Welcome to this afternoon’s session of the Energy Security and Net Zero Committee. We are delighted to be joined by the Minister for Energy, Michael Shanks MP, and Jonathan Mills, the director general for energy markets and supply at the Department. Welcome to you both, and thank you for joining us. Minister, how secure are Britain’s energy supplies in the light of the conflict with Iran?

First, Chair, thank you for having me back so soon after my last appearance. That is a really important question, and I would give some reassurance on two fronts. First, despite some scaremongering stories that have surfaced in the past two weeks, the UK has very strong energy supplies from a diverse range of sources. If we think about our gas supply, for example, we have a number of different sources that are all still operating as normal—I spoke to the three LNG terminals just yesterday to confirm that that is still the case. If we think about fuel, it is really important to say that, across the country, we monitor fuel supplies very closely, and there are no concerns at all about that fuel supply. Clearly, we keep all these things under review, but it is important to restate that publicly. We want people to go about their lives—refilling cars and everything else—in the way that they normally would, which is how we make sure that supplies continue to operate as normal. However, there is no question that the situation in the middle east, and the uncertainty it brings, has an impact on price. That is why the Government have really clearly said that we will fight the corner of consumers, and we will do everything we can, first, to de-escalate the situation—which is in all our interests—and secondly, to provide support wherever we can. That is why we made the announcement yesterday on heating oil. The third thing I would say, which I am sure we will come back to, is that this is also a moment to learn lessons from this situation about how we must be less dependent on fossil fuels in the future, so that these crises—they come around again and again, and it is always consumers who pay the price—do not have the impact that this one is currently having. Those are the lessons we have to take from the current situation.

I have heard you say that a few times so far about the long term and the importance of the energy transition. Of course, we have the immediate challenge, and you cannot suddenly switch on lots more renewables to overcome being on what you call the “rollercoaster of fossil fuel prices”. People are very worried, and they can already see the price rises that you touched on in heating oil, petrol and diesel. What happens at the start of July if the crisis continues and the price cap period ends?

We were right to raise the price cap. We should remind the public that the price cap has not yet come into force. It will come in on 1 April, and, because of the decisions the Government have taken, it will see bills fall by 7%. That was a conscious decision to take £150 off bills, in order to bring them down for people. That will protect them until July—it is really important to say that. Clearly, what happens at the end of that price cap period is still being worked through. We are at quite an early stage in what is called the observation window, looking at the range of factors that will lead to that. Although we are now slightly over two weeks into this conflict, in truth we do not know exactly where this is going to go and when. It is therefore far too soon—Ofgem has repeated this point itself—to say with any certainty exactly what that will look like. Clearly, as we get closer to that period, we will have more evidence to be able to see what the price cap might do. As the Chancellor and the Prime Minister have said, the Government stand ready to provide whatever support is needed to consumers.

You have been saying that for the last few weeks, but there comes a point where you cannot rely on saying that any more. How far away are we from the point at which you will have to say something about what the plans are for after the end of the June price cap period?

To be fair, we have said that we are on the side of consumers, which is why if we see price gouging, we will act on it. That is important right now. Also, after two weeks of seeing heating oil prices increase, we took action yesterday to provide support for the most vulnerable households across the country. It took 200 days for the previous Government to do the equivalent, so I do not think we can be accused of not moving quickly on this. As I said in my last answer, the price cap is there from 1 April until the end of June. People will be protected by that and should have confidence that, whatever is going on in the rest of the world, that price cap is in place and will come into force on 1 April. But we are still too early in the period of observation regarding what will happen post that price cap. We have not even entered that price cap period yet. Although I completely understand the question, it is too early to say exactly what factors will come into play when coming up with the next price cap. But the Government stand ready to look at whatever support is necessary.

Okay. The Secretary of State told us that he was looking at removing further policy costs as one option for further action of the sort that we have seen in what was announced in the Budget and what will come through in the price cap period next month, as you touched on. The typical dual fuel policy cost on our bills is £236, under the next price cap period. There is not a huge sum left to play with, if the Government see that as the mechanism to reduce energy bills. Is that realistically the best route of further action to cut bills?

It is an avenue that we have to look at very carefully, because we have said that every penny in a bill should be scrutinised very carefully to understand the role that it plays in the bill and whether there is an alternative way of delivering that same policy. For example, the Chancellor took the conscious decision to remove the renewables obligation costs and to fund it from the Exchequer by taxing the wealthiest in the country a little more in order to reduce energy bills. That was an important decision, but we look at other policy areas too. We also have to invest; this cannot be a trade-off where we say that we should simply take policy costs off with no consideration of the system we want to build for the future. At the same time as wanting to protect consumers right now, we have to start building the system that protects them permanently and will keep bills low in the future. We should have been doing some of that work many, many years ago, but the Government started from where we started from when we came into office, and we are determined to do that investment. We look at every part of the bill. We are in regular contact with Ofgem about more we can do together to really bear down on the costs. Of course, everything we build around renewables helps to reduce the role that gas plays in setting the wholesale price, which reduces people’s bills.

A number of our continental neighbours use general taxation, as the Government have just announced, for the next price cap period, but they use it more widely, so a lower level of policy costs are put on consumer bills. Is that where the Government in this country are headed?

We keep an open mind about the best way in which to fund the system that we need. I am acutely aware that I am not the Chancellor, so I am not going to be drawn on decisions around public spending. Clearly, we want to look in the round about the best way to deliver this. You are right to say that we have a different approach from many other countries, although there are other countries that fund infrastructure in this way. We need to build the infrastructure that gives us the long-term energy security and protection from volatility in prices. That has to be funded somehow, and we want to find the fairest way to do that. The RIIO-3 determination period, which Ofgem has just concluded with the transmission owners, has squeezed out every possible additional bit of profit that can be made by those companies to ensure that consumers are the winners from that, while at the same time also ensuring that we are investing in the system we need for the future. We are looking at a whole range of options. The Chancellor has said just this week that she continues to look very carefully at what other options are on the table.

There are some who have said that the answer to the current crisis is more capacity in the North sea. I understand that there can be no immediate increase in capacity and that the impact on price would be negligible anyway, even if it was not owned by private companies who sell on the international market. However, is there a case for expanding our production in the North sea in the light of what is going on in the middle east?

The North sea is a hugely important asset for the United Kingdom. It is working right now to provide gas into pipes around the country. It will continue to be a very important asset for the country, but it is also a super-mature basin that has been in decline for two decades. It is playing less and less of a role in delivering the energy we need. We have been a net importer for 20 years, and that will continue to be the case. In the pragmatic way in which we have taken forward our manifesto, we have said that we want to manage existing fields for their lifespan. We have also announced tiebacks so that those existing fields can be economically viable for as long as possible. However, fundamentally, our future does not lie in fossil fuels, and even if we did issue new licences in the North sea, all the evidence points to that having only a marginal impact on the actual oil and gas that comes into the UK. It is not the answer.

If that is all true, why did you issue the tiebacks?

Because we committed to two things in our manifesto—and people often remember the first part, but not the second. The first was no new licences to explore new fields and the second was that we would manage existing fields for their lifespan. Tiebacks are a way to make those existing fields economically viable for as long as possible. It was a pragmatic way of delivering our manifesto commitment with industry while also recognising that a science and climate-led approach to the future of our energy policy means that it does not come in the form of more fossil fuels—whether from the North sea or anywhere else. That is because even if it did come from the North sea, we pay the internationally set price. We are a price taker, not a price maker. It does not matter how much North sea gas comes into the UK, we pay the price on the international market.

I thank the Minister and Jonathan for coming along today. Just to correct the Minister slightly on fuel supply, 4,500 people on the islands of Uist and Benbecula, in my constituency, have had no petrol for the last two days. That is the result of a combination of consumer behaviour, bad weather and bad logistics, but it foreshadows what might happen in the rest of the UK in the next six to eight weeks if the strait of Hormuz is not opened up. The price of a barrel of Brent could be $130 or $150, and if it goes beyond two months, it could be $200, which would mean petrol rationing in the UK. Is that a scenario that you have looked at, and if not, then why not?

