What do Labour Plan to do on Energy after the Election?

Yesterday I met Dr Alan Whitehead, currently shadow minister for Energy Security and very likely to lead the Labour Party’s ambitions when they win the general election later this year, with Brenda Boardman and Tina Fawcett from the University of Oxford. We were meeting off the back of work we did together last year for the energy supplier Utilita, working out how to find and help people facing fuel poverty before, during and after the steep energy price increases in 2022 and 2023 [1].

Alan is well informed and keen to do all he can to help people struggling to keep warm and pay their bills. He also accepts the urgency of acting now – to prevent real hardship among poorer households this coming winter, when any changes take a long time to pass through Government and energy suppliers.

However, he is very mindful of increasing public borrowing and he said it will be difficult to find Government money to pay for the scale of support we think is needed to prevent suffering and anguish among poor and vulnerable homes – this winter and in future years. We think £2bn to £8bn will be needed, depending where lines are drawn about which households are eligible for support. We reminded Alan this is still far less than the Government spent on the Energy Bills Support Scheme and the Energy Price Guarantee in 2022 and 2023, and it is only a fraction of the total cost (health plus social costs) of picking up the pieces when people are forced to live in cold, damp homes: £15.4 bn a year according to the House of Commons [2].

Alan is also uneasy about Electricity Market Reform (REMA) – the pace, direction and content of reforms that are currently on the table, and most particularly the abandoning of the Green Power Pool (put simply, taking cheaply-generated power from renewables like wind power out of the ordinary wholesale market, where electricity prices are linked to the global price of gas, and selling it to specifically targeted groups, which we think should be low-income and vulnerable households [3]). A Green Power Pool would help to stop renewable generators from making very high windfall profits when gas prices rise – but there are risks it would also deter the continued investment in renewables we need to decarbonise the economy.

Like us, Alan sees the potential for using a GPP to dramatically cut the cost of electricity for households in fuel poverty – perhaps as much as halving the price of electricity for these households. Naturally, there are difficult questions about how to target this kind of help, and we outlined some ways to do this using data that energy companies already have about their customers. Alan seemed to be receptive to these ideas. However, he also hears the claims from energy-intensive industries that in the face of historically high energy prices, they need support too.

Alan also liked our recommendations for overhauling Cold Weather Payments – currently paid to vulnerable households when there is a sustained period of very cold weather, at £5 a day, which is paid two weeks after the cold spell. Our analysis for Utilita showed that this is too late, and many people struggling to pay bills are unable to afford adequate heating in very cold periods. We advocated pre-emptive payments, based on Met Office forecasts of impending cold weather, at a higher rate of £6.50 a day of very cold weather. This better reflects the actual costs of heating during these very cold spells. The key point is that households need to get the money before it turns very cold. Without this they do not have the savings or willingness to go into debt to meet increased heating costs when the mercury falls.

What did the meeting tell us about Labour’s plans on energy after the election? Three take-home messages:

  1. They remain open to major reform of current ‘Contracts for Difference’ that determine the wholesale price of renewable electricity (which trickles through to Ofgem price ‘caps’ and household energy bills).
  2. They are acutely aware of the suffering to vulnerable households caused by high energy prices and bills, and Alan is sufficiently motivated to take action to help.
  3. They are listening to the energy research community and willing to digest strong evidence – even relating to complex technical arrangements that are beyond the reach of most politicians, and difficult to summarise in a sound bite.

References

[1] Our reports for Utilita about fuel poverty are available here:
https://www.eci.ox.ac.uk/article/finding-fuel-poor-and-framing-better-policy
https://carltd.com/wp-content/uploads/2023/08/Finding-Fuel-Poor-in-Scotland-v5-230823.pdf

[2] https://commonslibrary.parliament.uk/research-briefings/cbp-9696/

[3] https://www.ucl.ac.uk/bartlett/sustainable/research-projects/2023/sep/reforming-electricity-markets-low-cost-and-low-carbon-power