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Energy Price Crisis - Time for a social tariff on energy bills?

Geoff Riley

11th August 2022

A growing number of campaigners are making the case for the Government and OFGEM to agree a new social tariff for low income families.

What is a social tariff?

A social tariff is a form of price protection for lower-income families and a possible means to address the huge problem of fuel poverty facing millions of people in the UK both now and in the immediate future.

A social tariff means that lower-income households get discounts on their utility bills, funded by taxation or by spreading the subsidy cost across better-off customers.

These are already fairly commonplace in telecoms, with some phone and broadband providers offering basic packages for people in receipt of universal credit.

A social tariff is a reduction on the unit rate (and maybe standing charge), which scales with energy usage, and gives a discount all year round so energy is more affordable in all seasons.

A recent House of Commons Energy Policy Select Committee argued the case for some form of social tariff as part of a suite of measures designed to tackle the surge in energy prices. Millions are at risk of experiencing fuel poverty which happens when more than 10 per cent of household income is spent meeting energy bills.

Cornwall Insight released new price cap figures following a wholesale price surge and Ofgem revising their cap methodology. They are predicting a typical household will pay the equivalent of £3,582 p/a from October 2022 climbing to £4,266 p/a from January 2023. By the middle of 2023, over 12 million families may be in fuel poverty and over five million families will have no savings left to pay unexpected bills.

Fair By Design - the fuel poverty action pressure group - argue that to ensure take up of a social tariff, it must be made available by all energy providers and - as a behavioural nudge - there should be auto-enrolment of all eligible consumers using suppliers’ existing customer data and/or via data sharing with the Department for Work and Pensions

How would a social tariff be funded? There are plenty of options including a Windfall Tax on the supernormal profits of the energy generating companies. Alternatively it might be funded from general taxation or spreading some of the cost of a social tariff on the bills of higher income families.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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