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BRIEFING PAPER

Number SN 05956, 6 May 2016

The Warm Home Discount Scheme

By David Hough

Inside: 1. The Warm Home Discount

Scheme 2. Details of the WHD scheme 3. Impact of the WHD scheme

on fuel poverty 4. Future changes to the scheme

Number SN 05956, 6 May 2016 2

Contents Summary 3

1. The Warm Home Discount Scheme 4 1.1 Who benefits from the scheme? 4 1.2 How many households benefit from the scheme? 4 1.3 What’s the level of discount? 4 1.4 How is the discount is distributed? 5 1.5 How long will last? 5 1.6 How is it funded? 5 1.7 What are the origins of the scheme? 6 1.8 How is the spending distributed? 7 1.9 Who is responsible for the scheme? 7 1.10 What about Sctoland? 7

2. Details of the WHD scheme 9 2.1 Core Group 9 2.2 Broader Group 10 2.3 Legacy spend 12 2.4 Industry Initiatives 12

Park homes 12 Energy advice 13

3. Impact of the WHD scheme on fuel poverty 13

4. Future changes to the scheme 14

Annex 1 Reaction to the original Warm Home Discount scheme 15

Contributing Authors: David Hough

Cover page image copyright: Radiator by Adem Djemil. Licensed under CC BY 2.0 / image cropped

3 The Warm Home Discount Scheme

Summary This Commons Library Briefing Paper looks at the Warm Home Discount scheme (WHD). The scheme started on 1 April 2011 and was originally to end on 31 March 2015. Since then it has been extended twice, first until 2015/16 and most recently until 2020/21.

The WHD scheme is part of the measures designed to help those in fuel poverty; further discussion can be found in the Commons Briefing Paper Fuel poverty.

Information on sources of help for constituents with domestic energy bills can be found in the Library Briefing Paper Help with energy bills. The Commons Library Briefing paper on The Energy Company Obligation sets out details of funding to improve energy efficiency in the homes of ‘those most in need’ and in difficult to treat housing.

Outline of the WHD scheme

The scheme offered a rebate on electricity bills, of £120 in year 1, rising to £140 in year 4 (it is at this level now). The funding comes from the participating energy suppliers and it is assumed they then pass these costs on to all consumers through their energy bills.

The original scheme replaced earlier voluntary social tariffs offered by energy suppliers and was first suggested by the Labour Government before being introduced by the Collation Government.

The scheme is aimed at two distinct groups.

• The “Core Group” consists of older pensioner households on low-incomes who are in receipt of the guarantee element of pension credit; it is a clearly defined group.

• The “Broader Group”; this is largely left to energy suppliers to define, within a framework set by Ofgem and the relevant Regulations.

The WHD has been generally welcomed, though several voluntary organisations raised concerns during the original consultation period in 2010 as well as post-implementation. In particular they argued that the limited funding for the Broader Group and its discretionary nature may not help many who fall into less well defined vulnerable groups, notably families in fuel poverty with small children or those with disabilities.

Extension to 2015/16

The extension of the scheme to 2015/16 extended the eligibility criteria for the ‘Broader Group’ of the scheme.

Extension to 2016/17 and to 2020/21

On 8 April 2016, the Government published its consultation document on an extension to the scheme for 2016/17 (Warm Home Discount Scheme: extension to 2016/17) and an impact assessment . The Government proposes to keep the scheme unchanged for 2016/17 in respect of the Core and Broader Groups. Further details for the period to 2020/21 are to follow in 2017 and are expected to be linked more closely to other fuel poverty initiatives.

Scotland

It is proposed that the Scottish Government will have some powers with respect to the Warm Home Discount though the way the money is raised will remain a reserved power.

Number SN 05956, 6 May 2016 4

1. The Warm Home Discount Scheme

1.1 Who benefits from the scheme? The WHD provides for mandatory social price support to reduce energy bills for the most vulnerable. There are four broad categories for support, these are:

• The Core Group consists of older pensioner households on low-incomes who are in receipt of the guarantee element of pension credit; it is a clearly defined group.

