Household Energy Bills: VAT

Simon Clarke Excerpts

Tuesday 11th January 2022 Commons Chamber

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

I am pleased to respond to this debate on behalf of the Government, although, as my right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) has said, the motion has clearly been put forward to seize control of parliamentary business, which we cannot and will not accept.

The Government recognise the pressure that people are facing in their household finances, including on their energy bills, and we have taken steps already to ease those pressures where and when we can, and will of course continue to look at other things we can do. The reality is that the higher inflation that we have seen is primarily due to global factors relating, to a large degree, to the fallout from the pandemic and a global spike in energy costs. This Government are never afraid to do what is right, or to take big decisions on behalf of this country, and the action we have taken during the pandemic is testament to that fact—£400 billion of direct support to the economy, protecting millions of jobs and livelihoods. We are also investing over £600 billion in gross public sector investment over this Parliament, investing in our health service, in our education system and in controlling our borders, bringing tangible improvements to the lives of millions.

Wholesale gas prices remain at very high levels. Some of the key drivers of the current price spike are the cold winter last year and wider international events that are driving demand. It is true, of course, that gas remains an important part of the wider energy transition that is under way. The current situation in the global gas market underscores the importance of diversifying our energy mix and accelerating the deployment of renewable energy in this country. The shift away from carbon-intensive generation is likely to help insulate the UK from global swings in the prices of commodities such as gas in the future, and indeed, precisely because we have invested in renewables and energy efficiency, UK demand for natural gas has fallen 26% since 2010, which has helped to reduce our exposure.

[Alex Cunningham]

The Minister heard me speak earlier about Gillian Fish from my constituency, who has seen her dual-fuel bill jump from £39 to £94 a month, leaving her with just £33 for food and travel. What has he got to say to her? We have given the House our answer to the crisis; what is the Government’s answer to this crisis for Gillian?

[Mr Clarke]

Well, this is the Government who have introduced the £500 million household support fund, which is designed to help the most vulnerable households during the course of this winter. This is the Government who are making sure that we are delivering through our action on universal credit and on the national living wage, the rise in which will come into effect in April, and through the wider package of support, which I will come on to in a moment, including the warm home discount, cold weather payments—all the things that are designed to ensure that we give targeted support to people like Gillian who need it. I would remind the hon. Gentleman that Teesside is one of the best examples of levelling up that we have had anywhere in this country. One only needs to look at the response of the Teesside public to what is happening in our area to see the difference that a Conservative Government are making for our community.

Our record of investment in renewable energy is, of course, in great contrast to that of the last Labour Government. Labour’s 1997 manifesto specifically stated:

“We see no economic case for the building of any new nuclear power stations.”

The legacy of that is now seen today. While in government Labour failed to diversify our energy supply, with renewables making up just 7% of our energy mix, compared with 43% today.

While the up-front costs of certain technologies may be high in the early years of their deployment, they are falling over time. We have already seen the cost of offshore wind fall dramatically, together with that of solar panels and batteries. Our heat and buildings strategy set a clear ambition of working with industry to reduce heat pump costs by at least 25% to 50% by 2025, and to parity with gas boilers by 2030.

On the specifics of this debate, as I alluded to a moment ago, we have already introduced measures to support vulnerable households with the costs of energy, including increasing the warm home discount, winter fuel payments and cold weather payments, which together provided almost £2.5 billion in support to households last winter.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Can the Minister tell me how much the Government pay for the warm home discount?

[Mr Clarke]

I am sorry, could the hon. Gentleman repeat that?

[Alan Brown]

Can the Minister tell me how much funding the Government put into the warm home discount that he is bragging about?

[Mr Clarke]

The share of our support is going up. We are also increasing the number of people who are likely to be in scope. We are consulting on increasing the number of people for whom that discount provides a benefit by 780,000. It will also likely rise in value from £140 to £160, so it is an expanding benefit.

Vulnerable households will also be supported with the cost of essentials through the £500 million household support fund. That funding has been made available to local councils across England to support their residents this winter. Importantly, in recognition of the fact that families should not have to bear all the VAT costs they incur to meet their needs, domestic fuels such as gas and electricity are already subject to a reduced VAT rate of 5%. In response to the Opposition’s calls to go further on VAT costs, I would note that that would mean our spending a significant amount on subsidising the fuel consumption of some of the wealthiest. When we look at our response to all these challenges, we need to ensure that we spend taxpayers’ money on the most effective possible interventions to support the households struggling the most with the cost of living.

