Select Committee on Trade and Industry Minutes of Evidence



Examination of Witnesses (Questions 160-179)

MR BRIAN WILSON, MP, RT HON MICHAEL MEACHER, MP, MR ROB POTTER AND MR JEREMY EPPEL

THURSDAY 23 MAY 2002

  160. I was just wondering whether you had a grasp yet of the challenge. One of the strong bits we got in the oral evidence was that by tackling the housing stock across the country you have tackled one of the major pillars. There is the income of the people and there is the cost of fuel and then there is the condition of the house. The point was made to us that with people's circumstances changing from year to year, people can drop in and out of fuel poverty and at least if the housing stock is finally up to some kind of reasonable standard, then you have provided a baseline for the other strategies.
  (Mr Meacher) The implication of that is that you need to raise the quality of housing stock, not just for those who today are fuel poor, but more generally. To do that would be very good, but it would also be very costly.

  161. In a sense, will it not be part of the strategy? Are we reaching the point that having had the fuel prices come down and the benefits creep up, the crux point too is that you do the easy things such as the loft insulations and the cavity walls, and solid walls were raised in the evidence, some of these schemes are going to have to be quite expensive if we are going to take the existing stock up? That is where my question might differ from Jonathan's in that new build is probably up to a reasonable standard for energy efficiency, though it could always be better, but how do you get the older stock up?
  (Mr Meacher) There will be a residue of difficult areas, hard to heat homes, those with solid walls, no loft space, those outside the gas network. We do not have simple cost effective answers to that problem at the moment. That is exactly why we asked the Fuel Poverty Advisory Group to suggest solutions. There are ways of dealing with those problems but they are very costly and what is the best cost-effective way of doing it.

  162. As we come further into the strategy and further towards the target it is going to become more challenging and tougher.
  (Mr Meacher) Yes.
  (Mr Eppel) The discussion you had about the links between addressing the homes of the fuel poor and addressing the wider housing stock is very, very relevant and a domestic energy efficiency strategy which the Government are beginning to develop and will feed into the Energy White Paper round the turn of the year will pick up many of these issues, but there are other ways of addressing the housing stock. There are seven million homes with solid walls and they would be very difficult to deal with.

  163. It can be done.
  (Mr Eppel) We do not yet have an ideal thin film technology to put on the walls without causing considerable disruption costs. If such a technology were ultimately able to be developed it could have a very big impact on those. There are other input technologies such as micro combined heat and power which could have an impact on fuel poverty. I do not want to over hype that at this stage. There are some technological and commercial barriers still to go through on that front but if that realised the kind of potential that some have been arguing it could have, then we could see really quite an interesting combination of the effect of new heating systems without necessarily having to do some of the very costly measures on solid wall housing. There are several options in one's back pocket.

Mr Hoyle

  164. We have mentioned gas and those households which do not receive gas and at the moment that is difficult because of gas. Transco has told us that the DTI has applied for funding for pilot schemes. If the pilots prove effective, is the Government prepared to extend them? What timescale is envisaged for the pilots? What action do the Government want to take next?
  (Mr Wilson) May I first acknowledge the correctness of the analysis that the lack of availability of gas in many areas is a big factor in all of this? There are 900,000 households in England alone which are classified as fuel poor which do not have gas, therefore it would seem logical that an extension of the gas network could play a significant part in addressing the problem. The costs involved in doing that are very substantial and it is absolutely true that we are looking for funding just now or for pilot schemes directed at the fuel poor households in non gas areas with an initial list of priority communities in England which have been prioritised on a combination of deprivation indices and Transco data. To get 100,000 households out of fuel poverty in this way might cost about 50 million so the cost per unit is very high. Nonetheless we are looking for money for pilots. We have not secured that money yet. We are talking to the companies, but in terms of a wider scheme to extend the gas network, there is no immediate prospect of that happening and we are looking at 2004 at the earliest.

