Written evidence submitted by Age UK (WIN0009)

 

Key recommendations

 

About Age UK

Age UK is a national charity that works with a network of partners, including Age Scotland, Age Cymru, Age NI and local Age UKs across England, to help everyone make the most of later life, whatever their circumstances. In the UK, the Charity helps more than seven million older people each year by providing advice and support. It also researches and campaigns on the issues that matter most to older people. Its work focuses on ensuring that older people: have enough money; enjoy life and feel well; receive high quality health and care; are comfortable, safe and secure at home; and feel valued and able to participate.

1. What role did the UK grid play in the high domestic prices of winter 2022-23?

Britain’s electricity and gas networks faced significant supply and demand challenges over winter 2022/23. While innovative solutions like the Demand Flexibility Service helped stave off the threat of rolling blackouts, longer term reform is required. This will help ensure continuity of supply and delivery of cheaper tariff options. Age UK supports the Government’s attempts to reform the grid structure, so long as these reforms better account for consumer needs and avoid entrenching market inequalities like the loyalty penalty and poverty premium[1].

One element of the grid which contributed to higher prices was the marginal pricing system[2]. Over winter 2022/23 this meant that the increasingly volatile and expensive cost of natural gas often determined the final price paid per unit (kWh) of electricity, despite renewables making up the highest proportion of 2022/23’s electricity supply (38.7%)[3]. Reforms to the grid’s marginal pricing system could help facilitate cheaper and cleaner energy for consumers.

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

Despite Public Health England highlighting older people as being at higher risk from the cold,[4] a terrifying number of them spent winter 2022/23 struggling to keep warm. In January, almost a third of older people, equivalent to 4.7 million over 60s, reported their home was too cold most or all the time[5] and 5% (or around 800,000 older people) reported that they had had to recently leave their home to keep warm elsewhere[6].

While increased prices were primarily driven by soaring wholesale energy costs, three additional aspects drove bills even higher. Firstly, external factors were exacerbated by ineffective regulation, scant enforcement, and unsuitable standards for market entry[7]. On top of spiralling wholesale prices consumers faced £2.6bn being levied onto their bills to cover the cost of supplier failures since 2021[8]. Ofgem’s recent progress in confronting this has been generally positive, particularly in terms of their Market Compliance Reviews and capital adequacy proposals[9] (see response to question 4). Had Ofgem enacted these reforms earlier we believe some of the suppliers that faced insolvency would never have been awarded a supply licence or would have proved more resilient. In the build up to this winter, Ofgem should expedite reforms which enhance its oversight and enforcement capabilities[10], ensure its improved customer service standards are in place by November[11], and ban forced PPM installs[12].  

Secondly, over 90% of UK homes rely on a fossil fuel heating system[13]. Domestic demand is high because many households lack access to insulation measures or alternative heating systems. Around 15 million homes in Britain are considered energy inefficient, of which around 13 million have significant potential to be upgraded[14]. Achieving this would slash demand for natural gas and cut a cumulative £23.8bn off energy bills by 2030[15]. The Government must radically increase funding for targeted household energy efficiency schemes. Its Great British Insulation Scheme has only received £1bn to cover the next three years of delivery but £1bn per annum for 5+ years would better reflect industry capacity[16] and provide measures for 1.23 million homes instead of 410,000[17]. Similarly, the Government’s Home Upgrade Grant (HUG) supports lower-income households off the gas grid, but current spending commitments would mean just 117,000 homes would be able to benefit despite 530,000 being eligible[18]. We estimate that £1 billion of Home Upgrade Grants per year through to 2032 would be sufficient to upgrade them all.

Thirdly, the impact of price shocks on older people’s bills was even more devastating because of the lack of a comprehensive targeted support mechanism. To plug this gap, we believe an energy social tariff should be introduced[19]. This discount tariff should be targeted at people on the lowest incomes, unpaid carers, and people with disabilities or long-term health conditions. Based on our own analysis[20] we recommend it include a substantive discount on energy bills and enhanced data matching to facilitate automatic enrolment.

