Ofgem’s default tariff cap cannot be relied upon to protect people from fuel poverty, say experts

A statement from the project group said: “The reality for many households is that energy costs will substantially rise again, by as much as £900 per year (based on the 20% Energy Price Guarantee) and the cancellation of the £400 rebate scheme. This combination of rising bills and reduced support paints a worrying picture in terms of fuel poverty, particularly for those people who are in vulnerable situations but who are not eligible for the new Cost of Living Payments that will be administered throughout 2023.

“A key lesson to take from the current crisis is that Ofgem’s Default Tariff Cap (DTC) cannot and should not be relied upon as a mechanism to mitigate fuel poverty or to protect people in vulnerable situations. 

“The DTC was designed to prevent “excessive” profit margins among retail energy suppliers, not as a means of keeping energy prices affordable for consumers. As such, if wholesale energy prices rise, the DTC also rises regardless of the impact on fuel poverty. There is an urgent need for more focused policies to protect the most vulnerable, and deeper reform of the retail energy market so that it acts in the interests of the least advantaged. Measures such as a social tariff, universal basic energy (and allied to this block tariffs where the first block of energy is free to everybody and costs recouped from those with higher levels of consumption and income), the removal of standing charges from energy bills or moving them into general taxation, and the decoupling of wholesale energy prices from the price of gas are all options that should be considered as a matter of priority. 

“In the longer-term, increasing investment in home insulation and low-carbon heating systems would reduce volatility permanently whilst contributing to energy security and net zero goals.”

Dr Graeme Sherriff, from the University of Salford, said: “It is imperative that the Government finds ways to protect the poorest householders against energy price rises. The price cap is one method, but we also need to see leadership on improving our cold and leaky homes. This means funding for insulation, better heating systems, new windows and doors and it depends on investment into supply chains. The retrofit sector needs to see solid long-term commitments and funding so that it can invest in recruiting and skilling up staff.”

Professor Lucie Middlemiss, at the University of Leeds, said: “We have to remember that prices are still extremely high, and that this is affecting the lowest income households very severely. In our research we regularly meet people that are not heating their homes at all this winter. The health and social consequences of high prices are deeply concerning.

“The price cap has some beneficial effects for everyone, but the lowest income households are still unable to afford an adequate amount of energy. It is time for the government to act: by making sure that everyone can get access to enough energy to live a decent life.”

Professor Aimee Ambrose, from Sheffield Hallam University, said: “Interventions like the Energy Bills Support Scheme, which gave every household in the country a £400 energy bill rebate, encourage us to think that the impact of unprecedented energy price increases falls evenly across society. It does not. Those renting their properties privately, single parent households (especially those headed by women), those who- for health reasons or because they live in drafty, cold homes- have higher than average energy needs and those with mental health problems are hit hardest. Given that we know this, why don’t we focus available resources into alleviating the pressure on them?”

Dr Neil Simcock, from Liverpool John Moores University, said: “Energy bills remain more than twice as high than they were before the energy crisis began, spelling disaster for many people who can no longer afford basic essentials. The government urgently needs to enact new policies to reform the retail energy market and lower bills in the longer term. Introducing an industry-wide social tariff is a key first step, and in the longer-term this could be combined with a modest allowance of free or low-cost energy to all households to ensure everyone can consume enough energy to cover the essentials.”