'The energy crisis is racing ahead of the government': MPs call for urgent national insulation drive, as costly winter looms for billpayers

BEIS Warning warns current government energy bill support package is inadequate as energy costs continue to rise

MPs have urged the government to rapidly bring forward a fully-funded, national home insulation campaign alongside a broader package of financial support for households facing soaring energy bills, in order to stave off a surge in poverty this winter and avoid the economy falling into recession .

The call comes in a report today by Parliament’s Business, Energy and Industrial Strategy (BEIS) Committee which outlines a litany of failures from both the government and the energy regulator, Ofgem, to avoid or cushion the impacts of surging fossil fuel prices on consumers and energy suppliers over the past year.

Inflation has surged to a 40-year high of 9.4 per cent, driven by soaring food and energy prices in the wake of the Covid-19 pandemic and further exacerbated by the impacts of Russia’s invasion of Ukraine, all of which has hit UK households, and the wider economy hard businesses.

But the BEIS Committee warned that the situation is set to increase significantly in the coming months, with Ofgem set to raise the energy price cap from October which could see the average annual bill rise to over £3,200. Meanwhile, high global market prices for fossil fuels are likely here to stay for the foreseeable, and tens of millions of UK homes remain notoriously inefficient.

As a result, it said the government’s current package of support measures – which includes a £400 discount on energy bills for every household from October, alongside various further means tested discounts for pensioners, and those on disability benefits or low income households – would be far from adequate to cushion consumers against the huge surge in energy costs this winter.

And, with a further rise in energy bills also looming in January 2023, the Committee raises alarm bells in its report that the size of the government’s support package has been “eclipsed by the scale of the crisis”, as it demanded a rethink and an expansion in its policy support.

“Once again, the energy crisis is racing ahead of the government,” said BEIS Committee chair Darren Jones MP. “To prevent millions from dropping into unmanageable debt it’s imperative that the support package is updated and implemented before October, when the squeeze will become a full-on throttling of household finances and further tip the economy towards recession.”

“We were told by a number of witnesses, ‘If you think things are bad now, you’ve not seen anything yet’,” Jones continued. “This Winter is going to be extremely difficult for family finances and it’s therefore critical that public funds are better targeted to those who need it the most.”

Crucially, moreover, the report highlighted the urgent need for a national home insulation drive to help reduce demand for gas heating in the first place, which it is called on the government to establish before the end of the year, as simply helping consumers to pay their bills “is not a sustainable position”.

While the government has over the past two years introduced several energy efficiency funding schemes, they have been relatively small in scope, and few and far between, with the Green Homes Grant scheme having been unceremoniously scrapped just months after it first launched last year.

And despite announcing a number of supply side measures to drive down reliance on risky, volatile foreign imports of fossil fuels in its Energy Security Strategy earlier this year – such as higher offshore wind targets and new leases for North Sea oil and gas extraction – the government has failed to come forward with any major new insulation scheme or other demand-side measures.

The BEIS Committee therefore urged the government to stop announcing short-term insulation policies and threatening to move budgets between different existing schemes, and to instead fully fund a national retrofit program that businesses, homeowners and tenants can invest and take part in.

It further noted that not only do better insulated homes help reduce the cost of energy in the winter, but that they can help to keep homes cool in the summer, thereby reducing the cost of cooling systems such as air conditioners as hotter temperatures become more common in the UK.

“Ultimately, Ministers know that the long-term solution is to reduce our need for energy through insulation works that keep our homes warm in winter and cool in summer,” said Jones. “If the government is really taking this energy crisis and the country’s net zero targets Seriously it will come forward with a bold, fully funded, national home insulation program before the end of the year.”

Tory leadership race

Both the remaining Tory leadership candidates vying to take over from Boris Johnson as Prime Minister in September, Liz truss and Rishi Sunak, have in broad terms voiced their support for home and building energy efficiency efforts to drive down bills and demand for fossil gas as part of their pitches.

However, while reaffirming their commitment to the UK’s net zero by 2050 target, neither has provided much of any detail over any plans to expand the rollout of energy efficiency home retrofits in order to guard against soaring costs.

