3. Money off energy bills

3.1 Evidence from other poverty policy areas

As touched upon in the introduction, within the context of housing, the introduction of Universal Credit moved to a model where housing costs are paid directly to the benefit recipient. In Scotland, a recipient can request to have the housing element of UC paid directly to their landlord after the first payment is made – this is referred to as “Scottish choices”. The 2021 evaluation of Scottish choices found that, as of August 2020, 195,540 households had taken up one or more of the Scottish choices, representing 38 per cent of the eligible population[16]. A desire to reduce stress by ensuring that rent was always paid was a key driver for taking up the Direct Payments to Landlord Scottish choice. The evaluation found that people on Universal Credit described a range of positive impacts from having their rent paid direct to their landlord, including: simplifying their money management; ensuring their rent was paid; and reducing their worries about their housing and money. The impact of direct payments in reducing worry was particularly evident among those claimants who had previous negative experiences of housing insecurity, and among those with health issues that meant they were more susceptible to serious negative impacts from stress. Direct payments were viewed as a means of removing the risk of arrears, eviction and homelessness particularly – though not exclusively – by those with experience of these issues^[17].

3.2 Evidence from Panel’s call for evidence

3.2.1 Advantages of money off energy bills

Respondents to the call for evidence gave the following as the advantages of money off energy bills:

More effectively tackles fuel poverty by guaranteeing that funds are used for energy costs.
Provides protection against the risks of self-rationing or disconnection.
Reduces stress and decision-making/administration burden for households. In their response, Citizens Advice Scotland (CAS) highlighted that people accessing support from local Citizens Advice Bureaux (CABs) are often managing a limited budget with multiple financial pressures, this makes managing bills overwhelming, taking up significant amounts of time and effort.
CAS also emphasised that living with energy debt can result in real psychological harm as a result of debt collection action by energy suppliers and self-rationing of energy usage. A reduction applied to energy costs could help prevent people from going through what can be a harrowing experience.
Can help manage cumulative debt when applied carefully.
When linked to energy efficiency measures or tariff support, can deliver sustained reductions in bills and improved household resilience.

Energy Action Scotland felt that public funds designed to support households with energy costs or energy debt must be used in ways that maximise their impact on reducing fuel poverty. Where support is explicitly linked to energy use, it should be delivered in a form that directly reduces bills or is clearly attributable to that purpose. This ensures that the assistance provided reaches those who need it most and contributes meaningfully to the fuel poverty calculation. They did, however, note that eliminating fuel poverty requires a person-centred approach that recognises the different circumstances people face. They recognised that not all social security payments serve an energy related function, and it is important that these payments continue to be treated as income in the fuel poverty calculation.

Energy UK also have a preference for providing a reduction on what is spent on energy. This is because they see targeted bill reductions as the most effective and reliable tool to directly reduce the potential of harmful underconsumption.

Fuel Bank Foundation highlighted the fact that when people are in acute financial crisis there will be many competing priorities for every penny, including creditors. Therefore, they argue that if the policy intent is to reduce what people pay for energy, it is more effective to reduce the bill than to give them money which may be spent on other things. Members of the Poverty and Inequality Commission’s Experts by Experience Panel strongly favoured direct reductions to energy bills, highlighting the sense of security and reduced stress this provides. The Panel members also believe that fuel poverty support should differ from other forms of fuel poverty support, prioritising direct reductions in energy bills to ensure heating needs are met. However, it should be noted that other people with lived experience may take a different view. For example, the Commission’s previous Experts by Experience Panel included individuals reliant on off-grid fuel, who found the Warm Home Discount of little use.

In their response, Changeworks argued that reducing energy costs would provide more warmth and comfort in the short term than increasing household income. They pointed to a rising block or social tariff as examples of how this could be done. They did note, however, that in the long-term, fabric improvements for households will be most effective in tackling fuel poverty. This will be discussed in more detail in part 4 of this report.

3.2.2 Disadvantages of money off energy bills

Respondents to the call for evidence gave the following disadvantages of a reduction in what is spent on energy via money off energy bills:

Limits flexibility for households to address other urgent needs, such as food or other bills.
There is a risk that payments may be absorbed by existing debt rather than current consumption.
May not be suitable for households that use off-grid fuel.
On its own, does not address the wider instability many households face.
Is a transactional/one-off intervention rather than ongoing support. Without ongoing support, households frequently disengage – missing supplier appointments, abandoning repayment plants, or avoiding contact altogether due to fear, low trust or past negative experiences.

