Two weeks ago, the government provided water companies with final guidance on formulating social tariffs. This new policy puts water companies in the driving seat when addressing affordability. Firms are to liaise with their customers and divine who it is that paying water users are prepared to subsidise and by how much.
Accent has funded a programme of research for Utility Week to explore this complex issue and to help pump-prime what is likely to become a robust debate. It approached the matter from two angles, setting the views and expectations of potential recipients against the views of those who will potentially fund the scheme. This is the first article in a two-part series and it looks at the policy through the eyes of the potential cross-subsidiser population. This phase was explored through an online focus group approach.
Not surprisingly at this stage, there was limited knowledge about the initiative. Once defined as a tariff to assist low income households with water costs, the concept was greeted with evenly mixed reactions, although feedback to the name “social tariff” was generally positive.
Detractors believed the sole criterion for determining what a household pays should be their usage: “Just because you earn more, it shouldn’t necessarily mean you pay more. If you went into a shop and bought 12 pints of milk, would you expect a richer person to pay more than a poorer person?”
Further, those who rejected the initiative typically argued that it did nothing to tackle what they saw as the real issue: water conservation. One commented: “I’m not mad keen on this idea. I think water bills should be based solely on usage. That is the most democratic way of helping people to conserve water, which is the real issue that should be addressed here.”
There was also concern that the introduction of social tariffs could potentially lead to a blurring of the roles of government and water companies. They felt it should be the responsibility of the government and not water companies “to help out low income families through what is effectively a tax scheme. Utility companies should only help low income families by advising them on water conservation and more manageable payment methods”.
The households that participants felt would benefit from a social tariff included those with single parents, those living with a disability, those in receipt of state benefits and pensioners. Most felt that such households should only receive help if they unequivocally demonstrated their commitment to efficient water usage – for example, by using water butts or installing water meters in their homes: “Social tariffs should target low income families and households who are also making reasonable attempts to use water wisely.”
Suggestions for how households deserving of a social tariff could be identified included linking the social tariff with existing means tested benefits and liaising with the Inland Revenue to identify lower income households. However, this led to an allied concern that the process of determining eligibility could prove more expensive than the value of the discounts on offer.
There was related scepticism as to how easy it would be for a “genuine” household to qualify. One participant whose household was in receipt of Disability Living Allowance felt this in itself could be insufficient to qualify for a social tariff given their previous experience of trying to claim such a benefit and being rejected.
They put it this way: “It’s almost impossible to qualify for these schemes and many people who really are in need miss out because of the way the means testing is done. Offering the tariff is one thing; we have to make sure people actually stand a chance of getting it and that it isn’t just lip service like those fuel poverty funds. The only thing they calculate is what percentage of your income is going on fuel. If water companies take the same approach, then I doubt we’d qualify – or anyone else, for that matter.”
Participants were united in feeling that the discount should be at least £50 a year. There was less consensus on whether the social tariff should be a fixed amount or whether it should be tapered according to income. The rationale of those supporting a standard discount was that “life on the breadline is hard enough without being considered too well off if you have £10 a month more coming in than the next person”.
As for who should pay, participants typically indicated it should be “the water companies themselves as they are making too much profit”. Indeed, when informed that all bill payers already pay in the order of £15 to cover non-payment by others, the reaction was extremely negative. One consumer stated: “I find it a bit hard to pay, but I make it a priority. I realise that there are people out there in far worse situations, but why am I being punished for their debts? It’s difficult enough to pay my own bills; I don’t want to pay others’ bills too … These things should be the water companies’ responsibility.”
Associated research has shown that the public is typically unaware of the cross-subsidies present in all walks of life. Introducing an initiative such as the social tariff, which will raise the transparency of the issue, is very likely to encounter hostility and difficulty. Participants felt a great deal of sensitivity would need to surround the communication of the initiative to get buy-in from those who would have to pay for it.
In summary, the introduction of social tariffs is likely to encounter substantial opposition and will inevitably open a can of worms as to who should be eligible, how these households can be appropriately identified, how much help they should get and the justice – or not – of customer cross subsidy.
The lack of awareness of how the industry currently handles its debt issues will only serve to make the passage of social tariffs even more problematic.
Rob Sheldon is managing director of Accent
This article first appeared in Utility Week’s print edition of 6 July 2012.
Get Utility Week’s expert news and comment – unique and indispensible – direct to your desk. Sign up for a trial subscription here: http://bit.ly/zzxQxx