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News Release from: uSwitch | Subject: Energy prices
Edited by the Insidemoneytalk Editorial
Team on 10 March 2008
4.5 million now in fuel poverty, but
suppliers have less than 400,000 on
their social tariffs
As price rises plunge a further 500,000[1] into fuel poverty, bringing the total number of people caught in the trap to 4.5 million[2],
new research from uSwitch.com reveals that less than 400,000 consumers[3] are benefiting from suppliers' social tariff provision mean they will still be helping less than a million[3]: Outstripped: energy prices up by 15% or £137[4] this year, but basic pension rises by only 4.38%[5] Futile: Winter Fuel Allowance only covers 19.5% of a pensioner's annual energy bill today, compared to 34.5% four years ago[6]
This article was originally published on Insidemoneytalk on 16 Apr 2007 at 8.00am (UK)
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Consumers cutting back: over a quarter (29%)[7] forced to cut back on heating or make savings elsewhere.
Cannot afford heating: one in ten (10%)[8] cannot afford to keep warm.
Worried: 16%[9] are worried about being able to keep warm this winter.
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Concerned: 44%[10] are more concerned about heating bills this winter than last winter.
Where's the help?: the assumption is that vulnerable consumers on social tariffs are paying the lowest prices in the market, but until recently some suppliers were offering lower prices on one of their mainstream plans[11].
Britain's 4.5 million[2] fuel poor are paying the price for the Government, energy industry and regulator's lack of 'joined up thinking' on fuel poverty, according to uSwitch.com, the independent price comparison and switching service.
Recent price hikes, averaging 15%[4],have plunged 500,000[1] more into fuel poverty, prompting the Government to look at mounting a rescue mission for its fuel poverty targets.
Yet Britain's big six energy suppliers have less than 400,000 people[3] signed up to their social tariffs and, even if suppliers carry through current intentions to boost social tariff provision, they will still be helping less than 1 million consumers[3].
Being on a social tariff doesn't automatically mean that people will pay the lowest prices either.
Only three months ago, three of the big six suppliers were offering lower prices on one of their mainstream plans[11].
This meant that consumers who were on a social tariff, presumably because they were either in or on the verge of fuel poverty, were potentially paying more for their energy than other consumers.
There is also no industry standard on social tariffs or how they are being targeted.
Each supplier has its own version with customers receiving various levels of discount calculated in a variety of ways.
One supplier also expects consumers to switch to paying by direct debit in order to benefit from its initiative[12], which means that consumers who are on pre-payment meters or who do not have a bank account are effectively being excluded.
Such gaps in how fuel poverty is being tackled can lead to misery for consumers.
A study by uSwitch.com, based on responses from almost 8,000 energy customers in the UK, comparing household income with the amount spent on energy, found that: 25% of households are paying between £41 - £60 per month[13]36% are paying between £61 to £100 a month[13] 10% are paying £100 or more per month[13].This is having an impact on people's quality of life, with one in ten (10%) saying they cannot afford to keep warm this winter[8] and almost three in ten (29%) forced to cut back on heating or make savings elsewhere[7].
Vulnerable groups such as Britain's elderly are being left out in the cold- the research suggests that over a quarter of those in fuel poverty (27%) are pensioner households[14] who are forced to choose between eating or heating.
The average annual energy bill now stands at £1,026[4], but the average pensioner is living on £10,608 per year after housing costs[15] - this means that 10% of an average pensioner's annual net income after housing is spent on fuel bills.
But the situation is far worse for Britain's poorest pensioners.
The basic annual pension is now £6,200[5], which means that today's pensioner on pension credits is likely to see almost 17%[16] of their income going on energy bills.
Pensioners cannot even hope that the Winter Fuel Allowance will ease their burden, as it simply hasn't kept pace with surging energy costs.
In 2003, the maximum allowance available to 60 - 79 year olds was £200, which offset 34.5%[6] of a customer's bill.
Today the allowance is still £200, but with the average energy bill currently standing at £1,026[4] the allowance now only covers 19.5% of a pensioner's bill[6].
