The Decibel - Soaring energy bills in the UK as winter looms

Episode Date: September 19, 2022

On Oct. 1, natural gas bills in the U.K. will go up by 80 per cent. Most households rely on natural gas for heat, and this means their energy bills would increase from an average of £1,971 to £3,549 a year. For one third of people in the country, that would mean falling to below the poverty line. The new Prime Minister Liz Truss’s plan is to cap energy bills and pay the difference to energy companies, but estimates say the plan could cost more than £100-billion.Europe correspondent Paul Waldie tells us what this crisis means for the people and businesses in the U.K. and what’s being done to fix it.Questions? Comments? Ideas? Email us at [e-mail]

Hi, I'm Mainika Raman-Wilms, and you're listening to The Decibel from The Globe and Mail. Queen Elizabeth's funeral today marks the end of a 10-day period of mourning in the UK. And the new head of state, King Charles, and the new prime minister, Liz Truss, must now tackle a crisis that's hitting homes and businesses across the UK. Skyrocketing energy bills. You know, somewhere in the order of a third of the people in Britain could be facing fuel poverty. In other words, once they pay for their fuel,

their income is going to drop below the poverty level. Paul Waldie is the Globe's Europe correspondent. He'll tell us how the UK got to this point, the government's plans to make things cheaper, and what this all means for people who might not be able to heat their homes this winter. This is The Decibel. Paul, thank you so much for joining me today. Sure. Glad to. The UK has been in mourning for over a week now after the Queen's death.

And of course, a lot of attention has been focused on the Queen's passing. But there's also a critical deadline that's approaching in the UK that a lot of people are paying attention to as well. And this is on October 1st, because on this date, energy prices are set to go up in the UK by up to 80% for a majority of households. Can you just catch us up here, Paul? What will happen on October 1st? Yeah, I mean, this is really interesting because, of course, the Queen's death and the period of mourning shut down the debate over this whole issue. And now, of course, it's going to come roaring back because it is a huge crisis that this country faces. A lot of countries face energy questions, but Britain faces a particularly difficult challenge. On October 1st, the sort of regulated price for natural gas will go up to about £3,500 a year based on an average household use. It's currently at about £1,900.

And every couple of times a year, this regulator sets the price. So this will be the latest price in October. But the next increase in January is expected to go up over £5,000. And it could even hit £6,000 by the time the following price increase kicks in. And you're talking about annual price increases here, Paul. So what is happening here? Why are prices climbing like this? Well, there's a few reasons that are particular to the UK. Prices have been going up everywhere, mainly because, of course, the war in Ukraine. But Britain has a particular issue in that the vast majority of houses here, over 85%, use natural gas for heating. So it's very reliant on natural gas. Half of the supply comes from the

North Sea. The other half comes from places like Norway and Qatar and LNG facilities. Britain doesn't have any storage capacity or really hasn't developed any storage capacity for a long time. So it is very vulnerable to the world price of gas. So you say there's no storage capacity. Like, this is interesting, because I remember we recently did an episode on Germany and their energy crisis, but they're talking about stockpiling energy this summer and this fall to prepare for the winter. When you say the UK has no storage capacity, that means they can't save that up then? They haven't been able to. No, over the years,

Britain never really developed a serious storage capacity issue. I think they were sort of reliant on the North Sea. Keep in mind, Britain is not reliant on Russia at all. I think Russia only accounts for about 4% of the gas that comes into this country. So that's never been an issue here. I think they felt they had a safe supply. They probably felt the price was manageable and never felt the need to build storage capacity. You mentioned the regulator there that's kind of responsible for setting these prices. Who regulates or what regulates the price of energy in the UK? It's called Ofgem. It was created, ironically enough, to help consumers. What happened was you had a lot of companies that rushed into the market here to sell energy or to

supply people's houses, and the prices were going all over the place. So the government stepped in, set this regulator up several years ago. And in fact, what had been happening up until recently was energy companies were going out of business because the cap was being set. They couldn't charge anymore, but they were having to pay more as the price was going up globally. So we had dozens and dozens of small energy providers, gas suppliers going out of business here. Now, of course, the reverse is happening. They're doing fine, but consumers are getting actually creamed as the price keeps going up and up every time this cap is adjusted. So you said people's bills are expected to go up to over £3,500 annually there.

