Discontent around the Government’s decision to slash winter fuel payments shows no sign of abating. With news this week of further deterioration in the state of public finances, and the Budget still over two months away, Labour’s first summer in power for 15 years is turning into a long one.
To be fair to Labour, they were unambiguous in their election campaigning – working people wouldn’t be asked to pay more tax. And if not working people, then who? Children? It was always going to be pensioners, coincidentally a group that tend to lean to the Right when it comes to voting, who would be asked to bear the brunt of Labour’s new austerity drive. Still, the early announcement of the abolition of the winter fuel allowance for all but the poorest pensioners caught many off-guard. The fact it has been accompanied by generous pay settlements for public sector workers is no more than we might have been led to expect by their campaign promises. Nevertheless, the brutal juxtaposition of the announcements has rubbed salt in the wounds of the millions of pensioners now denied the payments.
The terms of the cut involve abolishing the fuel allowance for all pensioners not in receipt of pension credit. This means the payments will be cut for around 10 million pensioners, reducing recipients from 11.4 million to around 1.4 million. Broadly, eligibility for pension credit requires single pensioners to have an income of less than £11,343, or £17,313 for a couple. Above these modest thresholds, you are likely to be ineligible. This means you could be both not in receipt of pension credit, and still heavily reliant on the winter fuel allowance to help heat your home through the colder months.
Pension credit itself is one of the Treasury’s dirty little secrets. On the face of it, it is a top up for those most in need, but there is a catch –you have to claim it, and hundreds of thousands of eligible pensioners aren’t claiming it. This means there’s around £2bn of unclaimed welfare payments which can be used elsewhere – about which I am reliably informed, the Treasury officials holding the purse strings are intensely relaxed. This is not a good look though, for a government on the back foot over the winter fuel cut. Right on cue, this week the new pensions minister, Emma Reynolds, announced a campaign to promote take-up of the pension credit among the estimated 880,000 people who could be benefiting from it but aren’t.
The Problem of Unclaimed Benefits
The problem is, this has been tried before. Most recently and not for the first time, the then pensions minister, Guy Opperman, ran a campaign on this very issue, through the spring and early summer of 2022. He and the DWP worked with the pensions industry, charities and external agencies to promote the message of claiming your pension credit far and wide. They even drafted in Strictly Come Dancing star, Len Goodman, to add some glamour and style to the campaign. It worked too, with one concerted week of action leading to a significant increase in claims. However, these are hard yards and many of the easier-to-reach pensioners have already come into the fold. This begs the question: what more is the Government going to do differently this time around, to make a meaningful dent in the number of those outstanding eligible pensioners who have so far proved so hard to reach? Will former Strictly star, morning television host and New Labour favourite, Ed Balls, be asked to step in?
A Means-Tested Alternative
Promoting improved take up of pension credit is a worthwhile campaign in its own right – doubly so when it entails eligibility for the winter fuel allowance too. It can also affect your eligibility for other welfare such as housing benefit. Any alternative form of means-testing which could extend the allowance to a broader base of pensioners could quickly become bureaucratic and unwieldy. This is an issue that matters greatly to millions of pensioners.
The Government at a Crossroads
It will also be an interesting test of the Government and its decision-making, whether it chooses to soften the original terms of the winter fuel allowance cut or sticks to its guns. Our leaders are at a crossroads – will they soften their approach or stick to their guns?
A Broader Approach
Martin Lewis, the influential financial advice expert, has increased the pressure on the government over the withdrawal of the winter fuel payment. He has called for a rethink from chancellor Rachel Reeves. Lewis said that the lack of a cost of living support payment like last year and the scrapping of the winter fuel payment would leave pensioners worse off than last year. He told BBC Radio 4: “I think the government should rethink getting rid of the winter fuel payment in the way it has done so. While I agree there’s a very strong argument for getting rid of the universal winter fuel payment, I think the eligibility criteria is far too narrow.”
Reeves last month limited the winter fuel payment to pensioners receiving pension credit. Lewis suggested that the benefit should be widened to include all pensioners in council tax bands A to D, taking in far more households. Lewis acknowledged that energy rates are cheaper than they were last winter – with average households paying about £100 less over the six months when most British households turn on the heating. Lewis said 880,000 pensioners may be missing out on pension credit, and urged pensioners to check if they are eligible.
The main advantage of his proposal to re-extend winter fuel payments by council tax band is that it could be rolled out quickly, Lewis said. The government has surprisingly little insight into the earnings of each household, which makes rapid deployment of means-tested payments very tricky. (It’s worth reading this by Robert Colville, head of the Tory-aligned Centre for Policy Studies thinktank, who said: that “database management is both the most important part of modern government, and its most intractable limitation”.)