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

As of Q1 2023 there were 1.6 million electricity and 1.5 million gas accounts in debt[21]. When a customer falls behind on their energy bills suppliers are obliged to investigate and offer a suitable payment solution or alternative support. Suppliers should take this responsibility more seriously, ensuring they invest the resources required to proactively engage with struggling customers, signpost them to support, and put in place an affordable repayment plan – allowing them to gradually repay what they can.

Under certain conditions, Ofgem permits suppliers to install a PPM to recoup customer debt. This installation can be voluntary, but far too often it has been forced onto vulnerable customers under court warrant. While we welcomed Ofgem’s voluntary moratorium and proposals for enhanced consumer safeguards[22] we continue to believe that suppliers should have no recourse to force fit a PPM or mandate a smart meter being switched to prepay mode.

Sooner or later, prepay customers with no money to put on their meter lose access to their supply. In practice, this means many older people forced onto a PPM are at risk of spending long periods of the winter without heat or power. We believe this contradicts the principle of Ofgem’s licence condition 27.10designed to prevent suppliers from disconnecting pensioners over the winter[23].

Energy suppliers should not have the right to force a customer onto a PPM when they cannot afford their bills. The energy sector would do well to learn from debt collection practices across other essential services, such as the water industry.

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

Since 2021 Ofgem has taken tangible steps towards improving its regulatory framework – changes which we believe better protect older consumers. Notable examples include its Market Compliance Reviews[24], capital adequacy proposals[25], and its plans for improved customer service standards[26].

Nevertheless, there is still work to be done. We were disappointed the regulator ignored our concerns regarding quarterly price cap changes[27], and we have concerns about some of Ofgem’s broader price cap reforms[28] [29]. Quarterly changes were brought in last year on the premise that they would not represent a consistent New Year’s increase on people’s bills, but had it not been for the Energy Price Guarantee the January 2023 price cap would have represented a truly staggering increase. Predictions for this January suggest we will yet again see a price rise relative to the autumn[30]. We also recommend the regulator equalises the price paid by standard credit and Direct Debit customers, as credit customers continue to face the highest typical price for energy of all payment types[31].

At a more fundamental level, we have consistently expressed our concern that Ofgem lacks the appetite for proactive oversight and enforcement activity and relies too heavily on principles-based regulation and supplier self-reporting.[32] [33] The regulator must address its record of ineffective regulation, scant enforcement, and unsuitable standards for market entry[34] as it brings in welcome new reforms.

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

To keep the energy market buoyant the Government needs to be more proactive in addressing affordability concerns and confronting market inequalities. Facilitating fair competition, rewarding innovative tariff options, and incentivising products which help achieve net zero will only get us so far if many vulnerable consumers cannot meaningfully engage.

Age UK support attempts to reform the energy market so long as these reforms better account for consumer needs[35]. This means ensuring offline access for customers not using the internet, delivering consumer support for those people struggling but not in receipt of welfare benefits, addressing the loyalty penalty, and putting an end to the poverty premium. This must include supporting the 770,000 older people not in receipt of their Pension Credit entitlement[36], two fifths of those aged 75+ not using the internet[37], and market disengaged households who are more likely to be struggling financially[38].  

To achieve this the Government needs to view the energy market in a more holistic sense. For instance, our proposal for a social tariff (see response to question 2) is not just a mechanism for protecting vulnerable customers from price shocks, but it also protects them from unsustainable debt levels, self-disconnection, the loyalty penalty, and the poverty premium – harms which make impossible the fair and competitive market we would all like to see.

Our view is that the Government’s focus is too narrow. The energy retail market strategy should therefore be revised, ushering in a new approach which is consumer centric and focused on addressing market inequalities and ensuring affordability for all. This will create pathways towards a more functional and sustainable energy market.    