So if we convert that to Canadian dollars, that's about $440 per month. I guess, can you put that into perspective for us, Paul? What this means for people, there's been a lot of estimates by different organizations, you know, somewhere in the order of a third of the people in Britain could be facing fuel poverty. In other words, once they pay for their fuel, their income is going to drop below the poverty level. And that is if there was no intervention by the government. So if the price did go to $3,500 or even $5,000, that's what you're facing. 10 million families in this country would fall below the poverty level once they paid for their energy bills. And just to put this into context, because we looked at some Canadian prices averages to compare. According to the Canada Energy Regulator, in 2017, the average Canadian household spent just over $2,100 a year, or about $180 per month on electricity,

natural gas and other fuels for household use there. So it's a big difference. On a personal level here, Paul, what have you been hearing about how this will affect people? Well, you know, the people it's really going to affect are the small businesses. Yes, homeowners are affected. And we just talked about how people are going to be facing what they call fuel poverty here. But it's really small businesses that are absolutely getting hammered by this because they are not protected by any cap, by any regulated price. They just pay what the market will bear. And you're hearing all kinds of horror stories of shops going out of business, pubs going out of business. I mean, there were some reports not

that long ago of, you know, a fish and chip shop where their energy bill was going from £9,000 a year to £35,000, just like that. They're just not able to handle this. And of course, a lot of these small businesses are already facing inflationary pressure for everything else they buy, whether it's, you know, food or just the other supplies that they need or labor costs, things like that. So when you when you see energy prices quadruple or even go up 400, 500 percent in the course of a matter of weeks, you're seeing all kinds of businesses really, really struggling to survive here. We'll be right back. I guess this makes me wonder about Canada, too, because we've seen gas prices go up in Canada, but nothing like the kind of surges in energy prices that we're talking about in Europe and

in the UK. No, I think it's very different. For a long, long time, you've had two halves to the world energy market, basically North America, which has so much supply and so much ability to get it out of the ground, and Europe, which has minimal supply. I mean, yes, you have Norway, but you're still relying on a lot of Middle East players. Keep in mind also Britain, for the most part, has banned fracking, so there's very little natural gas exploration done outside of the North Sea. The North Sea is also a depleting resource. So it's a supply issue here as much as anything. And that's one thing the government, under the new prime minister Liz Truss, she's been talking a big game about somehow boosting supply. So she's going to

remove the ban on fracking. She's going to remove some green energy levies that have been put on a lot of gas consumption. And that's something as well you see here and all more taxes and those kind of things to finance alternative energy supplies. So she wants to remove some of those to bring the price down as well. Okay, let's specifically talk about Liz Truss's plan then. She is a relatively new prime minister. She was actually just sworn in two days before Queen Elizabeth's death. What has Liz Truss said she's going to do to directly fix these rising energy prices this fall? Well, this is interesting, because as you mentioned,

Liz Truss just became prime minister, and she'd been running a leadership campaign all summer, and really had to kind of change her tune, because the energy crisis just kept building and building and building as the campaign went on. Initially, she was against any kind of handouts. She said, no, I'm not going to give handouts. That's not the way we do things. That's not the conservative way of doing things. Now, of course, she is going to give quite substantial handouts. That's not the way we do things. That's not the conservative way of doing things. Now, of course, she is going to give quite substantial handouts. Her plan is to freeze the price cap where it is now, which will cost something in the order of 100 billion pounds. She's also going to try and freeze the wholesale price to help businesses. And the government is going ahead with a plan to give people 400 pounds a month anyway. So overall, she's hoping to keep the

price where it is for two years. And to do that, again, it'll cost at least 100. Some people are saying 150 billion pounds for this whole program. It matches what the government did during the pandemic in its furlough program to keep people, people who are unemployed, to finance them and to subsidize them. And where is this £100 billion supposed to come from? Well, that's been the big debate. The government is loathe to put a windfall tax on energy companies like BP, like Shell, that have seen their profits go through the roof because of the energy price situation. She wants to simply borrow it, add it to the national debt, which could lead to taxpayers funding it in the long term anyway. What exactly is a windfall tax, Paul?

Well, this would be an extra tax on companies that earn excessive profits. Just because the price of energy has gone up, the government is saying, OK, that's that's too much. We're going to tax back some of that. Now, Britain has implemented a windfall tax back in the spring. It's a small one. The debate now has been whether the government should continue that, extend it, increase it. And Liz Truss is saying she won't do it. In fact, she wants to get rid of it altogether. She thinks that will spur more investment.

The other side says it won't. The opposition Labour Party is adamant that the government should put a windfall tax on energy suppliers. You've seen that in the EU. You're seeing that in other countries. But that's the big debate right now. How are you going to finance this through a tax on companies or through borrowing on the through the financial markets? And because I guess it is a blanket number across the board, it doesn't really. So basically, wealthy households are getting the same amount of relief that poorer households are, right? Isn't there more a more targeted way to do that? There has been a lot of talk about that, that yes,