I will look into the very specific forecourts that the hon. Member mentions. However, I restate what I said at the beginning, which is based on the live data that we have from forecourts around the UK: there is no shortage of fuel in the UK. That is really important to say and is backed up by the evidence that we have live from forecourts around the UK. They are operating as normal. There are always, even outside of times of crisis, individual delivery issues at individual forecourts. I am not going to be drawn into individual instances, but I will look into the specific issue. We monitor this very closely to make sure that supplies are abundant and available, and that is the case across the country at the moment.

I will ask about marginal pricing and network costs. How often does gas set the marginal price now?

Our latest estimates are that it is still setting it more than 80% of the time. It fluctuates, and over the past year we have seen gas setting the price less, but it is still far too often.

Why is it that the marginal cost of electricity is still impacted by the marginal price of gas, bearing in mind how large an amount of renewables we now have in the system?

It is worth explaining—not to you, because I know you know this inside out—that the reason we have the marginal system is that we still have gas often as the very last unit we put on to the system. Gas is still setting the price because of that. We are trying to do everything we can to push that off, and that is why new nuclear and renewables and storage is important. It is working, because gas is setting the price less, but we have to move even faster to do that. We are also really interested in looking at whether there are alternative ways of running that system. It is worth saying that none of them is without complex trade-offs, but we are interested in alternative ways we might run the system, and this is a moment to redouble our thinking on some of that. But the best way for us to push gas off is for us to achieve the clean power by 2030 mission, where gas is there as a strategic reserve capacity in the system and not as the marginal price setter.

I know we are both talking about the same thing, but I think it is really difficult for people to understand this because, if it is still going to be the last resort, it does not matter how many other sources of electricity we have if that is ending up setting the price. Do you have any thoughts on accounting for gas differently in order to be able to reduce the marginal cost of electricity?

We are looking at some of those options at the moment. It is worth saying that if we take a snapshot of the year, yes, gas is still setting the price significantly higher than other countries, but on individual days of the week that is increasingly not the case, and we do have renewables setting the price. What we need is to push gas off much more across the whole of our generation capacity. That is why building that, and the infrastructure that brings clean power into people homes so we are not curtailing it, is really important. We are also looking at whether there are other ways we could design the market so that we can delink the price. I want to be clear that none of that is straightforward. The previous Government looked at much of that as part of their review of electricity markets and discounted many of the options along the way. We are looking again at some of those options, but there are a lot of trade-offs with them, which we are working through at the moment.

As the Minister says, we are already seeing progress here. The proportion of time that gas is setting the wholesale price has come down from 90% at the start of the decade through to 80%, and I think a bit lower than that now. This morning in the figures, we had about 30 GW of our electricity coming from renewables of about 39 GW overall today, and the price was about £30 per megawatt-hour, so well below the price that gas sets. We are seeing that already. The other thing I wanted to add is that the new renewables that come on do so under contracts for difference that mean that, whatever the wholesale price is set at, the consumer ends up paying the price for the renewables. If the price is more than those renewables need, the renewables pay back that amount and it comes back to the consumer. About 20% of our generation is coming through that route already. That is the share that really grows as we roll out the clean power mission. We expect that to triple as we go through the decade. That achieves the impact of delinking that new generation, and means the consumer experiences increasingly the price that is needed for those renewables, not the price that is needed for gas.

Except that consumers do not really feel that, do they? For example, there is the network cost as well. The marginal gas price is still dictating the vast amount of the cost of electricity, and our network costs are going up. For example, in the recent price cap they went up by £66 a year, partially offsetting the decrease in policy cost. It feels as if, however much we are trying to do these things, there is not enough movement in the right direction. What more ambition could we see, both on network costs and on reformed national pricing, to tackle this?

That is a good point about investment in the network, but it is worth reflecting on what that helps us to achieve. There is an up-front investment, which is right: £108 on bills by 2031, £48 of which is on the gas network, because we are talking about both networks, and £60 is on electricity. That investment in the same timeframe helps to save £80 per household on the cost of the electricity, because we are getting the cleaner power instead of paying to curtail it, and instead of paying more expensive gas. There is an investment cost—

Except that curtailment costs are still quite significant, aren’t they?

They are significant—absolutely. That is the result of two things—

And increasing.

First of all, the previous Government built a sizeable amount of renewables—I think I am the last man standing that credits them with that—but they did not build the grid that connected it all, and so we are curtailing many of these fantastic projects that were built under the previous Government. The second thing is that we did not strategically plan the system, so instead of efficiently siting projects that are of maximum benefit to the system and that help reduce the cost of running the system, we built them without any spatial plan whatsoever. That is why the strategic spatial energy plan and the centralised network plan that comes from it are so important, because then we build the most efficient system with consumer cost at the heart of it.

Almost everybody who comes in front of us says that if there is one thing the Government could do to decarbonise the country, that would be to make electricity cheaper. Yet you are very reluctant to do more to reform the energy market to take us off that marginal price of gas, and you are basically saying that network costs will have to go up, and constraint costs are not going to go down any time soon. That does not sound like a plan to reduce energy bills.

Well, it is. I would also say that there is not some magic button we can push that electrifies the country without building the things that get electricity to homes and businesses. Look, we built the grid in the ’50s and ’60s. It was an extraordinary project then to electrify the country. We have not done any big scale investment in the grid since. Even if we were not trying to hit targets for net zero, we would still have to connect these projects and meet the electricity demand that is coming in the future. We have to invest. I come back to this point: we are at a fork in the road. There is no option for us to stand still. If we want economic growth—frankly, even if we want to just stand still with the economic opportunities that we have at the moment—we have to build new electricity generation. That is either gas or it is a clean power system. One leaves us exposed to the international markets; the other protects us from them. We are determined to do the clean power system, but we have to invest in it.

We will have to move on, but I want to check two things from what you just said. Constraint costs at the moment of about £1.7 billion, projected to raise by 2030 to £6.1 billion—those are the figures I have. Do you recognise those figures?

I don’t have the exact number in front of me at the moment, but they sound around the right—I mean, they are far too high, is the bottom line.

That makes Polly’s point very well. Secondly, you quoted a figure of 80% as the time that gas sets the price. In her statement last Monday, the Chancellor said that the time that gas sets the price has fallen by a third from around 90%, which would suggest a figure of 60%. Could I get some clarity on that figure? What figure do you recognise? Is it nearer 60% or nearer 80%?

I think on the very latest numbers, it has come down by a third. It has come through—it was 80%. It obviously depends which year you look at, because the weather patterns of different years are different, but the number the Chancellor said was correct.

So the Chancellor is always right, as the Minister said earlier.

The Minister was also right—it depends which time period.

You are a very good civil servant. [Laughter.]

It is clear that investing in the grid helps to reduce bills in the medium term, but in the short term, we saw in the recent price cap, they went up by £66 a year and that partially offset the decrease in policy costs. The Government are tackling wholesale costs and have the levers they need for policy costs. Should they not be taking a more active role in keeping network costs reasonable, rather than delegating to Ofgem and NESO?

I come back to the point I made a moment ago on your general question, which is we cannot build the electricity system we need for the future without building the grids, so the investment in the grid is not optional. Frankly, even if there was a different Government taking a different path, you would still have to build a grid to upgrade what we have at the moment. That investment has to come from somewhere. What we want to do in the future is to have a much more efficient grid that is strategically planned, so instead of us just connecting somewhat random projects across the country, we have a strategic spatial view of where those projects should be built, and then the least possible grid necessary. That is important for communities, so that they don’t have unnecessary grid going through their community, but it is also obviously hugely important for cost, to keep it as low as possible. In the RIIO-3 period that Ofgem regulates at the moment, they have obviously increased to fund that investment. However, at the same time they have gone through all the investment plans from the three transmission owners to make sure that the costs are as low as absolutely possible. We are also taking a really active role in delivering those projects from the centre as much as possible, so that they are as efficient as possible when they are constructed. That is important for speed, because the faster we can build some of these projects, the more we can bring down the price of electricity for everyone. Also, it is obviously the best possible way to keep costs as low as possible.

