Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 60-79)



Sir Robert Smith

  60. How much is the charge for call-outs and how is it collected?
  (Mr Cuttill) The typical charge for a lost key, for the second call-out is about 40. It is a considerable incentive to not lose the key because that is what the visit costs us to undertake, particularly out of hours.

  61. Would that not explain why people are not signing up though? Sharing the risk with everyone on a higher tariff is a bit more invisible than signing up for something where you can see 40 on the paper.
  (Mr Cuttill) And clearly you are quite right to identify that it may be quite challenging to collect it on the doorstep. The fact that we have had no call-outs means we have not had to try it yet. It is not the only reason why people are reluctant to sign up. It is that on so many occasions customers are more comfortable in saying they know what they have, they understand it completely and they would like to stick with it. The fact that it is 8 per year surcharge . . . is it?
  (Dr Jackson) It differs between companies. The maximum is 15 per year, but typically it is about 8 per year.
  (Mr Cuttill) They would rather rest with that. The idea is to try to demonstrate that it can be more beneficial for them.

Mr Hoyle

  62. It is interesting that you say that. Surely you must have got something wrong if people are not taking up the scheme. It is failing; if people are not taking it up, it must be a failing scheme.
  (Mr Cuttill) I would not say that it is failing. The customer satisfaction of those customers we have got onto it is in the high 90s from the tariff plan. We do not have as many onto it as we should like; perhaps the design is wrong. The whole idea of introducing it for a 12-month period was to seek to learn and we have just come to the end of that period. Where we can put the customer onto this tariff, it would appear to work for them.

  63. What percentage has taken up, out of the total percentage made available for you to change over?
  (Mr Cuttill) It is the 18 per cent. We targeted about 1,000 homes and we have 150-160.

  64. If 18 per cent is not failing, how would you describe it?
  (Mr Cuttill) This is not meant to be in any way fatuous: it is not as many as we would have hoped. When we sit down with the customer and say we can save him energy costs and we are not able to persuade him, then clearly the design of the tariff is not completely as attractive as we thought when we started out. The whole reason for having a trial was to try something to establish whether it worked. If we reflect on the fact that it has not worked, then we shall have to think of something else.

  65. What was your ambition? What was the total you were aiming for? You have managed 18 per cent, but what would you call a success? Seventy-five, eighty, ninety?
  (Mr Cuttill) No, if we had achieved a success rate of about one in two we would have been satisfied.

  66. Fifty per cent.
  (Mr Cuttill) Yes.

Linda Perham

  67. You said you had not had to try to collect this 40 for the second loss of the key. What is the sanction if you turn up and they either could not or would not pay? Is that it? Would they lose their supply?
  (Mr Cuttill) No, not at all. Because it is a trial arrangement, the operative who is required to attend has some latitude in this trial situation. The operatives in fact have latitude at all times, particularly out of hours or particularly during the winter quarters, or something like that. They do have some room for manoeuvre. We have not had to levy the charge yet.

  68. We have a quote from Powergen which says "the key issue . . . is to ensure that customers in fuel poverty can benefit from the choice available to customers as a whole" and commits them to ending PPM surcharges by 2005. What about the issue of debt blocking? Is that an option you considered?
  (Dr Jackson) Yes. Over the last six to nine months energy companies have been participating in a trial with Ofgem on debt blocking in relation to prepayment-meter customers. At the moment the results of that trial are being assessed. It is probably important to put debt blocking into perspective for this group of customers. We now see that well over 30 per cent of prepayment-meter customers have switched supplier at least once and when you combine that with the fact that there is a relatively low incidence of debt amongst those who have an electricity prepayment meter, our view would be that removing debt blocking is not going to have a significant effect, certainly in terms of reducing the numbers of people in fuel poverty. It is an issue, but it is quite a minor issue, I would suggest.

