Written evidence submitted by End Fuel Poverty Coalition (WIN0028)
Summary and background
Last winter we saw millions of people living in cold damp homes, we saw significant rationing of energy, food and essentials and we saw a buildup of energy debt to historic levels.
The warning signs are there that this winter will be worse than last. While energy prices may dip slightly, the cost of every unit of energy is still roughly double what it was in winter 2020/21. Electricity bills are also soaring due to the daily standing charges which have doubled since winter 2020/21.
Furthermore, struggling households are battling record prices for essentials, have used up savings to pay for everyday necessities and are facing mounting levels of energy debt.
Our response to the Committee’s inquiry sets out the challenges faced by the public, but is also focussed on the solutions to this problem. Many of these solutions will not cost the Government any additional expenditure.
What role did the UK grid play in the high domestic prices of winter 2022-23?
Britain’s broken energy system is the root cause of the ongoing energy bills crisis.
From issues with marginal pricing (which prevent customers benefiting from the cheaper cost of renewables) to the impact of market trading on energy bills (every unit of energy being traded multiple times), the structural issues involved in the international energy system play a part in the crisis.
So too do domestic choices, for example the difference between energy costs in different parts of the country and the structure of the Ofgem price cap which enables energy firms to make millions from the misery of households and while small businesses collapse under the strain of energy costs.
While on the surface, it may appear now that the Ofgem price cap shows energy bills are declining year on year. However, the reality is the Government’s Energy Bills Support Scheme has ended. This kept the average bill 16% below the Energy Price Guarantee rate.
Therefore, people will not feel any reduction in unit costs as the EBSS money has been taken away from them this winter.
Furthermore, analyst forecasts show that household energy bills will remain at dangerously high levels until at least July 2024:
Of course, households are also battling record prices for all other essentials and are still cutting back on essentials. According to the University of Bristol, a third (35%) of people were not able to afford a healthy balanced diet at least once in the past month and one in five of those in serious financial difficulties had not eaten for a whole day at least three times during the last month.
The Bank of England predicts that households have already used their savings accounts to support them through the cost of living crisis, eroding their ability to continue to pay energy bills which remain at record levels. Energy debt is also at record levels, with 5.5m adults owing their energy firms significant funds, while energy firms made record profits and are set to bank £1.74bn in profit over the next 12 months.
Research for the Warm This Winter campaign found that over 9 million adults already lived in cold damp homes last winter and official figures showed that cases of hypothermia surged by 36% while excess winter deaths also increased compared to the year before.
But 2022/23 was also a relatively mild winter. Records show that if average temperatures drop below 3.6 degrees for a prolonged period, we will see many more die. We can not leave the safety of the most vulnerable to the chance of good weather.
What more could have been done to prevent price shocks being passed to consumer bills?
The reality is that by the time we are in an energy bills crisis, it is too late to take preventative action. As experts would often say to the media last winter, there is literally nothing people can do.
The preventative measures which are needed are long-term systemic ones. These are dealt with by the other Committee Inquiries so we will not go into detail here on our proposed solutions to these issues.
What we were therefore left with last winter was the need for an emergency Government fiscal response. Sadly, with slow progress being made on energy efficiency support, decarbonisation of heat, improvements to the energy grid and reform of energy markets, we are once again in a position where the Government will need to step in to help keep people warm this winter.
We appreciate that the Government has made some support available through its cost of living payments programme for those on means tested benefits. However, this has been more than swallowed up by the wider cost of living crisis. It is also not targeted enough to provide support to help with energy bills directly.
Therefore, we would urge the Government to:
The cost of these measures to general taxation would be around £16.9bn.
If the Government requires additional ideas to raise the funds for implementation for these proposals, there are a range of simple suggestions which could be adopted. For example, closing the energy firms windfall tax loophole, using the already allocated budget (but now no longer needed) to underwrite the Energy Price Guarantee, examining the additional profits generated by suppliers due to Ofgem rule changes around the Wholesale Cost Adjustment / Covid True Up allowances and examining the profits made during the energy bills crisis by energy trading firms and network distributors.
How should energy companies respond if customers cannot pay their bills and what actions should they not have recourse to?
Members of the Committee may wish to consider our response to Ofgem’s recent consultation on consumer standards which sets out our thoughts on how those in financial distress could be better supported by energy firms. In brief, we would ask them to improve standards of customer service for vulnerable groups alongside Ofgem holding them accountable for contact ease, success and empathy. This means customers can get in touch with their energy supplier to resolve issues easily, that problems are solved in one contact and that customers are treated with respect and understanding throughout all forms of communication from the energy firm.
We would also urge the energy firms to support the “Help to Repay” proposals from the Money Advice Trust, which are backed by a broad and wide ranging group of charities.
This would help reduce record levels of household consumer debt through a payment matching programme and therefore ensure customers have more ability to pay their bills in the first place.
