By David Blair, Energy Correspondent
Published: May 29 2011 20:25 | Last updated: May 29 2011 20:25
Companies and officials may differ over the direction of energy policy but they agree on one forecast: gas and electricity bills are set for a steep rise.
The Bank of England’s latest inflation report assumes a 15 per cent increase in gas bills, and 10 per cent for electricity, by next March, driven by more expensive oil.
The government calculates that Britain needs to spend £200bn on energy infrastructure over the next decade if carbon emissions are to be reduced and old power stations replaced. These costs will, inevitably, be passed on to customers.
Among the public, the burden will fall disproportionately on the old and poor: among businesses, energy-intensive manufacturers will be most exposed.
Pensioner’s car faces chop
Anyone who pays almost a quarter of their income to keep the lights on and stay warm is accustomed to making economies. Christine Anne Watkin, 67, generally heats only one room of her terraced house in Yorkshire, writes David Blair.
“Rather than turn the heating up, it’s add a garment,” she said. “I put a scarf round my neck or an extra pair of socks on.”
Of the £550 that Ms Watkin receives every month from her pension and other benefits, £131 – or 24 per cent of the total – goes on gas and electricity supplied by Eon, the utility company.
If her energy bill rises in line with the Bank of England’s assumptions, Ms Watkin will have to make more savings. Her car brings independence and mobility, but one day it might have to go.
“The thing I would have to give up to pay my gas and electricity is the car,” she said. “I sometimes worry about the day when I won’t be able to afford to keep the car.” Without a vehicle, Ms Watkin said she would feel “totally isolated”.
The government is introducing a “green deal” that will allow people to insulate their homes for no immediate charge, paid for by the savings from future energy bills.
But Ms Watkin’s 1908 house has no loft or cavity walls. “If the wind’s coming at all, it catches me,” she said. “It would be wonderful to just turn the heating up – yes absolutely. But it doesn’t unfortunately work out that way.”
The charity Age UK calculates that another 250,000 pensioners will be forced into “fuel poverty” – defined as spending more than 10 per cent of net income on energy – if the Bank’s assumption is borne out, bringing the total to 3m. Mervyn Kohler, special adviser at Age UK, said energy bills were an “inherently regressive” way of raising the “eye-wateringly large” sums needed to install low-carbon means of electricity generation.
“Paying for them through higher bills on domestic consumers, when we already have so many people living in fuel poverty, is not the fairest way of doing it,” he said.
A third of all households in the poorest quintile are defined as living in “fuel poverty”, according to the government’s Marmot Review Team, compared with under 10 per cent of those earning median incomes.
Mr Kohler said: “There is a massive amount of human suffering behind all this – it’s not just an academic concept.”
The government provides winter fuel payments of £200 for every household with a person aged over 60, and £300 for those over 80. But Mr Kohler said bills were likely to rise faster than any offsetting measures from the Treasury.
Big industrial energy users will be most exposed by the “carbon floor price” – £16 for every tonne of carbon dioxide emitted – that comes into effect in 2013.
John Cridland, the director-general of the CBI employers’ body, last week cited one chemicals company that faced a bill which would exceed its average revenue. “The government is out there, rightly saying that the future growth for this country has got to be manufacturing and export-led,” said Mr Cridland. “So we absolutely have to answer the question: do we still want steel production? Do we still want a world-class chemicals industry?”
Jeremy Nicholson, the director of the Energy Intensive Users’ Group, said the UK risked “creating incentives for investment to go elsewhere”.
Some fear that the Department of Energy and Climate Change, which is forcing the pace on emissions and overhauling energy policy, is overburdened, while many manufacturers believe that the department rides roughshod over their interests.
Mr Nicholson said: “I can’t think of any other government department which can impose those kinds of costs on the UK economy without wider scrutiny. It’s staggering.”
Chris Huhne, the energy secretary, has told parliament a “package of measures for energy intensive businesses whose international competitiveness is most affected” will be announced later this year.