Business, Energy and Industrial Strategy Committee
Oral evidence: Energy price support, HC 980
Tuesday 31 January 2023
Ordered by the House of Commons to be published on 31 January 2023.
Members present: Darren Jones (Chair); Bim Afolami; Alan Brown; Ruth Edwards; Ian Lavery; Andy McDonald; Mark Pawsey; Alexander Stafford.
Questions 1 - 40
Witnesses
I: Gillian Cooper, Head of Energy Policy, Citizens Advice; Peter Smith, Director of Policy and Advocacy, National Energy Action (NEA); and Emma Pinchbeck, Chief Executive, Energy UK.
Witnesses: Gillian Cooper, Peter Smith and Emma Pinchbeck.
Q1 Chair: Welcome to this morning’s session of the Business, Energy and Industrial Strategy Committee for our latest hearing about energy bills and support for energy bills for both consumers and businesses. We have three quick-fire panels this morning to get an update on the state of play and to start to think about what the Government should be doing in preparation for this winter and when the current bill support package ends in spring 2024.
The first panel will be focusing predominantly on consumers. We are delighted to welcome Emma Pinchbeck, chief executive of Energy UK; Peter Smith, director of policy and advocacy for National Energy Action; and Gillian Cooper, head of energy policy at Citizens Advice. Good morning to all of you. Thank you for coming.
Gillian Cooper, as we start to go into this winter, what is the current state of the consumer body around energy bills from what you have been seeing? We have been hearing concerns around self-disconnection. We have been talking about prepayment meters and debt levels. Presumably there is going to be a legacy of the energy crisis that we will need to think about. What does that look like at the moment?
Gillian Cooper: So 2022 was a year unlike any other we have seen because we had a cost of living crisis go from bad to worse. At Citizens Advice we were breaking unwelcome records pretty much every month last year with regard to the number of people we were helping who were in crisis situations. In December it was more than three people every minute with crisis support, and that is food vouchers, fuel vouchers and other charitable aid. The number of people we helped who were struggling to afford their energy bills is completely unprecedented.
We also saw a record rise in December of the number of people who could not afford to top up their prepayment meter. It was more than what we had seen in the previous 10 years combined. That suggests that the Government support package has not been enough to keep people’s heating and lights on. Low income households are paying the price for a broken energy market here.
Where that has had a real impact is people who pay by prepay. It has, up until this point, functioned pretty well as a payment method for millions of households but it is now much riskier because of the sky-high energy bills and cost of living crisis. While people have valued the control that it has given them over how much they spend on energy, it has become a crisis for quite a number of households.
We published a report earlier this month that showed that millions of people had disconnected from their prepayment meter at least once a year, and a number of very vulnerable households were disconnecting regularly and for extended periods. That included disabled people or people with a long-term health condition. We have called for a moratorium on the forced installation of prepayment meters until we can put some new protections in place to support people who are struggling to afford their energy bills.
Q2 Chair: Peter Smith, does that sound right from your perspective? Are those the types of customers we need to think about additional support for: people on low incomes, vulnerable households, households with disability requirements and prepayment meter customers?
Peter Smith: Yes, that sounds like a very familiar picture. We are a small advice provider in contrast to Citizens Advice but we have seen record numbers of people come into us asking for support. The devastating impact of this winter has been really acute. The agencies that are there to support those households are facing unprecedented challenges and are really struggling with increased demand for services and a lack of tools in the toolkit in terms of what we can do to support those households.
The other thing I would observe is an increased concern from other statutory bodies that have not historically interfaced on energy issues. In particular, fire and rescue services are reporting a real huge increase in instances of people doing unsafe things in their home in a desperate attempt to keep warm. That is having a big impact on their thinking about responding to the wider cost of living crisis.
The groups you have highlighted are the main ones. The real weakness in our current approach to targeting is not being able to support those households who live on the lowest incomes but that do not claim any means-tested benefits, and how that then intersects with other vulnerabilities like medical conditions. Those are the most vulnerable people who are still waiting for a significant amount of support to get through this situation.
Q3 Chair: That is presumably because energy companies or the Government cannot easily just pull up a list of those customers and send help to them.
Peter Smith: We do have the priority services register and we have been urging the Government to look at that as a way of targeting more support towards those households. Unfortunately, those priority services registers have not been kept up to date and there has not been as much proactive work by energy suppliers as there has been for network companies, for example, which have been using those as more active tools to support customers.
Q4 Chair: Emma Pinchbeck, is that right? Energy suppliers have not been keeping their priority lists up to date.
Emma Pinchbeck: The thing that is missing in what Gillian and Pete said—though I would echo much of what they said and I do not think anyone is pretending that there is not an energy crisis on, that bills are not exceptionally high and that people are not struggling—is the scale of it. In our call centres, calls are up 300% on previous years and the requests for additional support are up 300% too. What that indicates is that we have many more houses moving at pace into what has been considered vulnerability previously and/or households who are not indicating to us that they are vulnerable. From the suppliers, there is an acceptance that more needs to be done in the vulnerability space, and we are working actively with the consumer groups and Government to do that.
This is a much bigger problem than just prepayment meters or vulnerable customers. Bills are still double what they were 18 months ago, and we have about 12 million households, which is about 40% of customers, spending more than 10% on energy. That is the previous definition of fuel poverty. We need to look at targeted support but we also need to look at this as an affordability crisis across the piece and how that intersects with the wider cost of living. We are up for having those conversations but it is not as simple as just looking at the priority services register. This is still a really big problem.
