Miliband's challenge: can you freeze energy bills and cut carbon at the same time?

The Labour leader may need to move some of the cost of energy efficiency schemes from consumer bills to taxation.

Ed Miliband has made a seemingly impossible promise. Energy bills will be frozen while the UK invests billions to stop burning gas and coal for power. What was he thinking? Implementing his plan may be more radical than it seems.

For years the established energy mantra has been "choose your poison". Bills can go up with rising gas prices or the cost of new wind-farms, but either way, they’ll go up. As the prediction has morphed into reality politicians have tried to find a way out.

Fracking - it’s said - will flood the market with cheap gas or energy efficiency will be so effective, so quickly, that households won’t even notice the extra costs. Neither idea currently looks like it will work.In a recent submission to Parliament, Bloomberg argued UK shale gas would cost about what we currently pay - just to get it out of the ground. And if what you are trying to do is cut global carbon emissions, fracking seems an odd way to go about it given that shale gas is a fossil fuel that releases carbon pollution when burned.

Officially, at least, the government still thinks home insulation will mean bills are lower in 2020 than they are now. Yet that can only happen if households have spent to insulate their homes (or consumers have been charged through their bills to subsidise it). The Green Deal was meant to square that circle, but it is manifestly not (yet) working.

Underlying the seemingly intractable problem is a silent assumption that all the costs of energy policy should be paid for almost entirely through bills, at market rates, with the help of the big six. It’s hard to freeze bills and invest billions if you insist that every cost you impose must be passed directly on to the consumer at rates of interest higher than the average mortgage.

It’s especially difficult if you insist on putting implementation for your policies into the hands of an group of firms who have very little to gain but much to lose if things go wrong. And it’s almost impossible if consumers don’t see any way of sharing in the profits on the investments they are paying for. These assumptions have their own logic, but it isn’t about freezing bills. If Miliband wants to fulfil his promise, it’s that set of assumptions he may have to break.

Some of the costs levied on bills go straight to the Treasury. The government’s Carbon Price Floor, for example, drives up the cost of power, supposedly in a (so far unsuccessful) attempt to make coal more expensive than gas. It’s expected to raise around £2bn for the Treasury by 2017, and more after that. But, if you are committed to cutting carbon out of the energy mix, a carbon tax on power plants is hardly a long term deficit fix.

Miliband could scrap it - replacing it with regulation to phase out carbon emissions from coal plants. Or he could use the money to pay for efficiency schemes - or simply to give every household a flat rebate on their bills.

More controversial would be measures which effectively move some of the cost to taxation, rather than bills, arguably a fairer way to pay for new infrastructure since it would enable the government to protect the most vulnerable people in society such as the fuel poor. The main way to do this would be to underwrite loans at low rates of interest - something the Germans already do. Loans for the government’s Green Deal energy efficiency scheme start at around 6 or 7%.

Reducing them to something closer to inflation would cut the cost to households and reduce the need to subsidise insulation measures through bills. The same logic applies to investments in clean energy.The cost of borrowing money helps determine how much consumers pay for the power but right now it can be too high, partly because investors worry about the government changing its mind.

Instead of paying investors to make up for their uncertainty the government could take on more of the risk itself (through the Green Investment Bank, for example) reducing the cost of borrowing and encouraging stability in energy policy. And just as we currently use taxpayer money to fund roads the treasury could invest in a new north sea grid which could benefit the whole economy and lower the costs of energy.

R&D and the development of new heat and sea based technologies could also come from taxation. The investment is relatively small and doesn’t just benefit bill payers - if they work - the technologies could provide exports for the whole economy, indeed we already fund renewable heat this way.

But cutting costs can’t just be about taking risk away from the private sector, or switching the burden away from bills. It could also be about challenging the perceived monopoly of the big six utilities and institutional investors by encouraging the UK’s regions and individuals to invest in its new energy infrastructure. By comparison, in Germany most of the investment in clean energy comes from individuals and local authorities and not the transnational energy giants. This needn’t be just about village based community projects. Why shouldn’t the City of Newcastle, for example, be an investor in the wind farm which provides it with power and jobs? Some policies are there - but not the funding.

