Draft Warm Home Discount (England and Wales) Regulations 2022

Debate between Alan Whitehead and Kevin Brennan

Wednesday 15th June 2022 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to serve under your chairmanship this afternoon, Mr Efford. I thank the Minister for his elucidation of the draft regulations before us. He is quite right that the warm home discount is a crucial support for people under the present circumstances, particularly people in fuel poverty, of which there has been a huge increase as a result of the sky-high energy prices we are suffering.

The warm home discount has been a very important scheme in the past; with this change, it remains an important scheme for the future. For that reason, we do not intend to push for a Division this afternoon, not least because we want this scheme to go ahead as soon as possible, so that we can get money out to people who need it the most.

I do not have any in-principle criticisms of the warm home discount to put to the Minister, but I do have a number of detailed points that I hope he will respond to. They relate to some of the details of how the new scheme is going to work. It is a substantially new scheme. Although it is a rollover of the warm home discount from 2011 onwards, there are a number of new features to this scheme that, as the Minister has set out, look to add a number of groups of individuals who previously would not have got the warm home discount. They will now receive it and, most importantly, will do so automatically, without having to apply for it.

The Opposition would have liked to see group 2 of the warm home discount expanded further. One could have a debate another day about exactly how far that expansion might go. I hope the Minister will keep the wider groups that could benefit from the warm home discount under review, but we are where we are as far as this particular piece of legislation is concerned, so that is what I will confine my remarks to this afternoon. Core group 2, to which the Minister referred, will replace the previous broader group who had to apply for the warm home discount. Crucial to this piece of legislation is the placing of the automatic award on the basis of understanding the circumstances being experienced by members of that group. There are, however, some concerns about how fair the arrangement for getting the automatic discount into people’s hands actually is.

The Government will decide what high energy usage—one of the criteria for core group 2—consists of, and they say they will look at the physical characteristics of houses and the correlation of those houses to low income. That will be core group 2, but a number of other people will most certainly still be in fuel poverty, particularly those in rented accommodation. They will be on low incomes and possibly have a disputed level of energy use—because that can be an inexact science on occasions—yet they will not be receiving the benefits that automatically give access to the award. More than 50% of fuel-poor households probably do not have such benefits, so the extent to which the provision will get hold of fuel-poor households for core group 2 is a matter of some question. Indeed, given how the legislation is set up, if a household is not selected as part of core group 2, but should have been, that will be difficult to contest. Does the Minister wish to comment on making it easier to get into that core group 2 for people who think they should be in it but are not?

[Kevin Brennan (Cardiff West) (Lab)]

On core group 2, the impact assessment suggests that, overall, the increase in the amount of money that will be spent on the policy will go up by about 6.7% over the period in question, but the amount allocated to core group 2 will be only 3.1%. That particular group’s allocation within the policy, over a period of time when we know that energy prices are rising sharply and inflation is high, is lower than the overall policy spend. Does that emphasise the point my hon. Friend is making?

[Dr Whitehead]

My hon. Friend’s intervention emphasises my point. It also emphasises the danger of the scheme itself being price capped, and of the criteria for high energy use and how they relate to the physical characteristics of the low-income home being tweaked to fit in with the ceiling figures that my hon. Friend mentioned. I am sure the Minister will want to assure us that that will not be the case for how core group 2 develops.

We have other concerns with the detail of this instrument. When there is an issue with an energy company that is supplying a household—if that energy company goes into administration or disappears off the face of the earth entirely—the supplier of last resort who takes over from that energy company should take on the full obligation of the failed supplier. The Department has still not put into place an actual obligation for it to do so in this iteration of warm home discount guarantees and in the legislation.

It may be that the Minister considers that so many smaller energy companies have gone bust already that there is no need to have that obligation, because there are not many more that can go bust. I think we ought to keep a close eye on whether energy companies are either refusing or dodging the consideration that they should take on the full obligation, exactly as it was in respect of the energy company that the person was with before the change to supplier of last resort took place.