Lewis said: “It’s an imperfect solution, but it is a workable, quick solution. The key for me is it’s fine to drop universality, but we’ve gone from everyone having it to just the poorest pensioners on the very lowest incomes. As always it’s those just above the threshold that miss out. We need to look at a broader eligibility criteria if we are going to means test it.”
A Vital Lifeline
Energy prices dropped earlier this year as the summer months delivered lower demand for gas. But that was “only a brief moment of respite”, said a charity leader this morning. Joanna Elson, chief executive at Independent Age, which supports older people in financial hardship, is campaigning for the government to reinstate the winter fuel payment. Chancellor Rachel Reeves last month limited the winter fuel payment to those on pension credit, arguing that wealthier households were receiving a payment meant to help those struggling financially.
Elson said she was concerned that many households who should be eligible will not receive the payment: “As the weather starts to turn colder, older people in financial hardship up and down the country are worried about their budgets. Many are on a low fixed income, and they will now need to find more money to cover their rising energy bills. To make matters worse for older people in poverty, this bill increase coincides with the ending of the winter fuel payment for people not receiving pension credit. There could be up to 1.2 million older people eligible for pension credit who don’t receive it. On top of that, many are just above the eligibility threshold but still live on a low income and struggle to make ends meet. We are incredibly concerned about the people in later life who will be cut off from a vital source of income worth up to £300 at a time when their bills are rising.”
A Difficult Time
Four in 10 consumers are still having to cut back their non-essential spending due to the cost of living, according to KPMG, an accountant. Ofgem told British consumers to “shop around”. But that message has not quite got through to households, who are hard-pressed. Simon Virley, vice chair and head of energy and natural resources at KPMG UK, said: “Rising energy prices will be a huge concern for the many households who are not on fixed deals just as we enter the winter months. Average dual fuel bills remain well above the levels prior to Russia’s invasion of Ukraine and the fact that prices remain slightly below the levels of last winter will be of little comfort to those households. Switching appetite remains well below the levels seen before the price cap was even introduced. The price cap has effectively become the default tariff over the past 18 months, which limits the incentives for investment and innovation. So, it is important that reform of the retail market remains a priority for the government and the regulator if we want to reap the benefits of a smarter, greener energy system.”
A Volatile Market
The UK’s reliance on imports of fossil fuels – particularly gas – means it is vulnerable to rising global wholesale prices, according to Cornwall Insight, a consultancy. Cornwall regularly tracks the price cap, using the same calculations as Ofgem to work out where the price cap will be ahead of time. Prices are due to rise further this winter, Corwall said. The January 2025 cap is projected to rise by an additional £45 to £1,762. This would mark a 3% increase from October’s cap.
Craig Lowrey, principal consultant at Cornwall Insight, said: “As we move into the colder months, a lift in bills, while expected, is certainly not welcome. Unfortunately, a volatile wholesale market, and a country heavily reliant on imported energy has created a perfect storm for fluctuating household bills. Today’s announcement, coupled with our forecasted energy price hikes in the new year, will only intensify the calls for government action to protect vulnerable households. There is a range of options available for the new government, from social tariffs to targeted support. But with just over a month until the cap increases – coupled with the fact that Parliament in on its summer recess – time is not on their side.”
The Effectiveness of the Price Cap
The increase is also likely to reignite the debate over the effectiveness of the cap. While brought in with good intentions, it was only meant as a temporary measure, and some may argue the cap has served its purpose. One thing is clear: the current system is not meeting the needs of households, and without change, this risks being the case on an enduring basis. It would be unrealistic to expect the market to simply correct itself and return to pre-crisis price levels, especially as bills remain far from historic norms three years on. We hope that Ofgem’s review of the cap, along with a renewed focus on renewable energy by the government, will provide viable solutions, helping to deliver fair and sustainable energy bills for everyone.
A Wide Range of Impacts
The regulator may have said the average energy bill will rise by £12 a month, or £144 a year, but that average masks a lot of variation. The properties with the worst energy efficiency – a G rating – could rise by as much as £558 a year, according to calculations by Rightmove, a property website. That would leave average bills for those households at £6,140. By contrast, the most efficient, A-rated properties could pay only £620 annually – so prices would rise by only £56 annually. Of course, the standard health warning: all of these numbers are average numbers, but the price cap is based on the unit rate, which is actually what is capped. So households can spend more or less than the cap, depending on what energy they use.
Tim Bannister, Rightmove’s property expert, said: “The rising price of energy in recent years means that renters and homeowners are likely having to closely consider their total monthly outgoings when choosing their next home. We know that lower bills is one of the biggest motivators for people to go greener, so we expect over time people will increasingly seek out more energy efficient properties in order to keep bills down over the long-term. Our research suggests that if something like a dynamic price cap, where energy is cheaper at less popular times of day, was to be introduced, the majority would welcome it if it meant lower bills.”
