The Poverty Premium: A consumer perspective

Online webinar hosted by ESAN on Microsoft Teams on Monday, 22 February 2021

The meeting was chaired by Dr Elizabeth Blakelock, ESAN Trustee. The speaker was Carl Packman, Fair by Design’s Head of Corporate Engagement. 

The focus of the discussion was a report from the Personal Finance Research Centre,  looking at recent changes in relation to the poverty premium (the extra costs of being on a low income)  to understand how the costs and types of poverty premium have changed in the last few years. The report contains insight into how low income households experience these extra costs and explores what is needed to help them access goods and services at lower prices. The research was commissioned by Fair By Design and Turn2Us.

Carl introduced his presentation outlining Fair by Design’s poverty premium work, the background to the research report;  the methodological approach and how this differed to the previous research undertaken in 2016. The poverty premium figure of £478 was based on a survey sample derived from Turn2Us data and survey of their clients.  

Carl highlighted the market changes between 2016 and 2019 that had impacted materially on the poverty premium, such as regulatory interventions from Ofgem on pricing and capping. Price caps applied to some high cost credit products had led to some fall in price but others had increased. 

Fair by Design (FBD) will use the research evidence to focus and direct their efforts, with some markets needing more urgent attention.  The findings also have policy implications, for example, the need to revisit the FCA general insurance market study which excluded from scope those who did not have insurance.   FBD and National Energy Action (NEA) would like the Warm Home Discount Scheme (WHDS) to be extended and applied automatically.  A BEIS consultation was expected in March/April.  FBD hoped that the no interest loans scheme (NILS) for white goods/affordable credit,  announced by the government in 2018, would be piloted soon.  

Innovation and vulnerable consumers

Facilitated conversation hosted by Dr Elizabeth Blakelock, ESAN Trustee on Monday 15 March 2021 on MS Teams.

The aim of these discussions is to meet each other and share our ideas.  Members want to find ways across the essential services sectors for overcoming the barriers faced when trying to innovate to ensure inclusion is at the heart of the information they rely upon; and to identify ways to incorporate best practice.

Exercise 1

Each participant was asked to introduce themselves with an example of bridging the gap between innovation and vulnerable consumers that they have encountered and like.  These included:

• Ofgem’s work on vulnerability where team members had joined researchers to hear directly from vulnerable consumers about their experiences.
• An example of a well known financial services institution which had changed the terms of provision of service to meet vulnerable consumers circumstances. 
• A group of services providers and mobile phone handset manufacturers in the US who had teamed up to offer cheap data packages for those in financially vulnerable circumstances.
• Work on interim contracts undertaken as part of the Fair by Design work and the importance of building in lived experience.
• The innovation link team which provided fast, frank, feedback to proposals submitted to the energy innovation sandbox 
• In the water sector, United Utilities role in a town action plan, working with the council going from door to door to sign people up to the priority services register.

Exercise 2

Participants were asked to undertake a big picture exercise. 

• ESAN members had suggested creating a one stop shop for ideas.
• 50 per cent of the ideas coming to innovation sandbox would be consumer focused.
• Develop a gap identifier tool eg a database of vulnerability.
• An awards scheme/competition for the most innovative idea for responding to vulnerable consumers needs.
• One place to sign up for vulnerable consumers to sign up for all the support they need.
• One place to declare for individuals to declare vulnerabilities.
• Research communities eg the Money and Mental Health Institute to act as a conduit if you have a product you want to test

Exercise 3

Participants were asked to describe a micro idea to move towards the ideas suggested.

• Set a benchmark eg 50 % of sandbox ideas to benefit vulnerable consumers 
• Tracking how many ideas come through?  Innovative ideas help consumers across the board – so thinking of the how.
• Should there be a clear quota or target set?
• Expand categories of eligibility for a Priority Services Register.
• Proof of engagement with consumer groups or reps – (would need to test this was happening in practice)

Exercise 4

Participants were asked for their ideas for innovation?

• Identifying gaps in databases and using these as a source of insight.
• A shared understanding of the type of characteristics that represent vulnerability eg focus on health conditions.
• Is there is a gap in the market where it is feasible to provide services for vulnerable consumers.
• Engage those in vulnerable circumstances to determine what is needed and how delivered.
• Take a collaborative working approach.
• Identify the uses by multiple stakeholders so they have to speak to different processes.
• Where are the gaps? Go and ask what people would like that they can’t get

Exercise 5

• Participants were asked: What should be the next idea for innovators?Compile a list of organisations who might front an award eg Utility Week, BEIS, Sustainability First.
• Take a Which? style approach so vulnerable consumers know where to turn to.
• Ask Martin Lewis to highlight.
• Try to raise profile of innovative solutions for vulnerable consumers
• Profile and trust to make it land 

Exercise 6

Participants were asked: What is your ‘tell us once’ idea?

