Labour Party Conference: What Labour’s energy price pledge says about Britain

What Labour’s energy price pledge says about Britain

By Julie Hyland (for WSWS), September 2013.
The howls of outrage that greeted Labour leader Ed Miliband’s timorous suggestion of some mild reforms starkly illustrates social reality in Britain.

Speaking at the Labour Party conference, Miliband pledged that if elected in 2015, his government would freeze gas and electricity prices until the start of 2017. The pledge is hardly the return to “old-Labour-style” policies of “tax and spend”, much less the full-blooded “socialism” claimed by Miliband’s media critics and supporters alike.

Amounting to an average household saving of just £120, it is a drop in the ocean when compared to the Conservative/Liberal Democrat coalition’s austerity measures, which have produced, as Miliband acknowledged, the longest fall in living standards since the 1870s.

For his conference speech, however, Miliband had to come up with some headline grabber. He is, after all, a man with his back against the wall. Miliband leads a party that is all but destroyed by its long period of association in government with rampant free market speculation and colonial-style wars of aggression. Labour’s vote collapsed to just 29 percent in the last election, and there is little sign of a revival.

Membership has fallen to just 180,000, and the most recent opinion polls give the Conservatives a slight lead on Labour despite the widespread hostility to Prime Minister David Cameron and his government. Almost half of voters think Labour would be better without Miliband, and nearly two thirds think he can’t win an election.

With such odds, Miliband had to make some pitch for support, even if only to save his own leadership. Surrounded by images of the union flag, he again advanced Labour as the “One Nation” party, where “rich and poor alike” have “responsibilities to each other”.

Pointing out what everyone knows—that the so-called economic recovery has only been for the super-rich—he complained that this was the result of Conservative support for a “global race to the bottom” at the expense of wages, conditions and rights.

Miliband barely referenced the role of the Liberal Democrats in government. With little likelihood that Labour could win election outright, the Labour leader is banking on a coalition with the Tories’ current partners—whose own poll ratings have fallen through the floor and whose membership numbers are below 50,000.

Miliband claimed that Labour stood for a “race to the top”. What this consists of was not spelt out, but it was accompanied by promises of minimal reforms such as energy decarbonisation, overturning the coalition’s tax break to big corporations in order to cut business taxes on small companies, breakfast clubs for primary schools, and a “look at whether there are some sectors where we can afford” a rise in the minimum wage. Such a rise would only take place in agreement with business, Miliband stated.

His pledge to freeze energy prices for a period was also directed primarily at providing savings for small businesses, in keeping with his One Nation mantra. It was not possible to have a “dynamic market economy when one section of society does so well at the expense of others,” he said, urging the energy giants to cooperate with his plan.

Miliband made clear that these limited measures were entirely within the framework of Labour’s commitment to austerity. Being in government would be “tough,” he said. Labour would have to “stick to strict spending limits…we are not going to be able to spend money we don’t have.”

Shadow Chancellor Ed Balls stressed the same message, making clear there would be no reversal in the coalition’s cuts and that Labour would have to make more of its own. To underscore the point, he had written to the Office of Budget Responsibility requesting that it audit the party’s manifesto commitments to prove its fiscal discipline.

Their statements underscore that the energy price freeze pledge is a mere reshuffling of a hand that will see working people lose every which way. Nonetheless, the response from the major corporations and much of the media was hysterical. The Financial Times decried what it called the “whiff of Poujadiste populism” in the proposal—a reference to the 1950s French right-wing populist demagogue, Pierre Poujade.

For their part, the major energy companies threatened darkly of power blackouts and of pulling out of the UK altogether. Centrica’s chairman, Sir Roger Carr, described a price freeze as a “recipe for economic ruin,” claiming that it would no longer be “economically viable to continue” in Britain.

Amid threats of an investment strike, Neil Woodford from the fund manager Invesco Perpetual denounced the plan as “economic vandalism.” If the energy corporations “cannot make any money supplying electricity to the retail market then they won’t supply it. The lights will go off, the economy will shut down,” he said.

In reality, energy bills have almost doubled since 2000, with households spending an average of £1,339 on gas and electricity. According to the consumer group Which?, households have been paying £3.9 billion a year over the odds for their energy. Meanwhile, the annual profit made by the UK’s big energy firms rose by 73 percent in the three years to 2012.

