Written evidence submitted by Ombudsman Services (DHH0035)
1.1 We welcome the Business, Energy, and Industrial Strategy (BEIS) Select Committee’s inquiry into decarbonising heat in homes. This submission address questions 1, 2, 4, 6 and 7 of the Terms of Reference for the inquiry. As the situation continues to evolve, we would be happy to provide further data and insights to the Committee that we consider useful and to provide oral evidence if appropriate.
2. About Ombudsman Services
2.1 Ombudsman Services is a not-for-profit private limited company established in 2002 which runs a range of discrete national ombudsman schemes across different sectors, including the sole ombudsman scheme in the energy sector, the Ofgem-approved Energy Ombudsman. We also operate in the communications sector and run an appeals service in private parking. Each scheme is funded by the companies under our jurisdiction and our service is free to consumers. In 2019 we received 157,808 initial contacts from complainants and resolved 88,840 complaints. In the energy sector we received 116,700 initial contacts and resolved 58,034 cases, and in the communications sector, we received 40,184 initial contacts and resolved 17,426 cases. We also received over 84,000 appeals in our private parking appeals service.
2.2 We are:
3. How we operate
3.1 We operate at a critical juncture between suppliers, consumers, and government to resolve complaints and mediate disputes. This involves resolving individual domestic consumer and microbusiness complaints, but also using our insights to work with the companies in our sectors to help improve their service to consumers. Our final role is to use our insights to work with the wider sector to help influence policy direction and decision making. Our work covers key areas of infrastructure, from smart meters and energy networks to 5G and fibre broadband. In order to streamline our work in the energy sector, we operate a tripartite model between ourselves, Ofgem and Citizens Advice, which we refer to in our response below.
3.2 We invest heavily in building our data and insights capability. Our focus has become more explicitly systemic and preventative as we have built up expertise in understanding where consumer trust is under threat and how best we can work with industry, regulators, and policymakers to recover it.
4. Responses to questions
4.1.1 Ombudsman Services welcomes recent measures by the government to enable the UK to reach its net zero ambitions, as well as to build back better and greener from the current Covid-19 pandemic. The government, during the Budget announcement earlier this year, set out plans to decarbonise heating, through a mixture of green gas, heat pumps and heat networks. It also stated that it would extend the Renewable Heat Incentive for an extra year, until 31 March 2022. More recently, the government announced £50 million for early stage technology to decarbonise public sector buildings and social housing. These commitments provide clear stimulus for the sector, as well as other government programmes, such as the Green Homes Grant, in which upgrading heating technology is included.
4.1.2 However, at Ombudsman Services we understand that consumers have been victims of poor sales practices when paying for greener technology to upgrade their homes during previous programmes, such as the Green Deal scheme. There is a risk of greenwashing and mis-selling from rogue traders, which would increase costs for consumers and be detrimental to their trust in the green energy market. Poor experiences of low-carbon heat, including poor installation, risk creating negative publicity and could adversely impact the rollout of new heating technology.
4.1.3 Whilst we welcomed the government’s announcement confirming that all tradespeople operating under the Green Homes Grant must be registered with TrustMark and subject to accreditation and quality assurance checks, we believe that offering wrap-around consumer protection (i.e. for at the end of this process and for when things go wrong in the future) will help to maintain and build trust in the industry. We think access to free, independent redress could play a role here, as it does in the broader energy market. Put simply, building a low carbon economy will require high levels of trust from consumers to encourage them to buy into new technologies and services. We discuss this in greater detail below.
4.1.4 We are also concerned that recent government measures are becoming oversubscribed. According to a poll conducted by YouGov and commissioned by the Energy and Climate Intelligence Unit, 62% of homeowners are interested in the Green Homes Grant, meaning that demand could hugely outstrip funds available. The poll found that a quarter of respondents (25%) are “very interested” in the grant. If only these participants take advantage of the scheme, the number of households would total 6 million, 10 times the number of vouchers on offer. With the measures coming at a time when so much funding is already being provided to many different parts of the UK economy, it seems unlikely that the government will be in a position to cover the extra funding, should it be required. The risk is that it could lead to an uneven roll out of green energy installations across the country, further exacerbating existing divides.
