Select Committee on Trade and Industry Sixth Report


12. Household incomes have increased in recent years, with changes to the benefits system helping many poorer families through a combination of increased payments and wider eligibility as well as the range of other assistance to which receipt of a benefit gives access.

13. Eligibility for benefits is a useful, though by no means perfect proxy, for whether a household is likely to be at risk of fuel poverty and was used as a means of targeting assistance under the recent industry-financed energy efficiency scheme, the Energy Efficiency Standards of Performance (EESoP). However, receipt of benefits, an even less reliable indication, has been used for EESoP's replacement, the Energy Efficiency Commitment (EEC). There is a mismatch between eligibility and fuel poverty which throws the logic behind these criteria into fundamental doubt.[20] This mismatch was also described to us by others, including Innogy:

    "Recent Sandwell Warm Zone data (March Report) indicates this mismatch between fuel poor households and eligibility for Warm Front funds.[21] The Report shows that where income details have been quoted, out of 1,656 Warm Front eligible households, 661 (39.9 per cent) were not fuel poor. Conversely, out of 1,424 fuel poor households, 429 (30.1 per cent) were not Warm Front eligible. 44.5 per cent of these households were not eligible because they were under 60 and 43.6 per cent were over 60 but not eligible because they were not on the relevant benefits. Other fuel poor households that are missing out on Warm Front include those renting from small, private landlords and those who are equity rich/cash poor eg. a single pensioner living in a large house."[22]

The Electricity Association estimated that one million households in fuel poverty were not in receipt of income or disability related benefits.[23] Innogy suggested that a better way to target the fuel poor would be self-referral through a ten per cent test.[24] We heard evidence from energy providers, EAGA and others that benefits checks, where their own employees helped householders to establish whether they were receiving all benefits to which they were entitled, could provide considerable extra income as well as opening up eligibility to schemes such as the Government's Home Energy Efficiency Scheme (HEES). EAGA found that "20 per cent of applicants who go through the benefits health check process are able to claim an additional benefit [providing] an average additional income of £25 per week".[25] It is not clear why so much benefit apparently goes unclaimed, although the complexity of claims systems and the stigma which still attaches to many forms of assistance are clearly factors. It is clear that putting one extra barrier in the way of such assistance — that of insisting that no one can take advantage of energy efficiency measures until they are actually in receipt of a benefit rather than merely eligible for one — is not helping.

The role of the Benefits Agency

14. It is shocking to receive evidence from several quarters that the Benefits Agency is failing to address the needs of so many of those whom it is meant to help. Ultimately, it must resolve the ambiguities inherent within its twin roles of policing and restricting, while also delivering and publicising, benefits. In the meantime, the Committee applauds the ad hoc efforts of the diverse organisations providing 'benefits checks', which play a role in combatting fuel poverty not only directly by increasing household income levels, but also indirectly by enlarging the number of households eligible for assistance linked to receipt of certain benefits. An increase in the level of benefits for particularly vulnerable groups is another obvious way of tackling fuel poverty. For example, there is a powerful case for extending the winter fuel payment to disabled people whose condition requires extra spending on heating.


15. As currently constructed, systems of payment for gas and electricity often have the perverse effect of penalising poorer households. Because these households often find it difficult to budget for the — comparatively — high cost of their fuel, both they and the supply companies have an incentive to use systems that enable the households to pay in advance. For individuals, this means having to find smaller amounts of money, though at more frequent intervals. For companies it means customers cannot fall into debt (or, very often, can gradually repay the debt they have already incurred). The most widespread method of paying in advance is by means of prepayment meters (PPMs). However, their disadvantage is that the households most at risk of fuel poverty end up paying more for their fuel than better off households because of the higher service charge element and because no discount is offered for paying in advance.

16. A number of industry initiatives are addressing the removal, or partial removal, of PPM surcharges: for example, PowerKeyPlus, a PPM tariff which is the same as the quarterly credit tariff, but under which an extra charge is imposed if an engineer has to be called out to the property to deal with problems with the meter. This scheme is being operated on a trial basis within the Newham Warm Zone, and also in Plymouth, but has had relatively low take-up. We were told by London Electricity Group that:

Our witnesses said that ways are being considered to overcome these concerns.[27] Despite the cautious start to such schemes, we urge companies to continue to look at and promote other methods of payment for poorer households.

17. Companies should already have incentives to prevent the accumulation of debt, but clearly these are not sufficient. Further options are being considered by Energywatch who emphasised the need to find ways of avoiding people getting into debt: "Companies themselves know quite a lot about bills, energy usage, and they should be in a position to act at a much earlier stage to prevent the debt occurring in the first place".[28] Energywatch added:

    "What we are looking for are incentives to make companies address some of the issues that give rise to the need for prepayment meters in the first place. One of the ideas that we are floating — and it is only an idea; we have not thought through the depth and detail — is the idea that we could have a social obligation, rather like the renewable obligation, where [companies] will benefit who have done things like reduce the number of people on a prepayment meter, on debt and increase the number of people on the priority services register. There are several key things that we could do to encourage good behaviour by having a social obligation."[29]

We welcome the constructive thinking that is taking place on ways of preventing the less well-off from getting into debt in relation to fuel bills. The idea of a social obligation on energy companies seems to us to be worth pursuing. However, this will need to be thought through carefully, not least in the light of some of the problems with cross-subsidy and competition law that we discuss later.[30]

20   App 15, NEA ev Back

21   For "Warm Zone", see paragraph 32 below. 'Warm Front' is the Government's main programme for targeting fuel poverty in the UK, with DEFRA funding of over £600 million for the period of 2000-04.  Back

22   App 10, para 6, also Q 258 Back

23   App 5, para 16 Back

24   App 10, para 9 Back

25   App 4, para 1.30 Back

26   Qq 56-57; see also Q 229 (Ofgem) Back

27   For example, Qq 230-34 Back

28   Q 6; see also Qq 239 and 240 Back

29   Q 5 Back

30   Paragraph 34 Back

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