Select committee inquiry
Energy Bills Support
Closed
What the inquiry looked at
“In September 2022 Government announced the Energy Price Guarantee Scheme and Energy Bill Relief Scheme in response to the energy price crisis. Following on from work done by the National Audit Office on Energy bill support , the Committee will question senior officials at the Department for Business, Energy and Industrial Strategy and the Treasury on the energy price support schemes, including: the schemes’ design and operation in practice; government’s oversight of progress; estimated costs; the risks to successful implementation; the steps government is taking to manage those risks; and the options government is considering for future schemes. If you have evidence on these questions please submit it here by 6pm on Sunday 19 February. Please have a look at the requirements for written evidence submissions and note the Committee cannot accept material as evidence that has been published elsewhere. Please have a look at the requirements for written evidence submissions and note the Committee cannot accept material as evidence that has been published elsewhere.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of Fifty-Eighth Report - Energy bills support ↗
High energy bills have caused serious difficulties and hardship for customers and businesses across the UK. Although the Department was able to implement energy bills support for the majority of households and the non-domestic sector for winter 2022–23, it took too long to get support to some of the most vulnerable and hard to reach customers. Some 900,000 households only became eligible to apply for the Energy Bills Support Scheme Alternative Funding, for domestic consumers, on 27 February 2023, nearly five months after consumers began receiving discounts on the main scheme. In addition, 836,000 households in Northern Ireland only began receiving support with their energy bills from the Energy Bills Support Scheme in January 2023, three months later than in Great Britain. As of February 2023, a quarter of the vouchers issued for the Energy Bills Support Scheme for two million households on traditional prepayments meters have still not yet been redeemed. In February 2023, the Department estimated that support for households and businesses will cost £69 billion, of which it paid out £16 billion through the schemes between October and December 2022.
The Department has drawn on lessons learnt from its financial support schemes during the pandemic to reduce the risk of fraud and error in the energy support schemes, but it does not yet know how successful this has been. The Department does not have a clear understanding of the pressures non-domestic consumers will face from April 2023 when support will reduce significantly with the ending of the Energy Bills Relief Scheme and transition to the Energy Bills Discount Scheme. The latter risks undermining government’s objective for the schemes to achieve wider economic benefits. The Department is planning changes to both the domestic and nondomestic schemes and reforms to the energy market, but we are concerned that the Department lacks urgency in implementing these changes given the huge impact that high energy costs have already had on the public purse.
What the government said
The government responded on 24 September 2023. The deadline was 16 August 2023.
Summary written by Accountability Index from the government's response.
The government states that it "agrees with the Committee's recommendation" on each of the recommendations in the response, while setting out a different position on capping support for very high energy users.
- On capping support for those using very large volumes of energy, the government has "concluded that it should not progress with this option", stating that high energy use is unavoidable for certain vulnerable households, and that support through the Energy Price Guarantee "should remain universal".
- The department "will write to the Committee by the end of 2023" on how lessons from the energy schemes will not be lost as BEIS splits.
- On Ofgem's role in the non-domestic market, the department will respond by Autumn 2023 and will "consider these carefully" any recommendations pointing to government action, including changes to Ofgem's remit; it states this "does not align with the timings" of the Energy Security Bill.
- Evaluations of the schemes are "expected to run until summer 2025", with findings to be shared with the Committee "when available" and published.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 18 January 2023 to its close on 24 September 2023. The dashed mark is the deadline Parliament records for the government's response.
- Oral evidence 2 sessions
- Report 16 Jun 2023
- Government response 24 Sep 2023
- Correspondence 5 letters
What it recommended 3 recommendations · 25 conclusions
2Publish analysis of unredeemed energy vouchers and actions to increase household redemption rates.
Recommended (the committee's words)
The Department is still not doing enough to ensure that support reaches the two million consumers on prepayment meters. Those on prepayment meters are typically on more expensive energy tariffs due to the cost of the systems used to run the meters. Two million households in Great Britain on traditional prepayment meters need to redeem vouchers to claim their £400 payment through the EBSS. These consumers tend to be poorer and are more likely to be in arrears on their energy bills and can be unaware of national and local initiatives to reduce fuel poverty. As we warned in November 2022, however, some vulnerable customers, such as those on prepayment meters, faced extra challenges in accessing the support designed to help them with their bills. By the end of January 2023, 76% of vouchers issued to households to support them with their energy bills had been redeemed. The Department is working on increasing this figure, although the responsibility of ensuring households on prepayment meters redeem their vouchers also sits with suppliers. We are concerned that recent media coverage has also brought to light unacceptable practices of suppliers forcing entry into vulnerable customers’ homes to install prepayment meters, often as a result of consumers falling behind on payments. Recommendation 2: The Department should set out, as part of its Treasury Minute response, its analysis of which groups of households have not redeemed their vouchers and what further action it will take to increase the redemption rate of vouchers. 6 Energy bills support
3Report on fraud and error rates in energy support schemes and plans for reduction.
