Fuel poor not benefiting from social tariffs

Britain’s 4.5 million fuel poor are paying the price for the Government, energy industry and regulator’s lack of ‘joined up thinking’ on fuel poverty, according to uSwitch.com, the independent price comparison and switching service. Recent price hikes, averaging 15%,have plunged 500,000 more into fuel poverty, prompting the Government to look at mounting a rescue mission for its fuel poverty targets. Yet Britain’s big six energy suppliers have less than 400,000 people signed up to their social tariffs and, even if suppliers carry through current intentions to boost social tariff provision, they will still be helping less than 1 million consumers.

Being on a social tariff doesn’t automatically mean that people will pay the lowest prices either. Only three months ago, three of the big six suppliers were offering lower prices on one of their mainstream plans. This meant that consumers who were on a social tariff, presumably because they were either in or on the verge of fuel poverty, were potentially paying more for their energy than other consumers.

There is also no industry standard on social tariffs or how they are being targeted. Each supplier has its own version with customers receiving various levels of discount calculated in a variety of ways. One supplier also expects consumers to switch to paying by direct debit in order to benefit from its initiative, which means that consumers who are on pre-payment meters or who do not have a bank account are effectively being excluded.

Such gaps in how fuel poverty is being tackled can lead to misery for consumers. A study by uSwitch.com, based on responses from almost 8,000 energy customers in the UK, comparing household income with the amount spent on energy, found that:

25% of households are paying between £41 - £60 per month
36% are paying between £61 to £100 a month
10% are paying £100 or more per month.

This is having an impact on people’s quality of life, with one in ten (10%) saying they cannot afford to keep warm this winter and almost three in ten (29%) forced to cut back on heating or make savings elsewhere. Vulnerable groups such as Britain’s elderly are being left out in the cold – the research suggests that over a quarter of those in fuel poverty (27%) are pensioner households who are forced to choose between eating or heating.

The average annual energy bill now stands at £1,026, but the average pensioner is living on £10,608 per year after housing costs – this means that 10% of an average pensioner’s annual net income after housing is spent on fuel bills. But the situation is far worse for Britain’s poorest pensioners. The basic annual pension is now £6,200, which means that today’s pensioner on pension credits is likely to see almost 17% of their income going on energy bills.

Pensioners cannot even hope that the Winter Fuel Allowance will ease their burden, as it simply hasn’t kept pace with surging energy costs. In 2003, the maximum allowance available to 60 – 79 year olds was £200, which offset 34.5% of a customer’s bill. Today the allowance is still £200, but with the average energy bill currently standing at £1,026 the allowance now only covers 19.5% of a pensioner’s bill.

For the Winter Fuel Allowance to completely offset energy price rises since 2003 it would have to rise by £446. There is some support for this. According to the research, almost three quarters (73%) of people who are responsible for paying their household’s energy bills agreed that the Winter Fuel Allowance for elderly people should be increased.

The Government has revised its previous pledge on fuel poverty and now intends to wipe the issue out entirely by 2018. Its earlier commitment to take vulnerable people out of fuel poverty by 2010 and to eradicate fuel poverty by 2016 started to look shaky in 2006 as energy companies pushed through 15 price rises which added £4.8 billion to household bills - around £277 per dual fuel household. The Government was thrown a lifeline last year when the companies shaved £1.7 billion off household bills. However, price hikes this year have wiped out last year’s decreases, plunging half a million more households into fuel poverty.

BERR estimates that for every 1% increase in gas and electricity bills, a further 40,000 households are plunged into fuel poverty. Any further price increases this year could see yet more households joining the ranks of the 4.5 million already caught in the fuel poverty trap.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: “If the Government is truly committed to breaking the stranglehold of fuel poverty in this country then it needs to work with the industry and regulator. We already know that patchy, piecemeal attempts to tackle this issue do not work. Any measures introduced need to be long-term, sustainable and easy for the fuel poor to access. It’s also vital that they leave scope for innovation and competition between suppliers too.

“Rather than reinventing the wheel, the Government should increase the Winter Fuel Allowance to give immediate relief to the elderly. It should then work with the energy providers to realise the full potential of social tariffs. There must be an industry standard on social tariffs, clear criteria over which consumers should qualify and a guarantee from suppliers that people on social tariffs will always be paying the lowest available price. This would remove the guess work and provide vulnerable households with a real way out of fuel poverty.

“And of course, households have to start helping themselves too. Vulnerable customers should talk to their supplier to find out what help is available now. Failing that, consumers should look to compare prices and switch to a cheaper provider.”