The cost of living is not about any single bill or expense. That is why, at the autumn Budget, the Government put in place a host of measures to help families with the cost of living.

[Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)]

There has been a £67 council tax rise, a national insurance rise of £250 and an income tax rise of £150—those are averages, for the average person. How on earth can the Chief Secretary say that his Government have put measures in place to help the ordinary person in this cost-of-living crisis when he will be clobbering them with, on average, a £1,405 bill? What they are doing is disgraceful.

[Mr Clarke]

That was a typically temperate intervention from the hon. Gentleman. To make sure that work pays, we have cut the universal credit taper rate by 8p, from 63p to 55p. That is an authentically Conservative response to make sure that we target our interventions to help people. We are increasing the work allowance by £500. Taken together, that is a tax cut for 2 million low-income families, which is worth £2.2 billion, or an extra £1,000 a year in their pocket. It was a Conservative Government who introduced the national living wage in 2016, and it will be a Conservative Government who increase the national living wage in April by 6.6% to £9.50 an hour for workers aged 23 and over.

[Fleur Anderson (Putney) (Lab)]

Why did the Government scrap the green homes grant? It would have cut £400 from the average household bill. Will the Government be returning it?

[Mr Clarke]

It is vital that we make sure that we support households to make the changes to their homes that are needed to improve their energy efficiency. That is precisely why we have £471 million of spending, to date, on the social housing decarbonisation fund, which is worth £121 million, and the sustainable warmth programme, which is worth £350 million. Those are estimated to save households an average of £350 to £450 a year on their energy bills. In addition, the Government have consulted on expanding the energy company obligation to £1 billion a year of improvements for fuel-poor households. Those are precisely the kinds of things that we need to do to help with bills and deliver the net zero transition.

[Matt Western (Warwick and Leamington) (Lab)]

I am interested in the Government’s estimate of the cost of transitioning a typical three-bed semi to a zero-carbon home using that fund. How much would it cost to put in an air source heat pump and all the necessary insulation to make it effective in the way that the Chief Secretary described?

[Mr Clarke]

The hon. Gentleman is right to say that we need to be moving towards technologies such as air source heat pumps. That is why our heat and buildings strategy sets out a plan to bring parity with gas boilers by 2030. That is precisely what we want to see, because those costs need to come down, and that is what we are enabling through our net zero strategy.

The Government are focused on protecting jobs, incomes and livelihoods through, by common assent, one of the most challenging periods in our lifetimes. Nineteen months of furlough protected almost 12 million jobs across the UK. The self-employment income support scheme, worth £28 billion, benefited nearly 3 million people. We significantly increased the generosity of the local housing allowance for housing benefit, and more than 1.5 million households are benefiting from an additional £600 a year. For those who need extra help with their housing costs, we provided £140 million for discretionary housing payments. Four million families are getting help with their council tax bills. We have provided nearly £5 billion for schools catch-up and we are rewarding our valued NHS and care workers, with more than 1 million NHS workers receiving a 3% pay rise in a year of otherwise wider pay restraint.

It has been a goal of successive Conservative Governments since 2010 to keep down the cost of living for working families. I mentioned the increase in the national living wage from April, which represents an increase of more than £1,000 in the annual earnings of a full-time worker on the national living wage. That sort of thing matters in places such as Stoke. We are committed to going further so that the national living wage reaches two thirds of median earnings for those over 21 by 2024, providing economic conditions allow.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

The Chief Secretary seems to be suggesting that everything is going fine, but the reality on the ground for many families is very different. The Trussell Trust had to give out nearly 1 million food bank parcels between April and September last year. That is an 11% increase on the same period in 2019. Why is that the case if everything that he is doing is working just fine?

[Mr Clarke]

I do not think anyone is saying that we are going through an easy time. We have just emerged from the teeth of an international pandemic, which is still causing major challenges. We have now got to a situation where, despite all the dire predictions, we are back at almost pre-crisis levels of economic activity, and unemployment is fully 2 million fewer than was forecast at the height of the crisis in 2020. That is thanks to the co-ordinated policy decisions of this Government and it is certainly why this situation has not been much, much worse in millions of homes across the country.

[Mr Richard Holden (North West Durham) (Con)]

Does the Minister agree that it is really interesting to hear what is happening from the Opposition today? If we had followed what they wanted to do, we would still be in lockdown and would have millions more people out of work or not working, and incomes reduced because there would still be people sat at home not working. It is the Government who have taken the bold decisions necessary to get the country moving again, opposed at every step of the way by the Opposition.

