Social energy tariff could cost up to £9.4bn each year

Age UK is calling on the government to release up to £9.4 billion per year to subsidise a proposed social energy tariff.

The charity has suggested a social energy tariff which provides those most in need with a 50% discount on their bills, with concerns older people are facing particular hardship.

It estimates that the cost of introducing such a tariff would be between £5.6 billion and £9.4 billion per year.

A new report by the charity found that in January, around 4.7 million older people were struggling to keep warm in their own homes, while around 800,000 left their homes and made use of public spaces to keep warm.

The report outlines a number of criteria for the design and implementation of a social tariff by 2024, as well as how to identify those in need and the need to abolish standing charges for its users.

Age UK highlights how the current reliance on the welfare system as proxy eligibility criteria for most energy-related support results in some of the most vulnerable older people being excluded.

As an example it points to the fact 34% of people eligible for Pension Credit (770,000) miss out on their entitlement, rendering them ineligible for recent means tested cost-of-living payments and making access to Warm Home Discount (WHD) support “far more difficult”.

“More broadly, around 4 in 10 households in the poorest fifth of the population do not receive means tested benefits and many people of all ages sit just above the threshold for receiving support, despite still facing significant financial strain,” it adds.

To address this issue, the charity is proposing five eligibility criteria for the tariff which would cover those of all ages in greatest need while ensuring sufficient targeting to keep costs manageable.

Those eligible would include recipients of means tested benefits, disability benefits, and Carer’s Allowance. The final two criteria meanwhile would help those struggling but who are not entitled to benefits.

Households would be identified through improved data matching processes, such as combining income data from HMRC and the DWP with broader data from suppliers, banks and local authorities. Social tariff eligibility would be extended to include all of those living in relative poverty.

In the absence of improved data matching, a series of proxy eligibility criteria proposed by the Department for Energy Security and Net Zero (DESNZ) for the Energy Company Obligation (ECO) will be used instead.

Furthermore, the charity is proposing the creation of a ringfenced flexible support fund which would be initially backed by an annual sum of £500 million to ensure a muti-agency approach is adequately funded to allow proactive identification of struggling households who may otherwise miss out on the support.

Other requirements are for the tariff to be mandatory across all suppliers, that it sits alongside existing support mechanisms such as the WHD, price cap, Cold Weather Payment, and Winter Fuel Payment, and that eligible customers are automatically enrolled onto it.

Age UK is recommending the discount rate for the tariff is set at 50% of the market rate, or 50% below the price cap, whichever delivers the greatest cost savings to consumers.

Costs

To calculate how much a social tariff would cost the government using its eligibility criteria Age UK provided estimates for high-cost, low-cost and central scenarios.

It noted how the latest estimates suggest prices will fall later this year.

“With prices trending down the implementation of the social tariff is likely to coincide with a relative normalisation of prices in 2024/25. This means prices are likely to sit somewhere between our central and low-cost scenarios.

The report adds: “The social tariff is therefore likely to cost between £5.6 billion – £9.4 billion in scheme year one. By scheme year seven (2030/31) this will have risen to between £5.8 billion – £9.8 billion, based on expected annual growth in those eligible for the tariff.”

Elsewhere, the report stresses the need for greater ECO+ funding. Government should provide annual funding of £1 billion and extend the scheme by a further two years at least.

Meanwhile the Home Upgrade Grant (HUG) scheme should also receive £1 billion per year until 2032, to ensure all eligible households have the opportunity to access it.

Caroline Abrahams, charity director at Age UK, said: “The fact that 800,000 older people have had to leave their homes at some point this winter to keep warm, taking refuge in public spaces or on buses or trains, shows just how serious this energy crisis has become for those with least ability to pay and with no more economies left to make.

“We must never allow our older population to be exposed to such risks again, and the best way of achieving this is for the government to bring in a social tariff for energy, giving people in need, of all ages, a permanent and substantial discount on their energy bills.

“When he stands up to deliver his budget on Wednesday, we hope the chancellor will make a firm commitment to a social tariff for energy, with a consultation on what it should look like to be published soon.”

Meanwhile an Energy UK spokesperson said: “While the rising cost of energy over the past 18 months has left more households than ever before in need of support with their bills, making energy affordable over the long-term needs to be a top priority – even after the cost-of-living crisis hopefully eases.

“There are going to be different views on exactly how a social tariff should operate and who should be eligible – but the most important thing right now is that the government, Ofgem, suppliers and consumer groups start working together so that the introduction of targeted support – such as a social tariff – can be in place when the Energy Price Guarantee ends in April 2024.”

Responding to the report, a DESNZ spokesperson said: “We know it’s been an incredibly tough time with families struggling to meet energy costs, which is why the government covered around half of the typical household’s energy bill over the winter.

“Moving forward, we’re targeting additional support to the vulnerable, including a £900 payment for those on means-tested benefits, £300 for pensioners and an extra £150 for disabled people.

“Energy bills support will continue through our Energy Price Guarantee until April 2024.”