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Why the poorest will pay the most to upgrade ageing infrastructure

Public Accounts Committee chair Margaret Hodge is concerned cash-strapped consumers will not be able to afford bills

The Government’s infrastructure plans have been described as “more regressive than taxation” by MPs.

That is because consumers are facing an extra £250bn on their household bills, money which will be used to pay private companies for repairing their own crumbling infrastructure, with no guarantee that the repairs will actually benefit consumers.

The most vulnerable people would be hit hardest by the extra charges, the Public Accounts Committee has warned.

MPs on the committee have demanded that the Treasury calculate how hard-pressed consumers will be able to afford the extra costs.

Margaret Hodge, the chair of the committee, said: “No one in Government is taking responsibility for assessing the overall impact of this investment on consumer bills and whether consumers will be able to afford to pay.”

The total bill to replace the country’s ageing infrastructure, help meet policy commitments such as climate change targets, and meet the long-term needs of a growing population, is estimated at £375bn.

“It is the consumer – through their various bills – that is expected to fund at least two-thirds of this investment where the infrastructure is financed, built, owned and operated by private companies,” Ms Hodge said.

“Currently, consumers rely solely on Government and regulators to protect their interests. But it doesn’t take much nous to work out that this is going to have a tough impact on the consumer.”

She is concerned that making consumers pay for such essential improvements as updating ageing pipework and reservoirs through their bills will leave struggling people unable to afford to pay for their energy or water.

The report points out that median incomes did not rise significantly in the decade to 2011, while energy bills soared by 44 per cent and water bills by 21 per cent, in real terms.

As a result one in 10 households is already living in fuel poverty, according to the latest official government figures, while the Department of Energy and Climate Change has predicted that the number will climb by around 5 per cent this year.

Problems will continue in the future with the Government calculating that average household energy bills in 2030, for example, will be 18 per cent higher in real terms compared to 2013.

“This is of particular concern given that the poorest households are hit hardest by increases in bills,” Ms Hodge said. “Poorer households spend more of their incomes on household bills relative to richer households, meaning that funding infrastructure through bills is more regressive than doing so through taxation.”

She has demanded that the Treasury produce and publish an assessment of the long-term affordability of bills across the sectors. “They need to establish with departments and regulators who is responsible for what in each sector when it comes to assessing the long-term affordability of bills, and pull all the information together.

“Crucially, they need to assess the combined impact of increased bills on different household types, including those households most vulnerable to price rises.”

She said regulators must also play their part by having a co-ordinated approach to assessing the impact on bills and affordability of infrastructure investment, in collaboration with the Government.

“We also need to be reassured by regulators that infrastructure has been built to the standards expected, to improve their protection of consumers’ interests,” she added.