Select Committee on Treasury Written Evidence


Memorandum submitted by the Fuel Poverty Advisory Group

  1.  The Fuel Poverty Advisory Group was set up by the Government (in particular Defra and DTI) to provide advice on the practical measures needed in England to meet its targets of eradicating fuel poverty. The Group consists of representatives from a wide range of organisations, including NGOs and energy and energy efficiency companies. A list of members and the terms of reference are attached.

  2.  Households are considered to be in fuel poverty if they have to spend 10% or more of their income on meeting their energy needs. The extent of fuel poverty thus depends upon incomes, the prices paid for energy, and energy efficiency. Financial inclusion is relevant to the prices paid for energy. Customers who are on direct debit pay about 10% less for electricity and gas than those who pay by other means (cash, cheques) or who have pre-payment meters. If, therefore, customers pay by direct debit they save about £70 per annum on their energy bills. This is a sizeable sum and financial inclusion on energy alone would make a significant contribution to the alleviation of fuel poverty and poverty more generally.

  3.  However, direct debits are currently unattractive for many low income customers. There are very high charges if an account is overdrawn as a result of a direct debit; direct debits are usually taken monthly rather than weekly and this is not suitable for many on low incomes; and the use of direct debits can leave the customer uncertain how much he/she has available for other needs.

  4.  The direct debit system should, therefore, in our view be made more suitable for low income customers. Ideally there should be automatic matching of credits and debits. In other words as soon as funds come into a customer's account the agreed amount should, with the customer's consent, be deducted and sent to the energy supplier (or other recipient). If the recipient cannot accept such payments weekly, then there could be a holding account. This approach would ensure that the customer is never overdrawn as a result of a direct debit and that all the money in his/her account would be available.

  5.  We recognise that this system might not be suitable for all customers, especially for those with very strongly fluctuating incomes.

  6.  There has been some discussion of this, but so far there has been no real drive to bring forward a solution of this kind. It is FPAG's view that it would be reasonable for the banks to make a contribution to poverty and fuel poverty by providing better direct debit systems for low income customers, and hence for them to help to promote financial inclusion. The six major companies supplying electricity and gas to homes currently spend about £150 million per annum on fuel poverty programmes under statutory obligations and another £100 million voluntarily (according to estimates from Ofgem, the electricity and gas regulator). Banks and financial institutions should, in a similar way, make a contribution voluntarily by securing a better direct debit system. If this voluntary approach proves not to be possible then there should be statutory obligations.

  7.  Peter Lehmann the Chair of FPAG would be very happy to give oral evidence along with one or two other members of the Group.

January 2006





 
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