Draft Warm Home Discount (England and Wales) Regulations 2022
(Limited Text - Ministerial Extracts only)
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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.
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.