Warm Home Discount (Amendment) Regulations 2014

Baroness Maddock Excerpts

Monday 3rd March 2014 Grand Committee

[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.