Fairer Bills, Smarter Systems: Designing targeted social tariffs with automation in mind

Three reports from Citizens Advice, the Institute for Public Policy Research (IPPR) and Policy in Practice, as part of their partnership with abrdn Financial Fairness Trust, explore how to improve the design and delivery of social tariffs across essential markets. These reports follow on from the first report from this project, Securing Life’s Essentials.

• Essential potential by IPPR

This uses analysis of Living Cost and Food Survey data, in conjunction with IPPR’s tax-benefit model, to examine the affordability of energy, water, broadband and car insurance bills for low-income households, including spending patterns in each market and the potential impact a well-designed suite of social tariff across these bills could have. It also raises some key considerations for targeting social tariffs effectively to maximise their impact.

• Barriers to Access by Citizens Advice

This synthesises insights from Citizens Advice frontline offices with detailed desk research and nationally representative survey research, to explore the consumer journeys for accessing existing water and broadband social tariffs. It identifies 11 distinct barriers that are preventing people from accessing the support they’re entitled to, by putting the onus on consumers to take action to find out about, understand and successfully apply for social tariffs.

• The Art of the Possible by Policy in Practice

This profiles pioneering companies that are already using data to increase take up of social tariffs. It shows that rapid progress can be made today with existing data driven tools, and sets out the steps and requirements for scaling these proven innovations. It explores the feasibility of a single national water social tariff and what needs to happen to make it a reality. 

You can find the full reports here:

1. Essential potential 859 KB by IPPR

2. Barriers to Access by Citizens Advice

3. The Art of the Possible by Policy in Practice

At a glance

Low-income households urgently need support affording their essential bills. IPPR analysis using their tax-benefit model and LCFS data shows that households in the lowest 10% for income are spending around two fifths (41%) of their disposable income (after housing costs) on energy, water, broadband and car insurance bills - compared to 11% for those in the fifth decile and 5% for those in the tenth decile. And many bills are set to arise significantly again in April, including a 6.5% rise in the energy price cap and an increase of 26% to the average water bill.

Social tariffs across essential markets could make a huge difference. As an example, a 25% discount on their energy, water, broadband and car insurance bills would save the average low income household £13 a week, or £680 per year. This would be equivalent to a boost of disposable income by around a tenth for a typical household in this group, according to IPPR modelling.

Effective targeting of social tariff schemes is essential to ensure support is delivered to those who need it most whilst keeping the overall costs of schemes sustainable. If schemes are designed using overly simple eligibility criteria, support will be poorly targeted, missing many households who may need the support whilst making many who aren’t in the most acute need eligible. For example, according to IPPR analysis, if eligibility is defined as anyone in receipt of means-tested benefits, almost 1 in 5 middle income households (19%) would be eligible for support, whilst around a third (32%) of households in the lowest 10% of the income distribution would miss out.

But there’s no point in making support available if people can’t access it. Billions of pounds in existing social tariff support is potentially going unclaimed every year. If social tariffs are going to provide meaningful support to low-income households and shield them through future price shocks, schemes need to be designed in a way that makes it as easy as possible for consumers to access the support they're entitled to. Citizens Advice research exploring the consumer journey for accessing existing water and broadband social tariffs, however, found that consumers are often required to take significant, proactive steps to find out about, apply for and access schemes.   

Every step where consumers have to take proactive action to access support means lower uptake overall - especially for vulnerable consumers. Onerous consumer journeys that require a lot of applicant input are bad for all consumers. But in conjunction with the additional barriers faced by specific groups of consumers, they can become even more of an obstacle.  Citizens Advice research with its advisers highlighted that people who are digitally excluded, have English as an additional language, experience mental health issues, or are experiencing significant stress or difficulty in their lives are all likely to be disproportionately impacted by having to jump through multiple hoops to access social tariffs.

Automation can cut through this by eliminating the need for most consumers to take action - and other tools can help streamline the consumer journey where automation isn't possible. The Warm Home Discount scheme in the energy market provides a model for how social tariffs can be designed in such a way that delivery can be automated, using DWP data. Automation is the gold standard from a consumer perspective: it eliminates the need for any consumer action to access schemes. But there are other effective tools that can be employed where automation of social tariffs is either not possible for all eligible consumers, or not possible at all because of the structure of the market. Policy in Practice’s exploration of the range of options for increasing uptake identifies targeted, personalised communications and streamlined ‘Apply Once’ processes through benefit calculators as effective tools for overcoming the key barriers of low consumer awareness and complex, onerous application processes.

