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Why the Government needs to rethink its approach to the energy crisis

Why the Government needs to rethink its approach to the energy crisis

Credit: Vitalij Terescsuk/Shutterstock.com

Lyndsey Burton, Managing Director

Lyndsey Burton, Managing Director | Choose

5 min read Partner content

The chancellor’s £350 help package for energy customers is unwanted and ineffective.

Despite the Government’s offer of £350 per household towards energy bills, 21.8% of households (over 5 million) will be in fuel poverty in April 2022, according to the End Fuel Poverty Coalition.

And 39% of people seeking debt help from StepChange, will be in arrears on gas or electricity after the price cap is increased even with the Government’s planned intervention.

As well as being delayed until October, £200 worth of the help is repayable, which means it will also act to inflate bills for the next five years via an unavoidable levy. This energy loan scheme part of the package has been called out by the Leader of the Opposition, as well as consumer champions and charities, as simply being more harmful than good.

Offering people what’s fundamentally a loan during a cost of living crisis at best sends a mixed message about managing money, and at worse risks drawing out this crisis, causing consumer harm and increasing fuel poverty rates for at least the next five years.

Unwanted and ineffective

At Choose, we commissioned an independent survey via a major polling company of 1,000 people, as a representational look into the feelings of the general population.

We found 40% of people are already struggling to afford their energy bill or are in arrears. In light of the proposed measures by the Government to help with the upcoming price rises, 66% of people said they would still need to cut back on heating or other essentials.

Not only does this highlight the huge number of people already struggling this winter with the current price cap in place, but the sheer number of households who will be hit hard by the upcoming price rise despite the Government help extended.

A delayed energy bill credit that must be repaid is seen as something that’s likely to cause worry in terms of future repayments for almost half the population (49%). A further 34% of people would prefer to opt-out entirely because they do not feel they need the help at all.  

Not only does this suggest the help is poorly targeted, but providing those who are struggling financially with a repayable loan gambles with people’s ability to cope if energy prices fail to reduce quickly enough, which is becoming ever more likely. A loan simply pushes the problem down the road for an amount of money that 1 in 5 people (21%) say won’t be enough anyway.

Worryingly, as many as 30% of people said they may have to cut back on food to cover the cost of heating this year, and 5% may even have to move home. An effective Government help package ought to mean this wouldn’t be the case.

An unfair levy

The untargeted mechanism of this energy loan also means every bill will receive a credit in October, and then every bill will be charged a levy for the next five years. This means the payment and the repayment are not tied to each other, and so there will be cases where people are repaying money they never benefited from.

It’s also possible energy bill payers could end up paying back more overall than was originally leant by the Government, in cases where one household receives a bill credit, but that household later separates into two households, both households would then be required to pay back the full levy – doubling the amount repaid.

Of course, this could also happen in reverse and so these differences may balance themselves out. But it does raise the question of who would be the beneficiary in the instance of an overpayment. Would the providers have to declare a levy overpayment for example? Nothing has been mentioned about this so far, except to the extent that the energy provider would be required to pay back the sum originally leant.

However, even assuming that money went back to the Treasury, it would still effectively end up in some cases as an additional tax placed on anyone regardless of income or means. At worse it could be a bill increase for no reasonable purpose at all.

There are also questions around whether the Government has actually designed a help package that’s been influenced by the increased costs to the industry of the supplier collapses of 2021, as much as simply mitigating rising prices for the consumer.

Forty billion in a year

It’s clear from the reaction of energy customers themselves, as well as industry experts and political opponents, the Government has fallen short of the help that’s so desperately needed by people due to rising energy costs.

With 1 in 5 households facing fuel poverty from April, and predictions of bill rises as much as £270 per month from October 2022, the £350 offered by the chancellor is clearly inadequate.

The UK deserves swifter, more liberal, action – like the windfall tax on the astounding £40bn being made by BP and Shell - that will not only provide help today, but that will prevent a financial burden being pushed down the road for many who can ill afford it.

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