Warm Home Discount (Miscellaneous Amendments) Regulations 2015

Baroness Worthington Excerpts

Wednesday 25th February 2015 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, in introducing this debate on the Warm Home Discount (Miscellaneous Amendments) Regulations 2015, I will first give some background on fuel poverty and the warm home discount scheme to provide context to these regulations.

Fuel poverty remains a huge challenge and the coalition Government are committed to tackling that challenge and to helping people, especially low-income vulnerable households, heat their homes. Improving the energy efficiency of homes is the most effective way of reducing energy bills and providing lasting support to the fuel poor. Our current policies are already making a difference. For example, more than 580,000 low-income and vulnerable households will be warmer after receiving measures under the energy company obligation. We also announced, as part of the Autumn Statement, a new £25 million fund that will see up to 8,000 low-income off-grid households benefit from first-time central heating in 2015-16.

However, upgrading our housing stock is a long-term programme and fuel-poor households need help each winter. That is why the Government have a number of schemes in place, including the warm home discount, which provides direct support to customers with their energy. Introduced in 2011, the warm home discount requires electricity suppliers with more than 250,000 domestic customer accounts to provide financial support to their vulnerable customers in respect of energy costs. This winter the eligible customers received a £140 rebate on their electricity bill.

The existing regulations for the warm home discount scheme end in March 2015 and these amendments extend the scheme for another year. This will ensure that 2 million low-income and vulnerable customers can benefit from a rebate again next winter. The warm home discount scheme currently assists two groups of customers: first, the poorest pensioners who are customers of participating electricity suppliers, described in the regulations as the core group customers; and secondly, low-income and vulnerable customers, including poor families and those with disabilities, described as broader group customers. Under the core group, all the poorest pensioners eligible for the scheme who are customers of a participating supplier receive a bill rebate of £140 from their supplier. Customers who fall into the broader group, such as low-income families and those with long-term disabilities, can apply for rebates through their supplier. Customers eligible for the core and broader groups can also benefit from the industry initiatives section of the scheme. Participating energy suppliers are permitted to spend a share of £30 million annually to provide debt assistance, energy efficiency measures and energy advice, among other forms of support, to help these groups of customers make a lasting change to their energy bills.

Since we launched the scheme, around 2 million households in, or at risk of living in, fuel poverty have benefited from lower energy bills each year. As a result of the success of the warm home discount, the Government have committed to extending the support to 2016, with a spending target of £320 million. This is in addition to the £1.1 billion that has been spent over the first four years of the scheme to continue support for the people who need it most. The Government consulted on extending the scheme last October and proposed some small changes to improve its effectiveness, making it simpler and more accessible. Respondents to the consultation were supportive of extending the scheme and on 29 January we published the government response to the consultation.

I turn to the key aspects of the warm home discount next winter that would be implemented by the regulations that we are debating today. First, the core group will remain unchanged. People who have an electricity account with a participating supplier and receive pension credit guarantee will be entitled to a rebate. However, we propose to change the broader group section of the scheme. We intend to introduce a standard set of eligibility criteria. All participating suppliers will have to adopt these while continuing to have the flexibility to offer other criteria alongside.

The standard criteria are based on a variation of the current eligibility criteria for the cold weather payments group—households on certain means-tested benefits. In addition, we have now included low-income working families with an income of £16,190 or less that have a disabled child or a child under five. This change is consistent with the low-income high-cost fuel poverty indicator adopted in England, under which low-income families are the largest group in fuel poverty. This change will simplify the scheme, making it more accessible to this group of customers and removing some of the barriers to switching.

We propose to maintain the value of the rebate at £140 for the extension to the scheme. This means that participating energy suppliers can deliver 71,000 more rebates than would have been the case if we had increased it to £145. These extra rebates will be delivered under the broader group, mostly focused on low-income working-age families.

We also plan to widen the list of approved activities under the industry initiatives section of the warm home discount. First, we have enabled the provision of a £140 rebate to eligible low-income mobile home residents, primarily park homes. Mobile home residents are currently ineligible because in the majority of cases they do not have an electricity account with a participating supplier. What we envisage is that from now on they will be able to apply for a rebate if they are on qualifying benefits. This will be a voluntary measure. However, my officials are working with key stakeholders, including energy suppliers and the Department for Communities and Local Government, to develop a suitable scheme.

Secondly, we are supporting the inclusion of activities that would provide extra support to low-income customers living in non-gas homes or in disadvantaged areas, or to those with health problems or a disability. Customers with a long-term health problem or disability can be detrimentally affected by living in a cold or badly insulated home. The amendments to the scheme would encourage suppliers to provide support to these groups, who may struggle to get assistance through other policies. The consultation response also set out that it could be cost-effective to target low-income customers in disadvantaged communities. If this were the case, participating suppliers could find that they were able to help a larger number of customers at a lower cost. We will also make it compulsory for energy suppliers to provide energy advice to customers when delivering all other industry initiatives, wherever possible. Vulnerable customers will be able to make lasting positive changes as a result of such advice.

We also propose to make some technical changes to improve the operation of the scheme. First, we will put in place a mechanism to apportion any overspend or underspend in this scheme year, based on the suppliers’ market shares this year. Under the current regulations, they would be apportioned based on market shares next year. This is more equitable, particularly given the rising number of energy suppliers participating in the scheme. Secondly, in the event that suppliers overspend by up to 5% this scheme year, they can reduce their obligations by a corresponding amount next scheme year. This applies to the broader group and industry initiative elements of the scheme, and is an increase on the 1% flexibility that existed previously.

