Government Is Working To Help Vulnerable Households Access Cheap Energy
A social tariff would reduce energy bills for vulnerable households. (Alamy)
The government’s Energy Price Guarantee (EPG) team at the department for energy security and net zero (ESNZ) is taking forward plans to deliver a social tariff for energy bills, PoliticsHome understands.
Correspondence seen by PoliticsHome reveals ESNZ – which is replacing part of the department for business, energy, and industrial strategy (BEIS) – is looking at rolling out the scheme from spring 2024.
The government sees the plans as part of “new approach” to consumer protection on the energy markets, and is currently consulting stakeholders on the best way to design the scheme.
A social tariff would freeze the price of energy at a certain level for vulnerable households, like those on low incomes, protecting them from price fluctuations on the energy markets.
At present, support for households on low incomes struggling with high energy bills is mostly short-term – with the lack of a long-term strategy further spurring calls for reform. One-off targeted support available over the course of this year includes £900 worth of cost of living payments for those on means tested benefits, and £150 for people claiming non-means tested disability benefits.
That support comes on top of other targeted support from last year – including £600 for those on means tested benefits, and £150 for people claiming non means tested disability benefits.
The cost for the new social tariff is likely to be recuperated through general taxation or through energy companies spreading the cost to other customers, as is currently the case where social tariffs are already used in other public sectors such as water providers.
At a Treasury select committee meeting in November, chancellor Jeremy Hunt confirmed it was among measures the government was considering.
"From April '24 we want to work towards a social tariff or social discount approach – whereby we reach all people equally on low incomes," he told MPs in parliament.
"That means a lot of complicated work to marry the information held by HMRC with the information held by DWP on benefits, and that's a very big operational challenge, but that's the direction of travel we want to go in."
New analysis of HMRC data by Citizens Advice reveals such a scheme could knock up to £1,500 off energy for certain households and protect up to 12m homes from fuel poverty; the average qualifying household could see their bills reduced by around £380.
The introduction of the social tariff for energy would likely coincide with the end of the EPG – which is currently capping the average yearly energy bill at £2,500 in a universal scheme to protect all households from record breaking energy bills; the cap is set to rise next month to £3,000.
Without the intervention, they would have risen to a yearly average of £3,549 in October and £4,279 in January; however, the average yearly bill is still 120% higher compared to 18 months ago.
Energy bills soared following an increase in demand as lockdowns ended across the world and Vladimir Putin’s invasion of Ukraine in February 2022; Russia provided around 50 per cent of Europe’s gas supplies prior to the invasion.
The government’s decision to pursue a social tariff is a major victory for campaigners, who have long called for one – with pressure especially growing when the wholesale price of gas began to rise in late 2021.
Citizens Advice on Wednesday said a social tariff for energy is "essential" – arguing "targeted financial support in the form of a social tariff is the long-term solution to millions of people spending excessive amounts on their bills, both now and during what could be a decade of record prices ahead".
Martin Lewis, founder of MoneySavingExpert, has also long campaigned for the introduction of a social tariff for energy.
"Now it could be a crucial building block to help repair our broken consumer energy market," he said.
"When things return to a more normal situation we must work out what energy market we want."
The BEIS select committee of cross party MPs also recommended the introduction of a social tariff last year.
"We call on the government to consider the introduction of a social tariff for the most vulnerable customers and a relative tariff for the rest of the market, to be introduced once wholesale energy prices have stabilised," the group recently said in a statement.
The government moving forward on a social tariff comes as National Energy Action (NEA) warns that the number of fuel poor households in the UK will increase from 6.7 million to 8.4 million if the government goes ahead with plans to increase their EPG yearly energy price cap to £3,000.
"If the Chancellor announces average annual energy bills will stay around £2,500 instead of soaring to £3,000, National Energy Action will welcome the news," the NEA said on Friday in response to reports that Chancellor Jeremy Hunt may be on the brink of a U-turn on the increase in his Spring Statement next week.
"But that still means bills have more than doubled since the start of the crisis. And it would still leave 7.5 million UK households in fuel poverty."
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