01-08-2025
It's time Miliband faced facts: his net zero promise is a lot of hot air
Ofgem has kicked off a review of energy bills that could result in wealthier households paying higher charges to shield poorer homes from rising net zero costs.
The regulator is concerned that these higher costs would disproportionately affect poorer households because they are fixed and cannot be reduced through lower consumption.
Jonathan Brearley, the chief executive of Ofgem, earlier this year made it clear he wanted to look at 'progressive billing', a model where higher-income households pay more.
Ofgem has a statutory duty to give special regard to the needs of vulnerable consumers. But that does not mean it has a duty, or even the power, to raise costs for other households in order to subsidise the vulnerable.
Both the Gas Act 1986 and Electricity Act 1989 (as amended) state that Ofgem must 'have regard to the interests of individuals who are disabled or chronically sick, of pensionable age, with low incomes, or residing in rural areas'.
Yet its other obligations include ensuring security of supply, promotion of efficiency and competition, reduction of greenhouse gases and the protection of all consumers (present and future).
So while Ofgem must pay special attention to the needs of vulnerable groups, this does not override its principal objective to protect all consumers.
The regulator cannot independently decide to increase energy bills for middle-class or high-usage consumers in order to subsidise others, unless explicitly enabled by new legislation.
I wrote recently about the stealth taxes and wealth redistribution already present in energy bills. However, these all have their basis in legislation, and are not schemes originated by Ofgem itself.
One such scheme is the Warm Homes Discount, where energy suppliers must liaise with the Department for Work and Pensions to determine which of their customers is eligible for the discount. Suppliers then charge all their other customers more in order to fund it.
But Brearley's suggestion of ' progressive pricing ' would mean suppliers need to gather much more information about their customers' finances. How would such pricing work in practice?
Who would benefit from cheaper pricing? How would the costs be apportioned? Would they be shared among everyone that does not receive benefits? Would there be bands based on a consumer's tax bracket? What if a household contains one person on benefits and another who pays higher rate tax?
Ofgem links rising network costs to the march of renewables, suggesting that while energy costs will fall on a per unit basis, system costs will rise, increasing fixed charges. In expressing these concerns there is an implicit admission that overall bills will be higher – if total bills were really going to fall, the share of fixed costs wouldn't be such a problem.
Ed Miliband, the Energy Secretary, has repeatedly promised £300 off bills. This was a huge factor in Labour's 2024 general election victory. Since the election, Miliband has clarified that the £300 would be achieved by 2030.
But the Climate Change Committee, the Government's official adviser, has said that savings from net zero are unlikely before the seventh carbon budget period, which runs from 2038-2042.
This contradiction has drawn remarkably little attention, but it's extraordinary that Miliband continues to insist that we will all be saving £300 by 2030 when his own experts are telling him otherwise.
Now Ofgem is sending clear signals it is also concerned about affordability. If bills were going to fall by £300 there would be no real need to worry about standing charges and how to pay for higher network costs.
