Written evidence submitted by Sara Davies and Sharon Collard (Personal Finance Research Centre, University of Bristol), Ed Atkins and Caitlin Robinson (School of Geographical Sciences, University of Bristol) (WIN0005)

 

Executive summary

This evidence is based on a research project that used interviews and financial diary methods to collect testimonies from 25 respondents[1] of their experiences during the energy price crisis in winter 2022/23. The research uncovered the scale of behaviour changes made in many low-income households as people sought to reduce their energy bills.

We found that energy security came at a great cost to households. Pressures on household finances resulted in participants using energy saving strategies that endangered their health and wellbeing including heating only one room in the house, reducing showering (in some cases to once a week) and reducing how often people see friends and family. Others resorted to borrowing from family members, cutting spending on other essentials, or running up debt to ensure their children’s health. Although government support (e.g., Energy Price Guarantee and Cost of Living Payments) made a difference, unprecedented increases in bills had, and continues to have, a significant material impact on quality of life and the quality of the housing stock. Many participants felt that they did all they could to save energy and there was no room to cut back further or to invest in energy-saving measures.

Based on these findings, we recommend that in preparation for the winter of 2023/24 the government prioritise:

-          Financial support. Financial support for energy bills should be renewed, tailored towards low-income households (e.g. a social tariff for energy bills).

-          Streamlined, visible support. Support needs to be easily accessible for households, removing barriers to access.

-          Timely response. Effective action needs to be anticipatory rather than reactive to provide households with certainty about their bills and allow them to plan accordingly.

-          Longer-term strategy. Planning for the coming winter should form part of a longer-term strategy about how to protect households from future price shocks (e.g. energy efficiency, renewables)

-          Adequate benefits. Social security needs to be sufficient to meet to costs of essential goods and services, including energy and food, as a minimum.

-          Stringent expectations on energy suppliers. Ofgem should place more stringent expectations on energy suppliers to support customers that are self-disconnecting or in arrears.

 

Inquiry responses

 

2. What more could have been done to prevent price shocks being passed to bills?

Our research found that the financial support from the government with energy bills did provide relief and security to households. Participants recognised that the assistance, including the Energy Price Guarantee and Cost of Living payments during the winter of 2022/23, prevented them going into further arrears and provided some financial security.

 

We recommend that the government continue to provide financial support to prevent price shocks being passed on to household bills, especially for those on low incomes. The phasing out of support – particularly next winter – risks eroding the security provided to date.

 

One mechanism via which more targeted support for low-income households could be achieved is a social tariff. A social tariff has been proposed by a range of stakeholders and charities and would shield low-income households from price shocks[2],[3].

 

Furthermore, the inadequacy of benefits should be addressed. A parliamentary report published in 2023 concluded that “the low rates of social security are pushing people into poverty and driving destitution.”[4] An Essential Guarantee[5] that links the rate of Universal Credit to the cost of essential goods including food and energy costs would go some way to addressing this. This should form part of a longer-term strategy (e.g., retrofit, renewables) for protecting households from price shocks beyond the coming winter.

 

 

3. How should energy companies respond if customers cannot pay their bills and what actions should they not have recourse to?

Our research showed that low-income households across all payment methods self-disconnect and self-ration energy in ways that endanger their health and wellbeing. In February 2023, despite low temperatures necessitating central heating, most participants spent less than the average energy bill (Fig.1) and substantially reduced energy use in response to the high energy prices. Reported costs likely mask an even greater underspend given that many of our participants are reliant on a PPM, meaning they cannot spread high winter energy costs across the year like direct debt customers.

Our research found that support from energy companies for households in financial difficulty was limited. For example, one participant noted that although their provider said to contact them if in difficulty, they were told to contact a debt advice agency instead. Another was eventually contacted after they hadn’t topped up their PPM for over six weeks, but no practical support was offered. One participant received £100 credit for their PPM but was unsure how they would pay it back. As a result, households were finding themselves in considerable arrears or having to borrow money from family and friends.

