Vulnerability and accountability
Supplier growth means Ofgem needs new and robust ways of holding suppliers to account on their treatment of vulnerability. The regulator’s Meghna Tewari explains its strategy.
The issue of consumers in vulnerable circumstances – and what regulators are doing to help them – has been in the spotlight recently.
Last month’s report on vulnerable consumers in regulated industries from the National Audit Office (NAO) highlighted that vulnerability was on the rise thanks to challenges over access, affordability and debt.
Whilst acknowledging the progress made by regulators, the NAO concluded that regulators - including Ofgem - and government need to do more to hold companies to account and protect vulnerable customers.
Vulnerability is contextual and can be permanent or temporary with a wide range of circumstances that can put people at a disadvantage such as disability, mental illness or financial difficulty.
"To comply with overarching principles, suppliers need to go beyond the industry’s traditional box-ticking approach."
Protecting and empowering consumers who are in vulnerable situations is one of Ofgem’s priorities. In 2013, Ofgem became the first regulator to publish a strategy on consumer vulnerability highlighting the temporary nature of vulnerability.
Our rules incentivise firms to do the right thing. They make disconnection the very last resort and suppliers are prohibited from disconnecting elderly or chronically sick customers in winter. Network companies also have obligations to support vulnerable consumers, for example by providing free, vital services to those on the newly expanded Priority Services Register or connecting households to the gas grid under the Fuel Poverty Network Extension scheme.
We are also strengthening protections by introducing a broad enforceable vulnerability principle into our existing Standards of Conduct which require suppliers to treat all customers fairly. To comply with overarching principles, suppliers need to go beyond the industry’s traditional box-ticking approach. This will result in better outcomes for consumers by holding suppliers to account over identifying and supporting vulnerable consumers.
Customers in debt are one of the focus areas of our vulnerability strategy. Given the highly contextual nature of vulnerability suppliers are required to take into account a customer’s ability to pay when setting up a debt repayment plan. We have in particular focused on prepayment meter (PPM) households, who tend to include higher number of vulnerable customers, are often in debt and have limited access to competitive tariffs. We have raised the maximum level of debt that a PPM household can have from £200 to £500 per fuel, so that they may still switch without being objected to by their current supplier.
We are also acting to cap warrant charges for PPM. If suppliers can’t reach an agreement with the customer to repay debt, they can apply for a court warrant to install a PPM as a last resort. These charges, which can include fees for court costs and dog handlers, can be as high as £900. We propose to cap charges at between £100 and £150 and prohibit them altogether for consumers in the most vulnerable situations.
Reporting on market performance is vital to enhance accountability, especially with the significant growth in the number of new suppliers coming into the market.
As part of this package, we are proposing a principle of debt proportionality which requires suppliers to make sure that their actions and any charges to recover debt are proportionate. Our data shows that the use of PPM warrants has fallen, but this is slower than the fall in the number of customers who agree to have a PPM installed to repay debt. This suggests that suppliers should do more to identify and support the customers in the most severe debt before installing a PPM under warrant.
Following the recommendation from the Competition and Markets Authority, this month [April 1] we also introduced a PPM price cap which will save many households around £80 a year.
Reporting on market performance is vital to enhance accountability, especially with the significant growth in the number of new suppliers coming into the market. The next annual Social Obligations Report is due out this September and the good news is that our data shows the number of customers in debt continued to fall over in 2016, and is at the lowest level since we started collecting data in 2006. However, while the number of customers with low levels of debts has fallen, average debts continue to rise. Last year this figure was over £600, up from around £450 in 2012. We have concerns in particular around the high weekly debt repayment levels made by customers of some of the independent suppliers which average over £15 a week.
A thorough consideration of vulnerability is ingrained into everything Ofgem does, such as requiring suppliers to test more effective prompts to engage customers on standard variable tariffs who are more likely to be vulnerable. A lot of progress has been made on vulnerability, but it’s clear that more needs to be done. Our vision is for a smarter, fairer and more competitive market for all consumers – including those in vulnerable circumstances. As part of this we will continue to push for collaboration, holding industry to account and taking enforcement action where appropriate.