The government should expand the Warm Homes Discount scheme to reach more households, and phase out the poorly-targeted Winter Fuel Payments, to help poorer households manage high energy bills this coming winter.
In a paper out today, the Social Market Foundation – a cross-party think tank – lays out urgent improvements to the Warm Homes Discount (WHD) scheme to ensure it is more generous and reaches more households in need. Despite energy prices being set to fall in April, the government will have to provide further energy bill support this coming winter, the think tank warns.
The energy price cap remains almost 40% higher than it was in the first half of 2022, and estimates suggest that 6.5 million households across the UK are in fuel poverty, spending over 10% of their income on energy bills. In a recent survey, half of British people said that they have turned the heating off even though it is cold in the house. That means the coming winter will remain challenging for many families unless the government takes urgent action to improve the energy bill support system, the SMF said.
At present, the government has two schemes to help with energy costs – the WHD and Winter Fuel Payments (WFP) – which both have issues. Both are inadequate – the WHD offers £150 a year, WFP up to £300. The payments have failed to keep up with inflation or rising energy costs, which leaves recipients £45-£90 worse off. One-off cost of living payments have helped, but with these also ending, the current bill support infrastructure needs some updating, the SMF highlights.
Both energy support programs are also targeted crudely – while the WHD produces sharp cliff-edges, leaving many just under the eligibility threshold with no support at all, the WFP is too generous with public money, given that it is paid to all pensioners, many of whom do not need help. Around 45% of pensioner households are in the top half of the income distribution.
The SMF proposes replacing the current system with a tiered Warm Homes Discount – such that the households with the highest energy needs will receive the highest level of support, tapering off gradually for households with lower predicted energy needs (see notes). The SMF’s proposals mean that an additional 1.4 million additional households could be supported by the WHD, bringing the total to 3.9 million households. Consumer support group Citizens Advice has also called for a tiered WHD, to address the current schemes’ shortcomings.
Whilst this does bring the estimated annual cost of WHD to £1.4 billion (it is currently £374 million), the SMF recommends phasing out/reducing the ineffective WFP (which costs £2 billion) and using some of that public money on the new and improved WHD.
Under SMF’s model, the expanded WHD will also be more generous, as it will no longer be a flat rate (see notes for tiered payment breakdown) and range from £550 – £250, if aiming for a 15% reduction in energy bills to all households that are either receiving pension credit or means-tested benefits.
Sam Robinson, Senior Researcher at Social Market Foundation, said:
“Although these days temperatures are going up and energy prices are coming down, we should be under no illusion that affording energy bills this winter is going to be easy for many households.
Millions are already struggling with fuel poverty. It doesn’t have to be this way. With an expanded Warm Homes Discount, funded by lower spending on Winter Fuel Payments, we can achieve a more impactful and more cost-effective approach to energy bill support.”
Notes
- The SMF briefing, Fixing the roof while the sun shines, will be published at https://www.smf.co.uk/publications/energy-bill-support-winter/ on 3rd April 2024, 5 AM.
Table: Example five-band WHD targeting a 15% reduction in energy bills for eligible households
Source: SMF analysis of FRS and LCFS
Contact
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