This is all possible now. Policy in Practice’s case studies show that some utility providers are already making innovative use of these tools to deliver social tariffs and other support schemes more effectively. And there are few, if any, technical and legal barriers for replicating these examples of innovative practice. What’s needed is the ambition and political will to harness the opportunities: both to scale these existing innovations to ensure they are standard and not the exception, and to explore the possibilities that could be unlocked through new data sources - for example, HMRC household income data.

Crucially, automation is compatible with a significant level of targeting. DWP data can be used to target support to specific groups within the cohort of means-tested benefits recipients - for example, by determining whether an individual sits within a certain income band. And the Warm Home Discount scheme shows that DWP data can be effectively combined with other government data sources to target specific cohorts of benefits recipients. This doesn’t negate the need to make social tariff support available to those on very low incomes who aren’t in receipt of means-tested benefits. But it does mean that schemes can achieve a relatively sophisticated level of targeting through eligibility criteria that are automatable for a significant portion of recipients - with simplified, streamlined sign-up processes for those whose access cannot currently be automated and the potential of new sources of data widening the scope of automation in coming years. This should be considered the key principle for creating effective social tariffs in essential markets: designing targeting with automation in mind.

Read more below about key findings and recommendations from the reports. 

Key findings from each report:

Essential potential: Exploring the benefits and challenges of social tariffs across essential markets (IPPR)

• Households in the lowest equivalised income decile are spending around two fifths (41%) of their disposable income (after housing costs) on energy, water, broadband and car insurance bills - compared to 11% for those in the fifth decile and 5% for those in the tenth decile.

• Even with the price rises and cost-of-living pressures of recent years, the range of expenditure on water and energy within income groups is greater than the variation across income groups. This suggests that expenditure on utilities is driven primarily by the needs of individual households, meaning those on low incomes have limited ability to bring down these bills by cutting down their usage when price shocks hit.

• Broadband is increasingly being viewed as a household essential, and household spending data bears this out: across the income distribution, the overwhelming majority of households have a direct internet connection. While lower income households are more likely to have no internet connection, or to rely on mobile only, this still represents a small minority.

• Social tariffs across these markets could make a significant difference: a 25% discount on these four bills would save the average low income household £13 a week, or £680 per year. This would be equivalent to a boost of disposable income by around a tenth for a typical household in that group.

• Defining eligibility for social tariffs exclusively in relation to receipt of means-tested benefits targets need quite poorly: around 19% of middle income households are eligible for support with this approach, whilst around a third of households (32%) in the lowest 10% of the income distribution miss out. Defining eligibility in relation either to Pension Credit receipt or the £7,400 earnings threshold used for free school meals eligibility in England would much more effectively target those most in need of support - but would still leave significant numbers in the 2nd and 3rd income deciles ineligible for support. A hybrid approach, that uses both an income threshold and/or receipt of means-tested benefits to define eligibility, may be most appropriate.

For the full report, please see here 859 KB .

Barriers to Access: Why water and broadband social tariffs aren’t reaching struggling households (Citizens Advice)

• The consumer journey for applying for existing water and broadband social tariffs is fraught with barriers that prevent many from accessing the support they need. 11 barriers in total are identified, across four key stages of the consumer journey: awareness, availability, eligibility and sign-up.

• Many of these barriers apply to both water and broadband social tariff consumer journeys, including low consumer awareness, inconsistent signposting, and difficulty contacting providers. But there are also key differences between the markets that reflect the different structures of social tariff schemes in each.

• For broadband, consumers encounter more barriers in the awareness and availability stages. Social tariff products are not prominent on providers websites, nor are they effectively signposted in conversations with customer service agents. And non-standardised social tariff offers amongst providers, combined with significant exit fees, limited the ability of some consumers to access social tariffs that are suitable for their needs.