The amendments to the warm home discount regulations are necessary to help another 2 million households next winter. The changes that we are making will mean that suppliers will provide assistance to a greater number of low-income families, make the scheme simpler and improve its operation. I commend the regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing the regulations. Tackling fuel poverty is of the utmost importance. It is an ongoing embarrassment for a country of our wealth and standing to have so many people suffering from poor housing quality combined with low incomes, who are unable to afford to heat their homes and keep them in a habitable state. We really must crack that.

I understand the rationale for extending the order by another year, but I have a fundamental question. We are extending it for one year. Why is the programme so short term? It lasted for four years, now for five. Will it last for six or seven, or will we more fundamentally address the issue? I ask that because either the scheme is working, in which case we should put it on a more permanent basis and assess how well it is delivering against our objectives of tackling fuel poverty; or, if we are just using it as a stopgap while we try to find a better solution, should we not get on with that better solution? That is my fundamental question.

The longer-term solution is of course both raising people’s incomes and improving the housing stock. I question whether we are getting the right agents involved in delivering this. We are essentially relying on the suppliers to mediate between those poorer households and fuel poverty. Are suppliers the right people to do that? From my experience of working for a supplier, given a regulation such as this, from which they will see no possibility of making any profit, they will simply find the cheapest possible way to comply and constantly lobby the Government to enable them to do it more cheaply and with less onerous bureaucracy on them. They will not enter into it in the spirit of asking how we crack the problem, because they do not perceive the problem as theirs. They provide electricity and gas, and that is pretty much how they would like to keep it. They do not see themselves as responsible for people’s incomes or the fabric of people’s homes.

On top of that, there is a perverse incentive. We already see demand for electricity and gas falling in this country, and that is having an impact on the power companies’ bottom line. Therefore, I worry that they will try to find ways to meet their obligation without reducing the amount of product that they sell. It does not surprise me that we are now looking at extending the definition to allow them to take measures in non-gas and electricity grid-connected homes, because that suits the business model of them protecting their customers and continuing to sell their products while meeting the broader objective.

That is a very cynical presentation, and I am sure that the Minister can reassure me that some brilliant things are happening under the scheme, but I have not seen evidence that reassures me that that is the best way to approach the fuel poverty problem and that suppliers are the right agents to do this on our behalf. Perhaps the DWP could become more involved. I know that some suppliers will complain that it is hard to find those customers because they do not hold the data. The Government have the data. We are responsible for welfare and the DWP has a role here. Perhaps we should look again at a combination of different government departments being more involved, and getting local authorities more involved. I am not saying that that is the answer, but I raise the question of how, in our attempts to tackle this distressing element of our modern society, we keep scrutinising what we are doing, ensure that it is delivering value for money and ask ourselves: is this working and getting to the root of the problem? Perhaps the noble Baroness can reassure me that this has been, or will be, done. Can she also answer my first question, which was: for how long will we just keep extending this mechanism, and do we need a rethink as to how we approach this problem?

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[Baroness Verma]

My Lords, I am extremely grateful to the noble Lord, Lord Empey, and the noble Baroness, Lady Worthington, for their contributions. I agree with the noble Baroness—we are agreeing a lot today—that it is criminal to have so many of our citizens living in fuel poverty. However, we also have among the most energy-inefficient housing stock in Europe, and we need to address a number of issues at the same time. The scale of this is huge.

To return to today’s order, the response to the question of why it should be extended for a year if it is working so well is that we want to extend it to a year but, as the noble Baroness is aware, the commitments will then be dependent on the next spending round. While we can commit to the extension this year, the next Government will have to make commitments for further extensions, or not. We need to look at the core reasons underpinning why people are living in such inefficient homes and at how we better ensure that we resolve that part of the difficulty. The measures that we have undertaken, whether it is the Green Deal, the ECO or the rollout of the smart metering programme, will all add to helping consumers to take greater charge of how they have control over their own energy needs.

I agree with the noble Baroness that we have a long and high hill to climb, which is why, as she points out, we need to work much better across government. We are working with the Cabinet Office on how we can better data-share. On her question, “Why use energy suppliers?”, the mechanism to deliver this is cost-effective. It is right that we also try to ensure that we do not add extra costs in delivery. If it is in the interests of the suppliers, given that competition is now greater in the marketplace, it will ensure that they deliver better, more effectively and more efficiently; otherwise, they know that the process of switching to another supplier is much easier. There are lots of processes going on, and we need to ensure that those people who need to benefit the most have access to the information.

I say to the noble Lord, Lord Empey, that it would be better to write to him. He has laid out rather a detailed question on Northern Ireland. He has already mentioned the Department for Social Development, which, as he will know well, already offers energy efficiency improvement schemes for low-income households. It would not do justice to his question if I were to skimp on replying now; I would rather write to him and perhaps send a copy to the Committee, if that is agreeable.

[Baroness Worthington]

I am sorry to rekindle the debate. While the Minister was responding, I was thinking that it may be time to introduce some form of test for energy policy to articulate the impact of energy policy decisions on fuel poverty. One of the reasons why I think that might be necessary is, if we look at what is happening with some of the extensive costs coming from last year’s Energy Act—by this I mean the cost of CFDs, for example—it is proposed that those costs should fall only on consumers, not on industrial participants. I can see the logic for that, but it will have the effect of loading those extra costs on to consumers at a time when we have a problem with fuel poverty. I wonder whether we can have a discussion on having a fuel poverty test on policies. We would then at least be aware, when we decide where costs should fall, that we are not blind to the impacts on fuel poverty.

[Baroness Verma]

As the noble Baroness is always aware, I am very happy to take that away and have discussions outside of the Committee with her and any other noble Lord who would be interested in the subject matter. The ultimate goal for all of us is to try to reduce the impact of any extra cost on those who can least afford it. I am very happy to take that away and have discussions with the noble Baroness and others.