets the best result – but that will often mean regulation of the market to ensure that competition and consumer choice can thrive. In contrast Labour’s arbitrary intervention in the market telling the energy companies what their prices should be would be a return to the bad old days of state intervention.

That is why we have focused on boosting competition – more than doubling the share of the energy retail market provided by independent energy suppliers since 2010, with more to come in the next few weeks. We have also encouraged switching, both by individuals who save on average £150 a year if they switch and collective switching through our Cheaper Energy Together initiative building on the excellent work of Liberal Democrat run South Lakeland Council.

To make it easier for consumers to compare one tariff against another we have reduced the often bamboozling array of tariffs so that consumers can be sure that they will be on the lowest tariff according to their preferences.

I know these policies may not be as eye-catching as a 20-month energy price freeze. But they are liberal policies which will be far more effective in reducing household energy bills in the short, medium and long term.

Image: Houses of Parliament from the London Eye at night by David Hawgood under cc2.0.

* Ed Davey is the MP for Kingston & Surbiton and Leader of the Liberal Democrats

Read more by Ed Davey or more about ed davey or energy prices.
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14 Comments

tony b 18th Oct '13 - 9:58am

Ed Davey if this is the best you can come up with then you will loose a little bit of trust, with the general public, every time the big six raise their energy prices. Wake up and smell the coffee! gone are the days when peoples energy pricers could be justified with green taxes and advising people to be more energy efficient. Action is what is needed/demanded from the public, reform of the energy markets coupled with strong rhetoric. Will you stand up for consumers Ed? or more likely just be another brick in the corporate wall.
Gareth Wilson 18th Oct '13 - 10:07am

@ tony b

Agreed, this is such a weak response. Is that really all we can up with? Until we get complete transparency in the energy market where the big 6 have to disclose the prices they are selling their energy to their own retail organisations we’ll get nowhere. Its a cartel that can only be broken up by properly regulated transparent market.

We are rightly losing the battle with the public on this.
Eddie Sammon 18th Oct '13 - 10:11am

Thanks for this. I think it’s all good, but we need to do more. I also think we should have consistency with price and cost controls (carbon taxes). One can’t be liberal and the other illiberal.
Eddie Sammon 18th Oct '13 - 2:25pm

Thought of a truly liberal solution to energy prices: quantitative tightening. This would reduce inflation and if we don’t do it soon we’ll have capital flying out of the UK quicker than you can say “Black Wednesday”. Technically it would be a reverse of Black Wednesday, but we can’t live in this cheap money world forever. All this global money printing is pushing up wholesale gas prices.
Caracatus 18th Oct '13 - 3:00pm

The trouble is Ed, for many people the £700 has been eaten up by higher council tax bills where they paid nothing before, by the bedroom tax, by inflation eating into frozen pay rates and lets face it it would have gone up by some amount anyway.

At one point the solar panels werre springing up all over the place but then the tariffs were changed, the green deal has been a flop. There is a danger in falling between two stools and not giving any clear lead on where we are heading. A
u -turn has been done on nuclear power but where are the plants gettingt he go ahead? Yes we need insulation and we even need some people to put on jumpers and turn the heating down, but, people don’t go to food banks because its some sort of Jolly Book launch or art gallery opening.

Good work on reduding the number of tarriffs yet we have danny alexander bemaoning there are only 43 types of 95% mortgages on offer.
JRC 18th Oct '13 - 5:01pm

Mmm, yesterday it was a con today there is no doubt that he was seeking to respond to the fact that many consumers are feeling the pinch through rising energy bills. I suspect we are witnessing the beginning of the u-turn.
Stefan 18th Oct '13 - 5:22pm

Spoken like a true Tory…well done ED, well done indeed.
GF 18th Oct '13 - 5:49pm

This really isn’t good enough. Many people are facing an energy crisis this winter and the main response from all parties is a lot of helpless flapping of hands and even more flapping of lips to call for more competition – the neoliberal cure-all for every problem – which suggests a desperate dearth of strategic vision in Whitehall.

Get real. The electricity industry was privatised in the very early 90s with a byzantine structure designed, so its backers hoped, to create healthy competition. The City promptly reorganised the industry to extract maximum short term profit recreate a more profitable structure. In the process it returned much of the industry to state ownership, except that now it’s the French state. As long ago as July 2008 rising prices were already a scandal which the House of Commons Business and Enterprise Select Committee said needed to be addressed urgently while hinting strongly that competition wasn’t working ‘properly’. (How unreasonable of it not to work as the ivory tower theoreticians blithely assumed it ought to).

http://news.bbc.co.uk/1/hi/business/7526048.stm

The Select Committee found no evidence of price collusion but then I wouldn’t expect them to; in an oligopoly it’s perfectly easy to play follow-my-leader instead which serves just the same purpose but is legal. In fact, at least some of the companies must have been discussing future prices because, at exactly the same time as the Select Committee was reporting, two of the companies EDF Energy and Centrica were discussing jointly taking over the nuclear generator, British Energy. That must mean that they were sharing views on future prices.

http://news.bbc.co.uk/1/hi/business/7523498.stm

The thing about competition is that it can be very expensive; all those marketing departments, duplicated admin, price comparison etc. sites cost a bundle. That is justified only if the market discipline exerted on providers leads to lower net prices and/or better service levels but that clearly isn’t the case here given the way successive government for over 20 years have allowed the oligopoly to continue. Are we in a situation where the idol of ‘consumer choice’ is being used to distract the public while their pockets are being picked?
David Allen 18th Oct '13 - 5:57pm

Ed Davey is quite right to defend action on climate change as being action that will pay in the long term. He is also right to attack Miliband’s price freeze as a misuse of state power which won’t achieve real cost savings. But as the posters above show, he is losing the popular argument.