The Guardian ’s environmental blogger, Damian Carrington, also pointed out: “Coalition policies to deliver new generation capacity will remain unchanged, which means the government will guarantee the price energy companies will be paid for 30-40 years. That’s an extraordinarily good investment in an uncertain world.”

In other words, while complaining about frozen prices for customers, corporations are more than happy with decades of frozen prices for themselves. This is a ruling elite that will not accept a few crumbs being tossed to working people, even if such a move is intended to help them keep plundering the economy for their personal enrichment. Max Hastings summed up their attitude in the Daily Mail, when answering Miliband’s rhetorical question as to whether it was satisfactory for “a country to be working harder and longer for less?”  The “fact is”, Hastings stated, “all Western societies must do exactly that.” Any politician who pretends that this can be avoided by “loading more tax on banks and millionaires, is either a fool or a liar,” he wrote.

The angry response to Miliband’s feeble attempt to gain some popularity testifies to the total grip of the major corporations and the super-rich over the entire political system. Absolutely nothing must be allowed to infringe on their interests and wealth. Even while billions of state funds are given over to maintaining their obscene lifestyles, the financial oligarchy openly declares that the maintenance of their system depends upon destroying the living standards of the mass of the population.

The continued existence of this parasitic layer is incompatible with the needs of society. But as events of the last days have underscored, its economic stranglehold will not be broken by appeals to its non-existent conscience, much less by its political lackeys in the moribund Labour Party.

It can only be achieved through the mobilisation of the working class in a revolutionary struggle for the overthrow of the capitalist profit system, and the fight for a workers’ government based on socialist policies.

Guildford Against Fees And Cuts – It’s not cheap being poor!

The Poverty Premium –
It’s not cheap being poor

It is a shocking fact that families on a low income are still paying more for their basic goods and services than better-off families says a Save the Children report published this week. Save the Children has calculated that this annual ‘poverty premium’ can amount to more than £1,280 for a typical low-income family. Moreover, the poverty premium has risen by over £280 since Save the Children’s original research was conducted in 2007.

The poverty premium
The poverty premium is a notional extra cost that people on lower incomes can pay for goods and services, compared with the cost that is paid for the same goods and services by higher-income families.

Their report sets out the scale of the poverty premium and focuses particularly on the extra cost of gas and electricity bills, which account for 20% of the premium. Of all the elements of the poverty premium, the cost of gas and electricity to keep a home warm is an expense that no family can avoid. There is a clear link between living in cold, damp conditions for long periods and significant health risks. Families who cannot afford to pay the cost of heating their home adequately are putting their children’s health at risk says the report.

All children have the right to the best health possible, yet the evidence in Save the Children’s report shows how families on a low income struggle to pay for their gas and electricity and frequently compromise the warmth of their homes to reduce their bills. Of those who are fuel poor, 16.1% are families with children aged under 16, up from 11.8% in 2003. Many of these families will not be eligible for the government’s proposed Warm Home Discount.

The highest charges for gas and electricity are paid by those families who have a prepayment meter or who pay by standard credit. Prepayment meters are often installed for families on a low income who want to budget weekly or have been in debt. If families on a low income who pay the highest tariffs for gas and electricity- because they use payment meters- were charged the same amount as families who pay by direct debit, they would save, on average, over £250 a year. Save the Children is calling for all industries to ensure that the poorest do not pay more.

Low-income families shouldn’t be penalised for being poor. To ensure a fairer system for all vulnerable families, the report calls for all energy companies to provide a fixed rebate under the Warm Home Discount for families on a low income with children, using receipt of Child Tax Credit and income below £16,190 as a proxy for fuel poverty. (£16,190 is the first income threshold for entitlement to Child Tax Credit only.)