Concluded (the committee's words)
The Department drew on lessons it had learnt from financial support it provided during the pandemic to reduce the risk of fraud and error of the schemes, but does not yet know how successful this has been. The Department estimates the energy support schemes will cost £69 billion, meaning that even relatively low rates of fraud and error will lead to significant loss to taxpayers. The risk of fraud and error is greater for the EBRS due to the complexity of the energy market for the non-domestic sector. For example, energy usage and intensity vary significantly more between different industries within the non-domestic sector than between households. The risk of fraud and error is also higher for targeted schemes such as the EBSS Alternative Funding Scheme, which has specific eligibility criteria and where consumers need to apply for the scheme, than in the schemes which are open to all customers. The Department drew on its lessons learnt from the pandemic and collaborated with the Public Sector Fraud Authority (PSFA) from the outset of the schemes and is working with local authorities to verify applicants’ eligibility for the EBSS Alternative Funding Scheme. The Department does not yet have an estimate of fraud and error has occurred through the schemes. The transfer of responsibilities from the former Department for Business, Energy & Industrial Strategy (BEIS) to the Department for Energy Security and Net Zero risks a lack of continuity in the approach to identifying and recovering payments through fraud and error. Recommendations 3a: The Department should, within 6 months, write to the Committee setting out fraud and error rates under the schemes and what it is doing to reduce this. Recommendation 3b: The Department should, within 6 months, write to the Committee outlining how it will ensure the lessons it has learnt from the energy schemes are not lost as BEIS splits into three separate entities.
4Provide analysis of policy impacts on businesses and prevent a financial cliff edge after March 2023.
Concluded (the committee's words)
HM Treasury and the Department do not fully understand the pressures the non-domestic sector will face when the EBRS ends in March 2023, or the potential risk of insolvencies. Many organisations are suffering financially from the aftermath of the pandemic and this has been exacerbated by recent high energy prices. The Department wanted the EBRS to achieve economic benefits, but it risks undermining this if its decision to withdraw support results in increased insolvencies. From April 2023, support for the non-domestic sector will reduce significantly when the Department replaces the EBRS with the Energy Bills Discount Scheme (EBDS) if energy prices remain high. While gas prices have recently fallen significantly from the record-high levels last year, some non-domestic consumers will not feel the benefit if they are trapped in fixed tariffs that were set in late- summer 2022. Additional financial support for energy bills is available for Energy and Trade Intensive Industries, but not for other sectors that can have high energy usage, such as the hospitality sector. HM Treasury expects that other changes from April 2023, such as reduction in business rates, will offset reductions in energy bills support for these sectors. The challenges of the non-domestic sector dealing with rising energy bills has exposed the lack of regulation and visibility that Ofgem and the Department have over the way non-domestic energy market operates. Recommendation 4a: The Treasury should, in parallel to its Treasury Minute response, provide details of its analysis of how the changes to business rates, taxes and energy support will affect businesses across different sectors, and outline how Energy bills support 7 it will ensure that businesses will not face a financial cliff edge after March 2023. It must also monitor and report on the effectiveness of the additional financial support made available to Energy and Trade Intensive Industries in ensuring the resilience of those industries. Rec
5Provide update on household energy affordability plans for winter 2023-24 and future scheme reforms.
Concluded (the committee's words)
The Department does not yet know how its plans for winter 2023–24, or once support ends in April 2024, will impact households, or how it will ensure the energy retail market provides a fair deal for consumers. At the time of our evidence session, the Department’s plans for winter 2023–24 meant household energy bills are expected to increase by £775 in 2023–24 if energy prices remain high. The government has committed to consulting on amending the EPG as soon as is feasible after April 2023 so that those who use very large volumes of energy have their support capped, whilst ensuring most households can continue to benefit. At the time of the NAO report, when the scheme comes to an end in April 2024, the Department did not expect the average annual bill to be much above £3,000, meaning that withdrawing the EPG would not have a sudden significant impact on consumer bills. However, wholesale gas prices are volatile and outside of the Department’s control. The government also announced it will develop a new approach to consumer protection in energy through a wider retail market reform, including options such as social tariffs. It has not yet published further information on what this would look like and how it will bring back supplier competition in the market. Recommendation 5: The Department should write to the committee within 6 months to provide an update on: • its plans to ensure energy affordability in winter 2023–24; and • its progress with future plans for the domestic scheme, such as capping support to those that use very large volumes of energy and introducing discounts on bills for households on benefits.
6Set out timeline for REMA and plan to enhance electricity sector resilience against price shocks.