Local projects, backed by residents through crowd-sourcing schemes, cooperatives or local authorities may also face fewer delays, driving down costs. And if local authorities, communities or individuals invest in clean energy then the returns go back to those communities - opening up the potential for the money to be used to cut bills further.

New entrants may be particularly important if the existing energy retailers become reluctant investors as a result of policies to freeze bills. In the short-term, a spike in the price of gas - due to war overseas, for example - will put pressure on energy firms to push up bills.

A two year freeze may be possible - by forcing firms to buy more of their gas on long term contracts. The main risk, for companies, would be that their customers switch away - but the industry isn’t exactly known for it’s fast customer turnaround. Labour has also suggested the cap may be moved in the event of extreme events like a war.

More storage, greater European regulation of the market, and moves to split firms up so they don’t buy and sell gas from themselves may help - as would the very retro and highly unlikely notion of state support at times of price spikes. Whilst gas is a big part of our energy mix action, these measures may keep prices stable on average - but the ride will be bumpy - both up and down. Ultimately, freezing bills probably means not just changing how we fund our energy infrastructure but changing what we use to generate the power and the heat we need.

Damian Kahya is editor of Greenpeace Energydesk

Ed Miliband gives a radio interview next to a giant ice cube representing Labour's energy price freeze at the party's conference in Brighton last month. Photograph: Getty Images.

Damian Kahya is editor of Greenpeace Energydesk

Photo: Getty
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Grenfell survivors were promised no rent rises – so why have the authorities gone quiet?

The council now says it’s up to the government to match rent and services levels.

In the aftermath of the Grenfell disaster, the government made a pledge that survivors would be rehoused permanently on the same rent they were paying previously.

For families who were left with nothing after the fire, knowing that no one would be financially worse off after being rehoused would have provided a glimmer of hope for a stable future.

And this is a commitment that we’ve heard time and again. Just last week, the Department for Communities and Local Government (DCLG) reaffirmed in a statement, that the former tenants “will pay no more in rent and service charges for their permanent social housing than they were paying before”.

But less than six weeks since the tragedy struck, Kensington and Chelsea Council has made it perfectly clear that responsibility for honouring this lies solely with DCLG.

When it recently published its proposed policy for allocating permanent housing to survivors, the council washed its hands of the promise, saying that it’s up to the government to match rent and services levels:

“These commitments fall within the remit of the Government rather than the Council... It is anticipated that the Department for Communities and Local Government will make a public statement about commitments that fall within its remit, and provide details of the period of time over which any such commitments will apply.”

And the final version of the policy waters down the promise even further by downplaying the government’s promise to match rents on a permanent basis, while still making clear it’s nothing to do with the council:

It is anticipated that DCLG will make a public statement about its commitment to meeting the rent and/or service charge liabilities of households rehoused under this policy, including details of the period of time over which any such commitment will apply. Therefore, such commitments fall outside the remit of this policy.”

It seems Kensington and Chelsea council intends to do nothing itself to alter the rents of long-term homes on which survivors will soon be able to bid.

But if the council won’t take responsibility, how much power does central government actually have to do this? Beyond a statement of intent, it has said very little on how it can or will intervene. This could leave Grenfell survivors without any reassurance that they won’t be worse off than they were before the fire.

As the survivors begin to bid for permanent homes, it is vital they are aware of any financial commitments they are making – or families could find themselves signing up to permanent tenancies without knowing if they will be able to afford them after the 12 months they get rent free.

Strangely, the council’s public Q&A to residents on rehousing is more optimistic. It says that the government has confirmed that rents and service charges will be no greater than residents were paying at Grenfell Walk – but is still silent on the ambiguity as to how this will be achieved.

Urgent clarification is needed from the government on how it plans to make good on its promise to protect the people of Grenfell Tower from financial hardship and further heartache down the line.

Kate Webb is head of policy at the housing charity Shelter. Follow her @KateBWebb.