Warm Home Discount (Amendment) Regulations 2014
Lord Gardiner of Kimble
That the Grand Committee do consider the Warm Home Discount (Amendment) Regulations 2014.
Relevant document: 19th Report from the Joint Committee on Statutory Instruments.
Lord Gardiner of Kimble (Con)
My Lords, in introducing this debate on the Warm Home Discount (Amendment) Regulations 2014, I will first give some background to the scheme to provide context to this amendment.
The coalition is committed to tackling the problem of fuel poverty and to helping people, especially in low-income vulnerable households, heat their homes. Fuel poverty remains a huge challenge. Despite significant investment in improving our housing stock, some housing remains inefficient. Combined with rising energy prices, that means that there are still too many households left in fuel poverty. The warm home discount scheme is part of the Government’s programme to address the contributing factors of fuel poverty, either through increasing income or reducing the costs of energy.
Introduced in 2011, the key aspect of the warm home discount is that it requires electricity suppliers with more than 250,000 domestic customer accounts to provide financial support with energy costs to their vulnerable customers. Spending is incurred by participating suppliers in respect of two groups of customers: first, the poorest pensioners, who are customers of participating energy suppliers—described in regulations as the “core group”—and secondly, other low-income and vulnerable customers. This second group comes under what is described as “non-core spending”.
Under the core group, all the poorest pensioners eligible for the scheme receive a rebate in respect of their electricity cost from their supplier. This winter, that rebate was £135. Other groups, such as low-income families and those with long-term illnesses and disabilities, can apply for rebates to their supplier. Those rebates are counted as part of non-core spending and are also worth £135 this winter.
Since the warm home discount scheme was introduced, around 2 million households each year have had lower energy bills as a result. Due to the success of the warm home discount, the Government have committed to extend support to 2016, with spending of £320 million in addition to the £1.1 billion which will be spent over the first four years of the scheme.
This amendment aims to give energy suppliers the incentive to spend £34 million more than they are required to spend this scheme year. As a result, more than 250,000 more low-income and vulnerable households could benefit from a £135 rebate this scheme year. That would also maintain an upward trajectory of spending each scheme year.
There is an overall spending target for each year of the warm homes discount which sets out the value of assistance that participating suppliers should collectively provide. For 2013-14, the spending target set out in regulations is £300 million. That total spending is divided into the demand-led core group and the non-core spending. Having estimated the size of the core group, the Government set the total non-core spending obligation for suppliers for the forthcoming scheme year. The larger the core group, the smaller the amount of non-core spending suppliers have for other groups of households who may qualify for a rebate. The size of the core group has to be estimated in advance of the start of each scheme year to inform suppliers and give them sufficient time to prepare for their spending obligations.
When the department set the non-core spending obligation in advance of the 2013-14 scheme year, it estimated that the core group would result in spending of £200 million. Given a total spending target of £300 million, the department set the total non-core spending obligation at £100 million. However, six months on from setting the non-core spending obligation, the size of the core group was lower than forecast. Therefore, we now estimate that suppliers will spend £166 million on their core group customers in 2013-14.
That means that £34 million of the overall spending target that suppliers could use to help other vulnerable households would not be required to be spent in 2013-14. Under the current regulations, if suppliers spend more than required, their individual obligations for the next scheme year are reduced by a maximum of 1% of the current scheme year’s non-core spending obligation, even if they overspend on more than 1%.
The amendment would change that maximum limit to 34%, providing an incentive for suppliers to spend above their obligations by up to that amount. For example, if an individual supplier spends 25% above its individual non-core spending obligation in 2013-14, Ofgem will reduce its obligation in 2014-15 by the same amount.
However, spending by suppliers will still be higher next winter than this winter. The amendment is intended to close the gap in spending between years so that we maintain the growth in the number of households who receive electricity bill rebates year on year. As required in the regulations, the Secretary of State has already notified Ofgem of the non-core spending obligation for 2014-15. The Secretary of State has set the obligation based on spending of £266 million in 2013-14, and has added the £34 million underspend against the total spending target this scheme year to the spending target for 2014-15. This takes us to a total of £344 million.
