Draft Warm Home Discount (England and Wales) Regulations 2022
(2 years, 5 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
I beg to move,
That the Committee has considered the draft Warm Home Discount (England and Wales) Regulations 2022.
It is a pleasure to serve under your chairmanship, Mr Efford. The draft regulations were laid before the House on 12 May 2022. This year, we have witnessed an extraordinary and global increase in the cost of energy. The Government recognise that millions of households across the UK may need further support with the cost of living and have therefore announced additional support this year worth more than £37 billion, including targeted support for those on the lowest incomes. In that context, the warm home discount remains a key part of our approach to supporting low-income households and tackling fuel poverty.
The Government established the warm home discount in 2011. Since then, it has provided more than £3.3 billion in direct assistance to households. Primarily, that support has taken the form of direct rebates off household energy bills. In the 2020 energy White Paper, the Government committed to extend and expand the scheme, as well as to reform it to better target households in fuel poverty. The draft regulations will succeed the previous warm home discount regulations in England and Wales, and the Government will lay separate regulations for an expanded warm home discount scheme in Scotland that will be debated separately.
The draft regulations have six main provisions. First, the expanded annual spending envelope is set in the regulations. For winter 2022-23, the spending envelope is £474 million, rising each year thereafter.
Secondly, participating energy suppliers will be obligated to provide rebates directly off the energy bills of fuel-poor households. The value of the rebates for households is set at £150, which is an increase of £10. That means around 2.8 million households will receive a rebate every winter.
Thirdly, the scheme will continue to provide rebates to pensioners on the lowest incomes—that is, those in receipt of the guaranteed credit element of pension credit. That core group 1 of eligible pensioners has been a key feature of the scheme throughout its existence.
Fourthly, there will no longer be a broader group of other low-income and vulnerable households. Under the previous scheme, that group was required to apply to their supplier every year for a rebate. Even if eligible, those households were not guaranteed to receive a rebate, and the criteria varied by supplier. The Government are therefore creating a core group 2 of households on the lowest incomes and with the highest energy costs. The eligible households will be those that are in receipt of one of the qualifying means-tested benefits or tax credits and that meet a high energy cost threshold. Those households will be identified through data matching, using benefits data, property characteristics data and energy suppliers’ customer data. The Government intend to publish a statement setting out the exact details of eligibility, including the high energy cost threshold.
Fifthly, the draft regulations will make it mandatory for suppliers to contribute to industry initiatives. Such initiatives will allow suppliers to fund other financial and energy-related measures, such as financial assistance payments, debt write-off, benefit entitlement checks, energy advice and energy-efficiency measures. Industry initiatives will be set at £40 million for this winter and will rise each year thereafter. The regulations will also set minimum obligations and caps for financial assistance, recognising the value they provide while ensuring that other high-value industry initiative measures still receive funding.
In addition, the Government are maintaining aggregate and household-level caps on debt write-off, to avoid the measure being misused to produce bad debt. The last industry initiatives restriction is to limit the number of mains gas-powered boilers and central heating systems that can be installed. They will still be permitted to support particularly vulnerable customers during emergencies, but restricted to align with the heat and building strategy.
Sixthly and finally, the draft regulations set the thresholds for suppliers participating in the scheme. The Government are lowering the thresholds so that more energy suppliers will partake in the scheme and to reduce the barriers to customers switching suppliers. In 2022-23, the threshold will be set at 50,000 domestic customer accounts, and from 2023-24 this will be set at just 1,000 accounts. This will mean that 99.9% of the market will be covered.
On the impacts, the Government are expanding the scheme to provide rebates to 750,000 more households. Thanks to these reforms, the vast majority of eligible households will receive their rebates automatically, without having to apply. A small minority will be contacted and required to contact a helpline to confirm their details. The Government’s analysis shows that, by focusing the support to households on the lowest incomes, the fuel poverty targeting rate will increase to 47% overall. Furthermore, 560,000 more fuel-poor households will receive a rebate, compared with an unreformed scheme.
The Government held a consultation on the reforms last summer and published the Government response in April. The consultation responses supported extending and expanding the scheme, as well as the proposals for reform. The Government are therefore proceeding with the main proposals. However, we decided to make a number of changes in the light of the responses. First, we have added housing benefit to the list of qualifying benefits and tax credits in the eligibility criteria for the new core group 2.
Secondly, energy suppliers will be required to provide estimates of the value and proportion of spending under industry initiatives in relation to households where a person has a disability or health condition. This will enable the Government to monitor the level of support provided to disabled customers.