Q5 Chair: How do we fix that? You say you are working with Government on it. How do we find those customers who need help?
Emma Pinchbeck: It will be interesting to hear from Pete and Gillian on this too. We have been flagging with Government the risks around vulnerability and prepayment customers, since I think before I went on maternity leave, so for two years now. Then, since the autumn, we have been asking for specific meetings on these issues in particular.
Q6 Chair: Sorry to ask—have you had those meetings with Ministers?
Emma Pinchbeck: We have. We had a meeting with a Minister last week. We called for it before Christmas. We have put in some proposals that we are working through with consumer groups, Ofgem and the Minister. They are draft at this stage. I have also shared them with Committee Clerks, so you know that I am not just making this up. You can have a look yourself in draft form.
The kinds of things we are talking about doing include enforcing the existing licence conditions. It is worth saying it is a 250-page supply licence. The steps that should be taken to get to the prepayment install point are extensive, and similarly with identifying vulnerable customers. If rules are being broken, we want to know about them. They should be enforced. There is a question about Ofgem capacity there that we have raised with Government.
On top of that, we are proposing codifying and setting out some principles that go further than the licence for how we treat vulnerable and prepayment customers. That is what is up for discussion with Government.
Then we are calling on more support. The energy price guarantee is due to be raised in April. They should be fixed to £2,500 for the rest of the year. There is an underspend on that programme against what was budgeted because gas prices have fallen. We are also calling, like the consumer groups, for some kind of targeted support in addition to that. We are very up for conversations about things like social tariffs, and we have written to the Chancellor to call for the long-term picture on bills to be sorted by investing in green infrastructure but also in energy efficiency and doing some things in VAT to make that easier.
I suppose the short answer to this is that we are doing lots behind the scenes and as much as we think that we can, given the debt burden on the sector, to try to help our customers without saying at all that it is excusable if rules are being broken.
Q7 Chair: Can I check that I understood correctly? You represent energy suppliers and you have just asked for the regulator to be tougher with your own companies. Why can you not just do the job properly in the first place?
Emma Pinchbeck: We expect our member companies to be doing their job properly in the first place but, if the regulator, Citizens Advice or consumer groups are seeing things that the suppliers do not see, that should be raised and sorted.
To give you an example of why there might be a gap, we are the energy suppliers, so quite often people do not tell us when they are vulnerable because they either do not know that help exists or they are more comfortable having these conversations with people like Gillian and Pete. In the past, when issues have been raised with us, often it is an issue of communication. Even when they are talking to us, quite often they do not know exactly what the definitions of vulnerability are. When those cases are raised with the suppliers, we often then find a reason they were vulnerable, when we previously ruled that they were not, which means that we can support them.
It is not to say that there is no bad practice going on and, if there is, we want to see that stamped out. We are an industry that fundamentally serves people. It is an essential service and we have a regulator that should be doing that job, with very extensive rules that it should be enforcing. It is also the case that suppliers cannot do this on their own for reasons that are both behavioural and to do with regulation.
Q8 Ruth Edwards: Both Citizens Advice and National Energy Action have raised concerns that vulnerable customers are being forced on to prepayment meters when it is not safe or appropriate, and that they are not being used as a last resort. Could you set out for us what you are seeing on the ground in this area?
Gillian Cooper: There are three key groups of people who are struggling to top up their prepayment meters or at risk of being moved on to prepay that we are particularly concerned about. The first is people with physical or mental health difficulties who will struggle to top up because of affordability issues. Secondly, we are particularly concerned about households with young children or where there are elderly people who are more likely to suffer health consequences associated with being off supply.
The third group, which is more challenging—and this is something that Emma’s members will need to grapple with—is people who are on low incomes who do not currently have any physical or mental health difficulties but are unable to afford to keep the lights on because, when you live in a cold home, you suffer consequences as a result of that.
Thinking about the scale of the challenge we have, in terms of the debt clients coming to Citizens Advice for support, 50% of those people have a negative budget, which means they cannot afford to pay for all their essential bills at this point and they certainly do not have any money to start repaying debt. If you put a household in that situation on to prepay, they will probably disconnect themselves and disconnect themselves frequently. It is not safe for households in that situation to remain on prepay or be transferred to prepay just because of the risks. We need to think about better ways to safeguard these households.
I accept the challenges Emma has raised that suppliers are facing with the growing debt books that they have. We agree with them that this is not an issue that suppliers can solve on their own, but we need to make a decision as a society about whether we are going to properly safeguard people in this situation. Energy is an essential-for-life service and you really cannot live without it without having really detrimental effects to your health.
Q9 Ruth Edwards: I see that Citizens Advice has said that you see a number of households forced on to prepay meters where the person requires a continuous supply of energy for health reasons; they have accessibility needs and cannot access the top-up point; or they have an illness or disability that is exacerbated in cold weather. Can you give us any sense of what proportion of customers being forced on to prepayment meters that would entail?
Gillian Cooper: I would struggle to give a proportion. We see enough case studies, and certainly other advice agencies such as NEA and many others are seeing a worrying number of people who would fall into those vulnerable categories where it does not feel right or safe for them to be on prepay. This is where we were looking for Ofgem’s new review of protections in this space to really dig into that and to try to understand the scale of the problem. Until we know the size of the problem, we cannot really work out the right solutions for how we fix this. It is really important that Ofgem carries out proper modelling of this so that we get a good sense of the number.
