Energy bills support took too long to get to those most in need, says PAC

- Approx. 1.7m people left waiting months for help due to Government’s ‘lack of bandwidth’ 

- Government lacks urgency in addressing energy market failures 

- PAC calls for update on plans to ensure affordable energy for winter 2023/24 

In a report today on Government’s energy bills support scheme, the Public Accounts Committee says it took too long to get support to some of those most in need. While support schemes were introduced quickly, the Government did not have the bandwidth to make sure support reached all groups in a timely fashion.  

In February 2023, the Department estimated that support for households and businesses will cost £69 billion, of which £16 billion was paid between October and December 2022.  900,000 households only became eligible for the for domestic consumers’ Energy Bills Support Scheme Alternative Funding on 27 February 2023, nearly five months after consumers began receiving discounts on the main scheme. 830,000 households in Northern Ireland only began receiving support with their energy bills in January 2023, three months later than in Great Britain.  

As of February 2023, a quarter of vouchers issued for the Energy Bills Support Scheme for two million households on traditional prepayments meters had still not yet been redeemed: Government should set out what it will do to improve this uptake.  The Committee highlights unacceptable practices of suppliers forcing entry into vulnerable customers’ homes to install prepayment meters – a practice which has been banned by Ofgem for British Gas but only suspended in voluntary arrangements with other energy suppliers.   

While the Government drew on lessons learnt through COVID support schemes to reduce the risk of fraud and error, DESNZ does not yet know how successful this has been. At an estimated total cost of £69 billion, even relatively low rates would lead to significant taxpayer losses.  The Committee says Government should provide estimates of these fraud and error rates, with accompanying mitigations, within 6 months.   

When the Committee heard evidence in February, household energy bills were expected to increase by another £775 in 2023/24.  The Committee expects an update on plans to ensure energy affordability for next winter, including how it will fix the problems for those most in need, and has serious concerns on the Government’s lack of urgency in addressing the energy market failures that are leading to high energy bills for consumers. The Treasury and DESNZ have also not fully grasped the pressures the non-domestic sector will face after the Energy Bill Relief Scheme ended in March 2023, or the potential risk of insolvencies. 

Dame Meg Hillier MP, Chair of the Committee, said: “The surge in energy prices has caused serious difficulties and hardship for households across the UK. It is of course welcome to see Government moving quickly to put in place support for both households and businesses to keep the lights on. But many of those who most needed help were kept waiting longest for it. For some households, every day left without support presented impossible choices.  

“We need to see better understanding from Government on vulnerable customers’ circumstances so that help can be prioritised for those who need it most, and to deliver value for money in these extremely expensive schemes. Almost halfway through the year we have not yet seen plans to ensure energy affordability for the coming winter. As a matter of urgency Government must show it's clear not just on how households and businesses will be protected in any future price rises, but how to ensure resilience in the sector as a whole.” 

PAC report conclusions and recommendations  

The Department introduced the support schemes quickly, but its lack of understanding of customers’ circumstances means that it has taken too long to get support to some of those most in need. Following the government’s announcement on 8 September 2022 that it would provide universal support for energy bills for all consumers, the Department launched the Energy Price Guarantee (EPG) within three weeks, and the Energy Bill Relief Scheme (EBRS) within two months. We recommended in November 2022 that the Department needed to ensure that administrative issues did not prevent support being provided to vulnerable households in a timely manner. But the Department told us it did not have the bandwidth to make sure support reached all groups at the same time. The 836,000 households in Northern Ireland only began receiving support with their energy bills in January 2023, three months later than in the rest of the United Kingdom. Some 900,000 customers without a direct relationship to a domestic energy supplier, such as those in park homes or living on boats, had to wait until 27 February 2023 to be able to apply for the EBSS Alternative Funding Scheme, meaning that by March 2023, some consumers were yet to receive their payments. Conversely, the universal nature of the largest schemes has resulted in the Department providing support to some homes and businesses that do not necessarily need it. 

Recommendation 1: The Department should, as part of its Treasury Minute response, set out how it intends to be better prepared to support vulnerable consumers through any future energy market interventions. 

The Department is still not doing enough to ensure that support reaches the two million consumers on prepayment meters. Those on prepayment meters are typically on more expensive energy tariffs due to the cost of the systems used to run the meters. Two million households in Great Britain on traditional prepayment meters need to redeem vouchers to claim their £400 payment through the EBSS. These consumers tend to be poorer and are more likely to be in arrears on their energy bills and can be unaware of national and local initiatives to reduce fuel poverty. As we warned in November 2022, however, some vulnerable customers, such as those on prepayment meters, faced extra challenges in accessing the support designed to help them with their bills. By the end of January 2023, 76% of vouchers issued to households to support them with their energy bills had been redeemed. The Department is working on increasing this figure, although the responsibility of ensuring households on prepayment meters redeem their vouchers also sits with suppliers. We are concerned that recent media coverage has also brought to light unacceptable practices of suppliers forcing entry into vulnerable customers’ homes to install prepayment meters, often as a result of consumers falling behind on payments. 

Recommendation 2: The Department should set out, as part of its Treasury Minute response, its analysis of which groups of households have not redeemed their vouchers and what further action it will take to increase the redemption rate of vouchers. 