Thirdly, the Government have removed the proposed mid-year adjustment to the industry initiatives budget. That proposal risked the creation of significant uncertainty in delivery risks.
Lastly, the Government are keeping the overall debt write-off cap under industry initiatives at £6 million per annum.
In conclusion, the warm home discount remains a source of critical support for low-income households at this difficult time. The draft regulations extend the scheme, expand the support to more households and focus the support to those most in need. I commend the regulations to the Committee.
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to serve under your chairmanship this afternoon, Mr Efford. I thank the Minister for his elucidation of the draft regulations before us. He is quite right that the warm home discount is a crucial support for people under the present circumstances, particularly people in fuel poverty, of which there has been a huge increase as a result of the sky-high energy prices we are suffering.
The warm home discount has been a very important scheme in the past; with this change, it remains an important scheme for the future. For that reason, we do not intend to push for a Division this afternoon, not least because we want this scheme to go ahead as soon as possible, so that we can get money out to people who need it the most.
I do not have any in-principle criticisms of the warm home discount to put to the Minister, but I do have a number of detailed points that I hope he will respond to. They relate to some of the details of how the new scheme is going to work. It is a substantially new scheme. Although it is a rollover of the warm home discount from 2011 onwards, there are a number of new features to this scheme that, as the Minister has set out, look to add a number of groups of individuals who previously would not have got the warm home discount. They will now receive it and, most importantly, will do so automatically, without having to apply for it.
The Opposition would have liked to see group 2 of the warm home discount expanded further. One could have a debate another day about exactly how far that expansion might go. I hope the Minister will keep the wider groups that could benefit from the warm home discount under review, but we are where we are as far as this particular piece of legislation is concerned, so that is what I will confine my remarks to this afternoon. Core group 2, to which the Minister referred, will replace the previous broader group who had to apply for the warm home discount. Crucial to this piece of legislation is the placing of the automatic award on the basis of understanding the circumstances being experienced by members of that group. There are, however, some concerns about how fair the arrangement for getting the automatic discount into people’s hands actually is.
The Government will decide what high energy usage—one of the criteria for core group 2—consists of, and they say they will look at the physical characteristics of houses and the correlation of those houses to low income. That will be core group 2, but a number of other people will most certainly still be in fuel poverty, particularly those in rented accommodation. They will be on low incomes and possibly have a disputed level of energy use—because that can be an inexact science on occasions—yet they will not be receiving the benefits that automatically give access to the award. More than 50% of fuel-poor households probably do not have such benefits, so the extent to which the provision will get hold of fuel-poor households for core group 2 is a matter of some question. Indeed, given how the legislation is set up, if a household is not selected as part of core group 2, but should have been, that will be difficult to contest. Does the Minister wish to comment on making it easier to get into that core group 2 for people who think they should be in it but are not?
Kevin Brennan (Cardiff West) (Lab)
On core group 2, the impact assessment suggests that, overall, the increase in the amount of money that will be spent on the policy will go up by about 6.7% over the period in question, but the amount allocated to core group 2 will be only 3.1%. That particular group’s allocation within the policy, over a period of time when we know that energy prices are rising sharply and inflation is high, is lower than the overall policy spend. Does that emphasise the point my hon. Friend is making?
Dr Whitehead
My hon. Friend’s intervention emphasises my point. It also emphasises the danger of the scheme itself being price capped, and of the criteria for high energy use and how they relate to the physical characteristics of the low-income home being tweaked to fit in with the ceiling figures that my hon. Friend mentioned. I am sure the Minister will want to assure us that that will not be the case for how core group 2 develops.
We have other concerns with the detail of this instrument. When there is an issue with an energy company that is supplying a household—if that energy company goes into administration or disappears off the face of the earth entirely—the supplier of last resort who takes over from that energy company should take on the full obligation of the failed supplier. The Department has still not put into place an actual obligation for it to do so in this iteration of warm home discount guarantees and in the legislation.
It may be that the Minister considers that so many smaller energy companies have gone bust already that there is no need to have that obligation, because there are not many more that can go bust. I think we ought to keep a close eye on whether energy companies are either refusing or dodging the consideration that they should take on the full obligation, exactly as it was in respect of the energy company that the person was with before the change to supplier of last resort took place.
I am happy that the draft regulations include a reduction in the threshold that obliges energy companies to be involved. The Minister will know that there were a number of occasions on which switching resulted in someone thinking they were getting a warm home discount but not getting one because of the size of the customer base of the company they were switching to. That will be substantially resolved by the reduction of the number in the obligation threshold. It is tapered over years, so it goes down toward zero. That does not itself solve the problem of the supplier of last resort and the obligations that come from it. I hope the Minister can have a look at that for the future.
