A blog by Consumer Scotland Chief Executive Sam Ghibaldan
Winter is fast approaching and consumers across Scotland are facing the harsh realities of spiralling energy prices. For many that will mean difficult decisions about how they heat their homes and businesses over the coming months. Some consumers, particularly those in vulnerable circumstances, will be worried about whether they can even afford to keep the lights and heating on. Sharp increases in energy prices cannot be seen in isolation and consumers are also facing significant pressures from high inflation rates, with wages failing to keep up with the rising cost of living.
Consumer Scotland has made the case for targeted and proportionate financial support for consumers to get them get through this crisis. In that context, the UK Government’s decision to cap the tariff through the Energy Price Guarantee (EPG) is significant and welcome, as are the Energy Bills Support Scheme[1] (EBSS) and the Energy Bill Relief Scheme (EBRS) for business customers[2].
But a number of issues remain.
Following the new Chancellor’s statement yesterday all these schemes are due to end in their current form on 31st March next year. Many consumers will face ongoing uncertainty over their energy bills, pending the outcome of the government’s review, which is intended to “design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need”[3].
From 1st October consumers have been facing bills nearly double[4] the rate they were in March, and 25% more than last month.[5] While the EBSS will mitigate the most recent price increase for most households, many, such as those with pre-payment meters, will be paying more because of higher energy usage in the colder months, and at rates nearly double what they were last winter. Pre-payment meter customers are also much more likely to be in fuel poverty than those on direct debit (36% compared with 22% respectively)[6]. If they are unable to top up their meter, they may be left without essential heat and power.
For households with a higher than ‘typical’ energy demand, the EBSS is less likely to mitigate the increase in underlying energy costs. While some of these households may have higher incomes that allow them to cope better with higher bills, others may use more energy for other reasons, such as living in an energy inefficient home, and may struggle to cope.
The 183,000 households in Scotland who are reliant on solid and liquid fuels for heating are also facing significant uncertainty. The majority of these consumers are in rural areas, and in many cases in colder and wetter climates in the north of Scotland. The markets they purchase fuel in are unregulated, meaning there are fewer protections available to them than exist for gas consumers. These consumers are also facing escalating heating bills, with the price of liquid fuels in particular having increased by 129% in the 12 months to June this year, before falling recently[7]. The mini-budget announced provisions for “equivalent support” for unregulated fuel consumers, but so far it appears they are only being offered £100 per household in contrast to the higher levels of support offered to consumers connected to the gas grid. Parity of support would help mitigate against rising fuel poverty in these areas.
Small businesses will receive significant support this winter through the EBRS. It is initially for six months[8]. Over a quarter of Scottish businesses recently cited energy prices as their biggest concern in a ONS business insight survey,[9] and over 52% reported having been affected by the increase in energy prices in some way.[10] The UK Government has promised to review the relief scheme after three months to inform any extension after March. To give businesses the confidence they need about the future, the outcome of that review needs to provide continued support for the most vulnerable businesses.
It is expected that high energy prices are likely to endure beyond the next six months[11]. As set out in an earlier blog, alongside the immediate cost crisis it is important to start to address other underlying problems impacting energy consumers such as poor insulation and a market that is not working for today’s energy consumers. Efforts to reduce energy demand by improving the energy efficiency of buildings should be accelerated. We need a debate on the pricing structure of the energy industry, and for the transition to Net Zero home heating solutions to proceed without disadvantaging those on low incomes.
The cost of living crisis is affecting consumers in different, sometimes complex ways, and support should take account of the cumulative effect on people’s budgets, businesses, mental health and families. The current EPG and the EPSS schemes are welcome, but don’t take full account of differences in how consumers use and pay for energy. Following the changes to the EPG, there is an urgent need to understand any gaps in financial support to ensure future schemes are effectively targeted and do not risk the health and wellbeing of those who cannot afford their energy bills.
Drawing on consumer insight to design short term interventions and long term solutions is key to their effectiveness. Consumer Scotland will conduct research, and work with advice providers, over the coming months to develop our analysis of consumers’ needs in Scotland. This will be used to contribute to wider policy initiatives and the UK government’s review of its energy support schemes.
Footnotes
[1] Getting the Energy Bills Support Scheme discount - GOV.UK (www.gov.uk)
[3] Chancellor Statement - 17 October - GOV.UK (www.gov.uk)
[4] Record gas prices drive up price cap by £139 – customers encouraged to contact supplier for support and switch to better deal if possible | Ofgem - Price Cap as of 1 October 2021 - £1,277 per annum
[5] Price cap to increase by £693 from April | Ofgem – Price Cap as of 1 April 2022 - £1,971 per annum
[6] Scottish house condition survey: 2019 key findings - gov.scot (www.gov.scot)
[7] ONS Consumer Price Inflation Tables: August 2022
[9] BICS weighted Scotland estimates: data to wave 64 - gov.scot (www.gov.scot)
[10] BICS weighted Scotland estimates: data to wave 65 - gov.scot (www.gov.scot)
[11] Cornwall Insight comments on the announcement of the October price cap - Cornwall Insight (cornwall-insight.com)