The Lib Dems need to get out of the pocket of big business. Let the Tories stay there on their own.
Karen Wilkinson 19th Oct '13 - 10:07am

I agree, it is totally shocking that Ed has been unable to resolve the UKs energy situation singlehandedly . What has he been doing? After all, he’s got a supportive Treasury happy to assist any efforts to reform the market, a basis of serious long term government planning from which to start, the backing of a Parliament committed to tackling climate change and plenty of time in which to sort things out. Er…

These are complex issues, technically, economically & behaviourly. Time for a LibDem Energy Group?

Incudently for anyone interested in public attitudes to energy pricing:
http://www.cardiff.ac.uk/news/articles/a-green-energy-future-11372.html with links to the full research.
Michael Parsons 19th Oct '13 - 11:49am

Yes GF, oligopoly pricing colludes through market calculations even without behind-th-scenes arrangements, Unless a company is confident it has lowest-cost advantage it never cuts prices- and even then must fear competitive re-organisation by it s rivals.So they move inlock-step by holding price and developing expensive non-price competition, or explore upward price increases (which they can always retreat from)rather than cuts where they may be stuck; and when one company establishes succeeds in raising, therest follow and it becomes i ndustry price-leader. This standard marketing behaiviour shows why oligopoly always colludes de facto, and commissions will never discover the unnecessary secret agreements or if they do stoppinbg them makes no difference. This is especially true in the oligopolistic international energy markets, so “fracking” has no chance of cutting UK energy bill, however successful it might be., since unlije USA we export gas.
Whaqt to doi? If we had a Social Liberal Party we might use State competition as a tool: backed by State guarantees create co-operatives run by customers with worker participation to act as energy suppliers- reopen coal production plants (clean burning) and oil production, purchase and distributionl moving towards granting socially-controlled firms monopolistic rights, and use them to crash prices. Even just set up a State Energy firm with monopoly rights for quicker results.
The same for water prices too, if we can end the control of Parliament b y private-finance parties, and make punishable the selling of water as the crime is, so restoring local control of its use and exraction, and breaking the private domination of supply. Underlying all this is a need to replace the PLC as a dominant form of business activity with its focus on shareholder reward (the 1%) and CEO payment by share-options. For these ideas we need a Social Welfare and Liberal Party commited to general economic participation by the people, as opposed to the unleashing of the vilest aspects of Toryism by a Cleggite coalition. Or we could just travel on as we are towards a social fascist State, of course, instead.
Stuart Mitchell 20th Oct '13 - 1:36pm

“We have also encouraged switching, both by individuals who save on average £150 a year if they switch and collective switching through our Cheaper Energy Together initiative building on the excellent work of Liberal Democrat run South Lakeland Council.”

Great – lower prices for the few (i.e. web-savvy, generally young people) subsidised by higher prices for the many. Stop pretending that this is any kind of solution to the general problem – it’s the opposite.

“Whilst by 2020 policy costs will have added £286 a year to people’s bills, the savings resulting from our energy and climate change policies will amount to £452 – bills will be £166 lower than they would have been.”

Fantasy figures. You have no idea by how much the energy companies will jack up prices between now and 2020.

“In contrast Labour’s arbitrary intervention in the market telling the energy companies what their prices should be would be a return to the bad old days of state intervention.”

Yet the government of which you are a member is happy to tell rail companies what their prices should be. The government’s response to Labour’s energy plan has been incoherent and hilarious.
Helen Dudden 20th Oct '13 - 11:51pm

I simply do not understand why, you have to keep knocking Ed Miliband and his policies, if yours are so good.

Ed Miliband is making sense with the facts, we have problems with affording to heat our homes.

You have worked with your Tory partners to help bring in “food banks” and the “bedroom tax” and the need to provide free school meals. The children have to wait a bit, but of course that won’t matter. Like living in a Dickensian setting.

The Lib Dem council in Bath, is trying to remove over 2 million pounds from the children services budget. A good place to start, those who are vulnerable.
Michael Parsons 21st Oct '13 - 10:33am

@ Helen Dudden
As a diehard Liberal I am as opposed as you to the right-wing anti social-market fantasies that have been unleashed by Clegg’s False Flag politics.
At the same tinme Labour needs to revisit its 1945 roots to offer any hope of a national rebirth of employement, industry and welfare, such as it achieved when we were in post-war ruin and international and economic collapse. Unlike the “hard decisions” the coalition boasts of, and which are mostly born by the common people, Labour’s hard decisions would be their own – to take control of the banks, and to use the proceeds of austerity to rebiuld in the interest of the common good. Of course I would moan about controls and plans and directives – but at least I would be comforted by the outcomes! Otherwise. as our economy is Tibetanised, and handed over to international oligopolies, (he who owns the power station can turn off the lights, as the old Chinese proverb runs) the likely outcome is a social-fascist revolt, perhaps?