Spring Statement signals rocky road ahead for affordable energy and equitable net zero transition.

Last week the Chancellor delivered her Spring Statement. We weren’t anticipating much on energy generally or energy demand specifically. The Spring Statement builds on last year’s Autumn Budget, which we blogged about in early November. However, many Government decisions, on net zero and a wide range of other important things, won’t be taken until after the current Spending Review is complete in June. That means this year’s Autumn Budget will likely be significantly more important than last year’s in making public spending decisions, including in the energy space.

However, this year’s Spring Statement was anticipated to be a big event in terms of welfare reform to help balance the public budget and enable a step up in spending on defence. What was announced, combined with the state of public spending and downward projections of economic growth (this Government’s key priority), gives cause for concern in terms of what lies ahead in reducing energy demand and doing so in an equitable way.

In her Spring Statement, the Chancellor announced deeper benefits cuts than had been anticipated. While the cuts will take some time to come into effect, it will be concerning for many people that this happened days before the energy price cap rises and given that energy prices are set to stay high into next decade.

While some benefits are going up – e.g., the Universal Credit Standard Allowance – others are going down. Perhaps most concerning are cuts in health-related benefits, including but not limited to qualification for Personal Independence Payments (PIP). People on low incomes living with medical conditions often experience the deepest energy poverty simply because they need to use more energy in managing those conditions. For that reason, cutting health-related benefits really is a false economy if the outcome is more pressure on the NHS if people can’t afford to manage their conditions as they need to.

And it isn’t just people with health challenges who will be disproportionately affected. In a recent EDRC policy brief, our equity colleague and CEP Senior Research Fellow Christian Calvillo and EDRC Director Mari Martiskainen have highlighted how people with a range of ‘protected characteristics’ (including age, race, sex, as well as disabilities) can find it even more difficult to access affordable energy and are general at greater risk of finding themselves left behind in the transition to net zero. This work informed the recent advice to Government on the Seventh Carbon Budget produced by the Climate Change Committee.

Of more general concern is that the Government’s own impact assessment reveals that the welfare cuts announced last week could push 250,000 more people into poverty. Whatever the official measure of energy poverty, if people’s incomes fall as energy prices remain high (and are currently rising further), they WILL suffer the implications of not being able to afford the energy they need. That means even more importance will be attached to improving energy efficiency and the state of the building stock, and to making flexibility solutions more accessible to all if energy poverty challenges are to be addressed alongside making necessary reductions in energy demand and carbon emissions.

All this poses a real challenge to Government, who are in the process of reviewing their fuel poverty strategy just as two of the fundamental drivers of fuel poverty (income and energy costs) are moving in the wrong direction.

That leaves the weight of the challenge to the third accepted driver of fuel poverty, the state of the housing stock. Schemes such as the Warm Homes Plan and the welcome commitment in the Spring Statement on affordable housing and linked investment in construction skills will become even more vital in ensuring warmer, cleaner homes for those who need them most. Our own work in EDRC – recently reported in a policy brief and linked report has shown that initiatives such as retrofitting fuel poor homes not only help make energy more affordable but can also support jobs and GDP. However, the benefits in all regards can only be fully realised if worker and skills shortages can be addressed, particularly in the construction sector.

However, questions remain around whether these schemes can deliver and whether they will reach those affected by price rises and income drops, and to what extent will the range of flexibility schemes, for example, enabling people to secure cheaper energy at different times, be accessible to those who need the relief most?

GB Energy and its remit to lower energy bills has had a lot of political attention since the election. However, there was nothing on that in the Spring Statement so we will have to wait to the completion of the  Comprehensive Spending Review in June, and there are already rumours that funding might be cut. Much hope and expectation has been centred on Government investment in (both directly and through GB Energy) and leadership on providing clean power to reduce energy demand and generate economic growth and support the most vulnerable to live more secure and comfortable lives.

Thus, it really is critical that Government don’t lose sight of or be diverted from its ambitions, just at a time when it really needs to be doubling down across the wider decarbonisation, energy security and ‘just transition’ space. Otherwise, there is even more reason for people to fear an unjust transition, which would only serve to feed the most negative type of political consequences, especially given developments across the pond. It really is time to stop considering the need to reduce energy demand and decarbonise our economy in terms of current costs and look instead to investing in a future that is more prosperous and sustainable for all.