For the Winter Fuel Allowance to completely offset energy price rises since 2003 it would have to rise by £446[17].
There is some support for this.
According to the research, almost three quarters (73%) of people who are responsible for paying their household's energy bills agreed that the Winter Fuel Allowance for elderly people should be increased[18].
The Government has revised its previous pledge on fuel poverty and now intends to wipe the issue out entirely by 2018.
Its earlier commitment to take vulnerable people out of fuel poverty by 2010 and to eradicate fuel poverty by 2016 started to look shaky in 2006 as energy companies pushed through 15 price rises[19] which added £4.8 billion to household bills - around £277 per dual fuel household[20].
The Government was thrown a lifeline last year when the companies shaved £1.7 billion off household bills[21].
However, price hikes this year have wiped out last year's decreases, plunging half a million more households[1] into fuel poverty.
BERR estimates that for every 1% increase in gas and electricity bills, a further 40,000 households are plunged into fuel poverty.
Any further price increases this year could see yet more households joining the ranks of the 4.5 million[2] already caught in the fuel poverty trap.
Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "If the Government is truly committed to breaking the stranglehold of fuel poverty in this country then it needs to work with the industry and regulator.
We already know that patchy, piecemeal attempts to tackle this issue do not work.
Any measures introduced need to be long-term, sustainable and easy for the fuel poor to access.
It's also vital that they leave scope for innovation and competition between suppliers too.
"Rather than reinventing the wheel, the Government should increase the Winter Fuel Allowance to give immediate relief to the elderly.
It should then work with the energy providers to realise the full potential of social tariffs.
There must be an industry standard on social tariffs, clear criteria over which consumers should qualify and a guarantee from suppliers that people on social tariffs will always be paying the lowest available price.
This would remove the guess work and provide vulnerable households with a real way out of fuel poverty.
"And of course, households have to start helping themselves too.
Vulnerable customers should talk to their supplier to find out what help is available now.
Failing that, consumers should look to compare prices and switch to a cheaper provider." 1.
BERR estimates that for every 1% increase in gas and electricity bills, a further 40,000 households are plunged into fuel poverty.
On this basis, the average bill has risen from £912 to £1,026 - a 12.5% increase.
This will have pushed a further 500,000 into fuel poverty.
2.
According to the Energy White Paper published May 2007 (page 24) there were just under 4 milion people in fuel poverty.
However, if we add the 500,000 calculated to have been pushed into fuel poverty by prices rises early this year (see point 1 above) then the figure of 4.5 million which has been widely reported in the media, can be considered an accurate representation.
3.
Taken from 'Proportionality of social tariffs and rebates Paper for Energywatch' published January 2008 and prepared by Cornwall Energy.
400,000 based on the 375,703 actual recipients across all six suppliers (Table 2.5 page 14).
Less than 1 million is calculated by adding the 330,000 consumers who will benefit from electricity social tariffs and the 578,000 consumers who will benefit from gas social tariffs = 908,000 (taken from section 2.3 Future Social Tariffs page 15).
4.
Based on price rises implemented so far in 2008 - Scottish and Southern Energy being the only supplier not to raise prices.
15% increase calculated on a medium user consuming 3,300 kWh electricity and 20,500 kWh gas, on a standard dual fuel plan paying on receipt of bill.
Bill sizes averaged across all suppliers and all regions - average bill now £1,026.5.
According to Help the Aged, basic pension at the end of 2006 was £5,940.
It is £6,200 for 2007/08 which is a 4.38% increase.
Based on a single pensioner drawing a state pension, claiming pension credit and receiving a £10 Christmas bonus and assuming no other savings.
6.
In 2003, the maximum Winter Fuel Allowance available to pensioners was £200 and the average energy bill was £580, offsetting 34.5% of a customer's bill.
Today, the Winter Fuel Allowance is still £200, but today's average energy bill is £1,026 (see caveat 4 above).
This means the allowance will only represent 19.49% of a pensioner's annual bill.
7.
