Guest blog – what’s the most effective way of eradicating fuel poverty?

The Scottish Fuel Poverty Advisory Panel provides independent advice to Scottish Ministers on fuel poverty and scrutiny of the Scottish Government’s progress towards delivering Scotland’s 2040 statutory fuel poverty targets.

The energy price crisis and the spiralling costs for consumers which resulted led to UK Government intervention in the domestic energy market and contributed to the budgetary challenge of high inflation across both domestic and national budgets. Despite the cost that households pay for energy having dropped slightly since their peak, the experiences of the last few years has made debate on the most supportive and effective policies and programmes to alleviate and end fuel poverty, and the wider cost of living crisis, more important than ever.

In August 2023, the Panel recognised the limitations of the existing Warm Home Discount scheme, and published recommendations for a targeted, flexible, and dynamic discount mechanism that would provide support when most needed. Often called a social tariff, the Panel recognised that support needed to go beyond a simple tariff, and be targeted at delivering very specific outcomes. Such a mechanism should be focussed on closing the fuel poverty gap – providing the support needed to bridge the gap between household energy budgets and optimum household energy costs.

What might a targeted, flexible, and dynamic discount mechanism look like and how might it work?

1. Those in greatest need should receive a discount that covers a significant unit rate discount and all of their standing charge. Covering the standing charge as well as providing a unit rate discount is important because the burden of paying the standing charge is one of the factors that leads to self-disconnection by vulnerable groups. Discounts would be greater in the winter to recognise the additional costs that many in fuel poverty struggle to absorb.
2. We think that anyone on means tested benefits should be automatically eligible to receive the discount mechanism. This would include households on Universal Credit, Housing Benefit, Pension Credit, income-related Employment and Support Allowance, income-based Jobseeker’s Allowance, and Income Support. We’d also recommend a second route where a household can apply and receive the discount mechanism even if they do not qualify for the means tested benefits above but are likely to suffer some ill effects if support is not available. Households should qualify for this second route if they have one of the following:

• a low income
• a modest income and live in a home that’s expensive to heat
• a member of the household who has a medical condition that requires an enhanced heating regime or the use of electrified medical equipment at home
• a member of the household who is in receipt of Carers Allowance

3. The value of the discount mechanism would need to recognise different definitions of fuel poverty across the UK and ensure that the value of each household’s discount is determined by the price of energy and the household’s individual circumstances. This would ensure that the level of support could be targeted and tapered according to need. This tapering will help to avoid an entitlement cliff edge and to preserve the financial sustainability of the discount mechanism.
4. We would envisage the discount mechanism values being set by Ofgem, or an independent body, and set with reference to closing Scotland’s fuel poverty gap.
5. We think that the UK Government should administer eligibility criteria for the discount mechanism to ensure consistency and appropriate accountability across the UK in alignment with each administration’s fuel poverty definition. This could readily be achieved by the UK Government through linking HMRC, Department of Work and Pensions, and energy usage data. The UK Government should also be responsible for maintaining a clear and transparent process where people who miss out on receiving the discount mechanism can understand why, and/or appeal. Energy suppliers could deliver the scheme itself and, in the longer term, the discount mechanism could also take account of a home’s energy efficiency information.
6. We strongly believe that the level of meaningful financial assistance required to support vulnerable households’ energy costs cannot be funded simply through levies on bills and think that the discount mechanism costs should be covered through general taxation. The costs could be offset by ringfencing taxation from the energy sector and using the money which will come to governments as a result of the policy change to target the Winter Fuel Payment.

The cost of support may well be high but given the current levels of consumer energy debt and the impact this has on the energy price cap, it is clear that current measures to support vulnerable consumers and low income families are not working. Without a radical reappraisal of consumer protection, we are only likely to see debt levels growing, energy bills rising (in spite of lower energy prices), and fuel poverty deepening.

Read more about the Scottish Fuel Poverty Advisory Panel’s recommendations for a targeted, flexible, and dynamic energy discount mechanism.