Britain’s broken energy system is in need of long term reform and an End Fuel Poverty Coalition meeting in February 2023 heard about different options to reform the way we pay for our energy and ensure everyone can afford to use the energy they need.
The latest news from the campaign is listed here and a brief summary of the main proposals is set out below.
UPDATES
APRIL 2024: Ofgem and the Government both launch reviews of the Energy Bills Price Cap.
MARCH 2024: The Chancellor confirms the end of the Energy Price Guarantee and doesn’t include tariff reform in the Spring Budget.
JANUARY 2024: End Fuel Poverty Coalition members call for a social tariff to be included in the 2024 Spring Budget.
NOVEMBER 2023: Proposals for an Emergency Energy Tariff, using the Energy Price Guarantee mechanism were presented to Government to help ease the energy bills crisis in winter 2023/24.
OCTOBER 2023: Over 140 organisations write to the Government urging them not to abandon plans to consult on tariff reform.
SEPTEMBER 2023: The House of Commons Energy Security and Net Zero Committee come out in favour of the introduction of a social tariff for specific groups of consumers.
AUGUST 2023: The Environmental Change Institute at the University of Oxford sets out new proposals to alter tariffs for vulnerable groups using existing price control mechanisms.
AUGUST 2023: The End Fuel Poverty Coalition writes to MPs [pdf] asking them to hold the Government to account for not consulting on a social tariff as promised.
AUGUST 2023: A letter writing campaign in support of the National Energy Guarantee is launched.
JULY 2023: The Government appears to rule out a social tariff consultation.
12 July 2023, the Deputy Prime Minister told the House of Commons: “As my right hon. Friend the Chancellor set out in his autumn statement, we are exploring the best approach to consumer protection from April 2024 as part of wider retail market reforms.”
11 May 2023, the Government responded to petition 624795 “Introduce an unmetered monthly tariff for energy for the elderly and disabled” to state: “The Government is considering potential approaches to consumer energy protection post-April 2024. The Government intends to consult on options in summer 2023… Government officials are considering potential options, including discounted tariffs, for a new approach to consumer protection in energy markets that will apply from April 2024 as part of wider retail market reforms. As part of this work, the Government is working with disability organisations, assessing the need for specific support for vulnerable people.”
APRIL 2023: New Economics Foundation have released a new report on the National Energy Guarantee, exploring the potential of this proposal.
APRIL 2023: Age UK have published a blog explaining the necessity of social tariffs and bringing together wider social tariff issues such as energy, water and telecoms.
18 April 2023, the Secretary of State for Energy Security and Net Zero told the House of Commons that: “We do think that things like a social tariff could be very helpful…” when the Energy Price Guarantee ends in April 2024.
MARCH 2023: Fuel Poverty Action have launched a Manifesto for Energy For All, which promises an Energy Pricing Revolution.
FEBRUARY 2023: Scope have joined forces with 41 parliamentarians to write to the Chancellor of the Exchequer calling for further cost-of-living support, including the introduction of the social tariff.
25 January 2023, the Minister for Energy stated to the House Commons, in relation to energy bills, that: “We have said that we will look at a social tariff and at how vulnerable people are looked after, but we have to look at it in a considered manner.”
JANUARY 2023: Age UK have published new research detailing the level of support amongst the public for a social energy tariff for the over-60s, which is also supported by a number of politicians and non-profits.
18 January 2023, the Prime Minister told the House of Commons that: “…we are also consulting on the best thing to do [on energy bills] going forward, including options… such as a social tariff, as part of our wider reforms of the retail energy market.”
SUMMARY OF THE PROPOSALS
The Social Tariff, David Southgate, formerly of Age UK
This proposal discounts energy bills by 50% for eligible households and according to a Public First survey (report p69, fig. 28) commands widespread public support.
If an overarching price cap is still in operation (such as the Energy Price Guarantee) then it would be set as 50% below the cap. If the markets have returned to normal, then the discount would be 50% below the average tariff rate (whether a fixed-term deal or the default tariff cap).
The idea targets this 50% discount to those most in need which, crucially, must include people on and off benefits.
The social tariff must automatically include eligible households, so that they don’t need to make a switch and so it must be universal across suppliers. It must also sit alongside existing consumer protections and should not be seen as a replacement for Warm Home Discount (WHD) for example.
The proposal outlines that the social tariff must include households on fixed tariffs, and be extended to those on alternative fuels and payment types, such as prepayment metres. Eligible households include those on means-tested benefits, disability benefit, Carer’s Allowance, and in theory anyone below the 60% median of household income.
It also allows a £500 million ring-fenced flexible support fund to ensure that households who are in need but just outside the criteria don’t end up missing out. The proposal asks the government to finance the social tariff directly from treasury spending, to avoid consumer cross-subsidies. The lowest cost expectation for this social tariff is £5.6bn for 2024-25 (assuming that typical bill is 1k a year) which will be higher if bills go up. The proposal calculates the most likely annual cost as between £5.6bn and £9.4bn.
The full case for a social tariff has been set out in an Age UK report “Keeping the Lights On”, download the full report online: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/safe-at-home/age-uk-energy-public-policy-report-march-2023.pdf
Universal Basic Energy, Chaitanya Kumar, New Economics Foundation (NEF).
This proposal is for what’s called a Universal Basic Energy allowance, based on the principle that energy is essential, and that all households should have safety-net of baseline free energy.
NEF has established that this could be created through what’s known as a Rising Block Tariff model with two or three bands of tariffs. The first band offers a free basic amount of energy for every UK household, based on the average essential consumption (calculated at 1050 units of electricity, 2700 units of gas), this would see 50% of these units free for every household.
