Government must increase the energy bill discount this winter by at least 150 per cent, Which? warns

The government must raise the energy discount by at least 150 per cent or risk pushing millions of households into financial distress, according to a new analysis by  Which?, as it calls for an urgent review of energy retail pricing.

Following soaring energy price cap predictions, research by the consumer champion has revealed that the government’s existing support package will be inadequate to protect living standards for those on the lowest incomes and would lead to considerable financial and social hardship. 

When the government first announced its financial support package in May 2022, the energy price cap was predicted to reach around £2,800 in October, but Cornwall Insight now predicts that average energy bills will increase to £3,554 in October and hit £4,650 in January.

Which?’s calculations show that the government must increase its financial support for all households by a minimum of 150 per cent to protect them this winter. This would see the Energy Bills Support Scheme increase by £100 a month - from a total of £400 to £1,000 (a rise from £67 to £167 per month from October to March).

Even this will be insufficient for families on the lowest incomes, so the government must also make an additional one-off minimum payment of £150 to the lowest income households to ensure the most financially vulnerable have the extra support they need. 

However, the consumer champion warns that given soaring predictions of energy prices for 2023, this additional cost of living support will only be a temporary solution until March when further solutions will be needed. The latest Cornwall Insight prediction suggests energy prices will hit £5,341 in April and remain high throughout 2023. 

The current crisis has shown that fundamental, systemic reform of the energy market is needed to ensure that consumers are better protected in the longer term.

Which? is calling on the government and Ofgem to undertake an immediate review of retail energy pricing - including the price cap - to ensure that it supports a competitive market, protects those on lower incomes and provides consumers with clear and fair prices. They must conclude and take action on this review over the next six months to ensure consumers are protected ahead of the April increase.

As part of this, the government should assess the impact of the price cap on the market and put in place the right measures to protect vulnerable and low-income consumers. Reforming the use of higher tariffs for prepayment customers - who are often on lower incomes - should also be examined. This review should also explore how standing charges could be reformed to make costs fairer for those who use less energy. 

The government must also take urgent action to rapidly improve the insulation of homes as this could significantly reduce energy costs, lower the reliance on gas and support the transition to net zero.

Rocio Concha, Which? Director of Policy and Advocacy, said: 

“With energy bill predictions continuing to spiral, the government must increase the Energy Bills Support Scheme by at least 150 per cent, or risk pushing millions of households into financial distress this winter. 

“While increased support will provide relief for many, it is not a long-term solution. The government and regulator must urgently undertake a wide-ranging review of retail energy pricing - including the price cap - to build a fair and affordable system for consumers. 

“The government must also develop a programme to urgently improve the insulation of homes - as this will help to reduce people’s energy costs for years to come.”

-ENDS-

Notes to editors: 

Table of existing support and the additional support Which? is calling for by household type

Notes: The table shows the minimum entitlement by household type. People eligible for Cost of Living payments may also receive Pension or Disability Cost of Living Payments.

Estimated cost to the government of Which? recommended additional support

Based on the number of households the government states are eligible for the equivalent current support, https://www.gov.uk/government/publications/government-support-for-the-cost-of-living-factsheet/government-support-for-the-cost-of-living-factsheet 

How Which? calculated additional support

Which? calculated how much more households will be spending on energy, food and fuel between October 2022 and March 2022 compared to what was expected in May 2022 when the government announced its existing financial support package. 

These figures were based on Cornwall Insight’s predictions from 9th August that the price cap would reach £3,582 in October and £4,266 in January. 

The consumer champion estimates that the lowest income households will now need to spend around an extra £730 on energy, food and fuel between October and March. A middle income household is now estimated to need to spend about £620 extra between October and March. 

According to the ONS’s Household Finances Survey, the average disposable income for the poorest 20 per cent of households was £14,550 in the year ending March 2021, and the average for those on middle incomes was £31,383.

The estimate for the lowest income households is higher because Which? makes a seasonal adjustment for these households that reflects the reduced likelihood that they will be able to smooth payments for energy by using direct debits.

2017 Which? statement outlining the five tests for the energy price cap