Sunak’s energy rebate leaves the poorest out in the cold
We’ll send you a myFT Daily Digest email rounding up the latest Advice & Comment news every morning.
I make no apologies for being hot under the collar about the missed opportunity of the energy crisis support measures chancellor Rishi Sunak announced last week.
I was flabbergasted to discover that as a well-paid journalist and owner of a London flat, I potentially stand to receive more money from the Treasury’s £9bn package than some households in fuel poverty.
Before I shoot down this intervention in flames, I’m glad the government has found billions in cash to help households through the energy crisis (even though it wasted around the same amount on unusable PPE).
My beef is simple — not enough of this money will be received by those who really need it.
The decision to give a £150 council tax rebate to properties in England in valuation bands A-D is a broad and thin distribution of relief, rather than the deep, targeted measures that are so clearly needed.
Valuations haven’t been updated since 1991. Soaring property prices in London and the south-east mean band D properties worth £68,000 to £88,000 then will now be valued at more than £800,000 in some areas.
Where I live in Hackney, there are 23,750 band D homes valued at an average of £830,000 each, according to tax reform group Fairer Share. That’s £3.5mn worth of council tax discount.
I appreciate that the chancellor wants to reach people on middle incomes who are struggling, as well as those on means-tested benefits, but is this really the best use of the cash?
The Treasury tells me second homes will not get the rebate (more details to come) which is something. But properties valued at less than £300,000 in some other areas of England will not qualify as they are in band E or higher — even if those who reside there are “asset rich and cash poor”.
To get help, they will have to apply for a share of the £144mn pot that local authorities can issue in discretionary grants. This is also supposed to cover pensioners, students and those on low incomes who are exempted from council tax or who pay a reduced rate.
The 54 per cent rise in the energy price cap to £1,971 in April will devastate the personal finances of millions of people. With council tax, national insurance and other bills all set to increase at the same time, more households will be tipped into “deficit budgets” where expenditure on essentials exceeds income.
StepChange, the debt advice charity, estimates 4.5mn households are already using credit to pay essential bills — a costly and vicious circle. And the price cap is predicted to rise again to £2,350 by October.
By then, every household rich or poor will have received a £200 credit on their energy bills via the chancellor’s “buy now, pay later” scheme, to be repaid over the following five years.
I am especially angry at the lack of extra help being directed to the 4.5mn UK households with prepayment meters who pay more for their energy (April’s price cap will rise to £2,017) and are more likely to be considered “vulnerable”.
Prepayment meters are commonly installed as a debt management tool when customers get into arrears. If they can’t afford to top up, the lights go out.
Unlike direct debit customers, they cannot smooth out the costs of higher fuel bills in winter over the course of the year. By next winter, average fuel bills for prepayment customers are predicted to hit £321 a month.
Many will resort to extreme energy rationing. Before the crisis, Citizens Advice found 140,000 households a year were voluntarily “self disconnecting” and living for days with no heat, power or hot water in an attempt to manage budgets.
“By next winter, hundreds of thousands of prepayment customers will be unable to afford to access energy for extended periods of time,” predicts Matthew Copeland, head of policy at National Energy Action, a fuel poverty charity. “People are going to die from this if they can’t heat their homes to adequate temperatures.”
Predicting 6m people will be in fuel poverty by April, he says people are already rationing energy use in preparation for the bill shock that’s coming. “We often see older people with bus passes going on a journey and coming back simply because being on a bus is warmer than being at home,” Copeland says.
The government will widen the net of eligibility for the Warm Home Discount scheme next winter, which increases from £140 to £150, and is applied as a credit on bills.
Administered by the energy providers, charities say that up until now, the “first come, first served” nature of this discount has excluded around 2mn people on low incomes.
This year’s payment is due to be made by the end of March. Charities have warned customers of failed energy suppliers that they must reapply for the discount. However, as energy companies all have slightly different eligibility criteria, there’s a risk some could miss out.
Energy regulator Ofgem has strict rules about offering forbearance to customers who cannot afford to pay their energy bills, including setting up affordable debt management plans and offering grants or discretionary credit to customers in dire straits.
Some might try to manage by self disconnecting or borrowing to pay the bills, but increasing numbers are already turning to fuel poverty charities.
The Fuel Bank Foundation has seen a 75 per cent increase in the number of people needing help in the past 12 months. In December, it experienced the highest level of demand since it was launched six years ago
The charity operates in much the same way as a food bank — after an official referral, customers on prepayment meters can receive a top-up voucher worth up to £49 from one of its 350 centres across the UK.
If demand for help is at record levels now, what will happen after the price increases in April and October?
As well as more targeted support for the poorest, the charity is calling for green tariffs and the cost of subsidising failed suppliers to be taken out of fuel bills, and funded via general taxation.
FT readers might find this unpalatable, but it would go some way towards addressing the disparity of energy bills making up a larger proportion of poorer people’s budgets. In the longer term, the appalling energy inefficiency of UK housing stock is a pressing issue that wider policy measures must address. A long overdue shake-up of the deeply regressive council tax system could even be used to fund it.
For now, if you’re in the lucky position of receiving a £150 council tax rebate or Winter Fuel Allowance payment that you don’t really need, please consider doing what I have done and donate it to charity. If your home is so valuable you’re in council tax band E or above, you might like to join us.
I couldn’t decide between the charities I’ve mentioned above, so I’ve given them £150 each, and ticked the GiftAid box, which means an extra £37.50 per donation will be forthcoming from the government.
Should we be relying on charities to plug the yawning gaps in the support system? We could expend considerable amounts of hot air debating this point, but that isn’t going to heat the homes of the poorest this winter.
Claer Barrett is the FT’s consumer editor: email@example.com; Twitter @Claerb; Instagram @Claerb
Twice weekly newsletter
Energy is the world’s indispensable business and Energy Source is its newsletter. Every Tuesday and Thursday, direct to your inbox, Energy Source brings you essential news, forward-thinking analysis and insider intelligence. Sign up here.