Consumer groups have called for an energy social tariff in the form of cash payments for the poorest households ahead of what they warn could be a decade of high bills.
Citizens Advice said payments of up to £1,500 are now an “essential” long-term solution for millions of fuel-poor households, both now and during what could be a decade of record prices.
The call for targeted financial support by next year has the backing of a coalition of consumer and energy bodies including Martin Lewis and Energy UK and is part of a new report commissioned by Citizens Advice following nine months of consultation with industry and the public.
The report recommends cash payments according to individual household need, delivered through a combination of HMRC data on household incomes and energy supplier knowledge of how much electricity and gas is used to show a picture of who needs help and how much.
More than 12 million households on the lowest incomes would qualify for support, and the average qualifying household would see their energy bill reduced by £381 – with some getting up to £1,500, according to the report’s analysis.
Currently, households are spending more than twice as much on energy compared with 18 months ago, regardless of whether the Government’s Energy Price Guarantee (EPG) remains at £2,500 – as is widely expected – rather than rises to the previously announced £3,000 from April.
If the EPG remains at £2,500, 10 million households will face “crisis-level” energy costs, with more than 10% of their income after housing costs going on energy – a key indicator of fuel poverty, the charity said.
If the EPG increases to £3,000, that figure rises to 12 million, it warned.
People on the lowest incomes will be hit much harder, with energy making up more than half of their total household income after housing costs in either scenario – up from 34% in 2019.
Citizens Advice said it helped 50% more people with energy issues last year than the year before, and more than double that of 2020.
Last year, it saw more people who could not afford to top up their prepayment meter than in the previous 10 years combined.
The charity warned energy prices are not expected to return to pre-pandemic levels for the next decade.
The report also calls for a national programme of loft and cavity wall insulation for all households in fuel poverty.
Citizens Advice chief executive Dame Clare Moriarty said: “Energy affordability is a long-term problem that needs a long-term solution. A social tariff protects millions of people from spending excessive amounts on their bills.
“High energy costs have left too many people choosing between heating and eating. Uncertainty over future high prices only adds to the stress and worry felt in households across the country.
“This policy helps make energy bills more affordable in the years ahead and supports the shift to warmer, safer homes that are ready for the net zero transition.”
Martin Lewis, founder of Money Saving Expert, said: “I’ve argued for a social tariff for years, and now it could be a crucial building block to help repair our broken consumer energy market. When things return to a more normal situation, we must work out what energy market we want.
“There are two main routes – either regulate all pricing or have a competitive switching market. We’ve long aimed for the latter situation, but it has failed many. That’s why we must be blunt and identify who are the legitimate and who are the illegitimate victims of competition.
“If I, as a wealthy, financially educated person choose not to switch, that’s my problem. If a struggling low-income 90-year-old grandmother with onset dementia doesn’t switch – that’s all our problem. A social tariff looks to protect those who need it.”
Energy UK deputy chief executive Dhara Vyas said: “Energy UK welcomes this research. It solidifies the need for more targeted support for consumers on an issue which requires an enduring solution, such as a social tariff.
“To ensure continued support for everyone and ease the burden of high living costs, suppliers are ready to work with the Government to make progress with the introduction of targeted support, such as a social tariff, no later than April 2024.”
Ofgem chief executive Jonathan Brearley said: “This is a very difficult time for energy customers, particularly the most vulnerable, and we welcome the discussion this report generates.
“We will continue to work with industry, charities and Government to support vulnerable customers at this difficult time.”