An overall point I would like to make about the terrain within which this change is being made is that it really is not strictly correct to claim—I am afraid the Minister is prone to doing so—that the money spent on this scheme, both historically and now, is somehow money that has come from Government. It does not come from Government. There is an obligation on energy companies to provide warm home discounts and then retrieve the money they have spent on those discounts from other customers. This particular iteration of the warm home discount is no different in that respect. It expands the total envelope available to £475 million, with a four-year extension, and it increases the payment by £10 to £150 a year. That extension will be recovered by the energy companies from customers, and in some instances they will actually be taking money back from people who receive the warm home discount so that they can give the discount in the first place.
Dr Caroline Johnson (Sleaford and North Hykeham) (Con)
Forgive me if I have misunderstood, but the hon. Gentleman seems to be making the point that the money for the warm home discount will be coming back from customers and not from Government. Surely if the Government were to give out that money directly, it would have also come from those customers through taxation?
Dr Whitehead
Yes, that is indeed an alternative. That money could come from general taxation, as it does in some of the Government’s recent schemes—the boiler upgrade scheme, for example, is Exchequer funded. The money would come out of general taxation, but that is a very different issue from customer bills at the moment. Arguably, it is much more equitable in terms of the effect it would have on customer bills.
I am concerned about the extent to which a lot of Government schemes, such as the green gas grant and so on, are effectively funded by levies. Those levies go on customer bills. In this instance, according to the impact assessment, the measures we are debating will likely pass on to customers an increase from the £14 under the previous warm home discount scheme to about £19 for a dual-fuel account. That is no mean increase.
In the impact assessment, the Government estimate the increase of £5 a year in the average energy bill and state:
“However, given other price protection in place, including the energy price cap, the Government believes this is appropriate for providing help to an additional 750,000 households in or at risk of fuel poverty.”
The Government think it is fine to do that. However, that £5, therefore, together with probably £90 to come from the socialisation of suppliers of last resort and with a number of levies from other people, will be included in the price cap. As the price cap goes up next year, it will take account of the fact that about £100 of the increase is now on socialisation of the expenses to be incurred by energy companies, which have been taken account of by Ofgem in order to bring the price cap into place. That will add substantially to bills at a time when the last thing we should be doing is adding anything more to customer bills in general, given the desperate circumstances we are in.
I would advocate placing the increase into the same regime as that for the boiler upgrade scheme, putting it in as Exchequer funding. That has to be paid for, but it will be by a different and wider group of people, not by individual customer accounts as they come through.
Kevin Brennan
An alternative would be to pay for a scheme of this kind through progressive taxation, spreading the burden more fairly towards those who can afford to pay. In the Government’s own assumptions in their impact assessment, is it not the case that the impact will be to reduce energy usage by many of the customers whose bills increase? Therefore, those who do not qualify for the warm home discount and are just above that level might also find themselves in difficulty when heating their homes and running their appliances.
Dr Whitehead
Indeed. It will be precisely the households that are in considerable difficulty and just outside the scope of this measure, expanded though it is. They will be coughing up to sort out the people who are within the band and, in so doing, ironically, might put themselves in fuel poverty as a result of contributing in that way.
The time is right for a review of not just the arrangements for energy initiatives, but whether the principle of levies to support such an arrangement ought to be put aside, at least for the time being. I note that in 2016 the Minister’s Government said that there would be no new levies until 2025. However, the Government have substantially moved away from that. I am not saying that we should not press ahead with the measures; I am saying that we should expand them if necessary, but that they should be funded by progressive general taxation, so that those who are able to afford them more contribute, and that those who are able to afford it less are protected from the consequences of the socialisation of the arrangements, as we have seen this afternoon.
I hope that my comments will be regarded as constructive in consideration of the legislation, but that the Minister will take good note of my questions and thoughts to guide the policy as it goes through, so that we will be able to reflect shortly that this is a fair, expanded policy that hits fuel poverty in the way that we hope it will.
Kevin Brennan
It is a pleasure to serve under your chairmanship, Mr Efford, and to contribute this afternoon. I echo a lot of the remarks of my hon. Friend the Member for Southampton, Test from the Front Bench, but I have a few questions based on what the Minister and the Government have said their policy intentions are.
