Accentuate the positive, but eliminate the negative first

Ofgem yesterday set out the details of the upcoming Default Tariff cap on domestic energy bills. Ofgem have said that the new price protections from increasing prices could save 11 million customers on Default Tariffs on average £75, and up to £120, per year, a total of around £1bn per annum.

The majority of these customers who don’t, or can’t, engage in the market will welcome this, as it provides some respite from the shock of increasing prices and their bills will fall if costs drop and if suppliers become more efficient. A further rationale for this broad intervention is that these customers have paid a ‘loyalty premium’ for years. Ofgem and the UK Government will hope they have now tackled these issues head-on and wider market engagement will be dramatically improved when the new cap falls away in either 2020 or 2023.

Here comes the BUT.

But, the outline of the price cap throws up the very real risk that the most vulnerable consumers could actually lose out depending on how Ofgem responds over the coming months. These risks need to be addressed urgently so that Ofgem delivers enduring new protections for the most vulnerable consumers and makes sure that in the near future, the poorest and most vulnerable households do not get a worse deal.

Ofgem have set out within their consultation a proposal to remove the customers who are not on prepayment meters, but are receiving the WHD, from the existing Safeguard Tariff. Ofgem say the intention is to ensure they will now be automatically protected by the new Default Tariff cap instead. At the time of switching them over, these customers will feel little impact as both caps are set at the same level. However, there are important differences between the two caps.

Firstly, the Default Cap is only meant to last until 2020, possibly 2023, so it doesn’t afford the longevity that Ofgem and the UK Government have recognised is needed for the most vulnerable customers. The intention may be to continue with such protection, but that needs spelling out in terms.

Secondly, the Default Cap includes provisions for the recovery of some costs that the Safeguard Tariff does not, for example those relating to smart meter delivery. As a result, there is an evident risk that that the Default Tariff Cap could rise more quickly than the Safeguard Tariff would in the future.

These issues would be a terrible reverse on the good steps forward for vulnerable consumers. They can and must be avoided.

NEA believes Ofgem should preserve and follow through with their plans to extend the Safeguard Tariff to all households eligible for the Warm Homes Discount scheme. This support should endure after the Default Cap is removed. In addition to helping to address the risks above, given the complexity of these issues, Ofgem and the UK Government must communicate effectively what level of protection the new cap provides and help them get access to wider support not just a cheaper supplier.

Finally, we must keep at the front of our minds that many fuel poor households are more than £1,000 short of being able to afford a warm, dry and healthy home. It would be unconscionable that the adoption of a default price cap could make that worse.

Later this year, the UK Government will consult on new reforms to the Warm Home Discount scheme. The £140 rebate under the WHD must continue for existing recipients and be provided automatically to more low income working families, using the powers under the Digital Economy Act.

NEA will also be reasserting the benefits for reintroducing central investment to improve the energy efficiency of fuel poor homes. We must not lose sight of the fact that this remains the most cost-effective and enduring solution to reduce needless energy costs, eliminate fuel poverty, boost economic growth and safeguard the environment.

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