I am happy that the draft regulations include a reduction in the threshold that obliges energy companies to be involved. The Minister will know that there were a number of occasions on which switching resulted in someone thinking they were getting a warm home discount but not getting one because of the size of the customer base of the company they were switching to. That will be substantially resolved by the reduction of the number in the obligation threshold. It is tapered over years, so it goes down toward zero. That does not itself solve the problem of the supplier of last resort and the obligations that come from it. I hope the Minister can have a look at that for the future.

An overall point I would like to make about the terrain within which this change is being made is that it really is not strictly correct to claim—I am afraid the Minister is prone to doing so—that the money spent on this scheme, both historically and now, is somehow money that has come from Government. It does not come from Government. There is an obligation on energy companies to provide warm home discounts and then retrieve the money they have spent on those discounts from other customers. This particular iteration of the warm home discount is no different in that respect. It expands the total envelope available to £475 million, with a four-year extension, and it increases the payment by £10 to £150 a year. That extension will be recovered by the energy companies from customers, and in some instances they will actually be taking money back from people who receive the warm home discount so that they can give the discount in the first place.

[Dr Whitehead]

Yes, that is indeed an alternative. That money could come from general taxation, as it does in some of the Government’s recent schemes—the boiler upgrade scheme, for example, is Exchequer funded. The money would come out of general taxation, but that is a very different issue from customer bills at the moment. Arguably, it is much more equitable in terms of the effect it would have on customer bills.

I am concerned about the extent to which a lot of Government schemes, such as the green gas grant and so on, are effectively funded by levies. Those levies go on customer bills. In this instance, according to the impact assessment, the measures we are debating will likely pass on to customers an increase from the £14 under the previous warm home discount scheme to about £19 for a dual-fuel account. That is no mean increase.

In the impact assessment, the Government estimate the increase of £5 a year in the average energy bill and state:

“However, given other price protection in place, including the energy price cap, the Government believes this is appropriate for providing help to an additional 750,000 households in or at risk of fuel poverty.”

The Government think it is fine to do that. However, that £5, therefore, together with probably £90 to come from the socialisation of suppliers of last resort and with a number of levies from other people, will be included in the price cap. As the price cap goes up next year, it will take account of the fact that about £100 of the increase is now on socialisation of the expenses to be incurred by energy companies, which have been taken account of by Ofgem in order to bring the price cap into place. That will add substantially to bills at a time when the last thing we should be doing is adding anything more to customer bills in general, given the desperate circumstances we are in.

I would advocate placing the increase into the same regime as that for the boiler upgrade scheme, putting it in as Exchequer funding. That has to be paid for, but it will be by a different and wider group of people, not by individual customer accounts as they come through.

[Kevin Brennan]

An alternative would be to pay for a scheme of this kind through progressive taxation, spreading the burden more fairly towards those who can afford to pay. In the Government’s own assumptions in their impact assessment, is it not the case that the impact will be to reduce energy usage by many of the customers whose bills increase? Therefore, those who do not qualify for the warm home discount and are just above that level might also find themselves in difficulty when heating their homes and running their appliances.

[Dr Whitehead]

Indeed. It will be precisely the households that are in considerable difficulty and just outside the scope of this measure, expanded though it is. They will be coughing up to sort out the people who are within the band and, in so doing, ironically, might put themselves in fuel poverty as a result of contributing in that way.

The time is right for a review of not just the arrangements for energy initiatives, but whether the principle of levies to support such an arrangement ought to be put aside, at least for the time being. I note that in 2016 the Minister’s Government said that there would be no new levies until 2025. However, the Government have substantially moved away from that. I am not saying that we should not press ahead with the measures; I am saying that we should expand them if necessary, but that they should be funded by progressive general taxation, so that those who are able to afford them more contribute, and that those who are able to afford it less are protected from the consequences of the socialisation of the arrangements, as we have seen this afternoon.

I hope that my comments will be regarded as constructive in consideration of the legislation, but that the Minister will take good note of my questions and thoughts to guide the policy as it goes through, so that we will be able to reflect shortly that this is a fair, expanded policy that hits fuel poverty in the way that we hope it will.