What is the 'social tariff' that could wipe hundreds of pounds off energy bills?

Chancellor of the Exchequer Jeremy Hunt gives a television interview the morning after his autumn statement, outside the BBC studios in central London. Picture date: Friday November 18, 2022. (Photo by Aaron Chown/PA Images via Getty Images)
Jeremy Hunt delivered his autumn statement on Thursday. (Getty Images)

The Treasury has said it is considering introducing a social tariff on energy bills that experts say could knock at least £1,000 off energy bills for those on low incomes.

In his autumn statement on Thursday, Jeremy Hunt announced he would extend support for gas and electricity bills - the Energy Price Guarantee - for a further 12 months.

However, the new support will be far less generous, with the typical household bill spiking by £500 from next April - from £2,500 to £3,000.

Without the government-funded cap, typical household energy bills would potentially be as high as £3,740 a year.

And while money will be diverted to help the most vulnerable, there will still be what experts have described as "rough justice" for many - particularly the 2.3 million low-income households who don’t receive means-tested benefits and therefore don’t qualify for lump-sum payments announced in the autumn statement.

Read more: The one word Jeremy Hunt didn't mention that affects millions of parents

In a Treasury document released alongside Hunt's statement, the government has confirmed it is now considering a "new approach" to bills.

"The government will... develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards," the Treasury said.

"It will work with consumer groups and industry to consider the best approach, including options such as social tariffs, as part of wider retail market reforms."

What is a social tariff?

A social tariff would fix energy bills at a certain level for those on low incomes, protecting them from volatile energy markets. The cost would be recuperated through taxation or other customers and is already used by water providers to protect those struggling with payments.

There have been calls for such a tariff to be rolled out in the energy sector for some months.

In April, Scottish Power boss Keith Anderson told MPs the government could reduce the bills of the most vulnerable customers by at least £1,000 if it introduced the proposals.

It has also been backed by consumer champion Martin Lewis, as well as chiefs at E.ON and Citizen's Advice.

Responding to the Treasury's plans to consider it, Lewis said he had "long advocated" for the approach.

The government energy price guarantee at its current level expires in April 2023 (Yahoo News UK/Flourish)
The government energy price guarantee at its current level expires in April 2023 (Yahoo News UK/Flourish)

He said: “After April 2024 they are also consulting on moving to a social tariff system.

“The most vulnerable who can’t engage in a competitive market will automatically be put on a cheaper tariff without having the need to switch on it.”

In July, MPs on the cross-party business, energy and industrial strategy (BEIS) committee also urged the government to look at the system.

"We call on the government to consider the introduction of a social tariff for the most vulnerable customers and a relative tariff for the rest of the market, to be introduced once wholesale energy prices have stabilised," the committee said.

"We ask the government and Ofgem to report its findings on the above issues within nine months of the date of this report."

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Hunt's autumn statement did contain measures designed to support the most vulnerable, with the chancellor announcing £900 for households on means-tested benefits, £300 for pensioners, and £150 for people on disability benefits on Thursday.

However, experts have warned that the support will still not go far enough for many low-income households - warning the government it "can't keep stumbling forward with short-term, ad hoc responses".

“Boosting welfare payments and the targeted support that has been announced for energy bills will help some of the poorest households and at-risk groups, that's important," said Adam Scorer, chief executive at National Energy Action (NEA).

"But there are big gaps in these measures especially for low-income households not on means-tested benefits."

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