Peter Smith: We are hamstrung at the moment because we do not have as much reporting data out there as there used to be by Ofgem on these issues. About one fifth of customers are on the priority services register for the reasons that you have indicated, so that gives you a sense of the scale of these potential issues.
Q10 Ruth Edwards: Emma Pinchbeck, what is the energy suppliers’ response to those observations?
Emma Pinchbeck: The cases you are talking about there would be breaches of licence conditions. There are really strong rules around what happens in the process of putting someone on to a prepayment meter. If those rules are being broken, first, we want to know where the cases are and they should be raised with suppliers, but, secondly, there is an Ofgem job to enforce those existing rules. We have raised concerns about the regulator time and again with this Committee, and whether it is able to do that job properly. We are participating in Ofgem’s calls for evidence around these practices. There were more requests for information issued before Christmas, so we will do all we can to share that information.
It is worth talking about debt again. There is about £2.5 billion of debt sitting on suppliers’ books right now. Those are figures that we are also getting and supplying to Government and to the regulator. Of that, we think bad debt might be close to £2 billion from independent experts. We are required to collect debt as part of the licence. That debt has to be collected off all billpayers if it is not being paid. That is one of the reasons why things like a moratorium worry suppliers. We have seen the consequences of blaming suppliers already on bills, plus the need to collect debt from everyone else.
It is complex for us when we look at the market but that does not mean that we are not sympathetic to what is a devastating affordability problem for many households. I am not contradicting anything that Gillian and Peter are saying here. It is on all of us to work together to find the solution.
Q11 Ruth Edwards: I do not think anybody would disagree that the regulator should be properly resourced and should enforce things properly. We have seen Ofgem publish market compliance reviews on lots of different issues, and we have seen energy companies come out and say quite publicly—Nigel Pocklington from Good Energy, for example—that Ofgem is “overcompensating” for previous mistakes. The founder of So Energy, over the course of the last three months, has again complained about Ofgem’s market compliance review. Is there a culture in the energy industry that sees customers as commodities rather than people?
Emma Pinchbeck: No, not in my experience of working for them. I would not be in this job if I did think that. As it happens, I have family on prepayment meters who are in some of the situations described here. If I have a vested interest at all, it is making sure that they are treated fairly. In my experience of working directly with supplier CEOs, they have been largely humane in thinking about these problems, but they also are required to manage debt and they are worried given the state of the retail sector in the UK.
Just as a reminder, the retail sector makes a negative margin in the UK on average—it was minus 2% last year—and that makes it difficult to invest in things like call centres and additional help we would like to provide, and to take on things like making sure we understand vulnerability, because we do not have the money in that bit of the industry to do it. Never in my experience of working with the CEOs have they come across as just focused on the commercials, but it is a challenging sector in the UK.
Lastly, the points that you made about So Energy and Good Energy speak again to a regulatory issue because they were right. The problem was that the methodology that Ofgem had used to label bad practice was incorrect, and they looked at it and called it out. They were unfairly named as being poor at responding to a customer base. That again speaks to whether Ofgem has the right skills and capacity to do this. I do not think any of us would say that it definitely does at the moment.
Peter Smith: The number of supplier exits that we have seen also helps the regulator in enforcing the rules. Where there was a plethora of very small suppliers, it was probably quite difficult to keep track of what all of them were doing. We have now seen that contraction. I do not know how many licensees there are—forgive me—but it is something like 12 or 15. It must be a much easier task. We do, however, welcome their very recent commitment to create a workstream around identifying financial vulnerability. That is really important, and embedding that within the priority services register should help get across some of these issues that we have been talking about today.
Q12 Ruth Edwards: Gillian Cooper, Emma has raised a couple of issues with the idea of a moratorium on prepayment meters, increased bailiff action and increased bad debt. What is Citizens Advice’s view on that? How could those be mitigated if such a policy as you are proposing is pushed?
Gillian Cooper: We called for the moratorium because we think the scale of bad practice is really concerning. There is a need to focus the minds and to start bringing in some proper solutions and some quick solutions. It is also important to say that, if people are willingly wanting to move over to prepay because they feel that is the right option for them, this would not affect that in any way. The people we are concerned about are the ones who cannot afford to pay their energy bills, and prepay is likely to be a dangerous solution for them because they will regularly disconnect themselves. It is right to take the time to bring in new protections to safeguard these households.
Once those protections are in place, we can look at resuming forced installations of prepay. This is not about stopping suppliers from using a tool to collect debt where that is appropriate. It is about ensuring that we have the right protections in place to safeguard people.
Peter Smith: The BEIS Committee rightly highlighted the need for a proper plan around stopping self-disconnection. We agree with the short-term steps that Citizens Advice is campaigning on but we need a proper plan, which would include looking at removing the amount of traditional prepay we have out there that is badly hindering access to Government support at the moment as well as other forms of support; looking to make sure that those prices for prepay customers and other customers are fairer; and doing more than just monitoring the numbers on how many people are regularly self-disconnecting. It is possible for the regulator and the industry to come up with a coherent plan and really work towards the end of self-disconnection as a sickening part of our energy system.
Chair: Can I politely remind Members that we have about five minutes per question? If we overrun, it means less time with Ofgem. I am sure they would be delighted about that, but we would like to give them enough time at the end.
Q13 Andy McDonald: I am pleased that we are hearing that the suppliers that are left are humane. We have heard from others who would not be characterised in that way. Can I ask some specifics around your experience of suppliers? Are they increasing customers’ direct debits even when customers have built up large credit balances? I do not know if you have come across that, Gillian.
