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The way to fix our energy pricing system? A national energy guarantee

The Norwich MP and Green New Deal advocate on why energy pricing should reflect the difference between luxury and need.

By Clive Lewis

This month Ofgem announced that the energy price cap will fall in October. Yet most of us won’t feel any better off. The new cap will see an average household paying £1,923 a year – which is still almost double the average bill in 2021, before energy prices began to soar. Since government support schemes have also come to an end, the average household can actually expect to pay more this coming winter than at the start of 2023.

While the energy bills crisis has been escalated by the war in Ukraine, these prices are no short-term blip. Most experts say the UK faces high energy costs until at least the end of the decade, largely due to our reliance on gas.

That means we must rethink our broken energy system, and quickly. It’s a system in which perversity abounds: we continue to pour financial support into oil and gas companies, even though renewables are cheaper; the poorest continue to pay the highest prices for energy through pre-pay meters, and nearly eight million people borrow money to cover their energy bills, while the Prime Minister upgrades the grid for his private swimming pool.

The Energy Bill currently going through parliament might have been an opportunity to reset our energy system, so that it encourages decarbonisation and protects the poorest from sky-high prices. But it’s looking as though that opportunity will be missed. If you read the bill as it stands, you’d never guess we are in the middle of dual crises, of climate and cost of living.

That’s why I am proposing an amendment to the bill in its final reading on Tuesday 5 September, to introduce a national energy guarantee – a safety net that would allow everyone to meet their essential energy needs at low cost. The guarantee would take the form of a multi-tiered pricing structure, where energy-use up to a certain threshold is free or very low cost – and is cross-subsidised by higher users paying a premium rate above that threshold.

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This is a proposal that is built on comprehensive modelling by the New Economics Foundation (NEF). It has strong support inside and outside of parliament, from anti-fuel poverty campaigners to climate action activists. It builds on the Energy for All campaign led by Fuel Poverty Action, whose petition last autumn calling for a free basic energy allowance gained over half a million signatures.

Other proposals to address high energy prices tend to take the form of a social tariff, supporting those on the lowest incomes with their bills. Social tariffs are a lifeline for some – but too often, those who need them most slip through the bureaucratic net. The universality of the national energy guarantee means that while additional support would be available for those who need it – such as disabled people and those in receipt of benefits – everyone would have the basics covered with no need for means testing.

[See also: What has the energy price cap got to do with the climate?]

Modelling of different versions of the proposal conducted by NEF favours a three-tier structure. This would involve a free allowance covering 50 per cent of an average household’s essentials (cooking, washing, lighting, keeping warm, charging a device). This would leave 80 per cent of households better off – including almost all low-income households.

This is in stark contrast to the government’s energy price guarantee, which – by subsidising the unit price – provided the largest benefits to the well-off, and weakened the incentive to improve a home’s energy efficiency for those most able to do so. NEF suggests that those at risk of entering the highest price band could be contacted by a retrofit coordinator with advice on how they can make their home more energy efficient.

Using energy to heat your living room, cook your food and connect to the internet, is fundamentally different from using it to heat your swimming pool. The former are basic needs, the latter is an extraordinary luxury. Those differences should be reflected in the price we pay for energy. This is a matter of climate justice, since we know that the richest are by far the biggest contributors to global emissions.

Moving beyond the fossil fuel era demands changes in every part of society – but unless we design those changes to transform existing power relations, the shift will only entrench them. An approach to decarbonisation that treads the familiar path of inequitable outcomes would be a monstrous injustice – and would be doomed to failure. As Germany’s government found recently when it tried to outlaw new oil and gas boilers, people won’t fork out money they don’t have – and asking them to do so risks fuelling far-right populism.

We can take a bolder approach to climate action – one that seizes the opportunity to unite social and environmental goals by embedding decarbonisation in policies that restore public services, reduce regional disparities and combat rising inequality. The national energy guarantee is a shining example of this. It ensures people can meet their needs and protects them from profiteering; it heavily incentivises energy savings for high users; and it asks the wealthiest to pay a bigger share.

My proposal is part of a trio of amendments to the Energy Bill put forward by members of the all-party parliamentary group on the Green New Deal. The others, proposed by the Green MP Caroline Lucas and my Labour colleague Nadia Whittome, respectively, call for an energy demand reduction plan and for long-term, predictable funding for local authorities to coordinate a mass roll-out of heat pumps and insulation. Last year’s immediate energy price crisis required an emergency response, but any long-term solution must involve bringing down demand as well as prices.

Nationwide polling has found that three quarters of the public support the right to free energy to meet people’s basic needs, with only 10 per cent opposing. People want climate action, they want fairness, and they want to live without the fear of debt, hunger and cold. The national energy guarantee ticks all three boxes, and implementing it would be a step towards a Green New Deal – an economy reoriented towards need, not greed.

[See also: The great energy rip-off is a symptom of our broken economy]

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