Bills support for large domestic energy users to be capped

The government has announced moves to cap support to households using very large amounts of energy and revealed that social tariffs will be explored as part of long-awaited reforms of the retail market.

In a supporting document, issued alongside chancellor of the exchequer Jeremy Hunt’s Autumn Statement on Thursday (18 November), the Treasury gave further details about next steps on the Energy Price Guarantee (EPG), which will be increased from the current level of £2,500 per year to £3,000 from next April until the scheme ends in March 2024.

The document says these parameters may be revisited if forecast costs increase “significantly”.

It also says the government will consult on amending the scheme “as soon as is feasible” after April 2023 to cap support for households that use “very large volumes” of energy.

“This proposal is intended to ensure taxpayers do not subsidise all of the energy usage of those households with extremely high usage,” the document states, adding that the consultation will explore how to avoid putting at risk vulnerable high energy users, like those with medical requirements.

The document also says the government will look at social tariffs as part of a wider reform of the retail energy market, which will kick in once the EPG ends in April 2024.

This new approach will be designed to deliver “a fair deal for consumers, ensure the energy market is resilient and investable over the long-term, and support an efficient and flexible energy system”.

In its analysis of the Autumn Statement, the Resolution Foundation think tank warned that households will be “far more exposed” to rising energy bills next year as a result of scaling back the EPG, which is paid to all domestic users.

It said around one-in-eight families (3.3 million in total) will be paying over £2,000 more next year than they were in 2021/22, taking into account Thursday’s changes.

However, the energy bills support package for 2023/4, announced on Thursday, is more targeted, according to the foundation’s analysis.

While the poorest fifth of households will receive an average £1,100 over the year, thanks to earmarked extra sums for low-income groups like pensioners and benefit recipients, the richest 20% will get just £420.

Two-thirds (66%) of support next year will go to those in the bottom half of the income distribution scale in 2023/24, compared to just over half (54%) in the current financial year.

The average energy bills support households receive will fall by 61% from £1,800 in 2022/23 to £700 next year.

For average households, the new package will offset 30% of next year’s threefold increase in energy bills since 2021/22. For average households in the lowest-income quintile, 48% of this increase will be offset.

Based on Cornwall Insight’s most recent analysis of future energy bills, the foundation estimated that setting the EPG at £3,000 will mean the average household is being supported to the tune of £300 per annum.

According to a separate analysis, carried out by the National Institute of Economic and Social Research (NIESR), the £900 of additional help for benefit recipients provides “sufficient support” for those on Universal Credit.

However there is “little” support to low-income households not on means-tested benefits. The £1 billion extension announced by Hunt of the Household Support Fund, which is awarded to local authorities to help those who “fall through the cracks” of other schemes, is unlikely to be sufficient, NIESR said.

Rocio Concha, director of policy and advocacy at Which?, said: “Additional support for the most financially vulnerable and the new price guarantee will bring some much-needed relief to those struggling most, but it may still not be enough – particularly if bills remain this high next winter.

“It’s not just those on the lowest incomes who will struggle to afford higher bills – for example, people on lower-middle incomes will just miss out on extra support and will need to find more than £1,000 extra to cover their energy costs. The government must ensure that as energy prices remain incredibly high, consumers are not left struggling to make ends meet.”

In this context, she said that the government’s commitment to spend £6 billion in the next Parliament on energy efficiency is “an important step in the right direction.”