So are you confident that you are not at risk of building too much network?

We are going to build the transmission projects that are critical for the country. If I were to go back 15 years and plan where some of the renewables projects were built, I would not place them where they are in many cases, and we would have therefore built less grid. We now have to connect the projects that are there because, as the Chair pointed out earlier, the price of constraining onshore wind in particular—as well as offshore wind—is a cost that we are all bearing. It is also worth saying that that relates to turning up gas to replace the wind that we cannot get from the north of Scotland in particular. That is a cost we are all paying, and it is because of a lack of grid.

I accept that you have to connect what is already there, but are you confident in your projections for the future? The network is being invested in not just for what is there at the moment, but for what is going to be there in the future. I will come to a specific example in a minute.

That is absolutely right, and it is why the strategic spatial energy plan and the centralised strategic network plan are really important. They are projecting into the future, beyond the current period, what the future energy system will look like, based on projections of future demand, which we know will increase significantly. It is also about taking a spatial approach to the country and asking, “Where is the best place to build certain types of generation? What is the best for the system overall, so that we can run the most efficient electricity system?” Following that, it is then about the network plan and how you connect all that up in the most efficient way. We will have to build more grid, but we want to build the least possible amount of grid to get the clean power we need.

Turning now to data centres, there is an interesting thing in the Ofgem consultation that says around 50 GW of data centres have been identified, and most of them are likely to receive an offer. However, at the moment—or back in February—our peak electricity demand was 45 GW, so that is obviously a massive increase. Is there a danger that energy consumers will end up paying higher network costs just to satisfy the demand for more connections for data centres, or do you have another approach so that they are not bearing that cost? Is the figure of 140 data centres actually realistic? They have been identified as being likely to receive an offer, but when you look at that as a whole, is it realistic that we are going to have 140 data centres?

Probably not, but it is worth saying that not all data centres are equal. Within that, there will be some really significant data centres, and some much smaller ones as well, so it is a question of scale. You will recall that we cleared out the generation queue that had built up with a significant amount of batteries, for example. On the demand side—we have just published a consultation on reforming the demand queue—we know that data centres are there in an equivalent form, and we think many of those will not come to actual delivery. It is worth saying two things on the role of AI and data centres. First, data centres are going to play a critical role in the future of economies around the world. If we want the UK to be a global leader in AI and innovation, we have to build the infrastructure to allow these really substantial data centres to come to the UK, and we want to make that happen. We also want to be as strategic as possible about where they are placed. There are options, for example, in how we might place them in areas where we have significant constraints, and by putting them there, we actually help the overall system to be more efficient. That is not always going to be possible, but where it is the case, we want to incentivise that. The recent AI growth zone in Lanarkshire in Scotland, for example, is a good example on constraint, as it will soak up what we are currently paying to constrain. We also want to look really closely at what a wider data centre strategy for the UK looks like, and DSIT is driving that forward—ranging from what opportunities we want to how we meet the energy needs of data centres.

Going back to the first part of my question, will energy consumers end up paying the higher network cost for those?

If we plan them strategically, no. It is worth saying that data centres will also pay a significant amount for the electricity that is needed. It is not as if they are just a net cost; they will be paying for it. If we use them efficiently, there are ways that they help to reduce the overall system cost. There is also a risk that if we do not do that, there are increased costs. That is why we are being really careful about how we strategically plan data centres. In some of the modelling—NESO is looking at this in more detail—data centres have a capacity on the system but actually very rarely use that capacity. The modelling of x number of gigawatts for data centres is often the amount that they want in terms of the connection, but their actual utilisation of that day to day is significantly less. We want to model all that and see what it looks like, but at the centre of it we want the UK to be a world leader in AI. We want to facilitate that to make it happen.

The point that the Minister makes is that it is not just the absolute quantity that matters but whether it is at the wrong side of bottlenecks in the network. Where is it located? Where is it located relative to where we expect demand? That is what we have charged NESO with looking at in the strategic plan.

But if you have a variable supply, such as wind, then it will sit behind a bottleneck most of the time, but at some point you will have electricity coming in from other sources to an area.

That is exactly the sort of thing that NESO looks at in its modelling.

Minister, just to go back very briefly to when you were talking about curtailment and constraint costs, a couple of weeks back we had evidence from NESO representatives. They did not believe that curtailment costs would ever actually drop; they saw them as part of a natural cycle. You talk about the role of those costs coming down in reducing bills; do you agree with that NESO assessment?

I would need to look at the specific assessment; I did not see that.

You were hanging an awful lot on the curtailment costs dropping wildly in the future.

They will not drop to zero; we are clear about that. But they will reduce significantly.

At that earlier session I asked the witnesses from NESO what they felt was an acceptable level of curtailment costs. Do you have an acceptable or expected level that you think they should be at in the future?

We have not set a target level because our aim is obviously to get it as low as we absolutely can. It will fluctuate given weather conditions, storage and a whole range of different demands in a particular area. It will change, and changes at the moment all the time. Our aim is obviously to get it as low as possible, and it is worth saying that the curtailment means that we are paying trade payments to switch off but also paying to switch on gas. The more we can transport the power, the more we can reduce that cost.

NESO’s suggestion was that around £2 billion a year would be an acceptable curtailment cost.

We would look at the modelling overall to see what the cost associated with paying any curtailment in a system would be. What would be the cost of the network build required to reduce that? What other costs might be incurred? We would aim to optimise for the lowest cost to the consumer. I have not seen the particular figure that you stated, but it would depend very much on the whole-system modelling, rather than being a single figure.

Thank you. Let us move on to talk about where profit currently lies in the energy system more generally—which has come up with a number of witnesses. Who currently benefits from the complexity of the system in energy and the way that the market is set up? Where does the profit lie?

The profit lies across the system. We have a privatised system from top to bottom. That is not our design but what we inherited. Inevitably, there is a profit motivation. We have regulated monopolies that deliver much, particularly in the grid. There is a recognition that if we are going to have operators in this space, profit will be a factor. If we are asking, as we are, for significant amounts of investment—tens of billions of pounds—that comes at a cost to organisations. Profit is an understandable part of that, but we want it to be as carefully managed as possible so that public money is not just lining the pockets of big companies. Equally, we expect a once-in-a-generation investment in infrastructure. To do that requires companies to take a significant amount of finance on their balance sheets. Ofgem looks at the regulated profit margin and comes to a conclusion.

We have heard evidence that change in the electricity system moves at a glacial pace. We have a system that, probably, none of us likes and that none of us thinks works very well, that is not effective and that we are trying to change, but we are not entirely sure how to do that without watching the big block of Jenga fall down. How do we do that if the public do not understand who is making profit from the system at which level? Companies make profit—absolutely—but we need to ensure that is being done in a responsible way that ultimately benefits consumers.

I am not sure I would call the energy system a big lump of Jenga, but you are right to say that it is complicated, and it takes a lot longer to get things done than I would like—so maybe that is a metaphor that I will adopt. To be fair, it is a frustration within the industry as well. People want to move far faster to do things, which is why we have hopefully taken a different approach as a Government to making these things happen.

Given the complexity of the system, is it not about trying to explain to the public how it works in a better way?

Maybe we do need to do more to explain it. It is a complicated picture, and there are different people working in different parts of the system who generate a profit as part of doing that work. We work with the system we have got. We want to make it much more efficient, which is why market reform is important. We will publish the reformed national pricing delivery plan soon, which will look at some of the options we want to take for wider market reform. We are also going back to the drawing board on other things to look at what else is possible; that plan is not the limit of our ambition. We might not have set out to design the system we have—I suspect that you and I would agree on that, Graeme—but we now need to make it work for consumers. Spending years trying to completely upend that system is the opposite of what will help deliver the consumer benefits that we need to see.

