Post offices - securing their future - Business and Enterprise Committee Contents


Memorandum submitted by the Office of Gas and Electricity Markets (Ofgem)

INTRODUCTION

  1.  Ofgem is the regulator of the gas and electricity industries in Britain. Our principal objective is to protect the interests of gas and electricity consumers, both present and future. We do this by promoting effective competition where appropriate and through the effective regulation of the monopoly network businesses. We also have a range of important secondary duties including security of supply, contributing to sustainable development and paying particular regard to the needs of certain groups of vulnerable energy consumers. We are also required, through statutory guidance issued by the Secretary of State, within our sphere of responsibility to help the Government meet its targets for eradicating fuel poverty. Ofgem's Social Action Strategy[57] sets out how we will seek to meet our social responsibilities and help the Government combat fuel poverty.

  2.  Ofgem welcomes the opportunity to contribute to the Committee's inquiry. We have focussed our response on our area of interest, which is the potential role the Post Office network can play in helping to promote financial inclusion and tackle fuel poverty through enabling more people to access direct debit energy tariffs.

BACKGROUND

  3.  Fuel poverty is defined as when a household has to spend 10 per cent or more of its income on energy to maintain a warm home. The Department for Business have estimated that in 2006 there were 3.5 million households in fuel poverty.[58] Subsequent energy price rises will have increased that number significantly, making the Government's statutory target to eradicate fuel poverty by 2016 increasingly difficult to achieve.[59]

  4.  Fuel poverty has three causes: poor housing, low incomes and high energy prices. Tackling low incomes and improving energy efficiency and housing are the most enduring and sustainable solutions to fuel poverty and these are primarily the responsibility of Government.

  5.  There is an important and continuing role for the regulator and industry, as effective competition and regulation will help to provide lower prices for all energy consumers. We at Ofgem are doing what we can to ensure that the market works well and does not disadvantage fuel poor consumers. Recent energy price rises have come at a time when household budgets are under pressure from the rising cost of food, petrol, mortgages and other essentials. Vulnerable consumers and those in fuel poverty are particularly affected.

  6.  In October, we published the initial findings of our Energy Supply Markets Probe, putting the industry on notice to end practices that are failing some customers, and to deliver the full benefits of competition to the entire market. We are proposing a range of actions to help households including: measures to ban unfair price differences, including differences between payment methods; tougher rules on doorstep selling; more transparency in financial reporting; and, new requirements on suppliers to provide information to help consumers to get the best deal. We have now launched a fast-track consultation on our findings and proposed remedies, including those to address unfair price differentials.

  7.  Last April Ofgem convened a Fuel Poverty Summit chaired by Lord Mogg which brought together Ministers, government officials, energy suppliers and consumer organisations and agreed a programme of practical action to improve targeting of existing help to those in fuel poverty and to help more vulnerable energy consumers participate more effectively in the energy market. Through our Social Action Strategy Review Group, chaired by Ofgem Chairman John Mogg, we have on a number of occasions discussed with industry and consumer groups the interplay of this agenda with broader issues of financial inclusion.

  8.  In addition to our work, in September, the Government announced the Home Energy Savings Programme—a £1 billion package of measures jointly funded by government, suppliers and generators to bolster energy efficiency initiatives and provide extra support to vulnerable consumers throughout winter. As part of this package, Government asked the Financial Inclusion Task Force to work with energy suppliers, Ofgem and other stakeholders to develop new ways to encourage greater use of direct debits for bill payment.

  9.  The Taskforce reported on its recommendations in December 2008 noting the strong link between initiatives to promote financial inclusion and those to reduce fuel poverty. It notes that whilst the availability and take up of bank accounts has increased, more work is required to increase ongoing accessibility and active use of transactional facilities in order to maximise the inclusive benefits of banking. This is of particular importance where direct debit for bill payment is concerned as the associated discounts of this method of payment often present a significant benefit to the consumer.