The Department drew on lessons it had learnt from financial support it provided during the pandemic to reduce the risk of fraud and error of the schemes, but does not yet know how successful this has been. The Department estimates the energy support schemes will cost £69 billion, meaning that even relatively low rates of fraud and error will lead to significant loss to taxpayers. The risk of fraud and error is greater for the EBRS due to the complexity of the energy market for the non-domestic sector. For example, energy usage and intensity vary significantly more between different industries within the non-domestic sector than between households. The risk of fraud and error is also higher for targeted schemes such as the EBSS Alternative Funding Scheme, which has specific eligibility criteria and where consumers need to apply for the scheme, than in the schemes which are open to all customers. The Department drew on its lessons learnt from the pandemic and collaborated with the Public Sector Fraud Authority (PSFA) from the outset of the schemes and is working with local authorities to verify applicants’ eligibility for the EBSS Alternative Funding Scheme. The Department does not yet have an estimate of fraud and error has occurred through the schemes. The transfer of responsibilities from the former Department for Business, Energy & Industrial Strategy (BEIS) to the Department for Energy Security and Net Zero risks a lack of continuity in the approach to identifying and recovering payments through fraud and error.   

Recommendation 3a: The Department should, within 6 months, write to the Committee setting out fraud and error rates under the schemes and what it is doing to reduce this. 

Recommendation 3b: The Department should, within 6 months, write to the Committee outlining how it will ensure the lessons it has learnt from the energy schemes are not lost as BEIS splits into three separate entities. 

HM Treasury and the Department do not fully understand the pressures the non-domestic sector will face when the EBRS ends in March 2023, or the potential risk of insolvencies. Many organisations are suffering financially from the aftermath of the pandemic and this has been exacerbated by recent high energy prices. The Department wanted the EBRS to achieve economic benefits, but it risks undermining this if its decision to withdraw support results in increased insolvencies. From April 2023, support for the non-domestic sector will reduce significantly when the Department replaces the EBRS with the Energy Bills Discount Scheme (EBDS) if energy prices remain high. While gas prices have recently fallen significantly from the record-high levels last year, some non-domestic consumers will not feel the benefit if they are trapped in fixed tariffs that were set in late-summer 2022. Additional financial support for energy bills is available for Energy and Trade Intensive Industries, but not for other sectors that can have high energy usage, such as the hospitality sector. HM Treasury expects that other changes from April 2023, such as reduction in business rates, will offset reductions in energy bills support for these sectors. The challenges of the non-domestic sector dealing with rising energy bills has exposed the lack of regulation and visibility that Ofgem and the Department have over the way non-domestic energy market operates.  

Recommendation 4a: The Treasury should, in parallel to its Treasury Minute response, provide details of its analysis of how the changes to business rates, taxes and energy support will affect businesses across different sectors, and outline how it will ensure that businesses will not face a financial cliff edge after March 2023. 

Recommendation 4b: The Department should consider whether Ofgem’s existing role in regulating the non-domestic energy sector is fit for purpose in managing future unexpected events, such as high gas prices. 

The Department does not yet know how its plans for winter 2023-24, or once support ends in April 2024, will impact households, or how it will ensure the energy retail market provides a fair deal for consumers. At the time of our evidence session, the Department’s plans for winter 2023-24 meant household energy bills are expected to increase by £775 in 2023-24 if energy prices remain high. The government has committed to consulting on amending the EPG as soon as is feasible after April 2023 so that those who use very large volumes of energy have their support capped, whilst ensuring most households can continue to benefit. At the time of the NAO report, when the scheme comes to an end in April 2024, the Department did not expect the average annual bill to be much above £3,000, meaning that withdrawing the EPG would not have a sudden significant impact on consumer bills. However, wholesale gas prices are volatile and outside of the Department’s control. The government also announced it will develop a new approach to consumer protection in energy through a wider retail market reform, including options such as social tariffs. It has not yet published further information on what this would look like and how it will bring back supplier competition in the market.  

Recommendation 5: The Department should write to the committee within 6 months to provide an update on: 

•            its plans to ensure energy affordability in winter 2023-24; and  

•            its progress with future plans for the domestic scheme, such as capping support to those that use very large volumes of energy and introducing discounts on bills for households on benefits. 

We are very concerned about the Department’s lack of urgency in addressing the energy market failures that are leading to high energy bills for consumers. During 2022-23, the UK experienced record-high wholesale gas prices. Since 2019, Ofgem has set a price cap that energy suppliers can charge households. The level of the cap increased by 80% in winter 2022-23 to £3,549 compared to summer 2022-23, mainly because of increasing wholesale prices. This is because the UK electricity market operates on a marginal pricing system, which means that electricity generator companies are paid a fixed price per unit of electricity, which is determined by the cost of the most expensive generating technology needed at the time. This is usually gas-fired power stations that are more expensive than other sources of energy, such as renewables like wind power. The government plans to reform the electricity market through the Review of Electricity Market Arrangements (REMA), which could result in arrangements that enable consumers to benefit more from the cheaper running costs of renewables. The Department issued its public consultation for the REMA in July 2022 stating that it expects to implement changes from mid-2020’s but has not yet made available any further details of the timeframe for the review. The previous reform, the Electricity Market Reform, took three years. In the meantime, if gas prices increase again, consumers and taxpayers will be subject to significant costs again.    

Recommendation 6: The Department should set out, as part of its Treasury Minute response, the timeline for its review, and how the REMA will ensure that the electricity sector has more resilience against future unexpected events, such as high gas prices