Gillian Cooper: We have a lot of people contact us because they are confused about their energy bills. We have looked into this. We do not have any firm evidence of widespread sharp practice in this area. We think suppliers need to do a much better job of ensuring their customers understand why their direct debits are increasing.
We are in a particularly unique situation at the moment because we had a couple of very significant price increases in 2022. People’s bills went up by a lot. We have also had people responding quite significantly to those increased prices by changing how much energy they use in their homes. A lot of people have significantly reduced how much energy they use because of cost issues. There probably is a question for industry about how quick they have been at reassessing those direct debits. Are they still doing it on a six-monthly basis when quarterly might make sense? Are they being sufficiently flexible with their customers when they come and say, “I cannot afford that increase”? Do they do a proper investigation at that time rather than just saying, “that is what the algorithm tells us”?
There is some bad practice. I do not think it is widespread deliberate inflating. It is just that customer service has not been up to scratch.
Q14 Andy McDonald: Pete, do you come across that balance problem?
Peter Smith: It is typically a case of either not being particularly proactive about being transparent about the methodology or, in the case of households, not understanding the bottom line in terms of the quantum. It is really difficult for households with very limited or increasingly limited budgets to say, “I am going to prioritise £300 or £400 a month in my outgoings and give it to a supplier in advance”. That is very difficult for households, and that speaks to a wider affordability problem as opposed to the mechanics of how direct debits are being calculated.
The consequence of some of that is that we are seeing an increase in standard credit customers—customers who pay by cash or by cheque. Those customers are currently paying a huge premium in the energy market due to the differentials in how the price cap works—over £250 per customer for those households who pay by cheque or by cash compared to direct debit customers.
Q15 Andy McDonald: Emma, are your findings that there is sufficient attention paid to people’s ability to repay debt as well as those sitting on credit balances?
Emma Pinchbeck: Yes, that is something we are very worried about and, again, it is one of the reasons that we think PPMs—prepayment meters—can be a useful tool.
Something we have not said is that the industry does give out a lot of discretionary credit. One of the reasons for that big debt book is that, particularly for prepayment customers, the industry generally only expects 50% of that to get paid back ever. There is already a system where we think about what additional support we can offer people. That includes prepayment plans, changing how they pay, discretionary credit and then an expectation that, for some households, we may not get that credit back.
As you would imagine, suppliers worry all the time about how they manage their debt book and how their customers are doing. As others have said, we do not have any evidence of sharp practice with how direct debits work. I totally agree that energy is really complex from where we look at it. We buy ahead and we hedge ahead. That is the responsible thing for companies to do. We have seen what happens when companies do not do that. Translating that to a customer payment monthly is difficult, and explaining to customers why that is the case can be difficult.
Q16 Andy McDonald: Do you perceive that there is sufficient attention paid to getting people off prepayment?
Emma Pinchbeck: We have been talking about dumb meters largely, and one of the tools that we would like to be able to use more is smart meters, particularly smart prepaid meters. One of the commitments we have put forward to Government is that we should be doing smart prepay first and trying to do that, even when it is complicated for customers, as much as possible. The reason for that is that it really helps to see when customers are changing their behaviour early. It can help us see if they are struggling with payment early or if they are changing their habits in their households, give us more information about our households, and, relatedly, help us manage the system more efficiently to bring bills down.
Smart meters for everyone—critical infrastructure—could save £16 billion on the cost of reaching net zero, could help reduce bills, could help energy infrastructure and could be really important for prepay customers. That is partly a supplier job but there is also a call for Government to really look at the smart meter rollout and help get that going. They have always slightly backed away from pushing it. Now is the time to do that.
Peter Smith: There is about £5 billion of consumer benefit in shifting across to smart prepay. There is a massive and very clear benefits case, and we should be getting on with that and setting targets appropriately to deliver that outcome quickly.
We have heard a lot about households being automatically switched to prepayment mode. We would like to see suppliers embrace the opportunity to do more in terms of switching households temporarily over to credit mode, particularly where there is the sort of transient vulnerability caused by being in hospital, for example, or really struggling to manage your finances in a particular month. That could be a much more common way of helping customers.
Gillian Cooper: We firmly agree with that, and it is something that we have asked the Government and Ofgem to track through this new investigation process into prepayment because it is really important that suppliers are able to demonstrate, where they have identified vulnerability, that they are moving that customer off prepay.
Q17 Andy McDonald: Emma, you seemed to be indicating that the suppliers are struggling, with their resources, to meet these challenges. How can we improve that situation? What has to happen?
Emma Pinchbeck: I gave evidence in the autumn of 2021 as the suppliers were beginning to fail—that autumn where we lost 29 at the start of the gas price crisis. I said then what I will say now, which is that I have worked in energy for 10 years, I came to retail relatively late, and I have been shocked at the lack of attention on retail as a vibrant, important part of the energy sector and at the relationship that suppliers have with Government and the regulator, which I would characterise as largely punitive. The best of the private sector is when it can make enough money to do things like innovate, invest in call centres and invest in support over and above the hundreds of millions it already gives. That is very difficult in a world where you are making negative margins.
To give you an example of things that could be brilliant, two of my supplier members are now offering heat pumps for the same price as a gas boiler with a Government grant. They have invested their resources in getting that cost down. They are training the installers to do that. In the last two weeks, we have had suppliers aggregating load in households to participate in flexibility trials with the grid. Again, those tariffs often come at a loss for suppliers because the structure of the market means that they cannot do that innovation. They are paying their customers to do that. They are saving the grid money. All of this innovation, on top of the customer support, identifying vulnerable people and looking after our customers, is easier when you have a market that is functioning. The market is not functioning. I have been saying that pretty much since I got this job and nothing has changed.
