How Darling could ease fuel bills
March 10, 2008
Four-and-a-half million households in the UK struggle to pay their gas and electricity bills.
They live in what's called fuel poverty, spending more than 10% of their income on fuel.
With bills rising by up to 17% and energy firms' profits increasing, the Chancellor, Alistair Darling, is looking to gas and electricity companies to help fund any new measures to help these households.
Treasury ministers have been meeting executives from the major energy firms to try to find a suitable solution ahead of Budget Day, 12 March.
The introduction of a voucher scheme to help vulnerable bill payers was suggested, but this has been widely criticised.
So what could the chancellor do?
He may decide to build on existing schemes.
When the winter fuel payment was introduced, the £200 paid to the over-60s covered one third of the average bill. It now covers only one fifth, so the chancellor is expected to increase the winter fuel benefit.
Energy campaigners National Energy Action (NEA) would like to see this payment also extended to low income families with young children and those with disabilities.
NEA estimates these additional recipients would add an extra £350m a year to the current £2bn cost of the winter fuel payment scheme.
The chancellor may also provide more money to boost energy saving measures.
In December 2007, the government compelled energy retailers to spend £1.5bn over the next three years on improving energy efficiency measures in people's homes. This could be extended.
But although measures such as free loft and cavity wall insulation would reduce bills, they may not give the direct relief many are asking for.
What are the energy companies doing?
Energy companies say they do more to help their customers than any other industry.
Some offer social tariffs, of varying degrees of generosity, which aim to cut the bills of vulnerable customers.
Some of these special rates aim to tackle the problem that the poorest households often do not have access to the cheapest tariffs, as they do not pay by direct debit.
Consumer group Energywatch complains that supply companies need to do more to help, as they spend only 0.11% of their £24bn annual turnover on social tariffs, which help only 1 in 15 of those in need.
To improve this, the government could require all energy companies to offer social tariffs and introduce a minimum industry standard.
What happens in other countries?
Ministers could look to the Irish Republic, where 450,000 people in receipt of government pensions and benefits are given a proportion of their gas and electricity free.
In 2006 (the latest available figures) the measures cost Irish taxpayers 116.7m euros (£89.3m), an average of 255 euros (£195) per bill.
What about a windfall tax?
The Treasury would prefer to agree a fuel poverty plan with the industry, but the possibility of a compulsory windfall tax has been widely discussed in the media.
When asked about it at Prime Minister's Questions, Gordon Brown pointed to the billions of pounds of windfall profits energy generators are set to make.
A change in the European Emissions Trading Scheme means firms get a number of pollution permits for free.
These are worth £9bn, prompting regulator Ofgem - which is currently investigating the industry - to suggest a windfall tax to help ease fuel poverty.
But this would affect the industry unevenly.
Since it is a tax on generators, retailers who do not produce their own power would not have to pay, whilst generators who do not sell directly to customers would be hit.
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