Rob Palmizi breaks down the impact of the current energy crisis on vulnerable households – and suggests a course of action.
The recent energy crisis has seen a number of suppliers fail and consumers left wondering what on earth they should do. This, followed by the cut in Universal Credit, the end of the furlough scheme and increasing living costs means we’re potentially heading to a perfect storm of financial difficulties and debt.
The turbulence we’re currently seeing in the energy market has affected around 1.7 million households whose supplier has gone bust. Citizens Advice have looked into 5 of the recently failed companies that were offering a 12 month fixed term deal in March. Customers on these deals would now be halfway through their fixed term, believing that their price was secured through the coming winter. However they’re now likely to face an average increase of £30 per month on their bills as a company takes over their account and puts them on a default price-capped tariff – through no fault of their own.
Even worse for some lower income families, the Warm Home Discount (which they receive through their supplier) could be taken away if their supplier goes bust – potentially losing them £140 a year… As a result, we’re calling on the UK Government to guarantee this essential support.
‘The £500 million Household Support Fund […] very much feels like a consolation prize as the UK Government takes £20 per week from some of the UK’s most vulnerable families.
Energy companies also need to support customers impacted by these changes. There are already rules on support for people who’re struggling that Ofgem should ensure they follow — and most energy suppliers pledged additional support earlier this year, which they should continue to provide. But in the current market climate it may be difficult for them to go even further.
At time of writing we’re still waiting to hear how the Welsh Government will spend the Barnett consequential of the UK Government’s £500 million Household Support Fund – and as welcome as the announcement is for those over the border, actions in other areas don’t add up.
Which brings us onto Universal Credit. While the £500 million Household Support Fund is a welcome announcement (and as we wait for the Welsh Government equivalent to be announced) it very much feels like a consolation prize as the UK Government takes £20 per week from some of the UK’s most vulnerable families. For many of the families we’re supporting, that extra £20 a week has made the difference between empty cupboards and food on the table, paying the bills, and buying new school shoes and uniforms. Without that £20, our research shows more than a third of people (38%) would be in debt after paying just their essential bills.
To put it simply: It’s the wrong decision at the most inappropriate of times.
Other Sparks of the Debt Storm and What Caused them
Debt and financial issues have been a staple of our work at Citizens Advice Cymru for decades. Helping people with financial issues – it’s kind of what we do (or at least part of what we do). But is it as simple as saying 2021 is just run-of-the-mill business as usual? Are the issues the same issues we saw in the early 2000s, the 90s, the 80s etc? The short answer is, almost certainly, no.
Covid-19 has obviously had a huge impact on every aspect of our lives – from the very way we work to how we socialise with our friends. Financially that’s no different either. The Furlough scheme had over 170,000 people still on it this summer – another safety net that has since been pulled. With Furlough disappearing, Universal Credit being cut and increasing costs of energy and food – the perfect storm appears to be right on top of us.
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Remembering “We’re all in this together”
The slogan has long since disappeared when discussing Covid-19 but always sticks with me, especially when looking at where we are right now. Last year, Citizens Advice Cymru research highlighted those people who are most likely to find themselves in a debt crisis. They are:
- Unemployed (32%) or only working part time (14%)
- People with a disability (20.34%) compared to people who say they don’t have a disability (6.30%) – people with a disability are more than three times as likely to have fallen behind on a bill since the start of the pandemic.
- People who are self employed (14%) compared to those who are employees (9%)
- Households with children (16%) and households with 3 or more children (27%)
- Those on a lower income (household income of less than £20,000) (25% of those earning under £10,000 and 20% of those households with an income of those with an income of between £10,000 -£20,000)
- People who fall into the ‘extremely vulnerable to Coronavirus/ shielded’ group (14%)
- Younger people aged 18 – 24 (15%) 25 – 34 (15%) and 35 – 44 (17%)
- People who experienced a negative change in their work as a result of Coronavirus (26%)
This is hardly “all” of us. It’s the most vulnerable. A theme that we’re seeing again and again within the context I’ve outlined above – and it’s only going to get worse.
‘Gas accounted for over a third of our power generation in 2020. […] As we move towards the Net Zero target, we will see more people switching away from natural gas to low carbon heat technologies in their home.
What to do as an Energy consumer
At the moment, our advice is simple – hold on. If your supplier has gone bust you will be automatically transferred to a new supplier. You’ll still have gas and electricity if your energy supplier goes out of business. There is a tried and tested safety net in place to ensure things keep running. It’s worth taking a meter reading, making a note of your account balance and keeping hold of any bills. The gas and electricity regulator, Ofgem, will move you to a new supplier. This usually takes a few weeks.
Don’t switch tariff or supplier until your account is moved to the new supplier.
Don’t cancel your direct debit straight away. Wait for your new supplier to contact you. They’ll explain what will happen with your account. Contact your new supplier if you don’t hear from them within 2 weeks.
If you’re in credit, your money will be protected, but the price you pay is likely to go up. We know people will have worries and specific questions, so contact organisations such as Citizens Advice for help.
Solutions? Is it all that bad?
In short, yes.
In terms of energy: the UK Government and Ofgem have reaffirmed their commitment to the energy price cap which will prevent prices rising even further this winter. However, when the level of the cap is next reviewed it is likely to need to increase significantly — and some analysts think that prices will remain high until 2023. This would mean another hard winter next year for many families.
It is not all doom and gloom though. Gas accounted for over a third of our power generation in 2020. Our reliance on gas will fall over time, but will continue to be an important part of the energy mix for a number of years. As we move towards the Net Zero target (which Andy Reagan discusses in detail in his IWA blog here) we will see more people switching away from natural gas to low carbon heat technologies in their home. This has to go hand in hand with improving the energy efficiency of homes across the country – the cheapest energy is the energy we don’t use
For now the main concern is ensuring that there is support in place to help people who can least afford these price rises. As we look at the near future Citizens Advice Cymru frontline staff are gearing up for a hard winter. We’re anticipating more people will need ‘crisis support’ as the UK Government cuts the income of families on Universal Credit.
If you’re struggling, please please contact your local Citizens Advice. As grim as all this reads, in most cases something can be done to ease the pressure.
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