Laying the right foundation: why targeted bill support is essential for the next phase of the net zero transition

Jam tomorrow. It’s a promise that is often made by politicians, and sometimes it can feel like the net zero debate is just another example of that. Delivering the transition means not just jam tomorrow but recognising that energy affordability is a significant driver of hardship today — and a barrier to our net zero goals. With millions struggling to pay their energy bills, we need to deliver energy bill support that helps them today and brings them along with the net zero transition.

Tackling the key challenges of the 2020s

Net zero should bring down our energy bills, but is one of the largest political and infrastructure challenges facing our country. We will need new infrastructure — lots of it and as quickly as possible, which requires investment. Decarbonising homes and businesses means people being willing to make alterations to their homes, change their behaviour or simply accept that they might need to pay for something upfront that should save them money in the longer term. This brings with it thorny issues around costs — and the fairness of who pays them.

Developing the right solutions to address current and future distributional challenges is just as key to success as policy clarity and investor confidence, planning reform, wholesale market reforms that enable greater consumer flexibility, gaining and maintaining public consent for new infrastructure and putting the right financial support in place to pump prime new markets or technologies.

It’s why we commissioned an independent review to develop and drive consensus around what was needed to support the public on this journey and how it could best be delivered.

Over the course of the 9 month project, our partners Public First and SMF spoke to charities, industry, regulators, government and politicians, and most importantly the public, to identify what people thought was appropriate, how it could be delivered and paid for. Since then, we’ve refined our policy proposals and have been calling for changes to the Warm Home Discount scheme, to make sure it reaches more people and provides support that is more tailored to people’s needs.

Targeted bill support can help manage difficult decisions on net zero

The lack of progress over recent years means the new government has inherited an energy system which is poorly prepared to support people with the impact of the price rises we’ll see this winter. It’s also held back progress on other key policy reforms.

The fixed standing charges on our energy bills have grown in recent years, and are projected to continue to do so as we invest in more grid infrastructure. Both the previous and current governments have set out ambitions to reduce these charges, which would benefit some households, but to the extent that this is achieved by putting up unit rates, will see people who use more energy lose out. This includes some who have little ability to cut back on their usage, such as people with electrical medical equipment, or with inefficient electric storage heaters.

Our net zero goals also require growing numbers of people installing low carbon heat pumps in the coming years, but doing so can currently result in higher costs compared to gas heating. Rebalancing policy costs which support renewable energy and social schemes from electricity to gas would make heat pumps more attractive, but also see increases for some people who rely on gas heating and can’t make the switch anytime soon.

This will all be occurring at the same time as tariff options in the market evolve, with key reforms like market wide half hourly settlement due to be implemented in the coming years. Some households will be well placed to make the leap onto smart time of use tariffs, while others will need more support or ongoing price protection to ensure they can access fair prices and benefit from a net zero power system.

Changes like these can be a big ask for a population without a lot of spare money, and can be devastating for households with no real room for manoeuvre in their budgets. We need a better toolkit that enables policy makers to mitigate or respond to any existing or emerging harms caused by worsening affordability for certain consumer groups.

We’ve looked at a range of ways to deliver support to people, including more radical options like a complete redesign of energy tariffs, which tend to have unintended consequences for some consumers on lower incomes. To paraphrase Torsten Bell’s comments on Universal Basic Income, an affordable rising block tariff would be inadequate and an adequate rising block tariff would be unaffordable — and similar challenges occur with options such as abolishing standing charges entirely. Given the urgency of the new government mission to decarbonise electricity by 2030, we’ve kept our focus on options that use existing infrastructure but aim to make it work better.

With the right design, targeted bill support could ensure these changes can progress in a fairer and more efficient way, by reducing or offsetting increases in bills for people on low incomes who have higher energy costs. We want a world where all consumers benefit from the transition to net zero.

Better data can improve support over time

For a government with a limited pot of money to spend, knowing who is most in need of help will help stretch that budget as far as possible. It’s currently (relatively) easy to target people who are on means tested benefits, but very clunky to identify people outside of that category. Not all of these households need the same level of support when it comes to affording their energy costs. In England and Wales we can use data about people’s properties to get some understanding of people’s needs, but data on the efficiency of homes is sorely lacking. In Scotland we’re further behind, with no current data matching based on property characteristics.

The Warm Home Discount does the best job it can with the data that’s currently available, but improving the quality and matching of data could enable much better targeting. Other programmes like the Energy Company Obligation (ECO) which provides energy efficiency measures are further behind, and more inefficient than they need to be because of poor targeting. This is vital, since energy efficiency measures could be one way to support households who don’t qualify for energy bill support.

All of this is difficult to solve, which is why we haven’t yet cracked it. We’re hopeful that the government will decide to put its weight behind this and actually deliver better and more comprehensive data matching. But the vital first step for the 2030 mission is ensuring adequate support to tackle the affordability crisis and smooth the edges for households who are least able to cope with change.

This is a task that deserves just as much attention as the other priorities that the government’s new Mission Control was set up to tackle.

Our latest report, Fixing the foundations, has suggestions about the practical steps the government could take to reform the Warm Home Discount to provide people with the support they need this winter and in the years ahead.