4.2.1 As mentioned above, we believe that access to independent, strategic redress could play an important role in the deployment of green technology to decarbonise heat in the UK. Ensuring that consumers – both domestic consumers and businesses – have access to independent, strategic redress is also suitable for the sector as it continues to grow. Feedback to suppliers, which is an inherent part of a successful ombudsman scheme, will support the evolution of low carbon markets and ensure that they work for consumers.
4.2.2 Ombudsman Services uses its data and insights to help suppliers and network operators to improve their performance and minimise future complaints. We believe that prevention is better than the cure: in the energy sector, we operate a tripartite model between ourselves, energy regulator Ofgem and Citizens Advice, the statutory consumer advocacy body in energy. This enables clear communication, and the sharing of data and insights helps to deliver better ways of working, innovation and competition that results in positive outcomes for consumers. This practice further enables us to drive up standards in the industry by encouraging collaborative approaches to making improvements, managing expectations, and informing policy.
4.2.3 In terms of urgent decisions, Ombudsman Services can process complaints from domestic consumers as well as microbusinesses (fewer than 10 employees), however, we cannot currently process complaints from small and medium sized enterprises (SMEs – fewer than 250 employees). We believe that this needs to change if we are to support businesses adequately, particularly those that have been vulnerable during the pandemic, as we move to meet our net zero ambitions. Businesses will need to feel confident that, when investing in green technologies and initiatives, they will be supported if things go wrong. This is a long-recognised part of building confidence in the market. We believe that an expansion of the definition of microbusinesses would allow us to offer independent, strategic redress to more businesses and help to ensure the success and longevity of initiatives to decarbonise heating. We would be happy to engage more directly with the Committee on this issue.
4.3.1 As discussed above, we believe that one of the main barriers to scaling up low carbon heating technologies, from a consumer perspective, is trust. We understand that increasing consumer uptake will be vital to ensuring further investment in the sector but fostering this uptake will only be possible through rebuilding consumer trust and confidence. In addition, a robust structure of consumer protection will help to protect the reputation of low carbon heating technology and ensure that the sector establishes itself on a sustainable footing. Without this, there is a risk that consumer trust in a nascent industry will not increase, impacting negatively on consumer uptake. The impact of this will be that consumers are less likely to engage with new technologies and investors are less likely to invest in them. This will damage the future rollout of what is seen as a cornerstone of the government’s future energy policy.
4.3.2 That said, the energy sector has a positive track record and reputation of being one of the most innovative sectors to meet technology and infrastructure challenges. There is now an opportunity for the sector to address these technological and infrastructure challenges on the one hand, and consumer trust challenges on the other, by adopting a more joined-up approach than previously.
4.3.3 We welcome the approach taken in Scotland on this issue. During a recent Energy Inquiry debate (28/10/2020) in the Scottish Parliament, members of the Economy, Energy and Fair Work Committee stressed the importance of keeping consumers at the heart of efforts to transition to a net zero economy, including – but not limited to – the Heat Networks (Scotland) Bill that is currently being scrutinised by the Parliament.
4.4.1 At Ombudsman Services, we believe that to achieve a just transition to net zero, we need confident, engaged, and empowered consumers. Investment and innovation are of course crucial, but we also need to make sure we put consumers and communities at the centre. Right now, the energy sector cannot easily be described as a ‘high trust’ sector. There is a lot of work to be done for everyone in changing the narrative and action to earn the trust that is needed.
4.4.2 Regulated energy is changing and as we decarbonise heat, much of this sits outside current protection in sectors where confidence in new products and services will be key. A system that was designed to deal with gas bills and switching producers back in 2007 will need to be relevant and responsive to emerging markets such as heat networks and heat pumps. In these areas, consumer protection is currently non-existent, patchwork or there is a cost for consumers to complain.