This new strategy must include a commitment to extend the full range of consumer safeguards to the 883,000 UK households with atypical supply arrangements[39], generally receiving their energy via an intermediary or commercial contract, and consumers relying on alternative fuels, such as heating oil, coal, and bottled gas[40]. These are often some of the most at-risk customers as they frequently miss out on Ofgem’s consumer safeguards and the full benefits of affordability and energy efficiency schemes. To support them this winter, the Government should start by agreeing to improve and re-run the EBSS AF and AFP schemes so that all eligible households that missed out do receive the full benefit of the schemes.  

6. Is the legislative framework on pricing controls suitable for protecting consumers?

Age UK supports the continuation of the energy price cap. The cap ensures certainty of price, transparency when it comes to charging practices, and ensures that market disengaged customers who do not switch tariff are not charged an even higher loyalty penalty[41]. Without the Government ushering in significantly enhanced consumer protections to safeguard customers (see response to questions 2 and 5) existing pricing controls must remain in place.  

August 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


[1] See our response to the Government’s REMA reforms for more details: Age UK, 2022. Consultation response: Review of Electricity Market Arrangements (REMA). Age UK. [Online]. Available at: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response---review-of-electricity-market-arrangements-department-for-business-energy--industrial-strategy.pdf. [Accessed 01/08/23].   

[2] For a more detailed overview of marginal pricing see our response to the Government’s REMA reforms, page 8: Age UK, 2022. Consultation response: Review of Electricity Market Arrangements (REMA). Age UK. [Online]. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response---review-of-electricity-market-arrangements-department-for-business-energy--industrial-strategy.pdf. [Accessed 01/08/23]. Pg8.    

[3] BEIS, 2022. Fuel Mix Disclosure Table. Department for Business, Energy, and Industrial Strategy. [Online]. Available: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1095492/fuel-mix-disclosure-august-2022.pdf. [Accessed 02/10/22]. Pg2.

[4]See: PHE, 2019. Health risks of cold homes: data sources. Public Health England. [Online]. Available:https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/770963/data_sources_to_support_local_services_tackling_health_risks_of_cold_homes.pdf. [Accessed 11/07/23]. Pg6. 

[5] Age UK, 2023. Keeping the lights on: The case for an energy social tariff. Age UK. [Online]. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/safe-at-home/age-uk-energy-public-policy-report-march-2023.pdf. [Accessed 07/07/23]. Pg16.  

[6] Age UK, 2023. Keeping the lights on: The case for an energy social tariff. Age UK. [Online]. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/safe-at-home/age-uk-energy-public-policy-report-march-2023.pdf. [Accessed 07/07/23]. Pg16.  

[7] Since 2021 Age UK has submitted 12 written responses to Ofgem and countless verbal consultations in a bid to rectify this situation. You can find these responses on this page, under our ‘safe at home’ section: https://www.ageuk.org.uk/our-impact/policy-research/publications/consultation-responses/ 

[8] Ofgem, 2022. Statutory Consultation: Strengthening Financial Resilience. Ofgem. [Online]. Available: https://www.ofgem.gov.uk/publications/statutory-consultation-strengthening-financial-resilience. [Accessed 09/12/22]. Pg8.

[9] Age UK, 2023. Statutory consultation: Strengthening

Financial Resilience (second stage). Age UK. [Online]. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/age-uk-response-to-ofgem-second-financial-resilience-consultation-may-2023.pdf. [Accessed 04/08/23].  

[10] See our recommendations for enhanced oversight and enforcement: Age UK, 2023. Statutory consultation: Strengthening Financial Resilience (second stage). Age UK. [Online]. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/age-uk-response-to-ofgem-second-financial-resilience-consultation-may-2023.pdf. [Accessed 04/08/23]. Pg2.   

[11] Age UK, 2023. Consumer standards statutory Consultation. Age UK. [Online]. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/age-uk-response-to-ofgem-consumer-standards-statutory-consultation.pdf. [Accessed 04/08/23]. Pg2. 

[12] Age UK, 2023. Statutory Consultation – Involuntary PPM. Age UK. [Online]. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response-to-ofgem---involuntary-prepayment-meter-installations.pdf. [Accessed 04/08/23].