• The Broader Group; this is largely left to energy suppliers to define, within a framework set by Ofgem and the relevant Regulations.

• A group of Legacy Households who benefit from transitional arrangements, whereby suppliers may continue providing support to the types of customers who have benefited from social and discounted tariffs and rebates; this ended in 2014/15.

• Households that could benefit from Industry Initiatives. Under a previous Voluntary Agreement, suppliers undertook a number of initiatives to provide assistance to customers in fuel poverty or at risk of fuel poverty beyond direct financial support.

1.2 How many households benefit from the scheme?

In the Second Annual Energy Statement of November 2011, the Secretary of State said that the scheme was worth two thirds more than its predecessor:

The warm home discount will support up to 2 million homes each year, helping more than 600,000 poorer pensioners, with £120 off their energy bills this winter. Other vulnerable people will also be eligible for a rebate. That discount scheme is worth two thirds more than the voluntary scheme that operated under the last Government. 1

1.3 What’s the level of discount? The level of annual discount in the WHD scheme was £120 in 2011/12 rising to £140 by 2014/15. The level of discount remains at that level in 2015/16 and, in the absence of any further information, is assumed to remain at that level in the years to 2020/21.

On 8 April 2016, The Government published a consultation document and impact assessment on extending the scheme to 2020/21.2

1 HC Deb 23 November 2011 c299 onwards 2 DECC Warm Home Discount Scheme: extension to 2016/17 and impact assessment

8 April 2016

5 The Warm Home Discount Scheme

1.4 How the discount is distributed? Eligible households for the scheme receive discounts on their electricity bills. This method was chosen rather than other types of energy bills to ensure that the widest number of people would have access to the scheme. In particular, that those living off the gas grid would be able to get help. 3 Originally this meant that those who did not have a contract direct with an energy supplier, such as some people who lived in park homes and whose electricity is supplied by a landlord, were not eligible.4

However, in the extension to the scheme to March 2016 the Government has allowed suppliers to devise a scheme to offer discounts to those in park homes under the Industry Initiatives part of the scheme (see section 3.4 below). 5

1.5 How long will it last? The Warm Home Discount Regulations 2011 came into force on 1 April 2011. 6

The WHD originally ran from April 2011 to March 2015 and has been extended twice as follows:

• The first extension was announced in January 2015, when the scheme was extended to March 2016. 7

• The second extension was announced in November 2015 in the Autumn Statement 20158 when the scheme was extended to 2020/21. Details have only been published so far for the year 2016/17.9

1.6 How is it funded? The funding comes from participating energy suppliers and it is assumed they then pass these costs on to all consumers through their energy bills.10

The participating energy suppliers are any who have over 250,000 domestic customer accounts plus others who have elected to take part.11 DECC has set out the list of participating suppliers. Suppliers’ obligations are in proportion to their share of the domestic energy market.

3 DECC, Consultation on the Warm Home Discount, 2 December 2010, para 46 4 HC Deb, 12 Dec 2013 : Column 362W 5 DECC Warm Home Discount – 2014 Consultation and extension to 2015/16 29

January 2015 (page 18) 6 Warm Home Discount Regulations 2011 (SI 2011/1033) 7 DECC Warm Home Discount – 2014 Consultation and extension to 2015/16 29

January 2015. 8 Autumn Statement 2015: para 1.141 9 DECC Warm Home Discount Scheme: extension to 2016/17 8 April 2016 10 DECC press release, 'Warm Home Discount' to provide money off energy bills, 2

December 2010 11 Regulation 5 of the 2011 Regulations

Number SN 05956, 6 May 2016 6

Suppliers were required to spend annually, in aggregate, £250 million in 2011/12 rising to £310 million in 2014/15. 12

In the first extension to the scheme this was increased to £320 million in 2015/16. 13

DECC estimates that this spending adds around £13 to the average annual domestic energy bill 14

In the second extension, the level of spending to 2020/21 will be maintained at £320 million per annum rising with inflation.

