Director of policy and advocacy at National Energy Action, Peter Smith, explains the impact of the new Chancellor ‘reviewing’ the Energy Price Guarantee.
Yesterday (Monday 17 October 2022), the new Chancellor, Jeremy Hunt MP, announced that there will be key changes to the Energy Price Guarantee, which capped the unit cost making the average annual energy bill £2,500. From April next year, the scheme will be more focused on ‘those most in need’.
A Treasury-led review will now be launched to consider how to support households and businesses with energy bills after April 2023.
Few details are known however, the key objective of the review is to design a new approach that will cost the taxpayer significantly less than planned while ensuring enough support for those in need. There won’t be any immediate changes, but our chief executive Adam Scorer commented that in seeking to give confidence to the financial markets, the UK Government has created huge uncertainty and anxiety for households across the UK.
Before any design of a new scheme is considered, there must be an understanding of the implications of any cliff edge that has now been created in April 2023. Energy analysts Cornwall Insight now project that energy prices will be higher than £4,000 a year for a typical household without government support in April.
Millions of low-income households need energy bill help
The first and most significant challenge will be to decide who can bear the brunt of such high prices, and therefore who the new support package should be targeted at. Previous targeted support has either used the benefits system or council tax bandings for homes to determine eligibility. While those in receipt of means-tested benefits certainly need protecting, a £4,000 average annual bill is clearly unaffordable for many more. So, it’s very likely targeting of this support must reach beyond solely relying on the benefits system.
Millions of low-income households don’t claim benefits and yet struggle with the cost of energy. The UK Government must recognise the opportunities to continue to help millions of other low-income households who are not on benefits and median-income households who need help. Energy suppliers have information on levels of debt, how much indebted households can afford to pay back each week, who has a prepayment meter and who self-disconnects. They also have information on household composition, health conditions, disabilities, and energy usage. There must be an endeavour to use this data to identify who should receive support. The UK Government could also look to taper support so that hard cliff edges are avoided, but how this is achieved will be vital. For example, could the UK Government continue to support some households with a loan instead of a grant which needs to be paid back? Or by gradually reducing the level of support provided.
But these are not likely to be the end of the challenges. The objective is to target support at those most in need. That cohort will need substantially more support than ensuring the average annual bill is £2,500, which the Energy Price Guarantee currently offers. And if the UK Government does reduce the level of support provided to all households from April next year, it will make significant financial savings. It therefore will have the ability to reduce prices to below the current average of £2,500 for those most in need. This is essential if the intervention is going to stop the poorest households reducing their energy consumption to the point it is dangerous or even fatal.
Energy efficiency is key
It is yet to be seen how the UK Government will take into account the issues above and even if it does, that is unlikely to be the end of the story. The Chancellor highlighted that a part of the plan would be to introduce ‘incentives’ for energy efficiency. At present, it’s not clear whether these incentives will be linked to the revisions of the Energy Price Guarantee or introduced alongside them. What is clear however is that households on the lowest incomes are already rationing their energy usage to dangerous levels but do not have the means to invest in energy saving measures to reduce their energy consumption safely. Unless the UK Government provides further grants to help households to improve their homes, slashing hundreds of pounds off their bills every year, we are wasting the opportunity to permanently address this crisis.
These vital areas, and others, will be debated keenly over the next few months. In the coming days and weeks, National Energy Action will be hosting our regional fuel poverty forums where we will seek the views of our supporters and other organisations who are also on the front line of the energy crisis. We hope this will help inform our input into the Treasury’s review. We will also be seeking to work with our campaign partners to ensure the outcomes of the review don’t leave the most vulnerable people out in the cold.