Annex
ANNEX FROM THE DEPARTMENT FOR WORK AND PENSIONS
The following information about Fuel Direct in relation
to the Committee's report may be helpful.
1. For those on low incomes for whom a PPM is
unsuitable, our witnesses were unanimously of the view that one
of the most effective methods of payment was Fuel Direct. This
is a scheme for the automatic regular deduction of small sums
of money from certain types of benefit to repay fuel debt for
people who cannot easily budget and who are in imminent danger
of disconnection. It is a method of last resort. However, use
of Fuel Direct has declined over recent years. Ofgem said the
number of people on the scheme had decreased four or five times
over the last ten years. This seems to be because of the limitations
of the scheme rather than through any decrease in the number of
people for whom it would be helpful. (Paragraph 40)
It is true that use of Fuel Direct has markedly declined
over time. In August 1997, 168,000 people were on the scheme;
this had dropped to only 40,000 by August 2004. The report suggests
that "the limitations of the scheme" are responsible
for this decline, rather than a fall in the number of people needing
to use it.
However, this view is not well supported by the evidence.
For one thing the declining trend is not confined to deductions
for fuel. There are 10 items for which deductions can be made
from benefit, and the majority have experienced a decline during
the same period. The availability and provisions of Fuel Direct
have remained constant while its users have fallen away. Nothing
within the scheme itself seems to account for the downward trend.
The answer could therefore lie after all in a decline in the eligible
population or, more precisely, a decline in the eligible groups
within that population who were once major users of Fuel Direct
but are now much less so.
Pensioners, the unemployed, lone parents and disabled
people are all groups eligible for Fuel Direct if they receive
income support, income-based jobseeker's allowance or Pension
Credit. In practice its use has always tended to be dominated
by working age customers. This may be because pensioners, usually
retired and settled, are less prone to the kind of domestic crisis—unemployment,
injury, relationship breakdown for instance—which can disrupt
household finances and may precipitate the need for a last-resort
scheme like Fuel Direct to step in (usually temporarily). Thus,
for example, of the 168,000 on Fuel Direct in 1997 only 18,000
were pensioners (10%), while the leading user was lone parents
with 84,000, exactly half.
Since then, the income-related pension population
has either remained roughly the same year on year or marginally
increased. However, as employment has flourished, there has been
a corresponding decline in the numbers receiving either jobseeker's
allowance, or income support as lone parents. In turn, this decline
has been mirrored in a fall in the numbers of those two client
groups on Fuel Direct—and also on the other deductions from
benefit whose clientele is mainly drawn from the same two groups.
This is illustrated most noticeably by the drop in
the number of lone parents on Fuel Direct. As the total number
of lone parents receiving income support has reduced from over
a million in August 1997 to 832,000 in August 2004, so the number
who are also on Fuel Direct has plummeted from the 84,000 in 1997
mentioned above to only 16,000 in Aug 2004 (the fact that this
is still 40% of the total, however, reinforces the conclusion
that there is a strong link between the drop in Fuel Direct usage
and the decline in its user groups). Meanwhile as the number
out of work and receiving income-based jobseeker's allowance has
in the same period virtually halved from over 1.3m to 673,000,
their number on Fuel Direct has dwindled from 15,000 to only just
over 1,000.
There are other factors contributing to this steep
downward trend. Increased household incomes generally, low energy
costs over a sustained period, more use of prepayment meters,
individual 'social' tariffs—all these have played their
part. But the main reason for it appears simply to be that the
market, so to speak, for Fuel Direct, has shrunk. Since the scheme
is essentially one of last resort designed to help a minority
in difficulty—some temporarily, others chronically—a
decline in its usage, all other things being equal, seems in terms
of overall customer welfare more of an encouraging trend than
one which should cause concern.
2. First, Fuel Direct is confined to a small number
of qualifying benefits—currently just income support, Jobseekers
Allowance and the pension credit. Both the energy companies and
the charities who gave evidence to us believed that the range
of qualifying benefits should be widened: British Gas's list,
which was endorsed by several other witnesses, comprised disability
living allowance, attendance allowance, long-term incapacity benefit,
the retirement pension and income support with disability premium.
(Paragraph 41)
While it is not incorrect to say that eligibility
for Fuel Direct is "confined to a small number of qualifying
benefits", this may give a misleading impression given that
the three benefits concerned represent in combination a catchment
area of around five million people. Yet only a small proportion
of this eligible population is on Fuel Direct. A large proportion,
or a high refusal rate for applications, might point to a significant
unmet need and suggest a case for widening both eligibility and
qualifying conditions. But neither applies. It therefore seems
unlikely that extending eligibility for the scheme to disability
benefits and retirement pension—ie to households whose income
is normally higher than those on the basic income-related benefits,
and who may also have capital resources—would capture as
many more, or enough, vulnerable people than are already eligible
for the scheme to justify the cost of extending it in this way.