Andrea Leadsom, Minister of State, DECC said:

The Government announced in the Spending Review on 25 November 2015 that the Warm Home Discount scheme would be extended to 2020/21 at current levels of £320m per year, rising with inflation, to help households who are at risk of fuel poverty with their energy bills.15

1.7 What are the origins of the scheme? The Labour Government set out the UK’s targets for fuel poverty under its 2001 strategy,16 but these were not met in 2010. 17

Various measures were used to tackle fuel poverty since those targets were set. In particular, there was a Voluntary Agreement between the Government, Ofgem and the major energy supply companies for a scheme of social price support tariffs.18

In 2009, the Labour Government made a commitment to move from a voluntary to a statutory scheme.19

The Energy Act 2010 gave the Secretary of State for Energy and Climate Change powers to require energy companies to make available at least £300 million per annum by 2013/14 to spend on social support. 20

In November 2010, the Coalition Government confirmed that it would exercise these powers and it confirmed the levels of social price support.21

The Department for Energy and Climate Change (DECC) published a consultation on the new social price support scheme – a scheme it called the “Warm Home Discount” (WHD) on 2 December 2010.22

An impact assessment was published alongside the consultation.23 This gave estimates of the overall costs and benefits of the scheme and

12 DECC, Consultation on the Warm Home Discount, 2 December 2010, p15 13 DECC Impact Assessment Warm Home Discount Extension 8 January 2015 14 DECC Estimated impacts of energy and climate change policies on energy prices and

bills 2013, 2014 15 HC Deb 1 December 2015 Written answer 17532 16 The UK Fuel Poverty Strategy, November 2001 17 further details are set out in the Library Briefing Note Fuel Poverty 18 Ofgem Monitoring suppliers' social programmes 2009-10 for details 19 HC Deb 15 July 2009 c295 20 Department of Energy and Climate Change website, Energy Act 2010 [on 1 July 2010] 21 HC Deb 15 Nov 2010 c607W 22 DECC, Consultation on the Warm Home Discount, 2 December 2010 23 DECC, Warm Home Discount Scheme: Impact Assessment, 2 December 2010

7 The Warm Home Discount Scheme

looked at different options that the Government considered. The consultation closed on 14 January 2011

The Government response was published on 28 February 2011. 24 Alongside this a new impact assessment was produced which incorporated changes to the scheme included in the Coalition Government’s consultation response. 25

1.8 How is spending distributed? The obligation level and its distribution across the four elements are given in the table below. Details of each element to the scheme are set out in the following sections. 26

The breakdown for 2015/16 and for the years to 2020/2021 have not been published; the total in each year is £320 million (plus inflation).

1.9 Who is responsible for the scheme? Responsibility for different aspects of administering the WHD scheme is set out in Ofgem guidance.

• DECC has overall responsibility for coordination and oversight and liaises with the Department of Work and Pensions (DWP), Ofgem and contactors providing the data matching.

• Ofgem monitors and assists the suppliers to ensure compliance with the WHD Regulations.

• The suppliers are responsible for paying the rebates.

1.10 What about Scotland? Decisions on the design and implementation of the WHD will be devolved to the Scottish Government as recommended in the Smith Commission report which said:

Powers to determine how supplier obligations in relation to energy efficiency and fuel poverty, such as the Energy Company Obligation and Warm Home Discount, are designed and implemented in Scotland will be devolved. Responsibility for setting the way the money is raised (the scale, costs and

24 DECC, Government response to the Consultation on the Warm Home Discount, 28

February 2011 25 DECC, Warm Home Discount Scheme: Impact Assessment, 28 February 2011 26 DECC Warm Home Discount web page [24 January 2012] and Ofgem Guidance for

Licensed Electricity Suppliers and Licensed Gas Suppliers19 May 2011

Split of WHD obligation expenditure groups - £million cash prices

2011/12 2012/13 2013/14 2014/15 2016/17

Core Group 97 143 159 190 181Broader Group 3 47 88 90 112Total Legacy spending and Industry Iniatitives Cap 150 85 53 30 30 Legacy Speding Cap 140 70 35 0 0 Industry Intiatives Cap 30 30 30 30 20Total 250 275 300 310 323

Sources: DECC WHD Impact Assesments 2011 and 2016

Notes: figures for 2016/7 are based on the budget estimates

Number SN 05956, 6 May 2016 8

apportionment of the obligations as well as the obligated parties) will remain reserved.27

In reality it is likely that the proposed a change will not materially affect the application of the WHD in Scotland. 28

Changes were included in the Scotland Act 2016.

