The gravity of the ECO cuts

on 07 April, 2014

Knauf Insulation's Steven Heath asks, by cutting ECO, what risks has the government exposed us to?


SSE’s announcement to fix energy prices to January 2016 saw David Cameron and Ed Miliband competing to claim the credit. With the other energy suppliers coming under pressure to follow SSE’s example, let’s consider what the real cost of this price freeze amounts to – and consider if there is really any credit to claim.

Labour announced a popular plan for an energy price freeze. Soon after, energy suppliers announced energy price rises; the fault, we were told, lay with Green Taxes. Government reacted by cutting the one government-backed energy efficiency scheme that helped hardworking households reduce their energy bills for years into the future. This cut allowed government, in a deal with energy suppliers, to give back a one-off saving on energy bills this year, or indeed an energy price freeze, as SSE has announced.

So, a long-term substantial saving for many is sacrificed for a short-term saving for all that equates to between 70p to £1 a week.

David Cameron did not cut a Green Tax in this deal, but rather a national insurance programme. The Energy Companies Obligation (ECO) protects us as a society, and individually, from the nasty surprises life might hold for us. Over its lifetime it has insulated over 12m of the UK’s 27m leaky housing stock.

Those 12m households pay less for their energy year after year. For many, energy bills are the biggest outlay after rent or mortgage. Across the UK, 6.59m households are in fuel poverty and there are over 30,000 excess winter deaths, with many households facing the choice of heating or eating.

ECO also acts as an insurance policy that attempts to lower the risk of flood frequency and severity, reducing the number of households affected.

So what has the government done to ECO and what will the impacts be? The accompanying infographic tells the story of the lack of ambition the ECO scheme had before the recent Green Levy furore when compared to CERT, the previous scheme. It then shows the further cuts to ambition detailed in the Autumn Statement. All this will result in money back to the consumer, we are told, or indeed an energy price freeze.

While the ‘cost of living’ debate is very real, there is a need to insure against the risks of spiralling energy costs. Rolling back the ECO scheme ambition will only expose householders to the vagaries of wholesale gas prices and subordinate our views to the foreign policies of those selling it.

Given the current list of risks our National Insurance payments cover us for, including the National Health Service, unemployment benefit, sickness and disability allowances and the state pension, then perhaps funding for a national energy efficiency programme would better sit there rather than on all our energy bills. Fixing contributions to the amount we earn would be fairer than fixing it to the amount of energy we need to heat our homes.

Of course, there are differences from a standard insurance policy. ECO does not wait for a claim to be made, but rather starts insulating householders from high energy prices from the moment measures are installed. It also creates local jobs, reducing those on unemployment benefit. What’s not to like?

It is unlikely our political parties will be rushing to claim credit for any additions to National Insurance, even if it does mean a cut to energy bills. Unless of course one of them feels like grasping the nettle and explaining why we won’t have ‘Green Taxes’ in the future, but rather a ‘national energy efficiency insurance policy’ worth the name.

Steven Heath is director of public affairs and strategy at Knauf Insulation Northern Europe.

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