Recommended (the committee's words)
We are very concerned about the Department’s lack of urgency in addressing the energy market failures that are leading to high energy bills for consumers. During 2022–23, the UK experienced record-high wholesale gas prices. Since 2019, Ofgem has set a price cap that energy suppliers can charge households. The level of the cap increased by 80% in winter 2022–23 to £3,549 compared to summer 2022– 23, mainly because of increasing wholesale prices. This is because the UK electricity market operates on a marginal pricing system, which means that electricity generator companies are paid a fixed price per unit of electricity, which is determined by the cost of the most expensive generating technology needed at the time. This is usually gas-fired power stations that are more expensive than other sources of energy, such as renewables like wind power. The government plans to reform the electricity 8 Energy bills support market through the Review of Electricity Market Arrangements (REMA), which could result in arrangements that enable consumers to benefit more from the cheaper running costs of renewables. The Department issued its public consultation for the REMA in July 2022 stating that it expects to implement changes from mid- 2020’s but has not yet made available any further details of the timeframe for the review. The previous reform, the Electricity Market Reform, took three years. In the meantime, if gas prices increase again, consumers and taxpayers will be subject to significant costs again. Recommendation 6: The Department should set out, as part of its Treasury Minute response, the timeline for its review, and how the REMA will ensure that the electricity sector has more resilience against future unexpected events, such as high gas prices. Energy bills support 9 1 The design and performance of the schemes
1Committee took evidence on energy bills support from various stakeholders.
Concluded (the committee's words)
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Energy Security and Net Zero (The Department)2, the Former Permanent Secretary at the Department for Business, Energy and Industrial Strategy (BEIS), and HM Treasury about energy bills support.3 We also took evidence from Energy UK, Citizens Advice, Federation of Small Businesses and UK Hospitality.4
23Ofgem energy price cap significantly increased due to rising wholesale energy costs.
Concluded (the committee's words)
Since 2019, the Office of Gas and Electricity Markets (Ofgem) has set a price cap on the price per unit of gas and electricity for customers on standard default tariffs, which apply to consumers who have not signed up for a fixed-term contract tariff with their energy supplier. Between winter 2021–22 and summer 2022, the price cap increased by 54% from £1,277 to £1,971 a year for an average household that pays for energy through direct debit. This was mainly because wholesale energy costs doubled, initially because global energy demand increased following the COVID-19 pandemic, and then due to the impact on energy markets of Russia’s invasion of Ukraine. On 26 August 2022, Ofgem announced the energy price cap would further increase by 80%, to £3,549 per year from 1 October 2022, reflecting a further increase in estimated wholesale costs for energy suppliers.5
7Off-grid homes and businesses experienced delays in receiving alternative fuel support.
Concluded (the committee's words)
Some off-grid homes and businesses had to wait longer to receive support compared to the schemes to support consumers connected to the energy grid. The Department started delivering payments through the non-domestic Alternative Fuel Payment Scheme in February 2023. On 6 February 2023, it expected that eligible consumers would receive payments during February and March 2023.14 Following our evidence session, the Department launched the application for the top-up element of the non-domestic AFP on 20 March 2023, which is available for consumers who are high users of heating oil.15
8Delays in alternative fuel support disproportionately impacted Northern Ireland due to higher usage.
Concluded (the committee's words)
The delays to introducing support schemes for customers who use alternative fuels had a greater impact on consumers in Northern Ireland because of the higher percentage of consumers that use these fuels. More than two-thirds (68%) of households in Northern Ireland heat their homes using alternative fuel, like heating oil.16 The Former Permanent Secretary explained that, in recognition that the majority of households in Northern Ireland used alternative fuels, all households in Northern Ireland would receive a payment as part of the Alternative Fuel Payment Scheme. The Federation of Small Businesses similarly told us amongst its membership in Northern Ireland, 14% use alternative fuels, twice the UK average. We therefore asked when all eligible non-domestic customers would receive their payment. HM Treasury told us it was conscious of the importance of the Alternative Fuel 12 C&AG’s Report, paras 2.4 and 2.7 13 Qq 147–148; C&AG’s Report, para 2.12, Figure 7 14 Department for Energy Security and Net Zero and Department for Business Energy & Industrial Strategy, Non- domestic Alternative Fuel Payment Scheme, Great Britain: guidance for electricity suppliers, 6 February 2023 15 C&AG’s report, para 3.7; Department for Energy Security and Net Zero and Department for Business Energy & Industrial Strategy, Apply for energy bill support for non-domestic properties, 20 March 2023 16 C&AG’s Report, para 2.13 12 Energy bills support Payment Scheme in Northern Ireland given the higher proportion of businesses that were off grid, and that payments were being processed but it could not provide a forecast for when it would be fully paid out.17
9Delays experienced in providing energy bill support to off-grid and rural households.
