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Warm Home Discount (Miscellaneous Amendments) Regulations 2018

Volume 792: debated on Thursday 19 July 2018

Motion to Approve

Moved by

My Lords, these regulations extend the warm home discount scheme until 2020-21, ensuring over 2 million low-income and vulnerable customers receive a £140 rebate on their energy bills in winter, when they need it most. This is vital support and a key policy for tackling fuel poverty.

The best long-term solution to alleviating fuel poverty is to improve the energy efficiency of a home, bringing down the cost of heating it. The Government are committed to tackling fuel poverty and improving energy efficiency. We have launched a number of interventions to help us achieve this. In the Clean Growth Strategy, we stated the aim to upgrade all fuel-poor homes to band C by 2030. In March, we consulted on focusing all of the energy company obligation funding—£640 million per year—on low-income and vulnerable households. We have committed to the continuation of funding for domestic energy efficiency until 2028, at least at current levels—an investment of £6 billion over the next 10 years—and we have consulted on proposals to strengthen the existing minimum standard regulations in England and Wales so that private landlords make improvements to F and G-rated homes before letting them. This is part of our wider, long-term aspiration to improve as many homes as possible to band C by 2035.

The energy efficiency improvement of homes takes time, however, and some properties, especially those that are harder to treat, may be left behind. Energy bill rebates through the warm home discount, therefore, continue to play an important role. Through the Domestic Gas and Electricity (Tariff Cap) Bill, which I hope will receive Royal Assent in due course, we are taking action to protect 11 million households currently on the highest energy tariffs. Under the warm home discount, around 1.2 million low-income pensioners in receipt of pension credit guarantee credit receive £140 as an automatic rebate on their energy bills. Over 1 million low-income and vulnerable households receive the rebate following an application to a participating energy supplier. In recognition of the success of the scheme, the 2015 spending review committed £320 million per year to the scheme— rising with inflation—until 2020-21. The current regulations underpinning this scheme expired in April and the regulations in front of us today extend the scheme until 2020-21. This extension to the regulations will not inhibit the reform of the scheme in future. We intend to consult later this year on a number of changes from 2019-20, including expanding the successful data-matching process and so removing the need for consumers to apply. We will want to look at ways in which we can achieve the most effective targeting of the scheme by making the best possible use of the data available to us. To do this, we needed primary legislation, and I am delighted that the data-sharing powers we needed under the Digital Economy Act 2017 are expected to come into force before Summer Recess.

Meanwhile, the regulations we are debating today introduce a key change to the scheme. More energy suppliers will be required to offer the warm home discount to their customers. We will give smaller suppliers enough time to put the right processes in place, while giving a clear signal to the market. So, the threshold will reduce gradually, from 250,000 down to 150,000 customer accounts between 2019 and 2021. The impact of the threshold will be reviewed and, should the scheme continue beyond 2021, we expect it to be reduced further.

It is important to note that these regulations do not make significant changes to the scheme eligibility for this coming winter. This winter we want to prioritise the safe and timely delivery of the rebates. That will mean that all eligible pensioners on pension credit guarantee credit will continue to receive £140 off their bills. These regulations make only small changes to eligibility for the broader group—the part of the scheme for which customers have to apply—by including universal credit recipients who are in work with low earnings, and to reflect welfare changes.

We believe there is more room for more innovative, industry-led projects to identify fuel-poor households and to provide the most suitable package of advice and measures. Recognising this potential, we are increasing the spending cap on industry initiatives from £30 million to £40 million. We are also expanding the list of activities allowed under industry initiatives to include the provision of financial assistance with energy bills for households not eligible under the core group or broader group. This could be households not on the benefits system but particularly at risk of fuel poverty, including those where someone has a long-term illness or disability. This will be limited to up to £5 million overall and up to £140 per household—equivalent to the value of the rebate.

We want to ensure that industry initiatives funding focuses on support to reduce bills for the long term, such as through energy advice and energy debt assistance. These regulations will continue to reduce the cap on the spending allowed on debt write-off from £12 million to £10 million—or 25% of the increased cap—and to continue to reduce it in future years, to £8 million in 2019-20 and £6 million in 2020-21.

In conclusion, the regulations extend the warm home discount until 2020-21. These affirmative regulations provide vital support for low-income and vulnerable customers to keep warm for the next three winters. The changes that we propose to make will mean that more suppliers will be required to provide assistance to their eligible low-income customers, and that suppliers can spend more on industry initiatives to provide innovative and long-term energy bill support to households in need. I commend these regulations to the House and beg to move.

My Lords, obviously, we welcome the extension of the warm home discount, which has been successful. It has been in operation for seven years, and it benefits those in fuel poverty, so a further three years is welcome.

