Why Brown’s Energy Package Will Leave Many Households and Businesses Out in the Cold

Last week, the government announced their heavily anticipated fuel package costing the ‘big 6’ energy suppliers £910m. The eagerly awaited announcement has been designed in conjunction with the major suppliers and the government as a means of assisting poorer households to deal with rising energy costs. This is after the major suppliers have announced two rounds of price increases during this year alone.

Last week, the government announced their heavily anticipated fuel package costing the ‘big 6’ energy suppliers £910m. The eagerly awaited announcement has been designed in conjunction with the major suppliers and the government as a means of assisting poorer households to deal with rising energy costs. This is after the major suppliers have announced two rounds of price increases during this year alone.

As a result many of the 26 million UK households are struggling to pay their rising energy bills. Specific assistance has been granted to all, but in particular to aid pensioners, families with children under 5 years of age and those who are considered as ‘poor’ or disabled(1).

However for many, this announcement falls short of public expectation as the plan for the energy package was originally outlined to contain a ‘cash back’ incentive to help consumers deal with rising bills and during the winter period when usage is higher.

The Telegraph has heavily criticised the £1bn package as it ‘fails the vulnerable’ and calculated that the incentive betters each UK household by a meagre £10(2), which is nothing in comparison with the price rises already experienced by households this year.

Instead, these new measures contain different initiatives which are designed to support households this winter and for the longer term by helping to provide wall and loft insulation, introducing a price freeze on this year’s bills for poorer customers and an increase in cold weather payments for pensioners, the disabled and families with children under 5.

However, there are important factors which determine the public’s ability to actually receive the inclusions as outlined in the package. For example, the cold weather payments (greatly relied upon by pensioners) are only payable if the temperature stays below zero for seven consecutive days.

In addition, other than for those who qualify to have wall and loft insulation installed free of charge (for pensioners and the poor), households only get a 50% discount on insulation. This means that savings are only available if a consumer is prepared to spend. And with the UK facing a recession, this idea is simply out of the question.

The government claims this is the ideal solution because it means that households will be one step closer to becoming energy efficient and can make savings during the colder months and for the foreseeable future. However, it does not guarantee that households will be protected from energy tariff price rises by the big 6 energy suppliers.

And £910m sounds like a lot of money - but is it enough? By doing some basic figures, the easy answer to the complicated issue is no. As defined by BERR (Business, Enterprise and Regulatory Reform) being in ‘fuel poverty’ is when more than 10% of a household’s income is spent on energy(3).

This is something which the government has widely publicised and is something this package was designed to alleviate. If the £910m was divided up between those households in fuel poverty, how much of a difference would it make?

Energywatch confirmed that in January 2008 (before the price rises) there were 4.4m households in fuel poverty (about 1 in 6)(4). If this £910m was shared out between each of those households, each would receive £206.82. As the average bill has risen almost £400 to £1,317 since the price rises(5), it only covers almost half of this year’s increases, not taking into account what could happen to consumers’ energy bills in future.

BBC research found that fuel poverty is likely to continue to grow, with it affecting up to 6.6m households (1 in 4) by the end of next year(6). If the £910m was divided, each household would be entitled to the equivalent of £137.88. This would equate to barely 10% of an average household’s annual energy bill, and that’s not even taking future market trends into account.

So what about businesses? They’re falling upon hard times too. Research by leading independent business electricity supplier E4B found this year that 20% of UK businesses are already in fuel poverty, with a further 40% approaching the threshold(7). And with the second round of price rises by the big 6, it means that many are soon to be pushed over the fuel poverty edge.

Numbers-wise, BERR estimated that there were 4.7m businesses in the UK last year(8). Taking that figure into account using E4B’s research, staggeringly, 940,000 businesses are already in fuel poverty.

So, is it too little too late? Perhaps it is something the estimated £11bn windfall tax(9) could have covered by introducing a cash back incentive to consumers which was original the intention behind the fuel package being announced this week.

The energy minister, Hilary Benn has been accused by the BBC of backing down to the energy companies on the introduction of the tax which would ensure a cash rebate to assist consumers with their rising energy bills. Benn however reassures Britain that the government still considers it as an option. This is despite over 100 labour MPs backing calls for the windfall tax.

The announcement made by Gordon Brown this week is more much important that first thought as the question of having to choose between whether to heat or eat is a difficult decision being made by many households throughout the UK. And for many businesses it is literally a matter of survival – or bust.

(1) - http://www.number10.gov.uk/Page16806
(2) - http://www.telegraph.co.uk/news/newstopics/politics/labour/2797892/Gordon-Browns-910-million-energy-package-fails-the-vulnerable.html
(3) - http://www.berr.gov.uk/energy/fuel-poverty/index.html
(4) - http://www.moneysupermarket.com/c/articles/utilities/compare-gas-and-electricity/fuel-poverty-soars-in-the-face-of-price-hikes/
(5) - http://news.bbc.co.uk/1/hi/business/7533389.stm
(6) - http://news.bbc.co.uk/1/hi/uk/7602859.stm
(7) - http://www.electricity4business.co.uk/_assets/files/SMESurveyFinalWhitePaper.pdf
(8) - http://www.berr.gov.uk/bbf/enterprise-smes/research-and-statistics/statistics/page38573.html
(9) - http://www.guardian.co.uk/business/2008/aug/31/utilities.energy