Recent days have seen media speculation that the government will keep the cap on average household gas and electricity bills at £2,500/year. But even at that level, energy bills would be more than double what they were 2 years ago.
There’s no light at the end of the tunnel. Market analysts suggest that energy prices may remain far above their historic levels for the rest of this decade.
With average bills at £2,500, nearly 10 million households will be paying more than 10% of their household income after housing costs on energy, a typical measure of fuel poverty. A minority of these will be helped by schemes like the Warm Home Discount, but even those who are won’t find the assistance it gives — £150 a year — enough to get by.
Finding a way forward
We commissioned the Social Market Foundation and Public First to look at how people could be helped through this period of high bills. Energy bills are driven both by the price you pay for each unit you use, and by the amount you need to use to heat and light your home — and they looked at ways to reduce both.
A fundamental challenge to be solved was how to identify and reach all the households that need support. Traditionally, energy policy support has often been tied to whether you receive means-tested benefits. But the bills crisis is so deep, that this will leave many households behind. Many of those struggling to keep their heads above water don’t receive benefits in the first place.
We think the solution to this targeting problem is a better use of data. HMRC holds close to real-time data on household incomes, while energy suppliers know how much electricity and gas each household uses. Combining the 2 should show a picture of who needs help, and how much help they need.
Giving people the support they need
We think consumers should be given an annual lump sum that’s proportionate to their income and energy needs. All households earning less than £30,000/year would be eligible, but with more support going to the very poorest than to those nearer average incomes. There would also be a scaling factor to reflect how much energy they use, so that households with high bills received more help than those with low bills. This will ensure that households that had to use more energy, because of things like medical needs or family size, get the support they need.
With typical energy bills at £2,500/year, around 12 million households would be eligible, receiving an average payment of nearly £400/year. Households most in need would receive up to £1,500/year. This would come at a cost to the Exchequer of around £5.6 billion/year. We think this policy should be funded through taxation rather than bills as this would be more progressive, with more of the costs being met by those more able to pay.
We also think that all fuel poor households that need cavity or loft insulation should receive it, through an extension to current energy efficiency schemes. At a total cost of £1.1 billion, this would save over a million households up to £561/year, and pay for itself in 3 years.
A lasting, fair solution
As we move to a net zero economy, its costs and benefits are likely to be unequally shared. The costs of the infrastructure to support new developments like electric vehicles, heat pumps and hydrogen networks are likely to be shared across all households. But the benefits will come much more quickly to those who can pay the upfront costs to adopt new technologies sooner. This is likely to be the more affluent.
This could create real tension if the poorest households are simultaneously shut out from the benefits, and unable to pay the costs. By ensuring targeted support for those households who would otherwise struggle to pay their energy bills, our package would ensure that no-one is left behind.
Note to editors
This blog was first shared by Richard Hall, from the Energy Policy Team at Citizens Advice on March 8, 2023.