Save the Children is calling for The Department for Work and Pensions and the energy suppliers to run a pilot program to assess the feasibility of data-sharing, to allow direct payment of rebates to low-income families; to raise awareness of their rebates by promoting it to all customers; and to provide adequate notification of price increases to prepayment meter customers.The cost of living for low income families
Rising costs for low-income families comes at a time when the government is committed to cutting the welfare budget and public services. Families on low incomes are disproportionately reliant on welfare and public services, and consequently cuts in both areas of government spending will have serious impacts on the poorest. This new financial austerity comes on top of existing difficulties that low-income families have to overcome to make ends meet. It is mainly those on low incomes who tend to be unable to access favourable payment terms, whether for household or personal items they need to buy, fuel they need to purchase or loans they need to secure.

For many families on low incomes, the amount they either earn (from low-paid work) or receive in benefits is not enough to cover their basic living costs. A couple working full-time with two children needs £29,731 a year, or £402.83 per week (excluding money for rent and childcare), to afford a basic but acceptable standard of living. The same family on benefits will only receive £235.29 per week, which is 62% of the amount they need. Church Action on Poverty’s recent research report has provided further evidence of the difficulties families are having in meeting basic living costs. The report concludes that families on a low income need to borrow to survive.

Many low-income households choose to manage their budget in cash to ensure they have control over their total spending, which is a rational, safe approach that limits risk and minimises exposure to unexpected costs and outgoings. Many households (690,000 in 2007/8) do not have access to a bank account or other banking facilities that would allow them to pay a range of bills by direct debit, which is often the cheapest payment option for products and services. Some low-income families have a poor credit history, which means they have no access to affordable, low or no interest credit. The credit that they can access is therefore charged at the highest interest rates in the market.

The cost of credit
Households with a low or variable income often have a poor or non-existent credit history and are therefore unable to access reasonably priced credit from mainstream lenders (banks and building societies). Often the only option available is from commercial lenders (rent-to-buy, catalogues, doorstep lenders) who charge high interest rates on goods with a mark-up on retail prices. The annual percentage rate (APR) charged by commercial lenders can vary from 50–1,000%, compared with less than 30% APR charged by a mainstream lender. A basic household cooker can cost a family without access to low-interest credit a total of £669, more than two and a half times the cost of the same cooker bought outright.

The cost of borrowing
Low-income families with a poor credit history who need to borrow cash do not have the option of using a 0% bank overdraft facility or securing a low-interest bank or credit card loan. The only options available are high cost, such as doorstep lenders. A £500 cash loan from a doorstep lender could cost the borrower £750.

The cost of quick money: pawnbrokers, payday lenders and cheque cashing
A household may need to be able to access cash at short notice, but for those without a bank account this could mean using pawnbrokers, payday lenders or buy-back stores. A loan from a pawnbroker of £100 over six months will cost between 5% and 12% per month (equivalent to an APR of 70% to 100%), making the total cost of the loan between £170 and £200. Households without a bank account who need to cash a £200 cheque from a third party quickly will be charged a fixed fee and interest. For example, a £200 cheque would cost £12 to cash at Cash Converters.

The cost of insurance
Those on lower incomes often pay more for insurance. Insurance premiums are calculated in accordance with the risk of an event, and those on low incomes tend to live in areas where there is a higher risk of car crime and property theft. Families on a low income who live in more deprived areas can pay on average 48% more for car insurance and 93% more for home contents insurance.

The cost of gas and electricity
The extra cost of gas and electricity for low-income families accounts for 20% of the poverty premium. This significant additional cost arises because many low-income families pay for their gas and electricity using prepayment meters, which attract one of the highest tariffs. The lowest tariffs are offered by energy suppliers to customers who can either pay by direct debit, online, or who are eligible for the supplier’s social tariff. Low-income families who do not have a bank account cannot make direct debit payments. In addition, the eligibility criteria for the social tariffs of five of the ‘big six’ energy suppliers do not include families with children. In the last six years gas and electricity bills have more than doubled, and it is predicted that these increases will continue. Any across the board percentage increases in the cost of gas or electricity tariffs will have the greatest impact on those paying the highest tariffs – in other words, those using prepayment meters, including many low-income families. It is therefore likely that the poorest will be hardest hit by increases in energy costs.

Families on a low income with children can be affected by a number of difficulties when it comes to paying their energy bills. In addition to having to use payment methods that incur an expensive tariff and not being eligible for the current option for cheaper fuel under the social tariff, they often:
• Accumulate debt because they cannot afford their energy bills
• Are less aware of their energy use and how it is charged
• Lack access to information that would allow them to identify and secure cheaper energy deals.

