Social tariffs

Following proposals in the April 2008 Budget (HM Treasury, 2008), the

government and energy suppliers recently agreed (Defra, 2008) that suppliers should contribute an increased level of funding to social initiatives, reaching a total of £150m in 2010-11. A number of different initiatives may count towards this, including trust funds, benefit entitlement checks and, of current interest, social tariffs. Ofgem estimate that, as of December 2008, approximately 800,000 customers benefited from a social or discounted tariff (Ofgem, 2008).

The social initiatives are administered and monitored by Ofgem, and each supplier must report on their spend to the regulator. Ofgem periodically summarise the energy suppliers’ spend on social initiatives, paying particular attention to the value offered by the various social and discounted tariffs (Ofgem, 2009). One important feature that Ofgem manage is the definition of a social tariff, and this is currently thus:

For a supplier’s tariff to qualify as a ‘social tariff’ it must be at least as good as the lowest tariff offered by that supplier to customers in that region on an enduring basis – regardless of that customer’s payment method and includes online tariffs

Previously, this definition was looser: the requirement was merely that any social tariff should be at least as good as the same supplier’s standard direct debit tariff – this change of definition means that some products previously deemed to be social tariffs are no longer so. Ofgem now categorises these as discounted tariffs. There is still some debate regarding the precise definition of a social tariff – the charity National Energy Action suggests that the

definition should go further and elucidate the ancillary services offered to such

vulnerable customers, although Ofgem’s current preference is to encourage product innovation rather than standardisation.

The energy supplier contributions are voluntary, although all of the major UK energy companies do currently operate one or more social tariffs as part of the agreement. In the recent UK Low Carbon Transition Plan (HM

Government, 2009), published by the Department for Energy and Climate Change, the Government has expressed intent to move this agreement to a statutory agreement once this voluntary agreement expires. The Fuel Poverty Advisory Group (FPAG) have suggested that the entitlement criteria should mimic the Cold Weather Payment eligibility criteria, to ensure that the most vulnerable customers can access these tariffs (FPAG, 2009).

Suppliers are free to devise any eligibility criteria and pricing structure that they see fit. Table 2 contains a summary of the different social and

discounted tariffs offered by the major energy suppliers – clearly, the primary focus is upon elderly and low-income customers. Along with the actual energy prices, a number of ancillary services are often made available to customers on these tariffs, such as benefit entitlement checks. Interestingly, only two of the suppliers use the phrase ‘social tariff’ in their online description of the product; furthermore, the marketing strategy, placement and availability of information regarding these products varies between suppliers.

There is no cross-industry agreement regarding a standardised price point of these tariffs. As a result, it is possible for the social tariff of one supplier to be more expensive than the standard rate of a different supplier, although the latter may be inaccessible to vulnerable consumers if, for example, payment through direct debit is required. Various parties, including FPAG (FPAG, 2009) and Consumer Focus (Consumer Focus, n.d.), believe that minimum standards should be mandated for these tariffs and the eligibility criteria should be set by Government, rather than leaving these choices in the hands of energy suppliers

Current views regarding the effectiveness of social tariffs are mixed, as surveyed by Baker (2006). The report revisits the paradoxical situation that a consumer on a social tariff may still pay more for their energy than the

standard rate of a rival energy supplier, and notes that this is inevitable if a minimum price point is not mandated. The report also highlights alternatives to social tariffs, such as fuel vouchers, although this particular measure is unpopular with the surveyed interest groups.

Supplier Tariff Target Ancillary benefits Comments programme is on BG’s front page, at www.britishgas.co.uk. Essentials Combined described as a social tariff British Gas Essentials Safe

and Sound

Both of the above Always lowest tariff, irrespective of payment method EDF Energy Energy Assist ‘Vulnerable’ customers Discounted tariff, EE

advice and measures, BEC

Energy Assist described as a social tariff. Details linked through Sustainability header

E.ON StayWarm Dual fuel customers over

60

Fixed price for 12 months for energy service

Tariffs not described as social tariffs.

Details linked through Products &

Services E.ON Age Concern Elderly customers An additional cold

weather payment, EE advice, free CFLs

E.ON WarmAssist 60 or over and receive Pension Credits

Direct hyperlink to Spreading Warmth on front page. Not described as a social tariff

Scottish Power

Fresh Start 60 or over and receive certain benefits

Equalises to lowest SP price in area, free EE advice and BEC

Linked via Product Information. Not described as social tariff

Scottish and Southern Energy

energyplus Care Spend over 10% of total household income on fuel website, via Customer service. Not described as a social tariff

Table 2: Social and discounted products offered by the major UK energy suppliers, as of August 2009

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