BEFORE coming to power at Westminster, Labour were insistent that they would cut people’s energy bills. Ironically, it may be the work to do that which is driving them up.
Keir Starmer, in comments which have been often repeated by his opponents, said Labour would help “families save up to £300 off their energy bills” by 2030.
Speaking to the Scottish Sun, he went further. “[Savings] would be hundreds of pounds. So, £400 to £500, but for good. That is not just a temporary reduction, it is a permanent reduction.”
However, the Prime Minister has faced accusations of having “lied” to the UK public after Ofgem announced that the price cap would rise to £1849 per year from April.
This third subsequent increase means an 18% rise on the £1568 at which the price cap was set when Labour entered government in July 2024.
Professor Paul de Leeuw, the director of Robert Gordon University’s Energy Transition Institute, said there was a lot more to cutting bills than simply reducing wholesale energy prices.
“This equation gets complicated,” he said, pointing to data from Ofgem which showed that – in August 2021 – only around 29% of the average UK electricity bill was linked to the wholesale cost of power.
De Leeuw explained: “Why your electricity bill is so high is not because of the wholesale cost of electricity generated by wind or by using gas, but all the costs actually to do with environmental charges, policy charges, things loaded on because of some companies’ bills in the past which were passed on to you.
“We need to be very mindful that if we want to drive prices down, you need to drive the components of your electricity bill down.
“Therefore, it is really important that only about 25-30% is wholesale electricity prices. Everything else is charges.
“Unless you get rid of the charges, you can't bring the bill down. By putting more charges on there, it's not going to help you.”
Charges can take many forms. They include curtailment costs – where consumers pay wind farms to shut down because the grid cannot handle the power they are generating – or costs from the Regulated Asset Base (RAB) model – which is being used to fund the construction of nuclear plants south of the Border. They also include the charges of building the infrastructure needed to get to net zero.
Building the facilities needed to cut costs may then actually be pushing bills up in the short term – which is far from politically ideal for Labour.
The pressures of inflation
However, the question of whether they have succeeded won’t really be asked until the next General Election in 2029.
But de Leeuw warned that the impact of inflation over time may mean that any reduction in the bills is swallowed up.
“It takes a long time to get all these wind farms,” he said. “We haven't approved them all. We haven't even got the consent in. We haven't even gone to the grid. We haven't even purchased the materials to build them.
“So yes, we might get something off the bill, but that actually will probably be offset by the charges and the cost inflation over time.”
He went on: “I think a lot of it will be kind of taken away by other costs that are going to increase. But the main issue we have is there's a lot of things in your electricity bill, which has nothing to do with generating electricity.
“That is the big problem. Until you get rid of that, you actually aren’t going to get the cost down for people.”
For gas, the professor says, the environmental charges “are tiny, about 4% of your bill”.
“So if you want to get your electricity bill lower, you have to break down the components of your bill. You have to make all of these slices lower if you want to get your bill lower, and that is more than just the wholesale cost.”
