Draft Warm Home Discount (Amendment) Regulations 2014
The Committee consisted of the following Members:
† Baldwin, Harriett (West Worcestershire) (Con)
† Barker, Gregory (Minister of State, Department of Energy and Climate Change)
† Binley, Mr Brian (Northampton South) (Con)
† Carmichael, Neil (Stroud) (Con)
† Clarke, Mr Tom (Coatbridge, Chryston and Bellshill) (Lab)
Clwyd, Ann (Cynon Valley) (Lab)
Donaldson, Mr Jeffrey M. (Lagan Valley) (DUP)
† Evans, Graham (Weaver Vale) (Con)
† Harper, Mr Mark (Forest of Dean) (Con)
† Lloyd, Stephen (Eastbourne) (LD)
† McKechin, Ann (Glasgow North) (Lab)
McDonnell, John (Hayes and Harlington) (Lab)
† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)
† Reynolds, Jonathan (Stalybridge and Hyde) (Lab/Co-op)
† Spelman, Mrs Caroline (Meriden) (Con)
† Thornton, Mike (Eastleigh) (LD)
† Whittaker, Craig (Calder Valley) (Con)
Mark Oxborough, Committee Clerk
† attended the Committee
Third Delegated Legislation Committee
Thursday 6 March 2014
[Hugh Bayley in the Chair]
Draft Warm Home Discount (Amendment) Regulations 2014
The Minister of State, Department of Energy and Climate Change (Gregory Barker): I beg to move,
That the Committee has considered the draft Warm Home Discount (Amendment) Regulations 2014.
Good morning, Mr Bayley. It is a pleasure to serve under your beneficent chairmanship. I am pleased to open the debate, which I hope will not detain the Committee too long.
Let me give some quick background on the warm home discount scheme to provide the context for this relatively small amendment. The coalition is committed to tackling the problem of fuel poverty and to helping people—especially low-income, vulnerable households—to heat their homes. The warm home discount scheme is just one of a range of policies in place to address factors contributing to fuel poverty by increasing income or reducing the costs of heating a home.
The scheme was introduced in 2011, and the key aspect is to require electricity suppliers with over 250,000 domestic customers to provide financial support to their most vulnerable customers in respect of energy costs. More broadly, two types of spending are incurred by participating suppliers, and the main recipients of it are two different customer groups. The first group, described in the regulations as the core group customers, are the poorest pensioners who are customers of participating electricity suppliers. The second group are other low-income and vulnerable customers, including low-income families and those with particular disabilities. They receive the second type of spending, which is described as non-core spending.
In the core group, all the poorest pensioners who are eligible for the scheme and who are customers receive a rebate from their supplier on their electricity costs. This winter, that rebate was set at £135, and I am sure it was very welcome for many customers. Other groups, such as low-income families and those with long-term disabilities, can apply for rebates through their supplier, provided their supplier participates in that element of the scheme. Those rebates count as part of non-core spending and are also worth £135 this winter.
Since we launched the scheme, around 2 million households in, or at risk of, fuel poverty have benefited from lower energy bills each year. As a result of the warm home discount’s success, the Government have committed to extend support to 2016, spending £320 million in addition to the £1.1 billion to be spent over the first four years of the scheme under the coalition. That will mean continued support for those vulnerable people who need it most. This spring, we will consult on changes
to the scheme for 2015-16, ensuring the £320 million is spent effectively in helping low-income and vulnerable households.Let me turn now to the specifics of these amending regulations. We aim to give energy suppliers the incentive to spend £34 million more than they are required to this scheme year. This could result in over 250,000—a quarter of a million—more low-income and vulnerable households benefiting from a £135 rebate this scheme year, and it would maintain a smooth upward trajectory of spending each scheme year.
Each year, there is an overall spending target for the warm home discount, setting out the value of assistance that participating suppliers should collectively provide. For 2013-14, the spending target set out in regulations is £300 million. That total spending is divided between the demand-led core group and the non-core spending. On estimating the size of the core group, we set the total non-core spending obligation for suppliers in the forthcoming scheme year by subtracting the core group estimate from that year’s spending target. That means—if Members are still following me—that the larger the number of the poorest pensioners, the smaller the amount that suppliers are required to spend on the other group of households who qualify for a rebate. In other words, the more pensioners there are, the less there is to go round for everyone else.
The size of the core group must be estimated before the start of the scheme each year to inform suppliers and give them sufficient time to prepare for their spending obligations. When my Department set the non-core spending obligation in advance of the 2013-14 scheme year, we estimated that the core group would result in spending of about £200 million. Given a total spending target of £300 million, we set the non-core spending at £100 million. However, six months on, the number of the poorest pensioners was around 300,000 fewer than the Department for Work and Pensions had forecast. That, in itself, is welcome news, but it also has the benefit, we now estimate, that suppliers will spend only £166 million on their core group customers in 2013-14. That means there will be an additional £34 million from the overall spending target that is not required to be spent, as it would have been under the original 2013-14 plan, and which suppliers could use to help other vulnerable households.
As required in the regulations, the Secretary of State has already notified Ofgem of the non-core spending obligation for 2014-15 and has based that obligation on the spending of £266 million in 2013-14. He has added the £34 million underspend against the total spending target this scheme year to the spending target for 2014-15, taking the total spending obligation to £344 million.
