Citizens Advice response to Ofgem’s call for input on affordability and debt in the domestic retail market
Recent projections suggest that energy wholesale prices will remain above pre-crisis levels up to 2030. In addition, trends beyond energy and the strain on household finances over recent years mean that more people don’t have the budgets to cover their essential costs. Without action, a future energy market could worsen outcomes for low income households and prevent people from engaging.
It is essential that long-term targeted bill support is put in place to support people going forward. We think the best way to achieve this would be through a tiered Warm Home Discount, with expanded eligibility and differential support based on energy need. Achieving this will require action by the Government, but Ofgem will have an important role to play in supporting the development, delivery and monitoring of this scheme. We’re sceptical that changes at the margins - like reallocating costs from standing charges to unit rates - can significantly improve affordability, and may have unintended consequences.
We see Ofgem having a greater role to play in addressing the growing problem of energy debt. People in debt are unlikely to be able to engage with a current and future energy market, and may face worse price outcomes. We oppose Ofgem’s proposal to remove the ban on acquisition only tariffs, which will reduce access for people in debt to the best deals with their current supplier.
Ofgem should also take steps to limit the risks of debt building up in the first place, which can be triggered or exacerbated by billing issues. It should ensure it takes all possible steps to ensure consumers enjoy the benefits of smart meters, including improving supplier performance at fixing meter issues and reducing the length of time that people with smart meters can be back billed to 6 months. It should also continue to require more proactive engagement by suppliers with people who are at risk of falling behind on their bills.
The build-up of debt across the system has affected different suppliers in different ways, which could impact market competition and innovation, and lead to higher prices for disengaged customers. We support Ofgem exploring changes in ways that debt costs are allocated to ensure they’re fairly shared. This could lead to more stringent price protection for default products, and also enable more specialisation by suppliers in future. However, there should be strict safeguards in place to ensure that responsible and efficient debt prevention and management practices are being followed.
New rules to control the forced installation of prepayment meters are welcome, and necessary to protect vulnerable consumers from serious harm, but this can create new risks for consumers if suppliers choose to aggressively pursue debts via other means. In our report The Debt Protection Gap we identified examples of good practice alongside identified areas that need addressing. This includes changes to limit the use of court action and enforcement where they put vulnerable consumers at risk of significant harm. Ofgem should also take steps to ensure repayment plans are consistently reflective of people’s ability to pay.
In other areas Ofgem should work with the government to improve support for people in debt. Independent debt advice can take a holistic approach to people’s financial situation and develop sustainable solutions with them. However, there is currently insufficient capacity for these services to manage the increased demand, a significant proportion of which has been driven by rising energy bills. It’s vital that additional funding is provided to help these services meet demand.