How not to fix the cost of living crisis

Even after Liz Truss’s government trashed mortgage rates with its “mini” Budget, there was one thing it could cite as improving the lot of British households: the energy price guarantee scheme that would limit the average household’s annual bill to £2,500 for the next two years.

That policy went even before Truss did. Now the government needs to figure out what to do about bills that will probably be unaffordable for most households when support runs out in April. It’s worth pointing out the obvious, that there are no silver bullets.

One of the options on the table is social tariffs, the preferred approach of the Resolution Foundation think-tank among others. This could, in theory, give targeted support to lots of the people who need it most, through a percentage discount on bills based on the energy price cap.

There are various problems with a social tariff for energy. It could end up too generous or too mean, depending on the level of the cap. It would also be administratively difficult, especially if it extended beyond people on welfare benefits.

But it is not a bad option, and social tariffs keep coming up as a solution to high prices across sectors. Yet each time the same mistakes are being made.

Take water. There’s one scheme that caps bills for people on benefits who need to use a lot of water, but that’s quite a high hurdle and doesn’t get close to helping everyone who is struggling. The rest of the sector’s social tariff system, administered by companies under their own rules, ends up a lottery.

Each privatised water provider has to fund their own social tariff from other customers’ bills. Poor households in a deprived region can end up with less support than those better off in a richer one. The result is five out of six customers who can’t afford their water bills do not get the support they need, according to consumer body CCWater. On top of that, the jumble of private sector schemes makes it hard to run a national ad campaign, so awareness is poor.

Instead, the industry is working towards a single national scheme with pooled funding to eliminate regional discrepancies by 2025, the key recommendation of a government-commissioned review.

The broadband industry, meanwhile, is pressing ahead with its own piecemeal private sector social tariffs, at the behest of the Department for Digital, Culture, Media and Sport. Again, there’s no consistency about eligibility, rates or even what they’re called. Again, awareness is poor and take-up terrible. Only 136,000 households were on them by August. As of April, 69 per cent of benefits claimants had no idea the tariffs even existed — no doubt because it’s not exactly in companies’ interests to promote them heavily.

Then there’s the issue that when people are eligible and aware, they often don’t think schemes are designed for them. Interestingly in water, the CCW found that while people liked the names “Water Bill Assistance” and “Water Bill Support” best for a new social tariff scheme, they were most likely to look into it when it was labelled as a “Water Bill Discount” instead.

The energy industry should be well aware of the shortcomings of a patchwork of private sector schemes. That was one of the reasons politicians scrapped social tariffs in the industry in the first place, back in 2011.

The Warm Home Discount which replaced them offers a totally inadequate level of support in the current circumstances of £150 a year. And historically, it hasn’t worked brilliantly for anyone other than a core group consisting of pensioners, as Sara Williams of Debt Camel makes clear. But changes made this year do offer a policy blueprint for social tariffs targeted at benefit recipients. A link-up with the Department for Work and Pensions has made enrolment automatic for all those eligible. That wouldn’t be sufficient for a wider energy support scheme since many more on low (and middle) incomes will probably need help. But it does show what can be done to get help to those who need it most.

Social tariffs can help cut bills for those struggling to afford them, and more people than ever are. They work best with common eligibility criteria, support levels and funding — plus automatic enrolment where the need is greatest. They don’t work nearly so well when they are made the problem of private providers.

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