Peter Aldous: We need a social tariff to help ease the cost of living crisis
There is no other way of saying it: we are in the grip of a cost of living crisis. Regular reminders of the rising cost of essential goods and services dominate the news and show no sign of abating.
Inflation has been rising since last year and we know that this doesn’t affect everyone equally. Those on the lowest incomes are spending proportionally more of their incomes than those better off on essentials like food and heating. This is an example of the poverty premium: where the things we absolutely cannot live without are more expensive the poorer you are.
While the situation is very complex, there are solutions. National Energy Action and Fair By Design have published a report on the benefits of introducing a social tariff in the energy market to lower the cost of bills for low income households. It’s an idea that finds supporters on all sides of the political spectrum.
A social tariff is a targeted discount energy deal for qualifying low-income consumers. It is a safety net for eligible households struggling to afford their bills. Typically below the price of the cheapest available energy tariff, it is specifically designed to support those living in fuel poverty.
The energy price cap will not protect against unaffordable price rises that the regulator considers reasonable
To some extent, the protections already in place within the energy market work well. The price cap is there to balance what consumers spend on energy against what suppliers can make in profit. But the cap can only do so much. The cap will not protect against unaffordable price rises that the regulator considers reasonable, such as any increases in the cost to suppliers of buying gas.
We must recognise that there are some consumers who face very real risks as the price to provide energy to our homes rises further. Since April 2022, the price cap has risen by 54 per cent to nearly £2,000. In October 2022 energy bills are predicted to rise to an average of £2,800 a year, a further increase of over 40 per cent. This will inevitably result in more fuel poverty, which is already rising: there are 6.5 million people spending over 10 per cent of their incomes on their fuel bills – the definition of fuel poverty – and if Ofgem’s predictions are correct then next year that number could be 12 million.
We need a social tariff more than ever. And for the social tariff to be effective it needs certain features. It needs to be additional to existing policies: the price cap and the Warm Home Discount Scheme which provides a rebate to some low-income households.
It also needs to be mandated across all suppliers, so some consumers do not end up losing out because their supplier doesn’t go far enough. It needs to be targeted at those most in need (such as households using prepayment meters) and at a minimum it must be priced below the default tariff price cap.
Eligible consumers must also be auto-enrolled on to the tariff. This can be done by using suppliers’ existing customer data and also from data sharing agreements with the Department for Work and Pensions (DWP).
This is an opportunity to make sure those consumers most at risk are protected from rising energy prices now and in the future. It’s a protection that will reduce the number of deaths during the cold winter months, and it ensures that household gas and electricity are affordable for those struggling most in the current economic climate.
Peter Aldous is the Conservative MP for Waveney.
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