you're right. In fact, by by setting a cap, what you're doing is benefiting the rich as well as the poor, because people who who have houses, big houses and use a lot of energy will benefit from this arguably more than somebody who has a smaller house and a lower income. But the government sort of said, because this is going to affect so many people, not just, you know, the poor where you could target something specifically, but so many people, they just felt it was much simpler and easier to simply freeze the cap than go into some kind of a targeted program. And I think there's a consensus that that does make sense, that it would have just been too difficult and too massive to have some kind of targeted effort or to somehow to try and claw it back for

people, because it's really going to affect everybody, except maybe the super rich will be fine. But the vast majority of people here are going to be affected by this. At the start of our conversation, Paul, you mentioned that because the government has been in mourning since the Queen's death, it's kind of shut down the debate on all of this. So does that mean like all of this time throughout this period of mourning that they weren't actually getting work done on this, even with such a looming energy crisis? Well, you have to think that this was a little bit of a benefit, if you can say that for Liz Truss, because this was the very first thing she had had to address as prime minister. She had announced this plan on Thursday, literally the day the announcement that the queen died. So everything got stopped. The whole debate ended.

But you have to figure that she's been spending the last 10 days or her officials have in trying to hammer out the details of this program, which were still pretty scant when she announced it. There was not a lot of information as to how businesses were going to benefit from this, how they were going to be able to apply for whatever subsidies the government had in mind. But we'll find out because this debate is going to come storming back this week. And there's no doubt that this will come right back. It's not going away. That's for sure. And how fast can canuss's proposal happen?

Does it need to go through the process of Parliament in order to be enacted? Some of it will, there's no doubt. I think she could probably stop the price increase from going through on October 1st fairly easily, but a lot of the other things she wants to do will require legislation, will require going through Parliament, and there'll be a fight over it. Now the Conservatives have a massive majority, so it's unlikely they won't get to do what they want to do. But there's certainly going to be a big debate about it. I wonder about the new king, King Charles III. Does he have any role in any of this? Like,

will he be doing anything himself to address this crisis? I don't think so. But, you know, Charles in the past has certainly been quite an environmentalist, you know, say what you want about him. He has been a forerunner in many respects on a lot of environmental issues. So perhaps he will try and do something in terms of showing an example, either by retrofitting some of the palaces or by proper insulating his own home. I mean, houses here are incredibly old, incredibly leaky when it comes to energy. So perhaps he can set some kind of example that way, but I doubt he'll play any kind of direct role.

This is a very critical situation, obviously, with a tight timeline. But I wonder about the conversation around diversifying energy sources in the UK, especially around renewable energy. Is the UK making an effort to move away from a dependence on fossil fuels? Yeah, I mean, if you look at it from an electricity point of view, the UK has been a real leader in wind energy. There are times during the year where most of the electricity is generated from wind. So it's a growing part of the energy mix here, nuclear as

well. They also have announced plans. Boris Johnson, one of his last acts as prime minister, was to announce plans to start planning for a new nuclear reactor here as well. So they've done a fair bit in terms of alternative supply, but that's on the electricity side. On the home heating side, it is still largely natural gas. And there is not likely any way around that unless the country tries to develop its own supply. But that gets into fracking, that gets into more environmental issues. And there have been huge battles over fracking in this country, which is why it has basically been banned, because they cannot get it through any kind of community here. I guess just before we end off here, Paul, I guess I just wonder what this winter is going to look like for people who are struggling to pay their energy bills.

I remember reading somewhere that certain jurisdictions are talking about warming centers, like we hear in summertime, we have cooling centers to keep people cool who don't have air conditioning or don't have other means of staying cool. So warming centers is the equivalent of that in the wintertime. But what might people be facing in the UK this winter? It's going to be a bleak winter, even with this proposal from Liz Truss, even if she does manage to stop the increase going ahead, you're still looking at a 50 odd percent increase in prices year over year. And that will affect people. And it's not just going to affect the very poor. There's real concern. This is going to affect,

you know, middle class people. This is going to affect millions and millions of people in this country. And you're going to have a bleak winter, not only warming centers, but people who are going to have to actually make the decision. Do I eat today or do I, you know, have some heating instead? And houses here are old and they're leaky and they're drafty and they're not very warm in winter anyway. And the heating systems aren't good. A lot of houses, including our house, doesn't have central heating. You have radiators. It's kind of work or don't work. So most of the time in the winter, it's very common where people will close off rooms. They'll close up one room or two rooms and just say, we don't use those rooms in the winter. I know one family that pretty much lives

in their kitchen and their living room and their bedroom and that's it, nowhere else. We do the same thing. We've got rooms that we try and avoid in winter because they're too cold. And I think you're going to see more and more of that and people's living spaces are going to get smaller and smaller as the winter goes on. Paul, thank you so much for taking the time to speak with me. I know it's been a busy time there, so I appreciate it. Glad to. That's it for today. I'm Mainika Raman-Wilms. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Kasia Mihailovic is our senior producer, and Angela Pichenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.