Scottish Ministers will have the powers to design and implement a fuel poverty scheme supplier obligation for Scotland. Certain aspects of the scheme will remain reserved to the Secretary of State, including the spending target. Scottish Ministers may, however, choose to target the scheme in Scotland differently, based on their specific needs.

Scottish Ministers will be obliged to consult on a future scheme for Scotland and if they were to exercise their devolved powers in 2017 that would coincide with likely further changes to the GB scheme in 2017. 29

27 Report of the Smith Commission for further devolution of powers to the Scottish

Parliament, 27 November 2014 28 Devolution (Further Powers) Committee: Implementing the Smith Agreement - The

UK Government’s Draft Legislative Clauses – Energy clauses, Evidence by Aileen McHarg, Professor of Public Law, University of Strathclyde, 5 March 2015

29 DECC Warm Home Discount Scheme: extension to 2016/17 8 April 2016

9 The Warm Home Discount Scheme

2. Details of the WHD scheme

2.1 Core Group Expenditure for the Core Group is the majority of spend from energy suppliers over the five years of the scheme.

Eligibility for the Core Group is linked specifically to the type of benefits received.

For winter 2011/12, a rebate of £120 off electricity bills were provided to older people where, on the qualifying date of 11 September 2011:

• they were in receipt of the Guarantee Credit element of Pension Credit but not the savings credit element

• their energy supplier is participating in the scheme and • their or their partner’s name is on their electricity bill 30

All those that meet these criteria have received a letter from the government notifying them of their eligibility for a Core Group payment.

Energy suppliers will use the list of those eligible and will be required to credit this rebate to the accounts of customers with standard credit or direct debit accounts and put alternative arrangements in place to pay the rebate to those customers on pre-payment meters. The vast majority of payments for 2011/12 were to be made by 31 March 2012. 31

The payment is made including VAT, so in some cases customers will see their bill credited for less than £120, with the VAT element shown lower in the bill.

The following summarises the widening eligibility criteria and increasing annual discount (or rebate) for the Core Group for the four years of the scheme. The value of the rebate has been retained at £140 for 2015/16.32

30 Regulation 6 of the 2011 Regulations 31 Consumer Focus briefing on the WHD dated 25 October 2011 32 DECC Warm Home Discount – 2014 Consultation and extension to 2015/16 29

January 2015 and Autumn Statement 2015, November 2015

Year Value of

rebate

Assumed number of recipients

(millions) Eligibility

2011/12 £120 0.8 In receipt of Pension Credit Guarantee Credit only (i.e. no Savings Credit).

2012/13 £130 1.1In receipt of Pension Credit Guarantee Credit only (i.e. no Savings Credit).80 and over* and in receipt of Pension Credit Guarantee Credit and Savings Credit.

2013/14 £135 1.2In receipt of Pension Credit Guarantee Credit only (i.e. no Savings Credit).75 and over* and in receipt of Pension Credit Guarantee Credit and Savings Credit.

2014/15 £140 1.4In receipt of Pension Credit Guarantee Credit only (i.e. no Savings Credit).All in receipt of Pension Credit Guarantee Credit and Savings Credit.

Source: Warm Home Discount Scheme: Impact Assessment, DECC (February 2011)

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The discount will be retained at £140 for 2016/17; it has not been decided what will be the precise nature of the scheme in the remaining years to 2020/21 (see discussion in section 6).33

2.2 Broader Group The Broader Group is not so clearly defined. The Government wanted to give energy suppliers flexibility to provide support to a wider group of vulnerable households who lie outside the Core Group; and who they believe are suffering from or are at risk of fuel poverty; for example, groups such as low income families and those with long-term illnesses and disabilities.