Currently, energy bill discounts are administered through energy companies. IPPR Scotland argue that this adds a layer of bureaucracy and information sharing – something which could be removed if support was administered directly through Social Security Scotland. Furthermore, they pointed out that funding energy bill discounts through energy bills means the savings given to recipient households are paid for by households who do not receive support, including low income households. IPPR Scotland argue that income tax is a far more robust way of ensuring that the costs of support are distributed progressively. The possible disadvantage (or political consideration) of this approach would be that funding through public finances makes the cost of support more visible, and either puts pressure on other public services or triggers tax rises.

In their response Citizens Advice Scotland highlighted that, currently, the majority of people in Scotland eligible for the Warm Home Discount (WHD) have to apply to receive it[18], so the advantages (convenience, easier for budget management) of having financial support applied as a direct reduction to energy bills is undermined by the precarious nature of the WHD application process. Evidence from the Citizens Advice network demonstrates that people often experience difficulties with short and poorly advertised application windows and problems engaging with their energy suppliers to access the support. As such, CAS argue that fuel poverty support applied as a direct reduction in energy costs needs to be delivered seamlessly, otherwise the benefits are negated.

In addition, CAS argue that the ways through which fuel poverty support is provided need to be flexible to people’s circumstances. For example, for people with traditional prepayment meters support applied as a direct reduction to bills, such as the WHD, is received in the form of a barcode or voucher that is delivered through the post and redeemed at a PayZone or PayPoint. For people moving home, or leaving temporary accommodation, they’re at risk of missing out on this support in the home move process. There are also instances where the voucher or barcode is lost in the post, meaning people must go through the often-onerous process of chasing it up with their supplier, or miss out on the support altogether. The requirement to travel to a PayZone or PayPoint also presents barriers for those living in rural communities, with scarce provision of public transport and for people with disabilities, where accessible transport options may be limited.

Similarly, CAS highlighted that for people living in park homes, who do not have a direct relationship with their energy supplier, they are unable to receive the support as others do and must apply to a specific scheme run by Charis to access it. In these situations, they argue, it may be preferable for financial support to be delivered as a seasonal uplift to social security payments. For people with a credit meter, having support applied directly to their balance could be preferred as an option that is less of an administrative burden.

3.2.3 Approach to fuel poverty support in relation to other poverty support

The majority of respondents to this question (of which there were eight) recognised the need for a distinct approach to fuel poverty. The reasons given for this primarily related to the existence of fuel poverty’s distinct drivers and the fact that they cannot be addressed through income measures alone. Several respondents pointed out that a household with an above average or ‘good’ income can still experience fuel poverty if their home is thermally inefficient or if their energy usage is greater due to their personal circumstances. Furthermore, Energy Saving Trust pointed out that since there are four drivers of fuel poverty there are levers available in fuel poverty policy that are not available for other forms of poverty.

EAS highlighted that while fuel poverty needs a distinct approach, interventions that combine income support with action on energy costs and housing costs, ultimately complement, rather than conflict with, wider anti-poverty strategies.

Changeworks highlighted that supporting those in fuel poverty is time intensive and complex. Approaches to fuel poverty need to include support that is appropriately funded, including training for advisors for more complex cases. This message is echoed by Citizens Advice Scotland, who argue that people’s experiences of poverty cannot be neatly siloed into issue-specific categories, with people facing multiple interconnected issues that require joined up policy solutions to address. This includes providing access to free, impartial and confidential advice to ensure incomes can be maximised and rights realised.

Similarly, the Wise Group emphasised the importance of fuel poverty policy prioritising the reduction of energy costs alongside investment in the support infrastructure that enables households to benefit from that support in practice. For the Wise Group, this infrastructure is prevention rather than crisis-focussed, and is a model that links energy rebates to monitoring, debt support and home improvement in order to deliver better outcomes and reduce pressure on public services over time. They acknowledge that this preventative approach can appear more expensive than traditional advice or crisis response models. However, they posit that the outcomes achieved – sustained bill reduction, reduced debt, improved wellbeing and lower demand on public services – deliver greater long-term value and social return than reactive interventions.

PIC Commissioners generally favoured a consistent, cash-first approach to poverty support, but they acknowledged that the seasonal urgency and technical definition of fuel poverty may justify tailored interventions. Experts by Experience Panel members, however, believed that fuel poverty support should differ from other forms of poverty assistance, prioritising direct reductions in energy bills to ensure heating needs are met, although Panel members have broadly supported a cash-first approach addressing poverty overall. Fuel Bank Foundation also advocated for a distinct approach to fuel poverty, emphasising the far-ranging long and short-term implications of not having adequate funds to pay for energy, including the risk of self-rationing, energy debt, and impacts on health and wellbeing.