  165. Have the Treasury been sympathetic to proposals for money?
  (Mr Wilson) Dialogue continues. It is not as though nothing is happening. There are many areas on the map which do not have gas where for instance if the local authority takes the initiative in bringing in Transco, then other householders in that area can benefit. For example, that happened in my own constituency where, for historic reasons, there was a whole housing scheme which did not have gas and the local authority took the initiative and that problem has now been resolved. There are specific initiatives by the companies and by local authorities or housing associations which can eat away at the problem, but certainly the large-scale expansion of the network as an instrument to combat fuel poverty is not immediately on the horizon. We certainly do hope to have money for these pilot schemes within the foreseeable future.
  (Mr Potter) The gas network working group discovered that in quite a few cases of rural fuel poverty, other forms of central heating and decent insulation could take people out of fuel poverty. Gas is not in every case the only answer. In many cases it cannot possibly be the answer because people live 20 miles away from the nearest gas pipe and there are only three houses. Gas is not the only option and one of the things the Fuel Poverty Advisory Group will be looking at is the scope of the schemes we have and the sorts of things they might offer to broaden their appeal in terms of relieving people from fuel poverty who are not already on the gas network and do not have a home with cavity walls you can put stuff in.
  (Mr Meacher) The potential for renewable energy is obviously considerable here. If the 6,000 installations of micro CHP which we are planning over the next three years work, that is a much more cost-effective answer for very isolated groups of houses.

Chairman

  166. They still need gas to fuel CHP, do they not? Are we talking here about CHP which is fuelled by gas?
  (Mr Meacher) I see what you mean. Yes; that is absolutely true.

  167. With respect, what you are telling us is that there is this brilliant idea which might work but it is going to cost an awful lot for the three houses which are 20 miles from the gas pipeline. You are to an extent at the mercy of a monopolist. If they do not see it as profitable and they do not get money to do it, then there is nobody to pressurise them to do it. Is there going to be competition?
  (Mr Wilson) Referring to the previous point, it is not quite as daft as it sounds. There is the option of LPG, it does not have to be mains gas.

  168. It would have to be distributed, like oil.
  (Mr Potter) The economics of LPG are not good because LPG is more expensive, but if the LPG works through a micro CHP system which produces some of your electricity, they might be improved. That is one of the things we will have to look at. So LPG could become more affordable than it is now.

  169. I come back to the other point. Is it simply because it is too expensive or is it because it is too much bother for a monopolist to provide this additional service? Has any work been done in taking to bits the economics of it from the point of view of Transco?
  (Mr Wilson) A great deal of work has been done on the whole issue of extending the gas network and issues of funding are currently under discussion. It is pretty obvious that Government are not going to fund that in its entirety and it is pretty clear that Transco is not. The rules which stand under Ofgem actually prohibit them from cross-subsidy of that nature, taking money out of their existing business and putting it into expansion of the network.

  170. Is there anyone else outside Transco who might be interested in digging the holes, putting in the pipes and providing gas?
  (Mr Wilson) I am not aware of any.
  (Mr Potter) There are other public gas transporters, but I do not think any of them conceive of themselves as a big enough operation to take on a really wholesale extension of that sort.

  171. Is that both international and UK? Has a trawl been done?
  (Mr Potter) We have had no expressions of interest.

  172. Have you sought it?
  (Mr Potter) We have not.

  173. It is understandable then that you have not had any. When you are faced with a monopolist and they are doing quite nicely thank you and this is a pain in the neck to them, it is quite understandable that they are not going to be interested, but if it were attractive for somebody else to come in, if there were clusters of households—
  (Mr Potter) There is a raft of issues which bear on this. First of all there is the question of who can actually do the work, which is the particular issue you are addressing with international engineering consortia who could do such a thing. There is the other issue of who is going to pay for it and how that money is to be collected. That is the difficulty. The current rules on competition prohibit cross-subsidy of extension by existing gas users, which is effectively what used to happen under British Gas and no doubt Ofgem could give you more detail on that. Then there are other issues such as whether potential suppliers to new gas areas might be willing to give a contribution except that the 28-day rule means that the new customer could switch away to another supplier as soon as they hit the deck. There are difficulties in there and Ofgem will have views on the rightness of their competition rules and Transco will no doubt have views on ways round that; fortunately they are both appearing today.