Fuel poverty
The consequence of high fuel costs for those on a low income is fuel poverty – defined as being where households have to spend more than 10% of their income on fuel. Ofgem estimates that there are 5 million people in fuel poverty in the UK, representing about 18% of all households. In the UK, 7% of lone-parent households and 9.9% of couples with children live in fuel poverty. No parent wants to put their children’s health at risk, but figures for the UK showed that 5% of children were living in accommodation with inadequate heating. Cold living conditions increase children’s susceptibility to illness, compromise healthy weight gain and are detrimental to children’s respiratory health. A recent study has shown that respiratory problems were more than twice as prevalent in children who lived for three years or longer in homes that lack affordable warmth (15%), compared with children who had never lived in homes that were hard to heat during the previous five years (7%). In addition, it has shown that the mental health of adolescents can also suffer if homes are poorly heated. Families who can only afford to heat one room risk reducing their children’s education attainment if there is no warm, peaceful space to do homework. When inadequate heating is improved, research has recorded a marked reduction in the number of days pupils have off school. The government recognised the link between fuel poverty, inadequately heated homes and poor health and introduced the Fuel Poverty Strategy 2001.

The Strategy aims to eradicate fuel poverty by 2016 and “to ensure that by 2010 no older householder, no family with children, and no householder who is disabled or has a long-term illness need risk ill health due to a cold home” (p.10). It is unlikely that the government will hit its targets, largely because of the unprecedented increases in gas and electricity bills between 2003 and 2009. In response to these developments, the government has announced an independent review of the fuel poverty target and definitions. The introduction of a social tariff was one scheme to tackle fuel poverty. It has been partially successful in reducing the cost of gas and electricity for vulnerable groups but its impact has been focused on pensioner households, leaving other vulnerable groups, including low-income families with children, still paying relatively high fuel costs. As stated above, only one of the major six energy suppliers includes families on a low income with children in their eligibility criteria. So, in effect, a family on a low income that is eligible for a social tariff from one energy supplier could be denied the social tariff of another. Save the Children has conducted a qualitative research study that asked a group of families who are affected by the poverty premium about their experiences of paying for their gas and electricity. The research shows that families interviewed were not aware of the existence of social tariffs; had only a limited knowledge of their own tariff and energy costs, and had no appreciation of the information available to help them secure cheaper energy bills. Without the information, or access to the best deal, they are left paying more than they need to and are yet more vulnerable to fuel poverty.
Warm Home Discount
The government’s consultation paper, Warm Home Discount proposes that in England, Scotland and Wales, the social tariff is replaced by a fixed rebate on electricity bills that will be sent directly to a core group of pensioners on pension credit (with the scope of eligibility increasing between 2011 and 2015) using a data-matching system between the energy companies and the Department for Work and Pensions (DWP). The value of the rebate will increase from £130 to £140 by 2015. The consultation paper also proposes that the same fixed rebate should be given to a broad group of consumers who are vulnerable to fuel poverty. Energy companies will be given discretion to decide which of their customers should be included within the broader group.

Under the previous voluntary system, energy companies were given discretion to decide which of their customers would benefit from the social tariff. As already discussed, the outcome was that only one of the largest six energy companies ensured low-income families with children were eligible for their social tariff. The current proposals for Warm Home Discount risk repeating the same inequity. Energy companies could still decide not to include low-income families with children within their broader discretionary group. The result would be that families who struggle to pay their fuel bills will again miss out on financial support. Save the Children’s report calls for the government to ensure that low-income families with children are included within the group that receives the fixed rebate. This would lower the cost of fuel for these families and thereby reduce their poverty premium. Families with lower fuel bills would be able to heat their homes adequately without fear of going into debt. We propose that families with an annual income below £16,190 and in receipt of Child Tax Credit should be eligible for the rebate so that the mistake of leaving children out, made under the social tariff system, is not repeated. A pilot data-sharing project could be undertaken for families in receipt of Child Tax Credit, in the same way that a pilot project was run to establish the feasibility of data-sharing for pensioners on Pension Credit between the DWP and the energy companies.

