Treasury figures show poor hit hardest by energy price reforms


BBC business editor Robert Peston translates treasury figures

If there is agreement that the UK needs to invest £100bn or so over the next 10 years in new power stations and grid connections, and if there is also a consensus that the priority should be to move rapidly towards low-carbon power generation, then the big question is about the best way of achieving that outcome.

I should point out immediately that not everyone would accept that the government's climate change commitment is necessary. But let's park that point.

Now the most striking characteristic of the measures announced today by the Energy Secretary, Chris Huhne, is that they are complicated - such that his department has proved itself incapable of describing them in language that is understandable to most of us.

So I will now try to translate the reforms into what may pass for English.

First, there will be a new and higher minimum price for carbon emissions from power generation.

Second, those who invest in nuclear plant, wind farms and other forms of low-carbon energy will be guaranteed a price that yields them a profit.

Third, there will be additional payments to those who create reserve capacity in the energy system, to cope with surges in demand or unexpected cuts in supply.

Finally, there will be prohibitions on the construction of dirty power stations.

As a quartet of policies, they have been welcomed by those power companies investing in low-carbon technologies, most notably by the French giant EDF, which wants to invest £20bn - with the UK's Centrica - in four new nuclear generators.

Vincent de Rivaz, who runs all of EDF's UK businesses, was in ebullient form and described the proposals as a landmark.

As for the Energy Secretary, Chris Huhne, he stressed a couple of points when talking to me.

First, he believes the guaranteed wholesale price for green energy should attract new investment consortia into the power generation business, which he hopes will increase competition to the benefit of consumers.

Second, the innovative payments for spare capacity should provide an incentive to power companies to persuade the rest of us to turn off unnecessary power-consuming devices.

But there will be a price for all this green power, at least for quite a few years - and it will be paid by anyone who consumes energy, which broadly means every household and business in the country.

How much extra will we pay?

That is still unclear, party because the new price of carbon has not been fixed.

However the Treasury has helpfully provided an assessment of the impact on businesses and consumers of the likely increases in power prices that will be sparked by different increases in the minimum carbon price.

These show that the average annual household electricity bill will be between £4 and £28 higher in 2016 (after adjusting for inflation), but should be between £20 and £48 lower by 2030 (when all the new generating plant should be on stream).

Also, the Treasury's figures show that the poorest will be hit hardest by the reforms.

For example the 20% poorest households in the country will be forced to allocate between 0.04% and 0.3% extra of total spending to electricity in 2020 - a fraction of the impact on the 10% richest in the country, for whom the squeeze in spending resources will be between 0.01% and about 0.07%.

And it probably won't surprise you that the most hurt will be single pensioners, for whom the reduction in spending power will be up to 0.37%.

Now these are obviously not massive sums - but for poor people, every little hurts, as they say.

Some will ask why the same climate-change and capacity outcomes couldn't have been achieved through tax reforms, skewed so that they don't disadvantage the poorest, rather than through market mechanisms.

Mr Huhne says that he is pushing through a package of measures to help the poorest reduce their energy consumption by better insulating their homes and that helping those with least remains a priority for him.

But given that Mr Huhne is a Liberal Democrat, some will see these changes through the prism of the recent controversy over student fees - and will say that they are another manifestation of an alleged abandonment by the Lib Dems of their progressive credentials.‬‪

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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