[Mr Clarke]

My hon. Friend is absolutely right. I think one of the Prime Minister’s bravest decisions was in July last year, when he took the decision to move to step 4 of the roadmap. The right hon. and learned Member for Holborn and St Pancras (Keir Starmer) was all over the airwaves saying that that would lead to disaster, and of course it led to us being able to unlock our society and restore economic activity and our social life, which is obviously so important to people’s mental and physical health. These changes would not have been made without that very clear example of leadership, in the face of, frankly, a complete absence of it from the Opposition.

The activity that we have undertaken includes doubling free childcare, worth around £5,000 per child per year, introducing tax-free childcare, and helping working parents with 20% of childcare costs up to £10,000. These are practical interventions of the kind that make a real difference to working homes. They are the sort of thing that bears down on the cost of living and makes sure that many people are weathering the storm.

As a Government, we want to help people into work and to gain the skills they need. We are investing £900 million in each year of the spending review on work coaches, who will provide effective support to help jobseekers on universal credit move into work and, for the first time ever, help people progress once they are in work. We have also invested over £200 million in the JETS—job entry targeted support—scheme, for those unemployed for over three months. Applicants are supported with CV writing, interview skills and job search advice, worth £1,000 per person. We also know that young people were disproportionately affected by the pandemic, which is why we invested in kickstart to fully fund and create hundreds of thousands of jobs for young people. So far, over 112,000 young people have started a kickstart job. To help those affected by long-term unemployment, we launched the restart scheme, which provides up to 12 months of intensive, tailored employment support.

We are giving employers £3,000 for every apprentice of any age they hire before the 31st of this month. That is a significant 35% wage subsidy for an apprentice on the national living wage and is in addition to the Government paying 95% of the training costs for smaller employers, who do not pay the apprenticeship levy. These are the kinds of things that this Conservative Government are doing to boost work and jobs and keep the economy moving forward, and our plan for jobs is working spectacularly.

[Paul Blomfield (Sheffield Central) (Lab)]

The Minister seems to be talking about everything except the crisis facing families on the lowest incomes as a result of rising energy bills. Will he address that issue and recognise that families in my constituency will face choosing between heating and eating, as well as unmanageable debt that will break their budgets? Does he recognise that the sort of action needed—earlier he mentioned the warm home discount, for example—needs to go far further to totally offset the additional bills if those families are not to face untold misery?

[Mr Clarke]

I do not think that focusing on a jobs-led recovery is the wrong thing to do. Indeed, that is precisely what is vital to the life chances of families up and down the country. I have already set out all the measures that we are undertaking, from the warm home discount to winter fuel payments and our wider action on energy costs, which go to the heart of our programme to ensure that the cost of living remains affordable. However, it simply cannot be the case, and I do not think that even those on the shadow Front Bench are suggesting this, that we can completely offset fluctuations in the market price of energy. All we can do is provide families with targeted support, and that is what we are doing, openly, honestly and I think effectively, this winter.

We also need to remember the overriding context of this whole debate, which goes back to the issue we were debating yesterday evening: fiscal responsibility. That needs to be factored into this debate as well. When it comes to managing the economy throughout this challenging period, we have acted quickly, effectively and responsibly. For all that this Government have done to support families and businesses over the last couple of years—I remind the House again: £400 billion-worth of support—we cannot, and will not, abdicate our fiscal responsibilities. Our level of debt means that we are vulnerable to shocks, including changes to interest rates and inflation. A sustained one percentage point rise in interest rates and inflation would cost over £22 billion by 2026-27. As things stand, inflation is expected to average 4% this year and 2.6% next year. The good news is that we are on course for a return to target by the end of 2023, but, as I told the House yesterday evening, the fact that we have faced two “once in a generation” shocks in just over a decade highlights starkly why we must have the buffers to provide support when it is needed most, and why we must act to rebuild those buffers over the years ahead.

No one in this Government is under any illusion about the challenges that families are facing with their household finances, and we will of course continue to look closely at all the options that exist. The Business Secretary has been meeting industry representatives regularly, and we in the Government are committed to doing the best job we can to protect consumers. We have acted, not just on energy bills but in dozens of ways, to support working families. Our record on handling the economy during the pandemic and, indeed, over the last decade of recovery speaks to our commitment to see right by the British people, and that, I assure the House, is something that we will continue to do.