Changeworks’ response to Ofgem’s Call for Input on affordability and debt

Changeworks has submitted its response to Ofgem’s Call for Input on Affordability and Debt in the Domestic Retail Market.

The Call for Input 

Ofgem recently published a Call for Input that reflected on how the energy crisis has impacted on customers’ ability to afford energy, and how rising levels of energy debt may impact the wider energy market in the future. 

Ofgem asked for input from consumer groups, charities, and debt management companies to further examine energy affordability and debt issues in the UK. 

Changeworks’ response 

Changeworks has urged that energy affordability and debt levels are enduring issues. Ofgem needs to consider that energy affordability challenges are not only due to the increases in the price of energy. Even if energy prices come down, people will continue to struggle with the energy debt that has built up as a result of rising costs over the past few years. 

Changeworks welcomes the recent decreases in energy prices per unit. However, the fact that standing charges have increased significantly means many are facing increasing affordability challenges despite reducing their energy consumption.  

A one-size fits all response is not enough. Affordability challenges are not universal and, for many, are not short term. High standing charges impact upon those who are least able to pay disproportionately.  

Consideration also needs to be given to how the energy efficiency of the home itself directly impacts upon the affordability of energy for heating. Properties in rural and remote areas face significant challenges because exposed homes, especially in the Highlands and Islands, have higher energy demands to heat to an adequate temperature. Additionally, the frequency of extreme weather events is higher in rural areas which can result in power outages, resulting in a greater need for back-up electricity sources and back up heating systems which are often expensive. 

Our recommendations 

• We urge Ofgem to introduce a targeted (non-voluntary) social tariff for a defined set of customers. Changeworks believes that this is a crucial step in protecting vulnerable and low-income customers from price shocks and addressing the high levels of fuel poverty across the UK. 
• In Changeworks’ experience, customers can best be positioned to avoid getting into debt if suppliers are more flexible in payment approaches – especially where payment is made via direct debit. If suppliers offered a suitable option for spreading the costs over a time period that best works with each customer’s unique circumstances, debt could often be avoided with early intervention. 
• Once a household is in energy debt, suppliers should separate energy debt from ongoing energy bills. Not separating energy bills from energy debt is poor management practice, as customers are more likely to engage meaningfully in a repayment plan if they are able to contribute to how it is devised and the timeline over which it is paid back. Automatically adding the debt to the direct debit is more likely to result in an unmanageable debt cycle. 
• Changeworks recommends that Ofgem learn lessons from the Money and Pensions Service, which leads on practices for managing affordability and debt in the UK. The service has a wealth of evidence on how to best support people who are managing high levels of debt, as well as how to enable people on low-income to foster good financial management and saving practices. 

Increasing support for vulnerable customers 

• Restricting payment methods – such as moving away from physical pay as you go cards – is a barrier to payment for customers who rely on routine and wish to continue paying their supplier through a method that is familiar to them. 
• Enhanced training and support is needed when it comes to vulnerable customers. 
• A non-standardised approach to escalation for vulnerable customers that are in energy debt would reduce the chances that customers will avoid all communication with the supplier. 
• Automatic identification of customers with vulnerabilities could both enable automatic access to a social tariff to ensure that energy costs are affordable, and identify which customers require a non-standardised approaches to facilitate repayment.