‘My mark of failure or success is whether I can get bills down or not. That’s the only thing I’m in this job to do.” So said Miatta Fahnbulleh, the energy secretary, recently, bracing for the hike in energy bills that looks inevitable in January. Industry projections suggest £400-ish on an annual basis is on the way, with “stubbornly high” levels for the rest of decade even if wholesale gas prices cool down.
So, yes, one can understand why “affordability” is Fahnbulleh’s “top priority”. And, as this newspaper reported last week, there is likely to be an intervention in that direction in chancellor John Healey’s budget this month: £1bn of extra support for poorer households this winter.
But the chat in energy-land is about what comes after that – and what Fahnbulleh’s other remarks about covering the costs of the energy system in a “fairer” way seem to be hinting at.
Will the government finally get round to designing a co-called “social tariff” for energy – a way to get financial support to the most needy on a more targeted basis than the clunky warm homes discount, the mechanism Healey will be obliged to use?
Will Healey, after chopping VAT from electricity for six months, do so permanently and then shift more green levies and other “hidden taxes” of energy transition into general taxation?
And is Fahnbulleh also contemplating something very different? Welcome to the idea of the “rising block tariff” (RBT), the unwieldy name for the proposal to give every household an initial block, or allowance, of cheaper gas and electricity to cover “essential” use and then make subsequent blocks more expensive. In other words, heavier energy consumers would pay higher rates for their extra units.
Fahnbulleh has got officials in her department to explore an RBT model. And, note, the New Economics Foundation, the thinktank she used to lead, is a proponent.
The Joseph Rowntree Foundation is another backer: in its version, the government could fund an RBT with, say, £5bn of public money, allowing bills to fall for most households – but, critically, the biggest savings would flow to light users, who tend to be low-income households. “An RBT would produce greater reductions in bills lower down the income distribution,” it says.
What’s not to like? Plenty. There are at least three reasons why an RBT has few fans elsewhere, not even among charities and thinktanks that focus on fuel poverty.
First, Citizens Advice regards low energy use as a poor proxy for low income in practice. Traditional electric heaters, with high electricity usage, “are more common in social or private rented homes, where people can’t change their heating system”, it argues.
Quite: a progressive-sounding policy could end up being nothing of the sort, especially if second-home owners, by spreading their usage, are winners. If the reply is that an incomes overlay could address tricky cases in both directions, why not just do the data modelling work to design a proper social tariff in the first place?
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Second, a rigid RBT would be an awkward fit with a renewables-heavy system where the most interesting innovations are “flex” tariffs to exploit very windy or sunny hours when wholesale power prices are dirt cheap. There is a danger of baffling consumers by making them mix their blocks with their flexes.
Third, a core aim of the energy transition is to drive take-up of electric vehicles, heat pumps and so on. That becomes harder if the message to consumers is that “the more electricity you use, the more you’ll be charged per unit”.
Lobby group Electrify Britain calls block tariffs “hugely counterproductive” for electrification: “You can’t ask families to go electric and then pursue a policy that would charge them more for doing so.”
That feels the killer point: an RBT model cuts across too many other goals. Fahnbulleh should keep things simple: go for a serious social tariff or discount scheme that effectively identifies “vulnerable” energy users. That idea has enjoyed wide support for years. Block tariffs are too complicated and fiddly to administer.