• For water, eligibility criteria differ significantly between suppliers - but so do methods for assessing eligibility, leaving consumers facing a postcode lottery of processes, where some are enrolled onto social tariffs automatically and others must take proactive steps to apply. Where consumers are required to make applications, many struggle with navigating confusing eligibility criteria, complex form filling and onerous requirements to provide evidence of eligibility.

• These barriers along the consumer journey are likely to have a disproportionate impact on consumers in a range of vulnerable circumstances - including people who are digitally excluded, have English as an additional language, or experience mental health issues.

• Action to increase uptake of these schemes should be based on the principle of minimising as far as possible the need for consumers to take action to access the support. For water, the goal should be a standardised social tariff across the sector that is designed with automation in mind from the outset. For broadband, action should focus on increasing the prominence of social tariff products on supplier websites and in interactions with customer service agents, and removing exit fees where they are preventing people from accessing a social tariff that suits their needs.

For the full report, please see here.

Barriers to Access: Recommendations

For water:

1. Defra should implement a single social tariff, using the powers laid out in the Water (Special Measures) Act - this should be achievable by 2026.

2. Ensure that a single social tariff is both built around a principle of ‘automation by design’ and targeted effectively to those who need support. Where there are tensions between automation and targeting, automation should take precedence.

3. ‘Automation by design’ should mean:

   1. Beginning with an approach which uses DWP data to automate eligibility assessments and awards for those in receipt of means-tested benefits;

   2. Having simple, streamlined processes to capture anyone eligible who is not receiving a passported benefit, accessible both online and over the phone - this should include ensuring that social tariffs are prominent both on supplier websites and in interactions with customer service agents;

   3. Working towards a longer-term goal of expanding automation beyond means-tested benefits as new data sharing opportunities become available

For broadband: 

1. Ofcom and providers should work together to make social tariffs more prominent when customers engage with providers, either online, on the phone or in store. This should include  ensuring they are routinely offered at the moment of sign-up, mentioned in every customer service call related to billing or tariffs, and listing them alongside main packages online. 

2. The government should run targeted advertising campaigns to drive awareness of broadband social tariffs – and consider using Job Centre and Universal Credit journals as a contact point for this.  

3. DSIT and Ofcom should ensure exit fees are not a barrier to accessing a social tariff. This should include exploring if providers would extend their current voluntary commitments on waiving exit fees to include customers who wish to switch to another provider’s social tariff because it is better suited to their needs.

The Art of the Possible: How data can improve access to social tariffs in the short and medium term (Policy in Practice)

• Pioneering utilities are using innovative data led approaches like Auto Enrol, Apply Once and targeted communications to overcome barriers to customers taking up social tariffs and other support. 

• Case studies from these innovative utilities show that the necessary data sharing infrastructure and legal gateways are already in place. 

• All three approaches are more impactful than traditional mass marketing awareness campaigns. Auto Enrol is the most impactful, with the Warm Home Discount delivering energy support automatically to the vast majority of eligible households (92% in 2023-24) as a model of automation that can and should be built on.

• The three approaches work best in tandem. Auto Enrol is highly effective but relies on DWP benefits data, missing the millions of people in need of support who are outside of the benefit system. Apply Once and targeted communications are essential for streamlining the application processes for consumers who are missed by automatic schemes and driving uptake of passported benefits that unlock the automated benefits.

• The case studies demonstrate that sophisticated scheme criteria can be automated, but schemes must be designed to support automation, in particular to use data that is available.

For the full report, please see here.

Art of the Possible: Recommendations

The vision must be a national water social tariff with automatic enrolment for people known to be eligible and in need by April 2026. To make progress towards that vision, and to support take up of all social tariffs, we make the following recommendations: 

Three actions that can happen today:

1. All water, energy and broadband companies implement Apply Once with the GOV.UK endorsed benefits calculators

2. Water companies pilot Auto Enrol for customers in arrears

3. Targeted uptake campaigns for water and broadband social tariffs and passporting benefits like Universal Credit and Pension Credit

Two actions that should happen by April 2026:

1. A national, automatically enrollable water social tariff

2. Plug the gaps in the system, including reviewing WaterSure, the Warm Home Discount and the broadband social tariffs