Fuel Poverty Measures Should Show the Way to Affordable Credit

A report in today's Observer (see below) highlights the need to force energy companies to introduce 'social tariffs' to ensure that low income households can access the energy services they need at prices they can afford. Efforts to encourage the industry to establish voluntary mechanisms to look after these consumers have failed, according to the National Energy Association and Npower. The result has been an horrendous increase in the level of fuel poverty -households are defined as being in fuel poverty where they spend more than 10% of their disposable income on fuel bills.

There are lessons here for those seeking to ensure access to financial services, and to affordable credit for people on low incomes. The Financial Inclusion Taskforce is behind the game. Whereas the Government has set binding targets for the energy industry to eliminate fuel poverty in England by 2010 and across the UK by 2016, no such ambition has been set out for the Financial Inclusion Taskforce or the financial services industry to establish access to affordable credit. In fact, even the term 'affordable credit' remains undefined by the Taskforce. Despite this lack of precision, a recent mapping exercise has been conducted by the Taskforce to establish those areas of Great Britain that have the least access to affordable credit. The results are confusing as they give no indication of the level of resources necessary to solve the problem of rip off credit provision to the poor. And there is no evidence of effective pressure being exerted by the Government or Taskforce on banks to meet even those gaps in provision that have been revealed. The Growth Fund for credit unions and third sector lenders of just £45 million being devoted to this purpose is woeful in its inadequacy.

Debt on our Doorstep's research last year into the debt burdens of low income households revealed that the poorest households are paying an average of 11- 12% of their incomes on unsecured debt repayments. Using the same definition of poverty as is used in relation to fuel, that puts somewhere approaching one fifth of the population, those in the lowest income quintile, in debt poverty. As Alistair Darling approaches his budget preparations, he would do well to set out some targets and mechanisms to deal with this including a responsibility for banks to deliver services to low income communities at affordable prices.

Energy companies should be appladed for recognising the need for Government intervention to force a level playing field in the industry and to secure services for low income consumers. Now is the time for banks to accept that the financial services market requires the same medicine.

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Npower admits laws needed on fuel poverty
Tim Webb
The Observer,
Sunday March 9 2008

This article appeared in the Observer on Sunday March 09 2008 on p3 of the Business news & features section. It was last updated at 00:04 on March 09 2008.

RWE Npower has privately admitted that energy companies will only tackle fuel poverty effectively if the government forces them to do so.

The energy industry has been trying to resist moves to force companies to do more to help the soaring numbers of 'fuel poor' in this week's Budget. The government has set a legally binding target to end fuel poverty in England by 2010, and across most of the UK by 2016.

But in a letter to energy regulator Ofgem in September, Npower admitted that the government's approach to date, to encourage companies to offer more subsidised or 'social' tariffs to poorer households on a voluntary, as opposed to compulsory, basis would not work.

'At present, government is encouraging the delivery of a social action solution within a voluntary framework,' the company said in the letter. 'It is doubtful whether this is the most efficient approach and it is also seemingly inconsistent with a market framework.'

It went on: 'We believe that the interest of the fuel poor is best served by a mandatory social tariff and this is the only means by which the government's 2010 and 2016 objectives can be achieved. There is no obvious reason why these targets will be delivered within a competitive retail market.'

This weekend, the government was still considering how to address fuel poverty in the Budget. The companies are expected to escape a windfall tax if they contribute a 'voluntary' levy to help those struggling to pay their bills.

Energy companies currently spend just 0.11 per cent of their £24bn turnover on tackling fuel poverty on average. Spending varies: British Gas, owned by Centrica, spends 0.49 per cent of its turnover, while Scottish and Southern Energy and Npower spend just 0.07 per cent. Many of these supposedly cheaper tariffs are actually more expensive than the tariffs offered to other customers. For example, British Gas's social tariff for gas and electricity is on average £96 more expensive per year than for ordinary customers paying by direct debit.

At the end of last month, Energy Minister Malcolm Wicks reiterated to fuel poverty charity National Energy Action that the government would not introduce mandatory social tariffs.
Jenny Saunders, chief executive of National Energy Action, said: 'It would be preferable to have a legislative framework, rather than rely on the goodwill of companies for a one-off gesture. Some companies are doing their bit but to have a genuinely socially just energy market the government will have to intervene.'

Fuel poverty is defined as a household which spends more than a tenth of its income on heating and lighting.