Chancellor calls for energy companies to ease the burden on vulnerable customers
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Today, uSwitch examines whether the Chancellor’s budget of ‘fairness and opportunity’ will permanently break the stranglehold of fuel poverty in this country or whether it will prove to be just a short-term fix.
- ‘Five year freeze’ on Winter Fuel Allowance for pensioners lifted but fails to offset £446 increase in energy bills since January 2004[2].
- Spending on social tariffs set to treble from £50 million to £150 million[3] – presently only 400,000 consumers benefit from social tariffs[4]
- Pressure mounts to offer a fairer deal to 5 million customers on pre-payment meters[3] – they currently pay up to £236 or 22% more than consumers on other energy plans[5]
The Government has made a brave attempt to tackle the issue of fuel poverty in today’s Budget but still has a long way to go before it eradicates the problem altogether, says uSwitch.com, the independent price comparison and switching service. The Chancellor announced this would be a Budget of ‘fairness and opportunity’ and indeed, initiatives announced today will benefit some of Britain’s 4.5 million[1] fuel poor, but today’s measures could be a case of ‘too little, too late’ for millions of other vulnerable households across the UK.
The Government has finally lifted the ‘five-year freeze’ on the Winter Fuel Allowance for pensioners, increasing it from £200 to £250 for over 60s and from £300 to £400 for the over 80s[3]. It has also called for lower energy prices for 5 million customers on pre-payment meters and announced an increase to current spending levels on social tariffs - from £50 million to £150 million in the period ahead[3].
The first increase in the Winter Fuel Allowance since 2003 will see 9 million pensioner households better off[6]. The news of additional financial support for Britain’s elderly is welcome and will go some way to helping the 27% of pensioner households[7] who are currently in fuel poverty and who are forced to choose between eating or heating.
Until today the Winter Fuel Allowance covered less than a fifth (19.4%) of a pensioner’s fuel bill[8]. The increased allowance will now cover almost a quarter (24.5%) of a pensioner’s energy bill[9] – a 5% increase – but a far cry from 2003, when the maximum allowance available to 60 – 79 year olds offset 34.5% of their bill[10]. For the Winter Fuel Allowance to offer an equivalent value today to that of 2003 (34.5% of the average annual fuel bill), the allowance would have to rise by a further £104 to £354[11].
The Government has made a clear call for energy companies to ease the burden for its most vulnerable customers. Although 4.5 million[1] people are currently estimated to be in fuel poverty, 73% of those affected are not pensioners[7]. The Chancellor’s call for a three-fold increase to current spending levels on social tariffs is another step in the right direction, but at this time, it is difficult to identify how many of the 3.3 million people in fuel poverty (who are not pensioners) will actually see any real benefit from this. Britain’s big six energy suppliers have less than 400,000 people signed up to their social tariffs and, even if suppliers carry through current intentions to boost social tariff provision, they will still be helping less than 1 million consumers[12].For the Government’s seemingly ambitious plans to be a success, any effort will need to be aggressive, sustained and easy for consumers to access and understand.
Ann Robinson, Director of Consumer Policy at uSwitch.com, says: “The Government has attempted to provide a solution to fuel poverty in today’s Budget. The measures announced are certainly a step in the right direction, but they still fall short by some considerable distance. We already know that patchy, piecemeal attempts to tackle this issue do not work. Any measures introduced need to be long-term, sustainable and easy for the fuel poor to access.
“If the Government is truly commited to eradicating fuel poverty in this country then it needs to work with the industry and regulator to fully understand what the issues are and to determine how best to tackle them. Rather than reinventing the wheel, the Government has finally increased the Winter Fuel Allowance. However, for this to be a sustainable proposition in the future, the increase in benefits should be targeted at the elderly in real need only.
“A three-fold increase in the money spent on social tariffs is another positive move, yet the Chancellor was vague in how this will be actioned and until a clear plan is laid out, it’s impossible to tell whether it will truly benefit those who need it the most. Again, the Government must work with energy providers to realise the full potential of social tariffs. There must be an industry standard on social tariffs, clear criteria over which consumers should qualify, with help from the Government in identifying them, and a guarantee from suppliers that people on social tariffs will always be paying the lowest available price. This would remove the guess work and provide vulnerable households with a real way out of fuel poverty.
“And of course, households have to start helping themselves too. Vulnerable customers should talk to their supplier to find out what help is available now. Failing that, consumers should look to compare prices and switch to a cheaper provider.”
