Britain is facing a cost of living crisis on multiple fronts – and has been for some time. Research conducted a year ago showed households were already feeling the pinch as the cost of everyday essentials steadily climbed alongside their energy bills, with the poorest households disproportionately affected.
Twelve months on, and we are still waiting for a long-term, sustainable solution to tackle this poverty premium – the extra cost of being poor. Millions of the poorest households have since slipped into fuel poverty, meaning they sacrifice more than 10% of their income to energy costs. In a cruel irony, those on universal credit are four times as likely to be using a prepayment meter to pay for energy – among the most expensive ways to pay for fuel.
Viewed from the continent, the situation in the UK looks bleak, and unnecessarily so. Despite government interventions, British bills are still some of the highest in Europe. Put simply, the combined efforts to tackle this worsening crisis since February have been poorly targeted. That’s why the UK government would do well to look to its neighbours for inspiration.
In Belgium, there has been a social tariff in the energy market since 2002, which means eligible households – typically those on low incomes and/or in receipt of state benefits – are shielded from price fluctuations in the energy market and enjoy some of the lowest prices for gas and electricity in Europe.
Like most other European markets, the price of a kilowatt hour (kWh – the common billing unit of energy) is largely dependent on international market prices. But the social tariff is centrally protected by the Belgium government. During the pandemic, and as the rising wholesale cost of gas began to affect the price of bills everywhere, Belgium’s leaders increased the number of people who received the social tariff. About 925,000 households (nearly one in five, or about 2 million people) now benefit from this protection – more than double the number in 2020.
In September 2021, these households paid 67% less for gas than the average, and 29% less for their electricity. Pensioners, single-parent families experiencing financial difficulties, and anyone with a gross annual income of €20,000 or less are all eligible, and beneficiaries last year had their bills slashed by at least €720. Many more saw their bills slashed further as a result of additional regional measures.
The social tariff discount is set every three months by the Commission for Electricity and Gas Regulation. It is set below the lowest-priced commercial tariff offered by energy suppliers. But a further price cap for the tariff is set where the electricity price would be more than 10% higher than the tariff of the previous period, or 15% for gas. Yet another cap is introduced if the tariff is 20% higher than the average for the last year, or 25% for gas.
Crucially, every eligible household pays the same, regardless of energy provider or network manager, and it is granted automatically using administrative data held by government. Only a small number of households have to actively apply for it.
For those who lose entitlement to the tariff, the regulator offers them a choice of their old energy contract, or the cheapest commercial fixed-price or variable-price deal. Suppliers are required to give a notice period for when this happens to allow people to plan for it. If the customer doesn’t choose in time, they are defaulted on to the cheapest deal.
Belgium’s Centres Publics D’Action Sociale (public social services centres, CPAS) are available and funded to help consumers who are struggling with bills even if they do not qualify for the social tariff. The funding of the social tariff doesn’t take priority over energy-efficiency measures in the country, and measures to improve the insulation of homes are considered a key part of the fight against energy poverty.
Even with these progressive policies, thousands still gathered in Brussels to protest at rising prices this week. Gas and electricity prices are rising across Europe and beyond, which affect all of our bills. The majority of people will be impacted by this. But a social tariff eases the pressure on those most financially vulnerable.
As in Belgium, the UK urgently needs targeted measures to curb the excessive price of bills for low-income households. These households are at the sharp end of the cost of living crisis and need additional, enhanced protections on top of those currently in place to avoid poverty and destitution.
Up to now, direct government help to ease financial pressures on British households has been evenly spread between rich and poor. Money to help address the cost of living crisis has been shared with households who do not come close to falling into fuel poverty. The big energy announcement of the new government looks set to do the same. The “energy price guarantee” freezes the cost of the average energy bill at an average of £2,500. While this slashes the cost of winter bills for everyone – both wealthy and destitute – bills will still be double what they were last year. Fuel poverty will still dramatically increase.
But we only need to look to Belgium to see that an alternative is very much possible, one that targets support and price protections to those most at risk of poverty, to those with cold homes in the winter months. A social tariff mandated across all suppliers, introduced in addition to the energy price cap, would do this. Only then will we guarantee warm and comfortable homes for all in Britain this winter, and eliminate avoidable suffering.
Carl Packman is head of corporate engagement for the Fair by Design campaign