  10.  The Taskforce also recognised that Direct Debit may not be the most suitable payment option for all customers, particularly those whose pattern of income makes it necessary or preferable to budget on a weekly or quarterly basis.

THE POST OFFICE CARD ACCOUNT AND ITS POTENTIAL TO AID SOCIAL AND FINANCIAL INCLUSION

  11.  Our submission focuses on the role of the Post Office network, in particular the Post Office Card Account (POCA), in helping to promote financial inclusion and tackle fuel poverty through enabling more people to access direct debit energy tariffs

  12.  The POCA is an account that can only be used to receive benefits, state pensions and tax credit payments. No other payments, including wages, can be paid into it. With the POCA, customers are able to take out cash and request a balance enquiry, free of charge, at any Post Office using their POCA card and PIN. It therefore enables benefits claimants to better manage their cash without the risk of becoming overdrawn or incurring any charges.

  13.  The POCA is therefore a helpful tool for financially excluded consumers who are unable to access basic bank accounts (no credit checks are carried out when the account is opened). However, the POCA does not provide transactional facilities, ie direct debits or standing orders, or allow receipt of any other funds which means that its benefit as a budgeting and bill payment product is extremely limited.

  14.  Building on the existing POCA system and including additional functionality which would allow for these types of transactional facilities would enable those POCA consumers who are content to pay by monthly Direct Debit (but currently lacking the facility to do so) to access these typically cheaper tariffs.

  15.  However, we do recognise that for those consumers on limited and fixed weekly incomes, monthly Direct Debit arrangements can be difficult to manage and may not be suitable. Therefore the ability to accumulate weekly payments into a holding account for payment on a monthly basis to the supplier would seem the best way of addressing this. Again, this additional functionality could be built into POCA or alternatively the Savings From Poverty (SfP) project,[60] as an example, shows how this could work—however it would still require the POCA to have a transactional facility.

  16.  The SfP scheme proposes a social enterprise initiative to address the problems faced by consumers who are unable to use direct debit, while at the same time addressing the corresponding increase in cost to industry. The proposed scheme would augment the POCA, allowing other payments to be paid into it and providing an ATM withdrawal facility as well as a budgeting sub-account feature with a transactional facility. This facility would enable bill payment and debt repayment across a range of public and private sector bills.

  17.  SfP assert that inability to access cheaper utilities tariffs and other cost benefits related to direct-debit results in poorer consumers paying a 'poverty premium' totalling around £1,000 household, per annum. SfP's research with a sample of energy and water companies estimates that the cost to serve vulnerable customers is 2.4 times higher than for non-poor customers (because of debt write off and the high administrative costs associated with outstanding debt).

  18.  SfP argue this scheme addresses the problem inherent in the inflexibility of monthly bank direct debits which they claim can undermine effective cash budgeting schemes and increase the risk of debt accrual.

  19.  We believe that there is a real opportunity here, with the decision to award the Post Office Card Account to Post Office Ltd, to build on and enhance the current POCA to enable these consumers to have this additional transactional functionality. This would in turn allow them to access direct debit energy tariffs and the cost benefits associated with these, typically cheaper tariffs. This would also contribute to the Government's on-going financial inclusion agenda and support the work of the Taskforce, Ofgem, energy suppliers in this area.

  20.  I hope that this information is useful to the Committee. If Members have any further questions, my colleagues and I would be happy to provide more detail.

January 2009










57   http://www.ofgem.gov.uk/Sustainability/SocAction/Documents1/sapstrategbroa4july07.pdf Back

58   The UK Fuel Poverty Strategy 6th Annual Progress Report, October 2008. http://www.berr.gov.uk/files/file48036.pdf Back

59   In England, the Government's target is to eliminate fuel poverty for vulnerable households (containing children or those who are elderly, sick or disabled) by 2010 and 2016 for all households. For the Devolved Administrations the target for overall elimination is by 2016 in Scotland and 2018 in Wales. Back

60   www.transact.org.uk/core/core_picker/download.asp?id=412 Back


 
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