Draft Energy Prices Act 2022 (Extension of Time Limit) Regulations 2026
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The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Martin McCluskey)
I beg to move,
That the Committee has considered the draft Energy Prices Act 2022 (Extension of Time Limit) Regulations 2026.
It is a pleasure to serve under your chairmanship, Ms Vaz.
This Government are fully committed to fighting people’s corner to tackle the cost of living crisis. Across the energy system and more widely, we are acting on this as a matter of priority. A number of steps were taken in last year’s Budget, and we have since gone further. At the Budget, alongside several positive changes to help working people with the cost of living, the Chancellor announced that we would remove costs from energy bills from this month. I want to be clear what those costs are. First, we are closing the Energy Company Obligation scheme, removing its costs from bills and instead funding home upgrades for energy efficiency via the warm homes plan. Members may recall that recent regulations extended ECO4 by nine months, but only to enable an orderly closure, with no costs on bills, from this month.
Secondly, we transferred 75% of the renewables obligation scheme costs attributable to domestic energy supply to instead be funded by the Exchequer. The core renewables obligation incentive for relevant generators. These were principled decisions to fund more of the investment we need from public spending rather than bills, which is the right and progressive thing to do. It is thanks to those decisions that typical household energy bills fell by 7% or more than £100 from 1 April.
Let me briefly set out how we delivered the removal of the RO costs from bills, before I come on to how the regulations will enable that to continue. Under the RO, energy suppliers purchase certificates from relevant renewables generators, and previously recovered the full cost of those purchases from consumers. From 1 April, suppliers have been required to recover only 25% of those costs from domestic consumers. For domestic consumers on standard variable tariffs, Ofgem’s energy price cap, published on 25 February, factored in reduced policy costs reflecting the RO changes that we are considering this morning. As a result, the price cap has fallen by 7% or £117, to £1,641 per year for a typical dual-fuel customer paying by direct debit. It will remain held down at that level until the end of June.
In addition, the Government issued a legally binding direction to suppliers on 18 March requiring them to also pass on the full savings to domestic consumers on fixed tariffs. With suppliers no longer recovering 75% of the cost of the RO from household energy bills, we are instead providing equivalent monthly grant funding. We acted quickly to deliver this funding and the associated consumer savings, using an existing power in the Energy Prices Act. That power needs to be extended via regulations to avoid its expiry. It is those regulations that we are discussing today.
The regulations do not give the Secretary of State any new powers, but they ensure the spending power we are using to enable the consumer savings remains available. Legally we can extend the time limit on this power only by six months at a time, so the regulations extend them from 25 April to 25 October. While I expect to need to seek a further extension, I can assure members that the Department is working on primary legislation to provide a more permanent solution when parliamentary time allows.
I would like to note that the position is slightly different in relation to Northern Ireland, where the Executive are delivering a comparable policy. I have been working with the Minister for the Economy in Northern Ireland, and at her request we have laid separate regulations to support delivery there.
Before I close, I will say that we are in a different international environment to when the energy bill reduction was planned in the Budget in November. That was noted by the Secondary Legislation Scrutiny Committee in the other place. It is now even more important that we have acted to reduce energy bills by more than £100, and that bills will stay capped down at a lower level until the end of June.
Whatever the challenges that lie ahead, 75% of RO costs will remain off domestic energy bills for the next three years. We have already gone further in supporting vulnerable heating oil consumers in response to events in the middle east, and we continue to monitor those events closely to ensure we are ready to be both responsive and responsible. The regulations are a simple time limit extension, but are essential to the ongoing removal of 75% of RO costs from domestic energy bills and I commend the draft regulations to the Committee.
Greg Smith (Mid Buckinghamshire) (Con)
It is a pleasure to serve under your chairmanship this morning, Ms Vaz.
I note at the outset that the Opposition will not divide the Committee on this statutory instrument. We do not oppose the principle of reducing the burden of policy costs on household energy bills. However, the fundamental question this statutory instrument raises is one of transparency. Are the public being given an honest account of what the Government’s policies do? Moving some of the renewables obligation funding to be paid from the Exchequer does not eliminate a cost: it relocates it. The £70-odd saving that Ministers claim to be making is still being paid by all our constituents: they are paying it through their tax bill, rather than their energy bills. As Martin Lewis noted, that is the mechanism behind the majority of the advertised £150 saving. That is not nothing, but it is not quite the windfall it is presented as either.