Concluded (the committee's words)
We asked the Department what were the causes of other delays in getting support to customers. The Former Permanent Secretary told us that, in terms of operational challenges, the most difficult schemes were those where people were being asked to apply. For example, the Department launched its portal for 900,000 consumers without a direct relationship to a domestic energy supplier, such as those in park homes, to apply for the EBSS Alternative Funding route for both Great Britain and Northern Ireland on 27 February 2023. The Former Permanent Secretary explained that the Department needed to establish a process and identify a source of data to verify whether applicants for the EBSS Alternative Funding Route had already received support through the main EBSS.18 They also explained that a small number of households will also have to apply for the domestic Alternative Fuel Payment Scheme, for example, consumers who are fully off- grid or households who use alternative fuels for heating in areas where the majority of households are using heating methods supported by the main scheme. Subsequence to our evidence session, the Department opened its portal for these households in early March 2023.19 The delay in getting the support to off-grid consumers affected more rural homes than in urban areas. We received written evidence from the Countryside Alliance which told us that in 2020, 53% of rural homes were off the gas grid compared to just 10% of urban properties.20
10Complexity of universal energy support schemes delayed aid for vulnerable consumers.
Concluded (the committee's words)
The Department told us that an important lesson it had learnt from the schemes was the complexity in implementing a universal scheme to reach all energy consumers living under different circumstances. The Former Permanent Secretary explained that the Department did not have enough bandwidth to look at such a complex market to make sure that support reached all the different groups at the same time. They said that it was a point of regret that this had often meant it took longer to ensure support reached consumers who are often vulnerable and need it most.21 The Department acknowledged that implementing the schemes at speed created value for money risks of providing support to homes and businesses that did not necessarily need it and would have been able to manage their energy costs even without support. But did not have access to a dataset necessary to determine those who did not need support.22 Providing support to prepayment meter customers
11Ensure administrative barriers do not hinder timely energy support for prepayment meter customers.
Recommended (the committee's words)
Prepayment meter customers pay for their energy in advance by topping up a meter with a smart card, ‘key’ or cash token. Those on prepayment meters are typically on more expensive energy tariffs due to the cost of the systems used to run the meters.23 These households also tend to be poorer and are more likely to be in arrears on their energy 17 Qq 3, 148, 158 18 Qq 147, 172; Department for Energy Security and Net Zero and Department for Business Energy & Industrial Strategy, 900,000 more households to benefit from £400 of government energy bill support, 27 February 2023 19 Q 188, GOV.UK, Apply for alternative fuel bill support if you do not get it automatically 20 EBS0003, Countryside Alliance, Energy Bills Support, 23 February 2023 21 Qq 153, 155 22 Q 177; C&AG’s Report, paras 11, 2.7 23 Ofgem, Energy regulator outlines next steps on forced Prepayment Meter (PPM) installations, 21 February 2023; Committee of Public Accounts, Regulation of energy suppliers, Twenty-Fifth Report of Session 2022–23, HC 41, 13 November 2022 Energy bills support 13 bills, and can be unaware of national and local initiatives to reduce fuel poverty.24 We examined the Regulation of Energy Suppliers in November 2022 and concluded that it was unacceptable that many vulnerable customers, including those on prepayment meters, faced extra challenges accessing benefits designed to help people with their energy bills. At the time of our previous evidence session, the Department was unable to explain how it would ensure that all customers who used prepayment meters would receive their energy support. We recommended that the Department needed to ensure that administrative issues did not prevent support being provided to these households in a timely manner.25
12Government and suppliers launched campaigns to increase prepayment meter voucher redemption rates.
Concluded (the committee's words)
In response to our report, in January 2023, the government told us that energy suppliers had sent vouchers to all two million customers who had a traditional prepayment meter. It explained that it was urging customers to redeem vouchers through a communications campaign targeted specifically at traditional prepayment meter users, which included “posters, social media posts and radio broadcasts to ethnic minority radio stations in different languages, as well as communications direct from suppliers to customers”. It committed to monitoring voucher redemption rates, and to work with suppliers to ensure they were taking action to contact those with unredeemed vouchers and reissue lost vouchers.26 As part of its guidance for energy suppliers, in November 2022 the Department stated that it expects energy suppliers to take all reasonable steps to ensure the EBSS payment is both provided and delivered to prepayment customers.27 Suppliers must make a minimum of three attempts to contact customers who have not redeemed their vouchers. Vouchers expire after 90 days and can be reissued by the supplier on request. By January 2023, 98% of vouchers had been delivered to eligible households, either by text, email or post. All vouchers must be redeemed by 30 June 2023 – just over 90 days after the scheme finishes.28
13Significant regional disparities observed in energy support voucher redemption rates.
