With permission Mr Speaker, I would like to make a statement on the action the Government are taking to reduce the impact of Government policies on energy bills.
British households pay some of the lowest prices for gas and electricity in Europe, but that is no comfort to those who have seen energy bills rise considerably over the past 10 years. The latest round of price rises announced by the energy companies has been particularly unwelcome, coming ahead of what is likely to be a cold winter. In such circumstances, it is right that people ask whether these rises are justified and what the Government are doing to keep energy bills affordable now and in the long term.
The main driver of the energy price rises has been rising wholesale energy costs, and the need to upgrade energy infrastructure to ensure security of supply in the long term. Wholesale and network costs make up over two thirds of bills. Supplier costs and profits make up around a fifth. Energy companies need to be more open about these costs so that consumers can judge which suppliers are acting responsibly and keeping their costs down.
Working with Ofgem, the Government are making this possible by forcing the energy companies to open up their books and justify price rises to their customers. We are increasing competition in the market to bear down on prices and provide people with a proper choice of supplier, and as I announced in the annual energy statement, Ofgem, working with the competition authorities, will report annually on the state of competition in the market, looking in depth and across the energy sector at profits and prices, barriers to entry and consumer engagement. Ofgem’s reforms for competition in the retail market are already making it easier for people to understand their bills, work out where they can get the best deal, and switch providers easily.
But it is also right that the Government are open about their social and environmental policies, which make up just under a 10th of the average bill. Our policies provide for immediate help for the most vulnerable with direct cuts to bills, as well as long-term savings on bills through energy-efficiency programmes and support for low-carbon energy that boosts energy security and tackles climate change. For example, the warm home discount cuts the bills of 2 million vulnerable households by £135. The energy company obligation provides permanent long-term savings on bills, including to the most vulnerable, by helping people to upgrade their homes and making them easier and cheaper to keep warm.
Support for cleaner energy increases our energy security and boosts investment in our thriving renewable energy industry, with tens of thousands of green jobs being created, but unlike the winter fuel payment, which provides around 12.5 million pensioners with help with their bills, and cold weather payments, which last year provided over £146 million to cut bills for the most vulnerable, policies such as the renewables obligation, ECO and the warm home discount are paid for directly by consumers through their bills, rather than through general taxation. So it is right that Government keep
these social and environmental obligations paid for by energy bill payers under continuous review, and where we can act to reduce their impact on bills, while maintaining the integrity of our policy, we will, but as we do this, we must act responsibly. We must ensure—[Interruption.] We must ensure that the changes we make maintain the support provided to the most vulnerable, maintain the investment in clean energy and do not have a negative impact on our carbon reduction ambitions.
In this spirit, the Government have reviewed the cost profile of social and environmental policies and I can today announce proposals that would reduce the average household bill next year by £50 on average. First, the Government will provide £300 million—[Interruption.]