[13] DESNZ, 2022. British energy security strategy. Department for Energy Security and Net Zero. [Online]/ Available: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1069969/british-energy-security-strategy-web-accessible.pdf. [Accessed 07/08/23]. Pg11.  

[14] Citizens Advice, 2023. Home advantage: Unlocking the benefits of energy efficiency. Citizens Advice. [Online]. Available: https://www.citizensadvice.org.uk/Global/CitizensAdvice/Energy/Home%20advantage_%20Unlocking%20the%20benefits%20of%20energy%20efficiency.pdf. [Accessed 07/08/23]. Pg2.  

[15] Citizens Advice, 2023. Home advantage: Unlocking the benefits of energy efficiency. Citizens Advice. [Online]. Available: https://www.citizensadvice.org.uk/Global/CitizensAdvice/Energy/Home%20advantage_%20Unlocking%20the%20benefits%20of%20energy%20efficiency.pdf. [Accessed 07/08/23]. Pg3.  

[16] Age UK, 2022. Energy Company Obligation ECO+: 2023 – 2026. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response-energy-company-obligation-eco-2023--2026-department-for-business-energy--industrial-strategy.pdf. [Accessed 04/01/22]. Pg5.

[17] Extrapolated from DESNZ’s own estimates for a £1bn spend. BEIS, 2022. Energy Company Obligation ECO+: 2023 – 2026. Department for Business, Energy, and Industrial Strategy. Available: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1120391/consultation_on_design_of_the_energy_company_obligation_2023-2026.pdf. [Accessed 07/08/23]. Pg8.

[18] Age UK, 2023. Keeping the lights on: The case for an energy social tariff – discounted bills so older people can keep warm and well at home. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/safe-at-home/age-uk-energy-public-policy-report-march-2023.pdf. [Accessed 04/08/23]. Pg29.   

[19] Age UK, 2023. Parliamentary Briefing: Energy social tariff. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/age-uk-parliamentary-briefing---energy-social-tariff-may-2023.pdf 

[20] Age UK, 2023. Keeping the lights on: The case for an energy social tariff – discounted bills so older people can keep warm and well at home. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/safe-at-home/age-uk-energy-public-policy-report-march-2023.pdf. [Accessed 04/08/23].  

[21] These figures are for customers with and without a repayment plan. Ofgem, 2023. Domestic customer account debt data. Ofgem. Available: https://www.ofgem.gov.uk/energy-data-and-research/data-portal/all-available-charts?keyword=debt&sort=relevance. [Accessed 09/08/23].

[22] Age UK, 2023. Statutory Consultation – Involuntary PPM. Age UK. Available:
https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response-to-ofgem---involuntary-prepayment-meter-installations.pdf. [Accessed 09/08/23].

[23] Age UK, 2023. Statutory Consultation – Involuntary PPM. Age UK. Available:
https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response-to-ofgem---involuntary-prepayment-meter-installations.pdf. [Accessed 09/08/23]. Pg4. 

[24] See for example: Ofgem, 2023. Ofgem review reveals that customer service standards of energy suppliers must improve. Ofgem. Available: https://www.ofgem.gov.uk/publications/ofgem-review-reveals-customer-service-standards-energy-suppliers-must-improve#:~:text=The%20Market%20Compliance%20Reviews%20are%20proactive%2C%20market-wide%20assessments,by%2017%20of%20the%20biggest%20domestic%20energy%20suppliers. [Accessed 11/08/23].

[25] Age UK, 2023. Statutory consultation: Strengthening

Financial Resilience (second stage). Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/age-uk-response-to-ofgem-second-financial-resilience-consultation-may-2023.pdf. [Accessed 04/08/23].  

[26] Age UK, 2023. Consumer standards statutory Consultation. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/age-uk-response-to-ofgem-consumer-standards-statutory-consultation.pdf. [Accessed 04/08/23]. Pg2. 