Prepayment meters
A prepayment meter is a system that requires cash to be paid before energy can be consumed. Some meters take cards or tokens on to which cash can be credited. The tariffs charged for prepayment meters are more expensive than direct debit or online tariffs. Yet despite the relatively high cost, the majority of families on prepayment meters have an annual income less than £17,500. In Britain, 13% of households pay for their gas and/or electricity using prepayment meters, with almost two-thirds of these households using prepayment meters to pay for both gas and electricity. More than half of households on prepayment meters receive a means-tested benefit or benefits for disability. Ofgem’s own investigation found that prepayment meter customers were paying a premium that was greater than the extra costs involved in supplying the energy via the meter.

To ensure that the tariff for prepayment meters was cost-reflective, Ofgem introduced new licensing conditions for energy suppliers. Since September 2009 the new conditions have required energy suppliers to ensure that the price paid by prepayment meter customers reflects the cost of this form of supply, when compared with direct debit and standard credit tariffs. Ofgem have concluded that the new conditions have led to the average premium for prepayment meters compared with direct debit falling to £69 from £111 since October 2007. Nevertheless, Save the Children’s investigation into the cost of the poverty premium based on a real-life example revealed a differential of £253.

The prepayment meter can be an effective debt management system for the energy company because it allows the amount owing (or a portion of it) to be taken from future cash deposits into the meter, before calculating the remaining credit available. In 2007, more than 350,000 pre-payment meters were installed; 63% of these were put in place to recover debt. Some families who have tried to change from a prepayment meter to an alternative cheaper payment method have found their plan effectively blocked because the energy companies charge them a deposit of £250. This additional cost would prohibit many low income families from switching. The high tariffs associated with prepayment meters result in high fuel bills for low-income families and these in turn can lead to debt. Despite trying to budget for fuel costs, many families find themselves in debt, particularly during the winter.

A number of families featured in Save the Children’s report say they put double the amount into the prepayment meter in the winter compared with the summer. Families who try to avoid debt describe a range of approaches to minimise their energy use, many of which amount to self disconnection or self-rationing. These can have a significant negative impact on the health and wellbeing of families.

Some families have to bear the cost of using the ‘emergency‘ facility. In a worst-case scenario, a household may find that it is on a prepayment meter but is not eligible for the social tariff offered by local energy suppliers. The household may then find itself also paying off arrears from a (previously unknown) price increase, as well as paying back debt accrued from previous bills. In addition, it may be paying the charge to use the ‘emergency’ facility. The scale of these costs for families on a low income is significant.

In 2009 there were 502,631 customers repaying electricity debt through prepayment meters and 365,036 customers repaying gas debt through prepayment. Once an energy company has installed a prepayment meter to recoup debt from a family, it can be very difficult for the family to change to another payment method as a way of reducing their energy bills. Paula, mother of one, explained that she had got into arrears of approximately £800 when she was paying quarterly bills and the energy company had installed a prepayment meter to collect the arrears at a rate of £3.50 per week. Lana, her partner and three children had had a prepayment meter installed and reported that, “of every £10 which went on, £3 went towards paying arrears”. Matt explained that he had topped their gas up by £10 the previous day; after their arrears were taken off they were left with £3. This allowed “the four children to have a bath, and us to have the heating on for one and a half hours at tea time to warm the house up”.

Awareness and consumer choice
The current energy market works best for customers who are aware of their energy use and charges and who can navigate the information energy companies provide to minimise their costs. Informed consumers are able to switch between suppliers to get the cheapest deal, and price comparison websites can make this process more straightforward. However, research reveals that lack of awareness stops many families from accessing the best prices.

This lack of awareness is compounded by a lack of access to information, which is primarily through the Internet. Many low-income families do not have Internet access. Although 70% of households in the UK had access to the Internet by the end of March 2009, 50% of households with an income below £11,500 did not have Internet access, compared with 5% of households with an income of over £30,000. A lack of awareness and lack of access to information restricts consumer choice. Price comparison websites show that customers who are able to pay by direct debit from a bank account can secure the lowest cost for their energy. This price difference for families who cannot pay by direct debit amounts to an extra £250 a year.