Finally, relating to that, we are now in a context where we are seeing price rises and energy debt become a problem for all of our constituents. Prices grew by around 9% in 2025 alone. In your introduction you talked about the Government providing whatever support is needed. The Chair tried to press you a little bit on this as well, but what does that mean? What are the options for the support that the Government will provide? Ultimately, what is it that you are trying to achieve? Whatever support is needed—to do what?

You are right to highlight debt in particular. It is a staggering figure: in the latest numbers, Ofgem estimates that every single consumer is paying around £52 a year managing the debt in the sector. It is bad for everybody, but it is also bad for those worrying about whether they can put their heating on. We are doing what we can around debt with Ofgem. It published a review at the end of last year looking into the debt strategy and the actions it was going to take. There are proposals for a debt-relief scheme. My colleague Martin McCluskey, who is the Minister for consumers, is looking at this in detail. First, we want to prevent customers having to build up that debt in the first place, and secondly, we want to make it as easy as possible to get out of that and pay it down. Thirdly, we do not want that debt to just recycle around the system, where we are all paying it and nobody benefits. We have to work with Ofgem, as the regulator, on that. We are at a record level of energy consumer debt, it has been building for years, and we are going to do something about it.

On my other question, when you say, “whatever support is needed”, what are you looking to achieve? What is the aim of a Government saying that they will do whatever is needed?

This is partly why I said in my first answer that although we appreciate that people will be worried looking at the news and thinking about where prices might go, the Government are not going to rush into working out what that looks like two weeks into this. We have a price cap coming in on 1 April that will last three months, which will protect customers regardless of what is going on in the world.

Is one of your options to maintain the price cap at a level? If prices look to be extending far higher after this monitoring period, would “whatever support is needed” mean holding that down? I understand your point about assurance, but people want to know what kind of support, and in what areas, they can expect the Government to provide.

We keep everything on the table. The Prime Minister has said that everything is on the table, but I am not going to be drawn on what happens at the end of a price cap that has not even started yet. The price cap kicks in on 1 April, people will be protected by that price cap regardless of what they see on their TV screens, and we are working in the background right now. There is a period of time before we know what any of the estimates might be for the price gap; no one has that information, because we do not know where we are going to be three months after that. But the price cap comes in on 1 April, and it protects consumers. It is worth saying that that is not by luck; it is because of the decision that the Chancellor took to take £150 off people’s bills. That is why people’s bills will go down on 1 April.

Do you think that the networks should take a hit to their profits while they invest in modernising? After all, that is something that any other company in the private sector would expect to do if investing.

I think profits should be managed at as low a level as is possible. I would like to see as much money as possible staying in the pockets of the hard-working people of this country, or building the grid that we need for the future rather than going in profits, but I also recognise that we have a privatised system—we have three private companies as transmission owners. We did not design the system that way, but it is where we are at, and profit is a factor in them being able to raise the debt that is necessary to build these projects. I recognise that profit is an important feature, but I think that it should be as low as possible to keep people’s bills low. That is in all our interests.

I am not sure that was quite the answer to the question I asked, was it? Tesco builds a new store, and that reduces its profit—it builds quite a lot of new stores, so it takes those hits. Why is that not the same for the network companies?

They are not quite comparable. Tesco gets to choose exactly where it builds and for what purpose. The network companies build what is necessary across the country. We have a regulated system, which is monopoly companies running the transmission owners. You would have to ask others, perhaps in this Committee or in the House, for the philosophy that sits behind privatising what are monopoly utility companies. That was not the choice of this Government, but nor are we going to rip it all up right now, in the middle of what is an important moment just to get building.

Are the companies too big to address their level of profits?

I do not think that is for them. They are not the arbiter of this. Ofgem has worked very hard in this price control period to make sure that, yes, a regulated profit margin is allowed, but that that is as low as possible. Of course, the RIIO system is about incentives to innovate and build as fast as possible, which helps consumers. That is how the companies make some of the profit—by acting as efficiently as possible—but we are also bearing down on the delivery. Government are not a passenger in this; we drive forward those projects. I have almost weekly meetings with the transmission owners about individual projects and why they are not being built as fast as they said that they would be built. They are now accountable to the public for the vast sums of money that are going in. They have to deliver, and that delivery will bring down consumers’ bills.

I come back to Graeme’s question about constraint costs, which still seem to be going up, even though you say they will eventually come down. Some of the analysis I reviewed ahead of today suggests that we could significantly reduce those projected constraint costs ahead of Clean Power 2030 by using, or making greater use of, local storage, whether that is home batteries, battery-to-grid or greater take-up of technology. Do you think that analysis stands up? Do you think that that is feasible?

It is hugely important, and why I am pleased that we published a flexibility road map. We now have a flexibility commissioner. I met the flexibility commission—I am not sure of their title, but I met the group of people who are experts in flexibility a few weeks ago.

You have just named them, haven’t you?

I am sure they are a taskforce—anyway, they are going to deliver it. This presents a huge opportunity for us, first to make the system more efficient—if we can use electricity flexibly, we help to reduce that overall constraint cost. There is also a consumer win at the heart of this. We want to see much better use of smart systems and access to smart data, which allow people to pick tariffs around their time of use. Market-wide half-hourly settlement is hugely important in helping us drive that forward as well, but it is also why we are building storage, so batteries at a localised level are really important. We are also building the first long-duration energy storage in 40 years, and projects will be coming forward soon. That is an important part of storing the cheap renewable power for when we need it.

The analysis I saw was looking at small-scale storage, rather than long duration. You made an interesting announcement about plug-in solar. Should something similar come with small-scale battery for domestic and small business consumers?

Yes, we want to look at much more. The plug-in solar was an important part of us saying that consumers should have a win in this as well. It has not been regulated in the UK before, but it now will be, so that people can have that offer. A part of the warm homes plan looks at a range of different investments and technologies. We were deliberately not specific on what would be included, so it does include a range of technologies. We also want to look at innovative things that are used in other countries such as community batteries, for example, on a much smaller scale—not grid-scale batteries but not quite domestic, either. We could take advantage of that at a localised level. There is a huge range of things, but flex is the future for consumers and also for having a much smarter system.

Picking up on your comment there, Minister, you are supportive of small-scale batteries. I think you said that is a good idea. Does that mean you have won the argument with MHCLG to have it in the future homes standard? Are we going to see that mandated in the future homes that we build in the country?

We have been having regular conversations with MHCLG. I am not going to prejudge an announcement on the future homes standard that has not been made, but we do want to see much more use of technology like this. We have already been clear about solar panels playing a really important part. We think batteries are important as well, but there is a slightly different stage in the development. We obviously need to try and make sure that the regulatory process is as clear as it can be for batteries in particular. We have kind of done that with solar, which is a well-tested technology now. Batteries are well tested as well, but they are a little bit earlier in that process. We will keep all these options under review.

Would it take a private Member’s Bill to get you to agree to it? The Liberal Democrats introduced the sunshine Bill and all of a sudden it was in the future homes standard. We have not got that on batteries yet and you have said how important that is. What is the mechanism to get Government to adopt it?

People are very welcome to introduce private Member’s Bills and a whole range of things. Often they are on topics the Government are already going to do things on—particularly from Liberal Democrats. We nevertheless welcome the enthusiasm. We do want to be ambitious in this space, but I want to be honest: we need to make sure that this is delivered in as methodical a way as possible. And it is for MHCLG to make decisions about future homes standards; it is not for me.

I will come on to other questions, but on listening to the line of questioning from Graeme and Claire, is there enough focus in the Department on debt? Whenever we have Ministers come in and we see big announcements, it is always on building new stuff or it is on clean power. That is the Secretary of State’s big sexy mission. The big issue impacting on our country is £5.5 billion of consumer debt and 2 million people living in energy debt. Is the focus of the Department not strong enough on debt, particularly under a Labour Government?

