Posted: 05 December 2016

Opportunity for energy companies to show some warmth

Opportunity for energy companies to show some warmth to low income families with children

This week, temperatures have started to drop and winter has started to bite. Around the country, many people will be wrapping up warm - coats, scarfs and woolly hats is the order of the day. Yet for those in energy debt, the reality can sometimes be that these winter items are just as necessary inside as they are out; poor energy efficiency and the high cost of gas and electricity can see low income families with children living behind cold doors.

High energy costs

We know that debt can often occur due to an income shock, be that due to a loss of a job, sickness, or bereavement. We also know from our work that families respond to the specific type of debt, rather than addressing their finances more broadly - for instance, those in energy debt can respond by cutting back on energy consumption, leading to difficult decisions around whether to heat a child’s bedroom or cook them a hot meal in the evening.

Higher energy costs only serve to exacerbate this issue. Earlier this year, Ofgem released data showing that 66% of domestic customers are still on expensive standard variable tariffs (SVT). These are typically more expensive than those on a fixed term tariff and can end up costing hundreds of pounds more a year.

The analysis by the Competition and Markets Authority (CMA), published in the energy market investigation, showed how customers can save over £300 by switching from expensive standard variable tariffs for the cheapest deal. It is too often the case that the people who switch are those with higher levels of financial and technological literacy; this can mean that those who are less financially and technologically literate (often those on low incomes) can end up trapped on a SVT, and in effect subsidise the lower rates afforded to those on fixed term deals.

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Debt Trap

Debt's impact on children is often ignored or misunderstood. Change that - get involved in our Debt Trap campaign.

Warm Home Discount

Crucially, alongside the higher tariff prices typically endured by low income families, there are still a number of families who miss out on the Warm Home Discount (WHD), a £140 rebate that offers a vital financial lifeline to those struggling with their energy bills. Many eligible families miss out, due to a combination of a lack of awareness of the scheme, and difficulty in applying, especially for those with English as a second language.

Some customers, often low income pensioners, get the Warm Home Discount automatically credited to their bills every year, but for many low income families - who are still eligible - accessing this £140 lifeline requires a complicated and arduous application to their energy supplier. The lack of automatic eligibility and payment to the broader group means that many of the most disadvantaged families continue to miss out on this vital support.

The Digital Economy Bill that is currently passing through Parliament contains provisions which would enable data sharing for the Warm Home Discount to be extended to a broader group of vulnerable people. We urge the Government to enact this as soon as possible to ensure that families receive the support which they are entitled to.

What more can be done

The CMA recently announced that there will be a default tariff for customers on standard variable tariffs to be transferred onto after a period of inactivity. This change, alongside the measures proposed in the Digital Economy Bill, both represent positive steps that can offer greater support to families in energy debt or fuel poverty.

However, we believe that the Government can, and should, do more.

We recommend that:

  • Low income families with children should be moved to the ‘core’ eligibility group so that they receive the discount automatically instead of having to apply for it

  • Action needs to be taken to ensure that, whichever energy supplier a family might use, they are aware of the scheme and the process for accessing it is simple and transparent

read more about the debt trap 

 

By David Ayre - Policy team
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