by Dr Matthew Lee, CAS Social Justice team.
This article was first published in The Herald on 13 July 2024.
The recent news that Ofgem has reduced the price cap on energy bills may give the impression that the energy crisis is coming to an end. But sadly it’s not that simple. Even with this reduction, average bills for typical consumers remain significantly higher than pre-crisis levels. And people with unavoidably high energy costs, including for example people who use medical equipment, will be paying well above the average. Moreover, analysts predict that the price cap will rise again this winter. Now is not the time for complacency.
Energy has shifted from being a necessity to a luxury. People using pre-payment meters are vulnerable to ‘self-disconnection’. This euphemism means they have run out of money to top up their meters so they just go without heating, hot water and electricity. Some will ask their energy suppliers to add credit to their meters, but while that solves the immediate problem, it means they build up debt. Consumers who pay by monthly bills, especially those who don’t use Direct Debit, face the same problem. If money is tight and they miss paying a bill, they begin to rack up debt.
There’s a vast amount of debt in the GB energy market. Ofgem estimates it is around £3 billion. On average, Scottish CAB clients have £2,300 of energy arrears. For clients in rural areas, the average is £3,000.
I heard recently of a client who came to her local CAB because she had £5,000 of energy debt. Her supplier wanted £420 per month – a third of her monthly salary – to cover her ongoing usage and arrears. Devoting that much of her financial resources to a single household expense was impossible.
Perhaps others will be able to scrimp and save their way to re-paying their debt. However, for people whose income doesn’t cover life’s essentials, re-paying energy debt like this is a distant dream. This situation is unsustainable for consumers and suppliers alike. It also exposes the unacceptable levels of poverty and inequality in Scotland.
The problems with energy debt and affordability may seem impossible to solve. But the election of a new Government that sought a mandate for change provides the opportunity to take a fresh approach to the energy market. While the new Prime Minister and Chancellor have signalled that they will be cautious with public finances, they must consider the economic and social costs of not tackling energy debt and affordability problems.
There are no quick fixes. Instead, the Government must implement a series of policies that will usher in long-term solutions to entrenched problems. Consumers who have fallen behind on their energy bills need access to real practical support, like debt write-off schemes. Debt relief will be sustainable only if energy bills become cheaper. There needs to be a social tariff in the energy market, which provides a discount on bills for people living on low incomes. Reducing standing charges can also play a role in cutting bills for households that use low amounts of electricity.
There is a lot to do and none of it is easy. However, political leadership is about a willingness to take on big problems and implement transformational changes. The new Government has both an opportunity and a responsibility to solve the challenges of energy debt and affordability. The time to grasp this is now.