The Scottish National Party manifesto includes a promise that their MPs will call for a statutory social tariff for energy (and other utilities). This focus on social tariffs in public debate is welcome, but it needs to form part of a wider package of reforms.
Help with energy bills, which are likely to remain high into the next decade, and addressing the persistent challenge of fuel poverty needs to be coupled with action on energy efficiency, income support and energy market reform.
Politicians should also consider who pays for these interventions, as well as how and when they do so. This is important to ensure that the burden of costs does not fall on those least able to pay, including within (and on the margins of) the community not eligible for any social tariff.
The conversation about social tariffs for energy is not a new one. Campaigners and charities have promoted the idea for some time. The Conservative government has engaged in the conversation, but without turning those words into action.
The SNP has now put the issue back on the political agenda. In the run up to its manifesto launch, party leader John Swinney proposed a social tariff on energy bills targeted at older people, those on low incomes and people with disabilities, which he claims could halve some people’s bills.
The party has said the initiative – which they cost at just under £8 billion in the current year – could be funded through a combination of general taxation and “top slicing” energy companies’ profits.
Other parties have set out different approaches to reducing energy bills, such as Labour’s plans for a new, publicly owned clean energy company called Great British Energy and Conservative pledges to reform standing charges (which are charged to everyone, irrespective of energy usage, with regional variation in the level). The Liberal Democrats further wish to provide free heat pumps for those on low incomes and the Greens want to insulate homes to EPC B standard (meaning they’re classed as “highly efficient”).
Tariffs can only go so far
The country will need a combination of these types of measures to ensure affordable and sustainable energy, not least until energy prices ease considerably.
At the beginning of this year, Ofgem launched a review of standing charges . The SNP manifesto proposes that these are significantly cut for all and removed for those on prepayment meters.
Regardless of party politics, Ofgem’s review must be completed and the recommendations implemented. Wider energy market reform is also vital, including decoupling the price of electricity from gas to reflect cheaper renewable energy in consumer bills.
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This is necessary to address persistent market failures that the ability to switch energy suppliers has failed to resolve, and to provide protection to the most vulnerable customers. Energy efficiency is also an essential part of the equation, with our research highlighting that the case for investing long-term in energy efficiency programmes includes delivering wider gains across the economy.
There is also the more fundamental challenge around high numbers of people in poverty who are unable to pay for basics such as energy and food.
This suggests that some level of extra income support is required, particularly for those on the lowest incomes. Crucially, if the wrong decisions are made about how the country pays for making energy more affordable and sustainable, this wider poverty crisis could be exacerbated.
The “who pays?” question matters for social tariffs and other energy affordability interventions. Our research continuously underscores that who pays for net zero, how and when is critical. Moreover, it shows that it is likely that households will ultimately pay the costs through taxes, energy bills, jobs and wages, as well as potentially the cost of living more broadly.
In its call for a statutory social tariff, the SNP suggests this could be paid for in part by general taxation. However, could and would these costs be targeted at higher earners only, without exacerbating pressures on lower and middle-income workers? And there could be implications from increasing taxation on higher-earning workers rather than other forms of wealth generation.
There is also a danger that the other main element of the SNP’s funding approach – “top slicing” energy supplier profits – may lead to companies attempting to recover those costs via the mainstream energy price cap. This could end up dragging more lower to middle-income households into fuel poverty.
The fundamental challenge of the targeting and reach of a social energy tariff remains, which will itself add to the overall cost of delivery. After all, around nine in ten households that are eligible for a similar tariff for broadband have not claimed it. As always, the devil is in the detail.
These are all critical considerations for a new UK government. To understand the types of interventions and support needed to provide affordable, secure and sustainable energy, politicians need to do more to understand the model the investments required.
Crucially, this should focus on ensuring that those least able to pay do not shoulder an unfair burden as they already do in many regards. This will be critical to delivering a net zero transition that is economically and politically feasible, and which enjoys widespread public support.