Concluded (the committee's words)
We asked witnesses about the take-up rates for the vouchers. The Department told us that 76% of vouchers had so far been redeemed across Great Britain. It accepted that take- up was lower in metropolitan areas, and that the take-up rate was just 60% in London.29 The NAO found that the Department believed that voucher redemption was likely to have been affected by a number of factors, including the weather (people might hold on to vouchers in anticipation of cold snap), voucher loss, and some people not opening their post.30 The Department told us that it thought that take-up in urban areas might also have been affected by changes in tenancy as it was more complicated to keep track of people in urban areas, particularly London. It explained that it had work underway to support this in the remaining weeks of the scheme. The Department told us that it will continue working to increase the redemption rates beyond the end of the scheme in April 2023.31 We asked what more government needed to do to ensure take-up of the vouchers. Citizens 24 Department of Energy & Climate Change, Understanding the behaviours of households in fuel poverty, July 2014 25 Committee of Public Accounts, Regulation of energy suppliers, Twenty-Fifth Report of Session 2022–23, HC 41, 13 November 2022 26 HM Treasury, Treasury Minutes Government Response to the Committee of Public Accounts on the Twenty-third to the Twenty-sixth reports from Session 2022–23, CP 781, January 2023 27 Department for Business, Energy & Industrial Strategy, Energy Bills Support Scheme – Guidance for Electricity Suppliers, November 2022 28 C&AG’s Report, para 3.13 29 Qq 161–163 30 C&AG’s Report, para 3.13 31 Qq 163–164 14 Energy bills support Advice told us that one in 20 people do not have the internet, and roughly one in 10 do not have some of the essential skills to engage digitally, so it would be important to ensure there are offline methods of delivering information about the vouchers.32
14Concerns persist over forced installation of prepayment meters by energy suppliers.
Concluded (the committee's words)
We asked witnesses about recent press coverage that had exposed the practice of some energy suppliers forcibly installing prepayment meters in people’s homes. Ofgem banned British Gas from forced installation of prepayment meters as of February 2023 and made a voluntary agreement with other energy suppliers which lasts until March 2023. Citizens Advice told us it was concerned about prepayment customers as the support schemes and the moratorium preventing forced installation end in April 2023.33 The Department told us it believed forced installations were well outside the rules that were in place for the treatment of vulnerable customers. The Department told us that the Secretary of State had written to Ofgem to look into this issue and that if it had been aware of the specifics of how British Gas was handling these cases, it would have asked Ofgem to intervene earlier.34 Fraud and error risks
15Rapid implementation of energy schemes created initial high fraud and error risks.
Concluded (the committee's words)
The Department had to design and implemented the schemes at speed to ensure they were in place for winter 2022–23. The Department took three weeks to implement the EPG and two months for the EBRS. At the start of the schemes, the Department assessed that the risk of fraud and error for both the EPG and EBRS was high and that the potential financial impact from the risks materialising would be high given the scale of the schemes. The risks stemmed from the untested nature of the schemes’ design, and the pace of delivery meant there could be insufficient checks on errors in claims and payments as well as lack of capacity and capability within government to perform them. In autumn 2022, the Department for Business Energy and Industrial Strategy (BEIS) sought two Ministerial Directions about the schemes. In seeking these directions, BEIS’s Accounting Officer considered the four accounting officer tests set out in HM Treasury’s Managing Public Money. BEIS’ Accounting Officer acknowledged the need for government support while recognising the “inevitable challenges in assessing and implementing [interventions] of this scale at speed” and that the EPG, AFP and EBRS pose risks and present “a very large exposure of public money”.35 We asked the former Permanent Secretary about the grounds for the Ministerial Directions. They told us that one of the reasons for seeking a Ministerial Direction was because they could not sign-off to say that all the anti- fraud measures were fully in place at the time. They explained that since the Ministerial Directions, the risk had “very much decreased”.36
16Department leveraged pandemic experience and PSFA collaboration to mitigate energy scheme fraud risks.
Concluded (the committee's words)
The Department drew on lessons learnt from its financial support schemes during the pandemic to reduce the risk of fraud and error in the schemes.37 The Former Permanent Secretary told us that the Department’s previous experience from support schemes led to it collaborating from the outset with the Public Sector Fraud Authority (PSFA). They explained that the PSFA had supported the Department to better understand the fraud risks across the schemes. The PSFA worked with the Department’s counter fraud team, to ensure that fraud risk assessments were undertaken early and were complete. The Former 32 Q 53 33 Q 42 34 Qq 103–105 35 C&AG’s Report, paras 2.2–2.3, 2.10, 3.2, Figure 7 36 Qq 141–142 37 C&AG’s Report, para 2.9 Energy bills support 15 Permanent Secretary also told us that the lessons the Department had learnt from the pandemic allowed it to move people quickly to undertake the work needed to introduce the schemes, and that the capability and process it built up during the pandemic to stand up schemes quickly had paid off.38 The Department will also work with local authorities to address fraud and error risks for the EBSS Alternative Funding Scheme, building on expertise and structures developed through its experience through the pandemic.39
17Universal energy schemes with no application process presented lower inherent fraud risks.
