Social tariff now essential in era of high energy bills

Embargoed until 00.01 Wednesday 8 March 2023

Social tariff now essential in era of high energy bills

• Citizens Advice is calling on the government to put in place long-term policies to support people struggling in what could be a decade of high energy bills.
• Charity calls for cash payment of up to £1,500 to support certain households
• Major report follows nine months of extensive consultation with industry leaders, civil society and the public.
• The call is backed by a coalition of consumer groups and energy bodies, including Martin Lewis and Energy UK.

Citizens Advice, in its role as the official watchdog for energy consumers, is calling on the government to introduce an energy social tariff by 2024. The charity believes targeted financial support in the form of a social tariff is the long-term solution to millions of people spending excessive amounts on their bills, both now and during what could be a decade of record prices ahead.

The call for a social tariff comes in a major new report commissioned by Citizens Advice and led by the Social Market Foundation and Public First, following nine months of extensive consultation with industry leaders, civil society and the public.

The scale of the problem

The government’s Energy Price Guarantee is officially set to rise to £3000 from April, but is widely expected to remain at £2500. Under either scenario households will be spending more than twice as much on energy compared to just a year and a half ago.

If the EPG remains at £2500, ten million households will face crisis-level energy costs, with more than 10% of their income after housing costs going on energy - a key indicator of fuel poverty. If the EPG increases to £3000 the number of households affected in this way rises to 12 million.

People on the lowest incomes will be hit much harder, with energy making up more than half of their total household income after housing costs in either scenario - up from 34% in 2019.

The growing need for a long-term solution to high energy bills is clear from the charity’s own data. In 2022, Citizens Advice helped 50% more people with energy issues than the year before, and more than double that of 2020. And last year, Citizens Advice saw more people who couldn’t afford to top up their prepayment meter than in the previous 10 years combined.

Energy prices are not expected to return to a pre-pandemic level for the next decade. Citizens Advice argues only a social tariff can limit the impact of the crisis, as well as help accelerate a fair and affordable transition to net zero.

A social tariff

Citizens Advice and its partners have identified a cash payment 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, the charity has 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.

The charity 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.

Improving energy efficiency

As well as supporting people with higher bills through a social tariff, Citizens Advice and its partners are calling for a national programme of loft and cavity wall insulation for all households in fuel poverty.

UK homes use more gas than most other Western European countries and are particularly exposed to any hikes in wholesale prices. With some people seeing 30% of their energy bill go straight out of the window, a national insulation programme will help keep houses warmer, reduce gas usage and insulate people against price spikes.

At a total cost of £1.1bn, this would save more than a million households up to £561 a year.

Dame Clare Moriarty, Chief Executive of Citizens Advice, said:

“Energy affordability is a long-term problem that needs a long-term solution. A social tariff protects millions of people from spending excessive amounts on their bills.

“High energy costs have left too many people choosing between heating and eating. Uncertainty over future high prices only adds to the stress and worry felt in households across the country.

“This policy helps make energy bills more affordable in the years ahead and supports the shift to warmer, safer homes that are ready for the net zero transition.”

Martin Lewis, Money Saving Expert, said:

“I’ve argued for a social tariff for years, and now it could be a crucial building block to help repair our broken consumer energy market. When things return to a more normal situation we must work out what energy market we want.

“There are two main routes - either regulate all pricing or have a competitive switching market. We’ve long aimed for the latter situation, but it has failed many. That’s why we must be blunt and identify who are the legitimate and who are the illegitimate victims of competition.

“If I, as a wealthy, financially educated person chose not to switch, that’s my problem. If a struggling low-income 90 year old grandmother with onset dementia doesn't switch – that’s all our problem. A social tariff looks to protect those who need it.”

Dhara Vyas, Deputy CEO of Energy UK:

“Energy UK welcomes this research. It solidifies the need for more targeted support for consumers on an issue which requires an enduring solution, such as a Social Tariff.

“The rising cost of energy over the past 18 months has left more households than ever before in need of increasing support with their bills, and the cost-of-living crisis showing no signs of ending soon. Long-term energy affordability needs to remain a top priority.

“Improving energy efficiency in homes will help people lower their costs in the long term, whilst strengthening the UK’s security of supply and boosting economic growth.

“To ensure continued support for everyone and ease the burden of high living costs, suppliers are ready to work with the government to make progress with the introduction of targeted support, such as a social tariff, no later than April 2024.”

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Notes to editors:

1. Citizens Advice commissioned The Social Market Foundation and Public First to develop long-term policy plans to protect households from high energy prices. A copy of ‘Fairer, Warmer, Cheaper’ will be available online from March 8th 2023.
2. The Social Market Foundation and Public First modelled the distributional impacts of a range of different approaches to reducing the price that consumers’ pay for electricity and gas, and the amount that they need to use to heat and light their homes (eg by making them more energy efficient). The range of approaches was informed by discussions with industry and policy experts, as well as through the use of focus groups and opinion polling to understand who the public thinks needs support and how it should be provided.
3. The number of households spending more than 10% of income after housing costs. on energy with bills at £2.5k will be 9.8m. Modelling carried out by Public First and The Social Market Foundation.Citizens Advice is made up of the national charity Citizens Advice; the network of independent local Citizens Advice charities across England and Wales; the Citizens Advice consumer service; and the Witness Service.
4. 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. This figure is based on the EPG being set at £2500. If the EPG is set to £3000 the average bill would be reduced by £440.
5. Our network of charities offers impartial advice online, over the phone, and in person, for free.
6. Citizens Advice helped 2.55 million people face to face, over the phone, by email and webchat in 2021-22. And we had 40.6 million visits to our website. For full service statistics see our monthly publication Advice trends.
7. Citizens Advice service staff are supported by more than 18,500 trained volunteers, working at over 2,500 service outlets across England and Wales.
8. Citizens Advice is the largest provider of free, multi-channel debt advice. Providing that help gives Citizens Advice unique insight into the types of debts people struggle with.
9. Citizens Advice is the statutory consumer advocate for energy and postal markets. We provide supplier performance information to consumers and policy analysis to decision makers.
10. You can get consumer advice from the Citizens Advice consumer service on 0808 223 1133 or 0808 223 1144 for Welsh language speakers.