Energy prices are rising again. Where is the support for people on low incomes?

Joel Davies, Policy and Research Officer at the Bevan Foundation, looks at the action needed to address energy affordability this winter

From today, energy bills across Wales and the rest of Great Britain will increase by an average of 10%, as Ofgem’s decision to increase the price cap comes into effect. The average direct debit bill will now be roughly £150 more expensive per year— £1,717 in total, over 50% higher than it was in the summer of 2021. Prices are forecast to remain well above pre-crisis historical averages into the 2030s. The cost-of-living crisis is a long way from being over.

The pressure that energy bills are placing on people on low incomes is evidenced by mounting debt within the sector. Ofgem estimates that total debt owed by domestic consumers has reached almost £3.7bn, though the true figure is believed to be much higher.  Almost three-quarters of the total is made up of debt that has not been consolidated into a repayment arrangement (where the supplier and the customer have not yet agreed a plan to pay it off). The average amount owed in arrears is now approaching £3,000, a level of debt which many are unlikely to ever be in a position to pay off.

People are lacking the support they need

While we’ve seen some welcome moves from the regulator to protect people on low incomes (for example, ending the ‘prepayment premium’ means that prepay customers will pay around £48/year less on average than someone on direct debit) many households will face this winter with less financial assistance. The bill support schemes introduced by the UK and Welsh Governments at the height of the crisis are gone, and the decision to means-test Winter Fuel Payments from September could remove vital support worth £200 to £300 from thousands of pensioners, including the estimated 80,000 in Wales who, though eligible, do not claim pension credit. Additionally, the value of Warm Home Discount rebates have been eroded in real terms both by inflation and the reduction in their proportionate scale compared to average bills. If it had merely kept up with inflation in the last decade, the payment would be worth almost £190, rather than its current level of £150.

As other sources of support have fallen away, energy suppliers have found themselves with an increasing social responsibility to support struggling households. But research published in August by the Bevan Foundation found that it is under-scrutinised, often confusing and difficult to access, and in many cases simply runs out every year leaving many in financial difficulty.

Now is the time to act

National Energy Action has found that over half of Welsh adults expect to have to ration their energy use this winter. The Welsh and UK governments, along with the regulator, will need to act quickly to support households that will struggle the most.

To maximise the support available through suppliers, more stringent regulation is needed to ensure the help is better promoted and application processes streamlined. Transparent publication of data concerning the use of hardship funds is also vital in joining up efforts on fuel poverty. Additionally, our research showed that suppliers do not co-operate effectively with the advice sector which is a vital conduit for those in the greatest difficulty—priority access should be given by suppliers to organisations with grassroots links into communities.

But really, supplier hardship schemes should exist to support people in crisis, where they are experiencing unforeseen financial difficulties which are the exception rather than the norm. Governments must use their power to address the structural inequality of the energy market. Welsh Government will likely need to provide additional financial assistance to those in the greatest need this winter, while increasing the urgency and pace of its Warm Homes retrofit Programme. Ultimately, the elephant in the room on energy affordability is the UK Government’s lack of action on market reform. Time is long overdue for a progressive solution, most obviously in the form of a social tariff.

Simply put, everyone should have access to the fuel they need to keep warm, cook their meals, and take their full part in society. This will not be the case in winter 2024 without fundamental action on affordability.

Joel Davies is Policy and Research Officer at the Bevan Foundation