With the number of UK consumers entering winter indebted to their energy suppliers reaching a record high, it has become increasingly evident that the current price cap is insufficient. Ofgem’s Jonathan Brearley, the energy regulator overseeing the cap, has acknowledged its shortcomings and urged the government to implement a more effective framework to safeguard consumers. However, it seems that the government is not giving this issue the attention it deserves.
Recently, the regulator revealed that the average household’s annual energy bills would decrease to £1,923 from October, compared to £2,074 in the previous quarter. Although this is a welcome reduction, it still represents an almost twofold increase from pre-energy crisis levels. Furthermore, these bills are projected to rise again in January.
Originally introduced to prevent loyal customers who did not switch suppliers from being overcharged, the price cap is ill-suited for addressing today’s crisis. While it succeeded in keeping prices down as energy costs rose, it also led to the collapse of 29 energy suppliers, leaving consumers with a hefty £2.7 billion bill. Additionally, the cap is set too high to provide relief to the estimated 6 million households struggling to afford adequate heating.
As a result, 600,000 prepayment meters were forcibly installed last winter, forcing people to self-disconnect. In response to strong criticism, most suppliers have now aligned themselves with charities and activists in support of a social energy tariff.
The concept seems straightforward: offer a subsidized rate below the actual cost of energy to low-income and vulnerable households. However, determining who should receive this support presents a challenge. For example, last winter’s blanket government handout of £400 per household provided assistance to many who did not require it. Identifying households in need has proven difficult for energy suppliers, given the lack of reliable data.
One supplier’s CEO explains, “The datasets are inadequate. Two consumers with similar incomes, both living in council houses, could have wildly different energy bills due to differences in heating systems and insulation, yet they would potentially receive the same level of support.”
Using data from the Department for Work and Pensions or through universal credit may be the most practical solution. However, there are also concerns about how to finance the social energy tariff. One option would involve increasing prices for all other customers, similar to the warm homes discount. However, this could push more households just above the poverty line into fuel poverty, exacerbating their financial burdens without providing them access to the social tariff.
Alternatively, ministers could follow Liz Truss’s lead and fund the measure through general taxation or government funding. However, this may not sit well with those advocating for pre-election tax cuts.
Brearley emphasized on Friday that the government holds the responsibility for making decisions regarding support for households. Although the Treasury initially expressed interest in exploring alternatives to the energy price cap earlier this year, enthusiasm for a social tariff has waned due to the impending general election. To put it plainly, as one industry leader stated, “The people who would benefit from a social tariff do not vote Conservative.”
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