A social tariff may be a better alternative to “chasing” increases in the price cap with support measures to protect low-income households facing an “unimaginable burden” this winter, the government’s fuel poverty advisors have told the incoming prime minister.
In a letter sent to both candidates ahead of Monday’s (5 September) announcement that foreign secretary Liz Truss had beaten former chancellor Rishi Sunak to become the new leader of the Conservative party, the Committee on Fuel Poverty (CFP) chair Caroline Flint outlined a package of measures designed to relieve bills pressure in the short and medium term.
In the immediate term, the CFP warned that an increase in the Energy Bills Support Scheme and the Warm Homes Discount (WHD) will be “necessary”.
These payments may have to be indexed against the Ofgem price cap to prevent “uncertainty” every three months as the price cap ratchets up, added Flint, who is a former shadow secretary of state for energy and climate change.
This short-term package would also include a review of standing charges on the grounds that non-operational industry costs, like those for supplier failure, the WHD and so-called green levies, “disproportionately” affect those on lower incomes.
As an alternative to “chasing the price cap increases” via targeted cash support, the letter floated a social tariff covering all lower income and vulnerable households.
“This would immediately stabilise energy bills for those who cannot afford to pay for energy and are at genuine risk of harm during periods of cold weather.”
The CFP suggested this social tariff could be set at or below the level of the current price cap, which is £1,971 for the average household.
The first eligible households could be those who receive the WHD and groups identified for additional payments in Sunak’s cost-of-living support package in May.
Any government subsidy to support this tariff must be “tightly ring-fenced” to only support identified increases in wholesale costs.
“It is important that we are able to help those living in anxiety and fear from the large increases in household fuel bills,” the letter added. “Many of the most vulnerable in our society will be at risk in terms of their health and well-being.”
The letter from Flint, who took over at the CFP’s helm earlier this year, also called for Ofgem and suppliers to consider a moratorium on the compulsory transfer to prepayment metering for customers facing payment difficulties. Removing the premium on prepayment meters, who will typically have to pay £59 more than other customers when October’s price cap kicks in, should also be considered.
In addition, the CFP recommended doubling the size of the existing ECO (Energy Company Obligation) scheme to £2 billion, with the costs being absorbed by general taxation rather than keeping them on customers’ bills.
Flint’s letter additionally urged Truss to increase the funds earmarked for the Social Housing Decarbonisation Fund to £550 million per annum in line with the government’s 2019 manifesto commitment and to bring forward the date from 2025 that landlords must comply with new Minimum Energy Efficiency Standards for rented homes.
Meanwhile, the Conservative think tank Onward has published an emergency 5-point plan for the new PM to respond to the energy crisis.
The report dismissed existing proposals to freeze energy bills from opposition parties and suppliers as “unaffordable” and likely to “exacerbate energy shortages”.
Freezing energy prices at the current price cap level, as proposed by both Labour and the Liberal Democrats, would cost more than the entire cost of the Covid furlough scheme at around £85 billion per year, Onward estimated.
Such a scheme would also be an “open-ended” liability, “putting taxpayers at the mercy of a volatile energy market”. In addition, freezing prices would discourage richer households from reducing their own energy usage, putting upwards pressure on energy prices and increasing the risk of blackouts.
As part of its 5-point plan, Onward proposed the government’s “immediate priority” should be to accelerate full payment of the £400 Energy Bill Support Scheme by Christmas, rather than the end of winter as currently planned.
Bringing forward these payments would reduce the average energy bill rise for the final quarter of this year from £722 to a more manageable £322, compared to the same period last year.
Combined with other measures, such as axing the additional costs for prepayment meter customers, this would be “sufficient” to get households through to the new year, by which time the think tank said the new PM and her chancellor will need to have a “comprehensive” energy plan in place.
To bolster energy security this winter, the plan said there is an “urgent need” to reduce energy usage this winter and help businesses and industries “temporarily” switch from gas to coal and oil where possible to increase diversity of supply.
“The scale of the crisis facing the UK energy market is considerable. It will not be enough simply to subsidise bills for a temporary period.”
For next year, the plan proposed an expanded cost of living support package. This includes £1,000 in support over the year for every household. Pensioners and people on means tested benefits would receive an additional £1,000, with top up payments of £500 per child up to a maximum of two, and for people with disabilities.
These sums would be paid as credit on energy bills in six monthly instalments during the winter months, January to March and October to December.
With the earmarking of an additional £2 billion for the council-led Household Support Fund, the total cost of the support next year would be £47.3 billion, the report calculated.
The report also warned that existing proposals do not address the risk posed by the potential failure of the European energy market.
“Markets are under huge strain from high prices, and nervous governments are exploring risky proposals to cap wholesale electricity prices,” it explained. “If these interventions go wrong or shortages get worse, then governments may suspend their energy markets or suspend energy exports, which could make the situation even worse.”
To mitigate this risk, Onward urged the government to establish a new “European Energy Emergencies Forum”, comprising the UK, the EU and Norway.
This forum should be used to agree new emergency procedures, including clear rules on when governments might suspend exports and how cross-border energy flows could be maintained if one or more national energy markets is suspended during severe shortages.
The report acknowledged that its recommendations include measures that will be “ideologically uncomfortable” for the next prime minister, but warned that not adopting them could “equally become politically untenable very quickly.”
“This crisis requires the new prime minister to prioritise practicality over ideology,” it added.