A non-exhaustive list of groups that may be included in the Broader Group is given in Schedule 2, Part 1 of the 2011 Regulations (see below). Inclusion on this list however, does not mean that a person is automatically entitled to any benefit.34

In the first four years of the scheme, this list was meant principally as guidance for energy suppliers as to the types of people likely to be deemed suitable for inclusion in the Broader Group. The 2015 Regulations made it compulsory for all participating suppliers to include most of the list in their eligibility criteria and added two further compulsory categories (see below). 35

The participating suppliers have had their own sets of eligibility criteria approved by Ofgem and have a limit on the number of customers who can benefit. The actual criteria used will vary as it depends on the electricity supplier for a particular household.

These consumers will not be identified through data sharing between Government and the energy suppliers; instead each supplier will make its own arrangements to find eligible customers.36

The WHD regulations set out a pre-defined list of Government benefits which suppliers may use subsets of as their eligibility criteria for customers to qualify for Broader Group rebate payments. These benefits are split into four groups:37

1. A person who is in receipt of income support and—

(a) has parental responsibility for a child under the age of 5 who ordinarily resides with that person; or

(b) is in receipt of a qualifying component.

2. A person who is in receipt of income-related employment and support allowance which includes a work-related activity or support component and—

(a) has parental responsibility for a child under the age of 5 who ordinarily resides with that person; or

33 DECC Warm Home Discount Scheme: extension to 2016/17 8 April 2016 34 DECC, Government response to the Consultation on the Warm Home Discount, 28

February 2011, p24-25 35 Ofgem Guidance for Licensed Electricity Suppliers and Licensed Gas Suppliers, 30

March 2015 p27 36 DECC Warm Home Discount web page [24 January 2012] 37 Warm Home Discount Regulations 2011 (SI 2011/1033) Condition 1

11 The Warm Home Discount Scheme

(b) is in receipt of a qualifying component.

3. A person who is in receipt of income-based job seeker’s allowance and—

(a) has parental responsibility for a child under the age of 5 who ordinarily resides with that person; or

(b) is in receipt of a qualifying component.

4. A person who is in receipt of state pension credit.

Apart from the benefits in the fourth group, the rest of the criteria were made compulsory for all suppliers to use in the extension to March 2016; but in addition, two further criteria were added to list of compulsory criteria::

4. A person who is in receipt of universal credit, and is not in work or is self-employed,

and—

(a) is in receipt of the limited capability for work element, with or without a work related

activity element;

(b) is in receipt of the disabled child element; or

(c) has parental responsibility for a child under the age of 5 who ordinarily resides

with that person.

5. A person who is receiving child tax credit by virtue of an award which is based on an

annual income not exceeding £16,190, and—

(a) is in receipt of a qualifying component falling within paragraph (a) or (b) of the

definition of “qualifying component” in Part 3; or

(b) has parental responsibility for a child under the age of 5 who ordinarily resides with that person.”.38

Given that the Broader Group is primarily designed to provide assistance to those customers not targeted by the Core Group, suppliers are required to minimise the overlap between those customers receiving Core Group rebates and those customers receiving Broader Group rebates.39

As with Core Group rebates, Broader Group rebates must be made through electricity accounts. They will also be of the same value as the Core Group rebate (see table above), rising to £140 by 2014/15. 40 The level continues at £140 in 2015/16.

For 2016/17 it is proposed that the same level will be continued. For the remaining years to 2020/21, no final decisions have been made.41

38 The Warm Home Discount (Miscellaneous Amendments) Regulations 2015 (SI

2015/652) section 15 39 Ofgem Guidance for Licensed Electricity Suppliers and Licensed Gas Suppliers19 May

2011 40 Ofgem Guidance for Licensed Electricity Suppliers and Licensed Gas Suppliers19 May

