Standardising discounts given to vulnerable customers on essential products – like water, broadband and energy – can help eliminate postcode lottery in social tariffs.
The Social Market Foundation – a cross-party think tank – has recommended that companies providing essentials are made to offer social tariffs to vulnerable customers in a consistent manner in order to ensure all eligible consumers can benefit.
In a report out today – commissioned by Citizens Advice – the SMF presents a new roadmap for social tariffs that addresses other major issues, such as low take-up and poor targeting. The report calls for support to be extended across the following essentials markets: household utilities (water and sewerage, gas and electricity), broadband, public transport (i.e. bus and rail travel), and car insurance.
At present, responsibility for the design and implementation of social tariffs is largely left to companies, producing wide variations in eligibility criteria and discounts. For example, a family living in Reading (served by Thames Water) does not get any discount, but a similar family living in nearby Basingstoke (South East Water) has their bills capped at £140.
To eliminate the postcode lottery, the SMF has called for the Government to set out mandatory, enforceable requirements that specify minimum standards for social tariff provision as part of a series of short-term measures that begin to make social tariffs fairer for all. For example, companies should be encouraged to better promote existing social tariff schemes and to eliminate exit fees for switching to a social tariff scheme. In the long-term, the report suggests that the ideal design of social tariffs would cap bills as a proportion of income
The report comes amidst ongoing pressure on household finances, with UK inflation at about 7%, the highest among the G7 countries. The Labour Party is expected to put plans for an industry-wide social tariff for low income families in broadband before its party conference next week, following on from its National Policy Forum. Policymakers seeking to ease the burden on households should be considering improving social tariffs across a wider range of essentials, the SMF said.
Recent SMF polling has highlighted the depth of the affordability crisis and the need for further support. Over half of people on Universal Credit say that affording essentials is difficult. A majority (52%) of people think that there isn’t enough support to help struggling households afford essentials overall, which rises to four-fifths of ‘financially struggling’ people.
Beyond addressing postcode lotteries in social tariffs, the SMF has outlined what it sees as the gold standard for social tariffs infrastructure – one that also addresses low take-up and poor targeting – that should the long-term ambition for policymakers:
- Eligibility should be based on household income, specifically a bills-to-income ratio (See notes for impact public purse), looking the proportion one spends on essentials relative to their household income, and after accounting for their housing costs. Our polling of 4,000 UK adults found that most agreed with the idea that income should be the criteria for eligibility rather than the benefits system.
- The scheme is applied automatically, and across all the relevant goods and services – i.e. an eligible household doesn’t need to sign up, but they do have the option to opt-out.
- The social tariffs should be funded by the public purse – this will ensure that the burden on households is progressive (larger burden placed on those who are more able to pay).
Implementing a ‘bills-to-income ratio’-based social tariff will not be logistically easy, but is the optimal arrangement, the SMF emphasises. Accurately identifying eligible households and automatically delivering discounts to them will require building new data-matching infrastructure – using tax data on individual incomes and providers’ data on household bills and usage. Navigating issues of data accuracy, sharing and privacy concerns mean that setting up the ideal social tariff framework will take time – and political will.
Sam Robinson, Senior Researcher at Social Market Foundation, said:
“Markets are the best vehicle for delivering most goods and services efficiently and affordably, but sometimes they fail the most vulnerable in society – with dire consequences.
As the cost-of-living crisis becomes our new normal, we must confront the fact that increasing numbers of families are locked out of having life’s essentials. Old systems and criteria for support and discounts can no longer be relied upon – because those in need are falling through its cracks.
In the short term, action to increase the reach of social tariffs is urgent. But policymakers keen to address the unceasing financial pressure on families in the longer term as well should be looking to overhaul the current social tariffs framework.”
David Mendes da Costa, Principal Policy Manager at Citizens Advice said:
“Our advisers are seeing increasing numbers of people who cannot afford their essential bills. Record numbers are struggling to afford utility bills, and last year over four million people were priced out of broadband, mobile or insurance.
“While questions remain for the government, regulators and companies on how social tariffs schemes would best be rolled out, there’s no question they are now an unfortunate necessity.
“As we head into another impossible winter, it’s clear social tariffs across essential services would provide much needed relief to those desperately trying to stay afloat.”
- The SMF report, Bare necessities, will be published at https://www.smf.co.uk/publications/bare-necessities-social-tariffs/ on 29th September 2023.
- Recent SMF polling is from the interim slide-deck, Social tariffs and the cost of living, which can be seen at: https://www.smf.co.uk/publications/social-tariffs-and-cost-of-living/
- Details of SMF polling and focus groups:
- A nationally representative survey of 4,000 people
- Three focus groups with people on low incomes
Table – which shows estimates of fiscal costs and coverage comparison for different social tariff schemes
Source: SMF analysis
4. The project is commissioned by Citizens Advice. The SMF retains full editorial independence.
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