Q18 Bim Afolami: My question is directed particularly at Ms Pinchbeck. I have a huge amount of respect for you personally, as you know, and I think you are a class act. However, relating to some of your members, I have seen this in my own constituency in addition to what I am about to say in relation to UKHospitality. Kate Nicholls has said that many of her members, as hospitality businesses, report suppliers offering rates above wholesale prices, hiking standing charges and demanding large deposits. I quote: “The behaviour of energy suppliers over the past four months has been nothing short of disgraceful”. What is your sense of that? Do you think she is wrong? If you do not think she is wrong, what are you doing about it and how are you working with your members to improve that situation?
Emma Pinchbeck: I am glad we are talking about non-domestic, and I know you have a panel with Kate and others later. I have spoken to Kate, and all the panellists that you are talking to later, and we worked with the business groups to call for special support for the business sector when we could see that the challenges facing it are different to the challenges facing retailers. We will continue to do that.
We have also gone to our members and asked whether they have evidence of bad practice, or where they are concerned about their business customers or what they can see in their books, which we will provide to the regulator but also provide to people like Kate Nicholls and UKHospitality.
The short answer is that non-domestic is a much more complex picture than domestic. The risk to the suppliers is much bigger because of the way that we have to hedge for businesses and the risk of businesses. To give you an example, my local pub, my local hairdresser and my kids’ nursery might all have the same footprint and might all have a similar energy demand, but it will be at different times of day and they will be very different businesses in terms of the risk posed to suppliers, so they all require different contracts and different terms. The contract terms therefore can look very different across a sector like Kate’s from a different sector of the economy, and that often leads to businesses saying, “This feels unfair” but it is often just the reality of the risk, plus the cost of the energy at the moment. They are also not protected in the same way as domestic customers.
Again, it is the same message as non-domestic: if there is bad practice, we are the first people to want to call that out and stamp it out. We are working with business groups on the support that they need and how quickly we can bring it in, and calling on Government to take care of businesses in the way they have with retailers. We are concerned about the capacity in Government on non-domestic. Perhaps Jonathan will clarify but we think there are only two-ish people in Ofgem working on non-domestic versus the numbers working on domestic.
Lastly, we have called for the regulation of third-party intermediaries, of which there are many in the non-domestic space. These are energy consultants, brokers and so on. Just to give you a flavour, there are 1,000‑ish third-party intermediaries in non-domestic. About three-quarters of small and micro businesses will get their energy contracts through TPIs rather than directly with suppliers. It is about a third of the volume of contracts. We have said for a long time that that bit of the industry needs regulating.
Q19 Bim Afolami: At the moment, how profitable is that bit of the industry in comparison with the domestic market?
Emma Pinchbeck: It is hard to say because I am waiting on year-end figures, which is not a dodge.
Q20 Bim Afolami: What was it last year?
Emma Pinchbeck: I do not know off the top of my head, but I can provide it to you. What I will say is that they do make some profit on that sector, unlike in the retail sector.
Q21 Bim Afolami: That is where I am going. It strikes me that, because of the very intense, stringent public-facing regulation on the domestic market, a lot of other things that are more profitable are happening in the non-domestic market. I just wonder whether my intuition on that is correct. I know you said that there are some things that you want Ofgem and the Government to do but, critically, do you think that those bills are too high overall and that we need to work to get them down or do you think that the market can make things a bit easier but ultimately they are not too high and that the industry is behaving appropriately?
Emma Pinchbeck: There are two answers to that question. The heterogeneity of the market makes it difficult to say that across the piece. We are co-operating with the regulator and with our own members to get some sense of what is going on in the market as a whole. I have not seen any evidence of that so far. I appreciate the instinct from folks like those at UKHospitality who say, “My bills are higher than this other bit of the economy” or, “My bills are higher than domestic households; is this how companies are surviving?” I have not seen any evidence of that, and we have asked that question of members. It often is the case that the bills are higher because the risk is greater in that section of the economy. UK hospitality is struggling. If you are providing a five-year contract—buying energy five years ahead and hedging for that—the reality is that there is a higher risk in that bit of the economy to, say, one that is more stable.
Pulling back from this, we have seen the figures from the IMF this morning and the figures for affordability and the cost of living crisis across the piece. This looks like a much bigger issue for both businesses and domestic householders than something that is just about energy pricing.
Q22 Ian Lavery: Ms Pinchbeck mentioned before that the treatment of domestic customers by suppliers was very humane. Could somebody briefly explain the fact that there have been more court orders? People are dying. People cannot afford to heat and eat. As Gillian mentioned before, millions of people, including vulnerable and disabled people, are being disconnected. Those are the facts of the matter.
The CAB report that came out last month explained about the disconnections and so on. There are record levels of court orders being placed by suppliers and the courts are now agreeing by the hundreds that they will allow the suppliers to enter people’s homes—not houses, homes—to do various operations within them. Are the reports exaggerated or are they correct?
Emma Pinchbeck: The reason that there are higher levels of people going on to prepayment meters is simply that there are higher levels of debt. Your point about the warrants process is one of the things that we are talking to the consumer groups, Ofgem and BEIS about to see if we can go further than the already extensive process for putting people on to a prepayment meter that exists in the supplier licence, including a cross-industry principles approach to what those steps should look like.