However, if suppliers incur more non-core spending than they are required to prior to the end of March, Ofgem will be able to adjust down individual non-core spending obligations by 30 September once suppliers report their actual spending for this scheme year. This change has been consulted on and all respondents were supportive of the change. Although suppliers have not given us exact forecasts of how many more rebates they intend to provide, some suppliers have already decided to spend above their regulatory obligations in anticipation of this change. This amendment means that more low-income and vulnerable households may receive £135 off their bills this winter than would have been the case otherwise. It will give suppliers the incentive to provide more rebates to a greater number of households this year and therefore provide more help to tackle fuel poverty. For those reasons, I commend these regulations to the Committee.
Baroness Maddock (LD)
My Lords, my noble friend the Minister will know that fuel poverty is one of the areas in which I take a particular interest. During the passage of the last Energy Bill, due to pressure on the Government from myself and many others, we were pleased to have a fuel poverty strategy from the Government in that Bill. Therefore, I particularly welcome the changes here, which mean that more vulnerable and low-income households will be taken out of fuel poverty.
As we have listened to my noble friend, it is obvious that the regulations surrounding all this are incredibly complicated. Have the Government any plans to try to simplify this as they move forward with their fuel poverty strategy? I was going to ask how many people will be taken out of fuel poverty, but I think that he answered that in his opening comments.
It is particularly important that we look at the cost of fuel because, although a lot has been said in the press about people who are choosing between food and fuel and about people attending food banks, the real increase for people on low incomes has been in the price of fuel. The increase in fuel prices is much higher than for the price of food, particularly for people on low incomes who are on some form of benefit, because they are often unable to access the cheapest rates for fuel. They have a key card and pay more than many people who can afford more. So I welcome this provision, but I would like to know how it fits in as we go forward with the fuel poverty strategy.
Lord McKenzie of Luton (Lab)
My Lords, I am grateful to the Minister for his clear exposition of his amendment. Like him, we see it as an issue subject to significant challenge. As the noble Baroness, Lady Maddock, has just said, it is the poorest who sometimes pay comparatively more for their fuel; those who of us who are better off can do it with direct debits and take advantage of various schemes on offer.
I have a couple of questions. I understand the thrust of what the Minister was saying. I am sure that my noble friend Lord Grantchester will chip in and support me on this, as I think that he has done the background work. I am a little unclear as to why the numbers in the core group are falling short of what was originally anticipated. My understanding is that the access to that group is determined by pension credit—either the guaranteed credit or the savings credit. I think that there is an age threshold of 75 and above for either savings credit or the guaranteed credit; for those below that age, it is just the guaranteed credit. Part of my question is, if it is because fewer people have been able to access pension credit—we know that pension credit is one of the benefits with the lowest level of take-up—what are the Government doing to address that?
Specifically, in relation to the core group, the non-core group and the criteria going forward, the Government are introducing a Pensions Bill at the moment with the single-tier pension. One consequence of that Bill is that, from April 2016, pension credit or savings credit is being abolished. Therefore, people who retire on or after that date will not be entitled to the savings credit. Fewer will be entitled to the guarantee credit because the idea of the single state pension effectively is to have a pension which is at the current guaranteed pension credit level or slightly above it. The income of people will not be substantially different but they may be swapping state pension for what was a guarantee credit top-up.
Therefore, there are two categories of people; namely, those currently entitled to savings credit, which will disappear in April 2016, and those currently entitled to guarantee credit who will end up with broadly equivalent income but will get it via the single-tier pension and not via the guarantee credit. If those two avenues, which I understand are the access to the core group, are no longer available, what discussions have taken place? What focus has there been on any alternative route and access to the warm home discount scheme? I am sure that the Government have turned their mind to that issue, which seems to me to be vital. I would be interested to hear from the Minister quite what is proposed.