• Please retweet my report. 
• Check legal constraints on doing it.
• Legal constraints aren’t the barrier – it’s the will.
• Keep the conversation going.
• Use recognised training materials eg Money Advice Trust 
• Digital projects – ask vulnerable consumers to make videos etc about what they want?

Summing up, Dr Blakelock thanked everyone for their participation and  encouraged them to share any further thoughts once they have reflected on the meeting notes, including on best ways to share our ideas.

People living in water poverty and fuel poverty

ESAN-NEA webinar Monday 17 May 2021

Jess Cook, Project Development Manager, National Energy Action (NEA) gave an overview of the NEA work programme working towards the eradication of water poverty. The presentation highlighted the links between fuel poverty and water poverty, the need for consistent measurement, the support that can be offered to customers in water poverty, the consequences of inaction for water poor households, and the role of water efficiency in the affordability journey.

The discussion that followed considered whether examples of of best practice from water that other sectors could learn from and the range of support available. The definition of fuel poverty works on a reasonable cost basis for that housing type, not actual energy costs, which makes it difficult to compare with water. The key is to unlock data and make support appropriate to need. Work around the Digital Economy Act, the Priority Services Register and other initiatives can be used as proxies and help to identify those users who need assistance around managing.

Participants also shared examples of directing consumers to advice services. The Citizens Advice service and other local community organisations play an important role and, in some instances, are able to passport consumers onto financial support schemes; and ensure that companies have partnerships with National Debtline  and StepChange Debt Charity among others.

Innovation and vulnerable consumers

Monday 14 June 2021

Dr Elizabeth Blakelock welcomed participants to the second of the series of ESAN facilitated conversations that explore how we can ensure innovation has vulnerable consumers at its heart.  Following introductions, participants were asked to share a recent discovery/Interesting fact about vulnerability. These included:

• The FCA Financial Lives Survey revealed over 50 per cent of respondents reported being in vulnerable circumstances.
• Regulators through networks and forums, are starting to talk a lot more about the importance of linking the Diversity and Inclusion (D&I) work with the wider vulnerability work.
• Few references to vulnerability in scoping of price control documents.
• Development of a code of practice for protection of vulnerable consumers’ data.
• The safeguarding tariffs for energy consumers are not the cheapest rate.
• Ofgem survey reported 1 in 4 people said they would get electric vehicle and 1 in 7 would adopt a low carbon technology.
• Research funded by Motability investigates the needs and experiences of disabled motorist using plug-in electric vehicles.
• Analysis of BEIS methodology on the Low Income Low Energy Efficiency (LILEE) definition of fuel poverty  found there had been less improvement in eradicating fuel poverty since 2013.
• Automatic tariff switching (or options for either opt in auto switching or opt out auto switching) are a positive step in terms of potentially helping to automatically reduce bills for older people.
• On disclosure of dementia and bill capping, only 1 in 20 knew about what is available and there were issues around whether people felt comfortable declaring their dementia.
• A new report from the Just Energy Project on ADR and vulnerable consumers across Europe found that many were still struggling to identify an ADR scheme and there was also a lack of oversight of how systems work.
• Ofcom’s qualitative research on vulnerable customers’ experiences and what happens when they reach out to providers and found lots of different experiences.
• 1 in 2 people’s vulnerability had been exacerbated by COVID and the real impact will only be apparent in a couple of years’ time.
• Work on the impact of Covid on jobs and finances found that while scale needed to manage the issues, face to face interaction is really important

Participants were then asked to name a favourite way where they have seen consumers in vulnerable circumstances “mainstreamed” in processes within a firm and/or an example of something they wished they had known previously when developing policy/design for vulnerable consumers.

• Ideally the stated aim should be to have panels with lived experience interacting with designers of innovation, albeit this is difficult to achieve during lockdown. A vulnerability champion on company Boards is also useful, especially during lockdown.
• The performance scorecards exercise had demonstrated that the Priority Services Register (PSR) is really exciting despite its challenges. Local water companies, including SE Water now advertise PSR on local radio as part of their efforts to publicise the schemes.
• Sustainability First’s Inspire programme included interviews for energy customers in vulnerable circumstances.
• The dial has shifted a bit with the increasing power of the ‘purple pound’ but there are still too many companies that do not do inclusive design.
• Companies are now more willing to take on Power of Attorney customers with granted permission which makes it easier to help and relieves stress. GDPR need not be a barrier.
• The wish that energy companies advertise more widely that best deals are not only available online.
• Label websites in a design way that suits everyone, while tackling other vulnerabilities.
• Digital exclusion and vulnerable elderly is an issue where lots of smaller providers only have an online presence.
• Dementia and how this taps into behavioural change interacts with the digital divide. It is hard to understand that you need to be on the look out for new deals all the time. Digital transformation is increasing the digital divide.
• Water companies are making good use of the ‘make every contact count’ initiative and use the information to have the conversation and flag up support and help people understand if they qualify.
• The delivery of social media apps and the use of closed captions has really improved, which shows how inclusive design can benefit all.
• Opt in and opt out automatic tariff shifting is a positive way to reduce fuel bills, particularly for those older people paying a loyalty premium to their existing provider.
• In the energy sector companies are required to ensure that all services are accessible/meet their needs under the Standards of Conduct and requirement to treat customers fairly (which Ofgem interprets as meeting their needs). Failure to do so is a breach of the regulation.

