Home Business Should there be a “free basic energy” plan for households?

Should there be a “free basic energy” plan for households?

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According to the think tank, the cap on energy consumption should be replaced by a “free basic” plan, which means that households will receive an allowance before being charged.

According to the New Economics Foundation, every household in Britain should pay part of their electricity bill at the expense of the government to help protect the poorest families.

His report proposes that households could pay for their energy consumption up to a certain level, helping the least well-off to stay warm – which would be funded by the government.

Meanwhile, those who use more than the set limit will be charged a higher price to encourage energy efficiency and reduce consumption.

Another kind of hat? NEF says every household should have Energy Benefit – after that point they should be charged a higher rate

The NEF said a three-pronged approach was needed, including reforms to benefits and lump-sum payments for all households, to help the poorest households hit by bill shocks and protect vulnerable households from the coming recession.

The think tank is proposing a cap of 8,000 kilowatt-hours per year of non-gas and 2,000 kWh of electricity, which, based on current price estimates for April 2023, amounts to just under £4,600 of free energy per household.

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

The proposal comes as the number of households in arrears on utility bills rose by almost 15 percent between April and June to 2.7 million.

One in ten households are now expected to struggle with the cost of their electricity bills, with a further 295,000 reported to be unable to pay their bills.

It follows a previous increase in Ofgem’s price cap from £1,277 to £1,971 in April, with millions more worried they will be without vital financial support this winter as the price cap rises to £3,549 in October.

According to new data released by credit reference agency Equifax, the number of households missing one or two accounts for the first time rose by a significant 22 percent over the next three months.

Paul Heywood, head of data and analytics at Equifax UK, said the figures were a warning sign of what was to come.

He said: “The most alarming signal in all of this is the early delinquency figures, households falling behind with their utility bills for the first time between April and June this year.

“These early missed payments will quickly turn into several more if swift action is not taken to provide individual support.

“This is not the time to point fingers, we all know someone who is worried about how they will cope this winter and we all need to think of ways to help.

“From the government, we need swift financial support and protection for low-income households, as we have seen with mortgage holidays and other forbearance measures during the pandemic.

“With warnings from energy suppliers that energy prices could remain high for several years, now is the time to come together, collaborate and innovate, or we will be left with a financial legacy that will last long after these high prices.”

Future Prime Minister Liz Truss has promised to announce how she plans to support Britons with their electricity bills.

Experts have suggested this could include freezing electricity bills to help contain rising prices, which are expected to leave millions of people unable to pay for their utilities this winter.

How can energy bills help?

Many suggestions have been made about how to help people with their electricity bills, and all have their pros and cons.

Jason Groves explains the four options here:

Full freeze

Freeze bills for all households at current levels, scrapping the 80 per cent rise due to take place on 1 October. Fund this by providing credits to electricity retailers to allow them to cover increases in wholesale gas and electricity prices. Total host defense spending over the next 12 months could be in excess of £100 billion. In theory, the money will be returned through debt collection within ten to 20 years. This is not a targeted measure, meaning that the richest will benefit from lower energy costs as well as the poorest. The idea is widely supported in the industry.

Tariff limits

Freeze tariffs at the current level to the threshold value of gas and electricity consumption, which would cover the basic needs of a family for heat and light. Any ‘excess’ use above this threshold will be charged at much higher rates for each unit of gas and energy used. At first glance, it would hit wealthy families with big houses. The cost of freezing tariffs for those who do not use heat and light could be around £40bn. Again, this will be financed by government borrowing and the cost will be paid back through the bills. But the changes will be complex and difficult to implement.

Windfall tax

Freeze accounts for at least six months funded by windfall tax. The Labor Party and the Lib Dems are in favor of it, but Miss Truss has ruled it out. Treasury officials have been reported to have produced figures which suggest UK gas and electricity producers could reap windfall profits totaling up to £170bn over the next two years. This is a profit that is due solely to the impact of Russia’s invasion of Ukraine on wholesale energy prices and supplies. Surpluses are defined by the Treasury as the difference between the money that energy producers can now expect to make compared to the total amount expected based on pre-invasion prospects. But the Ministry of Finance says it does not recognize these figures.

Cash distributions

Grants to all households to cover higher bills with extra payments for those on low incomes such as pensioners. This is the approach taken by Rishi Sunak when he was Chancellor. which one? suggested that the main figure could be £1,000, but £2,000 for families in need. The value of the exchequer is estimated at £47 billion. One option would be to make these distributions taxable if they are paid to a higher rate earner.

“We need a sustainable solution”

The NEF – which claims to promote “social, economic and environmental justice” – says its Free Baseline Energy plan is due to launch next year to replace Ofgem’s price cap.

It also said the government could raise £22bn through a windfall tax on oil and gas producers.

This means the proceeds could be used to pay for a new ‘living allowance’ of up to £750 per household.

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

“We need a sustainable solution that combines lower energy bills, incentives and support for energy efficiency and an ever-stronger income safety net,” he said.

In addition, the think tank says a new “energetic element” could be added to Universal Credit to help cope with rising bills for those most struggling.

An extra £1,000 for single people and £1,650 for married couples can be put into Universal Credit and Inheritance Benefit to cover the cost of higher bills that exceed the entitlement to free energy.

Labor has promised to freeze the energy price cap at the level set in April – just under £2,000 a year.

However, the NEF has warned that this plan cannot be sustained beyond the coming winter.

Freezing energy prices is expected to cost £29bn under the Labor plan, but the NEF said when combined with rising wholesale energy prices, it could end up costing more than £100bn a year.

It says the total cost of his package will be around £46.2bn and claims it will be cheaper in the long run than Labour’s energy price freeze.

Ten tips for energy saving

The Energy Saving Trust has listed these tips, showing how much they could save the average household in energy and water costs per year. Read more at energy saving tips here.

1. Turn appliances off standby: £55

2. Fire-proof slits: £45

3. Turn off the lights: £20

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

5. Avoid using the tumble dryer: £60

6. Limit your shower to four minutes: £70

7. Change your bath a week for a shower: £12

8. Don’t overfill the kettle and install an aerator tap: £36

9. Reduce your dishwasher use: £14

10. Insulate a hot water cylinder: £35

Source: Energy Saving Trust, based on a typical three-bedroom gas-heated house in the UK, using marginal prices for April 2022.

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