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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