Social tariffs and vulnerable consumers

Facilitated Conversation,  Monday 26 July 2021, led by Carl Packman, Fair by Design

Carl thanked ESAN for organising the event. As part of his work on the poverty premium, he wanted to explore all options including the potential for social tariffs in energy.  It seems a good idea universally to look at incomes as a prompt for support through price protections. Does this approach transfer across different sectors? Consumer organisations are not in one mind on this.  Some feel that social tariffs have been tried before for energy and were not to everyone’s liking, with a somewhat tarnished image. If the problems could be ironed out, could social tariffs have a positive impact?   What were the pros and the cons?

To begin the discussion Carl gave a short presentation on the poverty premium. If eliminated it could help reduce low income households exposure by around £490 on average, with a range of £780 – £1000 over and above what is a ‘normal’ payment for essential services. Energy services are the biggest share of exposure, with an average of £250 poverty premium, with the most expensive method, prepayment meters,  and not being on the best tariff the key causes. The digitally excluded tend to be on the lowest incomes.  Those on standard tariffs are the most likely to be on more expensive tariffs.

FBD had worked with National Energy Action (NEA) on their successful campaign to keep the Warm Homes Discount (WHD). Initially it had been retained for another year (2021-22) without changes. The latest consultation from BEIS proposes maintaining the WHD until 2026 with opportunities to change the way it is distributed. 

Some of the issues to be addressed with WHD include:

• Smallest suppliers are not obliged to offer WHD so a customer may switch for a better priced deal then find they cannot get WHD.
• It is a poorly advertised scheme with many of those eligible not having heard of it.
• If you apply for the WHD and your supplier’s allocation for your supplier has been used, you are not able to access.
• Government has not made the most of data-sharing powers to help low income working households benefit without needing to apply to their supplier each year.

Participants were asked to consider the following:

• Is the WHD good enough as a price protection mechanism or if not do we need social tariffs? 
• What will the energy price cap look like in the future and what protection will it provide?
• How should we protect specific consumers given that the cap is there to protect everyone? 
• What if the cap level is higher than many can afford?
• What can we learn from the water affordability review? Are social tariffs gaining traction?
• What can we learn from other markets?

In the water sector the scene for social tariffs was set in 2012, enabled by the Flood and Water Management Act, but there were no specific commitments from water providers.  The aim is to build up the numbers as outlined in the latest Price Review,  since then all providers have made commitments on social tariffs, with some working with the DWP on exchanging data to proactively identify people. The Consumer Council for Water affordability report suggests that a common UK social tariff for 2024-27 will be set in relation to a percentage of household income.  

The main challenge for water companies is how to fund the schemes as the majority rely on a cross  subsidy from other customers. Thus as numbers grow this could have a negative impact on wider affordability. Some providers commit money from shareholders but there is no central pot.  Whilst there is some consistency in applying the tariffs, there is generally a variety of criteria used.

There are issues around focusing on price protection. For example in the case of WHD this is used as a proxy for low income, but around 30% of pensioners don’t take up pensioner credit. The new proposals for WHD are welcomed but ideally it could be combined with price protection. Industry initiatives are also useful but not universal so there is a need to fill the gaps.  That said, universal benefits/schemes also face opposition in that they also go to those who do not need them. Do price protections need less consumer buy-in…?

It would help to get data matching right so that schemes are not reliant upon suppliers and consumers. This is one of the issues addressed by the WHD consultation. Whilst there was agreement to some extent, the sweep up methods proposed rely on people applying the WHD. This can be an issue where the criteria includes low energy efficiency as it can be a struggle to prove the EPC rating of property.

There are still many pitfalls of using data, for example to calculate the appropriate minimum spend.  This can be almost impossible to calculate given all the changing circumstances of many on fluctuating income. So a universal scheme can be good, albeit it has its limitations. 

The social tariff may be successfully linked with the Priority Service Register and the efforts made to identify consumers who should be on this. When companies have these conversations, do they go deeper to explore their needs and possible options e.g. to promote discounts? The CCW review proposes more linkage through for example having a flag on affordability and then ensuring at individual level that PSR is raised in conversation.

