Policy Exchange has stated that when the Energy Price Guarantee ends, it will be “impossible” to return to old billing practices of volumetric price caps.
To rectify this, the think tank has called on the government to implement targeted benefits to incentivise lower household consumption levels in a bid to reduce energy bills.
Detailed within the ‘Turning it On & Off: A New Plan for Households Energy Bills’ report, the approach aims to deliver a clear and comprehensive programme for delivering on the Chancellor’s goal of a new approach to energy bills.
This will aim to reduce the costs of energy bills in general in addition to ensuring energy efficiency measures are in place so households can maximise the energy that is consumed.
As disclosed within the report, the Tiered Energy Relief Scheme would deliver support by targeting consumption levels, which the firm claims are a “very strong indicator” for household income. It also makes proposals to address those on low incomes who have high energy consumption.
The tiered scheme would cover all residential consumers for the outstanding 18-month period originally envisioned for the Energy Price Guarantee, which is set to end on 31 March 2023, from April 2023 to September 2024.
The Energy Prices Bill enshrined into law the Energy Price Guarantee in the UK, which came into effect at the beginning of October. It had been designed to limit the jump in domestic energy bills – which had estimated to increase to as much as £6,500 – to £2,500 a year for a typical household by capping the electricity and gas units at 34.0p/kWh and 10.3p/kWh respectively, inclusive of VAT for standard variable tariffs.
Other support measures to be enshrined in law through the new Bill include the Energy Bill Relief Scheme, which aimed to half the predicted MWh price for electricity and gas for businesses this winter, to £211/MWh and £75/MWh respectively.
The proposals laid out by Policy Exchange fall under five categories. This includes being fair and progressive, increasing savings for households, boosting energy efficiency, providing a targeted approach for energy bills and delivering a new approach.
Under the fair and progressive bracket, Policy Exchange stated that the average household in the lowest income decile would see almost all of their electricity consumption subsidised, which ones from the wealthiest decile would benefit from on less than half the anticipated demand.
However, a key concern for the Energy Bill Relief Scheme was the amount it could cost the government. It was previously reported that the Energy Price Guarantee could cost the government up to £140 billion and expose the UK to commodity price risk.
The tiered system could save the Treasury at least £23 billion, the think tank assured, and could have a positive impact on the balance of payment from imported energy.
Energy efficiency also plays a central role in the proposed system. The banding would incentivise consumers to stay within the lower bands and deploy energy efficiency measures to reduce the whole system costs.
Energy UK recently urged the UK Government to accelerate efforts to increase energy efficiency of homes in the next Budget, citing that it is crucial to reducing energy bills.
The organisation indicated that there is a huge opportunity for people to lower their energy bills in the long-term through installing energy efficiency measures such as loft and cavity wall insulation.
The report also highlighted the need to scale insulation measures to reduce the cost of energy bills. It stated that there is a need for a more targeted approach on insulation, energy efficiency measures and direct support for those with high needs and low incomes.
Policy Exchange indicated that consumers are fed up with the current unpredictable and untargeted energy system. By providing these new measures and the tiered approach, it is hoped this would offer the government an approach to introduce a new fairer, more energy and financially efficient system.