YouGov research shows that 21% of respondents have said they will reduce the amount of heating they use and wrap up warm instead, while 8% said they will have to cut back and make savings elsewhere when asked to best describe how energy bills will affect them.
8.
YouGov research shows that 7% of respondents agreed and 3% strongly agreed with the statement: "I cannot afford to keep warm this winter".
9.
YouGov research shows that 11% of respondents agree and 5% strongly agree with the statement: "I am worried about being able to keep warm this winter." 10.
YouGov research shows that 11% agree and 3% strongly agreed with the statement: "I am less concerned about my heating bills this winter than I was last winter." However, 29% disagreed and 15% strongly disagreed with the statement.
We refer to these as 44% who are more concerned about heating bills this winter than last winter.
11.
Taken from 'Proportionality of social tariffs and rebates Paper for Energywatch' published January 2008 and prepared by Cornwall Energy.
On page 32 the researchers compare suppliers' lowest priced offers and their social tariffs.
It found that three suppliers - British Gas, npower and ScottishPower - had lowest price offers that were cheaper than their social tariffs.
According to the appendix on page 30: "The offers were as recorded in Energywatch pricing information dated December 2007 and the social tariffs as understood by Cornwall Energy at that time.
The analysis is presented on an averaged Great Britain-wide basis for electricity, gas and a total for both, rather than explicitly covering dual fuel." 12.
Taken from 'Proportionality of social tariffs and rebates Paper for Energywatch' published January 2008 and prepared by Cornwall Energy.
On page 7 section 2.2 'Social tariffs' the report says: "At December 2007, four of the Big Six....
have social tariffs that provide eligible consumers a discount from offers available to the wider market.
E.ON UK's Staywarm tariff has been characterised as a social tariff, but cannot be analysed on a similar basis primarily because it involves consumers switching to direct debit payment terms unlike the social tariffs from other suppliers.
We have also found it to be an opaque arrangement premised around a fixed charge paid by the consumer regardless of consumption." 13.
YouGov research shows the percentage of people spending between certain amounts each month on energy bills.
These are: 13% spend £41 to £50, 12% spend £51 to £60 per month, 12% spend £61 to £70, 10% spend £71 to £80, 7% spend £81 to £90, 7% spend £91 to £100 and 10% spend more than £100 per month on energy bills.
14.
Fuel poverty is defined as those who are spending more than 10% of their income on household fuel bills.
To ascertain this,uSwitch.com cross referenced income and energy spend data from the YouGov research.
This showed that 26.6% (27%) of those in fuel poverty are pensioners.
15.
The median net income per week after housing costs is £204 (taken from The Pensioner Income Series 2005/06).
This equates to £10,608 per year.
Source: department of Work and Pensions.
16.
;Based on average fuel bill sizes of£1,026 (see caveat 4 above) as a percentage of the basic pension for 2007/8 - £6,200.
17.
At the end of 2003 the average energy bill, based on a medium user consuming 3,300 kWh electricity and 20,500 kWh gas, on a standard dual fuel plan paying on receipt of bill with bill sizes averaged across all suppliers and all regions was £580.
The average bill is now £1,026.
18.
The YouGov research shows that 38.4% of respondents strongly agree and 34.77% agree that the Winter Fuel Allowance for elderly people should be increased.
19.
This includes all price rises either effective or announced during 2006, and includes the SSE price rise which came into effect on the 1st January 2007.20.
Based on the difference in average Dual Fuel bill size between 1st January 2006 and the 1st January 2007.
This is inclusive of the SSE price rise which came into effect on the 1st January 2007.
Bill sizes based on a medium user profile, consuming 20500kWh of gas and 3300kWh of electricity per annum, paying on receipt of bill, and averaged across all regions.
andpound;4.8 billion calculated based on 17,499,655 Dual Fuel households (YouGov tariff research April 2007, 12th - 16th April 2007) multiplied by the £277 Dual Fuel price rises between January 1st 2006 and January 1st 2007.21.
Based on 17,499,655 Dual Fuel households (YouGov tariff research April 2007, 12th - 16th April 2007) multiplied by the £100 average price decrease in 2007.
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