Failure to recycle energy bill support savings would be devasting

The government has provided unprecedented support for households across the UK during the energy crisis. This has come in the form of a £400 Energy Bill Support Scheme (EBBS), and the Energy Price Guarantee (EPG), which gives a discount on bills such that the typical bill payer can expect to pay £2500/year for their energy, until April when this will increase to £3,000/year and EBSS is discontinued.

Current support has been vital but in many instances it has not been enough to support the most vulnerable households. New research from NEA, the Fuel Poverty Monitor 2021-22, has shown that households living on the lowest incomes, in the least efficient homes are being hardest hit by the crisis, and concludes that the scale of current national support is unprecedented but the hardest hit require deeper, targeted support. It also found that those using prepayment meters have faced the biggest challenges accessing support and are at acute risk due to self-disconnection.

And that challenge in accessing support could lead to the government spending less than it thought it would on the EBSS. As of the end of November, 35% of EBSS vouchers for prepayment customers had not been redeemed. If that trend continues, the EBSS scheme would have an underspend of £280 million. The EPG is set to be less costly for the Treasury too.

Analysis from BFY Group has shown a substantial decrease in gas use by residential and small business consumers in December (when compared to historic behaviours based on temperatures the country experienced). This is estimated to have saved the government £260 million. Additionally, wholesale energy prices are thankfully dropping, and from July onwards, the EPG will likely not require any Treasury funding based on current projections.

This begs the question – what should the Treasury do with that underspend?

The temptation from the government will be to take the money back into the coffers and simply apply it to the balance sheet. But a different approach is needed. Instead of bagging the difference at the same time as looking to reduce the support given by EBSS and the EPG from April, these savings should be being used to ensure the most vulnerable households receive deeper support and address the difference people pay due to how they pay their bills – prepayment users and those who pay on receipt of bill unfairly face substantially higher energy prices than those who pay by direct debit.

Without re-investing these savings, we know the consequences of the looming cliff edge in April will be devastating to some households; particularly for low-income working age households that aren’t on means tested benefits or for people with medical conditions which could be badly exacerbated by the cold. Citizens Advice has recently found that over the last year, a household self-disconnected for affordability reasons once every 10 seconds. That is unacceptable. And it would be entirely unacceptable for prepayment customers to miss out on EBBS support, only for that funding to go back into the government balance sheet.

The amount of underspend will not be insignificant. But recycling it towards low-income and vulnerable energy customers will not be the ultimate solution to the energy crisis. For that, we need structural market reform, whereby vulnerable energy customers, beyond those who receive means tested benefits, can access an affordable price for energy – a social tariff. And in the longer-term, decarbonising homes with a fabric first, worst first approach is the best way to shield low-income households from the devastating impacts of future price spikes.