I noticed what the Minister said about energy efficiency. We on this side could not agree more that energy efficiency is massively important, and we welcome all and any measures the Government might take. However, we also encourage the Government to reintroduce the zero-carbon homes standards. When you have the opportunity to build new homes, it seems a pity not to reduce the need for heating and expense in that way. Two million low-income and vulnerable households have benefited, and the main elements remain in place and intact. I do not know how widely this consultation is marketed, as there were only nine individuals out of a total of 60 respondents. While the changes are not earth-shattering, that is a very small number for an issue that affects every household in the country.

I was pleased to see that the Government took notice of the concerns, and although they have agreed to reduce the threshold for suppliers, in the end all suppliers should be able to offer it or should offer it. At the moment, people are having to choose between keeping the warm home discount and saving by switching, and it seems that people would rather keep the warm home discount, even though savings might be larger than £140 by not doing so. However, we welcome these regulations.

I thank the Minister for his extensive introduction. I am happy to approve the regulations. The warm home discount, which comes through ECO, is one of the instruments used to support households in fuel poverty. The regulations extend the WHD scheme after its seventh year through years eight, nine and 10 until 2021.

The scheme also comes as a subset of the renewable heat incentive, which the House approved in May this year. This is also set to expire, in many regards, in 2021. Therefore, I repeat what we said on that occasion: that plans must be made and signalled for a long-term solution for heat decarbonisation, to provide certainty and clarity beyond this looming cliff edge.

Meanwhile, it is to be welcomed that these regulations provide continuity for the next three years until 2021. I agree that the best long-term solution for reducing household fuel poverty and bringing down the cost of heating a home is through improving energy efficiency. In this regard, I recognise the ambition to upgrade as many homes as possible to band C by 2035—but that is quite some distance away.

The interlinking of these measures was referred to by the Minister in his opening remarks. Will he provide any update specifically on the supposedly major push towards decarbonisation following the end of these schemes in 2021 as part of the clean growth plan?

Turning to the regulations, there are a few adjustments and amendments to the scheme that we would like to understand better. The WHD scheme has suffered in recent years from applying only to obligated energy companies which have more than 250,000 customers. While competition can be encouraged through more entrants into the market, can the Minister confirm with any figures whether there has been a noticeable cluster of suppliers just below this threshold? In that regard, I welcome the amendment to reduce the threshold progressively. Has the Minister’s department looked into the impact of thresholds on companies to determine whether ameliorating measures could be introduced?

These arbitrary boundaries have produced other anomalies, which the noble Baroness, Lady Featherstone, drew attention to in her remarks. While encouraging switching as a way to increase competition and reduce customer bills, many households have fallen foul of the eligibility criteria of the WHD scheme when changing suppliers that are on either one side or the other side of the threshold. Sometimes households have become victims of companies gaming the threshold by being moved compulsorily from obligated to unobligated companies. Reducing the threshold is helpful but does not directly help households caught by this bureaucracy.

I suggest to the Minister that measures could be looked at to alleviate the problem. At least, will he look to commit price comparison websites and switching advisers to adding the calculations necessary for WHD to apply when displaying or promoting alternative tariffs? The loss of the right to WHD on switching could negate any benefit and would further undermine the public’s confidence that the energy market works for them. With these comments, I am happy to approve the regulations.

My Lords, I thank both noble Lords for their general welcome for these regulations, and their recognition that they allow us to continue with what we have been doing over this winter for a further three winters, but also to consult on the changes I announced earlier.

The noble Baroness asked how the consultation was marketed and whether we had enough responses to it. We worked very closely with consumer organisations, including Citizens Advice, but I will look at what she had to say and see whether we can improve in future and reach out to more people.

I noted the comments that both noble Lords made about energy efficiency. I also noted their general welcome for our progress in this area and the fact that we want to push along. It is obviously the right thing to do to make all homes as energy efficient as possible, and we will continue to do that.

As regards their comments about the thresholds, I remind both noble Lords that under the scheme other suppliers below the threshold will continue to be able to volunteer. I gather that there were three voluntary smaller suppliers. As I said in introducing the regulations, we will continue to reduce the threshold and will review it again after 2020-21. If the scheme were to continue, there would be a view to potentially setting the threshold to a minimum level of zero if the evidence supported that approach.

I particularly noted the point that the noble Lord, Lord Grantchester, made about some companies gaming the system. Therefore, it might be right to reduce it to zero in the future. However, for the moment, if we continue with the gradualist approach that I announced in introducing the regulations and review it in the future, I suspect that that will be the better way of proceeding so as to give new suppliers time to prepare in terms of both processes and pricing. I hope that that deals with most of the questions that noble Lords asked.

Motion agreed.