 

Figure 1. Difference between participants monthly gas (pink) and electricity (blue) bill and the average household energy bill in February 2022.

Note: Each group of bars represents a participant (n = 23). The price is based on the difference between the cost of energy reported by participants and a typical dual-fuel household direct debit bill under the Energy Price Guarantee of £2500 (£208 per month) per annum based on the price cap in early 2023 (Money Saving Expert 2023). A variety of living situations are represented across the graph, with participants in our study that live alone not necessarily having lower than average bills than large families.

 

4. Has Ofgem got its priorities right in addressing customer protection?

 

We recommend that Ofgem places more stringent expectations on energy suppliers to support customers that are self-disconnecting or in arrears. Currently, Ofgem consumer protection priorities are not ambitious enough to deal with the scale of financial difficulties experienced by households since 2022. As part of the Ofgem priority to “Support those struggling with their bills” [6] suppliers are required to offer emergency credit to consumers struggling to top up or vulnerable consumers, yet participants reported little support. Placing responsibility on the energy supplier for debt and disconnection rates (through social obligations reporting under Supply License Condition 32) is not meeting the needs of consumers in financial difficulty or vulnerable situations.

 

Citizens Advice provides good practice guidance for energy and heat network suppliers, which Ofgem should be promoting[7]. Money Advice Trust have also called for a dedicated government 'Help to Repay' scheme which would provide necessary support to hardest hit households in energy arrears[8].

 

5. How effective is the Government's approach towards supporting the sector and delivering a functioning energy market?

 

Our research found that one of the greatest sources of insecurity for many households has been not knowing what their bills will be, or what support is available to them. Whilst the Energy Bills Discount Scheme replaced the Energy Bill Relief Scheme on 1 April 2023, respondents highlighted the need for further awareness campaigns and a streamlining of how financial support can be accessed and used.

We recommend early government action in relation to energy prices and bills for the coming winter to provide households with greater certainty. It is not sufficient for the government to wait for the energy price cap to be announced and then to respond. Effective action needs to be anticipatory rather than reactive to provide households with certainty about their bills and allow them to plan accordingly.

 

Further details:

This research was funded by the 2022 University of Bristol Policy Support Fund (Research England QR PSF 2022-24). With thanks to Joanne Godwin (PolicyBristol) for their thoughtful comments on earlier versions of this document.

August 2023

 

 

 

 

 

 

 

 

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[1] Our study directly recruited 25 people from a variety of geographic regions and socio-economic backgrounds from who were struggling with paying for gas and electricity. Participants were often prepayment meter customers who found themselves in arrears for their energy bills.

 

[2] Fair by Design and National Energy Action (2022) The case for a new social tariff the in the energy market. <https://fairbydesign.com/wp-content/uploads/2022/07/2022_Solving-the-cost-of-living-crisis_v02-4.pdf>

[3] Robinson and Simcock (2022) How can policy protect fuel poor households from rising energy prices? <https://shorturl.at/ptNRT>

[4] APPG on Poverty (2023) < http://www.appgpoverty.org.uk/wp-content/uploads/2023/06/APPG-on-Poverty-Social-Security-Report.pdf>

[5] Trussell Trust and Joseph Rowntree Foundation (2023) Guarantee our Essentials: reforming Universal Credit to ensure we can all afford the essentials in hard times. <https://www.jrf.org.uk/report/guarantee-our-essentials>

[6] Ofgem Consumer vulnerability protections (2023) <https://www.ofgem.gov.uk/energy-policy-and-regulation/policy-and-regulatory-programmes/consumer-vulnerability-protections>

[7] Citizens Advice (2021) Supporting people in energy debt. <https://www.citizensadvice.org.uk/Global/CitizensAdvice/Energy/Good%20practice%20guide%20Supporting%20people%20in%20energy%20debt.pdf>

[8] Money Advice Trust (2023) <https://moneyadvicetrust.org/latest-news/5-5-million-people-behind-on-energy-bills-as-charities-call-for-help-to-repay-scheme>