We are not saying that no rule breaking is going on or that there is no bad practice, but this is largely just that people cannot afford to pay their bills and the debt book facing the industry is now huge—it is at a 10-year high—so you are seeing more of the debt-collecting practice.
Q23 Ian Lavery: You are going to court and the court allows the company to enter people’s rooms.
Emma Pinchbeck: Yes, that is how the warrant process works.
Q24 Ian Lavery: It is an absolute disgrace. People are under this kind of duress, and suppliers, which are making fortunes, are applying to the courts and the courts are agreeing that the suppliers can enter people’s homes. It is an invasion of privacy and it is an absolute outrage.
Moving on from that, it brings into question the operations and the performance of Ofgem during the energy crisis. Could the panel say whether they are absolutely happy with the performance of Ofgem during the crisis? How do you rate its performance? Could it be better? Has it been okay?
Gillian Cooper: Ofgem has carried out a number of what it calls market-wide compliance reviews. As a regulator, it has a much better baseline of where the industry is at in terms of the policies and processes that are in place. As a regulator, it also has a much better understanding of the financial resilience of suppliers compared to previous years. Where we are concerned is whether it has a good enough handle on tackling the process failures that are happening at suppliers, which is what we have seen, and the problem with impacting prepayment meter customers.
We are really looking forward to this new review that it is carrying out to look much deeper at whether suppliers have the right processes in place, because it is how they are being implemented by staff and interpreted by staff on a day-to-day basis. The cases that we are seeing at Citizens Advice show that there are gaps in that area, and we need better protections in place.
We would also like Ofgem to think about bringing in a new consumer duty, similar to what exists in the financial services sector, to ensure that companies are required to focus on the right outcomes for their customers. That will be increasingly important as we move towards the new world where people will be required to use energy in very different ways as a result of the net-zero transition. We need to refresh the consumer protections to make sure that retailers always have the right focus on the right outcomes for their customers.
Q25 Peter Smith: They have had a tough job. Nobody in this sector has had an easy ride. The interest of the profitability of suppliers has become a more mainstream focus for Ofgem given the supplier failures. That has led to trade-offs and we would continue to urge them to balance that with the interests of low-income and vulnerable consumers that they hold statutory duties for. We disagreed with the ending of the previous safeguard tariff, which was providing deeper support for vulnerable customers, and we also continue to challenge them on their approach around standing charges, which do not currently take any account of income, or a household’s usage or payment type.
It is right that Ofgem continues to work so closely with the UK Government in terms of their response to this energy crisis. There is an affordability crisis. The Government now have the financial firepower to offer deeper support from April, when we see that huge cliff edge with the ending of the energy bill support scheme and the increase to £3,000 of the energy price guarantee. That is going to result in households all over the country experiencing an increase of £900 in their energy bills when they are already at record highs. It is the UK Government who have the ability to offset that for households due to the significant savings that they are already making as a result of the reduced cost of their current programme. I hope that there is a balancing of the critique of energy suppliers, Ofgem’s role and the UK Government’s.
Q26 Alexander Stafford: Thank you for your answer just now, Peter. That was answering the question I was going to ask you anyway. There will not be a social tariff coming in until April 2024. There are these rising bills. Should the Government do more, and how do they target it? Peter made it clear that the Government should do more and believes the Government have the room to do more. Is that the opinion shared by the rest of the panel?
Emma Pinchbeck: Yes.
Gillian Cooper: Yes.
Q27 Alexander Stafford: How should that extra support be targeted? Should it be targeted in the same way that the Government are doing at the moment? Should it be different? How would you see this extra support coming in?
Peter Smith: Other colleagues might come in on the need for continuing some universal support and perhaps a business case for keeping the EPG at the current level. In the short term, we need to fill in the gaps in relation to the cost of living payments. We know that there are some big chasms for households, particularly those that we mentioned earlier: those that are on low incomes but that are not covered by means-tested benefits and those households with medical conditions that are not going to be well targeted through the cost of living payments. We need some focused attention to plug those gaps from now until April.
When we get to April 2024, and we cross over this really big concern that we have about this coming winter, given the cost of living focus payments, we need to transition to something that is much more sustainable—either a much bigger rebate at the start of winter or providing households with an enduring mechanism like a social tariff.
Gillian Cooper: Citizens Advice has been carrying out a really detailed piece of work with our partners, SMF think-tank and Public First, looking at the future need for social tariffs and the way in which support could be delivered. We have done a lot of opinion polling focus groups with the public and round tables with industry, civil society and politicians, trying to build a consensus on what that social tariff should look like. We are going to be publishing the final report in the coming weeks and we will be happy to share a copy with the Committee.
Q28 Alexander Stafford: Will you be able to briefly give us an overview now?
Gillian Cooper: The two leading options are a fixed cash discount—that would look like the current warm home discount but bigger and better, because the warm home discount is not big enough in terms of the discount it offers and it does not reach enough people—and a percentage discount on the unit rates. Both of those options polled really well with the public and they can be designed in a way that ensures most of the benefits accrue to low-income households, so it is really hitting the people we want to hit with the social tariff.
The one challenge—this is something we need to spend 2023 through to April 2024 on—is fixing the problem of people who are not on means-tested benefits, representing about 3 million households, to ensure that we can get that targeted support to them automatically. We need a new way of identifying those households, and that is probably going to involve stuff like using HMRC data. That is something that the Government should be working on this year.