2011 41 DECC Warm Home Discount Scheme: extension to 2016/17 8 April 2016

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2.3 Legacy spend As a transitional arrangement, suppliers may continue providing support to the types of customers who have benefited from social and discounted tariffs and rebates under the Voluntary Agreement which ran to March 2011.42 Unlike the Core and Broader Groups, supplier contributions on Legacy Spending can be made through either a customer's electricity or gas account. 43 The amount of Legacy Spending which can be counted towards WHD obligations will decrease over the four years of the scheme to zero.44

Suppliers' Legacy Spending is also limited because suppliers are not allowed to extend either the eligibility criteria or numbers benefiting from those in the last year of the Voluntary Agreement.45

The Legacy Spend was, as planned, removed for 2014/15. 46

2.4 Industry Initiatives Under the previous Voluntary Agreement, suppliers undertook a number of initiatives to provide assistance to customers in fuel poverty or at risk of fuel poverty beyond direct financial support. 47

These initiatives can be particularly helpful in targeting support at those that need it most.

Under the WHD scheme, suppliers are able to meet part of their non-core spending obligation through funding certain Industry Initiatives. The WHD introduces new restrictions and limits on activities which can count towards the scheme, which must also provide value for money. 48

Park homes As noted above, the scheme now also makes it possible, under the Industry Initiatives section of the scheme, for suppliers to voluntarily offer rebates to customers who live in mobile homes, where previously they could not receive them without a direct electricity account with a participating supplier.

DECC’s Call for Evidence on Energy Issues Affecting Park Homes 49 noted that those living in park homes (one type of mobile home) are often older, likely to be vulnerable to adverse weather conditions, and are more likely to live in rural areas and have lower than average incomes. This suggested that park home residents are more likely to be

42 Ofgem Monitoring suppliers' social programmes 2009-10 43 Ofgem Guidance for Licensed Electricity Suppliers and Licensed Gas Suppliers19 May

2011 44 ibid 45 ibid 46 Ofgem Guidance for Licensed Electricity Suppliers and Licensed Gas Suppliers, 30

March 2015 47 Ofgem Monitoring suppliers' social programmes 2009-10 48 Ofgem Guidance for Licensed Electricity Suppliers and Licensed Gas Suppliers19 May

2011 and Warm Home Discount Regulations 2011 (SI 2011/1033) Schedule 4 49 DECC Call for Evidence on Energy Issues Affecting Park Homes 22 July 2014

13 The Warm Home Discount Scheme

fuel poor on average, and therefore should be able to access WHD support. 50

Energy advice Suppliers are now expected to provide energy advice to consumers who receive the various types of support through Industry Initiatives, as government recognises the value of helping consumers to manage and get the best from their energy use. 51

3. Impact of the WHD scheme on fuel poverty

The 2011 impact assessment estimated the net change in fuel poverty resulting from the WHD. 52This gave separate estimates of the gross total who would no longer be defined as fuel poor53 because of the rebate and the number who would be drawn into fuel poverty because of the increase in fuel bills needed to fund the WHD. Details are given below.

50 The Warm Home Discount (Miscellaneous Amendments) Regulations 2015 (SI

2015/652) section 16 51 Ofgem Warm Home Discount Annual Report 2014-15 , October 2015 52 DECC, Warm Home Discount Scheme: Impact Assessment, 28 February 2011 53 A household that needs to spend more than 10% of its income on energy to provide

a comfortable level of heating. See Library Note Fuel Poverty for the more recent definition of ‘Fuel poverty’

Estimated change in fuel poverty due to the WHDHouseholds in Great Britain

2011/12 2012/13 2013/14 2014/15

Removed from fuel poverty 161,000 158,000 169,000 172,000

Shifted into fuel poverty 73,000 71,000 67,000 74,000

Net change -88,000 -87,000 -102,000 -98,000

Source: Warm Home Discount Scheme: Impact Assessment, DECC (February 2011)

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4. Future changes to the scheme The Fuel Poverty Strategy for England highlighted the challenge of increasing effective targeting of Fuel Poverty Schemes. It set out that Government would look for opportunities to extend the use of data matching wherever practical and appropriate. This will improve targeting and maximise the potential for automated identification of fuel poor homes, as well as delivery of any future energy bill support schemes.54

As noted earlier, the current Warm Home Discount Scheme comes to an end in March 2016. New Regulations are required for the WHD scheme to continue. Government proposes to keep the scheme unchanged for 2016/17.55

In the longer term, the Government has said that it will consult on future measures to streamline delivery and to consider whether we can improve the targeting of support towards fuel poor households in greatest need.