  69. Can I ask about the British Gas Jigsaw scheme operated by Centrica which is trying to get customers to reduce bills by arranging for customers without bank accounts to access direct debit discounts? To whom is this available? How is it publicised and targeted?
  (Ms Harrison) We launched Jigsaw as a trial last year in conjunction with Bank of Scotland; it is a partnership approach. It was targeted very much at customers who pay on budget schemes, people who would traditionally go into post offices or a pay-point outlet and pay a small sum of money each week. Conceptually what we were trying to do was to say they should carry on paying the way they paid now, they could still go down to a pay point and make small payments and sitting behind that, instead of the money coming to us in dribs and drabs, it would go into a bank account and we would then call a direct debit from that bank account. This took some operating cost out for us and gave the customer the benefit of a direct debit discount. We launched it last year as a trial. We targeted all of our budget pay customer base with it. It is a very complex proposition. It means quite a lot of form filling because we cannot do face to face sign-ups on this because of financial services regulation. It is quite a complex process by post. About 4,500 people so far have raised their hand to express an interest and of those about ten per cent have gone on to open accounts. Limited success. We have just done some customer research to understand why there is a fall-out in the number of those who are interested and those who go through to open an account. It is mixed. Some people are frightened about direct debits and about money not being in the account when we call for it and therefore incurring a surcharge. Some people like to pay at post offices and because of the costs of doing that we are only running this through pay-point outlets. We are doing quite a lot of work to make customers more aware of where they can pay at pay points. Most local garages and shops have those facilities within the locations of our base. Some people feel uncomfortable about a bank and as soon as they see the words "bank account" they just switch off. Some of the people we are attracting or have targeted have actually been bankrupt, which means they might not think that they are entitled to a bank account. There is a whole mix of stuff coming back in the research, which we are working with to try to see how we can overcome some of those things. There is no doubt in my mind that getting people to open bank accounts when they are reticent is always going to be done best face to face by an agency somebody feels implicitly comfortable with in a trust sense. Trying to do things, as we are, by post or by telephone, is a more difficult proposition for people to absorb and to take on board. We are learning what works best and will keep ploughing forward with it.

Sir Robert Smith

  70. Are you working at all with the Government, given that they are going to phase out the use of post offices for handing over benefits and everyone is going to have to have some kind of an account, either a post office card account or basic bank account? Is there any work on whether these cards would be able to interface with energy payments?
  (Ms Harrison) We talked quite a lot to the universal bank team when the universal bank was first mooted; we had quite a lot of discussion with them about how we could bridge this into a universal bank account if it ever became available. We have shared information from some of our research back with DTI for them to pass back to BBA or to the universal bank team. In terms of trying to make sure what we are doing is compatible with anything which might evolve in the future, as far as we are able to with the information we can get from the universal bank team we have tried to do what we can. There is no reason why this should not work with anything that is developed for benefits, because it is just a bank account sitting in the Bank of Scotland's array of bank accounts. It has all the same facilities that any normal bank account would have, except for withdrawals. This is essentially a bill payment account, so you pay money in.

  71. The Bank of Scotland are picking up the costs you used to have of handling the small payments.
  (Ms Harrison) It is a joint venture. We absorb the cost of handling the account.
  (Dr Jackson) On a national basis, through the task force over the last few years we have had a number of discussions with organisations like the British Bankers' Association and the post office and so on to explore alternative payment methods which could bring benefits to customers. That is the sort of ongoing dialogue.

Mrs Lawrence

  72. May I ask you a question on TXU's StayWarm product? They say that it is a radical departure for an energy company, where costs are calculated according to the household's number of occupants and number of bedrooms. They claim it is the first mass-market energy services product available to those over 60. I can see you shaking your head there. They do say it has been rapidly growing since its launch two years ago and now has over 200,000 customers. What effect has this scheme had on energy usage and average spend and why did you shake your head?
  (Mrs Kirkpatrick) I know that TXU has put evidence in. I was not able to field a TXU player here. You have heard from the discussions how a nuance can affect a discussion. I do not really feel qualified to answer on behalf of the company but what I do undertake, if you will accept that, is that your question has now been written down and you will get a reply direct from TXU just as quickly as we can communicate that to them.

