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Watchdog warning over energy bills


Consumers face years of above-inflation increases in energy and water bills, the National Audit Office has warned

Consumers face years of above-inflation increases in energy and water bills, the National Audit Office has warned

Consumers face years of above-inflation increases in energy and water bills, the National Audit Office has warned

Consumers face another 17 years of above-inflation increases in energy and water bills as households are forced to stump up the cost of renewing Britain's ageing infrastructure, the Whitehall spending watchdog has warned.

The National Audit Office (NAO) said the Government had little idea of the impact the continued price hikes would have on households or whether they would they would even be affordable, particularly for those on the lowest incomes .

Its findings will intensify the political debate raging over energy bills, with the Government under pressure to act after Labour promised a 20-month price freeze if they came to office.

The Treasury estimates that at least two-thirds of the £310 billion of planned infrastructure investment over the next decade and beyond will come from private companies paid for, ultimately, by consumers through their utility bills.

The NAO said that such high levels of planned investment meant that the increases in charges for energy and water were now expected to continue to outstrip inflation until 2030.

The Department for Energy and Climate Change (Decc) has estimated that energy bills could go up by 18% in real-terms increase over that period - although the NAO said its calculations covered just three-quarters of the investment in the Government's National Infrastructure Plan.

At the the same time, the only available projection for water bills, prepared by one water company, suggests that they could rise by 28% by the end of the next decade.

Despite the prospect of such hefty increases, the NAO said the Government had made no overall assessment of its infrastructure plans on future bills or whether those bills would even be affordable.

"Affordability can only be assessed taking into account all household bills, household incomes and wider costs of living," it said.

"Gaps in analysis, and the lack of a common approach to measuring affordability, mean that the Government does not have an overall picture of affordability, either for the average household or for those on low incomes."

The NAO expressed particular concern about the plight of the low income households where energy and water bills accounted for 15% of spending in 2011 - almost double the overall average of 8% - while their incomes had fallen by 11% in real terms since 2002.

Decc estimates that 11% of households are now classified as "fuel poor" while the NAO calculates that 12% are at risk of being unable to afford their water bills.

The head of the NAO, Amyas Morse, said that ministers needed to know at what point the continuing price rises would become too much for consumers to bear.

"Government and regulators do not know the overall impact of planned infrastructure on future consumer utility bills, or whether households, especially those on low incomes, will be able to afford to pay them," he said.

"It seems critical to know 'how much is too much', based on reliable information."

Margaret Hodge, the chairman of the Commons Public Accounts Committee which oversees the work of the NAO, said ministers needed to work with the industry to ensure bills did not become "unmanageable" for consumers.

"Households up and down the country are already struggling to cope with rising water and energy costs," she said.

"I have serious concerns that government is taking decisions on infrastructure, banking on hard-pressed consumers to foot the bill, without knowing whether households will be able to afford to pay.

"Government needs to work with regulators and private companies to ensure they have robust information on the long-term impact of planned infrastructure on consumers."

A Government spokesman said: "Decades of underinvestment have left the UK struggling with insufficient energy infrastructure, but we are committed to fixing the failures of previous governments, and to making the difficult decisions that will allow us to have the infrastructure we need.

"The Government is committed to supporting hardworking families and that's why we're cutting tax for 25 million people and taking 2.7 million people out of income tax altogether by 2014, helping the most vulnerable with their bills, freezing fuel duty and sticking to the economic plan that has got all sectors of the economy growing."

A Tory spokesman said: "We agree with the NAO that government should 'rigorously scrutinise all decisions on both value for money and affordability grounds', that is why the Prime Minister has announced that we need to roll back some of the green regulations and charges that are putting up bills at the Autumn Statement."

Deputy Prime Minister Nick Clegg said: "We are straining every sinew to keep energy bills and utility bills as low as we possibly can.

"There are a range of forces that drive utility prices, particularly energy prices.

"Around 60% of the rise in energy bills over the last few years comes from wholesale prices.

"But there are other contributing factors. We are looking in Government at the levies which the Government and previous governments have inserted into consumer bills."

But he added that a major investment programme was needed to keep the lights on, which had to be funded.

At an event in a west London supermarket, he said: "We have a very major problem as a country.

"The previous government, certainly previous governments, failed singularly to invest in the energy infrastructure that we need in this country to keep the lights on and make sure that we get a sustainable and diverse energy mix."

Two-thirds of energy-generating capacity needs to be replaced, he said.

"We have to massively revamp and reinvest in the way in which we generate energy and the way we consume in this country and that's an inescapable fact."

Some £110 billion needs to be spent on power generation and "that has to be paid for somehow".