You tempt me to say that Martin McCluskey is going to have a big sexy mission on reducing bills, but it does not sound quite as impressive.

He was invited to join us today.

For obvious reasons, it may well be that the announcements that get the most headline-grabbing attention are around the clean power mission. That does not mean there is not a huge amount of work with dogged determination in the background. Martin has set up a number of groups to really look at individual bits of the Bill and to look at what Ofgem is doing around debt and a whole range of things, so we are driving that forward. Often that is not headline grabbing because it is a pound here or a pound there, but it all adds up to a big difference. I would also say that we announced £15 billion for the warm homes plan, which will reduce debt because it is about making homes more affordable to heat for people across the country. It is the biggest upgrade of homes in British history. It is a monumental moment for us to say that our commitment is, particularly for those on the lowest incomes, ”You shouldn’t be living in a draughty home. We should help you to make it more energy efficient, because the cheapest energy is the energy you do not use at all.”

If the Department or Martin is setting these things up now, what was happening before?

To be clear, groups were set up from day one of this Government. It has been our absolute driving mission. The Prime Minister has said repeatedly—he has directed every single Minister to this cause—that our absolute No. 1 priority as a Government is to tackle the affordability crisis, and everybody has different levers in order to make that happen. Some will make it on to the front pages and many will never see the light of day, but it does not mean they are not having a big impact. That is the work that Martin drives forward. To be fair to Ofgem, they have taken very seriously the direction from Government that they should use every single power they have to bear down on the cost of energy as well.

It is also worth highlighting the expansion of the warm home discount programme, which was some months ago now, and the fuel poverty strategy that we published alongside the Budget last year.

Let me move on to ROs. We had evidence, particularly after the autumn statement announcement. Can you foresee a time when it might be politically feasible to put the full cost of ROs back on to bills?

We are obviously going to keep this under review. The Chancellor made a decision to take it off bills for three years. The RO scheme completely comes to an end in 2037, but between 2027 and 2037 a number will come off every year, so we will see a tailing off of that cost. The Chancellor made the decision in a spending envelope to take the three years off. We will obviously review it again when we get to that point. We have also made changes to the rate of inflation that the RO is measured against to try to bring down the cost of that. There is a balance to be struck here. Our opponents wish us to simply go around ripping up these contracts, but all that would do is ring the death knell for any sense that Britain is a place where a contract means anything. It would also increase the cost of doing business in the UK and increase the cost of capital, which would drive up the CfD prices that we are going to have to be paying for new generation technology in the future. There is a balance to be struck here. We want to take action to try to reduce the costs where we can, but not at the risk of upsetting the investment that is absolutely critical to building the system of the future.

Would the Government consider a windfall tax on generators with ROCs as a reasonable alternative to taxpayers covering the costs or the breakeven of our contracts?

We already have a mechanism in place. The electricity generator levy is essentially a windfall tax. At points where the wholesale costs increase beyond the threshold that it sets, the money flows back to consumers. We are looking at that in the light of the current situation, and whether that still works, but we think it is a useful mechanism that does bring those windfall profits back to billpayers.

Do you think you could go further?

I think the order of the day is to go further on a whole range of things—nothing is off the table. I am not going to hint at individual things that we are looking at, but nothing is off limits at the moment. We have said very clearly that we are in the corner of consumers, and we have to demonstrate what that means. Taking £150 of costs off was a huge commitment from the Chancellor. We want to look at what other options there are as well. Nothing is off the table.

Will the Government learn from this scheme when developing support for less mature technologies in the future, to avoid creating new legacy costs for decades?

I think it is a really fair challenge. People often forget what an early stage the development was in when the renewables obligation scheme was set up and just how little deployment we had of those technologies. We have matured a lot in terms of the technology readiness, but also in terms of the financial instruments that help incentivise that. The CfD is now widely held up internationally as an example of a two-way process that consumers benefit from, but that also generates certainty for investment. We are also looking at what future options there might be. We wanted to give confidence that the AR8 auction will open in July so that we can have projects coming forward. We have said that we want to keep a regular drumbeat of these. Equally, we look at the parameters of the projects and the way they are being delivered all the time to make sure that costs are as low as possible. We have seen exponential investments that have led to the cost decreasing, with offshore wind, for example. Floating offshore wind remains a technology that is still hugely innovative and in its infancy, but it is going to be the future of a lot of our offshore wind capability. The cost will come down, but only if we invest.

Minister, you talked about not wanting to rip up contracts and Britain being seen as a place to invest. When it comes to feed-in tariffs, so the price per kilowatt paid to the early adopters—the guys who put solar panels in first or put a turbine at the end of their garden—you want to change that support from the retail price index to the consumer prices index. That is ripping up their contracts, isn’t it?

I think it is coming to a fair position where very few people use the existing measure of inflation. It is coming to a fair balance. We consulted on a range of measures, and we think this is the fairest way to take it forward. We recognise that it will be a change for people who have those arrangements, but equally, we are at a stage where we need to make decisions that, as unpalatable as they might be to some, will help us bring down bills for everybody. I spoke about a sense of balance to Mike earlier. It is not about us saying we rip up contracts, but it is also not about saying that everyone is protected forever, because we are all facing the costs of increased energy, and the Government are going to do everything possible to reduce that.

What you seem not to be saying is that every future scheme will now be based on the consumer prices index, not the retail price index.

It is very likely. I think the scheme design across the board is based on the CPI—not just in the energy world—so it is very likely that that will be the future.

Are you not worried about seeming like you are ripping off the early adopters—the guys who were there first and who are now getting a raw deal—or are you balancing that against the consumers who will save something like £600 million over 10 years, was it?

I think a balance is important here, but we have also invested in those renewables significantly over a period of time, so for many of those who have feed-in tariffs, they have had that revenue source for a long time. I understand that that was partly why they made those investment decisions in the first place, which is why we are not simply ripping it up and leaving them, but it is also about saying, “We think this is a fair measure of the inflationary impact that you’ve faced,” recognising that RPI is not a particularly strong measure of that. I think we have come to a fair conclusion, because overall bills are too high and we have to bring them down. As I said earlier, this is not necessarily about big things that can take £150 off bills. It is a pound here and a pound there that add up to a significant amount—if we take every single penny on bills seriously.

I want to turn your attention to the ECO scheme. Is the end of the ECO scheme and its replacement with new funding and the warm homes plan an acceptance that at least some policy costs should not be on bills and that targeted support should come from general taxation?

We take these things on a case-by-case basis, but there is no doubt that the warm homes plan—the £15 billion investment funded from general taxation—was seen as the fairest way, with taxation being a distributive way of raising revenue, to fund a really important upgrade of Britain’s homes. That was a decision that was taken by the Chancellor. In terms of the ECO scheme, there are a number of parts to this. We obviously realise that there has been good work through that scheme, but there have also been examples of where it has not been the most efficient use of public money and of where practice has fallen short and consumers have been disappointed. The aim of doing this, and why we are setting up the warm homes agency, is that much more of that will be directed by Government, with local delivery as well, and regulated in a way that means that consumers can be absolutely confident that they are protected, and that delivers the best value for money.

On that point about workmanship, the quality of the work has really dented public confidence in some of these schemes. People will worry about part-funding some of this stuff themselves. It can be very expensive, and they don’t want their homes to be uprooted once and then again if more reparatory work needs to be done. How can you assure the public and this Committee that work will be done properly under the new scheme?