Under the current regulations, if suppliers spend more than required, their individual obligations for the next scheme year are reduced by a maximum of 1% of the current scheme year’s non-core spending obligation, even if they overspend by more than 1%. The regulations change the maximum limit to 34% in respect of an overspend in 2013-14, providing an incentive for suppliers to spend above their obligation by up to that amount. For example, if an individual supplier spends 25% more than its individual non-core spending obligation in 2013-14, Ofgem will reduce its obligation in 2014-15 by the same amount. However, spending by suppliers will still be higher next winter than this winter.
The regulations are an attempt to maintain a smooth trajectory in spending between years so that we maintain growth in the number of the most vulnerable households that receive electricity bill rebates year on year and so that we help suppliers in terms of delivery. However, if suppliers incur more non-core spending than they are required to before the end of March 2014, Ofgem will be able to adjust down individual non-core spending obligations for 2014-15 by 30 September once suppliers report their actual spending for 2013-14.
We have consulted on the change, and all respondents were supportive of it. While suppliers have not given us exact forecasts of how many more rebates they intend to provide, some have already decided to spend more than their regulatory obligations in anticipation of this change. The regulations mean that more low-income and vulnerable households may receive £135 off their bills this winter than would otherwise be the case.
In conclusion, this amendment to the Warm Home Discount Regulations 2011 will give suppliers the incentive to provide more rebates to a greater number of low-income families and other vulnerable households this year and, therefore, will provide more in the urgent and important battle against fuel poverty. I commend the regulations to the Committee.
11.39 am
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): It is, as ever, a pleasure to serve under your chairmanship, Mr Bayley. I thank the Minister for his explanation of what are rather technical regulations. I have some queries about some of the details, which I am sure he will address. However, the Opposition are broadly supportive of the regulations’ aims, so today’s exchange between myself and the Minister should be far less partisan—I am sure we will have no need to refer to any “Winnie-the-Pooh” characters today.
Any scheme that provides vulnerable people with assistance with their energy bills is important, so I appreciate the need for the regulations, which provide greater flexibility to manage expenditure. However, there are a few issues I would like to bring to the attention of the Minister for greater clarity.
My first point relates to the number of people who are classified as being in the core group when deciding who receives support through the warm home discount scheme. As the Minister said, the Government have estimated that the number of individuals in receipt of pension credit who qualify for the core group will be around 300,000 below their estimate—that is quite a large number. Could he explain precisely why the number of people in the core group is predicted to fall so sharply in 2013-14? I also hope he can confirm exactly when the Government, or perhaps the Department for Work and Pensions, learnt about the predicted fall in the number of people in the core group? What worries me is that I understand the suppliers were informed of their non-core expenditure obligations before that information was confirmed and released. Could the Minister explain the time frame?
May I urge the Minister to reiterate his assurance, which I believe he gave in his opening comments, that all the 300,000 people who were previously estimated to be in receipt of pension credit, who would have qualified for the core group, but who are now no longer part of that, will still receive assistance as part of the broader group? There would be public concern if 300,000 people,
who are potentially vulnerable, would not benefit from the scheme, when it was originally thought that they would. May I ask the Minister to answer those three specific points? I thank him in advance for his reply.11.41 am
Craig Whittaker (Calder Valley) (Con): I have two questions for the Minster concerning the 300,000 reduction in core customers. Can he confirm that he is convinced that the energy suppliers are making sure that all core customers are being swept up? May I ask how the change is going to help non-core customers in 2014-15 who experience fuel poverty if suppliers that overspend in 2013-14 are allowed to reduce their budgets in 2014-15?
11.42 am
Gregory Barker: I thank the shadow Minister for addressing this issue with his usual Tiggerish enthusiasm and diligence. I will do my best to answer his questions. He asked why the actual number of people in the core group is below the forecast number. The forecast for the number of people who will receive the warm home discount is lower, but the number of people who will actually receive it will not fall if we are able to deliver these amending regulations. Forecasts are, by their very nature, exactly that. The forecasts were produced by the DWP, and we work with its model, rather than the Department of Energy and Climate Change model. Like any model, it is not perfect, and the forecast erred on the side of caution. It is better to be prudent than too optimistic when dealing with vulnerable people.
I would like to follow up on the point my hon. Friend the Member for Calder Valley raised about companies that overspend this year as a result of the change in the forecast. He asked what that actually meant. I can confirm that, although that gives energy companies flexibility, year on year we will still see an increase in the overall spend. There will be some smoothing between one year and the next, but the forecast for 2015-16 is for a further rise. Even if there is some smoothing, we anticipate that more people will be able to benefit each successive year. Anybody who claims the warm home discount this winter whose circumstances do not improve should reasonably expect to receive it next winter as well. Additional customers will benefit, and the number is gradually increasing.
On the question why we engaged earlier with the suppliers, we need—both formally and informally—to give suppliers as much notice as possible of the qualifying date to allow them to prepare. That is not as simple as it seems. There are big consequences for IT systems in delivering these payments, given the large number of people involved. Getting payments to 2 million people is a substantive logistical exercise, even for companies with the resources of the big six. Working with them formally and informally to ensure the efficient delivery of this money to people as soon as possible is important.
I have already confirmed that more customers in both groups will receive help in 2014-15. I have addressed why there was a sharp fall in the number of people in the core group by explaining the imperfections of modelling. Unless there is anything I have missed out, I commend this provision to the Committee.