Concluded (the committee's words)
The Former Permanent Secretary told us that while the Department was “acutely conscious” of the fraud risks within the schemes, it thought that the design of the energy support schemes meant that the risks of fraud were much lower than those for loan schemes introduced during the pandemic. They explained that “universal schemes, by their nature, are much less fraud-prone” because there was no application process, and there were fewer opportunities for money to be passed onto people who do not qualify for the schemes. They further explained that the schemes relied on existing infrastructure and customer relationships, by requesting energy suppliers to deliver benefits to existing customers. The schemes therefore did not have any of the new-to-bank customers issues faced by schemes to support businesses during the pandemic, such as bounce-back loans. Some schemes, such as the EBSS Alternative Funding route and AFP for consumers who are fully off-grid, do require consumers to apply for the scheme. They told us that fraud and error risks were much more substantial for these schemes but that the Department had sought to implement processes that would cross-check applications with other data sources.40
18Non-domestic energy support schemes face higher fraud risks due to market complexity.
Concluded (the committee's words)
The NAO found that the risk of error was greater for EBRS than for EPG because the non-domestic energy market is more complex, less regulated by government and has a wider range of consumers. For example, energy usage and intensity vary significantly more between different industries within the non-domestic sector than between households within the domestic sector. The price cap does not apply to non-domestic customers and Ofgem has less transparency over the tariffs that businesses are charged for their energy compared to the domestic sector. Some businesses negotiate energy bills via brokers, and many will be on bespoke tariffs. In contrast, approximately 80% of households are currently paying the same standard variable tariff determined by the price cap.41 We therefore asked the Department how it was managing the risk of fraud within schemes for non-domestic customers. The Department told us that it had dedicated teams working with each energy supplier to check in detail that the scheme was operating properly and fairly without fraud or error, and that it worked on anti-fraud through improving automation and investing in pre- and post-payment checks.42
19Department lacks estimates of overpayment rates for energy support schemes and evaluations.
Concluded (the committee's words)
We asked the Department whether it had an estimate of the rate of overpayment within the schemes. Both the Former Permanent Secretary and the Department told us that they did not have an overpayment figure, but that overall, the Department was aiming to pay accurately.43 We also questioned the Department on its plans to monitor 38 Qq 153, 175 39 Q 172; C&AG’s Report, para 2.9 40 Qq 172–175; C&AG’s Report, paras 2.9, 3.2 41 Q 176 ; C&AG’s Report, para 3.5 42 Qq 153, 175–176 43 Q 177 16 Energy bills support benefits, impacts and the effectiveness of the schemes, including rates of fraud and error. The Department told us that it had an evaluation plan in place, but that full evaluation of the effectiveness of the schemes would only be possible when the schemes have concluded.44 44 Qq 145–146 Energy bills support 17 2 Future risks Risks of reducing support for businesses
20Inconsistent sector inclusion in energy support schemes raises questions about criteria and understanding.
Concluded (the committee's words)
In April 2023, the government will replace the Energy Bill Relief Scheme with the Energy Bill Discount Scheme. This will support businesses for 12 months from April 2023 by providing a discount on their energy bills if wholesale prices are above a certain threshold. Businesses in certain Energy and Trade-Intensive sectors will receive a higher level of support, based on the government’s standard industrial classification of sectors.45 The majority of these sectors are in manufacturing industry but also include libraries, museums and zoos. We therefore asked why these sectors had been included as part of the new schemes, while restaurants and pubs had been excluded. The Department explained that the sector which included libraries and museums also included “highly traded” sectors, but recognised that any scheme which used an approach based on large categories would “end up with a mix of those who are really deserving and those who are less deserving”.46 We were concerned that this approach might not fully take account of variations in the make up of different sectors. The Department told us that while it had teams working specifically on some sectors, such as pubs and hospitality, it accepted that it did not, because of the number of sectors in the economy, understand every one of them well. It explained that, ultimately, decisions about the methodology for the new scheme and which sectors had been classified as trade intensive, were decided by Treasury Ministers. HM Treasury told us that its decisions on which sectors to support were partly based on whether the sector was competing globally, such as steel and concrete, and that the sector which included libraries and museums also included internationally traded antiquarian and other booksellers.47
21Reduced energy support risks businesses closing and wider economic objectives for government.
Concluded (the committee's words)
The reduced support could risk the Department achieving its wider economic objectives for the EBRS, such as reducing the effect of inflation and protecting jobs.48 The Federation of Small Businesses (FSB) told us that if energy prices remained high and the EBRS was taken away, 24% of their members would consider closing, downsizing or radically restructuring.49 While gas prices have recently fallen significantly from the record-high levels in 2022, the FSB and Hospitality UK told us that they were concerned in particular about businesses that signed up to a fixed energy tariff in the second half of
22Government provides diverse financial support to businesses beyond energy specific schemes.