The second band is close to current market rates, and the top band is premium rates for extremely high energy use.
But this proposal also includes three additional allowances to the tariff structure to ensure that no-one who is reliant on energy for medical or other needs, particularly on lower incomes, has to pay the premium rate.
The first allowance is that all households on means-tested benefits will be exempt from premium rates. Furthermore, an extra free block of energy will be provided per-child per-household, as well as an extra free block per disabled resident. The cost of these three allowances would be roughly £2.4bn, illustratively pegged to the current cost of schemes such as the Warm Homes Discount, Winter Fuel Payments etc.
The result is that over 90% of households in the bottom income groups will see a net reduction in their energy bills. The principle is that high-income high-usage consumers will cross-subsidise low-income low-usage households.
Other technical refinements would see incentives to shift from using the gas allowance to other forms of energy, which will create further drives for electrification of homes and heat. An additional £600m would be required to allow these transferrals.
The above numbers are currently based on 2021 prices (pre crisis). NEF models another scenario where the whole of the windfall tax (£8-10bn) in 2024 is recycled back to households through the rising block tariff mechanism. This will see households on the bottom income group receive a reduction of over £1,000 on their energy bills from April 2024 when the energy price guarantee comes to an end.
Energy For All (e4a), Ruth London, Fuel Poverty Action
While supportive of the NEF proposal in principle, Energy for All goes one step further.
Our starting point is that there is plenty of money to help households. NEF’s models are a fantastic starting point. Even a cost neutral Rising Block Tariff is fairer and better than the upside down pricing we have now. But the fuel poverty crisis can’t be solved without taking back the money being taken from us by oil corporations
People recognise that and feel entitled. Many are crying out for a big change. There were 651,000 signatures on e4a petition, 75% supported the principle in a national poll, the TUC are supportive and we have grassroots and NGO support. People are on the streets and occupying buildings calling for e4a. People power matters, in determining what can be won.
The Energy For All Manifesto is a tool to gather that power.
- Starts with free allocation of energy, based on NEED, including, for example disability and housing needs that have to be assessed if they are to be met
- funded substantially from fossil fuel profits.
- Statutory end to imposition of prepayment meters
- Energy efficient homes – safe, non toxic non flammable retrofitting
- Pushes on a slew of injustices, eg for all-electric homes, itinerant households, heat network customers.
Key differences from social tariff (See also our FAQs)
For us a key issue is SECURITY. A free allocation would give that.
We all know lots of people now cut out from means tested benefits.
We’re really glad Social Tariff model goes further but no one would trust the present government or opposition to not fall back on the usual route when it comes to spending public money.
A key concern for us is people at the bottom who don’t turn their heat on in the first place because they are worried about the debt, and some won’t claim anything because they don’t feel entitled.
If universal, automatic, no one falls through cracks.
We have to get away from the divisive, food bank mentality. It is not a matter of “The most vulnerable”. “The poorest”. The new norm is that you have to be destitute to deserve any relief.
Yes, there is a cost to making provision universal. People will get a free allocation who don’t need it. But the cost should come out of fossil fuel profits. And climate change is not cheap.
From a climate point of view I think NEF’s proposals and e4a itself are both much better than a social tariff. Even compared with WHD, Social Tariff actually encourages more energy use. Whereas Rising Block Tariff or e4a would reduce it.
The Emergency Energy Tariff
The initial research to inform the development of the Emergency Energy Tariff proposal and targeting of support was undertaken by the University of Oxford’s Environmental Change Institute and Cambridge Architectural Research and could also be a model for longer term reform of energy bills.
Dr Jason Palmer, Cambridge Architectural Research:
“Financial support for households struggling with fuel poverty is critical this winter, and only with government help will the most vulnerable people stay out of hospital and avoid anxiety from going into debt. This support should run in parallel with much greater investment in energy efficiency to address fuel poverty and bring down carbon emissions from homes.”
Dr Tina Fawcett, Associate Professor, University of Oxford:
“Our research has helped identify how to effectively target vital support to households most at risk this winter. To avoid future energy bill crises, locally we need more investment in energy efficiency and energy advice, and nationally we must rapidly reduce our dependence on fossil fuels.”
Other proposals
The Social Market Foundation and Citizens Advice launched plans for an ongoing system of cash payments to fuel poor households, varying according to their household income and energy use, as the form of social tariff that would help the most people, while also being affordable to the government.
To deliver this, Citizens Advice considered how best to identify and reach fuel poor households that need support. Many of them are not on benefits and would not be eligible for current forms of bill support, like the Warm Home Discount.
Citizens Advice believes the solution is better use of data. HMRC holds close to real-time data on household incomes, while energy suppliers know how much electricity and gas each household uses. Combining the two should show a picture of who needs help, and how much help they need.
Based on analysis in the report, more than 12 million households on the lowest incomes would qualify for support, and the average qualifying household would see their energy bill reduced by £381 – with some getting up to £1,500.
The full documents setting out these plans can be read online: https://www.smf.co.uk/future-of-energy-bills.
These are all interesting schemes, each with its own pros and cons. However, they effectively accept the present price of energy and redistribute it between customers and, perhaps, government. The real need is to lower the price of energy, initially by splitting the energy market into cheap, green electricity and expensive, dirty electricity. This can be done quickly, as the government already owns the contracts for difference for about half the renewable electricity generated. The wholesale price of these contracts is £50/MWh (5p/kWh) and dropping, in comparison with the £200/MWh of the main market. Fuel prices in general have to be more than halved to really help the fuel poor.