[27] Age UK, 2022. Price cap - Statutory consultation on

changes to wholesale methodology. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response---price-cap---statutory-consultation-on-changes-to-wholesale-methodology-ofgem.pdf. [Accessed 11/08/23].   

[28] Age UK, 2022. Consultation on Medium Term Changes to the Price Cap Methodology. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response---consultation-on-medium-term-changes-to-the-price-cap-methodology-ofgem.pdf. [Accessed 11/08/23]. 

[29] Age UK, 2022. Adapting the price cap methodology for resilience

in volatile markets. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/call-for-input-response---adapting-the-price-cap-methodology-for-resilience-in-volatile-markets-ofgem.pdf. [Accessed 11/08/23].  

[30] Cornwall Insight, 2023. Mixed outlook for energy bills as new cap announcement looms. Cornwall Insight. Available: https://www.cornwall-insight.com/press/mixed-outlook-for-energy-bills-as-new-cap-announcement-looms/. [Accessed 11/08/23].  

[31] Age UK, 2023. Keeping the lights on: The case for an energy social tariff. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/safe-at-home/age-uk-energy-public-policy-report-march-2023.pdf. [Accessed 07/07/23]. Pg34.  

[32] Age UK, 2023. Consumer standards statutory consultation. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/age-uk-response-to-ofgem-consumer-standards-statutory-consultation.pdf. [Accessed 11/08/23].  

[33] Age UK, 2023. Statutory consultation: Strengthening

Financial Resilience (second stage). Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/age-uk-response-to-ofgem-second-financial-resilience-consultation-may-2023.pdf. [Accessed 11/08/23].  

[34] Age UK, 2022. Statutory consultation: Strengthening

Financial Resilience. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response-statutory-consultation---strengthening-financial-resilience-ofgem.pdf. [Accessed 11/08/23].  

[35] See our response to the Government’s REMA reforms for more details: Age UK, 2022. Consultation response: Review of Electricity Market Arrangements (REMA). Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response---review-of-electricity-market-arrangements-department-for-business-energy--industrial-strategy.pdf. [Accessed 01/08/23].   

[36] DWP, 2022. Income-related benefits: estimates of take-up: financial year 2019 to 2020. Department for Work and Pensions. Available: https://www.gov.uk/government/statistics/income-related-benefits-estimates-of-take-up-financial-year-2019-to-2020. [Accessed 25/09/22].

[37] Age UK, 2021. Briefing Paper: Digital inclusion and older people – how have things

changed in a Covid-19 world?. Age UK. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/active-communities/digital-inclusion-in-the-pandemic-final-march-2021.pdf. [Accessed 05/08/21]. 

[38] Ofgem, 2019. Consumer Survey 2019: Consumer Engagement Survey Tables – Table 637. Ofgem. Available: https://www.ofgem.gov.uk/publications/consumer-survey-2019. [Accessed 07/10/21]. Pg36.

[39] Age UK, 2023. 4 in 5 of all those eligible for the Energy Bills Support Scheme Alternative Fund missing out. Age UK. Available: https://www.ageuk.org.uk/latest-press/articles/2023/4-in-5-of-all-those-eligible-for-the-energy-bills-support-scheme-alternative-fund-missing-out/. [Accessed 22/08/23].  

[40] For more information see: Age UK, 2023. Keeping the lights on: The case for an energy social tariff. Age UK. [Online]. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/reports-and-briefings/safe-at-home/age-uk-energy-public-policy-report-march-2023.pdf. [Accessed 07/07/23]. Pg35.  

[41] For more on the loyalty penalty and switching see: Age UK, 2022. Review of Electricity Market Arrangements (REMA) consultation. Age UK. [Online]. Available: https://www.ageuk.org.uk/globalassets/age-uk/documents/reports-and-publications/consultation-responses-and-submissions/safe-at-home/consultation-response---review-of-electricity-market-arrangements-department-for-business-energy--industrial-strategy.pdf. [Accessed 09/08/23].