It is a hugely important point. Since we have been uncovering the practice—the delivery that has not been up to standard—we have obviously found more and more examples of it. It was a scheme that was not run well; the Government have accepted that and we want to make sure that the next scheme learns the lessons of that. Some of that is also about putting consumers right at the heart of it. There is a far-too fragmented landscape of providers. There is also confusion about whether, when you see adverts on Instagram and Facebook, they are things you can trust or not. They all look too good to be true, so is that the right way for consumers to find this? At the heart of this will be a really straightforward one-stop shop where people can find genuine advice. We also know that local delivery is where we build trust, so it will not all be directed nationally. We are looking at what sort of mechanisms we can use to make sure there is a kitemark-type approach that means people can trust the work that is being done. There is no doubt that you are right to say that confidence has taken a knock. We now need to rebuild really carefully around the delivery. We also need—this is why, in part, the warm homes plan is broad in its range of technologies—to put consumers in the driving seat, so they can say, “What works best for my circumstances in my particular home?” We need to give them the choice and the financial levers to make that happen, and then follow through on delivery.

Do you think that the shift risks throwing the baby out with the bathwater, with good providers who will no longer be able to operate under the scheme? Will there be reassurance for them on the continuation of their businesses?

Again, that is a really important point. I have been contacted by a lot of people working in this space who are doing a very good job. We should be really clear: this terrible practice was not everywhere, but it was on a concerning scale. There were good people working in this space. Our expectation is that although the scheme design and the labelling of it will change, the work itself still has to be carried out by qualified people, and therefore, the warm homes plan should deliver the pipeline of projects that others can bid in to deliver. We want to make sure that the people who are carrying out that work are absolutely the right people to be doing it, that consumers are at the heart of it, and that we are delivering on what we said we would. That is partly why the warm homes agency is really important, but it is also, as I say, why there is a close working relationship with local government and combined mayoral authorities right down to local level. We all know, as MPs, that there is a lot more trust at the community level than with a scheme that is just national. This is a national scheme, but it is delivered locally.

We have had these energy-saving schemes around for 30 or more years, and we still see families in fuel poverty. Do you think the funding focus should instead be on simply reducing the price of energy?

We are focusing on reducing the price of energy, but we also have some of the worst homes anywhere in Europe. If we are not going to improve the quality of our housing stock now, and improve the design of future homes so that we are not having to retrofit, people are going to keep paying much more to achieve the same outcome. If we can reduce the amount of heat and electricity that individual consumers need in order to live in a warm home, that helps consumers and the system more generally and it reduces the cost. We have to do both. We need to bring down the cost of energy—we recognise that it is far too high, and it has been for far too long—but we are also embarking on the biggest upgrade of homes in British history, because we need to make homes more efficient and warmer, so that people do not need to worry about putting the heating on. As I say repeatedly, this is also about us trying to reduce the amount of energy that is needed in the first place, which is ultimately the cheapest option, and targeting the households who need it the most. Of the support, £5 billion will be targeted specifically at the lowest-income housing. That is a commitment to tackle those that are the most likely to suffer fuel poverty, so that they stop and say that we have helped lift them out of it.

A Committee member asked you about moving costs from consumers and bills on to general taxation. I think the furthest you have gone is a case-by-case basis. I want to ask about the warm home discount. Have you had any thoughts about where that might be funded in the future? Can you advance on a case-by-case basis?

Not specifically, no. We expanded the warm home discount so it would reach 6 million households. That was important in order to say that low-income and vulnerable households would get £150 off their bills. Clearly, we look at the cost of that, and we have obviously expanded the scheme and will continue to look at it, but we think it is a really important payment that helps support the households who need it most.

Continuing on the theme of shifting costs, the Government have shifted the costs of the warm home discount from standing charges to unit costs, which, although it will not reduce bills overall, does allow some measure of control through energy efficiency and less use. Are you considering moving other costs from standing charges to unit costs?

Again, we are looking at this across the board, because, yes, there is a fairness argument around standing charges, which we accept are too high. If we can have efficient homes and charge things through the unit rate, people will obviously pay less, but there are trade-offs within that where we have households who are potentially high energy users because of medical needs or age, who would end up paying more. I understand that, from a theoretical standpoint, it absolutely makes sense to tie most of the costs to the actual energy used, but there is a risk that some of the most vulnerable would pay even more through that system, so we are looking at it.

Thank you. We have been talked about social tariffs on a number of occasions in this Committee, and they have been called for by many organisations. In reply to one of our previous reports, the Government said, “The Warm Home Discount could be considered a form of a social tariff”. Is it a form of social tariff?

It is not a tariff, but it achieves some of the same aims, which I think was probably the point that was being made. The aim is for us to direct financial support of £150 to the most vulnerable households. In some ways, it achieves the same aims. There are two challenges with a social tariff, and we have looked at this since we came into government. One is that no one has ever been able to say with any absolute certainty what a social tariff means. If you speak to five people, you will get 10 different answers about who should be included and how it should work.

Is that not the case for any policy?

Particularly with this, if we are going to target it at the most vulnerable, we need to have some sense of who that is. The second thing is a practical thing around how the Government actually reaches those people. A complexity with the warm home discount is that, at the moment, my Department does not have access to the kind of data that would identify those individuals. We would be reliant on an applicant system, which obviously adds complexity, and we all know that some of the most vulnerable and people who need that support are less likely to apply. However, it also just makes this much more complex. That is a critical enabler to us looking at any more targeted support, but we are working on it. Across the Government there is a piece of work at the moment around how we can share data much more easily. There are, quite rightly, protections in place around that to make sure that consumer’s data is protected, particularly when it comes to things such as income data, which is extremely confidential, for good reason. However, that access to data is critical if we are going to look at any of these kinds of scheme designs in the future.

Committee members may be aware that the critical issue is that income tax data is collected on the basis of individuals, and the costs are borne by households. We have a solution for benefit recipients, because the benefits system works on a household level, but for other people, it does not.

I do not know if any other members of the Committee have anything to add?

I know that Polly will want to come back on the social tariff. However, before we do, we have questions from Claire and Bradley, and then you can come back on this.

I want to focus on something slightly more niche. As heating goes electric, what do you see as the future of the green gas levy and green gas support scheme?

There are a number of schemes that we are going to have to look at in terms of their sustainability as people move off gas. Investment in the gas network itself is something we have consulted on recently, because the number of gas users is decreasing and will continue to decrease. We have to keep those schemes under review because, inevitably, a declining number of people utilising gas and benefiting from those schemes is still paid for by everyone through the dual fuel bill. We keep those things under review. At the moment, we are looking at what the future of gas looks like, and we have a consultation that has just ended. Some of that is about trying to factor in what is the medium and longer-term future for how we deliver on the gas network, and then, working back from that, asking what the individual costs for consumers are and how those are borne.

You have extended the green gas support scheme to 2030, but that suggests that you do not see a future beyond that?

The gas network is a hugely important asset and, at the moment, we want to maintain it in a way where there might be future potential for other types of molecules to pass through it. Green gas is an important part of that, but we are also looking at other options as well. To be honest, these are some of the questions that we probably could have foreseen coming 15 or 20 years or even longer ago so as to think about what that long-term pathway looks like. We have not done that, so we are asking these big questions around how we deliver the investment that is needed to keep the grid at its current standard. We also have wider questions around consumers who will remain dependent on the gas grid for a long time, while we have got a declining number elsewhere, so we are trying to get that balance right as well.

Those ones who are left behind are likely to be the poorest in society, because they cannot afford to move.

That is absolutely a fair point. But that is partly why the warm homes plan targets some of those households: so that they are not the most left behind.

Could the assistance for areas with high electricity distribution costs scheme, which socialises the high cost of distributing electricity in northern Scotland, be a model for dealing with the declining number of people using the gas grid?

It could be. That particular fund is to recognise the really significant costs of distribution in the north of Scotland and to balance it out, not so that they have lesser bills than anyone else but so that the cost is equalised to the level of others. We have kept it under review every year, so it has a slightly different driving purpose. The green gas levy is obviously specifically about how we incentivise things such as biomethane, but there is a broader question about gas itself: how can we manage the future of the whole network, where we do not want to decommission it, so that we are very clear what future potential use it has? We will obviously have fewer people paying for the upkeep of that gas network, so that is a tricky trade-off on which we are currently trying to drive forward a strategy. The consultation that just closed is an important part of that work.

