A social tariff for energy could lift millions out of fuel poverty, new research suggests

• A targeted social tariff offering discounted energy bills to those who need it most could lift millions out of fuel poverty

• New report reveals current energy schemes are inadequate and urges the government to implement a targeted social tariff

2nd September, London: A targeted social tariff offering discounted energy bills to those who need it most could lift millions out of fuel poverty in England and Wales. With the latest energy price cap rising from October, this means prices will increase to around 50 per cent higher than pre-energy crisis.

Fuel poor households are those who spend over 10% of their income after housing costs to power and heat their homes. There are now 9 million fuel-poor households in England, higher than at the height of the energy crisis. Fuel poor households needed an extra £407 a year to escape fuel poverty in 2024 – a 62% jump since 2020.

In a new report commissioned by OVO and carried out by Green Alliance, OVO urges the government to introduce a targeted and progressive social tariff as soon as possible. The report sets out new modelling showing that a social tariff providing discounted energy bills for low-income households would lift more people out of fuel poverty than current support schemes – while also preventing a squeeze on middle earners. OVO also recommends it targets households with unavoidable higher than average energy demand, for example those who live with disabilities, are older or live in high occupancy homes. Government and industry need to work together to find a better way of identifying these customers in need using data that exists across the public and private sector.

The proposed social tariff models in the report show:

• Introducing a social tariff aligned with a cost-neutral value of the Warm Home Discount and Winter Fuel Payment could reduce fuel poverty by 12% of households. Applied to the latest figures on households spending more than 10% of their income on energy, this would equate to lifting over one million families out of fuel poverty.

• A broader, tiered tariff structure could cut fuel poverty by 19%, increasing to 26% if combined with improved minimum energy efficiency standards in rented homes announced by the Energy Secretary last year.

• A more targeted “deep and narrow” social tariff – designed to fully close the average fuel poverty gap for the two lowest income deciles, where fuel poverty is most prevalent – could reduce fuel poverty by 42%. This impact could grow to 50% once energy efficiency upgrades in the private and social rented sectors are achieved by 2030.

With the Warm Home Discount primarily targeted at households receiving means-tested benefits, more support is needed for those on lower incomes struggling to pay bills but who do not receive benefits. It does not provide sufficient support for those most in need or reflect fluctuating gas prices. The discount also fails to support households year round.

David Buttress, CEO of OVO said: 

 “Families cannot keep living on a knife edge, worrying how they will afford their bills each winter. With gas prices still volatile, this crisis will not fix itself. The government has the power to change things, but only if it acts now to deliver a progressive and targeted social tariff.”

Shaun Spiers, Executive Director of Green Alliance:

“Everyone has a right to a warm home in winter. Yet nine million households in England are still struggling to afford their energy bills following the fossil fuel price shock.

The government’s warm home discount provides a helping hand, but it has not kept pace with inflation and is only having a limited impact in reducing the number of households paying more than ten per cent of their income on gas and electricity bills.

A social tariff could better protect households from volatile energy prices, which are a particular problem for those with low disposable incomes or unable to reduce their energy demand.

With the increasingly unstable geopolitical environment affecting fossil fuel prices, there has never been a better time to ensure struggling households are properly insulated from volatile energy prices with a social tariff and warm home policies.”

ENDS

Notes to editors

• A social tariff is a discounted price for essential services, targeted at low income or vulnerable households.

• Official figures, calculated under the government’s Low Income Low Energy Efficiency definition, suggest that 2.73 million households in England are experiencing fuel poverty in 2024. Using the ten per cent income definition, applied in Scotland, 8.9 million households in England were experiencing fuel poverty in 2024.

• The average fuel poverty gap reported by the government is £407, but this uses their Low Income Low Energy Efficiency definition. We estimate that the fuel poverty gap could be closer to be almost double this, at £780.

• The modelling estimates the impact of a social tariff based on energy consumption in 2022, the most recently available relevant data. It uses a series of government and Office for National Statistics (ONS) datasets to sort households in the UK by income deciles, tenure, property type and property EPC bands. Energy bills are calculated using a 12 month average of Ofgem’s standing and unit charge caps. The model covers households in England and Wales, with eligibility for the tariff scenarios based solely on income.

About OVO

In 2009, OVO was born to make energy better for people and the planet. Today, OVO is trusted by around four million customers with their home energy, EV charging, green tech upgrades, and more.

OVO is getting the UK ready for a greener, fairer future – supporting new renewable power projects in communities across the country. Not only is OVO bringing low carbon tech into homes, it’s finding smart ways to cut costs for customers – making heat pumps, solar panels, and electric cars more accessible. Behind all this work is Plan Zero: the bold, science-backed sustainability strategy, which sets out how OVO will become a true net zero business by 2035.

This progress can only happen with a culture fit for the future. OVO’s multiple awards include the Best Place to Work for Women in The Sunday Times’ Best Places to Work 2023, which also saw the company coming in the Top 10 for Very Big Organisation.

OVO also won Company of the Decade at the BusinessGreen Leaders’ Awards 2020.