Emma Pinchbeck: Yes, we are looking at those options and the members are talking to consumer groups about them. We need to look at this in terms of timelines. We are calling on Government to keep the energy price guarantee in place so that bills stay around the £2,500 mark and that the existing support is maintained while we are working on options.
We are looking at the idea of a social tariff but we are also happy to consider things like expanded targeted support through the warm homes discount or a separate thing. We are also looking at expanded support for energy efficiency. There is an overlap between fuel poverty, vulnerability and some of the households we have been talking about.
In the long run we are also open to talking about market reform. We should not forget that that is at the heart of this. This is a retail market. To correct something that was said, the retail market does not make money on average. It is making negative margins. It is not a healthy market to do this stuff. We need market reform for retail but you also need to be able to capture the benefits coming through from low-cost renewables and some of these other technologies. We are also open to what that market looks like and how it can benefit consumers in the long run. There are three stages there.
Q29 Alexander Stafford: What would you want the Government to do next year or this year on market reform?
Emma Pinchbeck: We are talking about exactly the things that Gillian and Pete have mentioned: expanding the existing support schemes and then looking at things we can bring in quickly that are targeted, like a social tariff or an expanded warm home discount. All options are on the table. All bright ideas are welcome.
Peter Smith: One of the other priorities in the short term is to levelise those payment methods. As already mentioned, standard credit customers are paying a huge amount more than direct debit customers, as are prepayment customers. We need to look at levelising those costs before it is too late.
Q30 Mark Pawsey: I want to stick with the social tariff because one of the challenges we have is identifying those who are in need and require support. Both Emma and Peter spoke about the use of smart meters in this regard. I am just wondering if we can tease that out a little more. The Government do not have a brilliant record in the rollout of smart meters and, in the present climate, it seems to have been parked on one side while we support people through these difficulties. Tell us a little more about how the use of smart meters could help identify those people who would benefit from the application of a social tariff.
Peter Smith: They are already benefiting suppliers. Suppliers that have customers who are on smart prepayment meters are able to look at them when they are regularly self-disconnecting. They are also able to actively monitor in real time the amount of vends that those households are putting on. Often where there is loose change associated with a particular vend—say it is £4.19, for example—that indicates that the household are maxed out and that they are just trying to put as much on as possible. By looking at those trends, you can identify not just those households who are already self-disconnecting but proactively offer support.
Q31 Mark Pawsey: Are we talking purely about prepayment customers?
Peter Smith: I am, yes.
Mark Pawsey: I was wondering about the broader realm of customers—maybe those who pay by more conventional means.
Emma Pinchbeck: It is the same functionality that Pete is describing that applies to customers as a whole. I do not know if any of you participated in the great big energy turndown over the last week where we got householders to turn down their supply. I have a smart meter. If you have one and you are doing that—so you are turning off your lights or you are shifting when you are cooking—you can see the kilowatts in your house drop off. You can see that as a householder on your in-home display but we can also see that as an industry and we can use it. If we know what people use on average, we can help them do things like load-shifting—moving around when they use energy—which makes the grid more efficient and saves money as a whole. There is a benefit of about £16 billion back to the energy system in being more flexible like this.
For things like vulnerability, I made the point at the beginning that the households now falling into what we would deem vulnerable or struggling to pay their bills are not households who we have traditionally classed as vulnerable. It enables us to see people who would never think of themselves in that way, who are shifting their behaviour with their energy, at risk of self-disconnection or all of those things, and get in early or add them to priority customer services.
Mark Pawsey: This is essentially looking at patterns of behaviour.
Emma Pinchbeck: Yes.
Q32 Mark Pawsey: Are there any unforeseen consequences? Is there a danger that somebody’s pattern of usage might change for a perfectly valid reason and it is not one that indicates a financial difficulty?
Emma Pinchbeck: As Pete says, people go to hospital or go on holiday, so yes, but you can easily fix that by having that communication with your customer. It is worth saying that, with warrants and forced installs of PPMs, it is required that there has been a long process of communication. You might see that someone is changing their behaviour on their smart meter or they might contact you with a concern about paying their bill, and then it is required that there is a very long process of talking to that customer about what help they could access and what more could be done for them. Where there are warrants issued or you get to the point of forced installation, it is where people will not pay or you have not been able to communicate with them at all.
One of the good things about smart meters is that you can see the data to start that conversation early. You can start offering interesting tariffs and services back to your customers. We can save money for the grid because it is critical infrastructure. We can facilitate those conversations about energy use and concerns about vulnerability for the kinds of households we have been talking about who have never previously been vulnerable.
Q33 Mark Pawsey: Peter, you said that a social tariff would need to sit alongside the energy price cap. If the social tariff is dealing with those vulnerable customers, why can we not leave the market to provide the right price level for the remainder of customers? Why would we need both?
Peter Smith: I do not know if it would be retained in exactly the same format but one of the main functions of the wider price cap at the moment is the regulation of policy cost through to bills. There was a big uncertainty previously about the extent to which policy costs were driving up bills, and that led to a great distrust in some instances around the green economy and the transition to net-zero.
Q34 Mark Pawsey: Would greater transparency by Emma’s members deal with that if people knew exactly what they were paying on these other components of the bill?
Peter Smith: Potentially, but I would use all your armoury to try to make sure that there is transparency around that area. It is a good news story for the UK Government at the moment on that front.
Gillian Cooper: The price cap was originally put in place to address the loyalty penalty, which was people who did not switch suppliers.