The Government says that these improvements would potentially enable them to provide working-age customers and families, currently supported through the Broader Group, with Core Group-style automatic rebates for the first time.

The Government are also exploring options to bring new datasets to bear, including Government-held energy efficiency data, which could pave the way for rebates to be prioritised for those in the coldest homes. This is consistent with the commitments in the Fuel Poverty Strategy for England to target support at Low Income High Costs households and to do so through better use of data.

The Government recognise that many of the fuel poverty and energy efficiency schemes do not capture those in fuel poverty who are not on benefits. They want a more joined up approach with the Energy Company Obligation and propose that they adjust and widen the criteria suppliers currently operate within, to include activities that would support households that are not eligible for, or cannot be delivered to cost effectively under, an Energy Company Obligation e.g. those in deeply rural areas or who are not in receipt of benefits. The Government are looking for responses to its consultation to see ways of achieving this.56

54 DECC Cutting the cost of keeping warm: A fuel poverty strategy for England

cm9019 March 2015 55 DECC Warm Home Discount Scheme: extension to 2016/17 8 April 2016 56 Ibid

15 The Warm Home Discount Scheme

Annex 1 Reaction to the original Warm Home Discount scheme There has been an on-going debate about how best to target help to those in fuel poverty, since the population is a constantly shifting one (see the Library note on Fuel Poverty).

Many voluntary organisations commented during the WHD’s consultation phase in 2011. In general, they sought wider spending on the Broader Group, or for some of the poorest families to be included in the Core Group.

Consumer Focus produced a wide ranging critique of the WHD.57 Its main concerns were:

• the difficulty of targeting the fuel poor; particularly as the costs of WHD are passed on to all consumers thus the groups excluded from the target group face a double- whammy of receiving no subsidy and a higher fuel bill

• the exclusion of significant groups of the fuel poor from the Core Group, in particular families with small children and those with disabilities.58 This is contrary to the precedent, for example, in government energy efficiency programmes, where the “super priority” group in the Carbon Emissions Reduction Target (CERT) programme specifically targets these vulnerable groups59

Consumer Focus proposed

greater consistency in the Government’s approach by extending WHD to recognised ‘super priority’ households – those eligible to Cold Weather Payments and low income families with school-age children thus extending the coverage of the WHD to another one and half million low income households over the two million targeted by the WHD scheme

The cancer charity Macmillan expressed similar concerns, saying that it was disappointed that people with terminal illnesses would not receive automatic support under the scheme:

'While we're pleased the Government has recognised the need for cancer patients on certain benefits to be targeted by energy providers, we are deeply disappointed that they have ignored calls for terminally ill cancer patients to automatically receive the rebate. 60

The Energy Retail Association (ERA), which represents gas and electricity suppliers and Citizens’ Advice) each responded to the consultation with concerns about how the Broader Group would be defined61. The ERA 57 Consumer Focus Reaching the fuel poor: Making the Warm Home Discount Work

February 2011 58 Consumer Focus press release, Fuel poverty scheme may miss chance to cut energy

bills of poorest families and disabled, 23 February 2011 59 Standard Note Carbon Energy Reduction Target January 2012 60 Medical News Today, Macmillan Comments On The Government's Warm Home

Discount Consultation Response, 1 March 2011 61 See sections 2.1 and 2.3 for fuller descriptions of the Broader Group

Number SN 05956, 6 May 2016 16

was concerned about the administrative complexity it would put on energy suppliers to find and define participants for the group: 62

The Broader Group poses major policy challenges. Under current proposals, the acceptable method(s) of identifying and verifying eligible households for the Broader Group rebate is currently left undefined, as are the proxies for fuel poverty.

