Patrick Mooney asks why Rishi Sunak has spent the Energy windfall tax on cash giveaways rather than investing in energy efficiency?
Faced with the biggest cost of living crisis in decades, the Chancellor has defended his plans to help us all by saying that the £400 energy bill discount (payable in the Autumn) is the quickest and most cost-effective way of getting help to millions of households.
But in making this a universal grant, the Treasury is going to be paying millions of pounds to higher-rate taxpayers and those lucky enough to afford second and third homes.
Tens of thousands of people will qualify for multiple grants irrespective of their needs.
Some critics have described the spending plans as investing in very expensive raincoats when we really need to focus on repairing our leaking roofs and windows.
Indeed, it is calculated that the money could have insulated about two million of the coldest homes across the country, saving the occupants around £350 every year on their heating bills.
In this 21st century version, Paul will be handing every penny back to Peter!
Tax breaks for investing in oil and gas exploration
But this wasn’t the only ‘odd’ feature in the emergency package. To sweeten the cost of the temporary levy on oil and gas companies, who have been enjoying bumper profits of late, the Chancellor has committed to paying them a subsidy of up to £5.7 billion in tax relief for their investment in oil and gas over the next three years.
These are of course the very carbon-based fuels that we are meant to be weaning ourselves off right now and it raises multiple questions about why the oil and gas companies are not being encouraged to invest their money in renewables as we attempt to transition to a greener economy, built on low carbon and carbon free energy supplies.
Perhaps the critics are being too harsh in their comments? Afterall lower income households have been promised more targeted help through the benefits system and pensioners will get a much higher winter fuel allowance.
A £650 payment is to be made to more than eight million households who receive Universal Credit, tax credits, pension credit and other means-tested benefits. And pensioners with disabilities could receive a total of £1,500 when all the new payments and discounts they are eligible for are added up.
Another big jump in prices forecast
But for the vast majority of us, these grants will be gobbled up by the higher energy prices we are to be charged from the Autumn and we will be no better off.
Motorists have already experienced something similar with the 5 pence a litre reduction in the tax on petrol, which was quickly overtaken by increases in prices paid at the pump.
Jonathan Brearley, the boss of the energy regulator Ofgem, has estimated that a typical annual domestic energy bill will rise to £2,800 in October. That is an £800 a year increase, on top of the £700 a year rise which took effect in April this year.
This is a bigger hit to domestic budgets than had been anticipated by many analysts.
It could push as many as a third of all households into fuel poverty (spending more than 10 per cent of their net income on energy costs), while the financial help feels very much like robbing Peter (the energy companies), in order to pay Paul (consumers). But in this 21st century version, Paul will be handing every penny back to Peter!
It also highlights the shortsighted nature of the Government’s energy and environmental policies which have failed to target investment at improving the energy efficiency of our housing stock, particularly those older and draughtier homes in the private rented sector.
An obvious policy gap
Energy efficiency was in fact strangely absent from the Chancellor’s emergency support package announcement. It was like ‘the elephant in the room’, but it also means that our over-reliance on gas for heating and cooking will remain for the foreseeable future.
The most recent attempt at delivering a green homes grant scheme for England was scrapped over a year ago in March 2021, having only upgraded about 47,500 homes out of the 600,000 originally planned.
Administration of the scheme was outsourced to a North American firm, but it eventually had the plug pulled on it after delays at every stage of the process left many residents and new businesses frustrated and often out of pocket.
The Common’s public accounts committee delivered one of its harshest reports on the scheme and this appears to have scared Ministers away from attempting to launch a replacement scheme in the intervening period.
Improving the coldest and draughtiest properties
Improving the quality and energy efficiency of our housing stock is vital if we are to meet our carbon emission reduction targets and this challenge is greatest in the private rented sector – where the higher energy costs of heating the coldest homes coincides with the lower than average incomes of the occupants.
Achieving thermal comfort during the winter months is a constant struggle and one they frequently fail to reach. Around 60 per cent of private rentals (over 2.5 million homes) have an energy efficiency rating in bands D to G.
Ideally all our homes should be in bands A to C (on both cost and comfort grounds), but this will only be achieved with a substantial investment in improving their energy efficiency – usually through increased insulation of the walls, doors, windows, flooring and loft spaces.
Legally all rental properties need to be in band C (or higher) in order to be used for new lettings by the year 2025 and for all existing tenants by the year 2028. How we get there is literally the 64 billion dollar question, or its sterling equivalent!
This is why its omission from the Chancellor’s emergency support package announcement was such a big deal. It’s an issue that is continually being kicked into the long grass but the rising cost of energy, the cost of living crisis and our carbon emission reduction commitments ALL demand that effective action is taken now.
It will probably require something like a 10-15 year investment programme to deliver the sort of energy efficiency improvements that our housing stock and the environment is crying out for.
Any programme of this type needs to start at some point and Rishi Sunak has missed the chance to start it now; let’s hope he doesn’t wait too long before he takes that first step.