Q35 Mark Pawsey: Sure, but it is not doing that, is it?
Gillian Cooper: We are now in such a unique situation where we do not have competitive tariffs. There is no competition happening in the energy market at the moment.
Mark Pawsey: That is because the price is fixed.
Gillian Cooper: Yes, it has been put on life support for the moment.
Mark Pawsey: There is no competition in a market where somebody dictates the price.
Gillian Cooper: Yes, absolutely. We used to have the co-existence of the price cap and competition in the market but, following the start of the energy price crisis and all the supplier failures, that has now disappeared. There is a question about what the new world will look like.
Q36 Mark Pawsey: Does the new world need a price cap in addition to an effective social tariff?
Gillian Cooper: It might. There are various options. We definitely need a social tariff in the new world. It should be a social tariff that does not take people out of the market, so it ensures that they can still benefit from all the innovation that will be happening. We very much want low-income and vulnerable households to participate and benefit from that innovation if they are able to do so.
Q37 Alan Brown: Peter, if we take figures from National Energy Action, it is predicted that 8.4 million households will be in fuel poverty come April, which is roughly a third of households. If we are looking at energy efficiency installations, is there a greater need now to focus on a wider range of households to help in order to reduce energy demand overall, which helps all billpayers in the long term, or is there still a need to focus on those in the greatest financial need? On that latter point, is there any concern about ECO+ only having a 20% focus on low-income households?
Peter Smith: It is true that any household that is living in an energy inefficient home will feel the price point much more keenly. A typical £3,000 energy bill in April will feel much more like £4,500 or £5,000 for those households living in the least efficient homes. But we need to continue to make progress on our statutory fuel poverty commitments. It is written into law that we should tackle this vicious overlap between the households who live on the lowest incomes and those who inhabit the least efficient homes. There are about 3 million in England alone who live in properties below band C.
In a very helpful way, Chris Skidmore, in his report the other day, set out not just the moral case but the economic case for doing that. If we help those households through energy efficiency measures, it not only helps the environment but also returns money much more quickly back to local economies and has a better multiplier effect if you focus on low-income or vulnerable homes, as well as the huge health benefits.
There are good reasons to continue with the focus, particularly where those policies that are funding energy efficiency improvements are levy-funded. It would be particularly galling to see a disproportionate focus on affluent households who theoretically could pay for some of that investment in energy efficiency themselves if it is being subsidised by poorer households who need those measures the most.
Q38 Alan Brown: Emma, in terms of the energy efficiency rollout, there is sometimes talk about doing a street-by-street, area-by-area approach. Is there enough done on that? It seems to me that there are then contractual efficiencies. If you set up an area and a contractor sets up a compound, and you bring in the materials and welfare facilities, you have a base rather than a more ad hoc approach. Is there enough done in targeting key areas or is there scope for much greater efficiency and then greater installs?
Emma Pinchbeck: We could do a whole evidence session on energy efficiency rollouts. As Peter said, we would be fans. We used to work together on energy efficiency a long time ago. The reason we think it is valuable is that it is about £3 or £4 back to the Exchequer for every £1 spent on energy efficiency, because of saving money on bills and in the wider economy.
The thing that has worked with the energy efficiency rollout to date has been that the suppliers have done it, so you get that scale that you are talking about. We have targeted vulnerable households and the most in need. There is a very live debate going on, led actually by the industry, about expanding ECO to help more households. We have put a request for that support into the Chancellor for the spring statement.
Then there is a longer-term conversation about how you get the kind of economy-wide energy efficiency gains you are talking about, and whether it is street by street or another approach. We would all be up for that longer-term conversation. For now, as with all of this, what we are saying is that you have to bank what works in a crisis and do as much of it as possible. We are talking about expanding the existing ECO scheme rather than tearing up the paperwork and doing something new.
That does not mean that there is no room for asking how you help the able-to-pay market do this, how you get it going through communities and what the role is of local authorities. That, Darren, could be the subject of a whole other inquiry.
Q39 Alan Brown: Is there enough being done in terms of the private rented sector? The UK Government are supposed to come back and implement targets for that but that is still outstanding.
Peter Smith: It is a massive concern. It has been over five years since the Government initially mooted it in the clean growth strategy and a further two years since they had a very detailed consultation in terms of improving and extending those requirements in the private rented sector. There is a huge amount of uncertainty for tenants as a result and a huge amount of needless energy expenditure during what has been a cost of living crisis. There are huge consequences to the delay of setting out what those targets should be.
There is also now a link between those private rented sector standards and the standards that we should expect of social landlords. That hiatus is inexcusable, particularly in the context of trying to meet our fuel poverty commitments given how many households are in the private rented sector and also live in fuel poverty.
Q40 Alan Brown: Can I just jump back to ECO+? If you take 80% of the programmes outwith the 20% low-income households, customers are expected to pay 10% towards install costs. Is it worth keeping that 10% billing in place or are too many households going to miss out, given that, as has been said, a third of households are in fuel poverty?
Peter Smith: Hardwiring capital contributions into the scheme precludes, almost deliberately, the contribution of the poorest households. It is a really poor policy decision in our view. The only area that it could be justified is if the ECO+ scheme is going to be across tenures. Requiring an even higher capital contribution from the landlord is absolutely the right thing to do. That can make the jam go a little bit further.
Chair: Thank you. I am so sorry to keep everybody moving on a very important subject but we have another two panels. Thank you to all three of you for your contributions this morning.