  73. May I move on to Warm Zones? You mentioned the five pilots of which LE sponsors one in Newham in East London. Can you describe the aims and limitations of the Warm Zones approach?
  (Mr Cuttill) Our experience from the Newham Warm Zone is to use the opportunity for trialing what we hope will be sustainable and cost-effective models by which we can tackle issues with regard to fuel poverty. One of the principles for the Newham model is to work on the basis that we are actually taking the property beyond fuel poverty, not necessarily just the individual householder. One of the issues which leads into one of the other points which has been raised is why we have a target of 60 per cent whereas the one in Stockton is 80 per cent. That really extends from the tenure in Newham of the properties. Nearly 60 per cent of all Newham homes were built before 1944. The national average is that about 53 per cent of private rented dwellings were built before 1919; for Newham that is believed to be just over 80 per cent. Over 80 per cent of private rented dwellings were built before 1919 and 59 per cent of all homes were built before 1944. One of the challenges for us is to tackle the issue around the property as well as the individual householder. The partners in the zone, ourselves, London Borough of Newham and Warm Zone, are clearly targeting Warm Front and EEC programmes so that we can maximise the measures we can deliver but also working with managers such as EAGA and Osborne Energy. We are seeking to put together a basket of arrangements in that area to tackle it in that way. When we started the original plan was to use more desktop analysis rather than door to door interviews. That has proved to have been not as completely successful as we would have wanted and therefore we have now started more door-to-door interviews with individual customers and residents in that area to understand what it is which is actually affecting their property and themselves, so that we can get a much better understanding of what targeted measures can be undertaken to assist them. Jill has been particularly involved with the Stockton one, so perhaps it would be useful to contrast the two.
  (Ms Harrison) Yes, we are partners in the Stockton Warm Zone. In Stockton we set a different target which was to reduce fuel poverty by 80 per cent. A higher target but a different approach. One of the strengths of the Warm Zones is that they are all different and they are all trying different approaches to see what works best. What we are doing in Stockton is surveying all properties on a ward-by-ward basis. We literally knock at every door, including re-visits. If somebody is not at home or it is not convenient, we will go back up to three times to try to gain access and get people enthused. Not everybody wants it and not everybody is engaged when we have the dialogue with them. So far we have done 24,500 visits to homes and have completely dealt with 5,000 homes. It is a rolling programme and the aim is to deal with 75,000 homes by the end of the three-year programme. We are committed to being long-term partners in that, as is the local authority which has effectively assigned all its housing improvement money into the Warm Zone for us to use in the best way we can to make sure we get energy efficiency measures installed.

  74. You have in part answered my next question about the differential. I wondered whether the answer to that question would be that there were localised problems with skills shortages. The type of work you are generating does require people with skills to come in and do the work. Have you run into any of those sorts of problems?
  (Ms Harrison) Part of the Stockton programme is to deal with the re-skilling of local labour where it is available, so to some extent they are trying to help themselves to address some of these issues. There are some issues. Because it is a very targeted approach and we literally knock on every door in a ward, we raise an expectation that we will be following it up in a very short timescale. The funding and resources within the Warm Front programme cannot always deliver to the expectations raised. Another thing we are learning is to manage expectation when we call so that people are very clear about when and in what order we shall be back to do the work. A learning process again. Another thing we are doing is employing two full-time benefits advisers in the Warm Zone to pick up the issue of benefits health checks and to see whether we can help by being more holistic around the kind of support work we are providing.
  (Mr Cuttill) In the Newham area the skills shortage for us is in gas fitting. The only remaining source of skills resource will be in the more deprived areas of the capital because of the level of employment already in London. One of the steps that the Warm Zone has taken is to link with local regeneration initiatives to look at ways of retraining to employ local skilled employees and with regard to insulation there are several more regional and national players who are interested in taking on local staff to undertake the installation work. We are working through how we can then ensure they stay with that regional or national player, because they are particularly interested in building their pool of resource which in the end can work anywhere, not just in the immediate vicinity. If they are going to commit money to the training in the individual, they want some reciprocal commitment that they will stay with the organisation and become part of the company for work elsewhere within London and elsewhere in the country as well. Yes, skills shortage is an issue but it does not necessarily drive the difference in the targets.