So if AAHEDC is not a particularly good model for that, how about for socialising the high costs of distributing electricity from areas where you have high renewable generation? You have said that you are not going to pursue zonal pricing as a way of tackling that.

We decided not to pursue zonal pricing because to split the country up into individual zones would, in the assessment that we made, lead to a significant period of uncertainty and potentially to increased costs of building projects, wherever they might be in the UK. Any benefit that may have come from zonal pricing in theory would, in reality, have been swallowed up by the increased costs of building it. We obviously understand that the argument behind that is that areas that have significant amounts of renewable generation do not often feel the benefit of that. That is partly why we want to see much more community ownership, and many more community benefits. It is also true to say that collectively, across the country, everyone’s bills will come down when we have clean power on the system and the infrastructure to get it to homes and businesses across the country. Everyone benefits from it; we want those communities that actually host it to have some direct benefit. That is why we have talked about bill discounts for transmission infrastructure, community benefits and all those things, but obviously the prize is lower bills for everybody. Of course, it is worth saying that although those communities in the north of Scotland host that wind, that infrastructure is paid for by bill payers right across the country. It might be Scotland’s wind, but those projects are funded by bill payers right across the UK.

I would like to talk a little about the policy costs that are trickling through to bills, starting with the carbon tax. The Government are understandably concerned about gas prices and how they will feed through to electricity prices for electricity that is generated through gas. Why has the Government not taken off the carbon tax to cut the price of gas-powered electricity? Are the Government considering doing that?

It is worth reminding ourselves why the carbon price support exists in the first place. It was introduced to incentivise the building of low-carbon infrastructure. It recognises the fact that there is a cost to carbon-intensive infrastructure; it might not be borne immediately, but it is borne in due course. Therefore, on the “polluter pays” principle, we should incentivise cleaner sources of energy generation. That is why the carbon price exists. It is not that there ends up being no cost if we were to remove it; it is just that it is paid somewhere else in the system, particularly if we have people trading with the European Union, where they would obviously simply pay that cost to the EU rather than to the UK.

Carbon price support is over and above what is levied in EU countries. Why do the Government not consider removing that element?

As I have just set out, we see it as an important way to lead the decarbonisation that we need to see as a country. It is about recognising that if you take gas generation and put it alongside renewables, there is an additional cost to society from that gas generation that is not otherwise recognised. That was a fairly well-accepted principle until very recently. Those who previously did support it have changed their opinion on it, but it is a really important part of how we build a decarbonised system that benefits everybody.

Given where we are at the minute, acknowledging that around one third of the wholesale price is to pay not for the gas but for this carbon tax, do you acknowledge that scrapping that tax, even in the short term, would have an impact on reducing bills?

No, I don’t, because, fundamentally, the gas would still be more expensive even without that. The comparison I have seen, which I think is what you are referring to, assumes a load factor of gas of above 90%, which we have never run in this country. That is not how we run gas in this country. Even though the equivalent, without the carbon tax, is, I accept, marginally as opposed to significantly more expensive, it is still more expensive, and you still have the longer-term impact of doing these things. To go back to my answer at the beginning, there is not an option here of standing still. We are going to have to build some new generation. Given the age of a lot of our CCGT fleets, some of it will need to be refurbished and some of it we will end up needing to build afresh. The costs of building and operating that then have to be considered, and there is also, at the moment, the significantly higher wholesale cost of gas. The assumption from those who think that that is the better option to take is, “Don’t worry, because the price might come down again in the future.” But that is not a system we want to build; we want to build one that has longer-term certainty for consumers, not one that gambles that the price might come down at some point.

Given the pressure on bills, particularly at the minute, and the volatility we are facing, is the carbon tax and the carbon price support element something the Government will consider looking at in the future? Are the Government absolutely committed to that, or will they consider removing that from bills?

I said earlier that we are looking at absolutely everything, but there are some fundamentals that there simply is no way to go around. We are not looking at completely changing the Government’s policy on recognising the price of carbon.

Do you categorically rule that out?

I have said we are looking at a whole range of policies. I am not going to be drawn on one particular thing that, I am sure, will be quoted in a particular way after this meeting. What I am saying is that we are looking at a whole range of options to reduce bills. But the principle that carbon has a cost and that it is paid by society is fundamental to what this Government believe, and we are not going to move away from that.

In this climate, with the pressure on bills that we are facing and the volatility, do you think it is fair for it to remain?

I think, in this climate, that the lesson we should take is that fossil fuels have been the cause of why consumers are paying more across the country. Anyone who can say right now with a straight face that doubling down on gas is the answer to our future energy security and to the bills crisis people are facing needs to look very carefully at where they are getting their information from. The truth is we are living right now through not just one example of where exposure to fossil fuels is costing people across the country; it is only four years after the last example. The faster we can move away from that, the better for our energy security and for the future of our planet, which really matters, but also for the opportunity to create jobs across the. That is the path to be on. At moments like this, you do take lessons on whether you are on the right track or not. Clearly, this is a really distressing time for people across the country. We want to de-escalate the situation in the middle east as quickly as possible. But it is also the moment to take the lesson that says, “This is the right path for the country, and we should build it even faster to make sure that we protect consumers now and long into the future.”

Is there not also a problem with removing or reducing carbon taxes in terms of both the trade and co-operation agreement with the EU and the impact on manufacturing and industry more widely in our trade with the EU, with the whole system of the carbon border adjustment mechanism and emissions trading?

That is the point I was making earlier. The main threat to businesses in the UK is the UK’s dependency on fossil fuels. Even if we were to remove carbon pricing, we would simply be paying money into the EU through the CBAM. I don’t understand why that is preferential to anybody—it has not been explained to me. I would say that the way we bring down bills for everybody and reduce energy costs for businesses and others is to get off fossil fuels as quickly as possible. Obviously, the work we are doing on the EU reset is also around how we can have much more efficient electricity trading, which benefits us as well as Europe. Clearly, alignment on the principles of that is important. We are in the same place as the EU on that.

I just want to get clarification from you that it is the Government’s view that reducing those carbon taxes would just see them repeated elsewhere, and that people ultimately wouldn’t save any money from it. Is that the view?

Fundamentally, that is correct. Your question was particularly around a relationship with the EU. We are obviously in negotiations at the moment. Alignment with the EU, so that we can have electricity trading, is really important. We will soon become a net exporter of electricity, and that is a really important part of making sure that we have a market for that. That, of course, helps to bring down bills as well.

We went to the Netherlands recently, and one of our hosts described the situation with levies on electricity, rather than gas, in the UK as “horrible”. If the goal is energy transition, which we have just talked about, shouldn’t those policy costs be on gas, rather than on electricity?

I am grateful for that summary from the Netherlands. We have looked at rebalancing. Clearly, I understand the argument. We want to see much more electrification, and therefore the cost of electricity has to decline. The trade-off that we have been wrestling with— and that we continue to wrestle with, because fundamentally I still understand the argument—is that there is a risk that in doing so, the cost to consumers who cannot come off gas quickly enough would simply increase. We want to be really clear that the rebalancing of costs is something that is going to have to, over the coming years, be looked at again and again, as—as I was saying to Claire earlier—we will have a declining number of gas customers. We are looking at the moment at what might be possible in rebalancing, but at the heart of it is a “fairness” argument around how we make sure—

But it is not as if we do not have measures to tackle these particular inequities in the system. You could, for example, make sure that the poorest users of gas are directly supported through the warm home discount. It is not beyond the bounds of possibility that you could do something like that, is it?

The warm home discount is not targeted specifically at gas customers, so again—

No, but it could be, if you recognised that gas was the problem, and you put the policy costs on gas and encouraged people to shift to electricity. Those who struggled with that could have some kind of support through the warm home discount or an equivalent, for the very poorest and most vulnerable. Is it possible?