Fuel poverty facts and figures:
- Recent price hikes have plunged 500,000[1] more into fuel poverty, bringing the total to 4.5 million[1]
- Outstripped: energy prices up by 15% or £137[13] this year, but basic pension rises by only 4.38%[14]
- Consumers cutting back: over a quarter (29%)[15] forced to cut back on heating or make savings elsewhere
- Cannot afford heating: one in ten (10%)[16] cannot afford to keep warm
- Where’s the help?: the assumption is that vulnerable consumers on social tariffs are paying the lowest prices in the market, but until recently some suppliers were offering lower prices on one of their mainstream plans[17].
YouGov research referred to in the notes below was conducted by YouGov on behalf of uSwitch.com in October 2007. Survey conducted by YouGov online – a total of 7,787 UK energy customers took part. Participants were asked their opinions on a wide range of issues relating to satisfaction with their energy suppliers and other energy industry issues. The figures have been weighted.
1. According to the Energy White Paper published May 2007 (page 24) there were just under 4 million people in fuel poverty. However, BERR estimates that for every 1% increase in gas and electricity bills, a further 40,000 households are plunged into fuel poverty. On this basis, the average bill has risen from £912 to £1,026 – a 12.5% increase. This will have pushed a further 500,000 into fuel poverty. If we add these together then the figure of 4.5 million which has been widely reported in the media, can be considered an accurate representation.
2. On January 1st 2004 the average energy bill, based on a medium user consuming 3,300 kWh electricity and 20,500 kWh gas, on a standard dual fuel plan paying on receipt of bill with bill sizes averaged across all suppliers and all regions was £580. The average bill is now £1,026 – this represents a difference of £446.
3. As announced in the Budget, 12th March 2008.
4. Taken from ‘Proportionality of social tariffs and rebates Paper for Energywatch’ published January 2008 and prepared by Cornwall Energy. 400,000 based on the 375,703 actual recipients across all six suppliers (Table 2.5 page 14).
5. Comparing online plans to pre-payment, pre-payment plans are £236 higher. Based on a medium user consuming 3,300 kWh electricity and 20,500 kWh gas, on a dual fuel plan with bill sizes averaged across all suppliers and all regions.
6. According to the Office of National Statistics.
7. Based on YouGov research October 2007.
8. Until today the Winter Fuel Allowance was £200 and today’s average dual fuel energy bill is £1,026. This means the allowance only represented 19.49% of a pensioner’s annual bill.
9. The current Winter Fuel Allowance available to pensioners is £250 and the average dual fuel energy bill is £1,026, offsetting 24.5% of a customer’s bill.
10. In 2003, the maximum Winter Fuel Allowance available to pensioners was £200 and the average energy bill was £580, offsetting 34.5% of a customer’s bill.
11. Calculated by taking 34.5% of the average dual fuel energy bill, which equals £354. £354 is £104 higher than £250 – the current Winter Fuel Allowance available to pensioners.
12. Taken from ‘Proportionality of social tariffs and rebates Paper for Energywatch’ published January 2008 and prepared by Cornwall Energy. 400,000 based on the 375,703 actual recipients across all six suppliers (Table 2.5 page 14). Less than 1 million is calculated by adding the 330,000 consumers who will benefit from electricity social tariffs and the 578,000 consumers who will benefit from gas social tariffs = 908,000 (taken from section 2.3 Future Social Tariffs page 15).
13. Based on price rises implemented so far in 2008 – Scottish and Southern Energy being the only supplier not to raise prices. 15% increase calculated on a medium user consuming 3,300 kWh electricity and 20,500 kWh gas, on a standard dual fuel plan paying on receipt of bill. Bill sizes averaged across all suppliers and all regions – average bill now £1,026.
14. According to Help the Aged, basic pension at the end of 2006 was £5,940. It is £6,200 for 2007/08 which is a 4.38% increase.
15. YouGov research shows that 21% of respondents have said they will reduce the amount of heating they use and wrap up warm instead, while 8% said they will have to cut back and make savings elsewhere when asked to best describe how energy bills will affect them.
16. YouGov research shows that 7% of respondents agreed and 3% strongly agreed with the statement: “I cannot afford to keep warm this winter”
17. Taken from ‘Proportionality of social tariffs and rebates Paper for Energywatch’ published January 2008 and prepared by Cornwall Energy. On page 32 the researchers compare suppliers’ lowest priced offers and their social tariffs. It found that three suppliers – British Gas, npower and ScottishPower – had lowest price offers that were cheaper than their social tariffs. According to the appendix on page 30: “The offers were as recorded in Energywatch pricing information dated December 2007 and the social tariffs as understood by Cornwall Energy at that time. The analysis is presented on an averaged Great Britain-wide basis for electricity, gas and a total for both, rather than explicitly covering dual fuel.”