Skip to main content

Infrastructure investment: the impact on consumer bills

Government and regulators do not know by how much overall expected new investment by the private sector in infrastructure will increase household utility bills and whether bills will be affordable. The National Audit Office has recommended that the Treasury ensure there are mechanisms to assess the cumulative impact of infrastructure investment on consumer bills, particularly those paid by low-income households.

Today’s report, which focuses on the energy, water and, to a lesser extent, telecoms sectors, recognizes that the UK requires significant investment in new infrastructure. The Treasury expects that over two-thirds of the £310 billion worth of the planned infrastructure it has identified will be privately financed, owned and operated but paid for by consumers through their utility bills.

High levels of expected new investment in infrastructure mean that energy and water bills may rise significantly from current levels. This is likely to hit those households with incomes in the lowest 10 per cent particularly hard. The available projections suggest that increases in both energy and water bills will continue to outstrip inflation, on average, up to 2030. This is particularly concerning, given that energy and water bills have increased significantly in recent years, while incomes have not. (In contrast, the average unit cost of telecoms services fell over the last decade.)

Despite some good initiatives, such as efforts by government to model future energy prices and bills, the National Audit Office is concerned by the lack of a common approach across sectors to forecasting bills or measuring affordability.

The spending watchdog points out that the affordability of utility bills can be assessed only in the context of wider pressures on household expenditure, including an understanding of all household bills as well as potential trends in household incomes. The NAO acknowledges there is a range of schemes to support vulnerable consumers in all three sectors, but is concerned that, without a fuller understanding of affordability in the round, government and regulators cannot assess the adequacy of these schemes, now or in the future.

Among the NAO’s other recommendations are that the Treasury should publish the expected overall impact on consumer bills, to promote transparency and debate about new infrastructure and bill increases. In addition, departments should consider the implications for consumer bills and their overall affordability before making policy commitments influencing infrastructure.

 

“Government and regulators do not know the overall impact of planned infrastructure on future consumer utility bills, or whether households, especially those on low incomes, will be able to afford to pay them. It seems critical to know ‘how much is too much’, based on reliable information.”

Amyas Morse, head of the National Audit Office

Notes for Editors

£310bn
The estimated value of planned investment in UK infrastructure identified in  the government's 2012 National Infrastructure Plan  (includes investment to replace and maintain existing infrastructure)

67%
Of the £310 billion is expected to be financed privately, and repaid through consumer bills in the energy, water and telecoms sectors.

Unknown
Aggregate financial impact of planned infrastructure investment on consumer bills across all sectors

8 per cent
Of total household spending spent on energy and water bills in 2011 by the average household

15 per cent
Of total household spending spent on energy and water bills in 2011 by those on the lowest incomes

3.7 times
Increase needed in the proportion of UK energy from renewable sources by 2020, compared with 2012 level, to meet legally binding renewable energy obligations

£221
Estimated increase in the average household energy bill between 2013 and 2030 in real terms. The average household energy bill in 2011 was £1,157 and is projected to rise to £1,255 in 2013 (2012 prices)

  1. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  2. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 860 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy.

 

PN: 64/13