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Higher Energy Bills Due To Debt "Underlines Need For Social Tariff", MP Says

Chair of the energy security and net zero committee Angus MacNeil said rising energy debt "underlined" the need for a social tariff. (Alamy)

3 min read

Chair of the energy security and net zero committee Angus MacNeil has said that soaring bills as energy companies try to recuperate consumer debt proves there is desperate need fo the introduction of a "social tariff" to support people struggling to keep up with fuel costs.

Last year energy companies charged £842m a year on energy bills pursuing "debt related costs" – such as bad debt write-offs and administrative costs linked to the debt – but from 1 April, firms will now charge a further £735m per year, according to the campaign group Warm This Winter.

In their report, the campaign found households are now paying energy companies a combined £1.3bn in annual charges as a result of the growing amount of energy debt among energy customers. The way a household pays its energy bills significantly impacts how much of their energy bill goes to service the debt, with prepayment meter customers paying £25.17 per household per year on average but standard credit customers paying £129.71 per household per year, according to Warm This Winter.

MacNeil told PoliticsHome there was a "clear problem with profits being protected" for energy companies at the same time as them making record profits, with British Gas in February reporting its profits climbed from £72m to £751m in a year.

"This doubly underlines and puts it in bold that there's a need for a social tariff," MacNeill said. "Because it makes energy more affordable for people who need energy, and puts them into less energy debt, and leads to less household stress."

A social tariff, which currently exists for other utilities like water, would fix energy bills at a certain level for those on low incomes in order to protect them from volatile energy market pricing. The cost would be recuperated through taxation or other customers and is already used by water providers to protect those struggling with payments.

In November 2022, chancellor Jeremy Hunt said the government would explore the introduction of a social tariff but PoliticsHome understands the plans have since been dropped. 

More broadly, MacNeil said rising energy debt was a symptom of a country with "a lack of earnings issue". 

"The average worker in the UK is getting £10,700 a year less than people in equivalent countries over the last 10 to 15 years," he continued.

"So what we've got is a symptom of the UK going in reverse, and of course, it's the UK being an unequal society."

Simon Francis, coordinator at End Fuel Poverty coalition, told PoliticsHome it was "just not right" that consumers could essentially be paying for debt collectors targeting vulnerable households. 

Francis said while a social tariff would "obviously help in terms of not incurring future debt for some vulnerable households", an "industry wide approach to writing off the debt from customer bills" was needed. 

"What we've urged is that a help to repay scheme is set up by the government," Francis said.

"Because we appreciate that people owe this debt, and there could be a case of debt matching or long term payment plans, which the government could underwrite to ensure people have the breathing space they need, especially when energy bills are still high."

A Department for Energy Security and Net Zero spokesperson said: “With energy bills coming down by nearly £250 on average, the Secretary of State has written to Ofgem setting out her expectation that standing charges are kept as low as possible.

“We are continuing to support the most vulnerable families with £108bn between 2022 and 2025, including £900 in cost-of-living payments, £150 to those on eligible disability benefits, plus a further £150 Warm Home Discount.”

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