If this situation remains, the administrative burden imposed on energy suppliers (and thus the impact on non-eligible households) will be dictated by Ofgem and not Government; the onus would be on suppliers to find proxies for fuel poverty that the Authority considers justifiable

Citizens Advice also said that it should be up to the Government, and not energy suppliers, to define participants in this group:63

Citizens Advice welcomed Government’s action to put the Voluntary Agreement on a mandatory basis. However, we are perplexed why the same rationale does not apply to questions relating to guidance about the Broader Group. Instead, Government proposes that “suppliers will be able to assess who most needs this support among their customers”. We recommend that a more consistent approach should be adopted by Government, one that clearly defines who is eligible for the WHD discount among the Core Group, and also for the Broader Group.

Citizens Advice recommended

• that the Core Group should be extended to include these [vulnerable] groups, using receipt of cold weather payments (CWP) as a sensible proxy for identifying them.

• that DECC should extend the data-sharing powers in the WHD Regulation as Cold Weather Payments are made automatically so the Department for Work and Pensions (DWP) already has information about eligible households

According to National Energy Action (NEA), this would have added a further 1.4 million eligible non-pensioner households, all of whom were “self-evidently vulnerable and on a low income”, making in total (on current eligibility criteria) some 4.1 million households to benefit from WHD.

In its consultation, the Government rejected the idea of energy bill rebates linked to energy consumption or to social tariffs:

Rebates linked to energy consumption: While these would not disincentivise switching and thus would meet our principle relating to competitive energy markets, such rebates would not meet our other principles.

As the level of the benefit would fluctuate depending on changing patterns of energy usage, it would provide less of a clear and consistent benefit for consumers. In addition, it would be more difficult for suppliers to predict spending on benefit provision for the Core Group and providing a legally robust reconciliation mechanism between suppliers would be more complicated if rebates of different levels were provided to eligible consumers.

62 Energy Retail Association, Warm Home Discount consultation 14 January 2010 63 Citizens Advice Bureau, The Warm Home Discount, 18 January 2011

17 The Warm Home Discount Scheme

Social and discounted tariffs: Ofgem have defined a social tariff as the lowest enduring tariff offered by a supplier in that region, on any payment method. Many suppliers also offer discounted tariffs to vulnerable groups as part of the Voluntary Agreement which are cheaper than their standard tariffs. However, this form of unit price discount does not meet our principles.

It does not provide a clear or targeted benefit, as different suppliers may offer different benefits to different groups of customers, depending on their tariff regime.

This can make it difficult for consumers to compare and switch energy supplier to ensure they are receiving the best deal, and difficult for Government to reconcile costs between suppliers as they will depend on a number of variables including the level of tariff and level of usage. It is therefore inconsistent with the principle of maintaining competitive markets.64

Since WHD was implemented, Save the Children has launched a campaign65 saying

• WHD is fundamentally flawed because it doesn’t require the energy companies to provide enough funding to support all households on low incomes and at risk of fuel poverty.

• the energy companies are only required to spend £3 million on Broader Group customers in the first year of the scheme. This means only 25,000 households will receive the £120 rebate this year or only 3% of families at risk of fuel poverty

Save the Children proposed that the WHD is extended to all families eligible for Cold Weather Payments (which it says are predominantly low-income families with children under five or a disabled child), at an additional cost of £100 million. 66 It has also called for energy companies to voluntarily contribute extra funding for the Broader Group. 67 Save the Children acknowledges

The funding situation improves over the lifetime of the scheme. In future years the scheme will start to help a significantly higher number of households. There will be enough funding to provide the Warm Home Discount to around 650,000 Broader Group households in years 3 and 4 of the scheme. However, even then, hundreds of thousands of households with children in need of support won’t receive it

64 DECC Consultation on the Warm Home Discount, 2 December 2010, p17-18 65 Save the Children Children’s health at risk as fuel bill crisis leaves 800,000 families in

the cold 4 January 2012 66 Save the Children Rising Energy Costs: The Impact On Low-Income Families

December 2011 67 Guardian 4 January 2012 Poorest families left in the cold by energy suppliers

BRIEFING PAPER Number SN 05956, 6 May 2016

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