I entirely understand the argument, and we are not against looking at all sorts of things like that. Particularly, we are genuinely not against the principle of rebalancing. We are looking at it, but it is a question of how it is delivered in the fairest way possible. Of course, some of the other actions that we are taking through the warm homes plan are about driving electrification through public support for it as quickly as possible, which helps to bring down the number of people who rely on gas as a form of heating or cooking. There is work going on around that, but I make the point that it is not a straightforward switch from electricity costs on to gas without some consequence, and I know you know that.

Nobody thinks it is. I am just giving you the opportunity to explore some of the ways in which you might be able to mitigate that, as part of the transition. I noted, Minister, that you said that there wasn’t a definition of a social energy tariff. Could we live with “an energy unit at a discounted rate that is applied to people’s bills and scaled to reduce the cost of energy”?

I think that the last time I was at the Committee, you put a definition to me that would have solved another one of my policy dilemmas, so it is very helpful.

It is almost beyond the wit of man to understand why the whole of the Department for Energy Security and Net Zero is not able to come up with these definitions.

The challenge is that if I put that definition to a number of other organisations working in this space, I would get different responses.

Oh, I am sure that they would test it.

That is the point that I was making: people would have a different view on who would be eligible for that, and that is one of the challenges.

We have been exploring a number of those options. I note your point about data sharing, and I have also had that conversation with Minister McCluskey, particularly about some of the challenges around HMRC and so forth. The Green Alliance has suggested that the Digital Economy Act gives us some competence to do a significant amount of the data sharing that would enable an energy social tariff to work beyond what there currently is, which is a flat-rate discount for people on benefits. We would therefore be able to have a more nuanced tariff, which would be able to reach people with varying vulnerabilities, and not be solely based on them receiving benefits.

There is a live conversation about whether the powers are there. There is then a secondary conversation about how that power is used practically. Particularly, there is obviously a sensitivity around HMRC data, and the public would expect us to be looking very carefully at that. But we can use that data, not just for this but for a whole series of things; it could help us to target support to the people who need it the most. It is a live conversation, and if we need to take additional powers to try to make some of that work, the Government are minded to do that, but it is actually more of a practical question of how we do it in a way that protects the anonymity of really important income data.

So there is not a principled objection from the Department for Energy Security and Net Zero to explore the possibility of us having an energy social tariff in order to support people through the transition.

I think I said there wasn’t a principled objection to us using data to look at how we might target support more; you have taken me slightly further than what I said in my answer. We have said consistently that we understand the argument for a social tariff. Our No. 1 aim is obviously to bring down everybody’s bills, but we are also looking at what targeted support could be helpful.

You—and your boss, the Secretary of State, when he was here a couple of weeks ago—made the point about quite how significant it was that the Chancellor shifted some of those policy costs on to taxation. Somebody who worked in a previous Department, the Department of Energy and Climate Change, told me that that was like crossing the Rubicon in terms of people literally never thinking it would happen. I know it is only for a short period of time, and then it will be up for review, but is even talking about shifting policy costs from one form of energy to another moot because, actually, we could possibly move the policy costs on to taxation altogether?

It was a really important recognition, from the Prime Minister down, that there are no actions the Government are not prepared to take to help to tackle the cost of living. It was a very clear, targeted action with a really specific amount of money that could be ringfenced, moved from one to another and have a direct throughput into reducing bills. But obviously, there are conversations ongoing. We need to recognise that the question of investing to build what we need next sits regardless of what we do. Where that is paid for is a live conversation, but it does need to be paid for. I know you appreciate this, but there is not an alternative way that we can somehow build a way out of this without there being costs borne by anyone somewhere in the system. Whether that is through taxation or being able to add costs on to bills, there needs to be an investment, but these conversations are open and ongoing across Government. Nothing is off the table.

Picking up on some of what Polly was talking about, what impact on bills can we expect from carbon capture storage, long-duration energy storage or hydrogen projects in the future?

I do not have particular forecasts of the impacts on bills, but all of that is about trying to diversify our system and store power, particularly the wind and the sun, for when we need it. Long-duration energy storage in particular was built a very long time ago—you and I will know Cruachan in Scotland, a pumped hydro example that everybody went on a school trip to at some point or another.

I was in Edinburgh.

It was just a west coast boy thing, then. We all went to Cruachan, the “hollow mountain”. We have not invested in those schemes since; this is the first example in 40 years. Long-duration energy storage is really important, as is a range of innovative technologies—not just pumped hydro storage, but compressed air and various other things. We see hydrogen and CCUS as a really important part of how we meet our climate obligations in removing the carbon and keeping industry costs low, but also in how we can potentially generate power in different ways.

What options is the Department exploring for where the costs of those very large-scale projects—beneficial though they are—might be borne?

I see—sorry. I misunderstood your question; I thought you were talking about how we reduce the cost of the system. Much of it has been funded from general taxation. The sizable investment in CCUS, for example, came from taxation; it did not come from bills. On hydrogen, we have developed a refreshed hydrogen strategy, which will be published soon, that looks at a mix of Exchequer funding but also at making sure that the private sector is funding more of it.

You would envisage that being paid through bills rather than general taxation, which has been a theme we have talked about a lot this afternoon.

Different parts of it are funded in different ways. We have hydrogen projects that are funded through the National Wealth Fund or general taxation. Some of the costs of that on an ongoing basis are on bills, although it is worth saying that that is a very small amount. There is a mix depending on what we use it for. The reason I was talking about the generation that we might get from CCUS power is that it is obviously generating electricity, hence it is on bills as well as being a carbon capture technology.

In relation to that, and to go back to where we started in the beginning, when we are talking about the new technology that is being used, how are we making sure that we are protecting supply chains and materials that are used? I am particularly thinking of any technological aspects and components that are manufactured by nations that are perhaps not entirely friendly to us. How are we making sure that protection is guaranteed through procurement and long-term decisions?

The big opportunity from what we are seeking to do is to get the industrial benefit that goes with it. To give you one example, the clean industry bonus that we launched alongside auction round 7 took £200 million of public investment and brought in more than £3 billion of private investment in supply chains. There is a real opportunity for us to incentivise the building of supply chains here in the UK that we have not seen often enough. That is also how we protect the supply chains from any of the risks. On an individual, case-by-case basis there is a national security assessment done of any risks of anyone who might want to enter the UK market.

Do you think those controls or the process by which that is decided up to this point has been strong enough to prevent technology from elsewhere perhaps being in our energy system without us being fully aware of the implications of that? Or do you think that it needs to be tightened further for these kinds of projects in the future?

We keep under constant review all the security of our infrastructure. That is not a one-off process when someone enters the market; it is a regular process. We are confident in the security of the infrastructure across the UK at the moment—that is a constant process—but we also recognise that it is important when anyone enters components into the market that they are subject to the strictest possible tests for energy security. It is also why we want to build as many supply chains here in the UK as possible, partly so we get the economic opportunity, but also obviously from a security point of view. We are doing work at the moment across the energy industry on resilience and security in the energy sector. We will publish a resilience strategy later this year, which will pull much of that together around how we are making sure that the energy system is as secure and resilient as it can be, given that there are increased threats against it every single day. The system responds well to those threats, and we have the mitigations in place, but there is no doubt that it is an increasing challenge that we are having to spend more time and more money dealing with.

Minister and director general, thank you very much. The Committee has agreed that next Wednesday we will hold a session on the emerging crisis in the middle east and the impact on our energy resilience and supply pricing. We will be exploring some of the questions that we have put to you in greater detail. We will have a panel of some of the industry representatives first, and we would like you to join us for a follow-up panel to look at some of what they say to us. That will be next Wednesday afternoon. The first panel will be at 3 pm, and your panel will be at 4 pm. Would you accept the invitation, please?

In principle, yes, but I will have to look at my diary, because I am afraid that I am the last person who should comment on whether I am available at 4 pm next Wednesday.

We know how fond you are of coming and giving evidence to us, Minister.

I absolutely enjoy it, and I appreciate all the questions. I will endeavour to be there.

Splendid. Thank you, Minister and director general, for your evidence today.