Wera Hobhouse

I beg to move, That this House has considered the cost of energy. It is a pleasure to serve with you in the Chair, Mr Western. I thank the Backbench Business Committee for granting me this debate. The cost of energy is a problem that impacts all areas of our lives, from the homes we live in to the businesses we work for. For far too many, high energy bills are an immediate daily concern. A recent poll published by Opinium highlighted that, on average, 88% of all adults thought it was important that the Government focus on reducing the cost of energy over the next two years, while 90% remained concerned about the increase in energy prices. The cost of energy has become a key strain for most households. For households in Bath and across the country, bills continue to rise at unprecedented rates, and many struggle to keep up. Those rises will heap considerable pressure on millions of people who are still feeling the pressures of inflation over the past few years. That is simply unacceptable, and it is a crisis that we cannot ignore. The effects of high energy costs extend far beyond the immediate financial burden; the cost of electricity in the UK is also holding back our efforts to decarbonise the economy and to address the climate crisis, and we must not shy away from that debate. At present, UK households pay roughly the same for both gas and electricity bills—around £850—despite using more than four times more gas than electricity, making electricity in the UK four times more expensive than gas. That price imbalance is not only creating financial hardship for consumers, but actively deterring them from making the switch to cleaner, more efficient heating systems. The UK currently relies on 25 million fossil fuel boilers to heat its homes, accounting for 16% of the nation’s entire CO₂ emissions. Decarbonising our heating sector is a significant opportunity for the UK to cut down on carbon emissions. Take heat pumps, for example, one of the most advanced and environmentally friendly ways to heat our homes. Heat pumps are four times more energy efficient than gas boilers and could reduce CO₂ emissions by 75%, yet just 1% of UK households have a heat pump. Why? Because the UK’s electricity prices consistently undermine the financial incentive to install them. With the current cost of electricity, running a heat pump can be more expensive than running a gas boiler for larger households and as expensive for medium-sized homes, even though heat pumps are far more efficient. In Sweden, more than 50% of single-family homes have heat pumps installed, while 95% of all new homes are now heated by heat pumps. The success of Sweden’s heat pump adaptation hinges on the country’s price ratio between gas and electricity, effectively incentivising electric heating systems compared with fossil fuel ones. A range of other heating technologies can work alongside heat pumps. Alternative technologies such as heat batteries are another example where the price of electricity is significantly hindering the UK’s ability to move away from gas. Heat batteries have become a proven solution for about 20% of UK homes for which heat pumps are not suitable. Modern heat batteries can operate at equivalent temperatures to fossil fuel systems; they can make use of the existing pipes and radiators in the home, at a similar running cost to a heat pump, and embed valuable flexibility in the electricity system. Despite having such innovations at our fingertips, the Government continue to drive consumers into the arms of gas boiler manufacturers, because more often than not it is still cheaper to buy a gas boiler. The disparity in energy prices between gas and electricity is not just a domestic issue; it is part of a broader trend in which the UK is falling behind other nations in the transition to low-carbon heating. In the first half of 2024, gas prices in the UK were 22% below, while electricity prices were 27% above, the EU average. In fact, the UK had the highest ratio of electricity to gas unit prices in the entire EU at that time. That pricing imbalance places the UK at a competitive disadvantage in terms of decarbonisation. As the rest of Europe steams ahead with its effort to electrify heating, the UK is lagging behind due to our higher costs of electricity, something that not only affects individual households and businesses, but significantly undermines the UK’s position as a world leader of climate action. To achieve our statutory net zero goals, we need to make sure that the transition to clean energy is as affordable as possible for everyone. The current energy pricing structure is holding us back, and that must change. The first and most urgent step is to reform the policy costs currently placed on electricity bills. The regressive and incoherent stack of levies on electricity bills has inflated the cost of electricity for consumers to the point that it is uncompetitive with gas. The Government’s current energy policies are therefore working against their own objectives, making clean technology more expensive than its fossil fuel counterparts. As things stand, policy costs and levies currently account for 11% of a typical household’s total energy bill, but they are not allocated evenly. Policy costs account for 16% of a typical electricity bill, but only 5% of a typical gas bill. There is widespread industry and political support for reforming those policy costs and levies, but the argument over how to do so has been going on for far too long. The simplest options for reform would be to remove all levies from electricity and put them into general taxation. That would lower energy bills for every household in Britain, but at a very high cost to the Exchequer, which is currently not realistic. Another option is to rebalance the levies by moving them from electricity to gas. This option would be good news for the 4.5 million households that do not use gas heating, but for the 22.5 million gas-using households, of which 2 million to 3 million are in fuel poverty, bills would rise by between £15 and £100 a year.