The huge subsidies that entitle some windfarm owners to three times the market price of the power they generate still flows to energy developers, all funded by the taxpayer. Crucially, the savings that the Labour Government have put forward do nothing to cut bills for businesses, which are seeing their network costs double thanks to the Government’s net zero policies and are getting no support from their big energy bill package.
The regulations extend the section 13 powers of the Energy Prices Act 2022 by a further six months to October 2026. The Government have been clear that primary legislation will follow, and the Minister repeated in his speech this morning, when parliamentary time allows. Well, a King’s Speech is in the diary for next month, so all eyes will be on it to see if that appears. I am sure that the Minister will not be tempted to confirm or deny items in the King’s Speech this morning, but if this is not in it, questions will be asked. That prompts a reasonable question about whether the Minister can offer assurances about the timetable. Does he expect it to be this year, next year or at some point before the next general election? Can he confirm that the extension in the regulations will not become a pattern of repeated deferral?
It is right to support measures that ease the cost of living. What is equally important is that the public are given a clear and honest account of how those measures work and who will ultimately foot the bill. As we all know, a very great lady once said that there is no such thing as public money, only taxpayers’ money.
The Chair
To clarify, any Member can attend a Delegated Legislation Committee even if they are not a member of the Committee.
Gareth Snell
That is a nice introduction, Ms Vaz, and it is a pleasure to serve under your chairmanship.
I have no issue in principle with the regulations, which extend the powers of the Secretary of State. The issue I want to raise, given this opportunity, is the other aspects of the Energy Price Act 2022 on industrial energy, which are also extended by virtue of extending the timescale for the legislation. The Minister will know that I have been persistent in trying to seek a meeting with him, which I have not been able to secure. On the last attempt we were told that his diary was too busy for a meeting. I thought, therefore, that I would come along and detain the Committee for 20 minutes this morning for a meeting that we could have had privately in the Department. I apologise to other members of the Committee.
The Minister will know that section 9 of the Energy Prices Act allows for the reduction of energy charges for non-domestic customers in Great Britain. That is industrial energy which keeps the lights on in factories, and allows us to make things, build things and do things. It is the life source of British manufacturing. The Minister will also be acutely aware that too many businesses in this country, especially those in foundational sectors, are unable currently to meet the cost of their gas and electricity because of the price of industrial energy.
For reference, two weeks ago the price of gas was 140p per therm. It is currently trading at between 113p and 115p per therm. To put that into context, in 2020, before the various shocks and energy crises, it was 47p per therm. Gas-intensive manufacturers are today paying roughly—including other costs that are part of the measures the Minister mentioned—three times what they were paying. We cannot make glass, bricks, cement, paper, steel or—crucially for me—ceramics without a credible and affordable supply of industrial gas. There are also challenges with electricity pricing.
I am sure that the Minister will respond to what I am saying by talking about the supercharger scheme, and will note the excellent extension of the scheme from a 60% reduction to a 90% reduction, but that covers only 500 of the most energy-intensive industries in the country; 5,000 others could be included, but unfortunately are not, so while we are seeing an increase in support for some of the industry, it is very narrow and does not support most of the manufacturing in this country. I am sure the Minister will also reach into his big bag of tricks to talk about the British industrial competitiveness scheme, the consultation for which has only just gone out. That scheme was promised in last year’s Budget and will almost certainly not be in place until late 2027.
The Minister wants to extend the powers under the Energy Prices Act using today’s statutory instrument, and I think that is a good thing, but I would ask him to do three things. The first is to think about what other parts of the Act he will use when he has extended those powers. When he has extended the powers of the Secretary of State until the end of this year, will he use the powers under section 9(1) by regulation to reduce charges for non-domestic energy supply? Will he use the powers that are extended under this SI to reduce the amount that would be otherwise charged for the GB non-domestic gas supply by licensed gas suppliers?
The Minister could, if he wanted to, under section 13(3)(a), give financial assistance to non-domestic users of energy, whether it be gas or electricity, using powers that are in the Act that are being extended by today’s SI. Under section 13(2),
“The Secretary of State may take such other steps as the Secretary of State considers appropriate in response to the energy crisis.”
I think it is quite clear that we are in an energy crisis. We are facing enormously high energy costs, not just in our own homes but in the factories that employ thousands of people across this country in highly skilled, proud, working-class communities.
Following today’s extension to the powers under the Energy Prices Act, the Government will have the power to meet the demands being made of them by various sectors—not just ceramics but glass, steel, bricks, cement, lime, paper; all the things that we need—to make an intervention as soon as the SI is passed. The Minister could go back to his Department and say, “We have the power, the political will and an interest in doing so; therefore we are going to make regulations.” He could say to the 4,500 businesses that are not covered by the industry supercharger scheme, “Here is a mechanism by which we can simply put you in that scheme.”
