Memorandum submitted by Barnardo's and Save the Children's (EN 01)

 

 

1. Introduction

 

1.1. Barnardo's works directly with more than 115,000 children, young people and their families in over 390 services across the UK. We provide a range of services to the most vulnerable and witnesses every day the impact on children and families of living in grinding poverty.

 

1.2. Save the Children fights for vulnerable children in the UK and around the world who suffer from poverty, disease, injustice and violence. We work with them to find lifelong answers to the problems they face.

 

1.3. Save the Children and Barnardo's believe Government is letting down the hundreds of thousands of the UK's poorest children living in fuel poverty by failing to include compulsory social tariffs in the Energy Bill.

 

 

2. What fuel poverty means for children and families

 

2.1. Fuel is an essential basic necessity for households to keep warm, heat water, cook food, etc. which most of us take for granted. For those living in fuel poverty (that is, spending more than 10% of their household income on fuel), the consequences are ill health, extreme discomfort, and increasing debt. Some families are regularly faced with the choice of 'eat or heat'. Save the Children interviewed 1580 low-income families in the summer of 2006 and 28% of parents interviewed said their children had to go without basic items such as food, clothes, and a warm home in winter.[1] Families with young children suffer disproportionately from the financial strain because they need to keep their home heated during the day.

 

2.2 One family told Barnardo's; "In the winter you are sat there with 3 kids and a two bar electric fire... it's a choice between putting the fire on or using the cooker to cook your dinner. So you end up cooking your dinner and sitting there with more clothes on than the people outside... and it's always the weans that end up suffering."[2]

 

2.3 The number of households living in fuel poverty in the UK has risen to around 4 million since 2003 as a direct result of rising prices. At least 750,000 children live in fuel poor households.

 

 

3. Hitting the poorest hardest: The impact of payment methods

 

3.1. Many families getting by on low incomes rely on pre-payment meters to pay for the gas and electricity they use so they can limit how much they spend, helping with effective budgeting.

 

3.2. Vanessa, a young mum in Wales, told Barnardo's "I had the token meter put in because it's easier and you know where you are. The only way to get a meter is to get into debt with the suppliers - otherwise you pay 80".[3]

 

3.3. On average, pre-payment meters cost 127 more per year for the same amount of fuel than if you were to pay a bill by direct debit. In total, energy companies are estimated to be charging customers using pre-payment meters 543 million per year more than direct debit customers[4]. The pre-payment system penalises the poorest for taking prudent steps to manage their money so that they are able to pay for their gas and electricity as they use it.

 

3.4. But fuel suppliers often give low-income families no choice but to use a pre-payment meter. People without bank accounts are not able to access alternative tariffs and energy providers often install pre-payment meters to recover debt, giving consumers no option but to pay higher tariffs, fuelling the debt spiral they are in. In 2006, 334,000 pre-payment meters were installed for this reason.

 

3.5. The problem is exacerbated by the difficulty many families living in poverty have accessing information about alternative tariffs and providers. Many families living in poverty may not have access to the internet and so cannot benefit from often cheaper online rates. Pre-payment meters cost on average 195 per year more than online tariffs.

 

 

4. What are social tariffs?

 

4.1. Social tariffs are special payment arrangements offered by providers to make energy affordable for those on low-incomes.

 

4.2. Although we recognise that all providers offer social tariffs, the current voluntary approach is in effect an energy assistance lottery. The efficacy of the concessions that are offered varies dramatically from provider to provider.

 

4.3. Some social tariffs have been exposed as more expensive than the best deals, typically online tariffs, offered by the same provider. For example, recent Energywatch research showed that while EDF Energy offer a social tariff that equates to a saving of 151 per annum compared to their lowest "non social" priced gas and electricity offers, the social tariff offered by British Gas works out at 96 more than their lowest priced online tariff. [5]

 

4.4. There is also huge disparity in the proportion of providers' customers that qualify for social tariffs. For example, British Gas offer their social tariff to 4.67% (750,000 people) of their consumer base, while it is only available to 0.34% (26,000 people) of Scottish and Southern Energy customers. [6] These disparities serve to highlight the limitations of a voluntary approach within a competitive market framework and strengthen the case for legislation to ensure that social tariffs are offered in accordance with minimum standards.

 

4.5. In the 2007 Energy White Paper, the government said; "We see the provision of assistance to help their most vulnerable customers as a key part of each company's Corporate Social Responsibility programmes, and will be looking for each company to put in place a proportional programme of assistance. If no further action is undertaken by companies, we will consider whether to take the opportunity for legislation to enable the Secretary of State to require companies to have an adequate programme of support for their most vulnerable customers. In this context, we may consider the role of mandated minimum standards for social tariffs in the context of the review of the policy framework."[7]

 

4.6. The voluntary system of social tariffs has shown itself incapable of meeting the needs of the most vulnerable consumers. With 4 million households continuing to struggle in fuel poverty, the current system is undermining the government's other steps to reach its own goal of ensuring "every home is adequately and affordably heated."[8]

 

4.7. Save the Children and Barnardo's believe government should use the Energy Bill to mandate the provision and minimum standards of social tariffs requiring energy suppliers to provide eligible households with their lowest tariff possible.

 

4.8. With the Government off-track for both its target of eradicating fuel poverty in vulnerable households by 2010, as well as halving child poverty by 2010, social tariffs are an essential tool to help meet both of these important targets.

 

4.9. We will be supporting Energywatch, with the National Consumer Council and National Energy Action in lobbying for a new clause on social tariffs and minimum standards.

 

February 2008



[1] Making Ends Meet, 2006: Save the Children commissioned nfpSynergy to interview1,500 parents across the UK. All these parents were living below 60% median income.

[2] from an interview for Barnardo's report: Sharma, N. 'It doesn't happen here: The reality of child poverty in the UK' Barnardo's, 2007

[3] Sharma, N. 'It doesn't happen here: The reality of child poverty in the UK' Barnardo's, 2007 pg 55

[4] Cornwall Energy Associates, for Energywatch 'Proportionality of social tariffs and rebates' January 2008

[5] Cornwall Energy Associates, for Energywatch 'Proportionality of social tariffs and rebates' January 2008

[6] Cornwall Energy Associates, for Energywatch 'Proportionality of social tariffs and rebates' January 2008

[7] Meeting the Energy Challenge: A White Paper on Energy May, DTI, 2007 pg 80

[8] Meeting the Energy Challenge: A White Paper on Energy May, DTI, 2007 pg 23