I wonder whether the Minister could explain what the impact of this change in policy will be on disabled customers. From his remarks and what the Government say in the explanatory notes and impact assessment, some disabled citizens who currently qualify for the warm home discount may no longer qualify under the changes. The Minister referred to core group 2 and means-tested benefits and so on, and he went on at one point to say that there would be some kind of initiatives for disabled people. Will the Minister elucidate that for the Committee? How many disabled people will be affected by those changes, and what will be the effect of the Government’s new initiative? I did not quite understand what that meant in practical terms for disabled people.
The Minister referred to 2.8 million people benefiting from the policy, and I was unclear whether he was saying that that referred to people in core group 1 or whether 2.8 million is the total figure. Government material on this refers to around 3 million people being able to benefit from the policy. I accept that the Minister might say that 2.8 million is around 3 million, but it is 200,000 fewer households across the country than 3 million. That is 300 households in each constituency. The Government’s impact assessment says that 3.2 million people are affected by fuel poverty, so that is another 200,000 on top. That would mean that on average 600 households in fuel poverty in each one of our constituencies—I accept it will be different from constituency to constituency—are unlikely to benefit from this programme. Half of those households would fall into that figure of 3 million were the Government planning the policy in such a way that could cover 3 million people rather than 2.8 million.
I suppose my question, Minister, is: why did the figure settle at 2.8 million rather than 3 million, which the Government were indicating was the sort of target they were looking for in assisting people? In the exchanges I just had with my hon. Friend the Member for Southampton, Test, we were pointing out that some people are just on the edge of this policy, and the Government admit in their own figures that they are in fuel poverty. That is what it says in the impact assessment. On page 10, it says that there are 3.2 million households. In fact, it gets slightly worse. I was digging down, and on page 25, it says there are 2.79 million. That is another 10,000 households down on the Government’s original target. That is a significant number of households when adding it up across our constituencies. Would it be possible, when designing core group 2—where there is, I believe, some flexibility around the definition of those who will be helped—to include more of those households that are not covered by this policy but are, under the Government’s definition, households in fuel poverty?
I accept that the Government have set an envelope, and as my hon. Friend pointed out, it is not an envelope based on Treasury funds or taxpayer money. It is an envelope of funds that will affect people’s fuel bills. That is significant in this time of high inflation and high, rising energy costs. It is significant that at least 400,000 households in fuel poverty will not be covered by the warm home discount change, and that 200,000 of those might have expected to be, given that the Government’s initial target was 3 million, rather than 2.8 million. I hope that the Minister will be able to enlighten us further.
Greg Hands
I thank the Opposition and welcome their support in principle for these important measures, which will expand the scheme and deliver more money to people, in particular over the course of this coming winter. It is important that we do not lose sight of the centrality and importance of what the Government are doing, on top of the other bill-support measures that we have introduced—to which I will refer, because they are relevant to some of the questions I was asked.
The hon. Member for Southampton, Test always gives such proposals a forensic eye. He correctly said that this is money not from the Government, but from other bill payers He was absolutely right and we should not lose sight of that. His proposal, if I understood it correctly, was to expand the numbers, which the hon. Member for Cardiff West also said. It is worth pointing out, however, that expanding the numbers of those who receive the benefit would add to the effective cost, and that would be passed on by the supplier to those who are paying. We should not lose sight of that. He calls for more people to be given it, and I am open to that. If he wants to send me a proposal of how he thinks the warm home discount would look under Labour, perhaps with some costings and the possible impact on the other bill payers, I am happy to look at it.
Kevin Brennan
The Minister makes a reasonable point, as ever, but his civil servants could work up such a proposal for him. However, what was the reason for the policy choice he made to cover only 2.79 million households, when the Government’s own figures state that 3.2 million households are in fuel poverty?
Greg Hands
I am coming on to that in a moment, but let us not get away from the increase that we have just made: the 2.2 million people who currently qualify will rise to 2.8 million people. That is a significant expansion of the scheme. The hon. Member for Southampton, Test was right that going from £14 to £19 is no mean increase for other bill payers, and we should not lose sight of the wider impact of the scheme on other bill payers, but with all such things, it is a question of getting the balance right.
The hon. Gentleman also asked about the automatic discount. One of the great things about its automatic nature is that it greatly reduces the administrative costs. When something becomes automatic, rather than on application, we reduce costs greatly. The recipients we reach will be more vulnerable households and, within the group, the households will be more vulnerable than those in the previous broader group. That is an important takeaway: more households, and the ones we reach are likely to be more vulnerable than under the previous scheme. The new scheme will be less bureaucratic and have lower costs, targeting more people who are in real need, compared with the existing scheme.
