Social tariffs ‘must provide consistency’

Any social tariffs introduced to help the most vulnerable energy customers must be consistent in their approach and avoid variation, an industry expert has warned.

Peter Smith, director of policy and advocacy at charity National Energy Action (NEA), was responding to recent reports that several large energy suppliers were supportive of the introduction of a social energy tariff set below the price cap, which is expected to rise significantly on Friday (6 August).

Previously social tariffs were offered on a voluntary basis and were the cheapest available. Some suppliers would also offer extra support for customers such as advice on energy efficiency. They were largely phased out as schemes such as the warm home discount were introduced.

Eon UK boss Michael Lewis said he was “disappointed” that there was no mention of a social tariff in the recently published energy retail strategy. He added that any such tariff should be part of a wider package of reforms tackling poverty and vulnerability, as well as fairness in the market, while at the same time contributing to net zero.

“A social tariff should be one of the top priorities for a 2022 Energy Bill. It would signal the government’s intent to deliver a fair and just energy transition to net zero, ensuring no one is left behind. To give it the greatest impact – and to create the fairest method of funding and delivery – the cost of a social tariff must be covered across all suppliers, and all suppliers must be made to offer that social tariff,” he said.

Responding to the calls from the sector Peter Smith, director of policy and advocacy at NEA, told Utility Week: “We need to provide additional support and more consistent outcomes to households facing financial difficulty.

“Social tariffs could be part of the answer but they should not be seen as the principle way to create fairer prices for the most vulnerable customers. Previously social tariffs in the energy sector led to large variations in the support they provided and they weren’t mandatory, so only some suppliers provided them.

“If Ofgem or the UK government are considering introducing them, they would need to be mandatory and complemented by existing protections such as price caps and the warm home discount.

“NEA has also highlighted the need for greater consistency in the level of support provided by social tariffs by water companies. This was recently a key recommendation in the Independent Review of Affordability which cited the need to consistently support the most vulnerable utility consumers and reduce the variance in levels of support.”

Alex Meagher, head of regulation and sustainability at Bulb, said her company would want to see how any social tariff would improve on existing schemes such as the warm home discount and energy company obligation (ECO) before backing it.

She added: “We strongly support reforms to the warm home discount so that more people at risk of fuel poverty can get the help they need. We think all energy suppliers should offer it; more people should benefit from it; and it should be simpler for pay as you go customers.

“Millions of homes will need to be retrofitted as we transition to net zero, so we’re also speaking to the government about how to improve the ECO scheme, to lower bills and carbon emissions for millions of people in the UK.”

Elsewhere Green Energy UK chief executive Doug Stewart said the government should look to replicate the tax system model in the energy market to help those in need.

He said: “Just as government policy requires universal credit or some other benefits system to help lower income households, so too it would seem, does the UK energy market.

“The one size fits all energy policy that we have allows those people who are better off to benefit at the expense of those most in need. Perversely it is exactly those in need who are precluded from the cheapest deals since they can’t or won’t pay by direct debit, nor do they have 2-3 months bills worth of cash to make the upfront payment required to access so many of the tariffs available on offer at the top of switching sites.

“Our tax system works on the basis of ability to pay, and this is the model government should be looking to replicate for the energy market.”

Meanwhile an Ofgem spokesperson said: “Social tariffs and how costs are spread are ultimately a matter for government. We know that many families are suffering the economic impact of Covid-19 and that energy bills are on the rise.

“We do need to have a debate about this and welcome the fact that suppliers are coming forward with proposals.

“Ofgem exists to protect the interests of customers, especially those in vulnerable circumstances and has strengthened protections for those struggling to pay their bills.

“We will continue to work with the government and the energy industry to tackle fuel poverty.”