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Introducing social tariffs has the potential to reduce the energy bills of the country’s most vulnerable by over £330 a year, at a relatively low cost to the government.
New analysis from Cornwall Insight, released prior to the introduction of the October Default Tariff Cap (price cap), has revealed that offering discounted deals to low-income households, through the removal of the standing charge, or offering a 20% discount on the price cap unit rate could save eligible households £296.08 and £332.62 per year, respectively.
A typical dual fuel household signing up for a social tariff would see their energy bill brought down to approximately £1,600 per year for the first three months of 2024 and – while still above the historic levels for the cap – would represent material support to those struggling to heat and light their homes.
Additionally, the data showed that the package of support for social tariffs would come at a cost of approximately £1.3-£1.4bn. Less than 4% of the government’s £37bn1&2 expenditure on the Energy Price Guarantee and the Energy Bill Support Scheme over the past year.
Recent research by telecommunications regulator Ofcom indicates that up to 4.3mn households3 could qualify for a social tariff on broadband, and it is thought similar numbers could benefit from energy social tariffs.
The introduction of the tariff would bring energy into line with water and telecommunications which already offer such support to vulnerable households.
Figure 1: Potential social tariff options (new TDCV, 4.3mn eligible households3, Q124 forecast cap levels4)
Source: Cornwall Insight
* Wholesale prices as of 31 August 2023
* For the purpose of our analysis, we have used Ofcom’s figure of 4.3mn households3 being eligible for social tariffs as opposed to the 8mn households on means-tested benefits used for the Energy Bill Support Scheme (EBSS).
Dr Craig Lowrey, Principal Consultant at Cornwall Insight said:
“With the price cap struggling to keep bills affordable going into winter, and energy costs expected to remain above historical highs for the foreseeable future, the idea of energy social tariffs is gaining momentum. Many believe such support could be the much-needed lifeline for millions of people who are struggling to pay their energy bills, and their introduction would bring the energy sector into line with both its water and telecommunications counterparts.
“While the government previously said it was open to discussion on support including social tariffs, progress has been disappointingly slow. Although there are already focused support measures in place for particularly vulnerable households, the harsh reality is that the price cap alone won’t shield many households from fuel poverty. Serious consideration of how to help the most vulnerable pay their energy bills needs to happen as soon as possible.”
Reference:
- From October up to the end of March, almost £21bn went towards the Energy Price Guarantee. £12bn was paid out under the Energy Bills Support Scheme, which offered homes £400 payments towards their bills over winter. (£40bn spent protecting families and businesses from energy costs – DESNZ July 2023)
- The total cost of the EPG from April to June was £4bn (Energy Price Guarantee extended for an extra three months – HM Treasury March 2023)
- This figure is based upon the organisation’s assessment of the number of households in receipt of universal credit: Half of low-income households in the dark over broadband social tariffs.
- Default Tariff Cap forecasts, new Typical Domestic Consumption Values (TDCVs)
| QUARTERLY | New TDCV | Q1 2024 CI Forecast |
| Electricity | 2,700 kWh | £985.35 |
| Gas | 11,500 kWh | £973.84 |
| TOTAL | £1,959.19 |
- Ends
Notes to Editors
For more information, please contact: Verity Sinclair at v.sinclair@cornwall-insight.com
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About the Cornwall Insight Group
Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British, and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.