Need is definitely a big issue, especially in energy. How do prices rise and the funding mechanism fits in? It is unpalatable politically to put up bills but energy efficiency is key as there is much poor quality housing. Perhaps there could be a different funding scheme for energy, for example on the e.g. owner of the housing stock.

WHD doesn’t seem to tick enough boxes for what a social tariff can do. It only addresses winter heating bills and the age related health risks, but doesn’t factor in what households actually need. It is not a  silver bullet. age related health risks of poorly heated homes. making sure advice and interventions are better joined up

How should such a tariff be funded? It is currently assumed that it will be a cross subsidy but maybe could be partly government funded?

WHD data matching could be assessed through social security data but it will still miss out on many groups.

Companies in charge of the design of water schemes are doing outreach work and there is a much  clearer focus in water. This approach would be needed for a social tariff for energy. 

What are the risks and opportunities around the automatic opt in to switching and WHD as proposed in the consultation?  If costs are lower and the consumer is automatically switched but then cannot access the WHD schemes this would be a problem. An impact assessment needs to be built into the design as there are bound to be unintended consequences if we forget other aspects of costs and cost savings.  For example, some consumers may have a discount through a social tariff for water but if they do not pay anything anyway this does not help them, although this depends on how high the discount is in percentage terms.  A more holistic means of support is needed.  

These are a knotty set of issues. It could be useful to look at experiences and approach elsewhere in Europe, albeit the markets are less commercial.

Digital Exclusion Webinar, led by Arun Rao, Citizens Advice

Monday 27 September, 2021

Arun currently leads on the Retail Energy Policy team’s vulnerability work stream, which this year included a research project looking into the experiences of digitally excluded consumers in the energy market and how this impacts on the future of the retail energy market. 

The slide presentation summarised the research findings to date, which were still at an early stage and the recommendations have not yet been finalised.  

It is important that the benefits of digitalisation are felt by all. There are key issues in the market that need to be addressed. Digital solutions that are becoming even more commonplace, a trend accelerated by the pandemic, can nevertheless be a barrier.  

The research looked at consumers from a range of ages, locations, and backgrounds and may have been impacted differently by the changes. This also included a small group of vulnerable consumers. For example the questions asked included the impact on those with long term health conditions. 

The research into the range of digital exclusion found that in general those with lower digital skills tended to be older/retired, employed in manual occupations, although not exclusively.  Those with good digital skills were younger on average but there was still a wide range. 

Digitally excluded consumers complain about information overload and start to filter out digital-focused messages. The research looked at the relationship between vulnerable consumers with long term health conditions, and difficulties experienced in the navigation of websites and 121 content.

Cost and Vfm are important for the digitally disenfranchised and affordability of the internet is also an issue.

Companies tend to see customer engagement as a background service.  In turn, it is quite common for customers to take the view that if there is no problem with the supplier then why change?  Those with low digital skills also tended to filter out messages eg around smart meters and would only interact if there was a major change eg on supply or price.

Those consumers who are more digitally literate felt they had more options to resolve their issues online. The digital skills deficit leads to problems around navigation and automated systems for example where English is the second language. Email users still experience problems resolving issues, having to work through numerous responses, which they found quite annoying.

 On switching, this was generally at low levels. Consumers were passive or trusted their current supplier. They found it a hassle to switch, based sometimes on experience and/or  with prices going up they felt that switching may not be worth it.

That said, a major change in cost was still the main reason to switch, especially for those on low incomes. However a minority of vulnerable consumers felt that the price paid was better than the hassle of switching.

For those who did not engage digitally to switch, they found that calling up suppliers to find out about deals was a lot of effort. Those with some digital skills found price comparison websites quite difficult to use. 

Looking to the future, if some consumers were able to compare deals digitally and have access to cheaper deals, that was seen as unfair.  Having more online only deals was seen as daunting and many consumers felt they would need to rely on others (friends/family) to manage. Some respondents said they would adapt and pick up skills if there was no choice,  but were very passive about how they would go about it. The overall preference was for offline services to remain, although some saw cost saving as an incentive to digitally up skill.

In general there was low awareness of the increasing prevalence of online only service because the respondents were already low users of digital services.

A potential timeline for the future market demonstrated how some consumers could become more excluded as more suppliers rely on web chat and online support etc. They may have to pay even more, e.g. for a phone line.

Arun shared some examples of how Citizens Advices engage. They have a process to ensure they can reach all users and so they can build rapport with advisers. Given that the average reading age in the UK is around 9 years old, it is essential to be sure text is written in simple language and fonts are clear etc.

In relation to early stage outcomes, there are a number of ways that online access could be assisted. For example there are examples where important information is hidden.  Also to ensure that all communications channels are presented clearly.