The hon. Member for Southampton, Test said that 50% of fuel-poor people are on means-tested benefit, but that figure is actually 69%. That, too, is an important consideration. I think he asked about—he implied—some sort of appeals process for those who might feel aggrieved with the automatic nature of the process. We will provide a digital helpline service, working closely with consumer organisations such as Citizens Advice and National Energy Action, to ensure that we put the best arrangement in place to support those who feel that the scheme has, for example, not adequately assessed their energy costs or some element of their particular household energy circumstances.
The hon. Gentleman asked about looking into the SOLR process to guarantee warm home discount rebates. He is right: the suppliers of last resort are not obliged to take on the warm home discount obligation of a failed supplier. However, we have had more than 20 of these SOLR processes—particularly in the course of the last year and especially last autumn. All suppliers of last resort have so far honoured their obligation in the past. We would expect them to continue to do so. Ofgem takes into account when appointing a supplier of last resort whether the new supplier intends to honour the obligation of the warm home discount.
I will turn now to the points raised by the hon. Member for Cardiff West on the impact on disabled customers. For the broader group, it is currently an application process, and making it an automatic process is likely to overall benefit disabled consumers. It is also worth pointing out the new support that has been announced. Disabled people will be supported with a cost of living payment coming up this autumn. There will be £150 on top of the other arrangements. They could well be receiving the new £650 grant for the lowest-income households. We are already here talking about an £800 extra for many disabled customers. It is characteristic of the hon. Member for Cardiff West to drill and dig deep into the numbers.
Kevin Brennan
Before the Minister moves on, can I pick up on what he just said about disabled customers? In the explanatory notes, the Government say that fewer households in which a person is in receipt of a disability benefit will receive a rebate. My question was: if fewer households in receipt of disability benefit will receive a rebate, what is the effect of the measures he is suggesting in this new scheme on people who will not receive a rebate anymore?
Greg Hands
I thank the hon. Gentleman for that intervention. I repeat what I said earlier. More vulnerable households will be receiving this benefit. Within that group, it will be the most vulnerable households that receive it. I think that is a really important thing to take away. I am happy to write to the hon. Gentleman on the specific numbers, if we have them, of disabled recipients currently in the broader group compared with what we think it might be in core group 2.
The hon. Gentleman has looked at the numbers and compared 2.8 million with around 3 million. We might have a debate on rounding, but I do not think it is fundamentally wrong to say somewhere around 3 million and then for the actual number to be around 2.8 million. I do not think that I was being disingenuous. What is important here is not his missing 200,000, but the fact that the Government are adding 600,000 people to the number of recipients, so it is rising from 2.2 million to 2.8 million. The hon. Gentleman may say there is a missing 200,000, but I say there is an extra 600,000 who are getting it. If the hon. Gentleman wants to propose an alternative costed scheme to me, I would be happy to look at it.
Kevin Brennan
I think that is slightly unfair of the Minister. I am only quoting the figure that was in the Government’s own White Paper and is at the beginning of their impact assessment and explanatory notes, which were both presented to the Committee today. It is not my figure; it is his.
Greg Hands
We may just disagree on rounding. It would not be the first time that 2.8 has been rounded up to being around 3. We can agree to differ. My point is that there are not 200,000 missing people; there are 600,000 extra people.
Greg Hands
Again, I will return to my point. If the hon. Gentleman wants to make a proposal on behalf of the Labour party on how to restructure the warm home discount and how it should be paid for, I am all ears.
The extra number of households is actually leading, per constituency, to a much more considerable sum than the hon. Gentleman was suggesting. The amount of money going into the scheme means that our constituents are benefiting from a considerable increase in the amount of money coming into our constituencies—not a reduction, as he claimed. On the 3 million against the 2.8 million, I have just been reminded that it is not so much about rounding. The differences is about Scotland, because a different scheme will be announced for Scotland. The Scotland scheme will also reach around 200,000 households. That accounts for the difference.
While energy efficiency measures provide long-term assistance in reducing energy bills, there remains a clear need for direct financial support now. This scheme will ensure that 2.8 million households in England and Wales receive a rebate off their energy bill each winter until 2026 at least. The Government remain committed to helping low-income and vulnerable households to heat their homes over the winter. This is largest expansion of the scheme since it began in 2011. In 2021-22, the spending envelope was worth £354 million across Great Britain. In 2022-23, that is rising to £523 million. The expansion of the scheme will mean that around a third more households—not fewer, as the hon. Member for Cardiff West was claiming—will receive a rebate each year. These ambitious reforms to better target households in fuel poverty. The reforms enable the Government and energy suppliers to provide the support automatically and focus the support—the increased support—to those most in the need.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Warm Home Discount (England and Wales) Regulations 2022.