The UK’s Leader of the Opposition, Ed Miliband has promised to freeze gas and electricity prices for 20 months if Labour is voted in at the next general election in 2015. The controversial pledge was made in response to soaring bills from Britain’s ‘Big Six’ energy suppliers, at a time when many individuals and businesses are already struggling to make ends meet.
Those facing the choice to ‘heat or eat’ this winter would doubtless welcome such a price fix. And there is widespread feeling in the general population that the Big Six may well be guilty of profiteering, even though the average figure usually quoted is a fairly modest 5% or so.
However, with a combined figure of around £2 billion being slashed off the value of two of Britain’s biggest suppliers Centrica and SSE the morning after Miliband’s announcement, the Big Six are predictably up in arms and determined to defend their position. Some claim that if it happens the price freeze could lead to blackouts; others warn that if energy companies can’t make a reasonable profit they will quit the UK altogether.
They cite world fuel prices and the onerous cost of investment in new energy infrastructure as reasons for rising bills. However, coming in for particularly heavy battering are the so-called ‘stealth taxes’ levied by the government to fund development of green energy to meet its targets on lowering carbon emissions.
What the energy suppliers say
We asked British Gas (owned by Centrica), SSE, npower, E.ON, Scottish Power and EDF for their comments. Not all have been able to respond as yet, but here’s what they’ve said so far.
Let’s start with SSE’s chief executive, Alistair Phillips-Davies who asked, “Why doesn’t Labour commit to removing the stealth taxes from customer bills? This would go further than a simple price freeze. It would immediately cut customers’ bills by over £100, potentially rising to as much as £200 in the future.
“It is the great unsaid in this debate that we are all paying for successive governments’ environmental and social policies through our bills. And that is everyone, rich and poor, regardless of their ability to pay. A recent survey showed that nine out of 10 people don’t know or understand this is happening. Perhaps it’s little wonder when politicians conveniently forget to mention them, and the fact that they backed them.
”If Labour removed these stealth taxes from bills and paid for them through taxation, not only would it reduce bills, it would have the progressive effect of shifting the burden of paying from those who can’t afford to pay to those who can.”
Paul Massara, CEO of RWE npower emphasised other reasons for rising prices, saying, “It’s very easy for politicians to come up with simple-sounding solutions to difficult problems. But in reality, there are three main factors that influence prices: fixing inefficient housing stock, the investment required to replace the UK’s energy infrastructure and the cost of buying energy on the global market.
“If the Labour Party can commit to reducing policy costs on household energy bills, stopping the smart meter roll-out, preventing commodity cost increases and accept that there won’t be any investment in new power stations and infrastructure, then we could freeze our prices. But will this make things better for Britain?”
Reaction from the energy trade bodies
EDF referred us directly to trade association for the energy industry, Energy UK for comment. It’s chief executive, Angela Knight had this to say about Ed Miliband’s proposed price freeze, “Freezing the bill, may be superficially attractive, but it will also freeze the money to build and renew power stations, freeze the jobs and livelihoods of the 600,000 plus people dependent on the energy industry and make the prospect of energy shortages a reality, pushing up the prices for everyone.
“No other industry is facing the investment challenge of the energy sector. Last year alone the energy industry invested £11.6bn – the equivalent of building the Olympic stadium twenty times over. We need to invest £110bn over the next ten years to build and renew the power stations, the wires and the pipes everyone in the country needs to keep the lights on, our homes warm and to supply the power for British business to compete, to recover and to grow.
“And as for breaking up the energy companies or banning them both making and selling electricity – that is not the way to bring greater competition into the market or to provide the range of services which domestic and business customers want. What is does is send a clear message to overseas investors that the UK is closed for business when just today the World Energy Council said the UK has one of the world’s fairest and most secure systems for supplying energy.
“Energy companies have already simplified the tariffs they offer. The energy companies are already regulated and fully open about what they make, what they pay and the amount they are reinvesting. Today’s announcement is not the adult debate the industry has long been calling for and that customers deserve.”
Next, Maf Smith, deputy chief executive of RenewableUK, a not-for-profit renewable energy trade association, put the green case, warning, “Politicians need to ensure that they send positive long term signals to the energy sector in order to encourage the growing level of investment in renewables. If they set the right framework, it will bring down costs for the consumer, guarantee us all a secure supply of clean energy, and help companies to roll out the development of low carbon sources such as wind, wave and tidal power for decades to come.
“We welcome Labour’s commitment to decarbonise the UK’s electricity supply by 2030 and Mr Miliband’s aspiration to create a million green jobs. In order to do that, it’s crucial that we should continue to attract investment into the clean energy sector – and we need to ensure that’s not jeopardised or disrupted”.
And in the aftermath…
This isn’t a subject that’s going to go away anytime soon, with every day bringing fresh twists and turns in the UK press. For example, it seems that some energy companies are focussing not so much on getting mad as simply getting even.
German-owned npower rather cheekily launched on-line advertisements saying, “Why wait for Ed? Fix your energy prices until March 2017.” EDF has already been offering a price-fix deal since last July, while Scottish Power has changed the terms since the Opposition Leader’s announcement so that new customers will have their prices fixed until November next year.
But might they have scored an own goal? Caroline Flint MP, Shadow Energy and Climate Change Secretary pointed out in response, “The fact that three of the Big Six energy companies are now advertising deals to let people fix their energy bills until 2016 or 2017 shows that all the warnings about blackouts were nothing more than scaremongering.”
And then came the news in The Daily Mail about a jaw-dropping pay rise. Its article states, “The boss of British Gas has seen his pay soar by nearly 40 per cent in five years – while customers’ bills rose at almost exactly the same rate.
“Sam Laidlaw, chief executive of Centrica, which owns the gas firm, was paid £1.73 million in 2008. However last year his salary had shot up to £2.35 million – an increase of 36 per cent. His full pay package, which included bonuses for reaching long-term targets, totalled £4.97 million.”
Meanwhile, the British winter draws ever closer…