National Energy Action (NEA), the fuel poverty charity, published its response to two Ofgem consultations on 14 January 2022. The first covers short term changes to the energy price cap in April 2022; the second covers longer term changes to the cap methodology. NEA states that the best option for fuel poor households in the short term consultation is to "do nothing", and that it strongly disagrees with proposals to allow suppliers to charge an exit fee for standard variable tariffs. It would support requiring suppliers to make all new tariffs available to existing customers1.
NEA's background figures set out the pressure on household budgets. It says the price of energy has increased by £235 for domestic consumers across Great Britain since last winter, and estimates that the record rise to the Default Tariff price cap last month pushed over 500,000 more households into fuel poverty. A further 1.2 to 1.5 million could face the same plight if the cap goes up in April by between £400 and £600, as predicted by some industry experts. NEA also warned that the cost of heating the average home will have doubled over 18 months, while households on the lowest incomes, and those containing someone with a long-term illness or disability that reduces their ability to work, have seen income fall by over £1,000 per year1.
On the short term options, NEA's conclusions differ by proposal1:
| Option | NEA conclusion |
|---|---|
| Do nothing | An acceptable, but sub-optimal solution |
| Requiring suppliers to make all new tariffs available to existing customers | The best solution for fuel poor households |
| Allowing suppliers to charge exit fees on certain standard variable tariffs | An unacceptable option for fuel poor households |
| Requiring suppliers to pay for a Market Stabilisation Charge when acquiring new customers | A sub optimal solution for fuel poor households |
"NEA believes that the best option for fuel poor households is to “do nothing” and strongly disagrees with the proposals to allow suppliers to charge an exit fee for standard variable tariffs."
In the longer term consultation, NEA's clear preference is for the Enhanced Status Quo option, which it says retains the majority of current price cap protections, has no unfair exit fees and gives standard variable tariff households confidence in their prices over a prolonged period. It calls a move to fixed term standard variable tariffs an unacceptable option for fuel poor households. NEA also says Ofgem should investigate the viability of a parallel price cap for vulnerable households with a lower cost base than the broader cap, and sets out conditions for a social tariff: it should be additional to the Warm Home Discount and the default tariff cap, mandated for all suppliers, targeted at those most in need, priced below the default tariff price cap, and based on auto enrolment for those deemed eligible2.
Why it matters for households
The price cap is the default protection for households that have never switched or whose supplier has failed, so changes to its design and to the rules on tariffs reach homes that are not actively shopping for a deal. Exit fees on standard variable tariffs would remove the ability to leave without charge, which NEA argues would lock customers into what is likely to be the most expensive tariff offering and reduce their incentive to take part in the market1. Making all new tariffs available to existing customers would widen access to cheaper offerings, though NEA notes the price of the cheapest deals could rise as a result1. A parallel cap or social tariff, if introduced, would sit alongside the existing cap rather than replace it2. NEA's figures indicate the scale of exposure: it estimates the cap had saved customers around £1 billion a year as of 2020, equivalent to around £75 to £100 a year for typical households on default tariffs1.
What happens next
The consultations concern short term changes to the price cap in April 2022 and longer term changes to the methodology. NEA's response is dated 14 January 2022. Ofgem's decisions on either consultation have not been reported in these documents.