Charities and the consumer champion Martin Lewis have ramped up pressure on the government to implement a “social tariff” for energy, which new research estimates could save 12m households on the lowest incomes up to £1,500.
Citizens Advice and Lewis have backed a push to introduce a special tariff for those struggling to pay gas and electricity bills by next year, while energy suppliers have said they are “ready” to work up the proposals.
The energy crisis, exacerbated by the war in Ukraine, has sharply increased household costs, leading to calls for a revamp of gas and electricity billing. The prepayment meter scandal has added further urgency to the push for support for struggling households.
The government and regulator Ofgem are examining how a social tariff, designed to protect low-income households from energy price increases, could be constructed and funded.
A major report by Citizens Advice and the thinktanks Public First and the Social Market Foundation said a tariff could be constructed that identifies consumers with high energy use relative to their household income, using a combination of data from HMRC and energy suppliers.
The authors argue such a tariff should extend beyond just consumers on means-tested benefits. It could be paid through a lump-sum government cash payment taken directly off bills based on a set formula, they said.
The two other main options proposed in the report were a fixed discount on bills with larger reductions for households on lower incomes, or discounts on the units of gas and electricity used.
The study showed that if the chancellor, Jeremy Hunt, ignores calls to U-turn on a plan to cut energy support in April at this month’s budget, 12m households will face “crisis level” energy costs.
If Hunt, as expected, maintains the government’s price guarantee at its current level, capping typical bills at £2,500 instead of raising the limit to £3,000, then 10m households will spend more than 10% of their income on energy, excluding housing costs.
The study, which follows a nine-month consultation, showed that more than 12m households on the lowest incomes would qualify for support, and the average qualifying household would see their annual energy bill reduced by £381 – with some getting as much as £1,500. The cost to the Treasury would be £5.6bn.
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Clare Moriarty, chief executive of Citizens Advice, said: “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.”
Lewis backed the call, saying the main fixes to the energy market would be to “either regulate all pricing or have a competitive switching market”. The money saving expert added: “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.”
Dhara Vyas, the deputy chief executive of Energy UK, which represents energy suppliers, said, firms 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”, when the price guarantee scheme ends.
The report’s authors also called for more measures to improve Britain’s leaky housing stock, estimating that an outlay of £1.1bn levied on all consumers’ bills would mean savings of more than £550 for fuel-poor households where loft and wall improvements are carried out.
