Citizens Advice response to DESNZ consultation on ‘Warm Home Discount (WHD) Cost Recovery’
Citizens Advice Response to DESNZ Consultation on Warm Home Discount (WHD) Cost Recovery 222 KB
Citizens Advice welcomes the opportunity to respond to the Department for Energy Security and Net Zero’s (DESNZ) consultation on the Warm Home Discount (WHD) cost allocation recovery. We oppose the proposals outlined in this consultation, which are opportunistic and will raise the cost of the WHD scheme for millions of low income households with high energy costs.
The proposals fundamentally act against the purpose of the WHD, by reducing the net benefit for households who are at a higher risk of fuel poverty - those on means tested benefits with higher energy needs. If the Government goes ahead, it is essential that they explore how to reduce the impact on households with high energy usage. We’ve recommended the Government implements an improved, tiered Warm Home Discount which would support 5.6 million households on means tested benefits, and pay up to £710 for those with the greatest needs. Government should also consider how to support households on low incomes with high energy needs who do not receive means-tested benefits.
In the short term these impacts will be offset by the changes the Government made in the Autumn Budget to reduce energy bills, which we welcome. However, some of these are temporary measures set to expire in 2028/29, while the WHD is due to be extended to 2031. This means that from 2029 onwards households with higher usage will see lower overall benefit from the combined impact of these changes, and could lose out overall.
We are also concerned that if these proposals go ahead, they will undermine the Government’s stated aim of improving the ratio of electricity to gas costs by disproportionately increasing electricity unit rates. Given that gas usage is better correlated with income than electricity, if changes to WHD cost recovery go ahead we think it would be fairer for these to be moved onto gas bills, alongside support for those on low incomes with higher gas needs (for example, through an upward adjustment to the WHD for eligible households who use gas).
We agree that there is a case to review standing charges to ensure they’re fair to consumers and support an efficient energy system. However, we disagree that this proposal is the appropriate route to achieving this aim. We also strongly recommend that changes to the cost recovery of the WHD should only be considered as part of a wider strategy on policy costs recovery, aligned with Ofgem’s Cost Allocation and Recovery Review (CARR). Citizens Advice supports the CARR, which we believe can help to address the challenges some consumers face with standing charges and deliver more enduring change to energy pricing. We strongly urge the Government to focus its efforts on enabling the aims of the CARR, rather than taking piecemeal action on cost recovery.