Warm Home Discount scheme ‘long way short’ of social tariff

Relying on a reformed Warm Home Discount (WHD) scheme to provide support to the most vulnerable consumers would “fall a long way short of a genuine social tariff scheme”, a new report has warned.

It comes as Ofgem is preparing to publish its latest price cap update tomorrow (25 August).

Ministers had previously promised more targeted energy support by April 2024, with the feasibility of a social tariff being assessed as part of its plans.

However a consultation on a social tariff is still yet to be issued, with government suggesting a more flexible WHD could be the answer.

A report by the Resolution Foundation thinktank however argues that the WHD, which provides an annual fixed £150 discount on electricity bills between October and March, is not enough to address the challenges being faced by millions of consumers.

It said: “The suggested replacement (for a social tariff) – the WHD scheme – does provide targeted support with energy bills, but the level of support, currently £150, is not commensurate with the challenge associated with bills near-doubling from pre-crisis levels, and fewer than seven-in-ten of households in the lowest income decile are eligible for WHD support.

“Longer-term debate around the future of energy retail remains ongoing; the government has outlined its ‘vision for the future’ that places considerable attention on competition and technology, but has much less to say on protecting low-income households.”

A separate report by Citizens Advice has also raised similar concerns about the lack of a social tariff.

The consumer charity said: “So far, despite warm words, little progress has been made and time has now run out to get long term support in place ahead of winter. Low income households are living on empty and worry about how they will make it through the winter without the support they need.

“This must be the year that we end this damaging and expensive cycle. Alongside introducing a new package of support for energy bills to help people through this winter, the government must also commit to introducing a new social tariff before winter 2024/25.”

Citizens Advice warned that the government’s options are limited by factors including the fact there is not sufficient time to design and put in place a new support scheme by this winter and it will therefore need to utilise existing support mechanisms.

The second factor is the lack of progress on producing reliable household income data. This leaves ministers with only two ways to target support in the time they have left – either a universal package given to all irrespective of need, or support based on benefits eligibility.

The charity said that while providing universal support did help those who were struggling but not eligible for means tested benefits, it was both wasteful, as affluent households also received help, and costly, with total costs exceeding £50 billion.

Although clearly in favour of targeted support, the charity conceded that there is “no perfect option on the table”, that difficult decisions will need to be made and some households who need support may miss out.

Citizens Advice said it believes that the WHD can be used, but that the support it provides should be increased.

This could be done either by providing a one off increase in the existing WHD payment, or by using the data matching and payment model through which the discount is delivered in England and Wales to provide an additional support payment. The government could introduce a more targeted Energy Price Guarantee this way, it said.

It added: “There are some clear advantages to this approach. First, most (though not all) of the households most in need of additional support with their energy bills are eligible for the WHD.

“Second, the scheme is already in place and well-established, despite some data-matching complexities, particularly in Scotland. It would be relatively straightforward for the government to increase the level of the financial support through this scheme in time for the winter.

“The Department for Energy Security and Net Zero are already looking at introducing further flexibility into the scheme. Changes could relatively easily be made to the scheme through secondary legislation to ensure that it delivers higher levels of support to energy customers.”

Despite advocating this approach, the charity concedes that a “clear limitation” is the fact that not all households in receipt of benefits are eligible for the WHD. Furthermore, households in receipt of qualifying benefits, except those receiving the Guarantee Credit element of Pension Credit, are only eligible if they have particularly high energy costs and struggling low income households who are not eligible for, or do not claim benefits, will also miss out

As a solution to this, the charity calls on the government to consider expanding eligibility for the WHD or alternative routes.

“For example, it could consider temporarily removing the requirement that households in receipt of qualifying benefits also have high energy costs to increase the number of low income households receiving support,” it added.

Citizens Advice is predicting that by the end of 2023, it will have helped more than 90,000 people with energy debts – an increase of 26% on 2022.

Furthermore the value of energy debt has “grown considerably”. The charity’s data shows the average amount of energy debt owed by the people it helps is now around £1,711, a third higher than it was in 2019.

Clare Moriarty, chief executive of Citizens Advice, said: “What we saw last winter must never be repeated. Struggling households unable to pay their energy bills, people unable to top up their prepayment meter, and record numbers coming to us for crisis support.

“With increasing numbers of people we help facing a negative budget, where they simply don’t have enough to cover their essential bills, there is a real risk this winter will be worse.

“The government should look seriously at stepping in with additional bill support to help people through the winter.”

Providing vulnerable consumers with additional support this winter and beyond is a core element of Utility Week’s Action on Bills campaign.

The key asks of government are:

• A clear plan for targeted support on energy bills for vulnerable customers to be put out to consultation before the summer recess with a target of putting this into action by April 2024
• A revised Energy Bills Support Scheme to be brought in for next winter while a more targeted approach is being designed
• Defra to support social tariffs in the water sector through a clear funding commitment and a definitive stance on whether there should be a single social tariff

This topic will be explored in more detail at Utility Week’s Consumer Vulnerability and Debt conference in Birmingham this November. For more information and to book your place, click here.