Sir Robert Smith

  174. LPG came up and it does affect people in rural areas and currently there is a lot of concern about the price of LPG and certainly concern about the market working in LPG. Do DTI have any views about what is happening to the price of LPG and what factors are at work?
  (Mr Wilson) We have looked at this and we have also looked at in the context of motoring costs. We do not have evidence that the price of LPG is higher than it should be or higher than the market reasonably dictates. There are no grounds for an investigation of the price of LPG, but it is certainly something we keep an eye on because we are very anxious to promote the use of LPG.

  175. Do you have some indication of what factors have driven up the price? Is it very much linked to the market in oil or is LPG of limited availability and as the market grows this is inevitably going to . . . ?
  (Mr Wilson) The price of LPG is still relatively low, but inevitably there are market factors affecting it, as there are for other fuels.

Chairman

  176. It is a fuel of which in world terms there is quite a considerable supply. We could increase our consumption without necessarily pushing up the price.
  (Mr Wilson) I would say that the normal laws of the market would say that if you increase consumption you tend to drive down the price.

  Chairman: Depending on what the supply is.

Mr Berry

  177. May I ask a question about the co-ordination within Government Departments in relation to this? As it happens, the Department I have in mind is not represented here this morning so you can toss a coin to see who speaks for the Department for Work and Pensions. A number of schemes specifically address the question about whether people are claiming the benefits to which they are entitled. Eaga for example told us that "20 per cent of applicants who go through the benefits health check process are able to claim an additional benefit". So the checks they do discover one in five people who can claim additional benefit. On an average that is worth an extra 25 per week. Should this not be what the Benefits Agency is doing?
  (Mr Meacher) The answer to that must probably be yes. I see the force of the question, because if they were claiming benefit, then they would be eligible for the scheme and there would be substantial gains flowing from it. The other way of addressing the problem would be to allow access to HEES for those people who qualified in terms of low income but were not actually claiming an income-related benefit. That could be a matter for review, or indeed a matter on which to get advice from the Fuel Poverty Advisory Group.

  178. Can something be done to address the culture here? I do not know about the experience of other Members of Parliament but constituents I have who want to have a benefits check, do not go to the Benefits Agency, they go the CAB or they come to me. We all know about this as Members of Parliament and I think the figures Eaga produced do suggest there is cause for concern. I hope this matter might be further considered. May I raise another issue which EAGA raised with us? They have said in their submission that ". . . encouraging the Department for Work and Pensions to become involved in publicising the Warm Front Team, where access to the scheme is dependent upon receipt of a designated benefit, has been very difficult at an operational level". Can we not do something to overcome these operational difficulties? EAGA are trying to do the best they can. They are saying a Government Department is an obstacle to what they are trying to do. Can this problem be addressed?
  (Mr Meacher) I am sure it can. Since we make endeavours to achieve joined-up government, you make a very fair point. That should obviously be addressed to DWP and I do not know exactly what operational difficulties they are referring to. It does seem to me that there are always leaflets which are available in their offices for people who want to test their entitlement to various schemes. There seems to me to be no reason why that could not include a short, well-written, comprehensible leaflet on HEES. I shall pursue that point with colleagues in DWP.

  179. In the Government's fuel poverty strategy a number of vulnerable groups are identified including disabled people. We have talked about the difficulties of targeting some of the more vulnerable groups. Is the Government prepared to consider winter fuel payments for severely disabled people in the same way that we have winter fuel payments for those over 60?
  (Mr Meacher) That is a matter for the Exchequer. Our prime objective under the fuel poverty strategy is to benefit people and particularly in terms of improved insulation of housing, but they are also assisted by falling fuel prices and, I agree, by increased benefits. Increased benefits, whatever category you choose, will go more widely than the fuel poor. There are disabled persons under 60 who are not fuel poor. Whether it is cost effective to extend winter fuel payments to them is a matter for the Treasury.

 


 
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