There aren’t many days when the issue of energy prices doesn’t attract some kind of political or media attention. Understandably, much of this debate centres on the question of whether, at a time of rising costs, the prices charged and the profits made by suppliers such as SSE are fair.
As energy is an essential resource, we know that the profit we make from supplying it must be reasonable and sustainable; in line with that, we expect our energy supply business to make a profit margin of around 5% over the medium term. This profit enables us to keep making the investments the country needs, supporting growth and employment.
It is only right that people continue to scrutinise these profits and assess whether or not they are getting a fair price. This is a question often asked of ministers too, and the Department of Energy & Climate Change (DECC) touches on the issue in its regular ‘Energy Trends and Quarterly Energy Prices' publication. Whilst the latest report was not front-page news, one stat is particularly relevant to this debate and may take you by surprise: UK domestic gas and electricity prices are the lowest and fifth lowest in the EU15 respectively (see page 7 of this report).
The relevance of this has been disputed by some commentators, who argue that prices in the UK are lower simply because the VAT rate of 5% is lower than that levied in other countries. But the UK is in the minority in that it pays for environmental and social schemes through levies on bills, rather than through general taxation. Although just 5% of the bill is classified as VAT, when the cost of these schemes is taken into account, using DECC’s own figures, the effective tax rate paid by energy consumers is actually nearer 15%.
So although it is not easy to draw direct comparisons due to differences between what is and what isn’t paid for on bills, the DECC data suggests that UK customers do still enjoy some of the lowest retail prices in Europe. So why is fuel poverty a bigger problem in this country than it is elsewhere?
A recent report commissioned by the fuel poverty campaign group Energy Bill Revolution sheds some light on this. It says:
“None of the countries compared in this briefing performs as consistently poorly as the UK. The level of energy poverty is all the more worrying considering the fact that the UK’s domestic gas and electricity prices are amongst the very lowest in Europe, and that average household income ranks alongside Sweden’s. To a considerable extent, this is explained by the relative inefficiency and poor state of repair of the housing stock.”
To tackle fuel poverty here in the UK, as well as focusing on ‘prices’ we need to look at reducing energy ‘bills’. And to do that we must address one of the root causes of the problem: the UK’s poorly insulated housing stock. There is a huge opportunity to limit bills by improving energy efficiency. In Sweden, for example, prices are far higher than they are in the UK, but, due to having some of Europe’s most efficient housing stock, it also has some of the lowest levels of fuel poverty.
We fully support the motives behind government-mandated social and environmental schemes designed to reduce energy consumption, but if they are paid for through levies on energy bills it is absolutely essential that they remain affordable and represent value for money for consumers. That’s why we support the Energy Bill Revolution Campaign to fund energy efficiency measures through Treasury revenues from carbon pricing. Click here for more information.