The body representing UK energy firms has stated that struggling households require additional assistance with their bills, suggesting that the government should intervene to provide more help to those most in need, given the persistently high energy prices over the past few years. Energy UK noted that some individuals require "emergency support" beyond the existing £150 Warm Home Discount, and that bills are unaffordable for millions, necessitating a "better targeted and more agile" support scheme.
Ofgem, the energy regulator, is set to announce the energy price cap for October onwards on Wednesday, which is anticipated to reach a three-year high. "Suppliers continue to do all they can to help their customers but as well as persistently high bills, record levels of debt show how the current system is failing to provide the right support to those in need," said Energy UK chief executive Dhara Vyas, proposing a new "social discount" scheme that would create "a system that works better for everyone".
At the end of last winter, Ofgem reported that customers who had fallen behind on their energy bills owed suppliers a record £4.7 billion. Wholesale energy prices have since increased, partly due to the conflict in the Middle East. Energy consultancy Cornwall Insight predicts that Ofgem's price cap, which is reviewed quarterly, will rise by 4% when announced on Wednesday. This increase, expected to affect household bills in the first half of the coming winter, follows a more significant 13% rise in July. Cornwall Insight also cited heatwaves across Europe, which have boosted demand for power for air conditioning, as a factor influencing prices. The consultancy stated that this price rise would negate the impact of Prime Minister Andy Burnham's decision to remove VAT from household electricity bills starting in October.
Currently, individuals receiving means-tested benefits are eligible for the one-off £150 Warm Home Discount during winter, which is managed by energy suppliers. This rebate is funded by a levy on all energy users, collected and redistributed through bills. Energy UK indicated that while the Warm Home Discount reaches six million customers, an additional 2.5 million require assistance due to higher energy consumption caused by medical conditions or poorly insulated homes. The organization suggested that if the government were to allow the combination of information regarding customers' income, health, and energy consumption, a discount scheme could offer targeted and adaptable support, responding to evolving needs and price levels.
Energy UK estimates that its proposed new scheme would cost £1.9 billion, almost double the cost of the current scheme, but could provide up to £450 in support to some households. The funding for this new support scheme could continue to be partially sourced through bills or be fully covered by taxpayers through government funding.
Cornwall Insight noted that the price cap last reached a similar level in July 2023, which was still lower than the peaks seen the previous year following Russia's invasion of Ukraine. During that period of high energy prices, the Conservative government committed approximately £40 billion in government spending to support households with their energy bills.
The proposal to combine personal data sources, including income and health information, and the suggestion to allocate more taxpayer funds for such a scheme are likely to face scrutiny. However, Adam Scorer, chief executive of National Energy Action, expressed support for this approach, particularly as the Warm Home Discount has only increased by £10 over the past decade. "We desperately need a new approach," he stated. "There will be a lot of detail to get right, but if government genuinely wants to provide breathing space for people in fuel poverty, it needs to take this challenge on and work with energy companies and charities to design something truly fit for purpose."
