Energy bills are set to rise from October, projected to increase by around 10%.
To address the impact, a new report by Energy UK proposes that the government fund the Energy Company Obligation (ECO) and Great British Insulation Scheme (GBIS) with approximately £1.5 billion annually.
The trade association argues that the energy regulator and energy suppliers cannot address affordability alone.
The report outlines steps the government can take for the upcoming winter and beyond to create a fairer, more sustainable system for targeted support.
Despite a decrease in wholesale prices from their peak, the price cap will rise from 1st October 2024, likely increasing from £1,568 to £1,723.06.
Ofgem will confirm the new cap rates on 27th August 2024.
Additionally, household debt levels are rising, with domestic customer debt estimated at £3.32 billion by Ofgem, though this figure may be an underestimate.
National Energy Action reports that around six million households are in fuel poverty.
The average debt per household without a payment plan has risen to £1,452 for electricity and £1,264 for gas, marking annual increases of 19% and 31%, respectively.
Experts note that this growing debt causes significant stress, especially for lower income households.
Citizens Advice has reported more calls from customers struggling to pay their energy bills, with energy debt being the primary concern.
Recent data from the Office of National Statistics shows a monthly increase in direct debit failures across key household costs, including energy.
Energy UK proposes several reforms to reduce energy costs for households:
Energy UK proposes that the government fund the Energy Company Obligation (ECO) and the Great British Insulation Scheme (GBIS) through public spending, estimated at around £1.5 billion annually.
This investment could be classified as capital expenditure, which may be advantageous for meeting fiscal rules.
It is also recommended that the remaining policy costs be shifted to gas bills, creating a ratio of approximately 3:1 between electricity and gas prices.
The report suggests this adjustment would help make low carbon technologies more affordable compared to fossil fuels.
By funding ECO and GBIS, there will be enough financial flexibility to double the Warm Home Discount (WHD) for the most vulnerable households in winter 2024.
This expanded support, along with the rebalancing of policy costs, could result in significant savings on energy bills, potentially up to £400 per year for households with electric heating, or £550 for those qualifying for WHD.
Finally, a cross-departmental working group, led by a Director General, should be established to focus on data and data access.
This group would be responsible for developing long term strategies for targeted bill support starting from winter 2025.
