Should there be a ‘free basic energy’ plan for households?

The energy cap should be replaced with a ‘free basic’ plan which would see households given an an allowance before being charged, according to a think tank.

Every household in Britain should have some of their energy bill paid for by the Government to help protect the poorest families, according to the New Economics Foundation.

Its report proposes households could have their energy use paid for up to a certain level, helping the least well-off stay warm – which would be funded by the Government.

Meanwhile, those with usage above a specified limit would be charged at a higher price to incentivise energy efficiency and lower consumption.

2.7 million households have reportedly been unable to pay for one or more of their utilities bills since the April price cap rise, as the Ofgem’s October rise is expected to hit households hard

The NEF said a three-pronged approach is required, including reforms to benefits and one-off payments for all households to help the poorest families with soaring bills and to protect vulnerable homes from a looming recession.

The think tank proposes a limit of 8,000 kilowatt hours per year of free of gas and 2,000 kWh of electricity, which based on current estimates for prices in April 2023 comes to just under £4,600 in free energy per household.

Once this is used up, households would be billed a higher rate as a penalty for high consumption.  

The suggestion comes as the number of households falling behind on their utility bills has grown nearly 15 per cent between April and June to hit 2.7million.

One in ten households are now expected to struggle with the cost of their energy bills, as a further 295,000 reported they could not pay their bills. 

This is following Ofgem’s April previous price cap increase, from £1,277 to £1,971, and millions more are worried they will be without vital financial support this winter as the price cap to rise to £3,549 in October. 

In the three months that followed the number of households in ‘early delinquency’, those missing one or two bills for the first time, rose by a significant 22 per cent, according to new figures released by credit reference agency Equifax.  

Paul Heywood, chief data and analytics officer at Equifax UK said these figures are a warning sign of what’s to come.

He said: ‘The most troubling signal in all of this is the early delinquency data, the households who fell behind on utility bills for the first time between April and June this year. 

‘These early missed payments will quickly escalate into several more if swift action is not taken to provide tailored support.

‘This is not the time for finger pointing, we all know someone who is worried about how they will tackle this winter, and we should all be coming up with ways to help. 

‘From the Government, we need swift financial support and protection for lower income households, as we saw with mortgage holidays and other forbearance measures during the pandemic.

‘With warnings from energy providers that energy prices may stay high for several years, now is the time to come together, to collaborate and innovate, or we will be left with a financial legacy that lasts long beyond these high prices.’

Incoming Prime Minister Liz Truss has promised an announcement on how she plans to support Britons with their energy bills.

Experts have speculated that this could include a energy bill freeze to help hold off the rising prices expected to leave millions unable to pay for their utilities this winter. 

‘We need a sustainable solution’ 

The NEF – which claims to promote ‘social, economic and environmental justice’ – says its free basic energy plan should be launched next year to replace the Ofgem price cap.

As well as that, it says the Government could rake in £22billion via a windfall tax on oil and gas producers.

It suggests the proceeds could be used to pay for a new ‘cost of living allowance’ worth up to £750 for every household.

Alfie Stirling, director of research and chief economist at the NEF, said an emergency freeze in the price cap was needed to buy time, but that it was not viable for more than a few months.

‘We need a sustainable solution that combines lower energy bills, incentives and support to increase energy efficiency and a permanently stronger income safety net,’ he said.

Additionally, the think tank says a new ‘energy element’ could be added to universal credit to help tackle rising bills for those struggling the most.

An additional £1,000 for single people and £1,650 for couple’s could be introduced to universal credit and legacy benefits to meet the cost of higher bills above the free energy entitlement.

Labour pledged to freeze the energy price cap at the level set in April – just under £2,000 per year.

However, the NEF warned that the plan could not be sustained beyond the coming winter.

Freezing energy prices is expected to cost £29billion under the Labour plan, but the NEF said that coupled with rising wholesale energy prices, it could end up costing well over £100billion per year to implement. 

It said the overall cost of its package would be about £46.2billion and argues it would be cheaper than Labour’s energy price freeze in the long run.

Ten energy saving tips

The Energy Saving Trust has listed these tips, with how much they could save a typical household could on energy and water costs per year. Read more on the energy saving tips here.

1. Switch appliances off standby: £55

2. Draught-proof gaps: £45

3. Turn off the lights: £20

4. Wash clothes at 30 degrees and reduce use once a week: £28

5. Avoid using the tumble dryer: £60

6. Limit showers to four minutes: £70

7. Swap a bath a week for a shower: £12

8. Don’t overfill the kettle and fit a tap aerator: £36

9. Reduce your dishwasher use: £14

10. Insulate hot water cylinder: £35

Source: Energy Saving Trust, based on a typical three-bedroom, gas-heated home in Great Britain, using April 2022 price cap prices