A social tariff could bring a warm glow to UK energy policy | Energy industry

Nearly a decade ago, former Labour leader Ed Miliband sowed the seeds of the energy price cap, vowing to protect households from unfair tariffs by freezing their energy bills. But even though a cap has been in place since 2018, bills today can be far from affordable, even when they are fair.

On Friday, industry regulator Ofgem will set its new limit on how much suppliers can charge per unit of gas and electricity. Analysts at Cornwall Insight expect it to lower the energy price cap from £2,074 a year for the typical household to £1,823, which would be its lowest level since Russia’s invasion of Ukraine.

But householders shouldn’t expect to feel better off, fuel poverty campaigners have warned. This winter the price cap will remain almost double the levels seen before the war triggered a global energy crisis.

This is because the measure was designed to reflect the underlying cost of supplying gas and electricity to households – and as these costs rise, so does the cap. Households are assured that the amounts they are being asked to pay are fair, but this is cold comfort for those left struggling.

More than 6m households are living in fuel poverty and unable to cover their bills; millions more are expected to suffer financial pain as energy costs continue to fuel inflation across the economy. Now many are asking whether a price cap is the right tool for a market in crisis.

Jonathan Brearley, Ofgem’s chief executive, has urged ministers to reflect on whether this “very broad and crude” price control should be replaced by “a more rigorous framework of providing support for customers”.

Meanwhile, voices across the energy industry are calling on the government to establish a “social energy tariff”, offering vulnerable households discounts on their bills.

Almost 100 charities and non-profit organisations have written to ministers urging them to move quickly to bring the idea into legislation. The plans also have industry backing. Unlike the price cap, this measure could go beyond making sure that bills are “fair” by ensuring that they are affordable for the most vulnerable in society too.

Until recently, ministers appeared to be listening. The chancellor, Jeremy Hunt, promised in his autumn statement last year that the government would “develop a new approach to consumer protection in energy markets” by working with consumer groups and industry “to consider the best approach, including options such as social tariffs”.

Others in Rishi Sunak’s cabinet – including the prime minister himself – offered repeated assurances that the government would consider a social tariff within its wider retail market reforms. However, when the consultations emerged last month, any mention of one had disappeared.

Simon Francis, coordinator of the End Fuel Poverty Coalition, fears the government has abandoned its promises. In a letter to members of parliament, seen by the Observer, he calls on MPs to pile pressure on the secretary of state to consider a social tariff.

“This is especially important for older and disabled people, those with health conditions, families with young children, unpaid carers, those on lower incomes and fuel-poor households,” Francis said.

The uncertainty over a social tariff cuts straight to the heart of the government’s failure to help many of the most vulnerable in society. This winter, bill payers who receive means-tested benefits will be eligible for £900 in extra help with their energy bills, and there will also be £300 for pensioners and an extra £150 for disabled people. But millions of others are expected to fall through the gaps.

An estimated 1.7m households which are in fuel poverty could be left without any support simply because they are not in receipt of benefits, according to a study by researchers at the University of York. Almost 700,000 of these are households with children.

The government has responded by saying that the outlook for energy prices has improved significantly, and that it will continue to monitor the situation while keeping options under review, including those for most vulnerable households.

This week, with the price cap set to offer very limited relief, these households will be left with a question which ministers appear intent on ignoring: is an unaffordable energy bill ever really fair?