I am not quite sure that I grasped what the Minister said. I certainly will read the record. I am sure that my noble friend Lord Grantchester will ask how the carryover will work. If the net effect is for an extra £34 million to be available in support of this scheme, clearly we would support that. I am not quite sure how the cut-off points work and whether the discounts are dealt with on a financial-year basis; that is, they run until 31 March, notwithstanding the fact that someone’s account might span that date and, in a sense, run over any period. Doubtless the Minister will be able to enlighten us. Those are my questions but my noble friend may well wish to supplement them. I thank the Minister for his exposition of these proposals.
Lord Grantchester (Lab)
I apologise to the Committee for being caught out in my public transport arrangements this afternoon and I am very grateful to my noble friend Lord McKenzie for stepping in at the last minute. He is right that the core group has been reduced and in asking his questions. In terms of the year being averaged with the following year, as I understand it, the shortfall in any one year and the expenditure can be carried over into the non-core group. The Minister is nodding his head in confirmation. Obviously my noble friend has asked the pertinent question of what is being done to make sure that the right people are targeted and helped in order to receive the money that they so desperately need to alleviate fuel poverty.
Lord Gardiner of Kimble
My Lords, I thank your Lordships for their comments. I had personal sympathy with my noble friend Lady Maddock when she spoke about simplification. I had to read some of this brief rather more than once or twice and the point is very much taken on board. This spring, we will be consulting on the future of the scheme, part of which is to see whether we can simplify it in a way that is perhaps more readily understandable and user-friendly.
The whole basis of this part of what we are seeking to do is to ensure that the most vulnerable in our society are protected as well as possible, given rising prices and, as I have explained, homes that are not as efficient as we would like. I know that my noble friend Lady Maddock has been a fierce champion of fuel poverty issues, and rightly so. As I said, that is part of what we are seeking to do. Certainly, the whole way in which this amendment is designed and why it is important is because it provides another £34 million for that non-core spending that will help families, which is so important.
Lord McKenzie of Luton
Can the Minister help me out on that point? He differentiated between forecasts for pension credit as a whole and forecasts of those components of pension credit which drive accessibility to the warm home discount scheme. What is different about that second category compared to those who are otherwise generally entitled to access pension credit?
Lord Gardiner of Kimble
I may have to write to the noble Lord because this is getting intricate. However, we are intending to consult this spring on the changes to pension credit impacts. This will include impacts to the changes to the benefits system vis-à-vis, as the noble Lord mentioned, pension credit and universal credit. Therefore, the best thing I can do is to make sure that I get this absolutely right for the noble Lord. Rather like these regulations, some of it is quite intricate, and I would like to give the noble Lord a full answer to that particular point if that would be helpful.
Lord McKenzie of Luton
That would be very helpful, and I am grateful to the Minister. I will revert to this issue about the changes which the Government are proposing to the state pension. Part of that is that the savings credit will simply not be available in the future—it will disappear as a benefit. Therefore what discussions have taken place and what planning is under way to make sure of the position of people who currently access the warm home discount scheme because they are in receipt of that benefit? What will be their position and access in the future? That is a pretty important policy issue. We have tried to get some clarity via the Pensions Bill; it would be good to get some clarity somewhere on this.
Lord Gardiner of Kimble
Given the points the noble Lord has made, the best thing would be for me to include that issue in a letter. That would be more fulfilling as regards getting the answer he is looking for.
Lord McKenzie of Luton
It would be particularly helpful to have that explanation by the time we get to Third Reading of the Pensions Bill, as it is one of the few residual issues on that piece of legislation.
Lord Gardiner of Kimble
I shall ensure that the noble Lord gets a letter.
In conclusion, the noble Lord, Lord Grantchester, was right to say that the basis of this is to get the right groups targeted. This is part of the way in which the Government wish to address fuel poverty. It is right that the net effect is to ensure that another £34 million goes in to help families. I agree that we should look at how we simplify these matters, but under the regulations we are dealing with we need to have this amendment.