Concluded (the committee's words)
HM Treasury told us it was providing a range of support to businesses and the public sector through a number of measures, not just the energy support schemes. For example, it pointed to support provided through: covid support schemes; a reduction in business rates and funding paid via local authorities. HM Treasury told us that it had looked at how the tax systems were helping high street businesses and hospitality and leisure businesses and that although the EBDS might not be the right way to support pubs with their energy bills that there were levers government can use. It also highlighted support provided to pubs, such as freezing alcohol duty.53
24Rising energy bills and EPG cap increase push more households into fuel poverty.
Concluded (the committee's words)
At the time of our evidence session, household bills were protected by the EPG cap at £2,500 until the end of March 2023, which will increase to £3,000 from April 2023 to March 2024.57 HM Treasury told the NAO that it did not have plans to extend the EBSS beyond April 2023. The combined impact of these changes mean that a typical household bill may increase by at least £400 in 2023–24 if wholesale energy prices remain around current levels. At the time of the NAO report, the Department expected that Ofgem’s price cap would not be much above £3,000 in April 2024, meaning withdrawing the EPG at that point would not have a sudden significant impact on consumers’ bills.58 The 52 Q 197 53 Qq 106–107, 187, 190 54 Q 20 55 Qq 2, 25 56 Qq 191–192, 197 57 C&AG’s Report, para 1.4 58 C&AG’s Report, paras 3.20, 3.22. In 2022–23, the EBSS contributed £400 to household energy bills. The ending of this support will therefore add £400 to household energy bills in 2023–24 Energy bills support 19 Department told us that its most recent estimates were that average household bills would be closer to £2,000 (although it did not specify a date) and would stabilise at that level for the foreseeable future.59 But these levels are still higher than average energy bills have been prior to summer 2022 (when it was £1,149 for an average household) , and so would represent a potential long-term substantial increase in household bills.60 However, the Department explained that wholesale gas prices are volatile.61 Energy UK told us that almost half of all households, were already spending more than 10% of their income after housing costs on energy, and so were considered as being in fuel poverty. Citizen’s Advice told us that of the 12 million households in fuel poverty, it was concerned about the three million people households who were on low income but were not in receipt of benefits, as they were considered as being in fuel poverty but would not receive any targeted support to help pay their en
25Government develops new energy market consumer protection as retail market struggles financially.
Concluded (the committee's words)
Following our evidence session government announced in its spring statement that it would maintain the EPG at £2,500 until the end of June 2023.63 The government has committed to consulting on amending the EPG as soon as is feasible after April 2023, so that those who use very large volumes of energy have their support capped, whilst ensuring most households can continue to benefit. The Department is also leading on developing a new approach to consumer protection in energy markets from April 2024, working in conjunction with Ofgem, including options such as social tariffs as part of wider retail market reforms. The objective of this new approach will be to deliver a fair deal for consumers, ensure the energy market is resilient and investable over the long- term, and support an efficient and flexible energy system.64 The Department told us that it had received lots of representations from industry groups and from consumer groups about how the different models for the price cap might play into the options for the future. It also told us that Ministers will want to look at the role of the price cap when considering the vision for what comes after the EPG.65 Energy UK told us that it thought the retail market was also not currently working for suppliers. Household customers owe about £25 billion of debt now and on average retail energy companies make around 2.5% loss a year.66 Impact of gas prices on electricity prices
26Marginal electricity pricing links high gas prices to consumer bills, incurring huge public costs.
Concluded (the committee's words)
The approach to pricing electricity in the UK – known as marginal pricing - means that high wholesale gas prices results in high energy bills for consumers. This is because all electricity generators in the market are paid a fixed price per unit of electricity, which is determined by the most expensive bid needed to meet demand, which currently is often provided by gas plants. Therefore, wholesale electricity prices will be exposed to gas prices even as the proportion of gas generation decreases as renewable electricity generation increases. The energy bills support that government introduced to help both domestic 59 Qq 144, 195 60 Ofgem, Retail market indicators - Breakdown of the default tariff price cap (GBP £, direct debit), 1 October 2022 61 Q 102 62 Qq 15–16 63 HM Treasury, Spring Budget 2023, HC 1183, March 2023 64 Q 143; C&AG’s Report, para 3.22 65 Q119 66 Q 17 20 Energy bills support and non-domestic consumers with their bills in light of the unprecedented high prices in wholesale gas prices that the government estimated, at the end of December 2022 would cost the public purse £69 billion over the schemes’ life.67
27Review of Electricity Market Arrangements lacks clear timeframe, risking future consumer energy costs.