4.4.3 We believe that any regulation for the sector needs to be agile if it is to be successful for UK suppliers of low carbon heating technology and their customers (to put this into perspective, there are over 2,300 heat network suppliers in the UK, whilst the heat pump market is set to double by 2025). Furthermore, this regulation needs to be joined up with codes and redress in a system that is based around fairness for consumers. A regulatory framework for heat networks is currently being developed and we and other stakeholders are working closely with BEIS on this. However, this also needs to happen in other areas where there are new products and services aimed at achieving decarbonisation. Indeed, for some products and services, such as heat pumps and heat networks, where the cost to consumers of purchasing and installing heat pumps or consumers not being able to switch provider once they are on a heat network, strategic redress is even more important. This is because when individual consumer complaints are resolved, the data and insights from complaint data help to improve the services of providers and to inform policy making.
4.4.5 As mentioned, feedback is important in such a nascent industry. As well as resolving disputes, a key component of our operation involves collating data and qualitative insights which enable us to produce trend analysis of the consumer journey. Through this, we are able to understand many of the concerns and frustrations that consumers have, including around the rollout of new technologies.
4.4.6 In the energy sector, Ombudsman Services is a key partner in the process of information sharing within the regulatory framework. As mentioned above, Ombudsman Services works with Ofgem and Citizens Advice to share data and insights. We use a tripartite working group to identify systemic issues, make recommendations and work with energy suppliers to reduce consumer detriment. As the sole ombudsman scheme for the sector, we have the advantage of being able to analyse the data from every complaint that is made to us, which helps us to create high quality and granular data sets. These can be used to help the regulator to operate a principles-based approach to regulation, targeting risk and using evidence to drive regulatory policy.
4.4.7 At the same time, our data and insights help to make energy providers better at complaint handling and improve their customer service making them more competitive. As part of this, we also play a crucial role in identifying snagging points for new innovations and are able to share these with both the regulator and the energy providers in question to help to rectify the problem.
4.4.8 We think that this is an effective way of working to reduce consumer detriment and offer important insights to regulators, government, and policy makers that will help to develop a more holistic understanding of the consumer journey. We believe this would be beneficial to the sector as it develops and would be happy to discuss this in greater detail with the Committee if appropriate.
4.5.1 At Ombudsman Services, we understand that the success of green initiatives depends significantly on the level of consumer trust in the market. Consumers and businesses must feel properly informed, supported, and protected when engaging with low-carbon technologies and should understand the importance of decarbonising heat in tackling climate change. Other priority areas, such as greening transport, investing in renewable energy and reducing waste, are widely recognised as important steps in meeting the UK’s environmental and net-zero ambitions, unlike decarbonising heating. This gap in understanding needs to be addressed as a priority in any attempt by the government to increase uptake. This is because solutions to reduce carbon emissions cannot be imposed upon communities – there needs to be consumer understanding and buy-in.
4.5.2 As we have seen with the Green Homes Grant, there is strong interest from consumers in installing greener technologies in their homes. However, consumer awareness of low-carbon heating options remains weak. Conventional public awareness campaigns could help to address this, as well as policy signals (such as enforcing deadlines to phase out high carbon heating systems, including the 2019 ban on gas boilers for new homes from 2025) and targeted government incentives. These are all useful tools to improve public awareness of low carbon heating technology. Whilst recognising this, we believe that such campaigns need to be as inclusive as possible, targeted at all types of consumers, to ensure that no consumers are left behind in the transition. In particular, vulnerable consumers need to be at the centre of new technology rollouts and adequate consideration needs to be given to lower income households which may be unable to afford investing in low-carbon heating.
4.5.3 Government and regulators will have to ensure that rollouts are evenly spread across the country, to avoid divides emerging between the North and the South, rural and urban regions and to further support the government’s ‘levelling up’ agenda. In addition to this, the benefits of low carbon heating technologies will have to be clearly communicated to consumers, particularly given the costs of installing such technology in their homes (where such cost is borne privately).
4.5.4 As discussed, we believe that consumer redress is right for the sector as it continues to grow, but it is important for consumers to be aware of who they can turn to for support – and when. The importance of signposting consumers to an ombudsman scheme when things go wrong will help to build consumer trust in the sector.
 YouGov (2020), Survey [Data set]. Energy & Climate Intelligence Unit [Distributor] Retrieved from https://eciu.net/news-and-events/press-releases/2020/poll-shows-demand-for-green-homes-grant-set-to-outstrip-supply