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New Thinking.

Introduce social energy tariffs to protect the poorest households

As the energy price cap continues to rise, vulnerable people urgently need discounted deals to avoid fuel poverty.

By Carl Packman

The weather is warm now, but summer has never lasted long in the UK. As we start thinking about our own finances for winter essentials, it’s hard to ignore warnings of “devastating” price rises forecast between October and January for our energy bills.

Cornwall Insight – which carries out energy market intelligence and has recently been making headlines with its analysis of wholesale gas and electricity prices – estimates that a typical household’s energy bill will be well over £3,000-a-year for the next 15 months.

Since 2018, there has been a cap on the price of energy. It was put in place to set a limit on the maximum amount suppliers can charge for each unit of gas and electricity you use. It is supposed to be a price protection for consumers. But when the costs to purchase gas and electricity rise for suppliers, the level the cap is set at will also rise.

Since April 2022, the price cap has risen by 54 per cent to nearly £2,000. Now, the latest forecasts show that annual energy bills are likely to reach £4,266 from January 2023. While energy price rises affect everyone, the impacts are not felt the same by everybody. Low income consumers face a double burden of the rising cost of bills as well as paying more for their energy due to the poverty premium: the extra costs people on low incomes and in poverty pay for essential products and services, which includes unavoidable expenditure like energy bills, credit, and insurance.

Many low income households already pay this penalty in the energy market through using prepayment meters. These meters are installed in someone’s house and are topped up using a key. A cruel irony is they tend to be used by people with the least amount of money, but are the most expensive way to pay for energy (compared to, say, using a direct debit).

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For these households, there is a much higher risk of falling into fuel poverty – where you pay more than 10 per cent of your income on energy bills.

Fair By Design, along with National Energy Action, have called for the government to introduce a new social tariff that reduces the pressure on low-income households facing, or at risk of, fuel poverty.

A social tariff is a targeted discount energy deal for qualifying low-income consumers. It is a safety net for eligible households who might be struggling to afford their bills. It is typically below the price of the cheapest available energy tariff and targeted at those living in fuel poverty or on a low income. With an estimated 12 million households likely to be in fuel poverty by January 2023, it is a vital lifeline and one that could reduce fuel poverty for years to come. 

To be successful, the social tariff needs to be mandated across all suppliers, so some households do not end up losing out because their supplier doesn’t offer it. It needs to be targeted at those most in need (such as households using prepayment meters) and must be priced below the price cap. Eligible consumers must also be auto-enrolled on to the tariff.

We need this today more than ever. Unless we do something big to tackle this major cost crisis, the problem will not go away — it will only get worse.

[See also: There’s a new factor pushing up energy prices, and it’s nothing to do with Russia]

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