Written evidence submitted by National Energy Action (WIN0035)

 

  1. About National Energy Action (NEA) and Introduction to our Submission

1.1.       NEA works across England, Wales and Northern Ireland to ensure that everyone in the UK can afford to live in a warm, dry home. To achieve, we champion and deliver energy efficiency programmes, aim to improve access to energy and debt advice, provide training, and coordinate other related services which can help change lives

1.2.       Our submission centres around the need to learn from the government’s previous support for energy bills over the winter of 22/23, and how can we use these lessons to prepare for the winter to come with energy bills predicted to remain stubbornly high

  1. Summary of our responses

2.1.       The sharp rise in energy bills over the winter of 2023/23 led to a substantial increase in the number of households in fuel poverty. At its peak, NEA estimated 8.8 million households were in fuel poverty, even with the government energy support schemes. While these schemes were welcome, and certainly headed off a great deal more suffering, there are several lessons that can be taken away from the previous winter to ensure the government is prepared for the coming winter.

2.2.       Energy prices in the coming winter point to a similar cost for households as experienced over the previous winter. While the price cap has fallen, the end of government support for energy bills will see households facing a similar monthly bill to that they faced the previous winter. This is compounded by the energy debt that households have built up, leaving many with the twin prospect of high energy bills and debt repayments at the same time. The energy crisis is still not over, with NEA estimates placing the number of fuel poverty at 6.3 million right now.[i]

2.3.       Last winter, households across the UK took significant measures to keep their energy bills low[ii]:

2.4.       NEA believes it is vital preparations begin now to ensure the government is ready to respond ahead of this winter and avoid the impacts seen last winter. There are a wide number of legislative and structural reforms that can be introduced to further protect low income and vulnerable households both this winter and beyond. Two ways to do this would be to introduce either a targeted Energy Price Guarantee (similar to last year but aimed at low income and vulnerable households), another energy bill support scheme, or an expanded Warm Home Discount.

2.5.       UK Government should also look to build on its welcome policy to eliminate the prepayment premium this winter, by doing the same for those households who pay by standard credit, who currently pay on average more than £100/year more than direct debit customers, simply because of their payment type. This can be done through the Energy Price Guarantee, which is the same method they have used to eliminate the prepayment premium.

2.6.       Over the long term, one of the most effective ways would be the introduction of a social tariff to provide a deeper level of protection for low income and vulnerable households. This would give households long term security to meet their energy bills and help their homes warm and dry over the cold winter months.

2.7.       Similarly, a 'help to repay’ scheme to support customers struggling in long term energy debt onto a repayment scheme to clear their debts with suppliers would be welcome. Such a scheme already exists in other sectors and has been vital in helping customers avoid finding themselves in spiralling arrears that they cannot make up.

Response to the Terms of Reference

  1. What role did the UK grid play in the high domestic prices of winter 2022-23; and
  2. What more could have been done to prevent price shocks being passed to consumers?

4.1.       One of the drivers of the high energy prices over the previous was the collapse of the energy supplier Bulb and its 1.5 million customers. This triggered the Supplier of Last Resort (SOLR) procedure which is designed to protect customers as they are moved to a new supplier. These protections include both maintaining any fixed tariffs that a customer was on, as well as any credit they may have in their account at the time of the supplier’s collapse. For the new supplier, these obligations incur costs which are then recouped through everyone’s energy bills, pushing them upwards.

4.2.       This sudden price rise has the greatest impact on low-income families who are the least able to afford such a rise and also paying a disproportionate amount of the SOLR. Last year, the SOLR costs amounted to £94 for every billpayer in the country.[iii] To protect against future shocks and safeguard the most vulnerable, the cost of the SOLR should be paid for out of general taxation, which is collected proportionately, rather than placed onto billpayers. Alternatively, when the government introduces its social tariff in April 2024, those who qualify for the tariff could be exempt from any charges incurred from the collapse of a supplier. It is also vital that prepayment (PPM) users retain the ability to top up in both the period before the exist and the SOLR being appointed, and then takes over.

4.3.       Another major contributor to energy bill price shocks is the change Ofgem made in 2022 to adjust the price cap every quarter rather than twice a year. Though this can have the benefit of passing on price decreases to customers quicker, it also potentially exposes them to a greater number of price shocks, especially in a volatile market. While the government did help flatten out these price changes over the winter through the Energy Price Guarantee, the end of these schemes has once again exposed households to potential sudden variations in price, which low income and vulnerable households are least able to respond to.

