Analysis: It pays to help those in need

Energy and water companies are redoubling their efforts to identify and help vulnerable customers who may be having difficulty paying their utility bills.

Affordability is a perennial hot topic in the water and energy sectors. But within that perpetual debate, there is a growing focus on customers who find themselves to be in vulnerable circumstances, and potentially less able to pay.

The number of those struggling to pay, and the extent of their arrears, has been rising. Utilities have been raising their game in trying to combat this. Clearly, they want to try to recover cash they would otherwise not receive, but they are also trying to build trust and confidence in their respective sectors and, as Ofwat chairman Jonson Cox puts it, “do the right thing”.

The statistics reveal debt is a growing problem. The amount owed to water companies increased from £1.9 billion in 2010/11 to £2.2 billion in 2014/15, while in the energy sector the level of household debt grew from £464 million in 2014 to £507 million the ­following year.

And while the number of households in England in fuel poverty fell from 2.59 million in 2009 to 2.35 million in 2013, the depth of that poverty – the average fuel poverty gap – increased from £355 to £374 over the same period. In water, the statistics reveal that 24 per cent of households in England and Wales face affordability risks because more than 3 per cent of their disposable income is going on paying water and wastewater bills.

The case for assisting these customers is simple. Energy and water are essential services, and disconnection is difficult or impossible. Therefore, helping those in vulnerable circumstances to pay at least some of what they owe, and to stay on top of their payments, is beneficial for the companies.

This could become even more pressing if concerns are realised of another economic downturn. Hugh Stickland, chief economist at Citizens Advice, warns that the Chinese slowdown, the high number of part-time jobs, and the Bank of England revising downward UK growth figures, mean an affordability and debt crisis could be looming. He says that by 2020, personal debt is set to be back up to levels seen in 2008 – just before the financial crisis.

So, action is needed – and some relief has been forthcoming.

Ofwat’s consumer vulnerability report set the scene in the water sector, and created the new definition the regulator uses for “vulnerability”. Significantly, it states that people find themselves in vulnerable circumstances, rather than labelling them as vulnerable.

Definitions

“Vulnerability is when a consumer’s personal circumstances and characteristics combine with aspects of the market to create situations where he or she is:

• Significantly less able than a typical consumer to protect or represent his or her interests in the energy market; or
• Significantly more likely than a typical consumer to suffer detriment, or that detriment is likely to be more substantial.”

Ofgem (2013)

“[A vulnerable consumer is] someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”

FCA (2015)

“A customer who due to personal characteristics, their overall life situation or due to broader market and economic factors, is not having reasonable opportunity to access and receive an inclusive service which may have a detrimental impact on their health, wellbeing or finances.”

Ofwat (2016)

A similar distinction has previously been adopted by Ofgem, and is important because it sets the framework for action to help those who may struggle to pay. Currently, 14 of the 18 water companies in the UK offer some form of social tariff; the four that don’t have committed to have them in place by the end of the year.

Ofwat, however, is asking for the companies to go beyond just having a social tariff. It is asking them to “own” the relationship with customers “to ensure services are inclusive and accessible to those who need them” and to “move beyond customer labels”.

There is also the fact that, in real terms during this AMP cycle, the average water bill will fall by 5 per cent.

“We are giving companies a clear message to focus on what their customers want rather than ticking regulatory boxes,” says Ofwat chief executive Cathryn Ross.

Five hundred thousand customers in England and Wales have signed up for major schemes that target those who are either struggling to pay their bill or are in a position of vulnerability – an increase of 69 per cent over the past four years.

However, Ofwat says the number of customers requiring targeted support is likely to be much larger, and suggests that companies must use data effectively to identify and ­target support at customers.

In energy, affordability and the cost of bills have been topics that have refused to go away over the winter, even after the big energy suppliers announced imminent price cuts – some will come into effect only from next month.

The government is keen to be seen to be tackling high energy bills and also dealing with the issue of fuel poverty, despite the tailing off of the Green Deal and the imminent end of the Energy Company Obligation (Eco).

Energy secretary Amber Rudd has said the government will be looking to replace Eco with a scheme that will improve the energy efficiency of one million homes by the end of the parliament – 200,000 a year – and will focus on those in fuel poverty.

Under the coalition administration, the fuel poverty strategy was published in March 2015 and set out plans for the following 14 years, aiming for “as many fuel poor homes as reasonably practicable” to achieve a minimum energy efficiency rating of Band C by 2030.

The government also offers a winter fuel payment to the elderly fuel poor through tax-free cash towards their heating bills. The payments only apply between November and December and a similar scheme is in place for those on benefits struggling to pay their energy bills in the winter months – the cold weather payment – which applies between November and March.

The energy suppliers’ much-trumpeted cuts to domestic gas tariffs offer some respite to the impact of energy bills. The companies were mostly reacting to sustained low wholesale prices, but with cuts at an almost uniform 5 per cent, some observers said they did not go far enough. Independent suppliers have also reduced their customers’ bills.

Whether it is through direct action (by awarding grants to help customers pay their bills or reducing their consumption to reduce what has to be paid) or offering social tariffs or debt repayment programmes, the utilities are acting.

What is clear, however, is that more still needs to be done.