Memorandum submitted by Ofgem
INTRODUCTION
1. Ofgem is the regulator for the electricity
and gas industry. Ofgem's principal statutory objective is to
protect the interests of consumers, wherever appropriate by promoting
effective competition. Ofgem also has a statutory duty to have
regard to the interests of a range of vulnerable groups, including
consumers on low incomes. In line with guidance from Government,
within the sphere of its responsibility, Ofgem also contributes
to the achievement of the Government's fuel poverty targets.
2. This short submission to the Committee's
inquiry sets out how promoting financial inclusion contributes
to the achievement of Ofgem's objectives, and describes work Ofgem
is doing to help further the financial inclusion agenda.
THE ROLE
OF FINANCIAL
INCLUSION IN
THE ENERGY
MARKET
3. Ofgem's broad approach is to promote
competitive energy markets to give consumers choices over ways
to reduce their fuel bills. Such opportunities extend to switching
supplier, changing to direct debit for paying bills, and taking
up energy efficiency measures. In the current climate of rising
wholesale costs feeding into energy bills, it is important that
low income customers in particular take advantage of all the options
available to them for keeping their bills as low as possible.
Among other things, this also helps avoid the build up of debt.
4. While Ofgem acknowledges that a great
deal of progress has been made in increasing access for low income
households to mainstream financial products such as bank accounts,
it remains the case that some households still operate solely
on a cash basis, either because banking products do not give them
the facilities they need, or they lack the financial education,
advice and support needed to take them up. This is of concern
to Ofgem because some of the most favourable tariffs are available
via direct debit and depend on access to suitable banking services.
OFGEM'S
WORK ON
FINANCIAL INCLUSION
5. Through its Social Action Strategy, Ofgem
has a number of activities which contribute to financial inclusion.
6. Together with a number of other partners,
Ofgem is supporting the Factor 4 Project, a pilot operated by
the Birmingham Credit Union Development Agency bringing together
energy efficiency advice; money and debt advice; access to savings
accounts and low cost loans; and bill payment services.
7. More generally, working with the energy
industry and other stakeholders, Ofgem has helped promote the
development of several energy industry initiatives to reduce debt
and disconnection, and contribute to the reduction of fuel poverty.
Industry initiatives include a "safety net" to prevent
disconnection of vulnerable customers, and the Home Heat Helpline
providing access to debt and benefits advice, and other help such
as special tariffs.
DIRECT DEDUCTIONS
FOR FUEL
BILLS
8. An area where Ofgem is keen to see more
progress made is in facilities to enable low income customers,
particularly those on benefits, to have direct deductions for
payment of fuel bills. In this area there is currently a rather
limited direct deductions scheme known as Fuel Direct, which is
operated by DWP for benefits claimants threatened with disconnection.
This is a scheme which fuel companies and consumer groups would
like to see expanded, so that it is more generally available as
a budgeting tool. DWP have indicated that the current scheme is
designed as a last resort measure, and that any wider expansion
would be more appropriately undertaken by use of direct debits.
DWP draws attention to the fact that most benefits are now paid
direct into bank accounts.
9. The Government's work, alongside the
banks and the Post Office, on the Universal Banking Programme
is very welcome. However, there are still barriers to address.
The Post Office Card Account, which has 4 million active accounts,
has no direct debit facility. While basic bank accounts do provide
direct debits, these are based on monthly deductions which can
be unsuitable for many low income customers who are used to budgeting
weekly (reflecting the fact that benefits are drawn weekly). When
customers become overdrawn they face heavy penalty payments. In
order to benefit fully from financial inclusion, low income customers
need a means of weekly electronic bill payment that does not permit
them to become overdrawn.
10. Ofgem is keen to promote discussion
among relevant stakeholders, and work with energy companies, on
ways in which improved systems could be introduced to overcome
these barriers to financial inclusion.
CONCLUSION
11. Ofgem welcomes the Committee's inquiry
into financial inclusion which is an opportunity to review how
further progress on the above issues can be made. Ofgem will be
happy to support the Committee's work with any further advice
or information it considers would be helpful.
January 2006
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