4.4.       The energy crisis is not over, and lessons must be taken from last winter into this winter. There is still clearly a shortfall in support, with an estimated 6.6 million people in fuel poverty in the country. One of the most effective ways the government can support these people, shielding them from spikes is through the introduction of a social tariff. This would provide a deeper price protection for vulnerable households. We believe that any such additional protections would need to have the following characteristics:

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

5.1.       Currently in the UK there are 5.5 million people who are behind on their energy bills. The impact of the energy crisis is clear, with that number 2.1 million people higher than it was in March 2022. 3.9 million people have reported being unable to access support from their supplier after contacting them, with a further 3.2 million not even able to contact them at all. This is just scratching the surface of growing household debt across the country, with 11.6 million people now behind one or more household bill.[iv]

5.2.       Suppliers should be actively working with their customers who find themselves in debt to help them find a way out of it. One approach would be to implement a ‘help to repay’ repayment matching schemes, where a supplier matches the contribution of a customer to pay off debt (for example, for every £1 a customer puts it, the suppliers add £1 itself). This practice already happens in other sectors including the water industry and would help customers avoid getting into long term spiralling debt. We would also urge the creation of a separate government backed scheme to support those energy arrears by providing repayment matching and the option to write off energy debts for those dealing with unaffordable arrears

5.3.       But as key to what energy companies should do when their customers cannot pay their bills is what they should not do. Over the winter, we saw an alarming rise in the numbers of installations of prepayment meters in homes who were falling behind on their bills. Subsequent investigations by The Times and the I paper revealed a whole host of abuses, from forcing entry into homes to installing prepayment meters in homes clearly occupied by vulnerable people.[v] While Ofgem eventually stopped this practice, the legacy of the installations still hangs over many 44who were unfairly targeted with a prepayment meter. NEA supports the new Code of Practice brought in by Ofgem to regulate their usage, with a forced installation only permitted when numerous checks have been carried out, including a home visit. We also support Ofgem’s move to bring this into the license which has recently been consulted on?.[vi]Finally, while Ofgem did stop forced prepayment installations, we believe that the Secretary of State should be granted these powers in the future rather than having to ask Ofgem to step in for him.

5.4.       Energy companies should also not be chasing debt recovery through third parties. Third debt collection sits outside of Ofgem’s regulatory remit so there are reduced protections for consumers if suppliers pursue this route. Suppliers should be working proactively with their customers who find themselves in debt rather than resorting to third parties who reports suggest sometimes employ unsavoury tactics, including intimidation and threats.

5.5.       Finally, consistent ‘Ability to Pay’ and debt collection principles should be implemented across all essential household bills. Customers who are on a debt repayment plan should be signposted to income maximisation services. The UK Government, working with Ofgem, should encourage better UK wide working and engage with the Northern Ireland Executive and Utility Regulator (UR) to ensure vulnerable energy consumers in Northern Ireland benefit from a comprehensive and consistent response from the energy industry to the cost-of-living crisis.

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

6.1.                        Ofgem has steadily improved in prioritising customer protection and in particular, accounting for the needs of vulnerable customers. Yet there remains a clear friction between its legal duty regarding setting the price cap (including passing on price rises onto consumers) and its duty to protect vulnerable households. This is a difficult balancing act, but right now it is clear that it is the former that is prioritised if the two are pitted against each other. Within its legal duties Ofgem has its priorities right but with greater legal backing, Ofgem could do more to support low income and vulnerable households

  1. How effective is the government’s approach towards supporting the sector and delivering a functioning energy market; and
  2. Is the legislative framework on pricing controls suitable for protecting consumers?

8.1.                        The energy retail market currently has several mechanisms for protecting low income and vulnerable energy consumers:

8.2.       While welcome however, there is still clearly a shortfall in support, with an estimated 6.6 million people in fuel poverty in the country. One of the most effective ways the government can support these people is through the introduction of a social tariff. The current legislative framework in the market does not facilitate an affordable price of energy for the most vulnerable households. A social tariff, as described in 4.4 above, backed by legislation, would be able to achieve that aim.

8.3.       In the Autumn Statement 2022, the UK Government moved towards such a legislative framework. It said that it will “develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards”, and that “It will work with consumer groups and industry to consider the best approach, including options such as social tariffs, as part of wider retail market reforms.”[vii] In ‘Powering Up Britain – Energy Security Plan,’ the Department for Net Zero and Energy Security restated that commitment, setting out an intention to “consult in summer 2023 on options for a new approach to consumer protection in the energy markets from April 2024 onwards”. No consultation has been published to date. This is incredibly worrying, given the stated April 2024 implementation date for new protections, and there is a significant risk that these new protections will not be in place when they are needed. It is vital the consultation is published as soon as possible.

