Gas and electricity bills could increase for millions of people across the UK if proposals from the government energy regulator to help companies recoup losses are passed.
The Ofgem regulator wants to raise the maximum amount companies can charge customers on their default tariffs, but campaigners have said the changes could push elderly or vulnerable households into poverty, especially while many people are juggling the economic impact of the pandemic.
“While £21 a year may not seem much to regulators and energy firms, it means a lot for the elderly and most vulnerable in society,” said Simon Francis, co-ordinator of the End Fuel Poverty Coalition.
“To put it into context, the increase is more than the cost of a loaf of bread a week. The rise will force more people to make the choice between heating and eating and we’d urge Ofgem to think again.”
Today @ofgem have announced that they intend to increase the price cap by £21 to cover the costs of increased bad debt in energy.
So why is there a perceived need to do this, and does it really need to be done?
A thread 👇
— Matt Copeland (@Matt_Copeland1) November 20, 2020
Many big energy companies attract new customers with discounts on bills for the first few months before switching to a more expensive “default” tariff. The maximum charge for these default tariffs for fuel could rise from £1,042 per year to £1,063 in April 2021 if the proposals are accepted
The proposals are “badly timed” and “will force more people into fuel poverty,” Francis told The Big Issue.
Some suppliers have also objected to the plans, which could impact around 11 million customers, as the price hike could put more pressure on those struggling to make ends meet.
Energy consumers across the UK have accrued around £200 million in unpaid bills to energy firms, so-called “bad debt” which companies do not expect will be repaid.
And energy firms have made widespread redundancies this year, including Britain’s second biggest supplier Ovo which laid off 2,600 workers.
Ofgem will run a consultation on the plans until December 21 before announcing the new price cap in February.
More people will struggle, adding to the debt cycle further
“Legacy suppliers charge long-standing customers hundreds of pounds more than new customers,” said Greg Jackson, chief executive of sustainable supplier Octopus Energy.
“If they cared about customers, they could handle Covid debt by reducing this disparity, rather than exacerbating it by lobbying for a hike in the price cap.
“Ofgem’s single biggest success of the last decade has been the price cap – saving billions for customers and finally forcing dinosaur companies to become more efficient. They should resist all attempts to undermine it.”
Ofgem has been contacted for comment.
The regulator has formulated the proposed increase based on the average energy use of one household which pays for both gas and electricity. The proposed increase could help energy companies who have less money coming in – because pandemic-driven redundancies and income cuts are making it difficult for more people to pay their bills.
“The real question is whether something else should be done to stop the root cause and help the people in debt,” Matt Copeland, policy manager at National Energy Action, said.
“The root cause of the issue is that people haven’t had enough money to pay their bills. Increasing the amount of money that suppliers can access from customers to service this debt exacerbates this.
“£21 to some people is a lot of money. Maybe 10 days of heating. To others it’s not so much. But if debt servicing costs increase in other utilities and council tax then it will all add up. More people will struggle, adding to the debt cycle further.”
Instead of raising the price cap, Copeland added, the warm home discount should be given to all eligible households automatically without them needing to apply, while the Government should maintain the £20 emergency Universal Credit increase implemented at the start of the pandemic. Companies should also offer households “more breathing space, earlier, to clear their debt”, he said.