Ofgem has today confirmed it is likely to move ahead with plans to require energy companies across Great Britain to provide a ‘lower’ (yes, that’s right, not zero) standing charge tariff to domestic customers. Given the significant public concern about these charges, any progress on this controversial, and ever prominent, energy issue is positive. It’s also right to give people a greater choice. Unfortunately, however, there are some key gaps that won’t avoid scrutiny from energy and non-energy specialists alike.
Affordability, regional differences and prepayment
We know standing charges aren’t the biggest element of the wider affordability challenge but fixed charges (or if you would prefer, higher unit costs) all add up and will remain at elevated levels. Ofgem’s proposals won’t change this and, uncomfortably, standing charges will increase in October, when average prices rise again to even more unmanageable levels. This overall challenge won’t go away. It should continue to be a key focus that attracts warranted scrutiny from the public, press and our politicians.
- Nor will the plans address the significant differences consumers pay depending on where they live in Great Britain. National Energy Action works in some of the most deprived areas in the UK – like Gwynedd in Wales, where households will continue to pay the highest rates across GB. We know the impact that continuing to leave regional differentials unaddressed is already having in some of the areas with the highest levels of fuel poverty in the UK.
In addition, around 30-40% of the people National Energy Action helped last year paid for their energy in advance using a prepayment meter. Critically, the new tariff change could still leave prepayment customers disproportionately impacted by how these fixed (or higher unit charges) are recovered, especially if they fall into further difficulties paying their energy bills. Prepayment users are also the least likely to be able to engage with these changes. They are often not engaged with their supplier and may never have changed tariff before.
Disengaged households
It also won’t have gone unnoticed that Ofgem has not taken forward any plans for autoenrollment onto the new tariff. Given the complexity of getting this right in every instance, this is perhaps understandable, but it highlights yet another Achilles heel of the policy. People who are already likely to be disengaged and clinging to the price cap will need to actively switch to the new tariff. This places all the complexity of issues people tend to think regulators are there to address at the consumer’s feet. As if they haven’t got enough at the moment to be thinking about…
Overall, there is a risk that all of the above causes even further disengagement or distrust in what is considered by many to be a baffling market already. As an aside, it is also unlikely to be popular with the frayed energy advice community (which includes National Energy Action, as you may have guessed).
The strain on energy advisers
Energy advisers are a key go-between for households and complex policies such as these. Given the hardship of many of our clients, we dislike highlighting our own woes, but this community has been rather busy in the last few years. Given that the main programmes that support energy advice have yet to be extended beyond March next year, the enhanced need for impartial and in-depth advice and support is growing, just when the extension of key schemes is moving up the risk register.
Hopefully these untimely challenges will be dealt with soon but in the interim, these proposals leave some big unanswered questions. We are already working on the wider charging review and highlighting how this wider work may finally help address these key issues. In the end, whatever the vehicle is to bring about the changes that are so clearly needed, these collective issues are now too prominent in the public and political psyche to keep kicking down the road.