Pressure is growing for the Government to introduce a special tariff to help low-income families struggling to pay their energy bills.
Citizens Advice (CAB) has joined calls from both Ofgem and consumer groups to introduce a social tariff to support households to cope in what could be a decade of high energy bills. A social tariff is the best way to stop millions of vulnerable people overpaying for energy, according to a new CAB report, which calls for a tariff to be introduced by 2024.
Last month, Ofgem boss Jonathan Brearley said a lower tariff should be put in place to guarantee cheaper energy to vulnerable users who cannot afford their basic needs. CAB says a new tariff could mean savings of up to £1,500 for some families.
Read more: Martin Lewis warns low energy users will still suffer even if £500 hike is axed
The CAB report is backed by a coalition of consumer groups and energy bodies, including Martin Lewis and Energy UK, and follows nine months of extensive consultation with industry leaders, civil society and the public. Money Saving Expert Mr Lewis has long argued for a social tariff, saying it could be a "crucial building block to help repair our broken consumer energy market".
Dame Clare Moriarty, chief executive of Citizens Advice, said: "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."
Citizens Advice estimates 3.2 million customers were left in cold and dark homes last year after running out of credit and the charity believes targeted financial support in the form of a social tariff is the long-term solution to millions of people spending excessive amounts on their bills, both now and during what could be a decade of record prices ahead. The charity and its partners are also calling for a national insulation programme for all households in fuel poverty.
"The Government’s Energy Price Guarantee is officially set to rise to £3,000 from April, but is widely expected to remain at £2,500," the CAB report said. "Under either scenario, households will be spending more than twice as much on energy compared to just a year and a half ago.
"If the Energy Price Guarantee (EPG) remains at £2,500, ten 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. If the EPG increases to £3,000 the number of households affected in this way rises to 12 million. 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."
Last month, Ofgem's Mr Brearley said the current high-cost energy market left some households simply unable to pay. "The root cause is that some customers, despite enormous widespread support from the Government, don't have the ability to pay for their basic energy needs," he said. "We think there's a case to examine with urgency a social tariff that limits the impact of extremely high prices, which reduces the volatility for a defined set of vulnerable groups."
Data from the CAB indicates the number of households spending more than 10% of income after housing costs on energy with bills at £2,500 will be 9.8 million. Based on analysis in the report, 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. This figure is based on the EPG being set at £2,500. If the EPG is set to £3,000 the average bill would be reduced by £440.
In 2022, Citizens Advice helped 50% more people with energy issues than the year before, and more than double that of 2020. And last year, Citizens Advice saw more people who couldn’t afford to top up their prepayment meter than in the previous 10 years combined.
Dame Moriarty of CAB 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.”
Money Saving Expert Mr Lewis 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 chose 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.”
The demands in detail
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Social tariff
Citizens Advice says a social tariff could take the form of a cash payment to "fuel poor" households, as this would target more people and be affordable to the Government. The amount each household gets would vary according to their overall income and energy use, and the CAB said the Government could use data from HMRC and energy suppliers to ensure those not getting state benefits could also get the support.
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Insulation help
Citizens Advice and its partners are also calling for a national programme of loft and cavity wall insulation for all households in fuel poverty. "UK homes use more gas than most other Western European countries and are particularly exposed to any hikes in wholesale prices," the report says. "With some people seeing 30% of their energy bill go straight out of the window, a national insulation programme will help keep houses warmer, reduce gas usage and insulate people against price spikes. At a total cost of £1.1bn, this would save more than a million households up to £561 a year."
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