Standing Charges
Ofgem’s boss has outlined that there are no easy answers on how to cut energy bills, including via standing charge reform. Standing charges have increased in recent months, and unlike with energy use, households have no ability to change their usage. Jonathan Brearley, Ofgem’s chief executive, said: “We are working with government, suppliers, charities and consumer groups to do everything we can to support customers, including longer term standing charge reform, and steps to tackle debt and affordability. Options such as changing how standing charges are paid and getting suppliers to offer more tariff choices and give customers more control are all on the table, but there are no silver bullets. Any change could leave some low-income households worse off, so it’s important we hear views on our proposals and continue working with the government to see what targeted support could help customers. Ultimately the price rise we are announcing today is driven by our reliance on a volatile global gas market that is too easily influenced by unforeseen international events and the actions of aggressive states. Building a homegrown renewable energy system is the key to lowering bills and creating a sustainable and secure market that works for customers.”
The Impact on Low-Income Households
Britain’s energy regulator has said that half a million low-income households could see bills rise 10% if it scraps standing charges, which apply to every household regardless of whether they use any energy. Ofgem has revealed options to change the Great Britain’s much-criticised energy standing charges. They are seen by many people as unfair, because they apply even when households use no energy. The regulator said: “The short-term option[s] presented by the regulator include an option to move between £20 and £100 from the standing charge to the unit rate (the price paid for every unit of energy used), giving customers the opportunity to save money by lowering their usage.”
However, it added that some vulnerable households could be hit with higher bills if standing charges are shifted into unit costs for energy. While this option could see some households make savings, Ofgem recognises the significantly higher impact a unit rate increase could have on customers who cannot safely cut their energy use due to dependency on life saving medical equipment or living in a low standard of housing with poor insulation. Analysis by the regulator on scrapping the standing charge and moving all costs to the unit rate also suggests around half a million low income households would see bills increase by around 10 percent. The regulator is looking at longer-term options including abolishing standing charges, after two-thirds of 30,000 respondents to its call for feedback said the charges should go. Ofgem said that “there are constraints to how far we can reduce standing charges in the short term”.
Thames Water Crisis
It has been a busy morning for Great Britain’s utilties regulators: water watchdog Ofwat has also confirmed that troubled Thames Water will have to appoint independent monitors after breaching its licence conditions. The water company will only be allowed to remove the monitors once it regains two investment-grade credit ratings – a requirement that suggests there is no end in sight for the monitoring period. Thames Water’s rating was downgraded to junk status by agencies S&P and Moody’s in July, putting it in breach of its licence conditions. Ofwat also confirmed that Thames Water, which supplies water to much of southeast England and all of London, has committed to “taking the steps required to deliver an equity raise” and “developing and delivering a suitable operational business plan to achieve turnaround”. In practice it is unclear whether Thames will be able to meet these commitments in time to save it from running out of money. The UK’s biggest water company, which has a £15.2bn debt mountain, has said it has enough cash to continue trading until at least May 2025. If it fails to secure new investment it could be placed into a special, government-handled administration.
Energy Price Cap Increase
Good morning, and welcome to our live, rolling coverage of business, economic and financial markets. British regulator Ofgem has confirmed that the energy price cap has risen 10% to £1,717. The maximum price for the average dual fuel energy tariff will rise from 1 October, Ofgem said. It will add about £12 per month to the standard fuel bill. Ofgem’s price cap sets a maximum rate per unit and standing charge that can be billed to customers for their energy use – so the £1,717 number is only indicative, and households could pay more if they use more energy. The regulator said: “Rising prices on the international energy market – due to increasing geopolitical tensions and extreme weather events driving competition for gas – are the primary cause of the rise, accounting for 82% of the increase.”
It comes with the Gaza crisis threatening to spill out into a broader war between Israel and Hezbollah in Lebanon, and Ukraine’s surprise incursion into Russian territory. The price cap has effectively set prices across households since the start of the energy crisis that was triggered by the war in Ukraine. However, Ofgem told consumers to “shop around”, as some households could now potentially save money. Jonathan Brearley, chief executive of Ofgem, said: “We know that this rise in the price cap is going to be extremely difficult for many households. Anyone who is struggling to pay their bill should make sure they have access to all the benefits they are entitled to, particularly pension credit, and contact their energy company for further help and support. I’d also encourage people to shop around and consider fixing if there is a tariff that’s right for you – there are options available that could save you money, while also offering the security of a rate that won’t change for a fixed period.”
