Think tank calls for broad social tariff to avert ‘catastrophe’

All but one in 20 of the poorest half of households could be protected from this winter’s energy bill increase for just over 50% of the cost of the Labour Party’s proposed price cap freeze, a think tank has calculated.

In a new report, published ahead of Ofgem’s price cap announcement on Friday (26 August), the Resolution Foundation warned the proposals for additional help outlined so far by the Conservative party leadership candidates and opposition parties “fall well short” of what is required to tackle what it described as a looming “catastrophe”.

The think tank has therefore proposed the creation of a government-funded social tariff, whereby all households in which no-one earns more than £25,000 per year would receive a 30% discount on their energy bill. This reduction would be “sufficient” to wipe out the increase in this winter’s bills relative to those expected back in May, according to the foundation.

In addition, the report proposed a 12% discount for households where no-one earns over £40,000. These combined reductions would result in 94% of households in the poorer half of the population benefiting from help with energy bills.

The foundation acknowledged that some fraud would be “inevitable” under this broad approach and the government would need to use HM Revenue and Customs’ earnings data to help energy companies decide on  applications for the social tariff from customers who are not receiving benefits.

However, the Resolution Foundation said limiting support to households in receipt of means-tested benefits would only capture 45% of the poorest half of the population and would create an “acute cliff edge”.

The report said: “The scale of the problem is now so large that support will need to be extended to a broader group. Doing so is far from straightforward, given the need to create a new means test outside the benefits system. But it would not be impossible and should be considered given the scale of the crisis facing the country.

“Big bill reductions combined with solidarity taxes or throwing the kitchen sink at a brand-new social tariff scheme should be the focus for whoever becomes the next prime minister.”

Labour’s recently announced package to freeze the energy price cap at its current level of £1,971 and compensate suppliers for the remainder of their costs would cost £29 billion, according to the opposition party.

The government has also been told by  Which? that it must raise its £400 energy discount by at least 150% in order to avoid pushing millions of households into financial distress.

The consumer body said the Energy Bills Support Scheme, which was unveiled earlier this year by the government to help cushion the impact of looming energy bill increases, must be increased to £1000 because the existing level will be “inadequate”.

But given that even this level of additional support will be insufficient for those on the lowest incomes, Which? said the government must also make an additional one-off minimum payment of £150 to these cash-strapped households.