8.4.       This, however, will not result in additional support this winter, even if the UK Government does consult soon after summer recess. NEA believe that such support is needed, with 6.5 million households living in fuel poverty across the UK. The support that the UK Government has made available through cost-of-living payments are only available to those in receipt of means tested benefits. This support will be defrayed across different essentials (and much of the summer iterations of the payments rightly used on food and housing costs, leaving little for warmth over the winter). Additionally, NEA estimates that one third of the 6.5m UK households in fuel poverty do not receive a means tested benefit, meaning that over 2 million struggling households are not receiving any support towards their energy bills at all. We recommend therefore that the UK Government look to provide targeted energy bill reductions for low-income households, with targeting going beyond the benefits system, ahead of the coming winter.

8.5.       To ensure that available support reaches vulnerable households, more should also be done to ensure that support is easily/automatically accessible. We saw how important this was during the recent Energy Bill Support Scheme (EBSS) for those on prepayment meters. NEA expects almost £100m was returned to Treasury at the end of June when the scheme ended, meaning tens of thousands of people were unable to claim their vouchers. As prepayment customers are more likely to need support, it meant the EBSS was unable to reach those who most need the support. Rather than simply be returned to Treasury, the EBSS underspend should be distributed to local authorities to support with their own fuel poverty alleviation support measures.

8.6.       Where accessibility has not been achieved, it is imperative that awareness is raised of the support available. Ofgem and DESNZ should have oversight of how companies have used different communication channels to support non-digital consumers who may have missed on support/advice. Ofgem should also ensure suppliers have plans in place to provide information on emergency support in different languages and formats, including Braille, BSL (British Sign Language) and languages such as Polish, Punjabi and Urdu. It should also be mandated that suppliers offer wider support for any customer failing to access support via Warm Homes Discount Broader Group.

8.7.       It is also vital that the experience of prepayment customers is further improved. There have been some positives steps in this area, not least the recent end of the prepayment premium where households on prepayment meters were paying more for their energy than those on standard meters. However, there are still several obstacles that those on prepayment meters faces, not least being able to easily change their suppliers. To address this, it is critical to prioritise residents with prepayment meters to receive either a new smart or smart prepayment meter. We found that there were significant benefits of smart metering for prepayment households, worth £5bn, and including £3.7bn from a better choice of energy tariffs. We also found that there was a significant system benefit worth £168m from reduced energy infrastructure costs because of smart meters facilitating a smarter energy future.[viii] Currently however the government is on track to miss its target of 100% smart meter coverage by 2025 by some distance.

8.8.       Ministers should also take steps to ensure that markets work for those who are digitally excluded. A report from Ofcom states that more than 1 in 10 adults do not use the internet, and the Office for National Statistics estimates that 5 million people in the UK have never used the internet in their lives.[ix] Those without internet access or limited digital skills are more likely to miss out on the cheapest deals and are less likely to be able to access services such as the Priority Services Register (PSR), Warm Home Discount (WHD) and other financial or energy-related services. To ensure that all households can benefit from a new smarter market, it is imperative that two actions are taken in parallel. The first is to ensure that design of the policy, regulatory and market framework is not set in a way to disadvantage those households that are digitally excluded, either directly or through incentivising digital only products and services. The second is to help increase digital connectivity and competence to reduce the number of households that are digitally excluded in the market.

 

August 2023

 


[i] https://www.nea.org.uk/news/ofgem-july-prices/#:~:text=FOR%20IMMEDIATE%20RELEASE%20%E2%80%93%20Thursday%2025%20May%202023&text=The%20number%20of%20households%20in,the%20level%20of%20October%202021.

[ii] https://www.nea.org.uk/publications/uk-fuel-poverty-monitor-2021-22/

[iii]https://www.citizensadvice.org.uk/Global/CitizensAdvice/Energy/Back%20from%20the%20brink_pub%20(1).pdf

[iv] https://moneyadvicetrust.org/wp-content/uploads/2023/06/Money_Advice_Trust_-_Under_Pressure_report_-_June_2023.pdf

[v] https://inews.co.uk/news/uk-energy-debt-crisis-half-million-warrants-granted-forced-prepayment-meters-2008884

[vi] https://www.ofgem.gov.uk/publications/involuntary-ppm-supplier-code-practice

[vii] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1118417/CCS1022065440-001_SECURE_HMT_Autumn_Statement_November_2022_Web_accessible__1_.pdf

[viii] https://www.nea.org.uk/wp-content/uploads/2022/01/NEA-response-to-BEIS-Future-of-Retail-Energy-Market-CfE_Website-002.pdf

[ix] https://www.nea.org.uk/wp-content/uploads/2022/01/NEA-response-to-BEIS-Future-of-Retail-Energy-Market-CfE_Website-002.pdf