In the latest televised debate on BBC One Last night, Truss reiterated her pledge for “a temporary moratorium on the green energy levy” on household bills that is used to fund insulation measures and the warm homes discount for fuel poor homes, among other programmes.

The incumbent Foreign Secretary has suggested she could move the costs of these green levies into general taxation, in a move that could cut around £150 a year from the average bill, although she has yet to provide specific details as to how she would fund this alongside her promised tax cuts.

Truss last night also stressed that while she supported the 2050 net zero target, there was a need to ensure it could be delivered without hitting household wallets, and said she would explore whether there were “better ways to deliver our net zero commitments”.

Sunak, meanwhile, once again voiced his support for insulating homes to help with the costs of energy bills and reducing emissions, having previouslyed another new energy efficiency retrofit funding program could be launched should be secure the keys to Number 10.

However, he offered few concrete details during his appearance in the debate last night, although stressed that “the benefit of [energy efficiency] is actually saves lots of money as well, which is fantastic, and that’s why the government should do more on that”.

But while there still remains six weeks left until a new PM is announced in September, there is little sign of the current government led by Johnson coming forward with fresh measures or funding to spur an energy efficiency retrofit drive and provide more financial support for households.

Responding to the BEIS Committee’s report today, the government said in a statement that it was not possible to “control global inflationary pressures”, as it touted its existing package as sufficient for helping struggling households and businesses with rising energy costs.

“We have introduced an extraordinary package of support to help households, including £1,200 each for the most vulnerable households,” it said. “We are also investing £6.6bn this Parliament to improve the energy efficiency of homes, delivering savings of £300 a year on average.”

Ofgem criticism

But it wasn’t just the government which has faced criticism from the BEIS Committee today, with MPs also singling out Ofgem for its role in regulating the electricity market, which has seen almost 29 energy supply companies go bust over the past year as global gas prices have surged.

The report slams “Ofgem’s incompetence over many years” which it said “enabled inadequately resources and inexperienced founders” of new energy supply firms to take high risk decisions such as not hedging properly or offering unsustainable that undercut well-run prices players in the sector.

The market failure has seen 29 energy suppliers go bust since April 2021 at an expected cost of £94 on the average energy bill, thereby further exacerbating pressures on vulnerable households in the current cost of living crisis, the Committee said.

It even compared the market failure to that of the banking crisis of 2008 that precipitated the global recession, although it does also note Ofgem’s more recent efforts to drive regulatory reform as a result of these problems.

Ofgem conceded in a statement that both energy suppliers and its previous financial resilience regime “were not robust enough” which “contributed to some of the supplier failures since August 2021”.

But it stressed that “no regulator can, or should, guarantee companies will not fail in a competitive market” and that it was “working hard to reform the entire market, as well as closely scrutinising and holding individual energy suppliers to account, to further strengthen the regulatory regime”.

“We’re pleased the committee has recognised the major scale and reach of these reforms which are already driving positive change across the market on behalf of customers,” Ofgem continued in her statement. “We are also working with all parts of government and industry on the long-term solution to the energy crisis by moving us away from imports of expensive gas towards a more secure, reliable, home-grown energy system.”

From green groups and social all the way through to economists, business leaders and the International Energy Agency (IEA), there is widespread consensus of the urgent for a major home insulation drive in order to cut down on emissions and soaring household bills ahead of this winter and beyond. Even Britain’s next PM – whether it ends up being Sunak or Truss – appear to agree.

Yet rather than spending this summer rapidly rolling out as many home energy efficiency measures as possible backed by a national campaign to raise awareness of the benefits of energy saving behaviours, there is no fresh funding nor incentive scheme in place to drive the uptake needed.

The BEIS Committee has made it clear that market failures and inadequate support for households facing soaring bills this winter risk not only pushing millions more into poverty, but also tipping the UK economy into recession. Only time will tell as to whether the government takes heed of these stark warnings, but for many families facing a difficult winter ahead, the next six weeks could be a very long wait indeed.

 

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