It should also be remembered that taking deductions
from benefits raises sensitive issues. It is often argued that
such deductions interfere with the financial independence of those
on the lowest incomes, sometimes even causing hardship. Mindful
of this the Government seeks to try and achieve a balance between
offering a helping hand to people in difficulty and avoiding what
might be perceived as overly intrusive action.
3. Just as significantly, the current scheme is
complex, bureaucratic and expensive for the fuel companies. Deductions
are arranged by the local social security offices, so the energy
companies have to contact these offices direct—there is
no central approval/clearing system. Furthermore, the system for
arranging deductions has not been automated, and each local social
security office has its own, differing administrative procedures
for the scheme. It is difficult for the energy companies to cope
with the plethora of different requirements. We were told that
one of the main barriers to wider use of Fuel Direct had been
the Department of Work and Pensions ('DWP'). Both the charities
and the energy companies had discussed with DWP expanding the
range of benefits and simplifying the administrative procedures.
Ofgem told us that it had "pressed Ministers" on the
subject several times in recent years. DWP's response had been
that there would be opportunities for improving the scheme "once
they got everything automated". Ofgem told us that the transfer
of benefit payments to Automated Credit Transfer (ACT) represented
a tremendous opportunity to improve Fuel Direct but DWP would
have to invest more in automation so that other types of debt
could be repaid in this way, which would make the operation of
the system more cost-effective. Ofgem noted that this would also
require the collaboration of all relevant government departments.
(Paragraph 42)
In the Government's view this paragraph (and the
parts of paragraph 44 to which it relates) is also misleading.
The argument for change here does not clearly distinguish between
two entirely separate issues: improvements to ensure the scheme
works in the way intended; and a change in what the scheme itself
is designed to do.
First, the suggestion reported here that "each
local social security office has its own, differing administrative
procedure for the scheme" and the energy companies are struggling
with "the plethora of different requirements" is incorrect.
Fuel Direct is a national scheme, directed by guidance derived
from regulations, and by a detailed agreement between the DWP
and the utility companies themselves—joint undertaking setting
out aims, objectives and agreed practices—which applies
to all local offices. Moreover the scheme is overseen by a central
unit responsible not only for the operation of Fuel Direct nationwide
but also the other items in the DWP's Third Party Deduction system
of which Fuel Direct is one part.
Broadly speaking, the scheme operates consistently
across the piece. The fact that the success rate of applications
for Fuel Direct is roughly the same wherever they are made—around
three in four—is strong evidence of that. And the results
of Ofgem's own recent questionnaire to six major energy companies
about their relationship with DWP around Fuel Direct also confirmed
a high applications success rate, and did not reveal any major
difficulties.
However, the results did also confirm occasional
instances of local departure from correct procedures, or the introduction
of novel ones, of the kind which the fuel industry has already
brought to the Department's attention. As a result, action has
either already been taken or set in train to remedy any deviations
from, or incorrect interpretation of, prescribed procedures where
they occur. The fuel companies also have a standing invitation
to report any apparent local difficulties to the Third Party Deductions
(TPD) unit which oversees the scheme, who will pursue any such
referrals. DWP is keen to maintain the productive liaison which
currently exists between TPD personnel and energy industry contacts.
The automation of administrative procedures also
mentioned in paragraph 42 is another area where improvements are
being made. The procedure for arranging deductions itself cannot
be automated, because each individual application requires the
judgement of a member of staff acting within defined boundaries.
But the process by which bulk monthly payments are made to the
utility companies has now been largely automated and streamlined.
While the Department is committed to any measures
necessary to ensure the scheme works as it is supposed to, for
the benefit of all stakeholders, it has consistently and unambiguously
gone on record as saying that it has no current intention to widen
the scheme's provisions (nor curtail them in any way); and that
while it is prepared to discuss any proposals for change, such
ideas would need to be compatible with wider welfare and work
strategies.
DWP sees the automation of benefit payments not as
an opportunity to 'revive' an essentially minority scheme like
Fuel Direct but to promote the wider use of bank accounts within
the shifting benefit population: this is part and parcel of the
DWP's campaign to tackle the problems of financial exclusion by
encouraging people into the financial mainstream.
In the final analysis, the wider use of direct debit
to pay household bills is the most advantageous option for the
customers whether they are on benefit or not. To modify Fuel Direct
so that it would act not only as a safety net as at present but
also be available, as it were, on demand, would be to create an
additional budget management or debt prevention service exclusively
for people on benefit. This stands to hinder the progress made
towards financial inclusion, as well as running counter to promoting
individual responsibility.
It also carries the implied assumption that the benefit
population is a static one. On the contrary, the Government has
a clear objective to provide work for everyone who can. The transition
from welfare to work is smoother for people already equipped with
the advantage of direct debit, especially where it is discounted
(as most fuel debits are). Conversely, a person reliant on and
comfortable with a benefit-specific Fuel Direct arrangement may
find it more difficult to manage when they move into work.
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