  75. Powergen say in their evidence that a particular obstacle is the inadequate level of energy efficiency in privately rented accommodation. The Warm Zones initiative has a key role to play here. What can Warm Zones do to address the problem of privately rented accommodation?
  (Dr Jackson) This is a difficult area. We believe somehow incentives need to be given to landlords to invest in energy efficiency. They have to see something coming back to them. Whether this is best dealt with through some sort of tax break or through giving them some reduction on their community charge if they invest in their properties to raise the energy efficiency rating, I am not sure. It is that sort of area where we have to try to give the right sort of incentives to encourage them to make the necessary investment.
  (Ms Harrison) In the Stockton Warm Zone we have one representative of the private rented sector on the committee, so they are aware of the things we are doing and we can draw on them to look at ways in which we can do things differently. There is a couple of issues. Warm Front itself requires them to offer a guarantee that if the property is improved it will be occupied by priority tenants for a period of time and some of the landlords do not think they can honour that. That makes them somewhat reticent in terms of participating. It also requires them not to increase rent prices for 12 months and that makes some of them feel uncomfortable as well. It is understanding more about issues like that and how we can give them the confidence about these issues that may get them more engaged and participating in what can be done.

Mr Hoyle

  76. The NEA talked about the difficulty in evaluating the effectiveness of industry-led initiatives because of the commercial secrecy between different organisations about best practice and how they shared that information. You stated that you can give us some examples. In paragraph 13 of your memorandum you mention that it is possible to share. Are companies setting up schemes to try to attract customers and is there really any benefit for those customers? If it is such a good scheme, how do we get them then to share that scheme with other companies so people are not the losers?
  (Mrs Kirkpatrick) I can honestly say, and I have only been in this particular organisation for a fairly short time, I have come across the most extraordinary commitment to this issue which goes deep down inside even the trade association. I believe it is something which companies are working on. You see them here; very competitive companies sitting here talking to you and having talked to each other and participated in the task force under Tony's leadership talking very frankly about what is right and what is wrong, what has worked and what has not. We would hesitate to think that there was a one-size-fits-all solution in the country. Personally I would find that an unlikely scenario. Tony can, over a much longer period than I, say something about the nature of the co-operation and sharing of information.
  (Dr Jackson) It is quite a feat to get all the companies together on this particular issue, given that we are operating in a competitive market. To give you a couple of examples of co-operation, we have been publishing periodically summaries of the initiatives that companies are taking and we attached an example of that to our written submission. Secondly, last autumn as a task force we published a good practice guide for advice workers and practitioners in the field which was called "Getting the Most from Energy". That was bringing together good practice and was trying to demonstrate how a partnership approach can make payment advice and energy efficiency accessible to those most in need. That was brought together through the co-operation of all the energy companies. That particular document has been very well received out in the field. We can certainly provide copies if that would be helpful. As a task force there is a line over which we cannot tread in terms of confidentiality, but we have been quite successful in treading down that line of getting co-operation and sharing information between companies, yet allowing the competitive market to work to enable companies to pursue their individual initiatives which we have been hearing about today.

  77. Are you finding it difficult to evaluate some of the information and some of the schemes they come up with?
  (Dr Jackson) In terms of what? Do you mean the impact on the fuel poor?

  78. Yes and whether it is to the benefit of the customer.
  (Dr Jackson) It is clear that all the schemes which are being tried are beneficial to customers. The whole benefit of the competitive market is that those schemes which are the right ones will come to the surface and will be rolled out naturally. It is all a learning process.

  79. Do you find it difficult to evaluate the schemes?
  (Dr Jackson) It is difficult to evaluate because taking a particular scheme and working out exactly who has benefited is not an easy task. We can measure it at one level in terms of numbers of customers or numbers of measures which have been introduced, but at another level having perfect information about individual circumstances is not often possible.


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