Has Ofgem got its priorities right in addressing customer protection?
Ofgem has undoubtedly improved its work in this area in recent months. Ofgem’s increasing use of Market Compliance Reviews, efforts to improve customer service standards and an increased willingness to engage with critical voices are to be welcomed.
We would urge the Committee to encourage Ofgem to go further and continue this trajectory of an increasing focus on consumer protection. It would be for Ofgem to comment on if it feels if it is set on the right legislative and policy context to deliver this role.
One area the Committee may wish to examine is if the penalties Ofgem has at its disposal are sufficient.
As “market conditions” return to the energy supply sector, we would be concerned that there are not sufficient checks to ensure new entrants will be able to adhere to the highest standards of customer care. There must be no return to the “boom and bust” energy supply market, which saw so many firms claim to be financially unsustainable.
We also need guarantees that the price cap does not cause a deeper wave of the energy bills crisis when it changes on 1 January 2024 (the introduction of this January price cap change was opposed by End Fuel Poverty Coalition members) and how standing charges on electricity are reviewed in the new year.
It should also reflect on the disparities in the market caused by the regional price variations, exit fees from fixed tariffs and the price inflation for standard credit customers.
How effective is the Government's approach towards supporting the sector and delivering a functioning energy market?
Market reform is clearly an area which needs close attention (see comments above).
We do need to see rapid reform of the energy market by following through on the commitment to work with consumer groups and industry to consider the best approach to consumer protection from April 2024, including options such as Energy For All and/or a new social tariff.
Energy For All would offer a free allocation of energy to meet households’ basic needs, paid for in part by higher tariffs for excessive use of energy. A social tariff would be mandatory for suppliers to offer, set below the price cap, be additional to current protections, offered to a well defined set of low income and vulnerable households and have auto-enrolment. Committee members may wish to read more detail on these main proposals https://www.endfuelpoverty.org.uk/what-next-for-energy-bills/
For this coming winter, there are also a range measures, which do not have a direct impact on the public purse, which the Government can provide:
Is the legislative framework on pricing controls suitable for protecting consumers?
We would support reform which would bring in one of our proposed changes to the energy bills regime (outlined here: https://www.endfuelpoverty.org.uk/what-next-for-energy-bills/).
However, we are concerned that the Government is no longer committed to reform of the market in a way which would benefit consumers (see our letter to the Committee and the Speaker of the House of Commons: https://www.endfuelpoverty.org.uk/wp-content/uploads/230811-Speaker-Committees-EFPC-Letter.pdf).
Therefore, we would not support any legislative change which would abolish the price cap until an adequate replacement is agreed with consumer groups and charities.
About the Coalition
The End Fuel Poverty Coalition campaigns to influence government and other bodies to take action to end fuel poverty and thereby improve people’s health and quality of life as well as seeking to reduce the cost of living, create jobs and negate carbon emissions in the process.
It is a broad coalition of over 70 anti-poverty, environmental and health campaigners, local authorities, trade unions and consumer organisations.
Members of the Coalition include: Action with Communities in Rural England, ACE Research, Advice for Renters, AgeUK, All Birmingham’s Children, Austerity Action Group, Association of Green Councillors, Association of Local Energy Officers, Association for Decentralised Energy, Asthma + Lung UK, Beat the Cold, Brighton & Hove City Council, Bruton Town Council, Camden Federation of Private Tenants, Child Poverty Action Group, Church Poverty Action, Chartered Institute of Environmental Health, Chartered Institute of Housing, Community Action Northumberland, Centre for Sustainable Energy, Climate Action Network West Midlands, Disability Poverty Campaign Group, Disability Rights UK, E3G, EBICO, End Child Poverty Coalition, Energy Saving Trust, Energy Cities, Fair Energy Campaign, Epilepsy Action, Foster Support, Friends of the Earth, Fuel Poverty Action, Fuel Poverty Research Network, Generation Rent, Good Law Project, Greenpeace, Groundwork, Hackney Foodbank, Home Start Oxford, Independent Age, Inner City Life, Joseph Rowntree Foundation, Lambeth Pensioners Action Group, London Borough of Camden, London Borough of Lewisham, Mayor of London, Moorland Climate Action, National Pensioners Convention, National Union of Students / Students Organising for Sustainability, NCB, National Energy Action, New Economics Foundation, National Federation of Women’s Institutes, Northern Health Services Alliance, Oxford City Council, Positive Money Tower Hamlets, Redcar & Cleveland Council, Repowering London, Retrofit Bruton, Right To Energy Coalition, Ryecroft Community Hub, Save the Children, Scope, Shaping Our Lives, Social Workers Union, South East London Community Energy, Southwark Group of Tenants Organisations, South West London Law Centres, Stonewater Housing Association, Stop The Squeeze, Uplift, UNISON, Warm & Well North Yorkshire, Warm & Well in Merton.