Concluded (the committee's words)
We asked witnesses about the effectiveness of the marginal pricing system and whether what customers were being charged reflected the cost of producing the energy they used. The Department told us that it was looking into this issue through its Review of Electricity Market Arrangements (REMA).68 The REMA is a major electricity market reform the Department announced in July 2022, to support full decarbonisation of the electricity system by 2035 ensuring security of supply and cost effectiveness for consumers. It consulted on its review during summer 2022 and published the summary responses to the consultation on 7 March 2023. In the consultation, the Department stated that it will explore reforms that move away from marginal pricing. One alternative option is a pay- as-bid system, where participants receive the price of their bids/ offers rather than the bid of the highest priced supplier selected to provide supply. However, generators are likely to bid strategically, and be incentivised to bid at the price of the most expensive offer accepted. Of the 124 responses, respondents to the consultation were split over whether they supported this alternative. In its consultation document, the Department set out that it planned to determine the reforms needed during 2022–23 and establish a full delivery plan and oversee its implementation from the mid-2020’s in time to meet its target to decarbonise the UK power system by 2035. However, it has not yet made available any further details of the timeframe of the review.69 In the meantime, if gas prices increase again, consumers and taxpayers will be subject to significant costs again. The previous reform, the Electricity Market Reform, took two and a half years.70 The Department told us that one of the lessons it had learnt from the last 18 months had been to strengthen the case for more renewables and nuclear energy, and to make sure that the benefits are passed on to consumers, which it planned to achieve through the REMA.71
28Decoupling electricity and gas prices needs careful reform for long-term consumer benefits.
Concluded (the committee's words)
We asked about whether the vast majority of the additional cost of energy to UK customers was going into increased profits for the energy sector. Energy UK told us that in looking at decoupling electricity and gas, the government should look at ensuring cheaper prices in the long term. Energy UK told us renewable energy companies that have been built under contracts for difference have been paying back in the last 18 months and as a result consumers have seen discounts on bills. It also highlighted the importance of government not rushing through reform to avoid unintended consequences such as high energy bills.72 67 C&AG’s Report, para 7 and Figure 2; Ofgem, What drives wholesale electricity prices in Britain?, 15 July 2016; Department for Business, Energy & Industrial Strategy, Review of Electricity Market Arrangements Consultation document, July 2022 68 Qq 121–126 69 Department for Business, Energy & Industrial Strategy, Review of Electricity Market Arrangements Consultation document, July 2022; Department for Business, Energy & Industrial Strategy, Review of Electricity Market Arrangements Summary of responses to consultation, 7 March 2023 70 C&AG’s Report, Early contracts for renewable electricity, Session 2014–15, HC172, 27 June 2014, Figure 4 71 Q 121 72 Qq 2, 17 Energy bills support 21
Evidence
Oral evidence sessions 2
- 27 Feb 2023Energy bills support5 witnesses: James Bowler CB, Jeremy Pocklington CB, Jonathan Mills, Phil Duffy, Sarah Munbyparliament.uk ↗
- 23 Feb 2023Energy bills support pre-panel4 witnesses: Andy Manning, Dhara Vyas, Kate Nicholls, Paul Wilsonparliament.uk ↗
Who gave evidence 9 witnesses
- Andy ManningEnergy System Transformation Head, Citizens Advice
- Dhara VyasChief Executive, Energy UK
- James Bowler CBPermanent Secretary, HM Treasury
- Jeremy Pocklington CBPermanent Secretary, Ministry of Defence
- Jonathan MillsDirector General, Energy Markets and Supply, Department for Energy Security and Net Zero
- Kate NichollsChief Executive, UK Hospitality
- Paul WilsonPolicy Director, Federation of Small Businesses
- Phil DuffyDirector-General, Growth and Productivity, HM Treasury
- Sarah MunbyPermanent Secretary, Department for Business, Energy and Industrial Strategy
Correspondence 5 letters
- 7 Sep 2023Correspondence from James Bowler, Permanent Secretary, HM Treasury, re Additional information: Recommendation 4a Forty-eighth Report of Session 2022-23 (Energy Bills Support), dated 14 August 2023
- 17 Apr 2023Correspondence from Jeremy Pocklington CB, Permanent Secretary, Department for Energy Security and Net Zero, re Energy Bills Discount Scheme, dated 28 March 2023
- 17 Apr 2023Correspondence from Rt Hon Grant Shapps MP, Secretary of State, Department for Energy Security and Net Zero, re Contingent Liability Notification: Energy Bills Discount Scheme, dated 27 March 2023
- 28 Mar 2023Correspondence from James Bowler, Permanent Secretary, HM Treasury, re follow up to question raised at the Public Accounts Committee on Energy Bills Support on 27 February 2023, dated 16 March 2023
- 21 Mar 2023Correspondence from Jeremy Pocklington CB, Permanent Secretary, Department for Energy Security and Net Zero, re Energy Bills Support, dated 10 March 2023