Gareth Snell
It is within the powers that are being extended by today’s SI. The Minister rightly talks about the SI’s impact on the power of the Secretary of State to vary domestic bills, but the Act is quite comprehensive. What is being extended today by the SI is a suite of powers that are available to the Secretary of State to undertake significant market intervention on a range of fronts in the next six months—it is covered by the SI that is before us—to make life easier for businesses, manufacturers and heavy industries in my constituency and, I would wager, in yours, Ms Vaz. I know you have brick manufacturers who face the same industrial energy crisis—[Interruption.] As does the shadow Minister in his constituency.
Given the powers that are being granted to the Secretary of State under this SI, companies around the country could be given help and support. I therefore ask the Minister, once he has granted the Secretary of State additional powers through the SI before us, will he go back to his Department and come up with a scheme, a plan and a package of support for those non-domestic users of gas and electricity that are not covered by the industry supercharger scheme that will come into place well before the British industrial competitiveness scheme is floated, and allow some breathing space for those manufacturers who, frankly, are the lifeblood of the economy in so many constituencies and who, in places like Stoke-on-Trent, employ thousands of people?
Claire Young (Thornbury and Yate) (LD)
It is a pleasure to serve under your chairship, Ms Vaz. The extension of this statutory instrument is important to ensure that the Government will continue to be able to support households with energy costs. Given the volatility of fossil fuel prices and Trump’s reckless and illegal war with Iran, it is important that legislative tools are available to support people with their energy bills.
However, the Government need to act to support such households. While the announcement in March to help households using heating oil through the crisis resilience fund was welcome, the Government need to continue to support them. My Liberal Democrat colleagues and I have consistently called on the Government to zero-rate VAT on heating oil for three months and to create a price cap mechanism for off-gas households. They should not be left unprotected and vulnerable to soaring prices.
The hon. Member for Stoke-on-Trent Central made important points about large, energy-intensive industries. The Government should take the opportunity that the instrument offers by providing support for small or microbusinesses to cover the cost of their renewables obligations to energy suppliers, lowering bills and supporting businesses with soaring prices during volatile and uncertain times. Families and business owners are struggling and are worried about what the conflict with Iran will mean for their bills. We need to see real and continued support from the Government to lower energy bills and help those who need it most.
Martin McCluskey
I will turn first to the comments made by the official Opposition, and the call to scrap the renewables obligation scheme. I want to put it on the record that it is simply not realistic to scrap that scheme. We took a deliberate decision to remove 75% of the RO from bills and to move that on to general taxation. The shadow Minister may oppose that move, but it is a principled decision that we have taken in order to spread the burden of those renewables obligations more widely, to make sure that those with the broadest shoulders are paying more, rather than it falling just on bill payers, and to maintain the incentive for renewable generators in the scheme at the same time.
The shadow Minister will know that the RO supports 25,000 generation stations, which accounts for approximately 30% of UK electricity generation. Abandoning the RO would not just send a signal to industry that we are not a reliable partner for investment but potentially put at risk our electricity generation, which would be deeply irresponsible. We will take responsible action to move this on to general taxation, while at the same time reducing the burden on bill payers, as people would expect the Government to do, not just because of the situation in the middle east but because of the situation that we faced before that with the rising cost of living.
I deeply admire the work that my hon. Friend the Member for Stoke-on-Trent Central does to advocate for his constituents. I am not aware of him having requested a meeting with me. He may have requested a meeting with either the Minister for Industry or the Minister for Energy. My brief covers only domestic consumers, not industry, but I will happily ask my hon. Friends the Minister for Energy and the Minister for Industry to meet with him to discuss the issues that he has raised in Committee this morning. He made a number of points about the increasing costs on industry, which as Members would expect are being actively discussed in the Department as we establish what support we may be able to offer, not just to domestic consumers, which is what we are dealing with this morning, but to non-domestic consumers.
The Government were taking significant action to reduce bills prior to the situation that has arisen in the middle east, but as hon. Members have mentioned, the rising cost of energy due to what is happening in Iran continues to dominate thinking in the Department. As hon. Members have mentioned, we have already come forward with proposals and help for those using heating oil, and all other contingencies are being kept under review to ensure that we support people through this situation as they face rising energy prices.
Question put and agreed to.